THE CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in SINOPEC Engineering (Group) Co., Ltd. , you should at once hand this circular, together with the accompanying form of proxy, to the purchaser or to the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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**中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]**

(a joint stock limited liability company incorporated in the People’s Republic of China)

(Stock Code: 2386)

MAJOR TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS UNDER FINANCIAL SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

CONTINUING CONNECTED TRANSACTIONS UNDER ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

PROPOSED APPOINTMENTS OF DIRECTORS OF THE SECOND SESSION OF THE BOARD

PROPOSED APPOINTMENTS OF SUPERVISORS OF THE SECOND SESSION OF THE SUPERVISORY COMMITTEE

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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A letter from the Board is set out on pages 5 to 30 of this circular. A letter from the Independent Board Committee is set out on pages 31 to 32 of this circular. A letter from ABCI is set out on pages 33 to 58 of this circular.

An extract of the notice convening the third extraordinary general meeting for the year 2015 (“ EGM ”) to be held at the V-Continent Beijing Parkview Wuzhou Hotel, 8 Beisihuan Zhong Lu, Chaoyang District, Beijing, the PRC at 9 a.m. on Friday, 30 October 2015 is set out on pages 59 to 62 of this circular.

If you intend to attend the EGM, please complete and return the enclosed reply slip in accordance with the instructions printed thereon as soon as possible and in any event by Saturday, 10 October 2015.

Whether or not you are able to attend the EGM, please complete and return the enclosed proxy form in accordance with the instructions printed thereon as soon as possible and in any event not less than 24 hours before the time scheduled for holding the EGM (or any adjourned meeting thereof). Completion and delivery of the proxy form shall not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

For identification purposes only

14 September 2015

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
Notice of the Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	59
Appendix I — Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	63
Appendix II — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	64
Appendix III — Biographical Details of the Proposed Directors and Supervisors . . . .	70

— i —

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings.

“Articles” the articles of association of the Company, as amended, supplemented or otherwise modified from time to time
“associate(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules
“Board” the board of directors of the Company “CBRC” China Banking Regulatory Commission (中國銀行業監督管理委員會)
“Company” SINOPEC Engineering (Group) Co., Ltd., a joint stock limited liability company incorporated under the laws of the PRC on 28 August 2012, which is listed on the Hong Kong Stock Exchange (Stock Code: 2386)
“Company Law” the Company Law of the People’s Republic of China (中華人民共和國公司法), as amended and adopted by the Standing Committee of the Twelfth National People’s Congress on 28 December 2013 and effective on March 1, 2014 (as amended, supplemented or otherwise modified from time to time)
“connected person(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules
“connected transaction(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules
“controlling shareholder(s)” has the meaning ascribed thereto under the Hong Kong Listing Rules
“Director(s)” the director(s) of the Company
“Domestic Share(s)” ordinary share(s) of the share capital of the Company, with a nominal value of RMB1.00 each, which are subscribed for and paid up in RMB and are unlisted Shares which are currently not listed or traded on any stock exchange

“EGM”

the third extraordinary general meeting of the Company for the year 2015 to be convened and held on 30 October 2015

“EGM Notice” the notice for convening the EGM set out on pages 59 to 62 of this circular

— 1 —

DEFINITIONS

“Engineering and Construction Services Framework Agreement”
“Financial Services Framework Agreement”
“Framework Agreements”
“Group”
“H Share(s)”
“HK$”
“Hong Kong”
“Hong Kong Listing Rules”
“Hong Kong Stock Exchange”
“Independent Board Committee”
“Independent Financial Adviser” or “ABCI”
“Independent Shareholders”

an engineering and construction services framework agreement entered into between the Company and Sinopec Group on December 2012 and as amended by a supplemental agreement dated 28 August 2015

a financial services framework agreement entered into between the Company and Sinopec Group on December 2012, as amended by a supplemental agreement dated 22 April 2013 and a second supplemental agreement dated 28 August 2015

the Financial Services Framework Agreement and the Engineering and Construction Services Agreement

the Company and its subsidiaries
overseas listed foreign invested ordinary share(s) in the ordinary share capital of the Company, with a nominal value of RMB1.00 each, listed on the Main Board of the Hong Kong Stock Exchange

the lawful currency of Hong Kong

the Hong Kong Special Administrative Region of the PRC

the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time

The Stock Exchange of Hong Kong Limited

a committee comprising the independent non-executive Directors, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng, under the Board which is set up for the purpose of advising the Independent Shareholders on the terms of each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps

ABCI Capital Limited, a corporation licensed to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities as defined under the Securities and Futures Ordinance and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps

Shareholders other than Sinopec Group and its associates

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DEFINITIONS

“Independent Third Party(ies)”

party(ies) not connected with any of the Directors, the Supervisors, the chief executive or the substantial shareholders of the Company or any of its subsidiaries or their respective associates

“Latest Practicable Date”
8 September 2015, being the latest practicable date before the printing of this circular for ascertaining certain information
“Listing Date”
23 May 2013, on which the H Shares are listed and from which dealings therein are permitted to take place on the Hong Kong Stock Exchange
“PBOC”

People’s Bank of China (中國人民銀行)

“PRC” or “People’s Republic of China”
the People’s Republic of China which, for the purpose of this circular, excludes Hong Kong, Macau Special Administration Region of the PRC and Taiwan
“Proposed Annual Caps”

the proposed annual caps in respect of each of the Framework Agreements for each of the years ending 31 December 2016, 2017 and 2018, respectively

“Prospectus” the prospectus of the Company dated 10 May 2013
“R&D” research and development
“RMB” the lawful currency of the PRC
“SAMC”
Sinopec Assets Management Co., Ltd. (中國石化集團資產經營管理有限公司), a company incorporated in the PRC with limited liability and a wholly-owned subsidiary of Sinopec Group
“Securities and Futures the Securities and Futures Ordinance (Chapter 571 of the laws Ordinance” of Hong Kong), as amended, supplemented or otherwise modified from time to time
“Share(s)” share(s) in the share capital of the Company, with a nominal value of RMB1.00 each
“Shareholder(s)” holder(s) of the Shares

“Sinopec Century Bright” Sinopec Century Bright Capital Investment Limited (中國石化盛駿國際投資有限公司), a limited liability company incorporated in Hong Kong on 29 November 1994 and a connected person of the Company, with 100% of its equity interest being held by Sinopec Group

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DEFINITIONS

“Sinopec Corp.” China Petroleum & Chemical Corporation (中國石油化工股份有限公司), a joint stock limited liability company incorporated under the laws of the PRC, which is listed on the Hong Kong Stock Exchange (Stock Code: 0386), Shanghai Stock Exchange (Stock Code: 600028), the London Stock Exchange (Stock Code: SNP) and the New York Stock Exchange (Stock Code: SNP) and is a subsidiary of Sinopec Group

“Sinopec Finance” Sinopec Finance Co., Ltd. (中國石化財務有限責任公司), a limited liability company incorporated in the PRC in 1998 and a connected person of the Company, with 49% of its equity interest being held by Sinopec Corp. and 51% of its equity interest being held by Sinopec Group
“Sinopec Finance Companies” Sinopec Century Bright and Sinopec Finance
“Sinopec Group” China Petrochemical Corporation (中國石油化工集團公司), a state-owned enterprise incorporated under the laws of the PRC and established in July 1998 upon reorganisation of the former China Petrochemical Corporation (中國石油化工總公司), and the Company’s controlling shareholder
“subsidiary” or “subsidiaries” has the meaning ascribed thereto in section 15 of the Companies Ordinance (Chapter 622 of the laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“substantial shareholder(s)” has the meaning ascribed thereto in the Hong Kong Listing Rules
“Supervisor(s)” the members of the Supervisory Committee
“Supervisory Committee” the Company’s supervisory committee established pursuant to the Company Law
“US$” the lawful currency of the United States of America
“%” percentage ratio

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LETTER FROM THE BOARD

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**中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]**

(a joint stock limited liability company incorporated in the People’s Republic of China)

(Stock Code: 2386)

Non-executive Directors: ZHANG Jianhua (章建華) (Chairman) LI Guoqing (李國清)

Executive Directors: LU Dong (陸東) (Vice Chairman) YAN Shaochun (閆少春) SUN Lili (孫麗麗) (Employee Representative Director) WU Derong (吳德榮) (Employee Representative Director)

Independent non-executive Directors: HUI Chiu Chung, Stephen (許照中) JIN Yong (金涌) YE Zheng (葉政)

14 September 2015

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS UNDER FINANCIAL SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

CONTINUING CONNECTED TRANSACTIONS UNDER ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

PROPOSED APPOINTMENTS OF DIRECTORS OF THE SECOND SESSION OF THE BOARD

PROPOSED APPOINTMENTS OF SUPERVISORS OF THE SECOND SESSION OF THE SUPERVISORY COMMITTEE

* For identification purposes only

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LETTER FROM THE BOARD

I. INTRODUCTION

The purpose of this circular is to provide you with, among other things, further information in relation to the following resolutions to be proposed at the EGM:

to consider and approve the terms under the Financial Services Framework Agreement, the continuing connected transactions thereunder and the proposed annual caps in respect thereof for each of the years ending 31 December 2016, 2017 and 2018, respectively. The services of deposits and entrustment loans under the Financial Services Framework Agreement will constitute a major transaction of the Company;
to consider and approve the terms under the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the proposed annual caps in respect thereof for each of the years ending 31 December 2016, 2017 and 2018, respectively; and
to consider and approve the proposed appointments of Directors of the Second Session of the Board and Supervisors of the Second Session of the Supervisory Committee.
II. TRANSACTIONS UNDER THE FRAMEWORK AGREEMENTS AND THE PROPOSED ANNUAL CAPS
Background Information

As disclosed in the Prospectus, the continuing connected transactions under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

During the Company’s listing application process, an interim waiver in respect of the Financial Services Framework Agreement from compliance with the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules granted by the Hong Kong Stock Exchange expired on 31 December 2013. At the second extraordinary general meeting of the Company for the year 2013, the Independent Shareholders approved, among other things, the terms under the Financial Services Framework Agreement, the continuing connected transactions thereunder and the annual caps in respect thereof for the year ended 31 December 2014 and the year ending 31 December 2015, details of which are described in the Company’s circular to Shareholders dated 10 September 2013. During the Company’s listing application process, a waiver in respect of the continuing connected transactions under the Engineering and Construction Services Framework Agreement from compliance with the announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules expiring on 31 December 2015 has been granted by the Hong Kong Stock Exchange, details of which are described in the Prospectus. The original term of each of the Framework Agreements is three years commencing on the Listing Date. The term of each of the Framework Agreements has been extended for another three years from 1 January 2016 to 31 December 2018, subject to the Independent Shareholders’ approval.

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LETTER FROM THE BOARD

On 28 August 2015, the Board reviewed and approved, among other things, the proposals on the terms of each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps and to convene the EGM for the Independent Shareholders to consider and, if thought fit, approve, among other things, the terms of each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps. The services of deposits and entrustment loans under the Financial Services Framework Agreement will constitute a major transaction of the Company. Sinopec Group and its associates will abstain from voting at the EGM in respect of the ordinary resolutions to approve the above matters.

The Independent Board Committee has been established to advise the Independent Shareholders as to the terms of each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps.

2. Financial Services Framework Agreement

(a) Signing Date and Term

The Company entered into a financial services framework agreement with Sinopec Group on 19 December 2012, as amended by a supplemental agreement dated 22 April 2013 and a second supplemental agreement dated 28 August 2015 (collectively, the “ Financial Services Framework Agreement ”). Pursuant to the second supplemental agreement, the term of the Financial Services Framework Agreement has been extended by both parties after arm’s length negotiations for another three years from 1 January 2016 to 31 December 2018, subject to Independent Shareholders’ approval at the EGM.

(b) Scope of Services

Pursuant to the Financial Services Framework Agreement, Sinopec Finance and Sinopec Century Bright will provide financial services to the Group, such financial services primarily include deposits, loans, entrustment loans, settlement services, entrustment investments, financial and financing consulting, credit certification, insurance agency, exchange settlement, bond underwriting, foreign exchange business, and related consultancy and agency financial services. The Group enters into separate contracts with Sinopec Finance and Sinopec Century Bright, which set out the specific terms and conditions according to the principles provided in the Financial Services Framework Agreement.

(c) Pricing Policy

The pricing of the services provided under the Financial Services Framework Agreement shall be determined in accordance with the following principles in ascending order:

(1) government-prescribed price and government-guided price: if at any time, the government-prescribed price is applicable to any particular financial service, such service shall be supplied at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;

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LETTER FROM THE BOARD

(2) market price: the price of the same or similar services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and
(3) agreed price: to be determined by adding a reasonable profit over a reasonable cost.

The pricing of the services provided under the Financial Services Framework Agreement are mainly determined by reference to (1) the government-prescribed price and government-guided price; and (2) the market price. In the event that the agreed price has to be used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after taking into account the prevailing market and business conditions.

In addition to the above, the Financial Services Framework Agreement provides that the services shall be provided in accordance with the following pricing principles:

(i) Deposits services: the interest rate applicable to the Group’s deposits with the Sinopec Finance Companies will not be lower than: (x) the minimum interest rate published by the PBOC for deposits of a similar type for the same period (applicable to deposits with Sinopec Finance only); (y) the interest rate for deposits of a similar type for the same period placed by other members of Sinopec Group; and (z) the interest rate for deposits of a similar type for the same period offered by independent commercial banks to the Group;
(ii) Entrustment loan services: the interest rates applicable to the Group’s entrustment loans to Sinopec Group through Sinopec Finance shall be (x) on normal commercial terms; (y) no less favourable than interest rates or comparable entrustment loans provided by other members of Sinopec Group to Sinopec Group through Sinopec Finance; and (z) generally not lower than the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp.; and
(iii) Settlement and other financial services: the service fees for settlement, entrustment loans and other financial services charged by Sinopec Finance shall not be higher than (x) fees charged by independent commercial banks or financial institutions; and (y) fees charged to other members of Sinopec Group for similar services.

(d) Termination

Before the termination of the Financial Services Framework Agreement, the parties may, according to the Hong Kong Listing Rules, negotiate and sign a new framework agreement or extend or renew the Financial Services Framework Agreement to ensure the normal running of the production operations of the relevant parties after expiration of the term of the Financial Services Framework Agreement.

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LETTER FROM THE BOARD

(e) Commercial Rationale and Benefits of the Deposits and Entrustment Loans

Deposits

(i) Centralised cash management. It is the Group’s policy to centralise its cash management function. As the terms offered by the Sinopec Finance Companies are no less favourable than the deposit interest rates published by the PBOC or independent commercial banks in Hong Kong for deposits of a similar type for the same period, the terms of placing deposits with the Sinopec Finance Companies are no less favourable to the Group than placing deposits with independent commercial banks. In addition, the centralised deposit of funds with the Sinopec Finance Companies will enable the Group to use the Sinopec Finance Companies as a primary clearing and settlement platform, provide the Group with access to a centralised cash pool (both onshore and offshore), giving the Group the flexibility to make timely withdrawals from time to time to meet its funding needs and reduce the need for the Group to obtain third party financing, which will in turn help it achieve a lower cost of funding and maximise cost and operational efficiencies.
(ii) Clearing and settlement platform. In the Group’s ordinary course of business, as Sinopec Group is the Group’s single largest client, the Group transacts with numerous subsidiaries/affiliated companies of Sinopec Group. In line with Sinopec Group’s internal group policy, such subsidiaries/affiliated companies generally maintain settlement accounts with the Sinopec Finance Companies. The centralised maintenance of deposits by the Group with the Sinopec Finance Companies will facilitate clearing with other members of the Sinopec Group (some of whom are the Group’s clients), reduce the time required for transit and turnaround of funds and is generally more administratively efficient than settlement through independent banks. It would not be efficient for Sinopec Group (and its affiliates) and the Group to separately maintain bank accounts with independent banks for clearing and settlement.
(iii) Familiarity with the Group’s business. As the Sinopec Finance Companies only provide financial services to Sinopec Group and its members, they have over the years acquired extensive knowledge of the Group’s industry. In the context of the Group, the Sinopec Finance Companies are familiar with the Group’s capital structure, business operations, funding needs and cash flow pattern, which enables them to better anticipate the Group’s business needs. As a result, the Sinopec Finance Companies are well-positioned to provide the Group with bespoke and cost efficient services which would not be easy for independent commercial banks to replicate.
(iv) Flexibility to the Group. The Group has the sole discretion to deposit and withdraw its deposits with the Sinopec Finance Companies from time to time. There is no restriction on the Group’s ability to deposit its cash with independent commercial banks in or outside the PRC now or in the future should the Group so wishes. Currently, the Group maintains deposits with independent commercial banks in and outside the PRC and expects to continue to do so depending on the Group’s contractual and other requirements. The Group chooses to deposit its cash with the Sinopec Finance Companies as this helps the Group centralise the treasury management function.

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LETTER FROM THE BOARD

Entrustment loans

(i) Favourable short term fund investment options. Due to the nature of the Group’s business, the Group receives significant amounts of prepayments from clients from time to time, which may not be immediately required for its operational needs. Such prepayments are in effect advance payments from the Group’s clients, which the Group will apply towards performance of the underlying contracts as appropriate (such as purchase of raw materials and equipment, and payment of the Group’s sub-contractors) and are only temporarily idle. Therefore, the Group needs to invest such surplus cash conservatively as it is an advance/deposit from the Group’s clients. Given the Group’s need to match funds within a relatively short period of time whilst maintaining flexibility to pay the Group’s trade payables from time to time, there is a lack of comparable alternative fund investment options. From the Group’s perspective, the provision of entrustment loans to Sinopec Group is a safe, cost efficient and flexible option for investing such cash surplus, which may not otherwise be available in the open market.
(ii) Credit rating of Sinopec Group. Sinopec Group is the borrower of the entrustment loans. Pursuant to the terms of the entrustment loans, Sinopec Group has the sole obligation to repay principal and interest (and any late payment interest). In 2015, Sinopec Group obtained an AA- long term corporate credit rating from Standard & Poor with a stable outlook and an Aa3 credit rating from Moody’s. As at the Latest Practicable Date, Sinopec Group had a registered capital of RMB274.867 billion. Sinopec Group ranked second in 2015 in Fortune Global 500. The Group therefore considers that lending to Sinopec Group is a low risk fund investment option. During the two years ended 31 December 2013 and 2014 and the six months ended 30 June 2015, Sinopec Group has not defaulted under any of the entrustment loans provided by the Group. Taking into account the creditworthiness of Sinopec Group and clean repayment history, the entrustment loans provided by the Group are generally unsecured. The Group considers that providing entrustment loans to Sinopec Group is a comprehensive, low risk fund investment option due to the top-tier credit rating of Sinopec Group and clean repayment history, generating a higher return for the Group than deposits which would have been the only other fund investment option for the Group given the investment policy with respect to such funds.
(iii) Efficient and flexible cash management. Provision of entrustment loans to Sinopec Group will allow the Group to allocate its surplus cash efficiently within a relatively short timeframe. The Group’s entrustment loans to Sinopec Group generally do not exceed one year (the majority are for a period of one year or six months), enabling the Group to deploy its financial resources efficiently and flexibly. Upon the expiry of the entrustment loans, the Group will receive the principal amount and the interest payment in relation to such entrustment loans from Sinopec Finance. Any new loans to Sinopec Group will be subject to normal approval procedures in the usual way. Furthermore, whilst the Group has historically provided entrustment loans to Sinopec Group and expects to continue to do so in the future, the Group is not under any legal or other obligation to provide entrustment loans to Sinopec Group. Pursuant to the entrustment loan agreements, the Group is entitled to early terminate the loans (without penalty) at its option in which case current deposit interest rate will apply.

