SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2005
PETROCHINA COMPANY LIMITED
16 ANDELU, DONGCHENG DISTRICT
BEIJING, THE PEOPLE'S REPUBLIC OF CHINA, 100011
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
----- -----
(Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
----- -----
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_____)
PetroChina Company Limited (the "Registrant") is furnishing under the cover
of Form 6-K the Registrant's circular with respect to its ongoing connected
transactions and proposed re-election and appointment of the directors and
supervisors.
THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
IF YOU ARE IN ANY DOUBT as to any aspect of this circular, or as to the action
to be taken, you should consult your stockbroker or other registered dealer in
securities, bank manager, solicitor, professional accountant or other
professional adviser.
IF YOU HAVE SOLD OR TRANSFERRED all your shares in PETROCHINA COMPANY 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 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.
(PETROCHINA COMPANY LIMITED LOGO)
(CHINESE CHARACTER)
PETROCHINA COMPANY LIMITED
(A joint stock limited company incorporated in the People's
Republic of China with limited liability)
(STOCK CODE: 857)
ONGOING CONNECTED TRANSACTIONS
AND PROPOSED RE-ELECTION AND APPOINTMENT OF
THE DIRECTORS AND SUPERVISORS
INDEPENDENT FINANCIAL ADVISER TO THE INDEPENDENT BOARD COMMITTEE
AND THE INDEPENDENT SHAREHOLDERS OF THE COMPANY
(ICEA LOGO)
A subsidiary of ICBC
A letter from the Independent Board Committee is set out on page 29 of this
circular. A letter from ICEA Capital Limited, the independent financial adviser,
containing its advice to the Independent Board Committee and the independent
shareholders of the Company is set out on pages 30 to 52 of this circular.
An extraordinary general meeting of PetroChina Company Limited is to be held at
Beijing Continental Grand Hotel, Beijing International Convention Center, No. 8,
Beichendong Road, Chaoyang District, Beijing, The People's Republic of China at
9 : 00 a.m. on 8 November 2005. A copy of the notice convening such
extraordinary general meeting, despatched on 22 September 2005, is set out on
pages 60 to 62 of this circular for ease of reference. Whether or not you are
able to attend the meeting, you are requested to complete and return the form of
proxy, despatched together with this circular, in accordance with the
instructions printed thereon as soon as possible and in any event not less than
24 hours before the time appointed for holding of the meeting. Completion and
return of the form of proxy will not preclude you from attending and voting at
the meeting should you so desire.
22 September 2005
CONTENTS
Page
----
DEFINITIONS ..................................................................... 1
LETTER FROM THE BOARD
1. Introduction ........................................................... 5
2. Existing Ongoing Connected Transactions ................................ 6
3. Newco Continuing CT .................................................... 14
4. CRMSC Transactions ..................................................... 14
5. Description of the connected relationship between the parties in the
Ongoing Connected Transactions ......................................... 16
6. Reasons for and benefits of the Ongoing Connected Transactions ......... 16
7. Proposed Caps .......................................................... 18
8. Disclosure and independent shareholders' approval requirements ......... 22
9. Proposed re-election and appointment of the Directors and Supervisors .. 22
10. EGM .................................................................... 27
11. Recommendations ........................................................ 27
12. Additional information ................................................. 28
LETTER FROM THE INDEPENDENT BOARD COMMITTEE ..................................... 29
LETTER FROM ICEA CAPITAL LIMITED ................................................ 30
APPENDIX -- GENERAL INFORMATION ................................................. 53
NOTICE OF EXTRAORDINARY GENERAL MEETING ......................................... 60
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DEFINITIONS
In this circular, the following expressions have the following meanings
unless the context requires otherwise:
"Articles of Association" means the articles of association of the Company
or "Articles"
"associates" has the meaning ascribed to it in the Listing Rules
"Board" means the board of Directors of the Company,
including the independent non-executive Directors
"Chairman" means the chairman of the Board
"CNPC" means (CHINESE CHARACTER) (China National Petroleum
Corporation*), a State-owned enterprise established
under the laws of PRC, and the controlling
shareholder of the Company, holding approximately
90% of the issued share capital of the Company
"CNPC Group" means CNPC and its subsidiaries and affiliates,
excluding the Group
"Company" means (CHINESE CHARACTER) (PetroChina Company
Limited), a joint stock company limited by shares
incorporated in the PRC on 5 November 1999 under the
Company Law of PRC, and listed on the Stock Exchange
with American depository shares listed on the New
York Stock Exchange
"Comprehensive Agreement" means the comprehensive products and services
agreement dated 10 March 2000 entered into between
CNPC and the Company regarding the provision by the
Group to the CNPC Group and by the CNPC Group to the
Group, of a range of products and services from time
to time, effective as of 5 November 1999
"CPFC" means (CHINESE CHARACTER) (China Petroleum Finance
Company Limited*), a 92.5% non-wholly owned
subsidiary of CNPC
"CRMSC" means (CHINESE CHARACTER) (China Railway Materials
and Suppliers Corporation), a State-owned enterprise
established under the laws of the PRC, and a
substantial shareholder of PetroChina & CRMSC Oil
Marketing
"CRMSC Products and means the agreement dated 1 September 2005 entered
Services Agreement" into between the Company and CRMSC in relation to
the provision of certain products and services, the
details of which are set out in the paragraph headed
"CRMSC Products and Services Agreement" of this
circular
"CRMSC Transactions" means the transactions contemplated under the CRMSC
Products and Services Agreement
"Director(s)" means the director(s) of the Company
-1-
DEFINITIONS
"EGM" means an extraordinary general meeting of the
Company to be held at Beijing Continental Grand
Hotel, Beijing International Convention Center, No.
8, Beichendong Road, Chaoyang District, Beijing, The
People's Republic of China at 9:00 a.m. on 8
November 2005 to approve, among other things, the
Ongoing Connected Transactions and the Proposed Caps
"Existing Ongoing means the connected transactions which have been and
Connected will continue to be entered into between the Group
Transactions" and the CNPC Group, the details of which are set out
in the paragraph headed "Existing Ongoing Connected
Transactions" of this circular
"Existing Waiver" means the waiver granted by the Stock Exchange on 26
November 2002 to the Company in respect of the
relevant Existing Ongoing Connected Transactions
"First Supplemental means the supplemental comprehensive products and
Comprehensive services agreement dated 9 June 2005 entered into
Agreement" between the Company and CNPC in relation to certain
amendments of the Comprehensive Agreement, which was
approved by the Independent Shareholders at the
Recent EGM, the details of which are set out in the
Recent Announcement and Recent Circular
"Group" means the Company and its subsidiaries
"HK$" means Hong Kong dollars, the lawful currency of Hong
Kong
"ICEA" means ICEA Capital Limited, a licensed corporation
carrying out Type 1 (dealing in securities) and Type
6 (advising on corporate finance) regulated
activities under the SFO, and the independent
financial adviser appointed to advise the
Independent Board Committee and the independent
shareholders of the Company in respect of the
Ongoing Connected Transactions and the Proposed Caps
"Independent Board means the independent committee of the Board,
Committee" comprising Messrs. Chee-Chen Tung, Liu Hong Ru and
Franco Bernabe, the independent non-executive
Directors of the Company, established for the
purpose of reviewing and advising the Independent
Shareholders or the Shareholders (as the case may
be) in respect of the Ongoing Connected Transactions
and the Proposed Caps
"Independent means the shareholders of the Company other than the
Shareholders" CNPC and its associates
"IPO" means the initial public offering of the Company's H
Shares in 2000
"Jointly-owned Companies" means a company in which both the Company and CNPC
are shareholders, and where CNPC and/or its
subsidiaries and/or affiliates (individually or
together) is/are entitled to exercise, or control
the exercise of, 10% or more of the voting power at
any general meeting of such company
-2-
DEFINITIONS
"Latest Practicable Date" means 14 September 2005, being the latest
practicable date prior to the printing of this
circular for ascertaining certain information
contained herein
"Listing Rules" means the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited
"Newco" means (CHINESE CHARACTER) (Zhong You Kan Tan Kai Fa
Company Limited), a company established under the
laws of the PRC on 14 March 2005 with limited
liability
"Newco Continuing CT" means additional continuing connected transactions
arising as a result of the completion of the
Transactions, the details of which are set out in
the paragraph headed "Newco Continuing CT" of this
circular, the Recent Announcement and the Recent
Circular (or previously referred to as the
Prospective Continuing CT in the Recent Announcement
and the Recent Circular)
"Newco Group" means Newco and its subsidiaries
"Ongoing Connected means the Existing Ongoing Connected Transactions,
Transactions" the Newco Continuing CT and the CRMSC Transactions
"PetroChina & CRMSC means (CHINESE CHARACTER) (PetroChina & CRMSC Oil
Oil Marketing" Marketing Company Limited*), a company established
on 13 December 2004 under the laws of the PRC with
limited liability and a subsidiary of PetroChina ROP
Marketing
"PetroChina means PetroChina International Ltd., a company
International" incorporated under the laws of the British Virgin
Islands, which is currently a direct wholly-owned
subsidiary of the Company
"PetroChina ROP means (CHINESE CHARACTER) (PetroChina Refined Oil
Marketing" Product Marketing Company Limited*), a company
established under the laws of the PRC with limited
liability, which is currently a direct wholly-owned
subsidiary of the Company
"PRC" or "China" means The People's Republic of China
"Proposed Caps" the proposed maximum annual aggregate values of the
Ongoing Connected Transactions of the Company as set
out in the paragraph headed "Proposed Caps" of this
circular
"Prospectus" means the prospectus dated 27 March 2000 issued by
the Company relating to its IPO and the listing of
its H shares on the Stock Exchange
"Recent Announcement" means the announcement of the Company dated 9 June
2005 in respect of, among other things, the
Transactions and the Newco Continuing CT
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DEFINITIONS
"Recent Circular" means the circular dated 30 June 2005 issued by the
Company to its shareholders in respect of, among
other things, the Transactions and the Newco
Continuing CT
"Recent EGM" means the extraordinary general meeting of the
Company held at Kempinski Hotel, No. 50 Liangmaqiao
Road, Chaoyang District, Beijing, The People's
Republic of China at 9 : 00 a.m. on 16 August 2005
to approve, among other things, the Transactions and
the Newco Continuing CT
"RMB" means Renminbi yuan, the lawful currency of the PRC
"Second Supplemental means the supplemental comprehensive products and
Comprehensive services agreement dated 1 September 2005 entered
Agreement" into between the Company and CNPC in relation to
certain amendments of the Comprehensive Agreement,
the details of which are set out in the paragraph
headed "Second Supplemental Comprehensive Agreement"
of this circular
"SFO" means Securities and Futures Ordinance (Chapter 571
of the Laws of Hong Kong)
"Shareholder(s)" means the holder(s) of shares of the Company
"Stock Exchange" means The Stock Exchange of Hong Kong Limited
"subsidiaries" has the meaning ascribed to it in the Listing Rules
"Supervisor(s)" means the supervisor(s) of the Company
"Supervisory Committee" means the supervisory committee of the Company
"Transactions" the acquisition of interest in Newco by the Company
and the transfer of interest in PetroChina
International from the Company to Newco, the details
of which are set out in the Recent Announcement and
the Recent Circular
For the purpose of this circular, unless otherwise indicated, the exchange
rates at HK$1.00 = RMB$1.04 have been used, where applicable, for purpose of
illustration only and not constitute a representation that any amount have been,
could have been or may be exchanged.
