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Zhejiang Southeast Electric Power Company Limited

Announcement on Resolutions of the Fourth Meeting of the Fifth Session of the Board of Directors and Connected Transactions

The Fourth Meeting of the Fifth Session of the Board of Directors of Zhejiang Southeast Electric Power Company Limited (the 'Company') was convened on 28 July 2009 by way of communications (the 'Meeting').  Fifteen (15) directors should be present and fifteen (15) directors were present at the Meeting.  The supervisors of the Company also attended as non-voting delegates.  The convening of the Meeting was in compliance with the stipulations of the PRC Company Law and the articles of association of the Company and was therefore legal and effective.  The Meeting was chaired by Mr. Mao Jianhong, Chairman of the Company.

Resolution on Substitute Power Generation Solution for Natural Gas Generators of Xiaoshan Power Plant was reviewed and passed at the Meeting.  

Under abstaining of Connected Directors, namely, Mao Jianhong, Zhang Qian, Cao Lu and Wang Lina, the following resolution was approved:

Pursuant to Notification in Relation to Transfer of Power Generation Quota Held by Eastern Gas Generators of the Designated Power Plant in Zhejiang Province (Zhe Jing Xin Dian Li [2009]No.174), jointly issued by Zhejiang Economic and Information Commission and Zhejiang Provincial Price Bureau, to facilitate the transfer of power generation quota held by Natural Gas Generators of Xiaoshan Power Plant, it was agreed that the Company shall enter into 2009 Substitute Power Generation Agreements of Eastern Gas Generators of Zhejiang Province with six power generation enterprises respectively, i.e. Zhejiang Zheneng Beilun Power Generation Co., Ltd., Zhejiang Zheneng Jiahua Power Generation Co., Ltd., Zhejiang Zheneng Jiaxing Power Generation Co., Ltd., Zhejiang Zheneng Yueqing Power Generation Co., Ltd., Zhejiang Zheneng Wenzhou Power Generation Co., Ltd., and Zhejiang Zheneng Changxing Power Generation Co., Ltd. 

Voting results: votes in favor of the resolution: 11 votes; votes against the resolution: 0 vote; votes abstained: 0 vote.

I. Overview of the Connected Transactions

Under arrangement by and through Zhejiang Economic and Trade Commission and Zhejiang Provincial Electric Power Company, Natural Gas Generators of Xiaoshan Power Plant were granted an annual quota of 1.7308 billion kwh for the year of 2009. To offset the substantive uncertainty in the supply of upstream natural gas and ensure the implementation of the unified power generation plan and in accordance with Notification in Relation to Transfer of Power Generation Quota Held by Eastern Gas Generators of the Designated Power Plant in Zhejiang Province (Zhe Jing Xin Dian Li [2009]No.174), jointly issued by Zhejiang Economic and Information Commission and Zhejiang Provincial Price Bureau, the Company shall enter into 2009 Substitute Power Generation Agreements of Eastern Gas Generators of Zhejiang Province (the 'Substitute Agreements') respectively with six power generation enterprises (the 'Substitute Power Generation Enterprises'), i.e. Zhejiang Zheneng Beilun Power Generation Co., Ltd., Zhejiang Zheneng Jiahua Power Generation Co., Ltd., Zhejiang Zheneng Jiaxing Power Generation Co., Ltd., Zhejiang Zheneng Yueqing Power Generation Co., Ltd., Zhejiang Zheneng Wenzhou Power Generation Co., Ltd. and Zhejiang Zheneng Changxing Power Generation Co., Ltd. to transfer any surplus power generation quota held by Natural Gas Generators of Xiaoshan Power Plant to the Substitute Power Generation Enterprises at certain prices.

Given that both the Company and the Substitute Power Generation Enterprises are controlled by Zhejiang Provincial Energy Group Company Ltd., the Substitute Agreements to be entered by and between the Company and the Substitute Power Generation Enterprises constitute connected transactions subject to the Listing Rules of Shanghai Stock Exchange.    

 

II. Information on the Connected Parties 

Substitute power enterprise	Business scope	Registered capital (RMB 100 million)	Total assets as at the end of 2008 (RMB 100 million)	The largest shareholder and its shareholding percentage
Zhejiang Zheneng Beilun Power Generation Co., Ltd.	Production and sale of power generated by coal-fired generators, and investment into and development of related sectors	23.00	53.73	Zhejiang Provincial Electric Power Development Co., Ltd. 51%
Zhejiang Zheneng Jiahua Power Generation Co., Ltd.	Production and on-grid sale of power, related sectors and affiliated business	20.55	76.62	Zhejiang Provincial Electric Power Development Co., Ltd. 53%
Zhejiang Zheneng Jiaxing Power Generation Co., Ltd.	Thermal power generation	8.44	15.40	Zhejiang Provincial Electric Power Development Co., Ltd. 70%
Zhejiang Zheneng Yueqing Power Generation Co., Ltd.	Development and construction of Zhejiang Zheneng Yueqing Power Generation Project; power production (thermal power generation); integrated utilization of thermal generation bi-products	9.25	52.26	Zhejiang Provincial Energy Group Company Ltd., 51%
Zhejiang Zheneng Wenzhou Power Generation Co., Ltd.	Production and on-grid sale of power, related sectors and affiliated business	5.97	29.00	Zhejiang Provincial Electric Power Development Co., Ltd. 66.98%
Zhejiang Zheneng Changxing Power Generation Co., Ltd.	Production and on-grid sale of power, related sectors and affiliated business	10.96	43.50	The Company 65%