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LETTER FROM THE BOARD

(iv) Normal commercial terms. The Group understands that there is no market standard rate for entrustment loans as the interest rate is determined through arm’s length negotiations between the parties based on, among other things, relative bargaining power, risk profile and security value. The Group generally uses the prevailing base deposit rate published by the PBOC as a reference point with an upward adjustment taking into account the amount and term of the loan. In addition, the Group will refer to the list of interest rates which specifies the range of interest rates for different entrustment loan amounts and terms. Such list has been agreed by Sinopec Group and the Board after arm’s length negotiations and will be reviewed and re-negotiated by the parties periodically. Based on such list, the Company’s Chief Financial Officer and finance department will decide the interest rates of the entrustment loan agreements to be entered into between Sinopec Group and the Group. The Group will also make reference to other comparable rates, such as the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp., obtained through various channels such as banks and the relevant issuers (if any) for the purpose of ensuring that the interest rates for the entrustment loans are in the interests of the Company and the Shareholders as a whole. The interest rates on entrustment loans are generally not lower than the interest rates on bonds of similar terms issued by Sinopec Group and Sinopec Corp. The interest rates on entrustment loans provided by the Group to Sinopec Group are generally higher than the yield on principal-guaranteed wealth management products available in the PRC market.

The Board has considered the risks, which mainly include (i) the risks commonly faced by the banking industry, and (ii) the possible material adverse change in the financial conditions of Sinopec Finance and Sinopec Century Bright, in association with the use of the services provided by Sinopec Finance and Sinopec Century Bright under the Financial Services Framework Agreement instead of the same services provided by independent commercial banks. However, after taking into account (i) that the interest rates on the Group’s entrustment loans are generally higher than yield on principal-guaranteed investment products available in the open market; (ii) Sinopec Group’s strong credit rating and clean repayment history; (iii) the potential significant drain on the Group’s time and resources to seek alternative borrowers and a lack of comparable alternative fund investment options compatible with the Group’s needs; and (iv) that the Group can early terminate its entrustment loans at its option (in which case the current deposit interest rate will apply), the Company and the Directors consider that the continuing connected transactions contemplated under the Financial Services Framework Agreement are in the interests of the Company and the Shareholders as a whole.

(f) Internal control and corporate governance measures

Although there is no limit on the percentage of the Group’s total liquid and/or surplus funds to be deposited with the Sinopec Finance Companies or loaned to Sinopec Group, the Company considers that for the reasons explained above, such policy is in the interests of the Company and the Shareholders as a whole. The Group has further adopted (i) an independent financial system; (ii) risk management measures; (iii) internal control measures; and (iv) corporate governance measures with

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LETTER FROM THE BOARD

respect to the transactions (including the pricing mechanism) under the Financial Services Framework Agreement in order to further safeguard the interests of the Independent Shareholders. The relevant measures include, but not limited to, the following:

The Sinopec Finance Companies and Sinopec Group will provide sufficient information including various financial indicators (as well as annual and interim financial statements) at the end of every quarter to enable the Group to monitor and review the financial condition of the Sinopec Finance Companies and Sinopec Group.
The Group will, from time to time at its sole discretion, request for the deposits with the Sinopec Finance Companies and the entrustment loans through Sinopec Finance to Sinopec Group to be withdrawn or early terminated (either in full or in part) to assess and ensure the liquidity and safety of its deposits and entrustment loans.
Sinopec Group has undertaken, unconditionally and irrevocably, that it shall provide capital injection to Sinopec Finance in case of any payment difficulties arising from its operations. Such undertaking provides indemnification for the Group’s deposits with Sinopec Finance under the Financial Services Framework Agreement.
The Group has adopted a Cash Management Policy (資金管理辦法) and an Internal Bank Management Policy (內部銀行管理辦法). Such policies provide that the Group’s cash should be centrally managed in order to maximise the benefits of a cash pool. The Company’s finance department is responsible for administering the Cash Management Policy. When providing entrustment loans to connected persons (whether through Sinopec Finance or otherwise), the Group will consider the interest rate, service fees, term and use of loan and creditworthiness of the ultimate borrower based on principles of maximum return, cost control and risk control. The entrustment loan agreements (setting out interest rate, service fees, term and use of loan) are first approved by the Company’s finance department, then the Company’s Chief Financial Officer and ultimately by the Chairman of the Board.
The Company’s management will prepare risk assessment reports of the funds deposited with the Sinopec Finance Companies and entrustment loans to Sinopec Group every quarter which will be submitted to the Board for consideration.
The independent non-executive Directors will independently scrutinise the implementation and enforcement of the transactions (including the pricing mechanism) under the Financial Services Framework Agreement. Only independent non-executive Directors may vote in respect of matters under the Financial Services Framework Agreement.

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LETTER FROM THE BOARD

Before entering into any transactions under the Financial Services Framework Agreement with the Sinopec Finance Companies, the Company will obtain at least three quotes from independent financial institutions for similar services of the same term. The Company will compare such quotes with those offered by the Sinopec Finance Companies, and decide whether to accept the quotes offered by the Sinopec Finance Companies.
In the event that there is any change in the fees or interest rates for the services provided by the Sinopec Finance Companies to the Group under the Financial Services Framework Agreement, the Sinopec Finance Companies are required to notify the Company of (i) such change in the fees or interest rates; and (ii) the pricing information for the similar services provided by the Sinopec Finance Companies to other members of Sinopec Group. The relevant internal audit personnel of the Company will then check the aforementioned information to ensure that such revised fees or interests rates are not less favourable than the fees or interests rates offered by the Sinopec Finance Companies to the other members of Sinopec Group for similar services.

For further details of the Group’s internal control and corporate governance measures, please refer to the section headed “Connected Transactions” in the Prospectus.

(g) Historical Amounts

Set out below (i) the fees in relation to settlement and other financial services paid to the Sinopec Finance Companies; (ii) the maximum daily balance of deposits and interest income arising from such deposits with the Sinopec Finance Companies; and (iii) the maximum daily balance of entrustment loans arranged through Sinopec Finance for each of the years ended 31 December 2013 and 2014 and the six months ended 30 June 2015:

			For the six
	For the year ended		months ended
	31 December		30 June
	2013	2014	2015
		(RMB’000)
Service fees in relation to settlement and other
financial services	3,038	2,208	2,280
Maximum daily balance of deposits and
interest income	3,990,435	5,509,595	5,835,577
Maximum daily balance of entrustment loans	9,500,000	11,600,000	10,600,000

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LETTER FROM THE BOARD

(h) Existing and Proposed Annual Caps

Existing Annual Caps

As disclosed in the Prospectus and the circular to Shareholders dated 10 September 2013, the existing annual caps for each of the years ended 31 December 2013 and 2014 and the year ending 31 December 2015 are set out below:

			For the
	For the year ended		year ending
	31 December		31 December
	2013	2014	2015
		(RMB’000)
Service fees in relation to settlement,
entrustment loans and other financial
services	25,600	31,850	37,900
Maximum daily balance of deposits and
interest income	5,500,000	6,500,000	7,500,000
Maximum daily balance of entrustment
loans	11,000,000	14,000,000	17,000,000

Proposed Annual Caps

The proposed annual caps for each of the years ending 31 December 2016, 2017 and 2018 are set out below:

	For the	year ending 31	December
	2016	2017	2018
		(RMB’000)
Service fees in relation to settlement and
other financial services	4,620	5,080	5,580
Maximum daily balance of deposits and
interest income	8,000,000	8,500,000	9,000,000
Maximum daily balance of entrustment
loans	16,600,000	19,400,000	22,500,000

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LETTER FROM THE BOARD

Basis of the Proposed Annual Caps

In determining the above annual caps for each of the years ending 31 December 2016, 2017 and 2018, respectively, the Company has mainly considered:

(1) During the Company’s listing application process, the Company’s balance of demand deposits and deposit interest at Sinopec Finance and Sinopec Century Bright, as well as the interest income arising from the entrustment loans were taken into account when determining the annual caps for the connected transactions under the Financial Services Framework Agreement; while the service fees payable by the Company in relation to the entrustment loans shall be listed under the item “service fees in relation to settlement, entrustment loans and other financial services”. However, when calculating and paying the Company’s income arising from the entrustment loans, Sinopec Finance directly deducts the relevant service fees from such income, resulting in that the service fees payable by the Company in relation to the entrustment loans cannot be separately reflected in the financial statement. Therefore, the Company’s auditors did not include the service fees in relation to the entrustment loans, but considered the amounts as included in “the maximum daily balance of deposits and interest income” category when they calculated and audited the actual amounts incurred of the “service fees in relation to settlement, entrustment loans and other financial services” in the Company’s historical financial statements. The Company believes that the auditors’ understanding and approach are correct based on the actual operations of Sinopec Finance. As such, with respect to the estimate of the connected transactions for the period from 2016 to 2018, “service fees in relation to settlement, entrustment loans and other financial services” category shall be revised as “service fees in relation to settlement and other financial services”, which means that the service fees in relation to the entrustment loans will no longer be estimated separately, but will be deemed as included in the “maximum daily balance of deposits and interest income” category;
(2) the utilisation rate of the above-mentioned annual caps for each of the years ended 31 December 2013 and 2014 and for the six months ended 30 June 2015;
(3) the interest rates and fee rates in connection with deposits, entrustment loans and other financial services;
(4) the expected increase in the Group’s business volume for the years 2016, 2017 and 2018; and
(5) the Group’s expected net cash flow generated by its operating activities during the years 2016, 2017 and 2018.

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LETTER FROM THE BOARD

When determining whether funds are placed as deposits with the Sinopec Finance Companies or loaned to Sinopec Group through the provision of entrustment loans, the Group will take into account the following factors based on principles of maximum return, cost control and risk control: (i) the funding plan which specifies the Group’s long term and short term funding needs, operational needs and capital expenditure requirements; (ii) the Group’s fund investment needs with reference to the interest rates offered for deposits and entrustment loans; (iii) the amount of cash inflow from business operations; and (iv) the service fees charged and terms of entrustment loan.

(i) Implications under the Hong Kong Listing Rules

The following diagram sets out the shareholding relationship among Sinopec Group, Sinopec Finance, Sinopec Century Bright and the Company as at the Latest Practicable Date.

==> picture [299 x 147] intentionally omitted <==

----- Start of picture text -----

Sinopec Group
70.80% 51% 67.01% [(1)] 100%
Sinopec Corp. the Company
49%
Sinopec
Sinopec Finance
Century Bright
----- End of picture text -----

Note:

(1) Sinopec Group directly and/or indirectly holds 2,967,200,000 Domestic Shares (including 59,344,000 Domestic Shares held by its wholly-owned subsidiary, SAMC), representing 67.01% of the issued total share capital of the Company.

As shown above, Sinopec Group holds more than 10% of the Company’s issued share capital and is therefore a substantial shareholder of the Company. Under Rules 14A.07(1) and 14A.07(4) of the Hong Kong Listing Rules, Sinopec Group and its associates (including Sinopec Century Bright and Sinopec Finance) are connected persons of the Company. Accordingly, the transactions under the Financial Services Framework Agreement between the Group and Sinopec Group and/or its associates constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

The transactions under the Financial Services Framework Agreement are entered into during the ordinary course of business on normal commercial terms where, as the Directors currently expect, each of the applicable “percentage ratios” (except for the profit ratio) calculated for the purpose of Chapter 14A of the Hong Kong Listing Rules will exceed 5% on an annual basis and the annual consideration will exceed HK$10,000,000. Under Rule 14A.76(2) of the Hong Kong Listing Rules, such transactions

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LETTER FROM THE BOARD

will constitute the Company’s non-exempt continuing connected transactions, and are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

In terms of the proposed maximum daily balance of deposits and interest income as well as the proposed maximum daily balance of entrustment loans for each of the years ended 31 December 2016, 2017 and 2018, one or more of the applicable “percentage ratios” calculated according to Rule 14.07 of the Hong Kong Listing Rules will exceed 25%. The services of deposits and entrustment loans under the Financial Services Framework Agreement will also constitute a major transaction of the Company, and are subject to the announcement, circular and Independent Shareholders’ approval requirements under Chapter 14 of the Hong Kong Listing Rules.

3. Engineering and Construction Services Framework Agreement

(a) Signing Date and Term

The Company entered into an engineering and construction services framework agreement with Sinopec Group on 19 December 2012, as amended by a supplemental agreement dated 28 August 2015 (collectively, the “ Engineering and Construction Services Framework Agreement ”). According to the supplemental agreement, the term of the Engineering and Construction Services Framework Agreement has been extended by both parties after arm’s length negotiations for another three years from 1 January 2016 to 31 December 2018, subject to Independent Shareholders’ approval at the EGM. Relevant subsidiaries or associated companies of both parties will enter into separate contracts which will set out the specific terms and conditions according to the principles provided in the Engineering and Construction Services Framework Agreement.

(b) Service Scope

(i) Provision of engineering and construction services by the Group to Sinopec Group: Pursuant to the Engineering and Construction Services Framework Agreement, the Group will provide the following engineering and construction services to the Sinopec Group and/or its associates: engineering consulting; project management; project supervision; contracting; engineering design; construction; testing and inspection and repair services; equipment manufacturing services; procurement services and equipment leasing; technology licensing, technology transfer and engineering technology services; labour supply service; and other engineering supporting services.
(ii) Provision of services by Sinopec Group to the Group: Pursuant to the Engineering and Construction Services Framework Agreement, Sinopec Group and/or its associates will provide the following services in respect of the Group’s engineering and construction services business: supply of equipment and materials; procurement services and equipment leasing; technology licensing, technology transfer and engineering technology services; labour supply service; other supporting services.

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LETTER FROM THE BOARD

(c) Pricing Policy

The pricing of the relevant products and services provided under the Engineering and Construction Services Framework Agreement shall be determined in accordance with the following principles in ascending order:

(i) government-prescribed price and government-guided price: if at any time, the government-prescribed price is applicable to any particular product or service, such product or service shall be supplied at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;
(ii) tender and bidding price: where tender and bidding process is necessary under applicable laws, regulations and rules, the price ultimately determined in accordance with the tender and bidding process;
(iii) market price: the price of the same or similar products, technology or services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and
(iv) agreed price: to be determined by adding a reasonable profit over a reasonable cost.

Historically, there was no government-prescribed price or government-guided fee standard which was applicable to the engineering and construction services provided by the Group to Sinopec Group and those provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement. If, during the term of the Engineering and Construction Services Framework Agreement, there is any mandatory government-prescribed price or government-guided fee standard specifically applicable to the engineering and construction services to be provided by the Group to Sinopec Group or the services to be provided by Sinopec Group to the Group, relevant parties to the agreement shall be obliged to use the applicable government-prescribed price or agree the price of such services within the range of the government-guided fee standard.

For the engineering and construction services provided by the Group to Sinopec Group, the pricing of which is determined mainly by reference to the tender and bidding price. The price and the tender and bidding process are conducted in accordance with the Bidding Law of the People’s Republic of China (《中華人民共和國招標投標法》). In term of market price, as the tender and bidding process is an open and transparent process based on market participation, the tender and bidding price under such process reflects the applicable price available in the open market. Hence, the tender and bidding price is the market price. The agreed price is only applied for services under certain circumstances (e.g. for services with unique technological advantages).

For the services provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement, the pricing of which is determined mainly by reference to the agreed price. Historically, such services were not typically subject to tender and bidding process due to the common type and nature of such services as well as the high frequency of the procurement of such services. The Company does not anticipate the type, the nature, and the frequency of the procurement

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LETTER FROM THE BOARD

of the services to be procured from Sinopec Group by the Group during the term of the Engineering and Construction Services Framework Agreement to significantly deviate from those of the services the Group currently procures from Sinopec Group. In the event that the services to be procured from Sinopec Group by the Group are mandatorily subject to tender and bidding process, the price and the process will be conducted in accordance with the Bidding Law of the People’s Republic of China. In addition, historically, the Group did not use the market price for the procurement of such services from Sinopec Group because the agreed price and terms have generally been more competitive than the available market price and terms from Independent Third Parties, which will further economise the procurement funds of the Group, increase the efficiency of the allocation of its procurement resources, as well as achieve economies of scale.

(d) Termination

Before the termination of the Engineering and Construction Services Framework Agreement, the parties may, according to the Hong Kong Listing Rules, negotiate and sign a new framework agreement or extend or renew such framework agreement to ensure the normal running of the production operations of the relevant parties after expiration of the term of the Engineering and Construction Services Framework Agreement.

(e) Commercial Rational and Benefits of the Engineering and Construction Services Framework Agreement

There are specific technology and quality standard requirements in the oil industry. With a leading position in the oil industry, Sinopec Group ranked second in 2015 in Fortune Global 500 and has a steadily growing capital expenditure plan. By relying on its scale and strength, Sinopec Group can provide the Company with stable supply of equipment/materials, procurement services and technical services and other supporting products and services. Pursuant to the relevant terms under the Engineering and Construction Services Framework Agreement, the Group is able to procure products and services from Sinopec Group at prices no higher than the prices offered by other independent suppliers.

Sinopec Group mainly adopts public tendering process for its engineering project. In consideration of the Group’s being a leading energy chemical engineering company in the PRC and the long-term relationship maintained with Sinopec Group, Sinopec Group is likely to increase its demand for the Group’s products and services for its future capital expenditure plan. (f) Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions under the Engineering and Construction Services Framework Agreement

The Company has internal control measures for regulating the entering into of the continuing connected transactions under the Engineering and Construction Services Framework Agreement (including the relevant pricing mechanism). Such measures include the following:

(i) The Company will supervise such continuing connected transactions in accordance with the procedures set forth in the Company’s internal control manual on continuing connected transactions (including the relevant pricing mechanism).

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LETTER FROM THE BOARD

(ii) For the engineering and construction services provided by the Group to Sinopec Group under circumstances where the agreed price is used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after making references to the gross profit margins of various business segments as disclosed in the Company’s annual report for the most recent financial year, and taking into account various factors, including the type of business, the complexity of the projects and the technologies involved, as well as the prevailing market and business conditions. As to the Group, such price is subject to the review and approval of the marketing department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the type of business, the complexity of the projects and the technologies involved, as well as the scope and the price of at least one relevant comparable service recently (generally in the past three months to around one year given that the agreed price is only applied for services under certain circumstances (e.g. for services with unique technological advantages)) provided by the Group to Independent Third Parties to ensure that the price of the engineering and construction services provided by the Group to Sinopec Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favourable to the Group than the terms available to Independent Third Parties.

