Sinopec Kantons Holdings Limited - Proxy Solicitation & Information Statement 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular, or as to the action to be taken, you should consult our 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 Kantons Holdings Limited, you should at once hand this circular together with the enclosed form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

SINOPEC KANTONS HOLDINGS LIMITED （中石化冠德控股有限公司）[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 934)

REVISION OF CAPS REGARDING EXISTING ONGOING CONNECTED TRANSACTIONS

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

A letter from the Board is set out on pages 5 to 18 of this circular.

A letter from the Independent Board Committee containing its recommendation in respect of the Existing Ongoing Connected Transactions is set out on page 19 of this circular.

A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee is set out on pages 20 to 31 of this circular.

A notice convening the SGM to be held at 1608 Citicorp Centre, 18 Whitfield Road, Causeway Bay, Hong Kong on Monday, 21 November 2005 at 10:00 a.m. is set out on pages 37 to 38 of this circular. Whether or not you are able to attend the SGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible to Secretaries Limited, the Hong Kong Branch Share Registrar and Transfer Office of the Company, at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or at any adjourned meeting should you so wish.

3 November 2005

* For identification purposes only

CONTENT

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Appendix – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
Notice of Special General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37

– i –

DEFINITIONS

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

“Board”

the board of directors of the Company;

“Company”
Sinopec Kantons Holdings Limited (and for identification only 中石化冠德控股有限公司), an exempted company incorporated in Bermuda with limited liability;
“CPIC”
中國石化國際事業有限公司 (China Petrochemical International Co. Ltd.), a company established under the laws of the PRC, which is a direct wholly-owned subsidiary of Sinopec Corp. and the sole shareholder of SKI;
“CPIC Framework Master Agreement”
the agreement dated 18 February 2005 entered into between the Company and CPIC;
“CPIC Group”
CPIC, its subsidiaries and its associated companies and affiliates;
“CPIGC”
中國石化國際事業廣州公司 (China Petrochemical International Guangzhou Company), a company established under the laws of the PRC, which is a wholly-owned subsidiary of GPC;
“CPIGC Framework Master Agreement”

the agreement dated 18 February 2005 entered into between the Company and CPIGC;

“Director(s)”
the director(s) of the Company, including the independent non-executive directors of the Company;
“Existing Ongoing Connected Transactions”

the services and facilities in relation to the Huizhou Jetty, the supplies of petroleum products to the Kantons Petrol Stations, the crude oil supply and sourcing, and petroleum and petrochemical products trading collectively, details of which are set out in paragraphs (A) and (B) of the letter from the Board in this circular;

“Framework Master Agreements”
collectively the Sinopec Corp. Framework Master Agreement, the Unipec Framework Master Agreement, the CPIC Framework Master Agreement and the CPIGC Framework Master Agreement;
“GPC”

中國石化集團廣州石油化工總廠 (Sinopec Guangzhou Petrochemical Complex), an enterprise established under the laws of the PRC and a wholly-owned subsidiary of Sinopec Group Company;

– 1 –

DEFINITIONS

“Group”
“Guangdong Company”
“Guangzhou City”
“Guangzhou Municipality”
“Hong Kong”
“Huade”
“Huizhou Jetty”
“Independent Board Committee”
“Independent Financial Adviser”
“Independent Shareholders”

the Company and its subsidiaries;

中國石油化工股份有限公司廣東石油分公司 (Sinopec Guangdong Oil Products Company), a branch of Sinopec Corp;
the administrative area which covers nine (9) districts in Guangzhou, namely, Baiyun District (白雲區 ), Luo Gang District (蘿崗區 ), Haizhu District (海珠區 ), Huangpu District (黃埔區 ), Liwan District (荔灣區 ), Tianhe District (天河區 ), Yuexiu District (越秀區 ), Huadu District (花都區 ) and Panyu District (番禺區 );
the administrative area which covers the Guangzhou City and its two (2) adjacent county-level cities, namely, Conghua (從化 ) and Zengcheng (增城 );
the Hong Kong Special Administrative Region of the PRC;
惠州市大亞灣華德石化有限公司(Hua De Petrochemical Co. Ltd.), a sino-foreign equity joint venture company established under the laws of the PRC with limited liability in respect of which a seventy per cent. (70%) equity interest is held by the Group through Kantons Investment and a thirty per cent. (30%) equity interest is held by GPC;
the Huizhou Crude Oil Jetty Complex, including its oil tanker handling, crude oil unloading, storage and pipeline transmission facilities, which is located on Mabianzhou Island (馬鞭洲島 ) in the Daya Bay Economic and Technological Development Zone (大亞灣經濟技術開發區 ) in Huizhou (惠州 ), Guangdong Province, the PRC and which is owned and operated by the Group through Huade;
the board committee of the Company constituted by Mr. Wong Po Yan, Ms. Tam Wai Chu, Maria and Mr. Fong Chung, Mark, the independent non-executive directors of the Company;
Baron Capital Limited;
shareholders of the Company other than Sinopec Group Company, Sinopec Corp., CPIC, SKI and their respective associates (as defined in the Listing Rules);

– 2 –

DEFINITIONS

“KGSIM” Kantons Gas Station Investment & Management Co. Ltd. (廣州保稅區冠德油站投資管理有限公司 ), a limited liability company established under the laws of the PRC in respect of which a ninety per cent. (90%) equity interest is held by Huade and a ten per cent. (10%) equity interest is held by GPC;
“Kantons Petrol Stations” the stations currently located in the Guangzhou Municipality (and such other petrol stations from time to time) operated by the Group through KGSIM, either on a contractual operating basis or by virtue of its interest as a party to a joint venture or as an investor;
“Kantons Investment” Kantons International Investment Limited (and for identification only 冠德國際投資有限公司), a company incorporated under the laws of the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company;
“Last SGM” the special general meeting of the Company dated 1 April 2005 convened for the purpose of approving and ratifying the Existing Ongoing Connected Transactions;
“Latest Practicable Date” 1 November 2005, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular;
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;
“March Circular” the circular of the Company dated 16 March 2005 on the Existing Ongoing Connected Transactions;
“PRC” the People’s Republic of China, but for the purposes of this circular and for geographical reference only (unless otherwise indicated) excludes Taiwan, Macau and Hong Kong;
“Revised Caps” the revision and increase of the caps of the Existing Ongoing Connected Transactions as disclosed in this circular and to be approved in the SGM;
“SGM” the special general meeting of the Company to be convened for the purpose of approving the Revised Caps of the Existing Ongoing Connected Transactions;
“Sinopec Corp.” 中國石油化工股份有限公司 (China Petroleum & Chemical Corporation) (Stock Code: 386), a joint-stock limited liability company incorporated in the PRC, the shares of which are listed on the stock exchanges of Hong Kong, Shanghai, New York and London;

– 3 –

DEFINITIONS

“Sinopec Corp. Framework Master Agreement”
“Sinopec Group”
“Sinopec Group Company”
“Sinopec Guangzhou Branch”
“Sinopec Guangzhou Branch Expansion”
“SKI”
“State”
“Stock Exchange”
“Unipec”
“Unipec Framework Master Agreement”
“Unipec Group”

the agreement dated 18 February 2005 entered into between the Company and Sinopec Corp;

Sinopec Group Company, its subsidiaries and its associated companies and affiliates, including the Group, or where the context so requires, any two or more members of such group and the words “member of the Sinopec Group” shall mean any one of them;
中國石油化工集團公司 (China Petrochemical Corporation), an enterprise established under the laws of the PRC, being the controlling shareholder of Sinopec Corp. (by virtue of its holding of approximately 67.92% in the issued share capital in Sinopec Corp.) and the ultimate controlling shareholder of the Company (by virtue of Sinopec Corp.’s holding of approximately 72.34% in the issued share capital of the Company);
中國石油化工股份有限公司廣州分公司 (China Petroleum & Chemical Corporation Guangzhou Branch), a branch of Sinopec Corp;
the planned improvement and expansion of the crude oil refinery of Sinopec Guangzhou Branch from an annual crude refining capacity of 7.7 million to a crude oil refinery of annual refining capacity within the range of 10 million to 13 million tones;
Sinopec Kantons International Limited (and for identification only 中石化冠德國際有限公司), a company established under the laws of the British Virgin Islands with limited liability and the immediate controlling shareholder of the Company;

the government of the PRC;

The Stock Exchange of Hong Kong Limited;
中國國際石油化工聯合有限公司 (China International United Petroleum and Chemicals Co. Ltd.), a company established under the laws of the PRC with limited liability;
the agreement dated 18 February 2005 entered into between the Company and Unipec; and
Unipec, its subsidiaries and its associated companies and affiliates.