* For identification purpose only
-4-
LETTER FROM THE BOARD
(PETROCHINA COMPANY LIMITED LOGO)
(CHINESE CHARACTER)
PETROCHINA COMPANY LIMITED
(A joint stock limited company incorporated in the People's
Republic of China with limited liability)
(STOCK CODE: 857)
Board of Directors Legal Address
Chen Geng (Chairman) 16 Andelu
Jiang Jie Min Dongcheng District
Ren Chuan Jun Beijing
Su Shu Lin The People's Republic of China
Zheng Hu
Zhou Ji Ping
Duan Wen De
Gong Hua Zhang
Wang Fu Cheng
Zou Hai Feng
Chee-Chen Tung*
Liu Hong Ru*
Franco Bernabe*
* Independent non-executive Director
22 September 2005
To the Shareholders
Dear Sir or Madam,
ONGOING CONNECTED TRANSACTIONS
1. INTRODUCTION
CNPC, which directly owns approximately 90% of the issued share capital of
the Company, is the controlling shareholder of the Company. Accordingly, CNPC is
a connected person of the Company and transactions between CNPC and the Company
constitute connected transactions for the Company for the purpose of the Listing
Rules.
Under the Listing Rules, connected transactions are subject to the
reporting, announcement and/ or independent shareholders' approval requirements.
However, as such connected transactions have been, and/or will continue to be
carried out in the ordinary and usual course of business and occur on a regular
basis on normal commercial terms and on terms that are fair and reasonable so
far as the Shareholders are concerned, the Directors considered that it would
not be practical to make
-5-
LETTER FROM THE BOARD
disclosure or if necessary, obtain the Shareholders' approval for each
transaction as it arises. Accordingly, the Company had previously obtained from
the Stock Exchange a waiver from strict compliance with the relevant
requirements of the Listing Rules in respect of connected transactions between
CNPC and the Company at the time of the Company's IPO in 2000. On 12 September
2002, the Company sought to renew the waiver in respect of the relevant Existing
Ongoing Connected Transactions. Subsequently, the Stock Exchange, on 26 November
2002, granted the Existing Waiver to the Company subject to, among other things,
the conditions set out in a letter of even date. The Existing Waiver will expire
on 31 December 2005. In addition to the Existing Ongoing Connected Transactions
and the Newco Continuing CT (approved by Independent Shareholders at the Recent
EGM), the Board would also like to draw the Shareholders' attention to the CRMSC
Transactions. The CRMSC Transactions are the connected transactions between the
Group and CRMSC, a connected person of the Company.
The Ongoing Connected Transactions, comprising the Existing Ongoing
Connected Transactions, the Newco Continuing CT and the CRMSC Transactions, and
the Proposed Caps will be subject to reporting, announcement and Independent
Shareholders' approval (or Shareholders' approval in the case of the CRMSC
Transactions) requirements pursuant to the Listing Rules.
2. EXISTING ONGOING CONNECTED TRANSACTIONS
The connected transaction agreements listed below were initially entered
into between the Company and CNPC at the time of the Company's IPO in the year
2000. Subsequently, on 26 September 2002, a Supplemental Buildings Leasing
Agreement was entered into between the Company and CNPC. In addition, on 9 June
2005 and on 1 September 2005, the First Supplemental Comprehensive Agreement and
the Second Supplemental Comprehensive Agreement were entered into between the
Company and CNPC respectively. The Board expects that the Group will
continuously enter into the transactions with CNPC Group as stated in the
following agreements, which will constitute Ongoing Connected Transactions:
- Comprehensive Agreement (as to be amended by the First Supplemental
Comprehensive Agreement and the Second Supplemental Comprehensive
Agreement), and from time to time and as necessary, various product
and service implementation agreements;
- Land Use Rights Leasing Contract;
- Buildings Leasing Contract (as amended by the Supplemental Buildings
Leasing Agreement);
- Intellectual property licensing contracts, being the Trademark
Licensing Contract, the Patent and Know-how Licensing Contract and the
Computer Software Licensing Contract;
- Contract for the Transfer of Rights under Production Sharing
Contracts; and
- Guarantee of Debts Contract.
The Trademark Licensing Contract, the Patent and Know-how Licensing
Contract and the Computer Software Licensing Contract; the Contract for the
Transfer of Rights under Production Sharing Contracts; and the Guarantee of
Debts Contract, as specified in the Prospectus and Existing Waiver, are in
compliance with the requirements of Chapter 14A of the Listing Rules which took
effect from 31 March 2004 and are exempt from the reporting, announcement and
Independent
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LETTER FROM THE BOARD
Shareholders' approval requirements, as each of the applicable percentage
ratio(s) (other than the profits ratio) in respect of each of these connected
transactions is less than 0.1%. The Directors believe that these transactions
had been entered into in the ordinary course of business for the benefits of the
Company, and are in the interests of the Shareholders as a whole.
COMPREHENSIVE AGREEMENT
The Company and CNPC initially entered into the Comprehensive
Agreement on 10 March 2000 for the provision (1) by the Group to the CNPC
Group and (2) by the CNPC Group to the Group, of a range of products and
services which may be required and requested from time to time by either
party and/or its subsidiary companies and affiliates. The Comprehensive
Agreement is to be amended by the First Supplemental Comprehensive
Agreement and the Second Supplemental Comprehensive Agreement. There will
be certain new continuing connected transactions between the Company and
the Jointly-owned Companies, and as a result, the Company and CNPC entered
into the Second Supplemental Comprehensive Agreement in respect of these
new connected transactions, the details of which are set out in the
paragraph headed "Second Supplemental Comprehensive Agreement" of this
circular.
(A) Products and Services to be provided by the Group to the CNPC Group
Under the Comprehensive Agreement, products and services to be
provided by the Group to the CNPC Group include those relating to refined
oil products, chemical products, natural gas, crude oil, supply of water,
electricity, gas, heating, quantifying and measuring, quality inspection
and other products and services as may be requested by the CNPC Group for
its own consumption, use or sale from time to time.
(B) Products and Services to be provided by the CNPC Group to the Group
The products and services to be provided by the CNPC Group to the
Group are expected to be more numerous, both in terms of quantity and
variety, than those to be provided by the Group to the CNPC Group. They
have been grouped together and categorised according to the following types
of products and services:
Construction and technical services, including but not limited to
exploration technology service, downhole operation service, oilfield
construction service, oil refinery construction service and engineering and
design service;
Production services, including but not limited to water supply,
electricity generation and supply, gas supply and communications;
Supply of materials services, including but not limited to purchase of
materials, quality control, storage of materials and delivery of materials;
Social services, including but not limited to security services,
education and hospitals;
Ancillary services, including but not limited to property management,
training centers and guesthouses; and
Financial services, including but not limited to loans and deposits
services.
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LETTER FROM THE BOARD
(C) General Principles, Price and Terms
The Comprehensive Agreement requires, in general terms that,
- the quality of products and services to be provided should be
satisfactory to the recipient;
- the price at which such products and services are to be provided
must be fair and reasonable; and
- the terms and conditions on which such products and services are
to be provided should be no less favourable than those offered by
independent third parties.
(D) Price Determination
The Comprehensive Agreement details specific pricing principles for
the products and services to be provided pursuant to the Comprehensive
Agreement. If, for any reason, the specific pricing principle for a
particular product or service ceases to be applicable, whether due to a
change in circumstances or otherwise, such product or service must then be
provided in accordance with the following general pricing principles:
(a) state-prescribed prices (at present, this applies to products and
services such as refined oil products, natural gas, oil refinery
construction, engineering and design, project monitoring and
management), the definition of "state-prescribed price" is to be
amended by the First Supplemental Comprehensive Agreement to mean
price in respect of certain category of services determined by
the laws, regulations, decisions, orders or policies, etc.
enacted by governments of the relevant countries or regions
(including but not limited to the central government, federal
government, provincial government, state or coalition government
or any organisation responsible for domestic ruling and foreign
affairs in respect to certain specified territory, irrespective
of its name, organisation or structure) or other regulatory
departments;
or
(b) where there is no state-prescribed price, then according to the
relevant market prices (at present, this applies to products and
services such as asset leasing, repair of machinery,
transportation, purchase of material, and regional facilities),
the definition of "market price" is to be amended by the First
Supplemental Comprehensive Agreement to mean the price determined
in accordance with the following order:
(i) the price charged by independent third parties in areas
where such type of service is provided and on normal terms
in the area where the service is being provided at that
time; or
(ii) the price charged by independent third parties in nearby
areas where such type of service is provided and on normal
terms in the area or country adjacent to the area where the
service is being provided at that time;
or
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LETTER FROM THE BOARD
(c) where neither (a) nor (b) is applicable, then according to:
(i) the actual cost incurred (at present, this applies to
products and services such as library information and
filing, maintenance of roads, retirement administration and
re-employment training); or
(ii) the agreed contractual price, being the actual cost for the
provision of such product or service plus an additional
margin of not more than:
(xx) 15 per cent. (which includes finance costs, general and
administrative expenses and a profit margin) for
certain construction and technical services (at
present, this applies to products and services such as
geological surveying, drilling, well cementing,
logging, mud logging, well testing and oilfield
construction) provided that, such agreed contractual
price shall not be higher than the prices available for
the provision of such products and services in the
international market; and
(yy) 3 per cent. for all other types of products and
services priced in accordance with the agreed
contractual price (at present, this applies to products
and services such as downhole operations, technology
research, equipment repairing and supporting, equipment
antiseptic testing, communications, fire fighting,
quality inspection, storage of materials, delivery of
materials and training centers).
The definitions of cost price and agreed contractual price include a
provision that the aggregate value, in each future financial year, of all
products and services which are required to be priced at cost or at agreed
contractual prices to be provided under the Comprehensive Agreement, shall
not exceed the aggregate value, calculated on an adjusted basis as if the
Comprehensive Agreement had been in effect during the year ended 31
December 1998, of all products and services which were required to be
priced at cost or at agreed contractual prices during the year ended 31
December 1998, being RMB36.9 billion (the "1998 Amount"), subject to any
necessary adjustment for inflation or deflation, as appropriate, for the
relevant year.
However, if in any future financial year, the Company, due to any
events or factors beyond the control of the Company (e.g. natural
disasters) or the development of new projects, is required to purchase
additional products and services required to be priced at cost or at agreed
contractual prices exceeds the 1998 Amount (as adjusted for inflation or
deflation as appropriate), then that decision to purchase such additional
products or services should be authorised by the Board (with affirmative
votes from the independent non-executive directors) and the management of
the Company on the basis of any revised business plan and comprehensive
financial analysis, to ensure that such purchases will allow for a
reasonable return to the Company's shareholders. In the event that the
relevant Proposed Caps are to be exceeded, the Company will comply with the
requirements of the Listing Rules.
(E) Coordination of annual demand of products and services
Two months prior to the end of each financial year, both parties are
required to prepare and submit to each other an annual plan detailing the
estimated demand for products and services to be rendered in accordance
with the Comprehensive Agreement for the forthcoming financial year.
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LETTER FROM THE BOARD
(F) Rights and Obligations
Both the Group and the CNPC Group retain the right to choose to
receive products and services, as contemplated under the Comprehensive
Agreement, from independent third parties where the terms and conditions as
to price or quality of products or services offered by such third parties
may be superior to those offered by either of the Group or the CNPC Group,
as appropriate.
In addition, the provision of products and services by either party is
on a non-exclusive basis and each party may provide products and services
to other third parties, subject always to the obligation that each party
must be able to provide those products and services which may be required
to be provided in accordance with the Comprehensive Agreement and the
annual plan then in force.
(G) Term and Termination
The term of the Comprehensive Agreement was initially 10 years
starting from the date when the Company's business license was issued. This
term is to be amended by the Second Supplemental Comprehensive Agreement to
3 years commencing from the effective date of the Second Supplemental
Comprehensive Agreement, i.e., 1 January 2006.
During the term of the Comprehensive Agreement, termination of the
product and service implementation agreements described below may be
effected from time to time by the parties to the product and service
implementation agreements providing at least 6 months' written notice of
termination in relation to any one or more categories of products or
services. Further, in respect of any products or services already
contracted to be provided, termination may not take place until after such
products and services have been provided.