For the services provided by Sinopec Group to the Group, relevant vendors will provide a cost list in respect of the relevant services provided by Sinopec Group to the Group, and the Group will then seek to obtain the prices of relevant comparable services provided by at least three (where applicable) independent vendors to determine the reasonable costs and profits for ascertaining the agreed price of the services provided by Sinopec Group to the Group through arm’s length negotiations between the relevant parties. As to the Group, such price is subject to the review and approval of the marketing department and the procurement department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department and the procurement department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department, the procurement department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the scope, the quality and the prices of relevant comparable services provided by independent vendors to ensure that the price of the services provided by Sinopec Group to the Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favourable to the Group than the terms available from Independent Third Parties.

(iii) The Risk Management Committee of the Company will conduct sampling inspections on the effectiveness of the abovementioned internal control measures at least twice a year, and will periodically review and examine the implementation of such continuing connected transactions.

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LETTER FROM THE BOARD

(iv) The Company’s external auditors will conduct an annual review on the pricing and the annual caps of such continuing connected transactions.
(v) The Company’s Audit Committee will review at least twice a year the analysis reports and the improvement measures prepared by the Company’s management based on the implementation of such continuing connected transactions by the Company and/or its relevant subsidiaries.
(vi) The independent non-executive Directors will conduct an annual review of the implementation and enforcement of such continuing connected transactions (including the relevant pricing mechanism).

By implementing the above measures, the Directors consider that the Company has established sufficient internal control measures to ensure that the continuing connected transactions under the Engineering and Construction Services Framework Agreement are fair and reasonable, on normal commercial terms or on terms no less favourable to the Company than the terms available to or from Independent Third Parties (as the case may be), and in the interests of the Company and the Shareholders as a whole.

(g) Historical Amounts

Set out below (i) the revenue generated from the provision of engineering and construction services by the Group to the Sinopec Group and/or its associates; and (ii) the expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group for each of the years ended 31 December 2013 and 2014 and the six months ended 30 June 2015.

			For the six
	For the year ended		months ended
	31 December		30 June
	2013	2014	2015
		(RMB’000)
Revenue generated from the provision of
engineering and construction services by the
Group to the Sinopec Group and/or its
associates	16,487,033	19,256,633	9,380,710
Expenditure incurred for the provision of
services by Sinopec Group and/or its
associates to the Group	1,024,863	1,089,543	652,718

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LETTER FROM THE BOARD

(h) Existing and Proposed Annual Caps

Existing Annual Caps

As disclosed in the Prospectus, the annual caps for each of the years ended 31 December 2013 and 2014 and the existing annual cap for the year ending 31 December 2015 are set out below:

			For the year	For the year
	For the year ended			ending
	31 December		31 December
	2013	2014		2015
		(RMB’000)
Revenue generated from the provision of
engineering and construction services
by the Group to the Sinopec Group
and/or its associates	21,000,000	24,000,000	27,600,000
Expenditure incurred for the provision of
services by Sinopec Group and/or its
associates to the Group	1,800,000	2,000,000		2,100,000

Proposed Annual Caps

The maximum aggregate annual amount of fees for each of the years ending 31 December 2016, 2017 and 2018 shall not exceed the caps set out below:

	For the	year ending 31	December
	2016	2017	2018
		(RMB’000)
Revenue generated from the provision of
engineering and construction services
by the Group to the Sinopec Group
and/or its associates	22,000,000	24,000,000	25,000,000
Expenditure incurred for the provision of
services by Sinopec Group and/or its
associates to the Group	2,200,000	2,300,000	2,400,000

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LETTER FROM THE BOARD

Basis of Caps

In determining the above annual caps for the Group’s provision of engineering and construction services to the Sinopec Group and/or its associates for each of the years ending 31 December 2016, 2017 and 2018, the Company has mainly considered the following:

(i) historical operating income generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates, as well as such operating income as a percentage of the Group’s total operating income for the corresponding year;
(ii) the total amount of backlog and new contracts value in connection with the provision of engineering and construction services by the Group to Sinopec Group, as well as such amounts as a percentage of the total amount of the Group’s backlog and new contracts value as at 30 June 2015;
(iii) the Group’s business development plan for 2016, 2017 and 2018, and the operating income in connection with the engineering and construction services provided by the Group to Sinopec Group as a percentage of the Group’s total operating income; and
(iv) Sinopec Group’s investment plan in relation to, among other things, oil refinery, petrochemical, new coal chemical, and natural gas during the period from 2016 to 2018.

In determining the above annual caps for the provision of services by Sinopec Group and/or its associates to the Group, the Company has mainly considered:

(i) historical expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group;
(ii) the expenditure incurred for the provision of services by Sinopec Group to the Group as a percentage of the revenue generated from the provision of engineering and construction services by the Group to Sinopec Group; and

(iii) the Group’s business development plan for the years 2016, 2017 and 2018.

(i) Implications under the Hong Kong Listing Rules

As shown in the diagram under “2. Financial Services Framework Agreement — (i) Implications under the Hong Kong Listing Rules” above, Sinopec Group holds more than 10% of the Company’s issued share capital and is therefore a substantial shareholder of the Company. Under Rules 14A.07(1) and 14A.07(4) of the Hong Kong Listing Rules, Sinopec Group and its associates are connected persons of the Company. Accordingly, the transactions under the Engineering and Construction Services Framework Agreement between the Group and Sinopec Group and/or its associates constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules.

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LETTER FROM THE BOARD

The transactions under the Engineering and Construction Services Framework Agreement are entered into during the ordinary course of business on normal commercial terms where, as the Directors currently expect, each of the applicable “percentage ratios” (except for the profit ratio) calculated for the purpose of Chapter 14A of the Hong Kong Listing Rules will exceed 5% on an annual basis and the annual consideration will exceed HK$10,000,000. Under Rule 14A.76(2) of the Hong Kong Listing Rules, such transactions will constitute the Company’s non-exempt continuing connected transactions, and are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules.

4. Approval by Directors and Independent Shareholders

On 28 August 2015, the Company held the sixteenth meeting of the First session of the Board. After discussion, all the non-connected Directors unanimously approved, among other things, the terms under each of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps. The services of deposits and entrustment loans under the Financial Services Framework Agreement will also constitute a major transaction of the Company. Since the relevant proposals are related to a connected transaction with the Company’s controlling shareholder and Mr. ZHANG Jianhua serves as a director in a connected company, Mr. ZHANG Jianhua abstained from voting on the aforementioned proposals at the relevant Board meeting. Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng, being the independent non-executive Directors, unanimously approved the relevant proposals. All non-connected Directors (including the independent non-executive Directors) considered that (i) each of the Framework Agreements and the continuing connected transactions thereunder are on normal commercial terms in the ordinary and usual course of the Group’s business, and (ii) the terms, the continuing connected transactions and the Proposed Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

ABCI Capital Limited has been appointed as the Independent Financial Advisor and will advise the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the terms under each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps and whether they are in the interests of the Company and the Shareholders as a whole. It will also advise the Independent Shareholders on how to vote and other relevant issues.

The Company will convene the EGM for the Independent Shareholders to consider and approve (if think fit), among other things, the terms under each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps. Sinopec Group and its associates will abstain from voting at the EGM in respect of the ordinary resolutions to approve the above matters.

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LETTER FROM THE BOARD

5. General Information

(a) The Company

The Company is an international engineering corporation, with the leading edge in the PRC. The Group provides engineering services for a broad range of industries including oil refining, petrochemicals, new coal chemicals, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation engineering, environmental protection and energy saving engineering with a complete service chain involving research, development and licensing, preliminary consultation, financial assistance, design, procurement, construction and pre-commissioning/start-up services. With its industry experience of more than 60 years and continual innovation in technical expertise, the Group has achieved great success in the design and construction of large-scale and complex oil refining, petrochemical and new coal chemical projects, and possesses strong competitiveness.

(b) Sinopec Group

Established in July 1998, Sinopec Group is a state-owned company and functions as a state-authorised investment organisation. Sinopec Group is the largest integrated oil and petrochemical enterprise in the PRC and is one of the largest integrated oil and petrochemical enterprises in the world. Sinopec Group principally engages in businesses including: (i) exploration, development, production and trading of oil and gas; (ii) oil processing and production, trading, transportation, distribution and marketing of oil products; (iii) production, distribution and trading of petrochemical and other chemical products; (iv) oil engineering; (v) utilities services and social services such as water and electricity; and (vi) international trading, R&D as well as manufacturing of chemical fiber, fertiliser and polyester related equipment.

(c) Sinopec Finance

Sinopec Finance is a non-banking financial institution incorporated in the PRC in 1988 and is subject to the Administrative Measures on Finance Companies within Group Enterprises 《企業集團( 財務公司管理辦法》) and other relevant regulations promulgated by the PBOC and CBRC. Sinopec Finance is 51% owned by Sinopec Group and 49% owned by Sinopec Corp. The establishment of such non-banking financial institutions is subject to approval by the CBRC and its operation is subject to the ongoing supervision of the CBRC. Non-banking financial institutions shall comply with applicable regulations relating to interests rates issued by the PBOC and CBRC.

In the PRC, finance companies within group enterprises are only permitted under applicable PRC laws and regulations to provide financial services to enterprises within the same parent group. Therefore, Sinopec Finance only provides financial services to members of the Sinopec Group, including the Group.

As a non-banking financial institution, Sinopec Finance is subject to various regulatory and capital adequacy requirements, including capital adequacy ratios, loan-to-deposit ratios, limit on interbank loans and deposit reserve thresholds. The CBRC issued a regulatory guideline《企業集團財務公司管理辦法》in July 2004 (and as amended in December 2006) (the “ CBRC Guideline ”) with respect to the establishment and ongoing regulation of such non-banking financial institutions. The

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LETTER FROM THE BOARD

CBRC Guideline provided, among other things, that “ when applying for establishment of a finance company, the board of directors of the parent company shall undertake in writing that, if, in an emergency, the finance company faces difficulties in meeting its payment obligations, the parent company will increase the capital of the finance company as required to solve such payment difficulties. Such undertaking shall be contained in the articles of association of the finance company. ” Sinopec Group provided such undertaking to the CBRC on 18 December 2004 (the “ Parent Undertaking ”). The Parent Undertaking provides that, pursuant to the CBRC Guideline, Sinopec Group undertakes that if, in an emergency, Sinopec Finance faces difficulties in meeting its payment obligations, it will increase the capital of Sinopec Finance as required to solve such payment difficulties.

As at 31 December 2014, Sinopec Finance had total assets of RMB123.990 billion, shareholders’ equity of RMB18.597 billion, registered capital of RMB10.0 billion and a capital adequacy ratio of 23.82%. Based on the unaudited accounts of Sinopec Finance, as at 30 June 2015, Sinopec Finance had total assets of RMB122.909 billion, shareholders’ equity of RMB20.236 billion, registered capital of RMB10.0 billion and a capital adequacy ratio of 29.57%.

As at the Latest Practicable Date, the business scope of Sinopec Finance as set out in its business license includes: (i) providing financial and financing consultancy, credit certification and related consultancy and agency services to members of the group; (ii) assisting members of the group in settlement; (iii) providing guarantees to members of the group; (iv) providing entrustment loan and entrusted investment services; (v) providing bill acceptance and discount services to members of the group; (vi) processing the settlement of internal transfers between accounts and providing solution plans for relevant settlement and clearing; (vii) taking deposits from members of the group; (viii) providing loan and finance leases to members of the group; (ix) conducting inter-borrowings among finance companies; (x) issuing corporate bonds of finance companies upon approval; (xi) underwriting the corporate bonds issued by members of the group; (xii) making equity investments in financial institutions; (xiii) making investments in negotiable securities; (xiv) providing consumer credits, buyers’ credits and finance lease services to products of members of the group; and (xv) approved insurance agency services.

(d) Sinopec Century Bright

Sinopec Century Bright is a company incorporated in Hong Kong with limited liability. It is licensed under the Money Lenders Ordinance (Chapter 163 of the Laws of Hong Kong). It is approved by the State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局) as an offshore settlement center for centralised cash management for members of the Sinopec Group in year 2007. As at 31 December 2014, Sinopec Century Bright had total assets of US$45.014 billion and net assets of US$2.325 billion. Based on the unaudited accounts of Sinopec Century Bright, as at 30 June 2015, Sinopec Century Bright had total assets of US$50.925 billion and net assets of US$2.421 billion. In addition, Sinopec Century Bright has obtained an A1 rating from Moody’s with a stable outlook and an A+ rating from Standard & Poor with a stable outlook as well.

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Sinopec Century Bright only provides financial services to members of the Sinopec Group (including the Group). Sinopec Century Bright is used as an interim/short term deposit platform by the Group particularly to settle trade payables and receivables in respect of overseas projects.

III. PROPOSED APPOINTMENTS OF DIRECTORS OF THE SECOND SESSION OF THE BOARD AND SUPERVISORS OF THE SECOND SESSION OF THE SUPERVISORY COMMITTEE

Proposed Appointments of Directors of the Second Session of the Board

On 28 August 2015, the Board considered and approved the proposed appointments of Mr. ZHANG Jianhua and Mr. LI Guoqing as non-executive Directors to serve the Second Session of the Board, the proposed appointments of Mr. LU Dong and Mr. YAN Shaochun as executive Directors to serve the Second Session of the Board, and the proposed appointments of Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng as independent non-executive Directors to serve the Second Session of the Board, for a term commencing from the date of appointment and ending on the commencement of the next session of the Board.

According to the Articles, the proposed appointment of a Director assumed by a non-employee representative is subject to Shareholders’ approval. The proposals of the appointments of Mr. ZHANG Jianhua, Mr. LI Guoqing, Mr. LU Dong, Mr. YAN Shaochun, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng will be put forward at the EGM for the Shareholders’ consideration and approval by way of ordinary resolutions.

The Company will enter into service contracts with each of Mr. ZHANG Jianhua, Mr. LI Guoqing, Mr. LU Dong, Mr. YAN Shaochun, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng upon their respective proposed appointments as a Director being approved at the EGM, for a term commencing from the date of appointment and ending on the commencement of the next session of the Board. It is expected that Mr. ZHANG Jianhua and Mr. LI Guoqing will not receive any remuneration for serving as the Directors. It is expected that Mr. LU Dong, Mr. YAN Shaochun, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng will receive remuneration for serving as the Directors, the details of which will be disclosed pursuant to the requirements under the Hong Kong Listing Rules upon their appointments as Directors being approved at the EGM.

Biographical details of each of Mr. ZHANG Jianhua, Mr. LI Guoqing, Mr. LU Dong, Mr. YAN Shaochun, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng are set out in the Appendix II to this circular.

As at the date of this circular, save as disclosed above, none of Mr. ZHANG Jianhua, Mr. LI Guoqing, Mr. LU Dong, Mr. YAN Shaochun, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng served as a director in other listed companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years and had any relationship with any Director, Supervisor, senior management member or substantial shareholder (as defined in the Hong Kong Listing Rules) of the Company.

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LETTER FROM THE BOARD

As at the date of this circular, none of Mr. ZHANG Jianhua, Mr. LI Guoqing, Mr. LU Dong, Mr. YAN Shaochun, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng had any interest in the Shares within the meaning of Part XV of the Securities and Futures Ordinance. None of Mr. ZHANG Jianhua, Mr. LI Guoqing, Mr. LU Dong, Mr. YAN Shaochun, Mr. HUI Chiu Chung, Stephen, Mr. JIN Yong and Mr. YE Zheng has ever been penalised by any securities regulatory authorities or any other relevant authorities.

Save as disclosed above, the Board is not aware of other matter in relation to the above-mentioned candidates being appointed as Directors that needs to be brought to the attention of the Shareholders, or other information to be disclosed pursuant to Rules 13.51(2)(h) to (v) of the Hong Kong Listing Rules.

Proposed Appointments of Supervisors of the Second Session of the Supervisory Committee

On 27 August 2015, the Supervisory Committee considered and approved the proposed appointments of Ms. DENG Qunwei, Mr. ZHOU Yingguan, Mr. WANG Guoliang and Mr. WANG Cunting as Supervisors to serve the Second Session of the Supervisory Committee, for a term commencing from the date of appointment and ending on expiry of the term of the next session of the Supervisory Committee.

According to the Articles, the proposed appointment of a Supervisor assumed by a non-employee representative is subject to approval by the Shareholders. The proposals of the appointments of Ms. DENG Qunwei, Mr. ZHOU Yingguan, Mr. WANG Guoliang and Mr. WANG Cunting will be put forward at the EGM for the Shareholders’ consideration and approval by way of ordinary resolutions.

The Company will enter into service contracts with each of Ms. DENG Qunwei, Mr. ZHOU Yingguan, Mr. WANG Guoliang and Mr. WANG Cunting upon their respective proposed appointments as a Supervisor being approved at the EGM, for a term commencing from the date of appointment and ending on the commencement of the next session of the Supervisory Committee. It is expected that Ms. DENG Qunwei, Mr. ZHOU Yingguan, Mr. WANG Guoliang and Mr. WANG Cunting will not receive any remuneration for serving as Supervisors.

Biographical details of each of Ms. DENG Qunwei, Mr. ZHOU Yingguan, Mr. WANG Guoliang and Mr. WANG Cunting are set out in the Appendix II to this circular.

As at the date of this circular, save as disclosed above, none of Ms. DENG Qunwei, Mr. ZHOU Yingguan, Mr. WANG Guoliang and Mr. WANG Cunting served as a director in other listed companies the securities of which are listed on any securities market in Hong Kong or overseas in the past three years and had any relationship with any Director, Supervisor, senior management member or substantial shareholder (as defined in the Hong Kong Listing Rules) of the Company.

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LETTER FROM THE BOARD

As at the date of this circular, none of Ms. DENG Qunwei, Mr. ZHOU Yingguan, Mr. WANG Guoliang and Mr. WANG Cunting had any interest in the Shares within the meaning of Part XV of the Securities and Futures Ordinance. None of Ms. DENG Qunwei, Mr. ZHOU Yingguan, Mr. WANG Guoliang and Mr. WANG Cunting has ever been penalised by any securities regulatory authorities or any other relevant authorities.

Save as disclosed above, the Board is not aware of other matters in relation to above-mentioned candidates being appointed as Supervisors that needs to be brought to the attention of the Shareholders, or other information to be disclosed pursuant to Rules 13.51(2)(h) to (v) of the Hong Kong Listing Rules.

IV. RECOMMENDATIONS

1. Transactions under Each of the Framework Agreements and the Proposed Annual Caps

The Directors (including all independent non-executive Directors) consider that (i) the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the continuing connected transactions thereunder are on normal commercial terms in the ordinary and usual course of business of the Company; and (ii) the terms, the continuing connected transactions thereunder and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Therefore, the Board recommends the Independent Shareholders to vote in favour of relevant ordinary resolutions to be proposed at the EGM. The services of deposits and entrustment loans under the Financial Services Framework Agreement will also constitute a major transaction of the Company. As mentioned above, ABCI was appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders.