– 4 –

LETTER FROM THE BOARD

SINOPEC KANTONS HOLDINGS LIMITED （中石化冠德控股有限公司）[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 934)

Executive Directors: Mr. Yang Shu Shan (Chairman) Mr. Pan Xin Rong (Deputy Chairman) Mr. Zhou Feng Mr. Zhu Jian Min Mr. Ye Zhi Jun (Managing Director) Mr. Ge Han Hua

Non-executive Director: Mr. Yang Mo Fei

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal office: 1608 Citicorp Centre 18 Whitfield Road Causeway Bay Hong Kong

Independent Non-executive Directors: Mr. Wong Po Yan Ms. Tam Wai Chu, Maria Mr. Fong Chung, Mark

3 November 2005

To the shareholders of the Company

Dear Sir or Madam,

REVISION OF CAPS REGARDING EXISTING ONGOING CONNECTED TRANSACTIONS

BACKGROUND

The purposes of this circular are to set out: (a) the Revised Caps and the terms of the Existing Ongoing Connected Transactions; (b) the recommendation of the Independent Board Committee in respect of the Revised Caps of the Existing Ongoing Connected Transactions; (c) the advice of the Independent Financial Adviser to the Independent Board Committee in respect of the Revised Caps of the Existing Ongoing Connected Transactions; and (d) notice of the SGM to be convened at which an ordinary resolution will be proposed to consider, and if thought fit, approving by poll the Revised Caps of the Existing Ongoing Connected Transactions and all matters contemplated thereunder.

* For identification purposes only

– 5 –

LETTER FROM THE BOARD

The Existing Ongoing Connected Transactions were approved in the Last SGM. Due to the increase of international crude oil and petroleum products prices since the February Announcement, the Company would like to increase and revise the caps for these transactions for the three financial years ending 31 December 2007. The Company will have to comply with the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A.35 of the Listing Rules.

At the time of the February Announcement, the international crude oil price was around US$40 per barrel. With the recent increase in crude oil price, price of petroleum products (including petroleum diesel and petrochemicals) also increased. The caps in the February Announcement and the March Circular regarding Crude Oil and Petroleum Products Ongoing Connected Transactions were estimated based on international crude oil price in February 2005. Furthermore, as the February Announcement and March Circular disclosed, the planned improvement and expansion of the crude oil refinery of Sinopec Guangzhou Branch was from an annual crude refining capacity of 7.7 million to an annual refining capacity of 10 million tonnes grade crude oil refinery. The Company was informed that the latest plan of Sinopec Guangzhou Branch is to increase the refining capacity to a range of 10 million to 13 million tonnes of crude oil annually. The former upper cap is based on the Sinopec Guangzhou Branch having a 10 million tonnes annual refining capacity.

For the sake of good corporate governance, and in light of possible sustainment and further increases in crude oil and petroleum products prices, the Directors set out in this circular information concerning the Revised Caps and the convening of the SGM to approve the Revised Caps of the Existing Ongoing Connected Transactions.

The Revised Caps are upper limits of the Existing Ongoing Connected Transactions in order to fulfil the requirements of Rule 14.35 of the Listing Rules. These do not amount to nor intended to be any forecast or estimate of profit, business or revenue of the Group.

(A) Services and trading activities with Sinopec Corp.

On 18 February 2005, the Company and Sinopec Corp. entered into the Sinopec Corp. Framework Master Agreement to set out a framework and to regulate the following services and trading activities between the Group and Sinopec Corp. This agreement commenced from 1 January 2005 for a term of 3 years up to 31 December 2007.

1. Services and facilities in relation to the Huizhou Jetty

Nature of transaction and the connected party

Huade has provided and will continue to provide the following services and facilities to Sinopec Guangzhou Branch through the Huizhou Jetty:

(i) jetty and related services concerning the unloading of crude oil from oil tankers and dockage;
(ii) crude oil storage facilities and related services concerning the storage of crude oil in oil tanker and oil tanker handling; and

– 6 –

LETTER FROM THE BOARD

(iii) crude oil pipeline facilities and related services concerning the transmission of crude oil from the Huizhou Jetty to Sinopec Guangzhou Branch’s refinery complex in Guangzhou City.

Pricing basis and former caps

Pursuant to the Sinopec Corp. Framework Master Agreement, Huade will enter into a separate crude oil jetty service agreement with Sinopec Guangzhou Branch annually. The parties will negotiate with reference to, among other factors, law and regulations, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the agreements.

Pursuant to the Sinopec Corp. Framework Master Agreement, the service fees payable by Sinopec Guangzhou Branch and received by the Group in respect of (i) above is based on the State-prescribed prices, being regulated and standardised by the PRC’s Ministry of Communications. The service fees payable in respect of (ii) and (iii) above are charged on the basis of government-approved prices, being approved by the Guangdong Price Bureau.

If the State-prescribed prices or the government-approved prices (as the case may be) of any of the above services are abolished, the service fees payable by Sinopec Guangzhou Branch shall be (a) the fair market price for the relevant service (to be determined by the parties after consultation); or (b) if no market price is available or agreed between the parties, the previous State-prescribed prices or government-approved prices (as the case may be) plus a margin not exceeding the rate of increase of the consumer price index for Guangdong Province during the immediately preceding calendar year.

The aggregate amounts received by the Group in respect of this connected transaction for each of the two years ended 31 December 2004 were approximately HK$278.38 million and HK$340.05 million. The aggregate amount received by the Group for the six months ended 30 June 2005 was approximately HK$151.02 million.

As approved in the Last SGM, the annual cap of this connected transaction is HK$350 million, HK$500 million and HK$500 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively.

Revised caps and reasons

The Directors expect that the monetary amount of this connected transaction will increase. The revised aggregate transaction amounts will be within a maximum annual cap of HK$350 million, HK$630 million and HK$630 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively. The terms and conditions of and the basis of determination of consideration under the Sinopec Corp. Framework Master Agreement in connection with this transaction will remain the same and this agreement will remain in full force and effect.

– 7 –

LETTER FROM THE BOARD

The Group entered into the connected transaction for the reason that, given the availability and quality of the above services and the proximity of Huade crude oil jetty to Sinopec Guangzhou Branch, the latter always relies on the provision of services by the former.

In arriving at the caps, the historical figures were taken into account. Also, the Directors were informed of the Sinopec Guangzhou Branch Expansion, being the planned improvement and expansion of the crude oil refinery of Sinopec Guangzhou Branch from an annual crude refining capacity of 7.7 million to a crude oil refinery with an annual refining capacity within the range of 10 million to 13 million tones of crude oil. An annual refining capacity of 13 million tonnes is taken for calculation of the annual cap. This is expected to be completed in 2006, which will lead to a corresponding increase in consumption of service and facilities of Huizhou Jetty. Sinopec Guangzhou Branch is the largest customer of Huizhou Jetty.

However, Sinopec Guangzhou Branch is only a customer of the Group and the Group has no control over it. That being the case, there may be changes or amendments to the plan and the implementation of Sinopec Guangzhou Branch Expansion which may affect the increase in the consumption of services and facilities in relation to Huizhou Jetty.

The Directors have also considered that (a) due to the planned increase of crude oil processing capacity of Sinopec Guangzhou Branch and the expected increase in demand for petroleum and petrochemical products in the PRC market, Sinopec Guangzhou Branch is expected to import more crude oil and thus will consume more crude oil jetty services and its facilities; (b) the planned improvement and expansion of the crude oil jetty and its ancillary facilities to cope with the expected increase in demand for crude oil jetty services of Sinopec Guangzhou Branch; and (c) given the nature of mutual dependence and reliance of the supply and consumption of the services and facilities in relation to the Huizhou Jetty, it is in the interest of the Company to capture any increase in the volume and quantity of this business.

2. Supplies of petroleum products to the Kantons Petrol Stations

Nature of the transaction and connected party

The Group has purchased and will continue to purchase gasoline and other petroleum products from Guangdong Company and its subsidiaries for resale through the Kantons Petrol Stations. Guangdong Company is a branch of Sinopec Corp.

Pricing basis and former caps

Pursuant to the Sinopec Corp. Framework Master Agreement, the Group will enter into, from time to time, separate written petroleum products purchase agreements not exceeding 3 years with Guangdong Company and its subsidiaries for the supply of petroleum products on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

– 8 –

LETTER FROM THE BOARD

Pursuant to the Sinopec Corp. Framework Master Agreement, the purchase prices payable for the petroleum products supplied by Guangdong Company to the Group are to be agreed between the parties on an arm’s length basis through negotiations, are to be based on government guidance prices, are to be fair and reasonable and the qualities of the products are to be in compliance with the State’s prescribed standard. The current government guidance price is based on the notice regarding price restructuring plan of crude oil and petroleum products (原油成品油價格改革通知 ) issued by the State Development and Planning Commission (國家發展計劃委員會 , now State Development and Reform Commission(國家發展和改革委員會 )) in June 1998.