In the event that CNPC proposes to terminate the provision of any
products or services, and the Company is unable to find an alternative
product or service provider (which fact shall be communicated by the
Company to CNPC from time to time), then unless permitted by the Company,
CNPC must continue to provide such products or services in accordance with
the terms of the Comprehensive Agreement.
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LETTER FROM THE BOARD
The following table sets forth the historical revenues and
expenditures in relation to the provision of the products and services
which are the subject matters of the Comprehensive Agreement between the
Company and CNPC for the financial years ended 31 December 2003 and 31
December 2004 as well as the period between 1 January 2005 to 30 June 2005:
AS AT 31 DECEMBER
--------------------------------- AS AT 30 JUNE
2003 2004 2005
--------------- --------------- ---------------
RMB HK$ RMB HK$ RMB HK$
------ ------ ------ ------ ------ ------
(in millions)
REVENUES 9,323 8,964 14,516 13,958 6,932 6,665
EXPENDITURES
Construction and technical services 40,868 39,296 47,499 45,672 19,554 18,802
Production services 16,042 15,425 16,313 15,690 8,945 8,601
Supply of materials services 971 934 884 850 707 680
Social and ancillary services 3,009 2,893 3,006 2,890 1,622 1,560
Financial services
Aggregate of the average daily outstanding
principal of loans and the total
amount of interest paid in respect
of these loans 25,803 24,810 25,161 24,193 25,651 24,664
Aggregate of the average daily amount of
deposits and the total amount of
interest received in respect
of these deposits 4,052 3,896 3,441 3,309 3,641 3,501
PRODUCT AND SERVICE IMPLEMENTATION AGREEMENTS
It is envisaged that from time to time and as required, individual
product and service implementation agreements will be entered into between
the relevant service companies and affiliates of the CNPC Group or the
Group, as appropriate, providing the relevant products or services and the
relevant members of the Group or the CNPC Group, as appropriate, requiring
such products or services.
Each product and service implementation agreement will set out the
specific products and services requested by the relevant party and any
detailed technical and other specifications which may be relevant to those
products or services. The product and service implementation agreements may
only contain provisions which are in all material respects consistent with
the binding principles and guidelines and terms and conditions in
accordance with which such products and services are required to be
provided as contained in the Comprehensive Agreement.
As the product and service implementation agreements are simply
further elaborations on the provision of products and services as
contemplated by the Comprehensive Agreement, they do not constitute new
categories of connected transactions.
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LETTER FROM THE BOARD
SECOND SUPPLEMENTAL COMPREHENSIVE AGREEMENT
The Second Supplemental Comprehensive Agreement was entered into by
CNPC and the Company on 1 September 2005, in which they agreed to amend
certain terms of the Comprehensive Agreement, including, among other
things, that:
- both CNPC and the Company shall provide and shall procure their
respective entities including their subsidiaries, branches and
other relevant units to provide products and services in
accordance with the terms and principles of the Comprehensive
Agreement;
- the CNPC Group will provide certain risk operation services as
part of the construction and technical services to the Group, and
these include the provision of exploration, production and other
relevant services within certain and specific reserves of the
Company with exploration and exploitation difficulties;
- the Group will provide certain financial assistance to the
Jointly-owned Companies including entrustment loans and
guarantees;
- the Jointly-owned Companies will provide certain financial
assistance to the Group including entrustment loans and
guarantees; and
Under the Second Supplemental Comprehensive Agreement, the products
and services shall be provided at prices determined according to the
pricing principles for the corresponding products or services under the
Comprehensive Agreement (as amended).
In particular, the Comprehensive Agreement stipulates, among other
things, that:
(i) the loans and deposits shall be provided at prices determined in
accordance with the relevant interest rate and standard for fees
as promulgated by the People's Bank of China. Such prices must
also be more favourable than those provided by independent third
parties; and
(ii) the guarantees shall be provided at prices not higher than the
fees charged by the state policy banks in relation to the
provision of guarantees. References must also be made to the
relevant state-prescribed price and market price.
The Second Supplemental Comprehensive Agreement will take effect on 1
January 2006, after the approval by the Independent Shareholders at the
EGM.
LAND USE RIGHTS LEASING CONTRACT
The Company entered into the Land Use Rights Leasing Contract with
CNPC on 10 March 2000 under which CNPC has leased a total of 42,476 parcels
of land in connection with and for the purpose of all aspects of the
operations and business of the Group covering an aggregate area of
approximately 1,145 million square meters, located throughout the PRC, to
the Company for a term of 50 years at an annual fee of RMB2,000 million.
The Directors believe that a term of 50 years is appropriate for the Land
Use Rights Leasing Contract, since the Company is China's largest petroleum
company engaging in exploration, development, sale and production of crude
oil, natural gas and chemicals, and the long stability of a 50 year tenure
is required to avoid the unnecessary disruption of its operations; the
relevant land leases
-12-
LETTER FROM THE BOARD
are of material significance of its operations; and such tenure conforms
with normal business practice in the PRC property market. The total fee
payable for the lease of all such property may, after the expiration of 10
years from the date of the Land Use Rights Leasing Contract, be adjusted
(to reflect market conditions prevalent at such time of adjustment,
including current market prices, inflation or deflation, as appropriate,
and such other pertinent factors as may be considered in negotiating and
agreeing to any such adjustment) by agreement between the Company and CNPC.
In addition, any governmental, legal or other administrative taxes and fees
required to be paid in connection with the leased properties will be borne
by CNPC. However, any additional amount of such taxes payable as a result
of changes in the PRC Government policies after the date of the contract
shall be shared proportionately on a reasonable basis between CNPC and the
Company.
Savills (Hong Kong) Limited, an independent valuer, has reviewed the
Land Use Rights Leasing Contract and has confirmed that the term of 50
years and current rental payable by the Company to CNPC are fair and
reasonable to the Company according to the Land Use Rights Leasing Contract
and do not exceed the market level. The date of valuation is 30 June 2005.
ICEA, the independent financial adviser to the Independent Board Committee
and the independent shareholders of the Company, has opined that it is
normal business practice for the Land Use Rights Leasing Contract to have a
term of 50 years, the details of which are set out on pages 38 to 39 of
this circular.
BUILDINGS LEASING CONTRACT
The Company entered into the Buildings Leasing Contract with CNPC on
10 March 2000 pursuant to which the CNPC Group has leased to the Company a
total of 191 buildings covering an aggregate area of 269,770 square meters,
located throughout the PRC for the use by the Company for its business
operation including the exploration, development and production of crude
oil, the refining of crude oil and petroleum products, the production and
sale of chemicals, etc.
The 191 buildings were leased at a price of RMB145 per square meter
per year, that is, at an aggregate annual fee of RMB39,116,650, for a term
of 20 years. The Directors believe that a term of 20 years is appropriate
for the Buildings Leasing Contract (as amended), since the Company is
China's largest petroleum company engaging in exploration, development,
sales and production of crude oil, natural gas and chemicals, and the long
stability of a 20 year tenure is required to avoid the unnecessary
disruption of its operations; the relevant building leases are of material
significance of its operations; and such tenure conforms with normal
business practice in the PRC property market. The Company is responsible
for the payment of any governmental, legal or other administrative taxes
and maintenance charges required to be paid in connection with these 191
leased buildings. The Buildings Leasing Contract details the particulars of
the buildings leased by members of the CNPC Group to the Company.
Members of the CNPC Group which own one or more of the leased
buildings will enter into individual building leasing contracts with the
Company. The individual building leasing contracts may only contain
provisions which are consistent with the terms and conditions of the
Buildings Leasing Contract.
One month prior to the end of each financial year, CNPC and the
Company shall make and agree upon a rental fee distribution plan setting
out specific prices for the buildings according to their geographical
locations and conditions.
-13-
LETTER FROM THE BOARD
Supplemental Buildings Leasing Agreement
Further to the Buildings Leasing Contract mentioned above, the Company
entered into a Supplemental Buildings Leasing Agreement (the "SUPPLEMENTAL
BUILDINGS AGREEMENT") with CNPC on 26 September 2002 under which CNPC Group
agreed to lease another 404 buildings to the Group in connection with and
for the purpose of the operation and business of the Group covering an
aggregate of approximately 442,730 square meters. Leasing of the units in
the Supplemental Buildings Agreement is mainly attributable to the
expansion of the Company's operations in the areas of oil and natural gas
exploration, the West-East natural gas pipeline project and the
construction of the Northeast refineries and chemical operation base. The
annual fee payable under the Supplemental Buildings Agreement amounts to
RMB157,439,540. The Company and CNPC will, based on their needs for
production and operation or the changes of the market prices of the
buildings, adjust the scale and the amount of all such buildings under the
Buildings Leasing Contract as well as the Supplemental Buildings Agreement
every three years. The Supplemental Buildings Agreement became effective on
1 January 2003 and will expire at the same time as the Buildings Leasing
Contract.
Savills (Hong Kong) Limited, an independent valuer, has reviewed both
the Buildings Leasing Contract and the Supplemental Buildings Agreement and
has confirmed that the term of 20 years and current rental payable by the
Company to CNPC are fair and reasonable to the Company according to the the
Buildings Leasing Contract and the Supplemental Buildings Agreement and do
not exceed the market level. The date of valuation is 30 June 2005. ICEA,
the independent financial adviser to the Independent Board Committee and
the independent shareholders of the Company, has opined that it is normal
business practice for the Buildings Leasing Contract and the Supplemental
Buildings Agreement to have a term of 20 years, the details of which are
set out on pages 35 to 37 of this circular.
3. NEWCO CONTINUING CT
Newco Continuing CT are continuing connected transactions arising as a
result of the completion of the Transactions, and primarily include:
- the sale of products by Newco Group to the CNPC Group;
- the provision of construction and technical services such as
exploration technology services by CNPC Group to Newco Group;
- the provision of social services and ancillary services by CNPC Group
to Newco Group; and
- the provision of financial services by CNPC Group to Newco Group.
The Independent Shareholders have approved at the Recent EGM, among other
things, the Transactions and Newco Continuing CT.
4. CRMSC TRANSACTIONS
On 1 September 2005, the Company entered into the CRMSC Products and
Services Agreement with CRMSC. According to this agreement, the Company will
provide CRMSC with products and services including, among other things, refined
products (such as gasoline, diesel and other petroleum products) on an ongoing
basis.
-14-
LETTER FROM THE BOARD
The CRMSC Transactions are subject to the announcement, reporting and
Shareholders' approval requirements pursuant to the Listing Rules.
CRMSC PRODUCTS AND SERVICES AGREEMENT
(A) Products and Services to be provided by the Company to CRMSC
Under the CRMSC Products and Services Agreement, products and services
to be continuously provided by the Company to CRMSC include, among other
things, refined products (such as gasoline, diesel and other petroleum
products).
(B) General Principles, Price and Terms
The CRMSC Products and Services Agreement requires, in general terms
that:
(a) The quality of goods and services to be provided should be
satisfactory to the recipient;
(b) The price at which such products and services are to be provided
must be fair and reasonable;
(c) The terms and conditions on which such products and services are
to be provided should be no less favourable than those offered by
independent third parties; and
(d) The products and services shall be provided and standardised by
contracting under individual product and service agreements.
(C) Price Determination
The price of any product and service provided pursuant to the CRMSC
Products and Services Agreement shall be determined by reference to the
State-prescribed price or the market price where there is no
State-prescribed price.
(D) Coordination of annual demand of products and services
Before November of each year, CRMSC is required to discuss and confirm
with the Company an annual plan detailing the estimated demand for products
and services to be rendered in accordance with the CRMSC Products and
Services Agreement for the forthcoming year. It is envisaged that from time
to time and as required, individual product and service implementation
agreements will be entered into between the Company and CRMSC and their
respective subsidiaries, branches and other relevant units, as appropriate,
in connection with the provision of products and services under the CRMSC
Products and Services Agreement.
(E) Rights and obligations
Both the Company and CRMSC agree and guarantee, among other things, to
procure their respective subsidiaries, branches and other relevant units to
provide the products and services thereof in accordance with the terms and
services thereof in accordance with the terms and principles of the CRMSC
Products and Services Agreement.