Your attention is drawn to the letter from the Independent Board Committee and the letter from ABCI to the Independent Board Committee and the Independent Shareholders which are set out on pages 31 to 32 and pages 33 to 58 of this circular, respectively. The Independent Board Committee, having taken into consideration the advice of ABCI, considers that (i) the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the continuing connected transactions thereunder are on normal commercial terms in the ordinary and usual course of business of the Company; and (ii) the terms, the continuing connected transactions thereunder and the Proposed Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Therefore, the Independent Board Committee recommends the Independent Shareholders to vote in favour of relevant ordinary resolutions to be proposed at the EGM.

2. Appointments of Directors of the Second Session of the Board and Supervisors of the Second Session of the Supervisory Committee

The Directors (including all independent non-executive Directors) consider that the resolutions in relation to the above proposed appointments of Directors of the Second Session of the Board and Supervisors of the Second Session of the Supervisory Committee are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM as set out in the EGM Notice.

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LETTER FROM THE BOARD

V. ADDITIONAL INFORMATION

Your attention is drawn to the financial information of the Group and the general information set out in Appendix I and Appendix II to this circular, respectively.

By order of the Board SINOPEC ENGINEERING (GROUP) CO., LTD. SANG Jinghua

Vice President and Secretary to the Board

Beijing, the PRC

14 September 2015

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [43 x 44] intentionally omitted <==

**中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]**

(a joint stock limited liability company incorporated in the People’s Republic of China)

(Stock Code: 2386)

14 September 2015

To the Independent Shareholders

Dear Sir or Madam,

THE FINANCIAL SERVICES FRAMEWORK AGREEMENT AND THE ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT, THE CONTINUING CONNECTED TRANSACTIONS THEREUNDER AND THE ANNUAL CAPS FOR THE YEARS 2016 TO 2018

We refer to the circular of the Company dated 14 September 2015 (the “ Circular ”) despatched to the Shareholders of which this letter forms part. Unless the context requires otherwise, terms and expressions in this letter shall have the same meanings as those defined in the Circular.

We have been appointed to advise the Independent Shareholders on whether the terms under each of the Financial Services Framework Agreement and the Engineering and Construction Services Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. ABCI has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to the terms under each of the Financial Services Framework Agreement and the Engineering and Construction Services Agreement, the continuing connected transactions thereunder and the Proposed Annual Caps.

We wish to draw your attention to the letter from the Board as set out on pages 5 to 30 of the Circular and the letter from the Independent Financial Adviser as set out on pages 33 to 58 of the Circular.

Having considered the advice given by the Independent Financial Adviser, we are of the opinion that (i) each of the Financial Services Framework Agreement and the Engineering and Construction Services Agreement and the continuing connected transactions thereunder are on normal commercial

* For identification purposes only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

terms in the ordinary and usual course of business of the Company; and (ii) the terms, the continuing connected transactions thereunder and the Proposed Annual Caps are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM.

Yours faithfully,

For and on behalf of the Independent Board Committee HUI Chiu Chung, Stephen JIN Yong YE Zheng Independent Non-Executive Directors

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice dated 14 September 2015 from ABCI prepared for the purposed of inclusion in this circular, setting out its advice to the Independent Board Committee and the Independent Shareholder in respect of the terms under the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement and the Proposed Annual Cap.

==> picture [124 x 31] intentionally omitted <==

14 September 2015

To the Independent Board Committee and the Independent Shareholders of SINOPEC Engineering (Group) Co., Ltd.

Dear Sirs,

MAJOR TRANSACTIONS AND

CONTINUING CONNECTED TRANSACTIONS UNDER FINANCIAL SERVICES FRAMEWORK AGREEMENT AND

ENGINEERING AND CONSTURCTION SERVICES FRAMEWORK AGREEMENT

INTRODUCTION

We refer to our engagement as the Independent Financial Adviser to advise the Independent Board Committee and Independent Shareholders in respect of the following, details of which are set out in the Letter from the Board contained in the circular of the Company dated 14 September 2015 (the “Circular”) of which this letter forms part. Unless the context requires otherwise, capitalized terms used in this letter shall have the same meanings as those defined in the Circular.

a) Sinopec Finance and Sinopec Century Bright being subsidiaries of Sinopec Group to provide financial services to the Company contemplated under the Financial Services Framework Agreement (“ Financial Services Continuing Connected Transactions ”) as of 31 December 2016, 2017 and 2018 as well as the proposed annual caps for each of the three years ending 31 December 2018 (“ Proposed Financial Services Annual Caps ”) thereof;
b) As of 31 December 2016, 2017 and 2018, the engineering and construction services transactions between the Company and Sinopec Group contemplated under the Engineering and Construction Services Framework Agreement (“ Engineering and Construction Services Continuing Connected Transactions ”) as well as the proposed annual caps for each of the three years ending 31 December 2018 (“ Proposed Engineering and Construction Services Annual Caps ”) thereof;

“Financial Services Continuing Connected Transactions” and “Engineering and Construction Services Continuing Connected Transactions” are collectively known as “ Continuing Connected Transactions ”.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 28 August 2015, the Board reviewed and approved the proposal on the terms of each of the Framework Agreements, the continuing connected transactions thereunder and the Proposed Annual Caps. As of the Latest Practicable Date, the Company is held both directly and indirectly as to approximately 67.01% of the issued share capital by Sinopec Group, which is the controlling shareholder of the Company. According to Rule 14A.07 of the Hong Kong Listing Rules, Sinopec Group is a connected person of the Company; Sinopec Finance and Sinopec Century Bright are subsidiaries of Sinopec Group. Accordingly, the transactions contemplated under the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement constitute continuing connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules. As the applicable percentage ratios in respect of the Continuing Connected Transactions exceed 5%, the Continuing Connected Transactions are subject to reporting, announcement and Independent Shareholders’ approval requirements of the Hong Kong Listing Rules. Sinopec Group and its associates will abstain from voting at the EGM on the resolutions approving the Continuing Connected Transactions and the Proposed Annual Caps.

The Independent Board Committee has been established to advise the Independent Shareholders as to the terms of the Financial Services Framework Agreement and the Engineering and Construction Framework Agreement as well as the Proposed Annual Caps thereunder. We, ABCI Capital Limited (“ABCI” or “we”), have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether (i) the Continuing Connected Transactions are entered into on normal commercial terms or terms no less favorable to the Company than those with Independent Third Parties, in the ordinary and usual course of business, and the terms of such agreements are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole; and (ii) the Proposed Annual Caps are reasonably determined, fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

We are independent from the Company and Sinopec Group, and have sufficient expertise and resources to give opinion on the Continuing Connected Transactions. ABCI was engaged as independent financial adviser of the Company regarding proposed provision of counter guarantee to Sinopec Group, details of which can be found in the circular of the Company dated 23 January 2015; ABCI was also engaged as independent financial advisor in consideration of continuing connected transactions under a Financial Services Agreement of the Company, details of which can be found in the circular of the Company dated 10 September 2013. ABCI was engaged as independent financial adviser of Sinopec Corp. and its subsidiaries in connection with major continuing connected transactions under the Mutual Supply Agreement as well as the non-major continuing connected transactions with duration longer than three years, details of which can be found in the circular of Sinopec Corp. dated 7 September 2015; ABCI was engaged by Sinopec Corp. as independent financial advisor on the connected transactions under two assets acquisition agreements, details of which can be found in the announcement of Sinopec Corp. dated 30 October 2014. According to the announcements of Sinopec Corp. dated 14 September 2014 and 6 March 2015, Sinopec Marketing Co. Limited (“ Sinopec Marketing ”), a subsidiary of Sinopec Corp., entered into a capital injection agreement with 25 domestic and foreign investors, pursuant to which the investors subscribed for 29.58% shareholding interest in Sinopec Marketing for an aggregate amount of approximately RMB 105 billion (including U.S. dollar equivalent amount). ABCI Group invested RMB 200 million through a fund established by HuaXia SSF1 Investor Limited (“ HuaXia ”). HuaXia subscribed approximately

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.170% of the total issued share capital of Sinopec Marketing at a consideration of RMB 7.75 billion. As such, ABCI Group indirectly holds approximately 0.056% of the total issued share capital of Sinopec Marketing. We have assessed that the above relationships would not affect our independence.

BASIS OF OUR OPINION

In formulating our advice and recommendations, we have relied on the accuracy of the information and facts supplied, and the opinions expressed by the Company, its Directors and its management to us. We have assumed that all statements of belief and intention made by the Directors and the management of the Company were made after due enquiry. We have also assumed that all information, representations and opinion made were true, accurate and complete at the time they were made and continued to be true at the date of the Circular and will remain so up to the date of the EGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, by its Directors and by its management, and we have been advised by the Directors and the management of the Company that no material facts have been omitted from the information provided.

We consider that we have reviewed sufficient information to reach an informed view, to justify our reliance on the accuracy of the information provided to us by the Company, its Directors and its management and to provide a reasonable basis for our recommendation. We have not, however, conducted in-depth investigation into the business affairs, financial position or future prospects of the Group and Sinopec Group, nor carried out independent verification of the information supplied, representations made or opinions expressed by the Company, its Directors and its management. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. We have no obligation to update, revise or reaffirm this opinion to take into account subsequent developments (including any material change in market and economic conditions) after the date that this opinion is delivered to the Independent Board Committee and the Independent Shareholders.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendations regarding the Continuing Connected Transactions and the Proposed Annual Caps, we have considered the principal factors and reasons set out below. In reaching our conclusion, we have considered the results of the analysis in light of each other and ultimately reached our opinion based on the results of all analysis taken as a whole.

Background of the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement
1.1 Background of the Continuing Connected Transactions

The Company had signed a number of framework agreements with Sinopec Group before its listing in Hong Kong Stock Exchange, amongst which the Financial Services Framework Agreements

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

and Engineering and Construction Services Framework Agreement signed with Sinopec Group on 19 December 2012 (including the Supplementary Agreement on Financial Services Framework Agreement signed with Sinopec Group on 22 April 2013) are to expire on 22 May 2016.

Pursuant to the Financial Services Framework Agreement, Sinopec Finance and Sinopec Century Bright agree to provide financial services to the Company. During the Company’s listing application process, the Company was granted an interim waiver by the Hong Kong Stock Exchange in respect of the continuing connected transactions from strict compliance with the announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong Listing Rules, such waiver expired on December 31, 2013. The Company disclosed details on the continuing connected transactions under the Financial Services Framework Agreement in the circular dated 10 September 2013 and received approval from the independent shareholders in relation to such Financial Services Framework Agreement and the proposed annual caps for 2014 and 2015 on 29 October 2013. As the proposed annual caps for 2014 and 2015 are to expire on 31 December 2015, the Company expects to continue such connected transactions after the expiry on 31 December 2015 and comply with the provisions of Chapter 14A of the Hong Kong Listing Rules in connection with such connected transactions. Sinopec Finance and Sinopec Century Bright are to provide financial services to the Company as of 31 December 2016, 2017 and 2018. Therefore, the Company submits the Financial Services Continuing Connected Transactions and the Proposed Financial Services Annual Caps to the Independent Shareholders for approval.

Pursuant to Engineering and Construction Services Framework Agreement, the Company and Sinopec Group are to provide engineering and construction services to each other. During the Company’s listing application process, the Company was granted an interim waiver by the Hong Kong Stock Exchange in respect of the continuing connected transactions from strict compliance with the announcement and Independent Shareholders’ approval requirement under Chapter 14A of the Hong Kong Listing Rules, which will expire on 31 December 2015. The Company expects to continue such connected transactions after the expiry on 31 December 2015 and comply with the provisions of Chapter 14A of the Hong Kong Listing Rules in connection with such connected transactions. The Company and Sinopec Group are to arrange transactions for mutual provision of engineering and construction services between each other as of 31 December 2016, 2017 and 2018. Therefore, the Company submits the Engineering and Construction Services Continuing Connected Transactions and the Engineering and Construction Services Proposed Annual Caps to the Independent Shareholders for approval.

1.2 Background of the relevant parties for the transactions

1.2.1 Background of the Group

The Group is an international engineering corporation that provides engineering services for a broad range of industries including oil refining, petrochemicals, new coal chemical, inorganic chemicals, pharmaceutical chemicals, clean energy, storage and transportation engineering, environmental protection and energy saving engineering with a complete service chain involving reseach, development and licensing, preliminary consultation, financial assistance, design, procurement, construction and pre-commissioning/start-up services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is a summary of the Group’s financial information in accordance with International Financial Reporting Standards (the “ IFRS ”) extracted from the 2012, 2013 and 2014 annual reports as well the 2015 interim report:

For the year ended 31 December 2012 2013 2014 Million RMB Million RMB Million RMB 38,526 43,572 49,346 3,832 4,413 4,039 4,252 4,751 4,551 3,317 3,657 3,490 1,556 （86） 333 As of 31 December 2012 2013 2014 Million RMB Million RMB Million RMB 37,130 47,365 52,085 30,049 26,385 29,212 7,078 20,977 22,869	For the year ended 31 December 2012 2013 2014 Million RMB Million RMB Million RMB 38,526 43,572 49,346 3,832 4,413 4,039 4,252 4,751 4,551 3,317 3,657 3,490 1,556 （86） 333 As of 31 December 2012 2013 2014 Million RMB Million RMB Million RMB 37,130 47,365 52,085 30,049 26,385 29,212 7,078 20,977 22,869	For the six months ended 30 June
		2015
		Million RMB 20,905 1,922 2,119 1,711 766 As of 30 June
2012 Million RMB 37,130 30,049 7,078	2013 Million RMB 47,365 26,385 20,977	2015
		Million RMB 55,216 31,480 23,732

1.2.2 Background of Sinopec Group

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1.2.3 Background of Sinopec Finance and Sinopec Century Bright

Sinopec Finance, being 51% and 49% owned by Sinopec Group and Sinopec Corp. respectively, is a non-banking financial institution incorporated in the PRC in 1988 and is permitted under applicable PRC laws and regulations to only provide financial services to Sinopec Group and its members.

In the PRC, the establishment of non-banking financial institutions is subject to approval by CBRC and shall comply with applicable regulations relating to interest rates issued by PBOC and CBRC. Sinopec Finance, as a non-banking financial institution, is subject to ongoing supervision of CBRC; and various regulatory and capital adequacy requirements, including capital adequacy ratios, loan-to-deposit ratios, limit on interbank loans and deposit reserve thresholds. CBRC issued the Administrative Measures on Finance Companies within Group Enterprises 《企業集團財務公司管理( 辦法》) in July 2004 (and amended in December 2006) (the “ CBRC Guideline ”) with respect to the establishment and ongoing regulation of such non-banking financial institutions. Pursuant to CBRC Guideline, Sinopec Group provided an undertaking to CBRC that Sinopec Group will, when Sinopec Finance facing difficulties in meeting its payment obligations, increase the capital of Sinopec Finance to solve such payment difficulties.

Pursuant to unaudited financial data of Sinopec Finance, as at 30 June 2015, Sinopec Finance had total assets of approximately RMB 122.909 billion, shareholders’ equity of approximately RMB 20.236 billion, registered capital of RMB 10 billion and capital adequacy ratio of approximately 29.57%.

Sinopec Century Bright is a company incorporated in Hong Kong and licensed with limited liability under the Money Lenders Ordinance (Cap. 163 of the Laws of Hong Kong). In 2007, Sinopec Century Bright was approved by the State Administration of Foreign Exchange of the PRC (“ SAFE ”) as an offshore settlement center for centralized cash management for members of Sinopec Group. Sinopec Century Bright only provides financial services to Sinopec Group and its members. It is used by the Company as an interim/short term deposit platform particularly to settle trade payables and receivables in respect of overseas projects.

As at 31 December 2014, Sinopec Century Bright had total assets of approximately USD 45.014 billion, and net assets of approximately USD 2.325 billion. Pursuant to unaudited financial data of Sinopec Century Bright, as at 30 June 2015, Sinopec Century Bright had total assets of approximately USD 50.925 billion, shareholders’ equity of approximately USD 2.421 billion.

Pursuant to the Financial Services Framework Agreement, the Company receives deposit services, loan services, entrustment loan services as well as settlement services and other financial services.

1.2.4 Procedures and Internal Control Measures for Pricing and Terms of the Continuing Connected Transactions under the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement

The business activities and financial position of Sinopec Finance and Sinopec Century Bright are subject to the ongoing supervision of the relevant authorities. In addition, as advised by the Directors,

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the Company, Sinopec Finance and Sinopec Century Bright will adopt various internal control and risk management measures in relation to the Continuing Connected Transactions to be provided by Sinopec Finance and Sinopec Century Bright in order to protect the interests of the Shareholders.

The relevant regulation, internal control and risk management measures adopted by Sinopec Finance and Sinopec Century Bright include but not limit to the following:

The establishment of Sinopec Finance as a non-banking financial institution was authorized by the CBRC. Sinopec Finance is required to provide report to the CBRC on a regular basis;
Sinopec Century Bright is licensed under the Money Lenders Ordinance (Cap. 163 of the Laws of Hong Kong) in Hong Kong, and governed by relevant regulatory bodies in Hong Kong. Besides, Sinopec Century Bright is an offshore settlement center approved by SAFE for centralized cash management for members of Sinopec Group;
Sinopec Finance, Sinopec Century Bright and Sinopec Group will provide sufficient information including various financial indicators (as well as annual and interim financial statements) at the end of every quarter to enable the Group to monitor and review the financial position of Sinopec Finance, Sinopec Century Bright and Sinopec Group;
The Group will, from time to time at its sole discretion, request for the deposits with Sinopec Finance and Sinopec Century Bright and the entrustment loans through Sinopec Finance to Sinopec Group to be withdrawn or early terminated (either in full or in part) to assess and to ensure the liquidity and safety of its deposits and entrustment loans;
Sinopec Group has undertaken, unconditionally and irrevocably, that it shall provide capital injection to Sinopec Finance in case of any payment difficulties arising from its operations. Such undertaking provides indemnification for the Group’s deposits with Sinopec Finance under the Financial Services Framework Agreement;
The Group has adopted a Cash Management Policy（資金管理辦法) and Internal Bank Management Policy (內部銀行管理辦法). Such policies provide that the Group’s cash should be centrally managed in order to maximize the benefits of a cash pool. The Company’s finance department is responsible for administering the Cash management Policy. When providing entrustment loans to connected persons (whether through Sinopec Finance or otherwise), the Group will consider the interest rate, service fees, terms and use of loans and creditworthiness of the ultimate borrower based on principles of maximum return, cost control and risk control. The entrustment loan agreements (setting out interest rate, service fees, terms and use of loans) are first approved by the Company’s finance department, then by the Company’s Chief Financial Officer and ultimately by the Chairman of the Board;
The Directors will prepare risk assessment reports of the funds deposited with Sinopec Finance and Sinopec Century Bright and entrustment loans to Sinopec Group every quarter which will be submitted to the Board for consideration; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The independent non-executive directors will independently review the implementation and execution of the transactions (including the pricing mechanism) under the Financial Services Framework Agreement. Only independent non-executive directors may vote in respect of matters under the Financial Services Framework Agreement;
Before entering into any transactions under the Financial Services Framework Agreement with Sinopec Finance and Sinopec Century Bright, the Company will obtain at least three quotes from independent financial institutions for similar services of the same term. The company will compare such quotes with those offered by Sinopec Finance and Sinopec Century Bright, and decide whether to accept the offer from Sinopec Finance Companies; and
In the event that there is any change in the fees or interest rates for the services provided by Sinopec Finance and Sinopec Century Bright to the Group under the Financial Services Framework Agreement, the Sinopec Finance Companies are required to notify the Company of: i) such change in the fees or interest rates; and ii) the pricing information for the similar services provided by Sinopec Finance and Sinopec Century Bright to other members of Sinopec Group. The relevant internal audit personnel of the Company will then check the aforementioned information to ensure that such revised fees or interests rates are not less favorable than the fees or interests rates offered by Sinopec Finance and Sinopec Century Bright to other members of Sinopec Group for similar services.
With respect to the determination of the entrustment loan interest rates, the Group generally uses the prevailing base deposit rate published by the PBOC as a reference point with an upward adjustment taking into account the amount and term of the loan. In addition, the Group will refer to the list of interest rates which specifies the range of interest rates for different entrustment loan amounts and terms. Such list has been agreed by Sinopec Group and the Board after arm’s length negotiations and will be reviewed and re-negotiated by the parties periodically. Based on such list, the Company’s Chief Financial Officer and finance department will decide the interest rates of the entrustment loan agreements to be entered into between Sinopec Group and the Group. The Group will also make reference to other comparable rates, such as the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp., obtained through various channels such as banks and the relevant issuers (if any) for the purpose of ensuring that the interest rates for the entrustment loans are in the interests of the Company and the Shareholders as a whole.