The aggregate amounts paid by the Group in respect of this connected transaction for each of the two years ended 31 December 2004 were approximately HK$1,101.1 million and HK$1,204.88 million. The aggregate amount received by the Group for the six months ended 30 June 2005 was approximately HK$666.94 million.

As approved in the Last SGM, the annual cap of this connected transaction is HK$1,300 million, HK$1,500 million and HK$1,600 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively.

Revised caps and reasons

The Directors expect that the monetary amount of this connected transaction will increase. The revised aggregate transaction amounts paid by the Group will be within a maximum annual cap of HK$2,000 million, HK$3,500 million and HK$3,500 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively. The terms and conditions of and the basis of determination of consideration under the Sinopec Corp. Framework Master Agreement in connection with this transaction will remain the same and this agreement will remain in full force and effect.

The Group entered into the connected transaction because of the close proximity of the Kantons Petrol Stations to Guangdong Company and the availability and quality of the products, which are more economical to KGSIM.

In arriving at the caps, the historical figures were taken into account. Given its trading nature, the amount of business to be conducted is market and customer demand driven. The Directors have considered the expected increase in the consumption of gasoline and other petroleum products in Guangdong Province; the expected improvement and development of the Kantons Petrol Stations; the volatility and possible future increase of the price of gasoline and other petroleum products in the PRC and the international market; and the cost of refining crude oil into petroleum products, which may possibly increase.

– 9 –

LETTER FROM THE BOARD

(B) Trading activities with Unipec Group, CPIC Group and CPIGC

On 18 February 2005, the Company entered into the Unipec Framework Master Agreement, the CPIC Framework Master Agreement and the CPIGC Framework Master Agreement with Unipec, CPIC and CPIGC respectively to regulate the trading activities amongst them. These agreements commenced from 1 January 2005 for a term of 3 years up to 31 December 2007.

1. Crude oil supply

Nature of the transactions and connected parties

The Group has supplied and will continue to supply crude oil to Unipec Group, CPIC Group and CPIGC.

Pricing basis and former caps

Under each of the Unipec Framework Master Agreement, the CPIC Framework Master Agreement and the CPIGC Framework Master Agreement, the Group will enter into separate written supply agreements not exceeding 3 years with members of the Unipec Group, CPIC Group and CPIGC respectively for the supply of crude oil on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

Under each of the Unipec Framework Master Agreement, the CPIC Framework Master Agreement and the CPIGC Framework Master Agreement, the prices payable are to be based on international market prices and are to be agreed between the parties on an arm’s length basis through negotiations. The parties can access such pricing information from various sources, including the EMIS energy market information resource operated by Platts.

The aggregate amounts received by the Group in respect of these connected transactions for each of the two years ended 31 December 2004 were approximately HK$2,084.67 million and HK$2,715.25 million. The aggregate amount received by the Group for the six months ended 30 June 2005 was approximately HK$2,999.74 million.

As approved in the Last SGM, the annual cap of this connected transaction is HK$3,300 million, HK$4,300 million and HK$4,300 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively.

– 10 –

LETTER FROM THE BOARD

Revised caps and reasons

The Directors expect that the monetary amount of this connected transaction will increase. The revised aggregate amounts received by the Group in respect of these transactions in each financial year shall not exceed HK$4,600 million, HK$9,800 million and HK$9,800 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively. The terms and conditions of and the basis of determination of consideration under each of the Unipec Framework Master Agreement, CPIC Framework Master Agreement and CPIGC Framework Master Agreement in connection with this transaction will remain the same and this agreement will remain in full force and effect.

Due to foreign trade laws and regulations of the PRC, the Group cannot supply crude oil, petroleum and petrochemical products to, or enter into written agreements with its end users in the PRC directly. The Group has to supply through and enter into written contracts with corporations that have crude oil, petroleum and petrochemical product import trading rights in the PRC; for example, Unipec, CPIC and CPIGC.

In addition, given its trading nature, the amount of business to be conducted is market and customer demand driven. It is in the interest of the Company and its future business development that it can capture any increase in the volume and the quantity or other new opportunities in its trading businesses as they arise.

Furthermore, with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between the Sinopec Group and the Group is expected to increase.

Apart from the reasons set out above, in arriving at the above caps, the following factors are taken into account:

(a) the volatility and increase in the international and the PRC market price of crude oil.
(b) the expected increase in the consumption of petroleum and petrochemical products in the PRC, the expected increase in the demand of crude oil by the crude oil refineries in the PRC and the expected increase in crude oil refining capacities of these refineries, including the Sinopec Guangzhou Branch Expansion.
(c) the respective historical figures of these connected transactions.

2. Crude oil sourcing

Nature of the transaction and connected parties

The Group has sourced and will continue to source crude oil from members of the Unipec Group and CPIC Group.

– 11 –

LETTER FROM THE BOARD

Pricing basis and former caps

Under the Unipec Framework Master Agreement and the CPIC Framework Master Agreement, the Group will enter into separate written sourcing agreements not exceeding 3 years with members of the Unipec Group and CPIC Group for the sourcing of crude oil on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

The prices payable are to be based on international market prices and are to be agreed between the parties on an arm’s length basis through negotiations. The parties can access such pricing information from various sources, including the EMIS energy market information resource operated by Platts.

The aggregate amounts paid by the Group in respect of these connected transactions for each of the two years ended 31 December 2004 were approximately HK$1,105.95 million and HK$1,198.42 million. The aggregate amount received by the Group for the six months ended 30 June 2005 was approximately HK$2,257.85 million.

As approved in the Last SGM, the annual cap of this connected transaction is HK$2,600 million, HK$3,400 million and HK$3,400 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively.

Revised caps and reasons

The Directors expect that the monetary amount of this connected transaction will increase substantially. The revised aggregate amounts paid by the Group in respect of these transactions shall not exceed HK$3,600 million, HK$8,000 million and HK$8,000 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively. The terms and conditions of and the basis of determination of consideration under each of the Unipec Framework Master Agreement and the CPIC Framework Master Agreement in connection with this transaction will remain the same and this agreement will remain in full force and effect.

Given its trading nature, the amount of business to be conducted is market and customer demand driven. It is in the interest of the Company and its future business development that it can capture any increase in the volume and the quantity or other new opportunities in its trading businesses as they arise.

Furthermore, with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between members of the Sinopec Group and the Group is expected to increase.

– 12 –

LETTER FROM THE BOARD

Apart from the reasons set out above, in arriving at the above caps, the following factors are taken into account:

(a) the volatility and increase in the international and the PRC market price of crude oil, petroleum and petrochemical products.
(b) the expected increase in the consumption of petroleum and petrochemical products, the expected increase in the demand of crude oil by the crude oil refineries and the expected increase in crude oil refining capacities of these refineries, including the Sinopec Guangzhou Branch Expansion.
(c) the respective historical figures of these connected transactions.

3. Petroleum and petrochemical products trading

Nature of the transaction and connected parties

The Group has traded and will continue to trade (including sale or purchase in different transactions and different products) petroleum products with members of the Unipec Group, the CPIC Group (such as Sinopec (Hong Kong) Co. Ltd.), a wholly owned subsidiary of CPIC; and Sinopec/CAOSC Co. Ltd., (of which 70% of its share capital is owned by CPIC) and CPIGC.

In addition, the Group has traded and will continue to trade petrochemical products with members of the CPIC Group and CPIGC.

Pricing basis and former caps

Under the Unipec Framework Master Agreement, the Group will enter into separate written sale and purchase agreements not exceeding 3 years with members of the Unipec Group for the trading of petroleum products on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

Under the Unipec Framework Master Agreement, the prices payable are to be based on international market prices and are to be agreed between the parties on an arm’s length basis through negotiations. The parties can access such pricing information from various sources, including the EMIS energy market information resource operated by Platts.

Under the CPIC Framework Master Agreement, the Group will enter into separate written sale and purchase agreements not exceeding 3 years with members of the CPIC Group and CPIGC for the trading of petroleum and petrochemical products on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

– 13 –

LETTER FROM THE BOARD

Under the CPIC Framework Master Agreement, the prices payable are to be based on international market prices and are to be agreed between the parties on an arm’s length basis through negotiations. The parties can access such pricing information from various sources, including the EMIS energy market information resource operated by Platts.