-15-
LETTER FROM THE BOARD
(F) Term and termination
The term of the CRMSC Products and Services Agreement is 3 years
commencing from 1 January 2006.
During the term of the CRMSC Products and Services Agreement, the
product and service implementation agreements may be terminated from time
to time by the parties to the product and service implementation agreements
providing at least 6 months' written notice of termination in relation to
any one or more categories of products or services. Further, in respect of
any products or services already contracted to be provided, termination may
not take place until after such products and services have been provided.
5. DESCRIPTION OF THE CONNECTED RELATIONSHIP BETWEEN THE PARTIES IN THE
ONGOING CONNECTED TRANSACTIONS
CNPC
As CNPC directly owns an aggregate of approximately 90% of the issued
share capital of the Company, CNPC is a connected person of the Company
under the Listing Rules.
NEWCO
As Newco will become a non wholly-owned subsidiary of the Company upon
the completion of the Transactions and CNPC will become a substantial
shareholder of Newco, Newco will be a connected person of the Company under
the Listing Rules.
CRMSC
CRMSC, being a substantial shareholder of the Company's subsidiary,
PetroChina & CRMSC Oil Marketing, is a connected person of the Company
under the Listing Rules.
Transactions between the Group and connected persons constitute
connected transactions of the Company under the Listing Rules and are
subject to the reporting, announcement and/or Independent Shareholders' (or
Shareholders' approval in the case of CRMSC Transactions) requirements
pursuant the Listing Rules.
6. REASONS FOR AND BENEFITS OF THE ONGOING CONNECTED TRANSACTIONS
EXISTING ONGOING CONNECTED TRANSACTIONS AND NEWCO CONTINUING CT
The Existing Ongoing Connected Transactions and Newco Continuing CT
are entered into for the necessity and benefits of the Company. The
Company, one of the largest companies in the PRC in terms of sales, is
engaged in a broad range of petroleum and natural gas-related activities.
CNPC, on the other hand, is an enterprise whose business operations cover a
broad spectrum of upstream and downstream activities, domestic marketing
and international trade, technical services, and equipment manufacturing
and supply. CNPC is a major producer and supplier of petrochemical
products. CNPC is also involved in the provision of operational services
and technical support in such areas as geophysical prospecting, well
drilling, logging, well testing, downhole operations, oilfield surface
facilities construction, pipeline construction, refining and petrochemical
projects, and manufacturing and supply of petroleum equipment.
-16-
LETTER FROM THE BOARD
In view of the strengths and scope of CNPC's business activities and
the strong favourable support that such Existing Ongoing Connected
Transactions and Newco Continuing CT would bring to the Company's business
activities, the Board believes that the Existing Ongoing Connected
Transactions and Newco Continuing CT are entered into for the necessity and
benefits of the Company. The Board also notes the long smooth cooperation
history between the Company and CNPC in relation to such transactions.
The Existing Ongoing Connected Transactions and Newco Continuing CT
are and will be conducted in the ordinary and usual course of business of
the Group. These transactions will continue to be agreed on an arm's length
basis with terms that are fair and reasonable to the Company. Due to the
long-term relationships between the Group and CNPC Group, the Board
considers it to be beneficial to the Company and in the interests of the
Shareholders as a whole to continue the Existing Ongoing Connected
Transactions and Newco Continuing CT with CNPC Group as these transactions
have facilitated and will continue to facilitate the operation of the
Group's business.
CRMSC TRANSACTIONS
The CRMSC Transactions are essential to the Company. The Company has
strengths in terms of resources. CRMSC is a major corporation of materials
supply in the PRC. It has a dominant position in diesel purchase and
distribution in the market. In view of the overwhelming economic power and
market share of CRMSC and the new situation of the refined oil market of
the PRC in the wake of China's accession to the WTO, the combined strengths
of the Company and CRMSC in terms of resources and market share come into
play. The ongoing connected transactions between the Group and CRMSC
enhance the competitiveness of both the Group and CRMSC. With PetroChina &
CRMSC Oil Marketing as the major supplier of diesel for railway engines,
the Company has found strong and favourable support for its operations from
CRMSC.
The CRMSC Transactions are conducted in the ordinary and normal course
of business of the Company, and are at arm's length. The Directors believe
that these transactions are fair and reasonable to the Company and in the
interests of the Shareholders as a whole. In view of the long-term working
relationship of the Company with CRMSC, it is favourable for the Company to
expand its market share and the Company's development.
-17-
LETTER FROM THE BOARD
7. PROPOSED CAPS
The Board has considered and proposed that the following caps in respect of
the Ongoing Connected Transactions be set for the annual volumes of the relevant
transactions above for the period from 1 January 2006 to 31 December 2008 :
(A) In relation to the products and services contemplated under (a) the
Comprehensive Agreement as to be amended by the First Supplemental
Comprehensive Agreement and the Second Supplemental Comprehensive
Agreement; (b) Buildings Leasing Contract and Supplemental Buildings
Agreement; and (c) the CRMSC Products and Services Agreement; the
total annual revenue or expenditure in respect of each category of
products and services will not exceed the proposed maximum annual
aggregate values set out in the following table:
PROPOSED ANNUAL CAPS
------------------------
CATEGORY OF PRODUCTS AND SERVICES EXISTING ANNUAL LIMIT FOR 2005 2006 2007 2008
--------------------------------- ------------------------------ ------ ------ ------
RMB
(in millions)
(i) Products and services to be RMB39,003 million (approximately 19,134 23,472 26,910
provided by the Group to the HK$37,503 million)
CNPC Group (Note 1)
(ii) Products and services to be
provided by the CNPC Group to the
Group
(a) Construction and technical RMB76,413 million (approximately 91,614 88,280 79,636
services (Note 2) HK$73,474 million)
(b) Production services (Note 3) RMB33,740 million (approximately 27,513 28,923 32,647
HK$32,442 million)
(c) Supply of materials services RMB6,748 million (approximately 4,471 4,331 4,500
(Note 4) HK$6,488 million)
(d) Social and ancillary services RMB5,009 million (approximately 5,000 5,000 5,000
(Note 5) HK$4,816 million)
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LETTER FROM THE BOARD
PROPOSED ANNUAL CAPS
------------------------
CATEGORY OF PRODUCTS AND SERVICES EXISTING ANNUAL LIMIT FOR 2005 2006 2007 2008
--------------------------------- ------------------------------ ------ ------ ------
RMB
(in millions)
(e) Financial Services
Aggregate of the average RMB59,413 million (approximately 43,312 50,132 56,547
daily outstanding HK$57,128 million)
principal of loans; the
total amount of interest
paid in respect of these
loans; and other relevant
charges (Note 6)
Aggregate of the average RMB5,657 million (approximately 9,081 9,102 9,126
daily amount of deposits; HK$5,439 million)
and the total amount of
interest received in
respect of these deposits
(Note 7)
(iii) Financial services to be provided -- 21,235 32,840 44,465
by the Group to the Jointly-owned
Companies (Note 8)
(iv) Fee for land leases paid by the RMB2,000 million (approximately 2,260 2,260 2,260
Group to CNPC (Note 9) HK$1,923 million)
(v) Rental for buildings paid by the RMB200 million (approximately 140 140 140
Group to CNPC (Note 10) HK$192 million)
(vi) Products and services to be -- 10,326 11,359 12,495
provided by the Group to CRMSC
(Note 11)
(B) In relation to the Trademark Licensing Contract, the Patent and
Know-how Licensing Contract and the Computer Software Licensing
Contract, CNPC has granted the Company the right to use certain
trademarks, patents, know-how and computer software of CNPC at no
cost.
(C) the Company's annual report and accounts shall contain a statement
that, in the opinion of the Directors, the arrangement has been
entered into in the manner as stated in the table above.
Notes:
Bases for the Proposed Caps:
1. The annual proposed caps for the products and services to be
provided by the Group to the CNPC Group have been determined with
reference to the historical transactions and transaction amounts
in providing products and services by the Group to the CNPC
Group; the estimated business growth of the Group; the estimated
business growth of the CNPC Group; the potential fluctuations and
increases in the prices of crude oil, petrochemical products,
natural gas and other oil products and services both in the
international market and in the domestic market; and the increase
in transaction amounts as a result of the completion of the
Transactions.
-19-
LETTER FROM THE BOARD
2. The annual proposed caps for the provision of construction and
technical services have been determined with reference to the
completed transactions and transaction amounts for the
construction and technical services provided by the CNPC Group to
the Group; the estimated business growth of the Company; and the
transaction amounts as a result of increase in size of the Group
upon the completion of the Transactions.
The Group has obtained construction and technical services from
CNPC Group in the ordinary course of business, and as one of the
most experienced companies in the world, the construction and
technical services provided to the Group are quality services.
The CNPC Group is also one of the few companies in the PRC which
provide quality petrochemical related construction and technical
services.
3. The annual proposed caps for the production services provided by
the CNPC Group to the Group have been determined with reference
to the previous transactions conducted and transaction amounts in
respect of production services provided by the CNPC Group to the
Group; the estimated business growth of the Group; and the
potential fluctuations and increases in the international and the
PRC market prices of crude oil, petroleum and petrochemical
products, leading to higher energy costs in the production
process.
Production services mainly consist of water supply, electricity
generation and supply, gas supply by CNPC Group to the Group and
the supply of petroleum and petrochemical products by
Jointly-owned Companies to the Group. The Group is of the view
that annual proposed caps have provided sufficient increment for
the Company to implement its future business development plans
and have been determined on a fair and reasonable basis.
4. The annual caps for the supply of materials services paid by the
Group to the CNPC Group have been determined by reference to the
estimated business growth of the Company; and changes in the
volume of purchases by the Group.
The CNPC Group is one of the leading buyers of petrochemical raw
materials in the PRC. With the economy of scale and to increase
the collective bargaining power of the CNPC Group, the
centralised materials purchase by the CNPC Group thus stabilise
the purchase prices of the Company's raw materials.
With the Company's dominant position and increase in the
petroleum and petrochemical industries of the PRC, as well as the
increase in the size of business, these ongoing connected
transactions and transaction amounts are expected to increase.
The Group is of the view that the Proposed Caps provide
sufficient increment for the Company to implement future business
development and planning.
5. The annual proposed caps for social and ancillary services have
been determined with reference to the previous transactions
conducted and transaction amounts in respect of the social and
ancillary services provided by the CNPC Group to the Group; the
estimated business growth of the Group; and the transaction
amounts as a result of increase in size of the Group upon the
completion of the Transactions.
Considering the future development and acquisitions of the Group
which will increase the demand for certain social and ancillary
services, the Group has prudently set the annual proposed caps at
the same level as the existing annual caps.
6. The annual proposed caps for the financial services (aggregate of
loans, interests and other relevant charges) provided by CPFC to
the Group have been determined with reference to the estimated
business growth of the Group; the competitive interest rates and
charges offered by CPFC; and the transaction amounts as a result
of increase in size of the Group upon the completion of the
Transactions, in particular, the financing provided by CPFC to
Newco.
To optimise cash flow management and capital efficiency of the
Group and the CNPC Group, there is the specific target of
providing a centralised financial management by CPFC, which
provides a full range of financial services to the Group and the
CNPC Group, including but not limited to deposit services, loan
services, project financing, clearing services, national debt
redemption, entrustment loans, financial advisory and insurance
services.
-20-
LETTER FROM THE BOARD
The Group is of the view that the annual proposed caps have
provided increments sufficient for the Group to implement future
business development and planning, and that the annual proposed
caps have been determined on a reasonable basis.
7. The annual proposed caps for the financial services (aggregate of
deposits and interests) provided by the CNPC Group to the Group
have been determined with reference to the estimated business
growth of the Group; the Group's historical cashflow and levels
of deposits; the competitive interest rates offered by CPFC; and
the transaction amounts as a result of increase in size of the
Group upon the completion of the Transactions.