In order to assess the adequacy and appropriateness of the internal control procedures in relation to the Financial Services Framework Agreement above, we have discussed with the Directors to understand the procedures, and reviewed sample contracts and sample receipts provided by the Company on entrustment loan interest income in relation to the application of pricing principles. The Company has followed the above mentioned procedures for the implementation of the relevant pricing policies. Based on the above, we concur with the view of the Directors that the implementation of such internal control measures is able to ensure the pricing mechanism and terms of the transactions are fair and reasonable, and no less favourable than the terms provided by independent third party.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Moreover, the Company has internal control measures for regulating the entering into of the continuing connected transactions under the Engineering and Construction Services Framework Agreement (including the relevant pricing mechanism). Such measures include the following:

The Company will supervise such continuing connected transactions in accordance with the procedures set forth in the Company’s internal control manual on continuing connected transactions (including the relevant pricing mechanism);
For the engineering and construction services provided by the Group to Sinopec Group under circumstances where the agreed price is used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after making references to the gross profit margins of various business segments as disclosed in the Company’s annual report for the most recent financial year, and taking into account various factors, including the type of business, the complexity of the projects and the technologies involved, as well as the prevailing market and business conditions. The agreed price will be subject to the review and approval of the marketing department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the type of business, the complexity of the projects and the technologies involved, as well as the scope and the prices of at least one relevant comparable service recently (generally in the past three months to around one year given that the agreed price is only applied for services under certain circumstances (e.g. for services with unique technological advantages)) provided by the Group to Independent Third Parties to ensure that the price of the engineering and construction services provided by the Group to Sinopec Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favorable to the Group than the terms available to Independent Third Parties.

— In determination of the pricing under the agreed price for the services provided by Sinopec Group to the Group, relevant vendors will provide a cost list in respect of the relevant services provided by Sinopec Group to the Group, and the Group will then seek to obtain the prices of relevant comparable services provided by at least three (where applicable) independent vendors to determine the reasonable costs and profits for ascertaining the agreed price of the services provided by Sinopec Group to the Group through arm’s length negotiations between the relevant parties. As to the Group, such price is subject to the review and approval of the marketing department and the procurement department of the relevant subsidiary of the Company, or depending on the actual circumstances, such price will be reported by the marketing department and the procurement department of the relevant subsidiary of the Company to the management of such subsidiary for its further review and approval. The marketing department, the procurement department and the management (as the case may be) of the relevant subsidiary of the Company will take into account factors including the scope, the quality and the prices of relevant comparable

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services provided by independent vendors to ensure that the price of the services provided by Sinopec Group to the Group is fair and reasonable, and is determined on normal commercial terms or on terms no less favorable to the Group than the terms available from Independent Third Parties;

The Risk Management Committee of the Company will conduct sampling inspections on the effectiveness of the Group’s internal control measures on continuing connected transactions at least twice a year, and will periodically review and examine the implementation of such continuing connected transactions;
The Company’s external auditors will conduct an annual review on the pricing and annual caps of such continuing connected transactions;
The Company’s Audit Committee will review at least twice a year the analysis reports and the improvement measures prepared by the Company’s management based on the implementation of such continuing connected transactions by the Company and/or its relevant subsidiaries;

— The independent non-executive Directors will conduct an annual review of the implementation and enforcement of such continuing connected transactions (including the relevant pricing mechanism).

In order to assess the adequacy and appropriateness of the internal control procedures in relation to the Engineering and Construction Service Framework Agreement for products and services provided by Sinopec Group to the Group, we have discussed with the Directors to understand the procedures, and we reviewed sample contracts, cost list and respective independent vendors’ pricing of relevant comparable services provided by the Company in relation to the application of the pricing principles. For products and services provided by the Group to Sinopec Group, we have reviewed the gross profit margins of respective business segments as disclosed in the annual reports for the most recent financial year of the Company, sample contracts and relevant documents on cost estimation. The Company has followed the above mentioned procedures for the implementation of the relevant pricing policies. Based on the above, we concur with the view of the Directors that the implementation of such internal control measures is able to ensure the pricing mechanism and terms of the transactions are fair and reasonable, and no less favorable than the terms provided by independent third party.

The above mentioned internal control and the risk management measures aim at mitigating the relevant risks involved in the Continuing Connected Transactions and safeguarding the interests of the Company and Shareholders. The Directors consider that the above internal control and risk management measures are adequate and effective in monitoring the Continuing Connected Transactions contemplated under the Financial Services Framework Agreement and Engineering and Construction Services Framework Agreement in all material respects. We consider that the above internal control and risk management measures will allow the Group to monitor up-to-date information regarding the Continuing Connected Transactions contemplated under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement and to mitigate the Company’s risk associated with the relevant transactions, which help ensure the interests of the Company and the Shareholders as a whole to be safeguarded.

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Principal terms of the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement

2.1 Scope of Services

Details of Continuing Connected Transactions contemplated under the Financial Services Framework Agreement and the Engineering and Construction Services Framework Agreement are set out below:

a) Pursuant to the Financial Services Framework Agreement and the supplemental agreements, Sinopec Finance and Sinopec Century Bright provide the Group financial services, which include: deposits, loans, entrustment loans and settlement services, entrustment investments, financial and financing consulting, credit certification, insurance agency, exchange settlement, bond underwriting, foreign exchange business, and related consultancy and agency financial service. The Group enters into separate contracts with Sinopec Finance and Sinopec Century Bright, which set out the specific terms and conditions according to the principles provided in the Financial Services Framework Agreement;
b) Pursuant to the Engineering and Construction Services Framework Agreement, the engineering services provided by the Group to Sinopec Group include: engineering consulting, project management, engineering supervision, EPC, engineering design, engineering construction, commissioning and overhauling services, mechanical equipment processing and manufacturing services, procurement services and equipment leasing, technical licensing, technical transferring and engineering technical services, labor services as well as other engineering supporting services;
c) Pursuant to the Engineering and Construction Services Framework Agreement, the engineering services provided by Sinopec Group to the Group include: provision of equipment/materials, procurement services and equipment leasing, technical licensing, technical transferring and other engineering related technical services, labor services and other supporting engineering services.

2.2 Pricing Policies

2.2.1 Pricing policies for Financial Services Framework Agreement

According to the Financial Services Framework Agreement, the transactions conducted thereunder shall be priced in accordance with the following terms:

(1) government-prescribed price and government-guided price — if at any time, the government-prescribed price is applicable to any financial services, such services shall be provided at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;

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(2) market price — the price of the same or similar services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and
(3) agreed price — to be determined by adding a reasonable profit over a reasonable cost.

In addition to the above, the service of the Financial Services Framework Agreement provides that the services shall be provided in accordance with the following pricing principles:

(a) Deposit services — the interest rate applicable to the Group’s deposits with Sinopec Finance and Sinopec Century Bright will not be lower than, (i) the minimum interest rate published by the PBOC for deposits of a similar type for the same period (applicable to deposits with Sinopec Finance only); (ii) the interest rate for deposits of a similar type for the same period placed by other members of Sinopec Group; and (iii) the interest rate for deposits of a similar type for the same period offered by independent commercial banks to the Group;
(b) Entrustment loan services — the interest rates applicable to the Group’s entrustment loans to Sinopec Group through Sinopec Finance shall be (i) on normal commercial terms; (ii) no less favorable than interest rates for comparable entrustment loans provided by other members of Sinopec Group to Sinopec Group through Sinopec Finance; and (iii) generally not lower than bond and loan interest rates for companies and financial institutions with credit ratings and risk level similar to Sinopec Group and Sinopec Corp. in the PRC Market; and
(c) Settlement, entrustment loans and other financial services — the service fees charged by Sinopec Finance shall not be higher than (i) fees charged by independent commercial banks or financial institutions; and (ii) fees charged to other members of Sinopec Group for similar services.

The pricing of such services provided under the Financial Services Framework Agreement are mainly determined by reference to (1) the government-prescribed price and government-guided price; and (2) the market price. In the event that the agreed price has to be used, with a view to arriving at a reasonable profit, such price will be determined through arm’s length negotiations between the relevant parties after taking into account prevailing market and business condition.

As we understand that there is no market standard rate for entrustment loans, we have discussed with the Directors to understand the basis in determining the interest rates on the entrustment loans with Sinopec Group as described in section 1.2.4 above. We consider that the pricing policy in respect of the deposit services and entrustment loan services stated above is reasonable to the Company and its Shareholders as a whole as it enables the Company to earn interest income from Sinopec Finance and Sinopec Century Bright at interest rates that are no less favorable than the interest rates offered by independent commercial banks or interest rates offered by Sinopec Finance and Sinopec Century Bright to other members of Sinopec Group. In addition, the settlement, entrustment loans and other financial service fee rates to be charged by Sinopec Finance and Sinopec Century Bright are no less favorable than the fee rates charged by independent commercial banks or financial institutions for provision of similar services.

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For the deposit services, we have obtained and reviewed certain internal records provided by the Directors, including the notices on the interest payment received from Sinopec Finance and Sinopec Century Bright up until 30 June 2015. For the entrustment loan services, we have obtained and reviewed certain entrustment loan agreements entered into between the Company and Sinopec Finance and Sinopec Century Bright during the six months ended up until 30 June 2015. We note that Sinopec Finance and Sinopec Century Bright have followed the aforesaid policy to set the interest rates for the deposit and entrustment loan services.

As advised by the Directors, the interest rate for the entrustment loans is determined through arm’s length negotiations between the parties based on, among others, relative bargaining power, risk profile, security value. The Group will also make reference to other comparable rates, such as the interest rates for bonds or loans available in the PRC market issued/provided by companies or financial institutions of credit ratings and risk profile similar to those of Sinopec Group or Sinopec Corp., obtained through various channels such as banks and the relevant issuers (if any) for the purpose of ensuring that the interest rates for the entrustment loans are in the interests of the Company and the Shareholders as a whole.

In order to assess the fairness and reasonableness of the interest rates on the entrustment loans to Sinopec Group, we have compared such interest rates against the yield of certain principal-guarantee wealth management products available in the PRC market. We consider that the yield of the principal-guaranteed wealth management products are fair and representative samples for comparison of the interest rates of on entrustment loans after taking into account the creditworthiness and clean repayment history of Sinopec Group. We have obtained selected entrustment loans agreements entered by the Company and compared such interest rates against certain principal-guaranteed wealth management products, and interest rate of bonds with similar terms issued by Sinopec Group and Sinopec Corp.. We noted that the interest rates on entrustment loans are generally not lower than the interest rates on bonds of similar terms issued by Sinopec Group and Sinopec Corp., and higher than the yield on principal-guaranteed wealth management products available in the PRC market.

2.2.2 Pricing policies for Engineering and Construction Services Framework Agreement

According to the Engineering and Construction Services Framework Agreement, the transactions conducted thereunder shall be priced in accordance with the following terms:

(1) government-prescribed price and government-guided price — if at any time, the government-prescribed price is applicable to any products or services, such products and services shall be provided at the applicable government-prescribed price. Where a government-guided fee standard is available, the price will be agreed within the range of the government-guided price;
(2) tender and bidding price — where tender and bidding process is necessary under applicable laws, regulations and rules, the price ultimately determined in accordance with the tender and bidding process;

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(3) market price — the price of the same or similar products, technology or services provided by an Independent Third Party during the ordinary course of business on normal commercial terms; and
(4) Agreed price — to be determined by adding a reasonable profit over a reasonable cost.

Pricing Principle (1) is based on government-prescribed price or government-guided price. Historically, there was no government-prescribed price or government-guided fee standard which was applicable to the engineering and construction services provided by the Group to Sinopec Group and those provided by Sinopec Group to the Group under the Engineering and Construction Services Framework Agreement. If, during the term of the Engineering and Construction Services Framework Agreement, there is any mandatory government-prescribed price or government-guided fee standard specifically applicable to the engineering and construction services to be provided by the Group to Sinopec Group or those to be provided by Sinopec Group to the Group, relevant parties to the agreement shall be obliged to use the applicable government-prescribed price or agree the price of such services within the range of the government-guided fee standard. Given that government-prescribed price or government-guided price requires application to all relevant participants in the industry and market, we consider that pricing principle (1) is fair and in line with normal business practice.

For the engineering and construction services provided by the Group to Sinopec Group, the pricing of which is determined mainly by reference to the tender and bidding price under pricing principle (2). The price and the tender and bidding process are conducted in accordance with the Bidding Law of the People’s Republic of China 《中華人民共和國招標投標法》( ). For the services provided by Sinopec Group to the Group, such services were not historically and typically subject to tender and bidding process due to the common type and nature of such services as well as the high frequency of the procurement of such services. The Company does not anticipate the type, the nature, and the frequency of the procurement of the services to be procured from Sinopec Group by the Group during the term of the Engineering and Construction Services Framework Agreement to significantly deviate from those of the services the Group currently procures from Sinopec Group. During the term of the Engineering and Construction Services Framework Agreement, in the event that the services to be procured from Sinopec Group by the Group are mandatorily subject to tender and bidding process, the price and the process will be conducted in accordance with the Bidding Law of the People’s Republic of China.

Through discussion with the Directors, we note that the Company has established a tender management system for sending bidding invitations to qualified suppliers to participate in public tender or invitation tender according to the specific conditions of the project and observes the principles of openness, fairness, economy, and timely supply in evaluating the tenders submitted by adopting the lowest bid price method or comprehensive evaluation method to determine the specific supplier. We have reviewed the Company’s manual on bidding procedures as well as documents on bidding invitation. As the tender and bidding price under such process reflects the applicable price available in the open market, we concur with the views of the Directors that the basis of pricing principle (2) is fair and reasonable.

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Regarding the engineering and construction services provided by the Group to Sinopec Group, the tender and bidding process is an open and transparent process based on market participation, and the tender and bidding price under such process inherently reflects the applicable price available on the open market. Hence, the tender and bidding price is the market price under pricing principle (3). For the engineering and construction services provided by Sinopec Group to the Group, the Group did not use the market price for the procurement of such services from Sinopec Group historically, because the agreed price and terms have generally been more competitive than the available market price and terms from Independent Third Parties, which will further economize the procurement funds for the Group, increase the efficiency of the allocation of the procurement resources, as well as achieve economies of scale. If market price is more competitive than the agreed price after comparison to the market comparable services during the internal procedures for pricing, market price will be used for that particular transaction between the Group and Sinopec Group. Having discussed with the Directors, we concur with the view of the Directors that price under pricing principle (3) will be determined on terms no less favorable to the Group than the terms available to Independent Third Parties.

For the engineering and construction services provided by the Group to Sinopec Group, the agreed price under pricing principle (4) is only applied for services under certain circumstances (e.g. for services with unique technological advantages). Such price is determined through arm’s length negotiation between the relevant parties on a case by case basis taking into consideration of the average gross profit margins of various business segments in the most recent financial year as well as professional factors such as business types, project complexity, technology content etc. As for the services provided by Sinopec Group to the Group, the pricing of which is determined mainly by reference to the agreed price, the Group will seek to obtain the prices of relevant comparable services provided by at least three (where applicable) independent vendors to determine the reasonable costs and profits.

Having reviewed documents on budget estimates, sample contracts and financial data in the annual reports as well as other related materials, we consider that the pricing principle has been implemented as described above and is in line with the profit margin of the Company. As such, we consider that the basis of such pricing principle is formulated via pre-determined procedures.

Based on the above, we consider that the terms of the Financial Services Framework Agreement as well as the Engineering and Construction Services Framework Agreement are on normal commercial terms and are fair and reasonable.

3. Reasons for and benefits of the transactions contemplated under the Financial Services Framework Agreement and the Engineering and Construction Services Agreement

The Continuing Connected Transactions are subject to the Proposed Annual Caps whereby for each of the three years ending 31 December 2016, 2017 and 2018. As mentioned in the Letter from the Board, the Continuing Connected Transactions are and will be conducted in the ordinary and usual course of business of the Company and will continue to be agreed on an arm’s length basis with terms that are fair and reasonable and in the interest of the Company and the Shareholders as a whole. Given the Company has maintained long-term relationship with Sinopec Group, from entering into the

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Continuing Connected Transaction and onwards, it is beneficial to the Company’s business development and growth. Also, the Continuing Connected Transactions will be conducted on normal commercial terms or on terms no less favorable than those available to the Company from Independent Third Parties.

3.1 Reasons for utilizing deposit services from Sinopec Finance and Sinopec Century Bright

Clearing and settlement platform and centralized treasury management

In line with Sinopec Group’s internal group policy, such subsidiaries/affiliated companies generally maintain settlement accounts with Sinopec Finance and Sinopec Century Bright. The Directors advised that the centralized maintenance of deposits by the Company with Sinopec Finance and Sinopec Century Bright will facilitate clearing with other members of Sinopec Group (some of whom are the Group’s clients), reduce the time required for transit and turnaround of funds and is generally more administratively efficient than settlement through independent commercial banks. The Directors consider that it would not be efficient for Sinopec Group (and its affiliates) and the Company to separately maintain bank accounts with independent banks for clearing and settlement. In addition, the centralized deposit of funds with Sinopec Finance and Sinopec Century Bright will provide the Company with access to a centralized cash pool (both onshore and offshore), giving the Company the flexibility to make timely withdrawals from time to time without any restriction to meet its funding needs and reduce the cost for the Company to obtain third party financing. The Company is also entitled to early terminate the term deposits (without penalty) placed with Sinopec Finance and Sinopec Century Bright, in which case the current deposit interest rate will apply. In light of the above, the Directors consider that the utilization of deposit services from Sinopec Finance and Sinopec Century Bright helps the Company to achieve a lower cost of funding and maximize cost and operational efficiencies.