Under the CPIGC Framework Master Agreement, the Group will enter into separate written sale and purchase agreements not exceeding 3 years with CPIGC for the trading of petroleum and petrochemical products on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

Under the CPIGC Framework Master Agreement, the prices payable are to be based on international market prices and are to be agreed between the parties on an arm’s length basis through negotiations. The parties can access such pricing information from various sources, including the EMIS energy market information resource operated by Platts.

The aggregate amounts paid and received by the Group in respect of these connected transactions for each of the two years ended 31 December 2004 were approximately HK$303.96 million and HK$841.24 million. The aggregate amount received by the Group for the six months ended 30 June 2005 was approximately HK$999.11 million.

As approved in the Last SGM, the annual cap (which is an aggregate figure and not a net-off figure) of this connected transaction is HK$1,500 million, HK$2,000 million and HK$2,000 million for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively.

Revised caps and reasons

The Directors expect that the monetary amount of this connected transaction will increase substantially. The revised aggregate amounts paid by the Group in respect of these transactions shall not exceed HK$450 million, HK$1,500 million and HK$1,500 million; while the revised aggregate amounts received by the Group in respect of these transactions shall not exceed HK$1,950 million, HK$3,200 million and HK$3,200 million, for each of the three financial years ending 31 December 2005, 31 December 2006 and 31 December 2007 respectively. The terms and conditions of and the basis of determination of consideration under each of the Unipec Framework Master Agreement, CPIC Framework Master Agreement and the CPIGC Framework Master Agreement in connection with this transaction will remain the same and this agreement will remain in full force and effect.

Due to foreign trade laws and regulations of the PRC, the Group cannot supply petroleum and petrochemical products to, or enter into written agreements with its end users in the PRC directly, but has to supply through corporations that have crude oil, petroleum and petrochemical product import rights in the PRC, for example, Unipec, CPIC and CPIGC respectively.

– 14 –

LETTER FROM THE BOARD

Futhermore, with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between the Sinopec Group and the Group is expected to increase.

In arriving at the above cap, the following factors are taken into account:

(a) the volatility and increase in the international and the PRC market price of crude oil, petroleum and petrochemical products.
(b) the expected increase in the consumption of petroleum and petrochemical products in the relevant markets, the expected increase in the demand of crude oil by the crude oil refineries and the expected increase in crude oil refining capacities of these refineries, including the Sinopec Guangzhou Branch Expansion.
(c) the respective historical figures of these connected transactions.

(C) The Directors’ view

The Directors are of the view that the Revised Caps are fair and reasonable so far as the Company and its shareholders are concerned. The Directors are also of the opinion that the Existing Ongoing Connected Transactions are entered into and carried out in the ordinary course of business of the Group, on an arm’s length basis, and either (1) where there are comparable transactions, on normal commercial terms; or (2) in accordance with Stateprescribed prices or government-approved prices (as the case may be) prescribed or approved by relevant governmental or regulatory authorities; or (3) in accordance with the terms of the agreements governing the Existing Ongoing Connected Transactions in question that are fair and reasonable and in the interests of the shareholders of the Company as a whole; or (4) if applicable, on terms no less favourable than terms available to or from independent third parties. The Directors are of the view that the Existing Ongoing Connected Transactions are entered into in the ordinary course of business of the Group and are fair and reasonable so far as the Company and its shareholders are concerned.

(D) Listing Rules implications

Under the Listing Rules, for so long as Sinopec Group Company remains a substantial shareholder of the Company for the purposes of the Listing Rules, and Sinopec Group Company holds not less than 30 per cent. of Sinopec Guangzhou Branch, Guangdong Company, Unipec, CPIC, CPIGC, GPC and other relevant members of the Sinopec Group, all of the Existing Ongoing Connected Transactions will constitute “connected transactions”. Since the value of each of the Revised Caps of these Existing Ongoing Connected Transactions will likely exceed 2.5% of the percentage ratios of the Group, pursuant to rule 14A.35 of the Listing Rules, these Existing Ongoing Connected Transactions will require disclosure by way of press notice, preparation and dispatch of circulars to shareholders and approval by poll by the independent shareholders.

– 15 –

LETTER FROM THE BOARD

(E) Information on the Company and the Sinopec Group

The Company was incorporated in Bermuda with limited liability and its shares are listed on the Stock Exchange. The principal activities of the Group are the trade of crude oil, petroleum, and petrochemical products, the operation of crude oil jetties and its ancillary facilities and petrol stations.

Sinopec Corp. is an integrated energy and chemical company with upstream, midstream and downstream operations and is publicly listed on the stock exchanges of Hong Kong, Shanghai, New York and London. The principal operations of Sinopec Corp. and its subsidiaries include:

(1) exploring for and developing, producing and trading crude oil and natural gas;
(2) processing crude oil into refined oil products, producing refined oil products and trading, transporting, distributing and marketing refined oil products; and
(3) producing, distributing and trading chemical products.

Sinopec Group Company, the controlling shareholder of Sinopec Corp. and the ultimate controlling shareholder of the Company, is a state-authorised investment vehicle in oil and petrochemical business which integrates the upstream and downstream assets.

Unipec (China International United Petroleum and Chemicals Co. Ltd. 中國國際石油化工聯合有限公司 ) is a company established under the laws of the PRC with limited liability. Unipec is one of the State authorised import agents of crude oil in the PRC and is a Stateowned enterprise established under PRC laws. Sinopec Corp. indirectly holds the entire registered capital of Unipec.

CPIC (China Petrochemical International Co. Ltd. 中國石化國際事業有限公司 ) is a company established under the laws of the PRC, a direct wholly-owned subsidiary of Sinopec Corp. and the sole shareholder of SKI.

CPIGC (China Petrochemical International Guangzhou Company 中國石化國際事業廣州公司 ) is a company established under the laws of the PRC and a wholly-owned subsidiary of GPC.

GPC (Sinopec Guangzhou Petrochemical Complex 中國石化集團廣州石油化工總廠 ) is an enterprise established under the laws of the PRC and a wholly-owned subsidiary of Sinopec Group Company.

SKI (Sinopec Kantons International Limited) is a limited liability company incorporated in the British Virgin Islands, and is the immediate controlling shareholder of the Company.

– 16 –

LETTER FROM THE BOARD

(F) General

Sinopec Group Company is the ultimate controlling shareholder of the Company and indirectly holds approximately 72.34 per cent. (750 million shares) of the entire issued share capital of the Company. Pursuant to the Listing Rules, the Existing Ongoing Connected Transactions constitute connected transactions to the Company. Sinopec Group Company, Sinopec Corp., CPIC, SKI and their associates will abstain from voting in the SGM to approve the Revised Caps of the Existing Ongoing Connected Transactions.

The Company has established an independent board committee comprising of the three independent non-executive Directors, namely Mr. Wong Po Yan, Ms. Tam Wai Chu, Maria and Mr. Fong Chung, Mark, to consider the Revised Caps of the Existing Ongoing Connected Transactions and to recommend to the shareholders of the Company how to vote in the SGM. Baron Capital Limited has been appointed as the independent financial adviser for the purpose of advising the Independent Board Committee and the Independent Shareholders in relation to the Revised Caps of the Existing Ongoing Connected Transactions.

SPECIAL GENERAL MEETING

The SGM will be convened and will be held on Monday, 21 November 2005 at 10:00 a.m. at 1608 Citicorp Centre, 18 Whitfield Road, Causeway Bay, Hong Kong for the purpose of considering, and if thought fit, passing an ordinary resolution to approve by poll the Revised Caps of the Existing Ongoing Connected Transactions and all matters contemplated thereunder. The notice of the SGM is set out on pages 37 to 38 of this circular.

Sinopec Group Company, Sinopec Corp., CPIC, SKI and their respective associates will abstain from voting at the SGM.

A form of proxy for use in connection with the SGM is enclosed herewith. Whether or not you are able to attend the SGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible to Secretaries Limited, the Hong Kong Branch Share Registrar and Transfer Office of the Company, at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong and in any event by no later than 48 hours before the time appointed for the holding of the SGM (or any adjourned meeting thereof). Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM (or any adjourned meeting thereof) should you so wish.

RECOMMENDATION

The Board (including the Independent Board Committee) is of the view that the Revised Caps are fair and reasonable so far as the Company and its shareholders are concerned.

Accordingly, the Board (including the Independent Board Committee) recommends that the Independent Shareholders vote in favour of the ordinary resolution set out in the notice of the SGM for the approval of the Revised Caps of the Existing Ongoing Connected Transactions.

– 17 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the Appendix to this circular.