As mentioned above, in order to optimise cash flow management and
capital efficiency of the Group and the CNPC Group, there is the
specific target of providing a centralised financial management
by CPFC, which provides a full range of financial services to the
Group and the CNPC Group.
The Group is of the view that the annual proposed caps have
provided increments sufficient for the Group to implement future
business development and planning, and that the annual proposed
caps have been determined on a reasonable basis.
8. The annual proposed caps for the financial services, including
but not limited to guarantees and entrustment loans, to be
provided by the Group to the Jointly-owned Companies (such as
Newco) have been determined with reference to the business
development and financing needs of the Jointly-owned Companies;
and the acquisition opportunities which may arise from time to
time in the international market. It has been pointed out by the
Group in the Recent Circular to the Shareholders dated 30 June
2005 that it is the Group's strategic objective of becoming an
international petroleum company with significant oil assets both
onshore and offshore as well as in both the PRC and international
markets. The Group is of the view that the provision of financial
services to the Jointly-owned Companies will enable them to have
sufficient funding for future expansion.
9. The Directors consider that pursuant to the Land Use Rights
Leasing Contract, the annual proposed caps in respect of the land
leases provided by the CNPC Group to the Group are sufficient for
the Group to implement future business development and planning.
Each of the annual proposed caps comprises of the annual leasing
fee of RMB2,000 million and the relevant PRC tax of RMB260
million, which are in accordance with the Land Use Rights Leasing
Contract. Savills (Hong Kong) Limited, an independent valuer, has
appraised the lands leased to the Group.
10. The Directors consider that pursuant to the Buildings Leasing
Contract (as amended by the Supplemental Buildings Agreement),
the annual proposed caps in respect of the building leases
provided by the CNPC Group to the Group, which are lower than the
existing annual limit for 2005 due to a reduced requirement by
the Group, are sufficient for the Group to implement future
business development and planning. The annual proposed caps are
in accordance with Buildings Leasing Contract (as amended by the
Supplemental Buildings Agreement), and Savills (Hong Kong)
Limited, an independent valuer, has appraised the buildings
leased to the Group.
11. The historical revenue in relation to the provision of the
products and services which are the subject matter of CRMSC
Products and Services Agreement between the Company and CRMSC was
RMB4,041 million for the six months ended 30 June 2005. There had
not been any connected transactions between the Company and CRMSC
before 1 January 2005.
The annual proposed caps have been determined with reference to
(i) the relevant pricing principles, i.e., the State-prescribed
prices; (ii) the historical transaction levels for the same type
of transaction before CRMSC became a connected person of the
Company; and (iii) the estimated future transaction levels based
on the market needs in the coming 3 years.
-21-
LETTER FROM THE BOARD
8. DISCLOSURE AND INDEPENDENT SHAREHOLDERS' APPROVAL REQUIREMENTS
Under the Listing Rules, the Ongoing Connected Transactions as stated above
are subject to the reporting, announcement and Independent Shareholders'
approval (or Shareholders' approval in the case of CRMSC Transactions)
requirements. The Company will seek the Independent Shareholders' approval (or
Shareholders' approval in the case of CRMSC Transactions) at the EGM of the
Ongoing Connected Transactions and the Proposed Caps that:
1. The annual amount of each individual type of the Ongoing Connected
Transactions shall not exceed the applicable Proposed Cap;
2. (i) The Ongoing Connected Transactions will be entered into in the
usual and ordinary course of businesses of the Group and either
(A) on normal commercial terms or (B) if there is no available
comparison, on terms no less favourable to the Group than terms
available from independent third parties; and
(ii) The Ongoing Connected Transactions will be entered into in
accordance with the relevant agreements and on terms that are
fair and reasonable and in the interests of the Shareholders as a
whole;
The Company will comply with the Listing Rules.
In view of the interests of CNPC, CNPC will abstain from voting in relation
to the shareholders resolution necessary to approve the Ongoing Connected
Transactions (except the CRMSC Transactions). In the case of CRMSC Transactions,
CNPC is not required to abstain from voting. An Independent Board Committee of
the Company, comprising Messrs. Chee-Chen Tung, Liu Hong Ru and Franco Bernabe,
has been appointed to advise the independent shareholders on whether or not the
terms of the Ongoing Connected Transactions are in the interest of the Company
and are fair and reasonable so far as the independent shareholders of the
Company are concerned. An independent financial adviser, ICEA, has been
appointed to advise the Independent Board Committee and the independent
shareholders of the Company regarding the terms of the Ongoing Connected
Transactions.
9. PROPOSED RE-ELECTION AND APPOINTMENT OF THE DIRECTORS AND SUPERVISORS
In accordance with the existing Articles of Association of the Company, the
Board comprises thirteen directors, including four executive directors, six
non-executive directors and three independent non-executive directors while the
Supervisory Committee comprises seven supervisors including three supervisors
representing the Shareholders and one supervisor representing the employees.
All Directors and Supervisors of each session will hold office for a term
of three years, and being eligible, may offer themselves for re-election. The
Directors and Supervisors (representing the Shareholders) of the new session
will be elected in a general meeting by resolutions passed by the Shareholders
attending the meeting and holding more than half of the voting rights (including
their proxies). The Supervisor (representing the employees) will be elected
democratically by the employees of the Company.
-22-
LETTER FROM THE BOARD
As the term of the Board and the Supervisory Committee of the second
session will expire on 18 November 2005, a notice was given on 22 September 2005
for convening the EGM on 8 November 2005, among other matters, to elect a new
Broad and Supervisory Committee (representing the Shareholders) of the third
session. The term of the new Directors and Supervisors will be for a period of
three years which is proposed to commence on 8 November 2005 and will expire on
7 November 2008.
DIRECTORS
THE NAMES, PROFILES AND PROPOSED REMUNERATION OF THE THIRD BOARD OF
DIRECTORS
The term of office of six Directors of the second session of the Board
shall expire on 18 November 2005. Four of such Directors, namely Su Shulin,
Gong Huazhang, Chee-Chen Tung and Liu Hongru, have been re-nominated as
candidates for re-election as members of the Board of the third session.
Ren Chuanjun and Zou Haifeng have not been nominated as candidates for
election as members of the Board of the third session. Wang Yilin, Zeng
Yukang and Jiang Fan have been nominated by the Shareholders as candidates
for election as members of the Board of the third session.
Each of the Directors does not have any service contract with the
Company. The directors' fees are fixed by the Board of Directors pursuant
to the authority granted by the Shareholders at this EGM by reference to
the Director's duty, responsibilities and performance and the results of
the Group. Since such references will only be available to the Company upon
the end of the Company's financial year, the amount of the fees of each of
the Directors can only be determined at such later point in time. The
Company will make disclosure of the determined amounts of the Directors'
emoluments in the Company's annual report for the financial year 2005.
As at the Latest Practicable Date, other biographical details of each
of the Directors who stand for re-election and new election at the EGM as
required under Rule 13.51(2) of the Listing Rules are set out below to
enable the Shareholders to make an informed decision on their re-election
and new election.
Save as disclosed herein, each of the Directors who stand for
re-election and new election does not have any relationship with any other
Directors, Supervisors, senior management or substantial or controlling
shareholders of the Company. Each of them does not have any interest in the
Shares of the Company within the meaning of Part XV of the Securities and
Futures Ordinance.
BRIEF BIOGRAPHICAL DETAILS OF THE DIRECTORS PROPOSED TO BE RE-ELECTED
Executive Director
Su Shulin, aged 43, is a Director and Senior Vice President of the
Company. Mr. Su graduated from Daqing Petroleum Institute and Harbin
University of Engineering. He has a Master's degree and is a senior
engineer. He has many years of experience in the Chinese oil and gas
industry. Since 1996, Mr. Su has worked as the Assistant Director of Daqing
Petroleum Administration Bureau, and the Department Head, Standing Deputy
Director and Director of the First Oil and Natural Gas Development
Department. He was concurrently the Chairman and General Manager of the
Company's subsidiary Daqing Oilfield Company Limited. Mr. Su
-23-
LETTER FROM THE BOARD
ceased to act as the Chairman and the General Manager of Daqing Oilfield
Company Limited in December 2003. Mr. Su has been a Director of the Company
since November 2002, and has been Senior Vice President since 3 December
2002.
Non-executive Director
Gong Huazhang, aged 59, is a Director of the Company. Mr. Gong
graduated from the Yangzhou Business School and is a senior accountant. He
has over 30 years of working experience in the Chinese oil and gas
industry. Mr. Gong worked as Chief Accountant, Deputy Director and Director
of the Finance Bureau of CNPC from 1991. He was the Director of Finance and
Assets Department of CNPC in October 1998 and has been the General
Accountant of CNPC since February 1999. Mr. Gong has been a Director of the
Company since 5 November 1999.
Independent Non-executive Directors
Chee-Chen Tung, aged 62, is an independent non-executive Director of
the Company. Mr. Tung is the Chairman and Chief Executive Officer of Orient
Overseas (International) Limited and was educated at the University of
Liverpool, England, where he received his Bachelor of Science degree. He
later acquired a Master's degree in Mechanical Engineering at the
Massachusetts Institute of Technology in the United States. He served as
Chairman of the Hong Kong Shipowners' Association between 1993 and 1995.
From 1999 to 2001, he was the Chairman of the Hong Kong General Chamber of
Commerce. He is an independent non- executive director of Hu Hangyong
Expressway Company Ltd., Chekiang First Bank, Bank of China (Hong Kong) Co
Ltd., Global China Group Holdings Ltd. and Wing Hang Bank; an independent
non-managing director of Cathay Pacific Airways; and a member of the Hong
Kong Port Development Board. Mr. Tung is also the Chairman of the Institute
for Shipboard Education Foundation, the Chairman of the Advisory Council
and a member of the Board of Directors of the Hong Kong Polytechnic
University, the Director of the International Academic Centre of the
University of Pittsburgh, and a member of the Board of Visitors of the
School of Foreign Service, Georgetown University. Mr. Tung has been
appointed as an independent non- executive Director of the Company since 5
November 1999.
Liu Hongru, aged 74, is an independent non-executive Director of the
Company. Mr. Liu graduated from the Faculty of Economics of the University
of Moscow in 1959 with an associate Doctorate's degree. He worked as
Vice-Governor of the Agricultural Bank of China, Vice-Governor of the
People's Bank of China, Deputy Director of the State Economic Restructuring
Committee, and the Chairman of the China Securities Regulatory Commission.
Mr. Liu is currently a Deputy Director of the Economics Committee under the
Chinese People's Political Consultative Conference and concurrently serves
as Vice President of China Finance and Banking Society, Vice President of
the China National Debt Association and President of the Shanghai Institute
of Financial and Legal Studies. Mr. Liu is also a professor at the Peking
University, the Postgraduate School of the People's Bank of China and the
City University of Hong Kong. Mr. Liu was appointed as an independent
Supervisor of the Company in December 1999. Upon his resignation from this
post, he was appointed as an independent non-executive Director of the
Company on 19 November 2002.
-24-
LETTER FROM THE BOARD
BRIEF BIOGRAPHICAL DETAILS OF THE DIRECTORS PROPOSED TO BE NEWLY APPOINTED
Non-executive Director
Wang Yilin, aged 49, graduated from Huadong Petroleum Institute in
1982, majoring in Petroleum Geological Exploration. In 2002, he completed
his Doctorate course in the specialized study of mineral survey and
exploration and obtained his Doctor's degree in engineering at the
Petroleum University and is a senior engineer. He has over 20 years of
working experience in the Chinese oil and gas industry. Mr. Wang had been
the Deputy Director and Chief Exploration Geologist of Xinjiang Petroleum
Administration Bureau since June 1999. He was appointed as the General
Manager of the Xinjiang Oilfield Branch of the Company since September
1999. He had been the Senior Executive of Xinjiang Petroleum Administration
Bureau and the Xinjiang Oilfield Branch of the Company since June 2001.