Familiarity with the Company’s business

As Sinopec Finance and Sinopec Century Bright only provide financial services to Sinopec Group and its members, they have over the years acquired extensive knowledge, including the oil refining and chemical engineering industry. Sinopec Finance and Sinopec Century Bright are familiar with the Company’s capital structure, business operations, funding needs and cash flow pattern, which enables them to better anticipate the Company’s business needs. As a result, the Directors consider that Sinopec Finance and Sinopec Century Bright are well-positioned to provide the Company with bespoke and cost efficient services which would not be easy for independent commercial banks to replicate.

More flexible financial arrangement

The Company has the sole discretion to deposit and withdraw its deposits with Sinopec Finance and Sinopec Century Bright from time to time without any restriction. There is no restriction on the Company to deposit its cash with independent commercial banks in or outside the PRC now or in the future should the Company so wish. As advised by the Directors, in order to meet its need such as the expansion of its overseas business and distribution of dividend, the Company currently maintains

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deposits with independent commercial banks in and outside the PRC and expects to continue to do so depending on its contractual and other requirements. Nonetheless, the Company chooses to deposit its cash with Sinopec Finance and Sinopec Century Bright as it helps the Company with its relatively centralized treasury management.

3.2 Reasons for utilizing entrustment loan services from Sinopec Finance and Sinopec Century Bright

Favorable fund investment options

As advised by the Directors, due to the Company’s business nature, it receives significant amounts of prepayments from clients from time to time, which may not be immediately required for its operational needs. Such prepayments are in effect advance payments from its clients, which the Company will apply towards performance of the underlying contracts as appropriate and are only temporarily idle. Therefore, the Company needs to invest such surplus cash conservatively from time to time as it is an advance/deposit from its clients. Given its need to fund match within a relatively short period of time whilst maintaining flexibility to pay its trade payables from time to time, the Directors advised that it has explored alternative fund investment options in the open market but in view of the counterparty risk, the cost and time required for negotiations and the lack of flexibility, such alternatives are not reasonably available to the Company. Given its investment needs, there is a lack of comparable alternative fund investment options. The Directors consider that the provision of entrustment loans to Sinopec Group is a safe, cost efficient and flexible option for investing such cash surplus, which may not otherwise be available in the open market.

Credit rating of Sinopec Group

The borrower of the entrustment loans is Sinopec Group. Pursuant to the terms of the entrustment loans, Sinopec Group has the sole obligation to repay principal and interest. In 2015, Sinopec Group obtained an AA- long term corporate credit rating from Standard & Poor with a stable outlook and an Aa3 credit rating from Moody’s. The Directors therefore consider that lending to Sinopec Group is a low risk fund allocation option. As advised by the Directors, Sinopec Group has not defaulted under any of the entrustment loans provided by the Company for the two years ended December 31, 2013 and 2014 and the six months ended June 30, 2015. Taking into account the creditworthiness of Sinopec Group and clean repayment history, the entrustment loans to Sinopec Group are generally unsecured. Therefore, the Directors consider that providing entrustment loans to Sinopec Group is a comprehensive, low risk fund allocation option due to the top-tier credit rating of Sinopec Group and clean repayment history, generating a higher return for the Company than deposits which would have been the only other fund allocation option for the Group given the investment policy with respect to such funds.

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Efficient and flexible cash management

Provision of entrustment loans to Sinopec Group will allow the Company to allocate its surplus cash efficiently within a relatively short timeframe. As advised by the Directors, the entrustment loans to Sinopec Group generally do not exceed one year (the majority are for a period of one year or six months), enabling the Company to deploy its financial resources efficiently and flexibly. Upon the expiry of the entrustment loans, the Company will receive the principal amount and the interest payment in relation to such entrustment loans from Sinopec Finance. Any new loans to Sinopec Group will be subject to normal approval procedures in the usual way. Furthermore, whilst the Company has historically provided entrustment loans to Sinopec Group and expects to continue to do so in the future, the Company is not under any legal or other obligation to provide entrustment loans to Sinopec Group. Pursuant to the entrustment loan agreements, the Company is entitled to early terminate the loans (without penalty) at its option in which case current deposit interest rate will apply.

Based on our discussion with the Directors, the Board has considered the risks in association with the use of the services provided by Sinopec Finance and Sinopec Century Bright under the Financial Services Framework Agreement against the same services provided by independent commercial banks such as the possible material adverse change in the financial conditions of Sinopec Finance and Sinopec Century Bright. As the Company will place its surplus funds into Sinopec Finance and Sinopec Century Bright, any material adverse change in financial conditions of Sinopec Finance and Sinopec Century Bright would affect the their abilities to repay the funds to the Company. We consider this risk is manageable taking into the account the internal control and risk management measures in place to safeguard the funds of the Company.

Taking into account the aforesaid reasons, in particular, (i) the Company is able to have greater flexibility in managing its cash resources and facilitating the settlement process with other members of Sinopec Group by utilizing the financial services provided by Sinopec Finance and Sinopec Century Bright; (ii) the Company could benefit from the deposit and entrustment loan services provided by Sinopec Finance and Sinopec Century Bright at interest rates which are no less favorable than the interest rates for deposits or entrustment loans of similar nature and under similar terms offered by other independent commercial banks or financial institutions; (iii) the Company can mitigate the counterparty risk and default risk by providing the entrustment loans to Sinopec Group with sound credit rating and clean repayment history; (iv) the deposit services with Sinopec Finance and Sinopec Century Bright provide the Company with an alternative but do not preclude the Company from using the services of other PRC or Hong Kong commercial banks; and (v) Sinopec Finance and Sinopec Century Bright are regulated by the relevant authorities and, as depository services providers to the Company, their risk profile is not greater than that of independent commercial banks in the PRC or offshore, and the associated risks as a whole, we concur with the Directors’ view that the transactions contemplated under the Financial Services Framework Agreement are in line with the interests of the Company and the Shareholders as a whole.

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3.3 Reasons for products and services under the Engineering and Construction Services Framework Agreement

We noted that Sinopec Group have specific technology and quality standard requirements exclusive to the oil industry, and with a leading position in the oil industry. Sinopec Group is able to satisfy the Group’s needs for product quality and quantity as well technological, quality and safety requirement during the course of project operation. Against the backdrop of changing industrial and market conditions, Sinopec Group can provide the Company stable supply of equipment/materials, procurement services and technical services and other supporting products and services. Pursuant to relevant terms, the Group is able to procure products and services from Sinopec Group at prices no more than the prices offered by Independent Third Party.

As discussed with the Directors, Sinopec Group is one of the most strengthful enterprises in the PRC oil industry, and ranked the 2[nd] in the World Top 500 Companies by Fortune. In addition, Sinopec Group has steadily growing capital expenditure plan. In the meantime, the engineering services subscribed by Sinopec Group is mainly through public bidding process. Having considering the Group being a leading energy chemical engineering company in the PRC, and maintain a long-term relationship with Sinopec Group, the capital expenditure plan by Sinopec Group is likely to increase the demand for the Group’s products and services.

4. The Proposed Annual Caps, Basis and Underlying Assumptions

In assessing the fairness and reasonableness of the Proposed Annual Caps, we have discussed with the Directors about the basis and underlying assumptions used in the determination of the Proposed Annual Caps.

4.1 Historical Annual Caps

The table below sets out (i) the historical transaction figures for the two years ended 31 December 2013 and 2014 as well as the six months ended 30 June 2015; (ii) the existing annual caps for the years ended 31 December 2013, 2014 and 2015; and (iii) the Proposed Annual Caps as of 31 December 2016, 2017 and 2018:

		Historical Annual	Historical Annual	Caps	Proposed Annual	Proposed Annual	Caps
			As of 31 December			As of 31 December
		2013	2014	2015	2016	2017	2018
			Million RMB			Million RMB
Under Financial Services	Framework Agreement
Maximum daily balance	Annual Caps	5,500.00	6,500.00	7,500.00	8,000.00	8,500.00	9,000.00
of deposits & related interest income	Actual Figures	3,990.00	5,510.00	5,836.001
Maximum daily balance	Annual Caps	11,000.00	14,000.00	17,000.00	16,600.00	19,400.00	22,500.00
of entrustment loans
	Actual Figures	9,500.00	11,600.00	10,600.001

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		Historical Annual	Historical Annual	Caps	Caps	Proposed Annual	Proposed Annual	Caps
			As of 31 December				As of 31 December
		2013	2014		2015	2016	2017	2018
			Million RMB				Million RMB
Service Fees in relation	Annual Caps	25.60	31.85		37.90	4.62	5.08	5.58
to settlement,
entrustment loans and	Actual Figures	3.04	2.21		2.281
other financial
services2
Under Engineering and	Construction Services Framework Agreement
Engineering services	Annual Caps	21,000.00	24,000.00	27,600.00		22,000.0	24,000.0	25,000.0
provided by the Group to Sinopec	Actual Figures	16,487.00	19,257.00	9,381.001
Group
Engineering services	Annual Caps	1,800.00	2,000.00	2,100.00		2,200.00	2,300.00	2,400.00
obtained by the Group from Sinopec	Actual Figures	1,025.00	1,090.00		653.001
Group

Note:

1 Historical transaction figures for the six months ended 30 June 2015;
2 Entrustment loan related service fees are only applicable to historical caps, for proposed annual caps, such fees are excluded
4.2 Historical and the Proposed Financial Services Annual Caps under the Financial Services Framework Agreement and the basis

As discussed with the Directors, the Proposed Financial Services Annual Caps are determined taking into consideration of the following factors:

(i) the reclassification of services fees in relation to entrustment loans;
(ii) the utilization rate of the above-mentioned annual caps for each of the years ended 31 December 2013 and 2014 and for the six months ended 30 June 2015;
(iii) the interest rates and fee rates in connection with deposits, entrustment loans and other financial services;
(iv) the expected increase in the Group’s business volume for the years 2016, 2017 and 2018; and
(v) the Group’s expected net cash flow generated by its operating activities during the years 2016, 2017 and 2018.

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4.2.1 Deposit and interest income

For the Continuing Connected Transactions in connection with maximum daily balance of deposits and interest income, based on the historical figures for the two years ended 31 December 2013 and 2014, the utilization rates for the annual caps were 72.55% and 84.77% for 2013 and 2014 respectively; also, as of 30 June 2015, the maximum daily balance of deposits and interest income has already taken up to 77.81% of the annual cap of 2015.

Based on the utilization rate of the annual caps and the consideration on the fact that the domestic economy has entered into a phase of restructuring and stable growth, the Directors are with the view that income generated by the Group domestically will grow steadily, accordingly maximum daily balance of the funds placed with Sinopec Finance is to experience a stable growth. As advised by the Directors, in order to further strengthen offshore fund management and control and to satisfy the regulatory requirements on the offshore funds, the Group plans to reinforce the offshore fund centralization for the period from 2016 to 2018, hence the maximum daily balance of the funds placed with Sinopec Century Bright will increase accordingly.

Given combined consideration on the above mentioned, the Directors consider the Proposed Financial Services Annual Caps regarding the maximum daily balance of deposit and related interest income need to be increased moderately as compared with the existing caps of 2015 in order to match with the expected increase in the Group’s business volume both domestically and internationally and with the need for centralized fund management and control.

4.2.2 Entrustment Loans

For the Continuing Connected Transactions in connection with maximum daily balance of entrustment loans, based on the historical figures for the two years ended 31 December 2013 and 2014, the utilization rates for the annual caps were 86.36% and 75.71% for 2013 and 2014 respectively; also, as of 30 June 2015, the maximum daily balance entrustment loans has already taken up to 62.35% of the annual cap of 2015.

As confirmed by the Directors, the actual size of the entrustment loan by the Group was closely related to the net cash flow generated by the operating activities of the Company. We have been advised by the Directors, in order to maintain the capability in continuous development of the Group and the advantageous position in the industry amongst the peers, the Group adopts series of measures such as special clearing on receivables and inventories to improve operating cash flow, which help maintain net cash flow generated by operating activities and operating income to be within the normal historical and industrial range. The Directors expect as of 2016, 2017 and 2018, the Group will be able to achieve a stable growth in income, and net cash flow generated by operating activities is expected to rise as well.

Therefore, based on the estimated maximum daily balance of entrustment loan in 2015, The Directors moderately increased the Proposed Financial Services Annual Caps regarding maximum daily balance of entrusted loans in order to match with business expansion as well as improvement in operating cash flow.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.2.3 Settlement and other financial services related service fees

For the Continuing Connected Transactions in connection with maximum daily balance of settlement and other financial services related service fees, based on the historical figures for the two years ended 31 December 2013 and 2014, the utilization rates for the annual caps were 11.88% and 6.94% for 2013 and 2014 respectively; also, as of 30 June 2015, the maximum daily balance of settlement and other financial services related service fees has taken up 6.02% of the annual cap of 2015. We note the utilization rates in relation to these connected transactions are at low level and have discussed with the Directors. As advised by the Directors, pursuant to disclosure made in the prospectus, maximum daily balance for deposit and interest income includes the current deposit balance and the related deposit interest at Sinopec Finance and Sinopec Century Bright, as well as interest return from entrustment loans; and the service fees in relation to the entrustment loans by the Group is categorized under “settlement, entrustment loan and other financial service related services fees”. However, in practice, the relevant service fees are directly deducted from the entrustment loan return by Sinopec Finance and Sinopec Century Bright, which means the service fees in relation to entrustment loans cannot be individually presented in the annual report.

As advised by the Directors, and based on the reasons above, in order to better reflect the execution procedures of Sinopec Finance and Sinopec Century Bright, for the connected transactions over the period between 2016 and 2018, the term “Service fees in relation to settlement, entrustment loan and other financial services” is replaced by the term “service fees in relation to settlement and other financial services”; and services fees in relation to entrustment loans are included in maximum daily balance for deposit and interest income.

For the Proposed Financial Services Annual Caps regarding service fees in relation to settlement and other financial services, we have discussed with the Directors and notice that service fees in relation to settlement referred to prescribed currency settlement fees charged by Sinopec Finance and Sinopec Century Bright for each transaction. The Company’s payment through Sinopec Finance and Sinopec Century Bright’s finance platform accounted for over 90% of the Company’s total payment transactions. As the Company’s revenue increase, the Company’s service fee paid for the currency settlement service through financial institutions will increase accordingly. Therefore, the Directors after considering upon the basis of total payment expected for 2015, increased the Company’s expected total payment for 2016, 2017 and 2018 accordingly and considered the relevant settlement and other financial service fee rates as well as estimated the relevant Proposed Annual Caps.

When we estimate the reasonableness of the Proposed Financial Services Annual Caps, except for discussion with the Directors, we have also reviewed the breakdowns of every type of financial service transactions in the past and reviewed financial information as disclosed in the 2014 annual report and 2015 interim report. Having discussed the relevant basis and assumption with the Directors, we also understand the Proposed Financial Services Annual Caps are closely related to the level of business activities and operating cash flow for the future three years. Having considered (i) the Company’s business activities will increase steadily which will in turn increase the operating cash flow in and out of the Company; (ii) the Proposed Financial Services Annual Caps will provide the Company more flexible asset allocation, we concur with the view of the Directors that the Proposed Financial Services Annual Caps are considered fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4.3 Historical and the Proposed Engineering and Construction Services Annual Caps under the Engineering and Construction Services Framework Agreement and the basis

4.3.1 Engineering services provided by the Group to Sinopec Group

As discussed with the Directors, the Proposed Engineering and Construction Services Annual Caps are determined after taking into consideration of the following factors:

(i) historical operating income generated from the provision of engineering and construction services by the Group to Sinopec Group and/or its associates, as well as such operating as a percentage of the Group’s total operating income for the corresponding year;
(ii) the total amount of backlog and new contracts value in connection with the provision of engineering and construction services by the Group to Sinopec Group, as well as such amounts as a percentage of the total amount of the Group’s backlog and new contracts value as a 30 June 2015;
(iii) the Group’s business development plan for 2016, 2017 and 2018, and the operating income in connection with the engineering and construction services provided by the Group to Sinopec Group as a percentage of the Group’s total operating income; and
(iv) Sinopec Group’s investment plan in relation to, among other things, oil refinery, petrochemical, new coal chemical, and natural gas during the period from 2016 to 2018.

Taking into account of the factors from (i) to (iv), the Proposed Engineering and Construction Services Annual Caps for the three years ending 31 December 2018 are RMB 22 billion, RMB 24 billion and RMB 25 billion respectively.

In assessing the reasonableness of the Proposed Engineering and Construction Services Annual Caps, we have discussed with the Directors, and reviewed the internal calculation of the Proposed Engineering and Construction Services Annual Caps by the Group to Sinopec Group. We noted from discussion with the Directors on relevant basis and assumptions that the Proposed Engineering and Construction Services Annual caps are related to the scale of capital investment of Sinopec Group and the Group for the next three years. Based on this, we have considered (i) from the historical statistics, the engineering contract amount obtained by the Group from Sinopec Group as a percentage of Sinopec Group’s annual investment plan remains stable throughout the years, and the expected engineering contract amount obtained by the Group from Sinopec Group for the period from 2016 to 2018 can be estimated using this percentage as well as the future investment plan of Sinopec Group; (ii) from the historical statistics, the engineering services provided by the Group to Sinopec Group as a percentage of the Group’s income remains stable throughout the years, and the growth trend for the income derived from the connected transactions on engineering services provision is similar to the trend of the Group’s total income. Therefore, the expected engineering contract amount obtained by the Group from Sinopec Group for the period from 2016 to 2018 can also be estimated using this percentage rate as well as the future expected income of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having discussed with the Directors, we have been advised that the Proposed Engineering and Construction Services Annual Caps in relation to engineering services provided by the Group to Sinopec Group for the period from 2016 to 2018 are determined with reference to the two aforementioned estimations, backlog and new contract value of the Group and future business development status of the Group and Sinopec Group. Having reviewed the relevant statistics, we concur with the view of the Directors that, the Proposed Engineering and Construction Services Annual Caps in relation to engineering services provided by the Group to Sinopec Group are fair and reasonable.

4.3.2 Engineering services provided by Sinopec Group to the Group

As disclosed in the Letter to the Board, the Proposed Engineering and Construction Services Annual Caps are determined taking into consideration of the following factors, including reference to:

(i) historical expenditure incurred for the provision of services by Sinopec Group and/or its associates to the Group;
(ii) the expenditure incurred for the provision of services by Sinopec Group to the Group as a percentage of the revenue generated from the provision of engineering and construction services by the Group to Sinopec Group; and
(iii) the Group’s business development plan for the years 2016, 2017 and 2018.

Based on the factors from (i) to (iii) and through estimation, the Directors propose the annual caps in relation to the engineering services purchased by the Group from Sinopec Group for the three years ending 31 December 2018 are RMB 2.2 billion, RMB 2.3 billion and RMB 2.4 billion respectively.