Yours faithfully, For and on behalf of the Board Yang Shu Shan Chairman

– 18 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

3 November 2005

SINOPEC KANTONS HOLDINGS LIMITED （中石化冠德控股有限公司）[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 934)

To the Independent Shareholders

Dear Sir or Madam,

We have been appointed as the Independent Board Committee to advise you in connection with the Revised Caps of the Existing Ongoing Connected Transactions, details of which are set out in the Letter from the Board contained in the circular to the shareholders of the Company dated 3 November 2005 (the “ Circular ”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the Revised Caps of the Existing Ongoing Connected Transactions and the advice and opinion of the Independent Financial Adviser in relation thereto as set out on pages 20 to 31 of the Circular, we are of the opinion that the Revised Caps of the Existing Ongoing Connected Transactions are fair and reasonable so far as the Company and the Independent Shareholders are concerned. We therefore recommend that you vote in favour of the ordinary resolution to be proposed at the SGM to approve the Revised Caps of the Existing Ongoing Connected Transactions.

Yours faithfully,

Mr. Wong Po Yan Ms. Tam Wai Chu, Maria Independent Independent Non-executive Director Non-executive Director

Mr. Fong Chung, Mark Independent Non-executive Director

* For identification purposes only

– 19 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice to the Independent Board Committee and the Independent Shareholders from Baron Capital Limited dated 3 November 2005 prepared for the purpose of incorporation in this circular:

4/F, Aon China Building 29 Queen’s Road Central Central, Hong Kong

3 November 2005

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

REVISION OF CAPS REGARDING EXISTING ONGOING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the revision and increase of the caps of the Existing Ongoing Connected Transactions, details of which are set out in the circular issued by the Company to its shareholders dated 3 November 2005 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires.

The Company had previously published the March Circular in relation to the Existing Ongoing Connected Transactions. On 1 April 2005, the Existing Ongoing Connected Transactions and the respective caps in relation thereto (“ Existing Caps ”) for the three years ending 31 December 2007 were approved in the Last SGM. Due to the recent increase of international crude oil and petroleum products prices, the Company would like to seek the approvals from the Independent Shareholders on the Revised Caps for the three financial years ending 31 December 2007. The Revised Caps will be subject to Independent Shareholder’s approval in the SGM, voting by way of poll where Sinopec Group Company, Sinopec Corp., CPIC, SKI and their respective associates will abstain from voting.

The Independent Board Committee, comprising the independent non-executive Directors, has been established by the Company to advise the Independent Shareholders regarding the Revised Caps and to give a recommendation to the Independent Shareholders in relation to the voting of the resolution at the SGM.

BASIS OF OUR OPINION

In formulating our opinion and recommendation to the Independent Board Committee in relation to the Revised Caps, we have relied on the accuracy of the information and representations contained in the Circular and/or other relevant supporting documents which

– 20 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

have been provided to us by the Directors and which the Directors consider complete and relevant. We have assumed that all statements, information and representations made or referred to in the Circular and/or other relevant supporting documents, for which the Directors are solely responsible, are true, correct and complete in all respects at the time they were made and continued to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular and/or other relevant supporting documents were reasonably made after due and careful enquiry.

We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and we have been advised by the Directors that no material facts have been omitted from the information and representations provided in and referred to in the Circular and/or other relevant supporting documents. We consider that we have received sufficient information to enable us to reach an informed view and to justify our reliance on the accuracy of the information and representations contained in the Circular and/or other relevant supporting documents and to provide a reasonable basis for our opinion and recommendation. We have no reason to suspect that any material information has been withheld by the Company or by the Directors.

We have not, however, carried out any independent verification of the information provided to us by the Directors, nor have we conducted an independent in-depth investigation into the affairs of the Company and its subsidiaries, nor have we considered the taxation implication on the Group or the shareholders of the Company contemplated under the Existing Ongoing Connected Transactions.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committee in respect of revising the caps of the Existing Ongoing Connected Transactions, we have considered the principal factors and reasons set out below:

1. Background of the Existing Caps

The Company is a member of the Sinopec Group, which is engaged in a diversified range of energy and petrochemical related operations. The controlling shareholder of the Company is Sinopec Corp., a joint-stock limited liability company incorporated in the PRC. The ultimate controlling shareholder of the Company is Sinopec Group Company, which is a State-owned corporation in the PRC.

Sinopec Corp. is an integrated energy and chemical company with upstream, midstream and downstream operations and is publicly listed on the stock exchanges of Hong Kong, Shanghai, New York and London. The principle operations of Sinopec Corp. and its subsidiaries, including the Company, comprise:

(1) exploring for and developing, producing and trading crude oil and natural gas;
(2) processing crude oil into refined oil products, producing refined oil products and trading, transporting, distributing and marketing refined oil products; and
(3) producing, distributing and trading chemical products.

– 21 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 18 February 2005, the Company and Sinopec Corp. entered into the Sinopec Corp. Framework Master Agreement to set out a framework and to regulate various services and trading activities between the Group and Sinopec Corp.. The Company also on the same date entered into the Unipec Framework Master Agreement, the CPIC Framework Master Agreement and the CPIGC Framework Master Agreement with Unipec, CPIC and CPIGC respectively to regulate the trading activities amongst them. These agreements commenced from 1 January 2005 for a term of 3 years up to 31 December 2007. We note that the Existing Ongoing Connected Transactions are entered into and carried out in the ordinary course of business of the Group. Both the Existing Caps and the Revised Caps were determined with reference to the terms and conditions under the Framework Master Agreements and these agreements will remain in full force and effect.

2. Principal terms of the Existing Ongoing Connected Transactions

(A) Services and facilities in relation to the Huizhou Jetty

Huade has provided and will continue to provide the following services and facilities to Sinopec Guangzhou Branch through the Huizhou Jetty:

(i) jetty and related services concerning the unloading of crude oil from oil tankers and dockage;
(ii) crude oil storage facilities and related services concerning the storage of crude oil in oil tanker and oil tanker handling; and
(iii) crude oil pipeline facilities and related services concerning the transmission of crude oil from the Huizhou Jetty to Sinopec Guangzhou Branch’s refinery complex in Guangzhou City.

Huade will enter into a separate crude oil jetty service agreement with Sinopec Guangzhou Branch annually. The parties will negotiate with reference to, among other factors, law and regulations, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the agreements.

Under the existing agreement, the service fees payable by Sinopec Guangzhou Branch and received by the Group in respect of (i) above is based on the State-prescribed prices, being regulated and standardised by the PRC’s Ministry of Communications. The service fees payable in respect of (ii) and (iii) above are charged on the basis of government-approved prices, being approved by the Guangdong Price Bureau.

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Reason for the revision of caps

Owing to the further improvement and expansion of the crude oil refinery of Sinopec Guangzhou Branch to a range of 10 million to 13 million tonnes of crude oil, an annual refining capacity of 13 million tonnes is taken for calculation of the annual caps, which are 30% higher than the corresponding Existing Caps. The Sinopec Guangzhou Branch Expansion is expected to be completed in 2006, which will lead to a corresponding increase of approximately 30% in consumption of service and facilities of Huizhou Jetty. As such expansion is expected to be completed in 2006, the corresponding Existing Caps for 2005 will not be changed. Beginning on 2006, the revised cap will be increased by approximately 26% as compared to the corresponding Existing Caps, which is in line with the increment of the annual refining capacity. Taken into account of the historical figures and our assessment of the above reasons during the review of the assumption for and calculation of the corresponding Revised Caps, we are of the view that the revision is fair and reasonable.

(B) Supplies of petroleum products to the Kantons Petrol Stations

The Group will enter into, from time to time, separate written petroleum products purchase agreements not exceeding 3 years with Guangdong Company and its subsidiaries for the supply of petroleum products on a transaction by transaction basis. The parties will negotiate with reference to, among other factors, market conditions, normal commercial terms, trade customs and the principle of fairness and will conclude the detailed terms and provisions in the contracts and the agreements.

The purchase prices payable for the petroleum products supplied by Guangdong Company to the Group are to be agreed between the parties on an arm’s length basis through negotiations, are to be based on government guidance prices, are to be fair and reasonable and the qualities of the products are to be in compliance with the State’s prescribed standard. The current government guidance price is based on the notice regarding price restructuring plan of crude oil and petroleum products issued by the State Development and Planning Commission (now State Development and Reform Commission) in June 1998.