From July 2003 onwards, he was appointed as the General Manager of CNPC,
Senior Executive of Xinjiang Petroleum Administration Bureau and the Senior
Executive of Xinjiang Oilfield Branch of the Company concurrently. Since
December 2003, he was appointed as the Deputy General Manager of CNPC. From
July 2004 onwards, he has been the Safety Director of CNPC.
Zeng Yukang, aged 54, graduated from Hubei Geological Institute in
1974, majoring in petroleum geology. He has over 30 years of working
experience in the Chinese oil and gas industry. Mr. Zeng had been the
Senior Executive of the Exploration and Development Institute of Daqing
Petroleum Administration Bureau since June 1996. From February 2000
onwards, he was appointed as the Standing Deputy Director of Daqing
Petroleum Administration Bureau. Since March 2001, he was appointed as the
Director of Daqing Petroleum Administration Bureau. Since November 2002, he
held the positions of Assistant to the General Manager of CNPC and Director
of Daqing Petroleum Administration Bureau concurrently. From February 2005
onwards, he has been the Assistant to the General Manager of CNPC and the
Senior Executive of Daqing Petroleum Administration Bureau.
Jiang Fan, aged 41, graduated from Dalian Technical Institute in 1985,
majoring in chemical engineering. In June 2003, he completed his master's
degree in administration science and engineering at the Petroleum
University and obtained his master's degree in management study. He has
over 20 years of working experience in the Chinese oil and gas industry.
Mr. Jiang was appointed as the Deputy Manager of Dalian Petrochemical
Company since December 1996. Since September 1999, he was appointed as the
Deputy General Manager of Dalian Petrochemical Company, and since February
2002, he became the General Manager of Dalian Petrochemical Company.
SUPERVISORS
The Supervisory Committee of the second session consisted of seven
members, six of whom were elected by the Shareholders, whereas Sun Chongren
was elected by the employees of the Company. The term of office of five of
the Supervisors will expire on 18 November 2005. Wen Qingshan and Wu Zhipan
have been nominated by the Shareholders as candidates for re-election as
members of the Supervisory Committee of the third session. Li Kecheng,
Zhang Youcai and Sun Chongren have not been nominated as members of the
Supervisory Committee of the third session. Wang Fucheng and Li Yongwu have
been nominated by the Shareholders as candidates for election as members of
the Supervisory Committee of the third session. Qin Gang will be nominated
for election as a member of the Supervisory Committee of the third session
at a separate meeting held by the staff and workers of the Company.
-25-
LETTER FROM THE BOARD
Each of the Supervisors does not have any service contract with the
Company. The fees for the Supervisors are fixed by the Board of Directors
pursuant to the authority granted by the Shareholders at this EGM by
reference to the Supervisor's duty, responsibilities and performance and
the results of the Group. Since such reference will only be available to
the Company upon the end of the Company's financial year, the amount of the
fees of each of the Supervisors can only be determined at such later point
in time. The Company will make disclosure of the determined amounts of the
Supervisors' emoluments in the Company's annual report for the financial
year 2005.
As at the Latest Practicable Date, other biographical details of each
of the Supervisors who stand for new election and re-election at the EGM as
required under Rule 13.51(2) of the Listing Rules are set out below to
enable the Shareholders to make an informed decision on their new election
and re-election.
Save as disclosed herein, each of the Supervisors who stand for
election and re-election does not have any relationship with any other
Directors, Supervisors, senior management or substantial or controlling
shareholders of the Company. Each of them does not have any interest in the
Shares of the Company within the meaning of Part XV of the Securities and
Futures Ordinance.
Chairman
Wang Fucheng, aged 55, is a senior economist. He graduated from the
Shandong Normal University. He has over 30 years of working experience in
the Chinese oil and gas industry. Mr. Wang has worked in the Shengli
Oilfield, Zhongyuan Oilfield and Liaohe Oilfield. From 1986 to June 2000,
Mr. Wang worked as Senior Executive of the Shengli Oilfield, Senior
Executive of the Liaohe Oil Exploration Bureau, Director of the Liaohe Oil
Exploration Bureau and General Manager of the Branch Office of Liaohe
Oilfield. Mr. Wang was appointed as a Director of the Company in June 2000
and was appointed as the Vice President of the Company in July 2000. In
December 2002, Mr. Wang was re-appointed as a Director of the Company. Mr.
Wang will resign as a Director of the Company prior to taking his office as
Chairman of the Supervisory Committee.
Supervisors
Wen Qingshan, aged 47, is a Supervisor of the Company. Mr. Wen is a
senior accountant and a graduate of the Jilin Yanbian University. He was
the Deputy Chief Accountant of the Finance and Assets Department of CNPC
from November 1998, Deputy Director of the Finance and Assets Department of
CNPC from May 1999 and Director of the Finance and Assets Department of
CNPC from May 2002. He has been a Supervisor of the Company since November
2002.
Independent Supervisors
Li Yongwu, aged 61, graduated from Tsinghua University in 1968,
majoring in polymer studies. Mr. Li is a senior engineer. Since June 1991,
Mr. Li was appointed as the Director of Tianjin Chemicals Bureau. Since
July 1993, he was appointed as the Director of Tianjin Economic Committee.
He became the Deputy Director of the Chemical Industry Department since
April 1995. He became Director of the State's Petroleum and Chemical
Industry Bureau since March 1998. Since April 2001, he was appointed as a
Deputy Director of the Liaison Office of the Central Government at the
Special Administrative Region of Macau. Since
-26-
LETTER FROM THE BOARD
December 2004, he was appointed as the Deputy President of China Petroleum
and Petrochemical Industry Association. Since May 2005, he became the
President of China Petroleum and Petrochemical Industry Association. In
2003, he was elected as a standing member of the Tenth Chinese People's
Political Consultative Conference.
Wu Zhipan, aged 48, is an independent Supervisor of the Company. Mr.
Wu obtained a Doctor of Laws degree from of the School of Law, Peking
University in 1988, and was a visiting scholar at Harvard Law School from
1991 to 1992. Mr. Wu is currently the Vice- chancellor of the Peking
University. He is also an expert consultant of the Supreme People's Court
of The PRC, an arbitrator of the Arbitration Panel of China International
Economic and Trade Arbitration Commission and President of the China
Economic Law Research Societies. Mr. Wu is the author of a large number of
legal publications and has extensive work experience in the legal field.
Mr. Wu has been an independent Supervisor of the Company since December
1999.
10. EGM
The Notice convening the EGM to be held at Beijing Continental Grand Hotel,
Beijing International Convention Center, No. 8, Beichendong Road, Chaoyang
District, Beijing, The PRC at 9:00 a.m. on 8 November 2005 was published on 22
September 2005 and despatched to holders of H shares of the Company on 22
September 2005 pursuant to the Articles of Association. A reply slip is also
enclosed. The EGM will be held for the purpose of considering and, if deemed
appropriate, approving, among others, the Ongoing Connected Transactions and the
new election and the re- election of Directors and Supervisors.
A form of proxy for use at the EGM is enclosed herewith. Whether or not you
are able to attend the EGM in person, you are requested to complete and return
the form of proxy in accordance with the instructions printed thereon as soon as
possible and in any event no later than 24 hours before the time appointed for
the holding of EGM. Completion and return of the form of proxy will not preclude
you from attending and voting at the EGM should you wish.
IN ACCORDANCE WITH THE LISTING RULES, CNPC, THE CONTROLLING SHAREHOLDER OF
THE COMPANY, WILL ABSTAIN FROM VOTING IN RESPECT OF THE ORDINARY RESOLUTIONS TO
APPROVE THE ONGOING CONNECTED TRANSACTIONS (EXCEPT THE CRMSC TRANSACTIONS IN
WHICH CASE NO PARTY IS REQUIRED TO ABSTAIN FROM VOTING) AT THE EGM BECAUSE OF
THEIR INTEREST IN THESE TRANSACTIONS.
11. RECOMMENDATION
Your attention is drawn to the letter from the Independent Board Committee
to the independent shareholders of the Company, which is set out on page 29 of
this circular, and which contains their recommendation in respect of the terms
of the Ongoing Connected Transactions.
The advice of ICEA to the Independent Board Committee and the independent
shareholders of the Company on the fairness and reasonableness of the terms of
the Ongoing Connected Transactions are set out on pages 30 to 52 of this
circular.
Having considered the qualifications and relevant experience of the
candidates for re-election and new election as Directors or Supervisors, the
Board recommends that the Shareholders should vote in favour of the resolutions
to be proposed at the EGM to approve the new election and re-election of
Directors and Supervisors.
-27-
LETTER FROM THE BOARD
12. ADDITIONAL INFORMATION
Your attention is drawn to the general information set out in the Appendix
to this circular.
Yours faithfully,
By Order of the Board
PETROCHINA COMPANY LIMITED
CHEN GENG
Chairman
-28-
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
(PETROCHINA COMPANY LIMITED LOGO)
(CHINESE CHARACTER)
PETROCHINA COMPANY LIMITED
(A joint stock limited company incorporated in the People's Republic of
China with limited liability)
(STOCK CODE: 857)
22 September 2005
To the independent shareholders of the Company
Dear Sir or Madam,
ONGOING CONNECTED TRANSACTIONS
We refer to the circular dated 22 September 2005 of the Company of which
this letter forms part. Terms defined in this circular shall have the same
meanings when used herein unless the context requires otherwise.
Since the Ongoing Connected Transactions constitute connected transactions
for the Company under the Listing Rules for the reasons set out in this
circular, the Ongoing Connected Transactions are subject to the requirements of
reporting, announcement and approval from the Independent Shareholder or the
Shareholders (as the case may be).
We have been appointed by the Board to constitute the Independent Board
Committee to consider and advise the independent shareholders as to the fairness
and reasonableness in relation to the Ongoing Connected Transactions, details of
which are set out in the Letter from the Board in this circular to the
Shareholders. ICEA has been retained as the independent financial adviser to
advise the Independent Board Committee in this respect. We wish to draw your
attention to the letter from ICEA as set out on pages 30 to 52 of this circular.
HAVING TAKEN INTO ACCOUNT THE INFORMATION SET OUT IN THE LETTER FROM THE
BOARD, AND THE PRINCIPAL FACTORS, REASONS AND RECOMMENDATIONS SET OUT IN THE
LETTER FROM ICEA, WE CONSIDER THE TERMS OF THE ONGOING CONNECTED TRANSACTIONS TO
BE FAIR AND REASONABLE AS THE INDEPENDENT SHAREHOLDER OR THE SHAREHOLDERS (AS
THE CASE MAY BE) ARE CONCERNED AND BELIEVE THAT THE ONGOING CONNECTED
TRANSACTIONS ARE IN THE INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AS A
WHOLE. ACCORDINGLY, WE RECOMMEND THAT THE INDEPENDENT SHAREHOLDER OR THE
SHAREHOLDERS (AS THE CASE MAY BE) SHOULD VOTE IN FAVOUR OF THE RESOLUTIONS TO BE
PROPOSED AT THE EGM TO APPROVE THE ONGOING CONNECTED TRANSACTIONS.
Yours faithfully,
CHEE-CHEN TUNG LIU HONG RU FRANCO BERNABE
Independent Non-Executive Independent Non-Executive Independent Non-Executive
Director Director Director
-29-
LETTER FROM ICEA CAPITAL LIMITED
The following is the text of the letter of advice to the Independent Board
Committee and the independent shareholders of the Company from ICEA in relation
to the Ongoing Connected Transactions for the purpose of incorporation in this
circular.