Given that Zhejiang Provincial Electric Power Development Co., Ltd. is a wholly-owned subsidiary of Zhejiang Provincial Energy Group Company Ltd. in conjunction with the fact that Zhejiang Provincial Electric Power Development Co., Ltd. holds 39.80% equity interest of the Company as the largest shareholder, both the Company and the Substitute Power Generation Enterprises are de facto controlled by Zhejiang Provincial Energy Group Company Ltd., and the Substitute Agreements to be entered by and between the Company and the Substitute Power Generation Enterprises therefore constitute connected transactions between the Company and the Substitute Power Generation Enterprises. 

 

III. Key Information of the Connected Transactions

Pursuant to Notification in Relation to Transfer of Power Generation Quota Held by Eastern Gas Generators of the Designated Power Plant in Zhejiang Province (Zhe Jing Xin Dian Li [2009]No.174), jointly issued by Zhejiang Economic and Information Commission and Zhejiang Provincial Price Bureau, the planned annual power output of Natural Gas Generators of Xiaoshan Power Plant is 1.7308 billion kwh, among which, 241.5 million kwh shall be generated by itself and the remaining quota in the amount of 1.4893 billion kwh may be transferred at certain prices within the Group (in the event that as at the year end, power generation of the Company has exceeded the target amount, the quota volume to be transferred shall be decreased accordingly). Such assignees are limited to subcritical or above highly-efficient desulfurization units designated by the province. The on-grid tariff of the electricity generated under assigned quota shall be in line with the assignee's original on-grid tariff.  The transfer price is subject to negotiation between between the seller and purchaser.   

Pursuant to the Notification above, it was agreed that the Company and the Substitute Power Generation Enterprises shall respectively enter into Substitute Power Generation Agreements, entailing the following provisions:

Substitute Power Generation Quota (10 thousand kwh)	Consolidated in-plant utility	On-grid volume corresponding to substitute power generation  (10 thousand kwh)	Average transfer price (RMB/thousand kwh, tax included)	Transaction value (RMB 100 million)
148,930	0.03	144,462	170.5	2.46

Volume and price of the Quota to be transferred are as the follows:  

Substitute power generation enterprise	On-grid volume corresponding to substitute power generation （10 thousand kwh）	Transfer price (RMB/thousand kwh, tax included)	Transaction value (RMB 100 million)
Zhejiang Zheneng Beilun Power Generation Co., Ltd.	25,806	161.5	0.42
Zhejiang Zheneng Jiahua Power Generation Co., Ltd.	62,622	175.7	1.10
Zhejiang Zheneng Jiaxing Power Generation Co., Ltd	16,312	199.5	0.32
Zhejiang Zheneng Yueqing Power Generation Co., Ltd	10,100	171.7	0.17
Zhejiang Zheneng Wenzhou Power Generation Co., Ltd	9,595	162.5	0.16
Zhejiang Zheneng Changxing Power Generation Co., Ltd	20,027	145.1	0.29
Total	144,462	--	2.46

Under the Substitute Agreements, in case of any substantial change in the price level of raw coal during the term, i.e. if the market price deviates from the benchmark price by or over 20 percentile ('benchmark' here specifically refers to mix-quality-rated Shanxi coal with a defined heating value of 5500 kcal/kg, as published in Qinhuangdao Coal Web, whose minimal quote-price is set at RMB 580/ton FOB, tax-included), both parties hereto may determine an adjusted price level through discussions with good faith. 

 

IV. Objectives and Effects of the Connected Transactions

Upon transferring surplus power generation quota to the Substitute Power Generation Enterprises, the Company is entitled to financial compensations payable by the Substitute Power Generation Enterprises, which is of help to offset uncertainty arising out of or in relation to the supply of upstream natural gas, as well as the operational risks that Natural Gas Generators of Xiaoshan Power Plant are exposed to.     

 

V. Opinion of the Independent Directors  

• In consideration of the substantive uncertainty in the upstream natural gas supply, the Company shall respectively enter into the Substitute Agreements with the Substitute Power Generation Enterprises, to avoid any insufficient use of the quota for the overall protection of financial interests pertaining to Natural Gas Generators of Xiaoshan Power Plant.

2.   Pursuant to Notification in Relation to Transfer of Power Generation Quota Held by Eastern Gas 
     Generators of the Designated Power Plant in Zhejiang Province (Zhe Jing Xin Dian Li [2009] No.
     174), jointly issued by Zhejiang Economic and Information Commission and Zhejiang Provincial Price
      Bureau, such assignees are limited to subcritical or above highly-efficient desulfurization units 
     designated by the province within the Group. The execution of the Substitute Agreements by and 
     between the Company and the Substitute Power Generation Enterprises within the Group complies 
     with applicable policies and regulations. 
 

3. When the Board of Directors of the Company reviewed the aforementioned connected transactions, the
     Connected Directors abstained from the voting, the process of which was in compliance with related 
     provisions under laws of PRC and articles of association of the Company.

 

 

 

                                                                                                 Board of Directors

                            

Zhejiang Southeast Electric Power Company Limited

                                                                                                     30 July 2009   

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