Reason for the revision of caps

Given the trading nature of these transactions, the amount of business to be conducted is market and customer demand driven. Owing to (i) the expected increase in the consumption of gasoline and other petroleum products in Guangdong Province, the PRC; (ii) the expected improvement and development of the Kantons Petrol Stations; (iii) the volatility and possible future increase of the price of gasoline and other petroleum products in the PRC and the international market; and (iv) the possible increase of the cost of refining crude oil into petroleum products, the

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

relevant Existing Caps are increased accordingly. Since the international crude oil price has increased by approximately 50% from February 2005 to October 2005 and the demand for the gasoline and other petroleum products in Guangdong Province, the PRC has significantly increased during the last 8 months, the corresponding Revised Caps for 2005 increased by approximately 54% under the assumption and calculation made by the Company. In view of the fact that the price of crude oil is under an upward trend, the price of crude oil and/or the refinery oil used in the calculation of corresponding Revised Caps in 2006 and 2007 increased by approximately 100%. In addition, the demand of the gasoline and other petroleum products in Guangdong Province, the PRC, and the expected improvement and development of the Kantons Petrol Station were taken into account for calculation of the corresponding Revised Caps. Therefore the revised caps for 2006 and 2007 are approximately 1.3 times and 1.2 times higher than the corresponding Existing Caps under the assumption and calculation made by the Company respectively. Taken into account of the historical figures and our assessment of the above reasons during the review of the assumption for and calculation of the corresponding Revised Caps, we are of the view that the revision is fair and reasonable.

(C) Crude oil supply

The Group has supplied and will continue to supply crude oil to Unipec Group, CPIC Group and CPIGC.

Reason for the revision of caps

In view of the dominant position and increase in turnover and activities of the Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these transactions between the Sinopec Group and the Group is expected to increase. In particular, the expected increase in the consumption of petroleum and petrochemical products in the PRC, the expected increase in the demand of crude oil by the crude oil refineries in the PRC and the expected increase in crude oil refining capacities of these refineries, including the Sinopec Guangzhou Branch Expansion. The Company is expected to capture any increase in the volume

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

and the quantity or other new opportunities in its trading business during the future business development. In addition, the price of gasoline and other petroleum products in the PRC and the international market may possibly increase in the coming future. Since the international crude oil price has increased by approximately 50% from February 2005 to October 2005, the corresponding Revised Caps for 2005 increased by approximately 40% under the assumption and calculation made by the Company. In view of the fact that the price of crude oil is under an upward trend, the price of crude oil and/or the refinery oil used in the calculation of corresponding Revised Caps in 2006 and 2007 increased by approximately 100%. In addition, further improvement and expansion of the crude oil refinery of Sinopec Guangzhou Branch will possibly raise the demand for the crude oil supply at approximately 30% accordingly. Therefore the revised caps for 2006 and 2007 are approximately 1.3 times higher than the corresponding Existing Caps under the assumption and calculation made by the Company. Taken into account of the historical figures and our assessment of the above reasons during the review of the assumption for and calculation of the corresponding Revised Caps, we are of the view that the revision is fair and reasonable.

(D) Crude oil sourcing

The Group has sourced and will continue to source crude oil from members of the Unipec Group and CPIC Group.

Reason for the revision of caps

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

coming future. Since the international crude oil price has increased by approximately 50% from February 2005 to October 2005, the corresponding Revised Caps for 2005 increased by approximately 39% under the assumption and calculation made by the Company. In view of the fact that the price of crude oil is under an upward trend, the price of crude oil and/or the refinery oil used in the calculation of corresponding Revised Caps in 2006 and 2007 increased by approximately 100%. In addition, further improvement and expansion of the crude oil refinery of Sinopec Guangzhou Branch will possibly raise the demand for the crude oil sourcing at approximately 30% accordingly. Therefore the revised caps for 2006 and 2007 are approximately 1.4 times higher than the corresponding Existing Caps under the assumption and calculation made by the Company. Taken into account of the historical figures and our assessment of the above reasons during the review of the assumption for and calculation of the corresponding Revised Caps, we are of the view that the revision is fair and reasonable.

(E) Petroleum and petrochemical products trading

In addition, the Group has traded and will continue to trade petrochemical products with members of the CPIC Group and CPIGC.

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Reason for the revision of caps

Given the trading nature of these transactions, the amount of business to be conducted is market and customer demand driven. Owing to (i) the expected increase in the consumption of petroleum and petrochemical products in the relevant markets; (ii) the expected increase in crude oil refining capacities of these refineries; and (iii) the volatility and possible future increase of the price of gasoline and other petroleum products in the PRC and the international market, the relevant Existing Caps are increased accordingly. Since the international crude oil price has increased by approximately 50% from February 2005 to October 2005, and the demand for the gasoline and other petroleum products in Guangdong Province, the PRC has significantly increased during the last 8 months, the corresponding Revised Caps for 2005 increased by approximately 60% under the assumption and calculation made by the Company. In view of the fact that the price of crude oil is under an upward trend, the price of crude oil and/or the refinery oil used in the calculation of corresponding Revised Caps in 2006 and 2007 increased by approximately 100%. In addition, further improvement and expansion of the crude oil refinery of Sinopec Guangzhou Branch will possibly raise the demand for the crude oil supply and relevant trading activities at approximately 30% accordingly. Therefore the revised caps for 2006 and 2007 are approximately 1.4 times higher than the corresponding Existing Caps under the assumption and calculation made by the Company. Taken into account of the historical figures and our assessment of the above reasons during the review of the assumption for and calculation of the corresponding Revised Caps, we are of the view that the revision is fair and reasonable.

– 27 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Revised Caps

Set out below is a summary of the Existing Caps and the Revised Caps for each of the Existing Ongoing Connected Transactions for each of the three financial years ending 31 December 2007:

Category of the Existing Ongoing	Category of the Existing Ongoing
Connected Transactions		Existing Caps	Revised	Caps
		HK$million	HK$million
A.	Provision by the Group of services	2005: 350	2005:	350
	and facilities in relation to Huizhou	2006: 500	2006:	630
	jetty to the Sinopec Group	2007: 500	2007:	630
B.	Provision by the Sinopec Group of	2005: 1,300	2005:	2,000
	supplies of petroleum products to	2006: 1,500	2006:	3,500
	the Group	2007: 1,600	2007:	3,500
C.	Provision by the Group of crude oil	2005: 3,300	2005:	4,600
	supply to the Sinopec Group	2006: 4,300	2006:	9,800
		2007: 4,300	2007:	9,800
D.	Provision by the Sinopec Group of	2005: 2,600	2005:	3,600
	crude oil sourcing to the Group	2006: 3,400	2006:	8,000
		2007: 3,400	2007:	8,000
E.	(a) Trading of petroleum and	2005: 1,500	2005:	1,950
	petrochemical products from	2006: 2,000	2006:	3,200
	the Group to the Sinopec Group	2007: 2,000	2007:	3,200
	(b) Trading of petroleum and	(aggregate of	2005:	450
	petrochemical products from	(a) & (b))	2006:	1,500
	the Sinopec Group to the Group		2007:	1,500

4. Reasons for revising the Existing Caps of the Existing Ongoing Connected Transactions

The Directors are of the opinion that the Existing Ongoing Connected Transactions are entered into and carried out in the ordinary course of business of the Group, on an arm’s length basis, and either (1) where there are comparable transactions, on normal commercial terms; or (2) in accordance with State-prescribed prices or government-approved prices (as the case may be) prescribed or approved by relevant governmental or regulatory authorities; or (3) in accordance with the terms of the agreements governing the Existing Ongoing Connected Transactions in question that are fair and reasonable and in the interests of the shareholders of the Company as a whole; or (4) if applicable, on terms no less favourable than terms available to or from independent third parties. We are of the view that the Existing Ongoing Connected Transactions are entered into in the ordinary course of business of the Group and are fair and reasonable so far as the Company and its shareholders are concerned.

– 28 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Existing Caps were announced on February 2005 and determined with reference to the international crude oil price of around US$40 per barrel. The Revised Caps are determined in light of possible sustainment and further increases in crude oil and petroleum products prices. The price of the crude oil is under an upward trend as per the charts below:

6-Month Trend of IPE Brent Crude Price

==> picture [403 x 189] intentionally omitted <==

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

70
68
copyright oilnergy.com, 2005
66
64
62
60
58
56
54
52
The trend is mathematically generated
50
and not of OILWORLD’s opinion and
48 should nt be used as a projection.
46
Apr 05 May Jun Jul Aug Sep Oct
$/BBL
----- End of picture text -----

source: http://www.oilnergy.com

The price of crude oil in the last few months were remained at above US$55 per barrel with the highest record of about US$67 per barrel in September 2005, we are of the view that the Revised Caps which cope with the increasing crude oil price are reasonable. We have reviewed the assumption made by the Company in calculating the Revised Caps, which is referenced to current increasing trend in the international crude oil price, and consider such basis is fair and reasonable.