In assessing the reasonableness of the Proposed Engineering and Construction Services Annual Caps, we have discussed with the Directors, and reviewed the internal calculation of the Proposed Engineering and Construction Services Annual Caps provided by Sinopec Group to the Group. We noted from discussion with the Directors on relevant basis and assumptions that the Proposed Engineering and Construction Services Annual Caps are related to future business development status of the Group as well as the office and production facilities required for the Group’s business development for the next three years. We have considered (i) from the historical statistics, the expenditure incurred for the provision of services by Sinopec Group to the Group as a percentage of the revenue generated from the provision of engineering, and construction services by the Group to Sinopec Group remains stable throughout the years. Such percentage will increase to a higher stable level for the period from 2016 to 2018 as a result of future development of the Group and Sinopec Group. Also, the connected transaction amount in relation to the engineering services provided by Sinopec Group to the Group can be estimated using such percentage, and the future expected revenue generated from the provision of engineering and construction services by the Group to Sinopec Group; (ii) moreover, in order to meet the future business development needs of the Group, and the Group will carry out a general procurement in respect of IT equipment, specialized software and office network system construction in 2016, 2017 and 2018.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Having discussed with the Directors, we have been advised that the Proposed Engineering and Construction Services Annual Caps in relation to the engineering services provided by Sinopec Group to the Group are determined by the sum of estimates from (i) and (ii). Having reviewed relevant statistics, we concur with the view of the Directors that, the Proposed Engineering and Construction Annual Caps in relation to engineering services provided by the Sinopec Group to the Group are fair and reasonable.

5. Annual review of the Continuing Connected Transactions

As discussed with the Company, the Company will comply with the annual review requirements of the Hong Kong Listing Rules, in particular:

(a) each year the independent non-executive directors must review the Continuing Connected Transactions and confirm in the annual report that the transactions have been entered into:
(1) in ordinary and usual course of business of the Company;
(2) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favorable to the Company than terms available to or from (as appropriate) independent third parties; and
(3) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Shareholders as a whole.
(b) each year the auditors of the Company must provide a letter to the Board (with a copy provided to the Hong Kong Stock Exchange at least 10 business days prior to the bulk printing of the Company’s annual report), confirming that the Continuing Connected Transactions:
(1) have received the approval of the Board;
(2) are in accordance with the pricing policies of the Group;
(3) have been entered into in accordance with the relevant agreement governing the Continuing Connected Transactions; and
(4) have not exceeded the Proposed Annual Caps.
(c) the Company shall allow, and shall procure that the relevant counterparties to the Continuing Connected Transactions shall allow, the Company’s auditors to have sufficient access to their records for the purpose of the reporting on the Continuing Connected Transactions as set out in paragraph (b); and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(d) the Company shall promptly notify the Hong Kong Stock Exchange and publish an announcement in accordance with the Hong Kong Listing Rules if it knows or has reason to believe that the independent non-executive directors and/or the auditors of the Company will not be able to confirm the matters set out in paragraphs (a) and/or (b) respectively.

In light of the above, we are of the view that appropriate measures will be in place to govern the conduct of the Continuing Connected Transactions and assist in safeguarding the interests of the Independent Shareholders.

RECOMMEDATIONS

Having taken into account the above factors and reasons, we are of the opinion that (i) the Continuing Connected Transactions are conducted in the ordinary and usual course of business of the Company and on normal commercial terms; and (ii) the Continuing Connected Transactions and the Proposed Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Therefore, we advise the Independent Board Committee to recommend, and we ourselves recommend the Independent Shareholders to vote in favor of the relevant resolution to approve the Continuing Connected Transactions and the Proposed Annual Caps at the EGM.

Yours faithfully, For and on behalf of ABCI Capital Limited Steve Wong Managing Director

Mr. Steve Wong is a licensed person registered with the Securities and Futures Commission and as a responsible officer of ABCI Capital Limited to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO. Mr. Steve Wong has over 18 years of experience in the corporate finance industry, and has participated in the provision of independent financial advisory services for various connected transactions involving companies listed in Hong Kong.

— 58 —

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

==> picture [43 x 44] intentionally omitted <==

**中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]**

(a joint stock limited liability company incorporated in the People’s Republic of China)

(Stock Code: 2386)

NOTICE OF THE THIRD EXTRAORDINARY GENERAL MEETING FOR THE YEAR 2015 AND CLOSURE OF REGISTER OF MEMBERS FOR H SHARES

NOTICE IS HEREBY GIVEN that the third extraordinary general meeting (the “ EGM ”) of SINOPEC Engineering (Group) Co., Ltd. (the “ Company ”) for the year 2015 will be held at V-Continent Beijing Parkview Wuzhou Hotel, 8 Beisihuan Zhong Lu, Chaoyang District, Beijing, the PRC at 9 a.m. on Friday, 30 October 2015. In this notice, unless the context otherwise requires, terms used herein shall have the same meanings as defined in the Company’s circular (the “ Circular ”) dated 14 September 2015.

RESOLUTIONS TO BE CONSIDERED AND APPROVED AT THE EGM

By way of ordinary resolutions:

to consider and approve the terms under the Financial Services Framework Agreement, the continuing connected transactions thereunder and the proposed annual caps in respect thereof for each of the years ending 31 December 2016, 2017 and 2018, respectively, and to authorise Mr. YAN Shaochun, the executive Director and the President, to sign relevant documents on behalf of the Company, and do such things and take such actions as he deems necessary or desirable in accordance with the resolutions of the Board dated 28 August 2015, so as to effect this resolution and make any changes as he deems necessary, desirable or expedient;
to consider and approve the terms under the Engineering and Construction Services Framework Agreement, the continuing connected transactions thereunder and the proposed annual caps in respect thereof for each of the years ending 31 December 2016, 2017 and 2018, respectively, and to authorise Mr. YAN Shaochun, the executive Director and the President, to sign relevant documents on behalf of the Company, and do such things and take such actions as he deems necessary or desirable in accordance with the resolutions of the Board dated 28 August 2015, so as to effect this resolution and make any changes as he deems necessary, desirable or expedient;
to consider and approve the proposed appointment of Mr. ZHANG Jianhua as a non-executive Director of the Second Session of the Board;
For identification purposes only

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

to consider and approve the proposed appointment of Mr. LI Guoqing as a non-executive Director of the Second Session of the Board;
to consider and approve the proposed appointment of Mr. LU Dong as an executive Director of the Second Session of the Board;
to consider and approve the proposed appointment of Mr. YAN Shaochun as an executive Director of the Second Session of the Board;
to consider and approve the proposed appointment of Mr. HUI Chiu Chung, Stephen as an independent non-executive Director of the Second Session of the Board;
to consider and approve the proposed appointment of Mr. JIN Yong as an independent non-executive Director of the Second Session of the Board;
to consider and approve the proposed appointment of Mr. YE Zheng as an independent non-executive Director of the Second Session of the Board;
to consider and approve the proposed appointment of Ms. DENG Qunwei as a Supervisor of the Second Session of the Supervisory Committee;
to consider and approve the proposed appointment of Mr. ZHOU Yingguan as a Supervisor of the Second Session of the Supervisory Committee;
to consider and approve the proposed appointment of Mr. WANG Guoliang as a Supervisor of the Second Session of the Supervisory Committee; and
to consider and approve the proposed appointment of Mr. WANG Cunting as a Supervisor of the Second Session of the Supervisory Committee.

Details of the above resolutions proposed at the EGM are contained in the Circular, which is available on the website of Hong Kong Exchanges and Clearing Limited (www.hkex.com.hk) and the website of the Company (www.segroup.cn).

By Order of the Board

SINOPEC ENGINEERING (GROUP) CO., LTD. SANG Jinghua

Vice President and Secretary to the Board

Beijing, the PRC 14 September 2015

As at the date of this notice, the executive Directors are LU Dong, YAN Shaochun, SUN Lili (employee representative Director) and WU Derong (employee representative Director), the non-executive Directors are ZHANG Jianhua and LI Guoqing, and the independent non-executive Directors are HUI Chiu Chung, Stephen, JIN Yong and YE Zheng.

— 60 —

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

Notes:

ATTENDEE OF THE EGM

Eligibility and Registration Procedure for attending the EGM
(a) Closure of Register of Members. For the purpose of ascertaining Shareholders who are entitled to attend and vote at the EGM, the register of members of the Company will be closed from Wednesday, 30 September 2015 to Friday, 30 October 2015 (both days inclusive).
(b) Holders of Domestic Shares and H Shares whose names appear on the register of members of the Company before the close of business day on Wednesday, 30 September 2015 are entitled to attend and vote in respect of all resolutions to be proposed at the EGM.
(c) Holders of H Shares who wish to attend the EGM shall lodge their share certificates accompanied by the transfer documents with Computershare Hong Kong Investor Services Ltd. before 4:30 p.m. on Tuesday, 29 September 2015 for registration.
(d) A Shareholder or his/her/its proxy shall produce proof of identity when attending the meeting. If a Shareholder is a legal person, its legal representative or other persons authorised by the board of directors or other governing body of such Shareholder may attend the EGM by producing a copy of the resolution of the board of directors or other governing body of such Shareholder appointing such persons to attend the meeting.
(e) Holders of Domestic Shares and H Shares intending to attend the EGM should return the reply slip for attending the EGM to the Company on or before Saturday, 10 October 2015.
(f) Shareholders may send the above reply slip to the Company in person, by post or by fax.
Proxy
(a) A Shareholder eligible to attend and vote at the EGM is entitled to appoint, in written form, one or more proxies to attend and vote on his/her/its behalf. A proxy need not be a Shareholder.
(b) A proxy should be appointed by a written instrument signed by the appointer or his/her/its attorney duly authorised in writing. If the form of proxy is signed by the attorney of the appointer, the power of attorney authorising that attorney to sign or the authorisation document(s) must be notarised.
(c) To be valid, the power of attorney or other authorisation document(s) which have been notarised together with the completed form of proxy must be delivered to the place of business of the Company for holders of Domestic Shares and Computershare Hong Kong Investor Services Ltd. at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong for holders of H Shares not less than 24 hours before the time designated for holding of the EGM.
(d) A Shareholder or his/her/its proxy may exercise the right to vote by poll.

3. Resolutions for independent shareholders’ approval

Pursuant to the Hong Kong Listing Rules, the ordinary resolutions numbered 1 and 2 to be proposed at the EGM re subject to Independent Shareholders’ approval. Sinopec Group and its associates will abstain from voting on this resolution.

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

Miscellaneous
(a) The EGM will not last for more than one working day. Shareholders who attend the EGM shall bear their own travelling and accommodation expenses.
(b) The address of the Share Registrar of H Shares, Computershare Hong Kong Investor Services Ltd., is at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.
(c) The place of business of the Company is at:

Tower B, No. 19 Anyuan, Anhui Beili, Chaoyang District, Beijing, the PRC Post Code: 100101 Telephone No.: +86(10) 6499 8114 Facsimile No.: +86(10) 6499 8599

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group (i) for the year ended 31 December 2014 is disclosed on pages 116 to 187 of the 2014 annual report of the Company published on 30 March 2015; (ii) for the year ended 31 December 2013 is disclosed on pages 108 to 177 of the 2013 annual report of the Company published on 17 March 2014; and (iii) for the year ended 31 December 2012 is disclosed in Appendix I to the prospectus issued by the Company on 10 May 2013. The above have been published on the website of the Hong Kong Stock Exchange (www.hkex.com.hk) and the website of the Company (www.segroup.cn).

2. INDEBTEDNESS STATEMENT

As at the close of business on 31 August 2015, being the latest practicable date for the purpose of preparing this indebtedness statement, the Group did not have any loan capital issued, any bank overdrafts and liabilities under acceptances (other than general commercial papers) or other similar indebtedness, debentures, mortgages, charges or loans or acceptance credits or hire purchase commitments, guarantees or other material contingent liabilities.

3. WORKING CAPITAL

Taking into account the internal and other financial resources available to the Group, after diligent and thorough consideration, the Directors are of the opinion that, in the absence of unforeseen circumstances, the Group has sufficient working capital required at present and for at least the next 12 months from the date of this circular.

4. FINANCIAL AND TRADING PROSPECTS

There has been no significant change in the trend of the business and financial and trading prospects of the Group since the date of the last published interim report.

5. FINANCIAL EFFECT OF THE TRANSACTIONS UNDER THE FINANCIAL SERVICES FRAMEWORK AGREEMENT ON THE COMPANY

The Directors expect that the transactions under the Financial Services Framework Agreement will not have any immediate material financial impact on the earnings, assets or liabilities of the Company.

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GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, so far as was known to the Board, none of the Directors, Supervisors and senior management members of the Company had any interest or short positions in any shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance) which are required to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the Securities and Futures Ordinance (including interests or short positions which they are taken or deemed to have under such provisions of the Securities and Futures Ordinance), or which were required, pursuant to section 352 of the Securities and Futures Ordinance, to be entered in the register maintained by the Company referred to therein, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in Appendix 10 to the Hong Kong Listing Rules, to be notified to the Company and the Hong Kong Stock Exchange.

As at the Latest Practicable Date, so far as was known to the Board, none of the Directors was a director or employee of a company which has an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance.

3. DISCLOSURE OF SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, save as disclosed below, so far as was known to the Board, no persons (not being a Director, Supervisor or senior management member of the Company) had an interest or short position in the shares or underlying shares and debentures of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance, or, who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at the general meeting of any other member of the Company:

				Approximate
				percentage	Approximate
				(%) in the	percentage
				Company’s	(%) in the
			Number of Shares	total issued	Company’s
	Class of		Held or Deemed	share capital	total share
Name of shareholders	Shares	Capacity	to be Held	of that class(7)	capital(8)
Sinopec Group(1)	Domestic	Beneficial owner/	2,967,200,000 (L)	100 (L)	67.01 (L)
	Shares	Interests of
		controlled
		corporation

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APPENDIX II

GENERAL INFORMATION

				Approximate
				percentage	Approximate
				(%) in the	percentage
				Company’s	(%) in the
			Number of Shares	total issued	Company’s
	Class of		Held or Deemed	share capital	total share
Name of shareholders	Shares	Capacity	to be Held	of that class(7)	capital(8)
National Council for	H Shares	Beneficial owner	131,468,000 (L)	9.00 (L)	2.97(L)
Social Security Fund
of the PRC
(全國社會保障
基金理事會)(2)
State Administration of	H Shares	Interests of	131,756,000 (L)	9.02 (L)	2.98 (L)
Foreign Exchange of		controlled
the PRC		corporation
(國家外匯管理局)(3)
JPMorgan Chase	H Shares	Trustee/	117,181,399 (L)	8.02 (L)	2.65 (L)
& Co.(4)		Interests of	45,000 (S)	0.003 (S)	0.001 (S)
		controlled
		corporation	111,338,899 (P)	7.62 (P)	2.51 (P)
Value Partners Group	H Shares	Interests of	99,250,000 (L)	6.79 (L)	2.24 (L)
Limited(5)		controlled
		corporation
Templeton Global	H Shares	Investment Manager	78,865,000 (L)	5.40 (L)	1.78 (L)
Advisors Limited(6)

(L) — long position; (S) — short position; (P) — Lending Pool

Notes:

(1) Sinopec Group directly or indirectly holds 2,967,200,000 Domestic Shares, representing 100% of the domestic share capital and approximately 67.01% of the total share capital of the Company, respectively. SAMC is a wholly-owned subsidiary of Sinopec Group and directly holds 59,344,000 Domestic Shares, representing 2% of the domestic share capital and approximately 1.34% of the total share capital of the Company, respectively. For the purposes of the Securities and Futures Ordinance, Sinopec Group is also deemed to be interested in the Domestic Shares held by SAMC.
(2) The information is based on the Corporate Substantial Shareholder Notice dated 19 November 2013 and filed by National Council for Social Security Fund of the PRC with the Hong Kong Stock Exchange.
(3) According to the Corporate Substantial Shareholder Notices dated 4 June 2013 and filed by each of (i) the State Administration of Foreign Exchange of the PRC, (ii) Pagoda Tree Investment Company Limited (中國華馨投資有限公司), (iii) Compass Investment Company Limited (博遠投資有限公司), (iv) GUOXIN International Investment Corporation Limited (國新國際投資有限公司) and (v) Metroson Holdings Corporation Limited (都盛控股有限公司) with the Hong Kong Stock Exchange, Metroson Holdings Corporation Limited directly holds 131,756,000 H Shares. As each of Pagoda Tree Investment Company Limited, Compass Investment Company Limited, GUOXIN International Investment Corporation Limited and Metroson Holdings Corporation Limited is a subsidiary directly or indirectly controlled by State Administration of Foreign Exchange of the PRC, each of the State Administration of Foreign Exchange of the PRC, Pagoda Tree Investment Company Limited, Compass Investment Company Limited and GUOXIN International Investment Corporation Limited is deemed interested in the long positions held by Metroson Holdings Corporation Limited for the purposes of the Securities and Futures Ordinance.

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GENERAL INFORMATION

APPENDIX II

(4) The information is based on the Corporate Substantial Shareholder Notice dated 2 September 2015 and filed by JPMorgan Chase & Co. with the Hong Kong Stock Exchange.
(5) The information is based on the Corporate Substantial Shareholder Notice dated 28 August 2015 and filed by Value Partners Group Limited with the Hong Kong Stock Exchange.
(6) The information is based on the Corporate Substantial Shareholder Notice dated 1 April 2015 and filed by Templeton Global Advisors Limited with the Hong Kong Stock Exchange.
(7) It is calculated on the basis that the Company has issued 2,967,200,000 Domestic Shares and 1,460,800,000 H Shares.
(8) It is calculated on the basis that the Company has issued 4,428,000,000 Shares in total.

4. PARTICULARS OF DIRECTORS’ AND SUPERVISORS’ CONTRACTS

The executive Directors and non-executive Directors have entered into service contracts with the Company. Such service contracts shall be valid from the date on which the relevant Director was appointed to the expiry of the First Session of the Board. The service contracts may be renewed according to the Articles and applicable laws and regulations.

The Supervisors have entered into contracts with the Company in respect of their compliance with relevant laws and regulations, the Articles and arbitration rules. The tenure will be from the date on which the relevant Supervisor is appointed to the expiry of the First Session of the Supervisory Committee. The service contracts may be renewed according to the Articles and applicable laws and regulations.

As at the Latest Practicable Date, none of the Directors or Supervisors of the Company had a service contract with any member of the Group (other than contracts expiring or determinable by the relevant employer within one year without the payment of compensation (other than statutory compensation)).

5. COMPETING INTERESTS

As at the Latest Practicable Date, other than certain directorships and/or other senior management positions held by some of the Directors in Sinopec Corp. as disclosed below, so far as the Board was aware, none of the Directors or their respective associates had any interest in a business which competes or is likely to compete directly or indirectly with the business of the Group:

(a) Mr. ZHANG Jianhua is a director and the senior Vice President of Sinopec Corp.; and
(b) Mr. LI Guoqing is the director of the Engineering Department of Sinopec Corp.