(ICEA (CHINESE CHARACTER) LOGO)
A subsidiary of ICBC (CHINESE CHARACTER)
ICEA CAPITAL LIMITED (CHINESE CHARACTER)
26/F, ICBC Tower (CHINESE CHARACTER)
3 Garden Road, Central, Hong Kong (CHINESE CHARACTER)
General Line: (852) 2231 8000 (CHINESE CHARACTER): (852) 2231 8000
General Fax: (852) 2525 0967 (CHINESE CHARACTER): (852) 2525 0967
22 September 2005
To the Independent Board Committee and
the independent shareholders of the Company
Dear Sirs,
ONGOING CONNECTED TRANSACTIONS
We refer to our engagement as independent financial adviser to advise the
Independent Board Committee and the independent shareholders of the Company with
respect to the terms of the Ongoing Connected Transactions and determination of
the Proposed Caps of the Ongoing Connected Transactions for each of the three
years ending 31 December 2006, 2007 and 2008. Pursuant to the Listing Rules, the
Ongoing Connected Transactions are subject to, among other things, the approval
of the independent shareholders of the Company at a general meeting of the
Company. Details of the Ongoing Connected Transactions are summarized in the
Company's circular to its Shareholders dated 22 September 2005 (the "CIRCULAR").
This letter has been prepared for inclusion in the Circular and capitalized
terms used in this letter shall have the same meaning as defined in the Circular
unless the context otherwise requires.
The Company had previously obtained from the Stock Exchange a waiver from
strict compliance with the relevant requirements of the Listing Rules in respect
of ongoing connected transactions between CNPC and the Company at the time of
the Company's IPO in 2000. On 12 September 2002, the Company sought to renew the
waiver in respect of the Existing Ongoing Connected Transactions. Subsequently,
the Stock Exchange, on 26 November 2002, granted the Existing Waiver to the
Company subject to, inter alia, the conditions set out in a letter from the
Stock Exchange. The Existing Waiver will expire on 31 December 2005. In addition
to the Existing Ongoing Connected Transactions, the Independent Shareholders
have already approved the Newco Continuing CT at the Recent EGM, and there are
CRMSC Transactions, which are new ongoing connected transactions between the
Group and connected person other than CNPC, namely CRMSC.
Our opinion only applies to the Ongoing Connected Transactions. Other
ongoing connected transactions which are not subject to approval by independent
shareholders of the Company are not within the scope of our work.
We, ICEA, have been retained as the independent financial adviser to advise
the Independent Board Committee and the independent shareholders of the Company
as to whether or not the terms of the Ongoing Connected Transactions are fair
and reasonable so far as the independent shareholders of the Company are
concerned and whether the Proposed Caps of the Ongoing Connected Transactions
are reasonably determined.
-30-
LETTER FROM ICEA CAPITAL LIMITED
In formulating our recommendation, we have relied, without assuming any
responsibility for independent verification, on the information, opinions and
facts supplied and representations made to us by the Directors, who have assumed
full responsibility for the accuracy of the information contained in the
Circular, and that any information and representations made to us are true,
accurate and complete in all material respects as at the date hereof and that
they may be replied upon. We have no reason to doubt the truth, accuracy and
completeness of the information and representations provided to us by the
Company. We have discussed with the management of the Company regarding their
plans and prospects of the Company. We have also relied on certain information
available to the public and have assumed such information to be accurate and
reliable, and we have not independently verified the accuracy of such
information. We have studied the relevant market and other conditions and trends
relevant to the pricing of the Ongoing Connected Transactions. We have also
assumed that statements and representations made or referred to in the Circular
were accurate at the time they were made and continue to be accurate at the date
of the Circular.
We consider that we have reviewed sufficient information to reach an
informed view in order to provide a reasonable basis for our advice. We have
not, however, carried out any independent verification of the information
provided to us nor have we conducted any form of independent in- depth
investigation into the business affairs or assets and liabilities of the
Company, CNPC or any of their respective subsidiaries or associated companies.
Additionally, we did not conduct any physical inspection of the properties or
facilities of the Company, CNPC, or any of their respective subsidiaries or
associated companies. It is not within our terms of engagement to comment on the
commercial feasibility of the Ongoing Connected Transactions, which remains the
responsibility of the Directors. As the independent financial adviser to the
Independent Board Committee and the independent shareholders of the Company, we
have not been involved in the negotiations in respect of the terms of the
Ongoing Connected Transactions. Our opinion with regard to the terms thereof has
been made on the assumption that all obligations to be performed by each of the
parties to the Ongoing Connected Transactions will be fully performed in
accordance with the terms thereof.
Our opinion is necessarily based upon the financial, economic, market,
regulatory, and other conditions as they exist on, and the facts, information,
and opinions made available to us as of the date of this letter. We have no
obligation to update this opinion to take into account events occurring after
the date on which this opinion is delivered to the Independent Board Committee
and the independent shareholders of the Company. This letter is for the
information of the Independent Board Committee and the independent shareholders
of the Company solely in connection with their consideration of the Ongoing
Connected Transactions and, except for its inclusion in the Circular, is not to
be quoted or referred to, in whole or in part, nor shall this letter be used for
any other purpose, without our prior written consent.
ICEA is a licensed corporation to carry out regulated activities of dealing
in securities and advising on corporate finance under the SFO. ICEA and its
affiliates, whose ordinary business involves the trading of, dealing in and the
holding of securities, may be involved in the trading of, dealing in, and the
holding of the securities of the Company for client accounts.
-31-
LETTER FROM ICEA CAPITAL LIMITED
PRINCIPAL FACTORS CONSIDERED
In arriving at our opinion, we have taken into consideration the principal
factors and reasons set out below. In reaching our conclusion, we have
considered the results of the analyses in light of each other and ultimately
reached our opinion based on the results of all analyses taken as a whole.
1. NATURE AND PRINCIPLE TERMS OF ONGOING CONNECTED TRANSACTIONS
The Comprehensive Agreement, Land Use Rights Leasing Contract, and
Buildings Leasing Contract were initially entered into between the Company and
CNPC at the time of the Company's IPO in the year 2000. Subsequently, on 26
September 2002, on 9 June 2005 and on 1 September 2005, the Supplemental
Buildings Leasing Agreement, the First Supplemental Comprehensive Agreement and
the Second Supplemental Comprehensive Agreement were entered into between the
Company and CNPC respectively. On 1 September 2005, the Company and CRMSC
entered into the CRMSC Products and Services Agreement.
1.1 COMPREHENSIVE AGREEMENT, FIRST SUPPLEMENTAL COMPREHENSIVE AGREEMENT,
AND SECOND SUPPLEMENTAL COMPREHENSIVE AGREEMENT
The Company and CNPC entered into the Comprehensive Agreement on 10
March 2000 for the provision (1) by the Group to the CNPC Group and (2) by
the CNPC Group to the Group, of a range of products and services which may
be required and requested from time to time by either party and/or its
subsidiary companies and affiliates. The Comprehensive Agreement was
amended by the First Supplemental Comprehensive Agreement on 9 June 2005
and the Second Supplemental Comprehensive Agreement on 1 September 2005.
The description of the ongoing connected transactions under the
Comprehensive Agreement (as amended by the First Supplemental Comprehensive
Agreement and the Second Supplemental Comprehensive Agreement) is set out
as follows:
REFERENCE TO
SECTION 3 OF
TRANSACTION DESCRIPTION THIS LETTER
----------- ----------- ------------
(1) Products and services to be Products and services including but not 3.1
provided by the Group to the limited to refined oil products,
CNPC Group chemical products, natural gas, crude
oil, supply of water, electricity,
gas, heating, quantifying and
measuring, quality inspection and
other products and services as may be
requested by the CNPC Group for its
own consumption, use or sale from
time to time
(2) Construction and technical Construction and technical services 3.2
services to be provided by the including but not limited to
CNPC Group to the Group exploration technology service,
downhole operation service, oilfield
construction service, oil refinery
construction service and engineering
and design service and risk operation
services
-32-
LETTER FROM ICEA CAPITAL LIMITED
REFERENCE TO
SECTION 3 OF
TRANSACTION DESCRIPTION THIS LETTER
----------- ----------- ------------
(3) Production services to be Production services including but not 3.3
provided by the CNPC Group to limited to water supply, electricity
the Group generation and supply, gas supply and
communications
(4) Supply of materials services to Supply of material services including 3.4
be provided by the CNPC Group but not limited to purchase of
to the Group materials, quality control, storage
of materials and delivery of
materials
(5) Social and ancillary services to Social and ancillary services including 3.5
be provided by the CNPC Group but not limited to security services,
to the Group education, medical services, and
property management of training
centers and guesthouses
(6) Financial services (loan services Financial services including but not 3.6
etc.) to be provided by the limited to providing loan services
CNPC Group to the Group
(7) Financial services (deposit Financial services including but not 3.7
services) to be provided by limited to providing deposits
the CNPC Group to the Group services
(8) Financial services provided by Financial services including but not 3.8
the Group to the Jointly- limited to loan guarantees,
owned Companies entrustment loans and its related
charges
-33-
LETTER FROM ICEA CAPITAL LIMITED
1.1.1 Price Determination
The Comprehensive Agreement (as amended by the First Supplemental
Comprehensive Agreement and the Second Supplemental Comprehensive
Agreement) specifies pricing principles based on:
(a) state-prescribed prices (at present, this applies to
products and services such as refined oil products, natural
gas, oil refinery construction, engineering and design,
project monitoring and management), where "state-prescribed
price" means prices in respect of certain category of
products or services determined by the laws, regulations,
decisions, orders or policies, etc. enacted by governments
of the relevant countries or regions (including but not
limited to the central government, federal government,
provincial government, state or coalition government or any
organisation responsible for domestic ruling and foreign
affairs in respect to certain specified territory,
irrespective of its name, organization or structure) or
other regulatory departments;
or
(b) where there is no state-prescribed price, then the relevant
market prices (at present, this applies to products and
services such as asset leasing, repair of machinery,
transportation, purchase of material, and regional
facilities), where "market price" means the price determined
in the following order:
(i) the price charged by independent third parties in areas
where such type of service is provided and on normal
terms in the area where the service is being provided
at that time; or
(ii) the price charged by independent third parties in
nearby areas where such type of service is provided and
on normal terms in the area or country adjacent to the
area where the service is being provided at that time;
or
(c) where neither (a) nor (b) is applicable, then:
(i) the actual cost incurred (at present, this applies to
products and services such as library information and
filing, maintenance of roads, retirement administration
and re-employment training); or
(ii) the agreed contractual price, being the actual cost for
the provision of such product or service plus an
additional margin of not more than:
(xx) 15 per cent. (which includes finance costs,
general and administrative expenses and a profit
margin) for certain construction and technical
services (at present, this applies to products and
services such as geological surveying, drilling,
well cementing, logging, mud logging, well testing
and oilfield construction) provided that, such
agreed contractual price shall not be higher than
the prices available for the provision of such
products and services in the international market;
and
-34-
LETTER FROM ICEA CAPITAL LIMITED
(yy) 3 per cent. for all other types of products and
services priced in accordance with the agreed
contractual price (at present, this applies to
products and services such as downhole operations,
technology research, equipment repairing and
supporting, equipment antiseptic testing,
communications, fire fighting, quality inspection,
storage of materials, delivery of materials and
training centers).
The Company advises that no more than 15% and 3% additional
margin respective to the categories of products stated above is what
they believe to be a norm in the PRC across relevant industries. Such
margin has taken into account, among other things, the administrative
expenses incurred for providing such products or services, as well as
the profit margin required by comparable companies providing such
services. Based on our findings, we note that listed companies on the
Stock Exchange across the respective industries generally achieved an
operating margin higher than or comparable to 15% and 3%. As such, we
are of the opinion that the 15% and 3% profit margins charged by CNPC
to the Company are not unreasonable.
For detailed description of the terms in relation to the
Comprehensive Agreement (as amended by the First Supplemental
Comprehensive Agreement and the Second Supplemental Comprehensive
Agreement), please refer to the "Letter from the Board" set out in
this Circular.