IPE Brent Crude – Daily Closing in 12 previous months

==> picture [380 x 189] intentionally omitted <==

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

70
copyright oilnergy.com, 2005
65
60
55
50
45
40
35
Oct 04 Nov Dec Jan 05 Feb Mar Apr May Jun Jul Aug Sep Oct
$/BBL
----- End of picture text -----

source: http://www.oilnergy.com

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In addition, as disclosed in the February Announcement and March Circular, the planned improvement and expansion of the crude oil refinery of Sinopec Guangzhou Branch was from an annual crude refining capacity of 7.7 million to an annual refining capacity of 10 million tonnes grade crude oil refinery. The Existing Caps are based on the Sinopec Guangzhou Branch having a 10 million tones annual refining capacity. The Company was informed that the latest plan of Sinopec Guangzhou Branch is to increase the refining capacity to a range of 10 million to 13 million tonnes of crude oil annually. In view of the proposed additional increment of crude oil refining capacity of Sinopec Guangzhou Branch in the coming years, the demand for the Existing Ongoing Connected Transactions would increase accordingly.

The Revised Caps are determined by the Company with reference to (i) a higher oil price with reference to the recent oil trend; and (ii) anticipated increase in the demand of relevant Existing Ongoing Connected Transactions after the oil refining capacity of Sinopec Guangzhou Branch has been upgraded. We are of the view that the reasons in arriving the Revised Caps are justifiable and reasonable.

5. Annual review of the Existing Ongoing Connected Transactions

In compliance with the annual review requirements under Chapter 14A of the Listing Rules, in addition to obtaining independent shareholders’ approval for the Revised Caps at the SGM, the Company will comply with the following during the term of the Framework Master Agreements:

(a) The aggregate value of the respective Existing Ongoing Connected Transactions for each of the three financial years ending 31 December 2005, 2006, and 2007 shall not exceed the amounts as tabled under the section headed “Revised Caps” on page 28 of the Circular.
(b) The independent non-executive Directors will review the transactions contemplated under the Framework Master Agreements annually and confirm in the relevant annual report of the Company that such transactions have been entered into:
(i) in the ordinary and usual course of business of the Company;
(ii) either on normal commercial terms or, if there are no sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favorable to the Company than terms available to/from independent third parties; and
(iii) in accordance with the relevant agreements governing the Existing Ongoing Connected Transactions on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole.
(c) The auditors of the Company shall review annually the Existing Ongoing Connected Transactions and confirm in writing to the Directors (a copy of which shall be provided to the Stock Exchange at least 10 business days prior to the bulk printing of the Company’s annual report) that the Existing Ongoing Connected Transactions:
(i) have received the approval of the Board;

– 30 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) have been entered into in accordance with the terms of the Framework Master Agreements;

(iii) have been entered into in accordance with the pricing policy of the Group; and

(iv) have not exceeded the Revised Caps as set out in paragraph (a) above.

(d) The Company will, and will procure Sinopec Group to, provide the auditors of the Company with full access to the relevant records of the Existing Ongoing Connected Transactions for the purpose of the auditors’ review as referred to in paragraph (c) above.
(e) Brief details of the Existing Ongoing Connected Transactions will be disclosed in the Company’s annual report for each of the financial years ending 31 December 2005, 2006 and 2007, each accompanied with a statement of opinion of the independent non-executive Directors in such manner as referred to in paragraph (b) above; and
(f) The Company will comply with the applicable provisions of the Listing Rules governing connected transactions or will make announcement and comply with the relevant provisions of the Listing Rules in the event that the total amount of the Existing Ongoing Connected Transactions exceeds the relevant Revised Caps, or that there is any material amendment to the terms of the Framework Master Agreements.

Given the above, we are of the opinion that there will be sufficient procedures and arrangements in place to ensure that the Existing Ongoing Connected Transactions will be conducted on terms that are fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that the Revised Caps of the Existing Ongoing Connected Transactions are in the interests of the Group and the terms of which are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolution to approve the Revised Caps of the Existing Ongoing Connected Transactions at the SGM.

Yours faithfully, For and on behalf of Baron Capital Limited Chiu Sui Keung, Thomas Managing Director

– 31 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

Directors’ Interests and Short Positions

As at the Latest Practicable Date, none of the Directors, nor their associates, had any interest and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance Cap.571 (the “ SFO ”)) which were required to be notified to the Company and the Stock Exchange which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 and the Stock Exchange under the provisions of Divisions 7 and 8 of Part XV of the SFO or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in appendix 10 of the Listing Rules to be notified to the Company and the Stock Exchange or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein.

Directors’ Interest in Any Asset Acquired, Disposed or Leased

None of the Directors has any material interest, direct or indirect, in any asset which, since 31 December 2004, being the date to which the latest audited consolidated financial statements of the Group have been made up, had been acquired or disposed of by or leased to any member of the Group or was proposed to be acquired or disposed of by or leased to any member of the Group.

Directors’ Service Contracts and Appointment Letters

Mr. Yang Shu Shan, executive Director, has entered into a service contract with the Company for a period of one (1) year commencing from 1 July 2001 renewable automatically for successive terms of one (1) year each commencing from the day next after the expiry of the then current term of the appointment, unless terminated by not less than six (6) months’ notice in writing served by either party. For the financial years ended 31 December 2003 and 2004, Mr. Yang was entitled to HK$1,080,000 and HK$1,530,000 respectively as director’s emoluments.

Mr. Pan Xin Rong, an executive Director, has entered into a service contract with the Company for a term of one (1) year commencing from 30 March 2004 renewable automatically for successive terms of one (1) year each commencing from the day next after the expiry of the then current term of the appointment unless terminated by not less than three (3) months’ notice in writing served by either party. For the financial year ended 31 December 2004, Mr. Pan was entitled to approximately HK$810,000 as director’s emoluments.

– 32 –

GENERAL INFORMATION

APPENDIX

Mr. Zhou Feng, an executive Director, has entered into a service contract with the Company for a term of one (1) year commencing from 30 March 2004 renewable automatically for successive terms of one (1) year each commencing from the day next after the expiry of the then current term of the appointment unless terminated by not less than three (3) months’ notice in writing served by either party. For the financial year ended 31 December 2004, Mr. Zhou is entitled to HK$735,000 as director’s emoluments.

Mr. Zhu Jian Min, an executive Director, has entered into a service contract with the Company for a term of one (1) year commencing from 1 September 2004 renewable automatically for successive terms of one (1) year each commencing from the day next after the expiry of the then current term of the appointment unless terminated by not less than three (3) months’ notice in writing served by either party. For the financial year ended 31 December 2004, Mr. Zhu is entitled to HK$326,667 as director’s emoluments.

Mr. Ye Zhi Jun, an executive Director, has entered into a service contract with the Company for a term of one (1) year commencing from 28 March 2002 renewable automatically for successive terms of one (1) year each commencing from the day next after the expiry of the then current term of the appointment unless terminated by not less than three (3) months’ notice in writing served by either party. For the financial years ended 31 December 2003 and 2004, Mr. Ye is entitled to HK$880,000 and HK$880,000 respectively as director’s emoluments.

Mr. Ge Han Hua, an executive Director, has entered into a service contract with the Company for a term of one (1) year commencing from 30 March 2004 renewable automatically for successive terms of one (1) year each commencing from the day next after the expiry of the then current term of the appointment unless terminated by not less than three (3) months’ notice in writing served by either party. For the financial year ended 31 December 2004, Mr. Ge is entitled to HK$360,000 as director’s emoluments.

Mr. Yang Mo Fei, non-executive Director, has been appointed for a term of three (3) years commencing from 30 March 2004 which is automatically renewed upon expiry for successive terms of one year. For the financial year ended 31 December 2004, Mr. Yang is entitled to no director’s emolument.

Mr. Wong Po Yan and Ms. Tam Wai Chu, Maria were appointed as independent nonexecutive Directors since 25 March 1998 for a term of three (3) years. Their appointments have been extended from 25 March 2004 for a further term of three (3) years. For the financial years ended 31 December 2003 and 2004 respectively, each of Mr. Wong and Ms. Tam are entitled to HK$180,000 and HK$180,000 as director’s emoluments.

Mr. Fong Chung, Mark was appointed as independent non-executive Directors since 1 September 2004 for a term of three (3) years. For the financial year ended 31 December 2004, Mr. Fong is entitled to HK$60,000 as director’s emoluments.

Save as disclosed above, none of the Directors has or is proposed to have a service contract with the Company or any of its subsidiaries which is not determinable by the Group within one (1) year without the payment of compensation other than statutory compensation.

– 33 –

GENERAL INFORMATION

APPENDIX

Directors’ Interest in Contracts

No contracts of significance to which the Company, any of its holding companies, fellow subsidiaries or subsidiaries was a party and in which a Director had a material interest and which is significant to the Group’s business, whether directly or indirectly, subsisted at the date of this circular.