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GENERAL INFORMATION

APPENDIX II

6. DIRECTORS’ AND SUPERVISORS’ INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors and the Supervisors had any interests, either directly or indirectly, in any assets which had been, since 30 June 2015 (being the date to which the latest published audited financial statements of the Group were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors and the Supervisors was materially interested in any contract or arrangement which was significant in relation to the business of the Group taken as a whole.

7. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Company since 30 June 2015 (being the date to which the latest published audited financial statements of the Group were made up).

8. LITIGATION

Save as disclosed in the section headed “Significant Events — 4. Material Litigation or Arbitration Events” in the Company’s 2015 interim report, as at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and, so far as the Directors were aware, no litigation or claim of material importance was pending or threatened by or against any member of the Group.

9. EXPERT

The following is the qualification of ABCI which has given its opinion or advice contained in this circular:

Name Qualifications

ABCI a corporation licensed by Securities and Futures Commission to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities as defined under the Securities and Futures Ordinance

As at the Latest Practicable Date, ABCI had no shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

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GENERAL INFORMATION

APPENDIX II

As at the Latest Practicable Date, ABCI had no direct or indirect interest in any assets which had been, since 30 June 2015 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by, or leased to any member of the Group, or were proposed to be acquired or disposed of by, or leased to any member of the Group.

ABCI has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the reference to its name included herein in the form and context in which it appears.

10. MATERIAL CONTRACTS

Within two years immediately prior to the Latest Practicable Date, there was no contract (not being contracts entered into in the ordinary course of business) entered into by any member of the Group which was or might be material.

11. MISCELLANEOUS

(a) The Company Secretary is Mr. SANG Jinghua. For details of his biographical information, please refer to the Company’s 2014 annual report.
(b) The registered office of the Company is at 6A Huixindong Street, Chaoyang District, Beijing, the PRC.
(c) H Share registrar of the Company is Computershare Hong Kong Investor Services Ltd. at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong.
(d) In the event of any inconsistency, the English language version of this circular shall prevail over the Chinese language version.

12. ROUNDING

Certain amounts and percentages figures included in this circular have been subject to rounding adjustments, or have been rounded to one or two decimal places. Any discrepancies between totals and sums of amounts listed in any table are due to rounding.

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the offices at 20/F, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including Monday, 28 September 2015:

(a) the Financial Services Framework Agreement;

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GENERAL INFORMATION

APPENDIX II

(b) the Engineering and Construction Services Framework Agreement;
(c) the letter from the Independent Board Committee to the Independent Shareholders dated 14 September 2015, the full text of which is set out on pages 31 to 32 of this circular;
(d) the letter from ABCI to the Independent Board Committee and the Independent Shareholders dated 14 September 2015, the full text of which is set out on pages 33 to 58 of this circular;
(e) the written consent of ABCI referred to in the paragraph headed “Expert” in this Appendix II;
(f) the Articles;
(g) the 2013 and 2014 annual reports of the Company; and
(h) this circular.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

BIOGRAPHICAL DETAILS OF NEW DIRECTORS

Mr. ZHANG Jianhua

Mr. ZHANG Jianhua (章建華), aged 50, is the Chairman of the Board, who is also a director and senior vice president of Sinopec Corp. and the chairman of the board of directors of Sinopec (Hong Kong) Ltd (中石化(香港)有限公司). Mr. ZHANG is a senior engineer at the professor level with a doctoral degree. From April 1999 to September 2001, he was deputy manager of Shanghai Gaoqiao Petrochemical Company (上海高橋石油化工公司). From February 2000 to September 2000, he served as deputy manager of Sinopec Shanghai Gaoqiao Company (中國石油化工股份有限公司上海高橋分公司). From September 2000 to June 2003, he was the manager of Sinopec Shanghai Gaoqiao Company. From April 2003 to March 2005, he was the vice president of China Petroleum & Chemical Corporation. From November 2003 to November 2005, he served as the director of the Production and Operation Management Department of Sinopec Corp. (中國石油化工股份生產經營管理部) concurrently. Since March 2005, he has been the senior vice president of Sinopec Corp. Since May 2006, he has been a director of Sinopec Corp. Since June 2007, he has been the chairman of the board of directors of Sinopec (Hong Kong) Limited. He has been the Chairman of the Board since January 2015.

Mr. LU Dong

Mr. LU Dong (陸東), aged 52, is the Vice Chairman of the Board. Mr. LU is a senior engineer at professor level with a university diploma. From January 2000 to March 2004, he was the vice president of Yangzi Petrochemical Limited Liability Company (揚子石油化工有限責任公司). From March 2003 to July 2004, he worked as the deputy director of Chemical Department of Sinopec Corp. (中國石化股份化工事業部). From July 2004 to December 2007, he served as the president of Fujian Petrochemical Company Limited (福建煉油化工有限公司). From July 2004 to October 2014, he was a director of Fujian Petrochemical Company Limited. From December 2005 to October 2014, he worked as the chairman of the board of directors of Fujian Petrochemical Company Limited. From February 2007 to October 2014, he served as the chairman of the board of directors of and president of Fujian Refining & Petrochemical Company Limited (福建聯合石油化工有限公司). He has been the Vice Chairman of the Board since January 2015.

Mr. YAN Shaochun

Mr. YAN Shaochun (閆少春), aged 50, is a Director and the President of the Company. Mr. YAN is a senior engineer at professor level with a university diploma. From October 1998 to July 1999, he served as Associate Dean of Sinopec Beijing Designing Institute (中石化北京設計院). From July 1999 to June 2004, he undertook various roles at Sinopec Engineering Incorporation (中國石化工程建設公司). From May 2001 to June 2004, he was the vice president of Sinopec Engineering Incorporation. From June 2004 to December 2008, he served as the manager of Luoyang Petrochemical Engineering

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Corporation of Sinopec Group (中國石化集團洛陽石油化工工程公司, “Sinopec Group LPEC”). From December 2008 to April 2012, he served as the president of Sinopec Group LPEC. From April 2012 to September 2012, he served as an executive director and president of each of Sinopec Luoyang Petrochemical Engineering Corporation (中石化洛陽工程有限公司) and Sinopec Guangzhou Engineering Co., Ltd. (中石化廣州工程有限公司). He was the Vice President of the Company from August 2012 to September 2012 and the Standing Vice President of the Company from September 2012 to April 2013 and has been an executive Director and President of the Company since April 2013.

Mr. LI Guoqing

Mr. LI Guoqing (李國清), aged 57, is a Director, and the director of the Engineering Department of Sinopec Corp. (中國石化股份工程部). Mr. LI is a senior engineer at professor level with a university diploma. From December 2001 to January 2003, he served as the deputy manager of China Petrochemical Corporation Luoyang Petrochemical Engineering Corporation (中國石化集團洛陽石油化工工程公司). From January 2003 to April 2005, he was the director of the designing management division of the engineering and construction administration department of Sinopec Group. He served as deputy director general of the engineering and construction administration department of Sinopec Group from April 2005 to June 2007 and deputy director general of the engineering department of Sinopec Corp. from June 2007 to June 2012. From June 2012 to November 2013, he was an executive director and general manager of Sinopec Engineering Incorporation (中國石化工程建設有限公司). He served as the Vice President of the Company from August 2012 to November 2013. He has been the director of the engineering department of Sinopec Corp. since November 2013 and the Director since May 2014.

Mr. HUI Chiu Chung, Stephen

Mr. HUI Chiu Chung (許照中), J.P., aged 68, is an independent non-executive Director. Mr. HUI is currently the Chairman and Chief Executive Officer of Luk Fook Financial Services Limited. He also serves as an independent non-executive director of Zhuhai Holdings Investment Group Limited (Stock Code: 908), Gemdale Properties and Investment Corporation Limited (Stock Code: 535), Lifestyle International Holdings Limited (Stock Code: 1212), China South City Holdings Limited (Stock Code: 1668) and Agile Property Holdings Limited (Stock Code: 3383) and a non-executive director of Luk Fook Holdings (International) Limited (Stock Code: 590), whose shares are listed on the Hong Kong Stock Exchange. Since April 2009, Mr. HUI had been appointed by the Hong Kong Government as an independent non-executive director of Hong Kong Exchanges and Clearing Limited (Stock Code: 388), at which his term of office ended in April 2015. Mr. HUI has over 40 years of experience in the securities and investment industry. He was the Managing Director of UOB Kay Hian (Asia) Limited (大華繼顯(亞洲)有限公司) from 2002 to 2005; Group Managing Director of OSK Asia Holdings Limited (僑豐金融集團有限公司) (“ OSK ”) from August 2005 to March 2007; Chief Executive Officer of OSK from March 2007 to March 2011; and the vice chairman of OSK Asia Holdings Hong Kong Limited (僑豐金融集團(香港)有限公司) from April 2011 to September 2011. He served for years as a council member and vice chairman of the Hong Kong Stock Exchange, a member of the Advisory Committee and the Committee on Real Estate Investment Trusts of the Hong Kong

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Securities and Futures Commission, a director of the Hong Kong Securities Clearing Company Limited, a member of the Listing Committee of the Hong Kong Exchanges and Clearing Limited, an appointed member of the Securities and Futures Appeal Tribunal, a member of the Standing Committee on Company Law Reform, and an appointed member of the Hong Kong Institute of Certified Public Accountants Investigation Panel. Mr. Hui became a Fellow Member of the Hong Kong Securities and Investment Institute and the Hong Kong Institute of Directors in 2011 and 2002, respectively. Mr. HUI has been an independent non-executive Director since April 2013.

Mr. JIN Yong

Mr. JIN Yong (金涌), aged 80, is an independent non-executive Director. Mr JIN currently is a member of Chinese Academy of Engineering, the dean of the Chemical Engineering Science and Technology Research Institute of Tsinghua University, a professor of the Chemical Engineering Department of Tsinghua University, an executive officer of China Society of Particuology and an executive officer of Chemical Industry and Engineering Society of China. Mr. JIN worked as an assistant teacher in Electrical Engineering Research Office in the University of Science and Technology of China (“ USTC ”) from October 1959 to February 1960. He also served as a teacher engaging in advanced studies in the Chemical Research Office in Tianjin University from February 1960 to February 1961, and worked as a teacher in the Chemistry Department in USTC from February 1961 to May 1973. Since 1973, Mr. JIN has been a lecturer, associate professor, professor and tutor of doctorial candidates at the Chemical Engineering department of Tsinghua University. Mr. Jin has been an independent non-executive Director since April 2013.

Mr. YE Zheng

Mr. YE Zheng (葉政), aged 50, is an independent non-executive Director. Mr. YE is a practicing director of Mazars CPA Limited (瑪澤會計師事務所有限公司). He worked in Shanghai Municipal Finance Bureau (上海市財政局) from October 1982 to January 1989. Mr. YE has over 19 years of experience in audit, internal control and consultancy. He served as an auditor in Ernst & Young (安永會計師事務所) from October 1995 to April 2000; an audit manager in KPMG (畢馬威會計師事務所) from May 2000 to December 2001; a senior audit manager in Grant Thornton (均富會計師事務所) from January 2002 to July 2005; and a director in Ernst & Young from August 2005 to October 2006. Mr. YE obtained a bachelor’s degree in accounting and finance in May 1993, and a master’s degree in business administration in December 1994, both from California State University, Long Beach. Mr. YE became a member of the American Institute of Certified Public Accountants in September 1998 and a member of the Hong Kong Institute of Certified Public Accountants in May 2003. He has been a practicing director of Mazars CPA Limited since November 2006 and an independent non-executive Director since April 2013. On 1 November 2014, Mr. YE was appointed by the Ministry of Finance of the People’s Republic of China as a consulting expert for the third session of the committee for enterprise internal control standards with a term of two years.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

BIOGRAPHICAL DETAILS OF NEW SUPERVISORS

Ms. DENG Qunwei

Ms. DENG Qunwei (鄧群偉), aged 44, is the Chairman of the Supervisory Committee. Ms. DENG is a senior economist with a university diploma. From July 1992 to June 2003, Ms. Deng served for Sinopec Finance, the Youth League Committee of departments directly under Sinopec Group and the Political Work Department of Sinopec Group. From June 2003 to December 2010, she acted as the director of the General Administration Office of Sinopec Finance and the manager of Zhengzhou Branch and Tianjin Branch of Sinopec Finance. From February 2001 to February 2004, she concurrently acted as the employee representative supervisor on the supervisory committee of Sinopec Group despatched by the State-owned Assets Supervision and Administration Commission of the State Council. From December 2010 to March 2015, she acted as as the manager of the Settlement Department of Sinopec Finance. She has been the Chairman of the Supervisory Committee since May 2015.

Mr. ZHOU Yingguan

Mr. ZHOU Yingguan (周贏冠), aged 46, is a Supervisor. He is a vice president of Sinopec Nanjing Engineering Co., Ltd. (中石化南京工程有限公司). Mr. ZHOU is a senior engineer with a university diploma. From March 2004 to July 2010, Mr. ZHOU worked as the deputy manager of the Sinopec Group Second Construction Company (中國石化集團第二建設公司). From July 2010 to April 2012, he served as the vice president of Sinopec Group Second Construction Company. Since April 2012, he has been the vice president of Sinopec Group Nanjing Engineering Co., Ltd. (中國石化集團南京工程有限公司). He has been the Supervisor since January 2015.

Mr. WANG Guoliang

Mr. WANG Guoliang (王國良), aged 55, is a Supervisor. He is a vice president of each of Luoyang Petrochemical Engineering Corporation (LPEC)/SINOPEC (中石化洛陽工程有限公司) and Guangzhou Petrochemical Engineering Corporation (GPEC)/SINOPEC (中石化廣州工程有限公司). Mr. WANG is a senior engineer at professor level with a doctorate degree. From September 1997 to November 2001, he worked as the deputy manager of China Petrochemical Luoyang (中國石油化工總公司洛陽石油化工工程公司). From November 2001 to May 2003, he was the secretary of the CPC Committee of Sinopec Group Luoyang Petrochemical Engineering Corporation (中國石化集團洛陽石油化工工程公司). From May 2003 to December 2008, he was the deputy manager of Sinopec Group Luoyang Petrochemical Engineering Corporation. From December 2008 to April 2012, he was the vice president of Sinopec Group Luoyang Petrochemical Engineering Corporation. From April 2012 to September 2012, he was the vice president of Luoyang Petrochemical Engineering Corporation (LPEC)/SINOPEC and Guangzhou Petrochemical Engineering Corporation (GPEC)/SINOPEC. From September 2012 to November 2014, he was an executive director and president of each of Luoyang Petrochemical Engineering Corporation (LPEC)/SINOPEC and Guangzhou Petrochemical Engineering Corporation (GPEC)/SINOPEC. From December 2012 to November 2014, he was the Vice President of the Company. Since November 2014, he has been the vice president of each of Luoyang Petrochemical Engineering Corporation (LPEC)/SINOPEC and Guangzhou Petrochemical Engineering Corporation (GPEC)/SINOPEC. He has been a Supervisor since January 2015.

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APPENDIX III BIOGRAPHICAL DETAILS OF THE PROPOSED DIRECTORS AND SUPERVISORS

Mr. WANG Cunting

Mr. WANG Cunting, aged 48, is a director and president of Sinopec Group Tenth Construction Company Limited (中石化第十建設有限公司). Mr. WANG is a senior engineer at professor level with a university diploma. From October 2006 to December 2008, Mr. WANG worked as the vice manager of Sinopec Group Tenth Construction Company (中國石化集團第十建設公司). From December 2008 to April 2012, he served as the vice president of the Sinopec Group Tenth Construction Company. From April 2012 to March 2015, he served as the vice president of Sinopec Group Tenth Construction Company Limited. He has been the executive director and president of Sinopec Group Tenth Construction Company Limited since March 2015.

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AI assistant

Sinopec Engineering Group Co Ltd. — Proxy Solicitation & Information Statement 2015

14896_rns_2015-09-14_168d4810-b534-4738-9e88-529d179249cc.pdf

THE CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]

MAJOR TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS UNDER FINANCIAL SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

CONTINUING CONNECTED TRANSACTIONS UNDER ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

PROPOSED APPOINTMENTS OF DIRECTORS OF THE SECOND SESSION OF THE BOARD

PROPOSED APPOINTMENTS OF SUPERVISORS OF THE SECOND SESSION OF THE SUPERVISORY COMMITTEE

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]

(Stock Code: 2386)

MAJOR TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS UNDER FINANCIAL SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

CONTINUING CONNECTED TRANSACTIONS UNDER ENGINEERING AND CONSTRUCTION SERVICES FRAMEWORK AGREEMENT AND THE PROPOSED ANNUAL CAPS

PROPOSED APPOINTMENTS OF DIRECTORS OF THE SECOND SESSION OF THE BOARD

I. INTRODUCTION

LETTER FROM THE BOARD

2. Financial Services Framework Agreement

(a) Signing Date and Term

(b) Scope of Services

(c) Pricing Policy

LETTER FROM THE BOARD

(d) Termination

LETTER FROM THE BOARD

Deposits

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(f) Internal control and corporate governance measures

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(g) Historical Amounts

LETTER FROM THE BOARD

(h) Existing and Proposed Annual Caps

Existing Annual Caps

Proposed Annual Caps

LETTER FROM THE BOARD

Basis of the Proposed Annual Caps

LETTER FROM THE BOARD

(i) Implications under the Hong Kong Listing Rules

LETTER FROM THE BOARD

3. Engineering and Construction Services Framework Agreement

(a) Signing Date and Term

(b) Service Scope

LETTER FROM THE BOARD

(c) Pricing Policy

LETTER FROM THE BOARD

(d) Termination

(e) Commercial Rational and Benefits of the Engineering and Construction Services Framework Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(g) Historical Amounts

LETTER FROM THE BOARD

(h) Existing and Proposed Annual Caps

Existing Annual Caps

Proposed Annual Caps

LETTER FROM THE BOARD

Basis of Caps

(i) Implications under the Hong Kong Listing Rules

LETTER FROM THE BOARD

4. Approval by Directors and Independent Shareholders

LETTER FROM THE BOARD

5. General Information

(a) The Company

(b) Sinopec Group

(c) Sinopec Finance

LETTER FROM THE BOARD

(d) Sinopec Century Bright

III. PROPOSED APPOINTMENTS OF DIRECTORS OF THE SECOND SESSION OF THE BOARD AND SUPERVISORS OF THE SECOND SESSION OF THE SUPERVISORY COMMITTEE

Proposed Appointments of Directors of the Second Session of the Board

LETTER FROM THE BOARD

Proposed Appointments of Supervisors of the Second Session of the Supervisory Committee

LETTER FROM THE BOARD

IV. RECOMMENDATIONS

1. Transactions under Each of the Framework Agreements and the Proposed Annual Caps

2. Appointments of Directors of the Second Session of the Board and Supervisors of the Second Session of the Supervisory Committee

LETTER FROM THE BOARD

Sinopec Engineering Group Co Ltd. Proxy Solicitation & Information Statement 2015

**中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]**

**中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]**

**中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]**

**中石化煉化工程（集團）股份有限公司 SINOPEC Engineering (Group) Co., Ltd.[*]**