3. SUBSTANTIAL SHAREHOLDERS

(A) So far as the Directors are aware, shareholders holding five (5) per cent. or more or a short position of 1% or more of the Company’s relevant share capital as recorded in the register of interests in shares and short position maintained by the Company and their reported interests pursuant to provisions of section 336 of the SFO are as follows:

		Percentage
Name of interested party	Number of Shares	of shareholding
		(%)
Sinopec Kantons International Limited	750,000,000	72.34

Note: The entire share capital of Sinopec Kantons International Limited is held by China Petrochemical International Company Limited. The entire registered capital of China Petrochemical International Company Limited was held by China Petroleum & Chemical Corporation. The controlling interest in the registered capital of China Petroleum & Chemical Corporation is held by China Petrochemical Corporation.
(B) Save as disclosed below, the Directors are not aware of any other person (other than a Director or chief executive of the Company or his/her respective associate(s)) who, as at the Latest Practicable Date, was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

		% of the registered
Name of member of the Group	Name of shareholders	capital
Huade	GPC	30%
Kantons Gas Station Investment &
Management Co. Ltd.	GPC	10%

4. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial position or trading prospects of the Group since 31 December 2004, the date to which the latest audited financial statements of the Group were made up.

– 34 –

GENERAL INFORMATION

APPENDIX

5. LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

6. CONSENT AND EXPERT

The following are the qualifications of the professional advisers who have given opinion or advice, which is contained in this circular:

Name Qualification Baron Capital Limited Licensed under the SFO to carry out type 1 (dealing in securities), and, type 6 (advising on corporate finance) regulated activities under the SFO

Baron Capital Limited 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 in the form and context in which it appears.

As at the Latest Practicable Date, Baron Capital Limited is not beneficially interested in the share capital of any member of the Group nor does it 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 nor does it have any interest, either direct or indirect, in any assets which have been, since 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 are proposed to be acquired or disposed of by or leased to any member of the Group.

7. PROCEDURES FOR DEMANDING A POLL

Set out below is the procedure by which shareholders and the chairman of any shareholders’ meeting may demand a poll pursuant to article 73 of the bye-laws of the Company:

“At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

(i) by the Chairman of the meeting; or

(ii) by at least three shareholders present in person (or, in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(iii) by any shareholder or shareholders present in person (or, in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all the shareholders having the right to vote at the meeting; or

– 35 –

GENERAL INFORMATION

APPENDIX

(iv) by any shareholder or shareholders present in person (or, in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.”

A poll will be demanded by the Chairman of the SGM meeting to pass the ordinary resolution in the notice of the SGM.

8. MISCELLANEOUS

(a) The secretary of the Company is Mr. Lai Yang Chau, Eugene (practicing solicitor). The qualified accountant of the Company is Mr. Chan Kim Fai Ivan (a member of the Hong Kong Institute of Certified Public Accountants).
(b) The principal place of business of the Company in Hong Kong is 1608 Citicorp Centre, 18 Whitfield Road, Causeway Bay, Hong Kong.
(c) The Hong Kong Branch Share Registrar and Transfer Office of the Company is Secretaries Limited of G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(d) The English text of this circular and form of proxy shall prevail over the Chinese text.

9. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at 1608 Citicorp Centre, 18 Whitfield Road, Causeway Bay, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including 21 November 2005:

(a) the letter from Baron Capital Limited as the Independent Financial Adviser as set out on pages 20 to 31 in this circular;
(b) the written consent from Baron Capital Limited referred to in paragraph 6 of this appendix;
(c) the letter of recommendation from the Independent Board Committee to the Independent Shareholders as set out on page 19 in this circular;
(d) the service agreements and appointment letters of the Directors referred to in paragraph 2 of this appendix; and
(e) the Sinopec Corp. Framework Master Agreement, the Unipec Framework Master Agreement, the CPIC Framework Master Agreement, and the CPICG Framework Master Agreement.

– 36 –

NOTICE OF SPECIAL GENERAL MEETING

SINOPEC KANTONS HOLDINGS LIMITED （中石化冠德控股有限公司）[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 934)

NOTICE IS HEREBY GIVEN that a special general meeting of Sinopec Kantons Holdings Limited (the “ Company ”) will be held at 1608 Citicorp Centre, 18 Whitfield Road, Causeway Bay, Hong Kong on Monday, 21 November 2005 at 10:00 a.m. for the purposes of considering and, if thought fit, passing the following resolution as ordinary resolution:

ORDINARY RESOLUTION

“ THAT the Revised Caps of the Existing Ongoing Connected Transactions (as defined in the circular of the Company dated 3 November 2005) be and is hereby approved and confirmed; and that the Directors be and are hereby authorised to do all such acts and take all necessary actions in connection therewith.”

Note:

This ordinary resolution will be put to a poll.

By Order of the Board Yang Shu Shan Chairman

Hong Kong, 3 November 2005

* For identification purposes only

– 37 –

NOTICE OF SPECIAL GENERAL MEETING

Principal office: 1608 Citicorp Centre 18 Whitfield Road Causeway Bay Hong Kong

Notes:

A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxies to attend, and subject to the provisions of the Byelaws of the Company, vote in his stead. A proxy need not be a member of the Company.
In order to be valid, the form of proxy must be deposited together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority, at Secretaries Limited, the Hong Kong Branch Share Registrar and Transfer Office of the Company, at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time for holding the meeting or adjourned meeting.

– 38 –

AI assistant

Sinopec Kantons Holdings Limited — Proxy Solicitation & Information Statement 2005

49576_rns_2005-11-03_b6f6dd75-fd26-4a28-a286-875c578856a7.pdf

SINOPEC KANTONS HOLDINGS LIMITED （中石化冠德控股有限公司）[*]

REVISION OF CAPS REGARDING EXISTING ONGOING CONNECTED TRANSACTIONS

CONTENT

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

SINOPEC KANTONS HOLDINGS LIMITED （中石化冠德控股有限公司）[*]

REVISION OF CAPS REGARDING EXISTING ONGOING CONNECTED TRANSACTIONS

BACKGROUND

LETTER FROM THE BOARD

(A) Services and trading activities with Sinopec Corp.

1. Services and facilities in relation to the Huizhou Jetty

Pricing basis and former caps

Revised caps and reasons

2. Supplies of petroleum products to the Kantons Petrol Stations

Revised caps and reasons

(B) Trading activities with Unipec Group, CPIC Group and CPIGC

1. Crude oil supply

Revised caps and reasons

2. Crude oil sourcing

Pricing basis and former caps

Revised caps and reasons

3. Petroleum and petrochemical products trading

Nature of the transaction and connected parties

Revised caps and reasons

(C) The Directors’ view

(D) Listing Rules implications

(E) Information on the Company and the Sinopec Group

(F) General

SPECIAL GENERAL MEETING

RECOMMENDATION

ADDITIONAL INFORMATION

SINOPEC KANTONS HOLDINGS LIMITED （中石化冠德控股有限公司）[*]

REVISION OF CAPS REGARDING EXISTING ONGOING CONNECTED TRANSACTIONS

INTRODUCTION

BASIS OF OUR OPINION

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of the Existing Caps

2. Principal terms of the Existing Ongoing Connected Transactions

(A) Services and facilities in relation to the Huizhou Jetty

(B) Supplies of petroleum products to the Kantons Petrol Stations

(C) Crude oil supply

Reason for the revision of caps

(D) Crude oil sourcing

Reason for the revision of caps

(E) Petroleum and petrochemical products trading

Reason for the revision of caps

3. Revised Caps

4. Reasons for revising the Existing Caps of the Existing Ongoing Connected Transactions

6-Month Trend of IPE Brent Crude Price

5. Annual review of the Existing Ongoing Connected Transactions

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

Directors’ Interests and Short Positions

Directors’ Interest in Any Asset Acquired, Disposed or Leased

Directors’ Service Contracts and Appointment Letters

APPENDIX

Directors’ Interest in Contracts

3. SUBSTANTIAL SHAREHOLDERS

4. MATERIAL ADVERSE CHANGE

5. LITIGATION

6. CONSENT AND EXPERT

7. PROCEDURES FOR DEMANDING A POLL

8. MISCELLANEOUS

9. DOCUMENTS FOR INSPECTION

SINOPEC KANTONS HOLDINGS LIMITED （中石化冠德控股有限公司）[*]

ORDINARY RESOLUTION

Note:

NOTICE OF SPECIAL GENERAL MEETING

Notes:

More from Sinopec Kantons Holdings Limited

Sinopec Kantons Holdings Limited Proxy Solicitation & Information Statement 2005