Based on the above, the priority is set from (a) to (c) such that
the price mechanism in (b) and (c) would only apply where the
preceding price mechanism(s) are inapplicable. As (a) and (b) are
based on the applicable state-prescribed prices and market prices,
including the applicable local or national market prices, we are of
the opinion that the above mechanism is fair and reasonable as far as
the Independent Shareholders are concerned.
We also noted that the rates of financial services provided under
the Comprehensive Agreement (as amended by the First Supplemental
Comprehensive Agreement and the Second Supplemental Comprehensive
Agreement) are determined in accordance with the relevant interest
rates and standards for fees as promulgated by the People's Bank of
China. Such rates should be no less favourable than those offered by
independent third parties. As the rates of financial services are
determined by reference to the People's Bank of China guidelines, we
are of the opinion that the pricing mechanism is fair and reasonable
as far as the Independent Shareholders are concerned.
1.2 BUILDINGS LEASING CONTRACT AND SUPPLEMENTAL BUILDINGS AGREEMENT
The description of the ongoing connected transactions requiring
Independent Shareholders' approval under the Building Leasing Contract and
the Supplemental Buildings Agreement is set out as follows:
REFERENCE
TO SECTION
3 OF THE
TRANSACTION DESCRIPTION LETTER
----------- ----------- ----------
Lease of buildings by Lease of 191 buildings under Buildings Leasing 3.9
CNPC to the Contract and 404 buildings under
Company Supplemental Buildings Agreement
-35-
LETTER FROM ICEA CAPITAL LIMITED
1.2.1 Price Determination of Buildings Leasing Contract
The Company entered into the Buildings Leasing Contract with CNPC
on 10 March 2000 pursuant to which the CNPC Group has leased to the
Company a total of 191 buildings covering an aggregate area of 269,770
square meters, located throughout the PRC for the use by the Company
for its business operation including the exploration, development and
production of crude oil, the refining of crude oil and petroleum
products, the production and sale of chemicals, etc.
The 191 buildings were leased at a price of RMB145 per square
meter per year with an aggregate annual fee of RMB39,116,650 for a
term of 20 years. The Company is responsible for the payment of any
governmental, legal or others administrative taxes and maintenance
charges required to be paid in connection with these 191 leased
buildings.
Members of the CNPC Group which own one or more of the leased
buildings will enter into individual building leasing contracts with
the Company. The individual building leasing contracts may only
contain provisions which are consistent with the terms and conditions
of the Buildings Leasing Contract. According to the Company, such
individual building leasing contracts were also leased at a price of
RMB145 per square meter per year.
One month prior to the end of each financial year, CNPC and the
Company shall meet and agree upon a rental fee distribution plan
setting out specific prices for the buildings according to their
geographical locations and conditions.
Savills (Hong Kong) Limited, an independent valuer, has reviewed
the Buildings Leasing Contract and has confirmed that the terms and
the aggregate amount payable by the Company to CNPC is fair and
reasonable to the Company and do not exceed the market level. Savills
(Hong Kong) Limited value the rentals of the leased properties which
are leased by the Company from CNPC, by adopting "Direct Comparison
Approach" by making reference to comparable rental evidences as
available on the market in the locality.
We are of the view that a 20 years term for the Buildings Leasing
Contract is reasonable and beneficial to the Company, based on the
following reasons:
- based on our discussion with Savills (Hong Kong) Limited, we
note that it is normal business practice in the PRC to have
buildings leasing contracts of this type with such duration;
- we believe the long lease term is to the benefit of the
Company and would help to minimize any potential disruption
to the Company's business operations arising from the expiry
of a short lease term; and
- certain assets of the Company are located in the buildings
leased from CNPC, and the continued operation of such assets
would depend on the Company's ability to continue to occupy
the relevant buildings.
We also note in the Buildings Leasing Contract that the Company
has the right to terminate the aforementioned contract, in whole or in
part, with six months' notice to CNPC.
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LETTER FROM ICEA CAPITAL LIMITED
1.2.2 Price Determination of Supplemental Buildings Agreement
Further to the Buildings Leasing Contract mentioned above, the
Company entered into a Supplemental Buildings Agreement with CNPC on
26 September 2002 under which the CNPC Group agreed to lease another
404 buildings to the Group in connection with and for the purpose of
the operation and business of the Group covering an aggregate of
approximately 442,730 square meters. Leasing of the units in the
Supplemental Buildings Agreement is mainly attributable to the
expansion of the Company's operations in the areas of oil and natural
gas exploration, the West-East natural gas pipeline project and the
construction of the Northeast refineries and chemical operation base.
The annual fee payable under the Supplemental Buildings Leasing
Agreement amounts to RMB157,439,540. The Company and CNPC will, based
on their needs for production and operation or the changes of the
market prices of the buildings, adjust the scale and the amount of all
such buildings under the Buildings Leasing Contract as well as the
Supplemental Buildings Agreement every three years. The Supplemental
Buildings Agreement became effective on 1 January 2003 and will expire
at the same time as the Buildings Leasing Contract, i.e. 5 November
2019.
Savills (Hong Kong) Limited has reviewed the Supplemental
Buildings Agreement and has confirmed that the terms and the aggregate
amount payable by the Company to CNPC is fair and reasonable to the
Company and do not exceed the market level. Savills (Hong Kong)
Limited value the rentals of the leased properties which are leased by
the Company from CNPC, by adopting "Direct Comparison Approach" by
making reference to comparable rental evidences as available on the
market in the locality.
We confirmed that it is normal business practice for the
Supplemental Buildings Contract for such long periods, based on the
following reasons:
- based on our discussion with Savills (Hong Kong) Limited, we
note that it is normal business practice in the PRC to have
buildings leasing contracts of this type with such duration;
- we believe the long lease term is to the benefit of the
Company and would help to minimize any potential disruption
to the Company's business operations arising from the expiry
of a short lease term; and
- certain assets of the Company are located in the buildings
leased from CNPC, and the continued operation of such assets
would depend on the Company's ability to occupy the relevant
buildings.
We also note in the Supplemental Buildings Agreement that the
Company has the right to terminate the aforementioned contract, in
whole or in part, with six months notice to CNPC.
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LETTER FROM ICEA CAPITAL LIMITED
1.3 LAND USE RIGHTS LEASING CONTRACT
The description of the ongoing connected transactions requiring
Independent Shareholders' approval under the Land Use Rights Leasing
Contract is set out as follows:
REFERENCE
TO SECTION
3 OF THIS
TRANSACTION DESCRIPTION LETTER
----------- ----------- ----------
Lease of land use right by Leasing of land use rights of 42,476 parcels 3.10
CNPC to the Company of land
1.3.1 Price Determination of Land Use Rights Leasing Contract
The Company entered into the Land Use Rights Leasing Contract
with CNPC on 10 March 2000 under which CNPC has leased a total of
42,476 parcels of land in connection with and for the purpose of all
aspects of the operations and business of the Group covering an
aggregate area of approximately 1,145 million square meters, located
throughout the PRC, to the Company for a term of 50 years at an annual
fee of RMB2,000 million. The total fee payable for the lease of all
such property may, after the expiration of 10 years from the date of
the Land Use Rights Leasing Contract, be adjusted (to reflect market
conditions prevalent at such time of adjustment, including current
market prices, inflation or deflation, as appropriate, and such other
pertinent factors as may be reasonably considered in negotiating and
agreeing to any such adjustment) by agreement between the Company and
CNPC. In addition, any governmental, legal or other administrative
taxes and fees required to be paid in connection with the leased
properties will be borne by CNPC. However, any additional amount of
such taxes payable as a result of changes in the policies of the PRC
government after the date of the contract shall be shared
proportionately on a reasonable basis between CNPC and the Company.
Such additional taxes payable will be shared proportional to the land
area occupied respectively by CNPC and the Company.
Savills (Hong Kong) Limited, an independent valuer, has reviewed
the Land Use Rights Leasing Contract and has confirmed that the terms
and the aggregate amount payable by the Company to CNPC is fair and
reasonable to the Company and do not exceed the market level. Savills
(Hong Kong) Limited value the rentals of the leased properties which
are leased by the Company from CNPC, by adopting "Direct Comparison
Approach" by making reference to comparable rental evidences as
available on the market in the locality.
We are of the view that it is normal business practice for the
Land Use Rights Leasing Contract for a term of 50 years, based on the
following reasons:
- based on our discussion with Savills (Hong Kong) Limited, we
note that it is normal business practice in the PRC to have
land use rights leasing contracts of this type with such
duration;
- we believe the long lease term is to the benefit of the
Company and would help to minimize any potential disruption
to the Company's business operations arising from the expiry
of a short lease term; and
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LETTER FROM ICEA CAPITAL LIMITED
- certain assets of the Company are located on the lands
leased from CNPC, and the continued operation of such assets
would depend on the Company's ability to occupy the relevant
land.
We also note in the Land Use Rights Leasing Contract that the
Company has the right to terminate the aforementioned contract, in
whole or in part, with six months notice to CNPC.
1.4 CRMSC PRODUCTS AND SERVICES AGREEMENT
The description of the ongoing connected transactions requiring
Shareholders' approval under the CRMSC Products and Services Agreement is
set out as follows:
REFERENCE TO
SECTION 3 OF
TRANSACTION DESCRIPTION THIS LETTER
----------- ----------- ------------
Products and services to be Products and services including but 3.11
provided by the Company to not limited to gasoline, diesel
CRMSC and other petroleum products
1.4.1 Price Determination of CRMSC Products and Services Agreement
The price of any product and service provided pursuant to the
CRMSC Products and Services Agreement shall be determined by reference
to the state-prescribed price or the market price where there is no
state-prescribed price.
As the price determination is by reference to the
state-prescribed price or the market-price where there is no
state-prescribed price, we are of the opinion that the above mentioned
pricing determination is fair and reasonable as far as the
Shareholders are concerned.
2. REASONS FOR AND BENEFITS OF THE ONGOING CONNECTED TRANSACTIONS
As mentioned in the Circular, the Ongoing Connected Transactions are
entered into for the necessity and benefits of the Company. The Company, one of
the largest companies in the PRC in terms of sales, is engaged in a broad range
of petroleum and natural gas-related activities. CNPC, on the other hand, is an
enterprise whose business operations cover a broad spectrum of upstream and
downstream activities, domestic marketing and international trade, technical
services, and equipment manufacturing and supply. CNPC is a major producer and
supplier of petrochemicals in the PRC. CNPC is also involved in the provision of
operational services and technical support in such areas as geophysical
prospecting, well drilling, logging, well testing, down hole operations,
oilfield surface facilities construction, pipeline construction, refining and
petrochemical projects, and manufacturing and supply of petroleum equipment in
the PRC.
In view of the strengths and scope of CNPC's business activities and the
strong favorable support that such Ongoing Connected Transactions would bring to
the Company's business activities, we concur with the Board that the Ongoing
Connected Transactions are entered into for the necessity and benefits of the
Company.
As for the CRMSC Transactions, the Directors are of the opinion that those
transactions are beneficial to the Group. The Group has strengths in terms of
oil resources; while CRMSC is a major corporation of materials supply in the
PRC. The ongoing connected transactions between the Group and CRMSC enhance the
competitiveness of the Group and CRMSC in the oil market in the PRC.
-39-
LETTER FROM ICEA CAPITAL LIMITED
3. PROPOSED CAPS OF THE ONGOING CONNECTED TRANSACTIONS
Proposed Caps of the Ongoing Connected Transactions, corresponding
historical figures and annual caps of the Existing Waiver are set out as
follows:
HISTORICAL FIGURES (IN RMB MILLION) PROPOSED CAPS
----------------------------------- (IN RMB MILLION)
FOR THE ----------------------
FOR THE YEARS ENDED SIX MONTHS FOR THE YEARS ENDING
31 DECEMBER ENDING ANNUAL CAPS 31 DECEMBER
---------------------- 30 JUNE FOR 2005 (IN ----------------------
2002 2003 2004 2005 RMB MILLION) 2006 2007 2008
------ ------ ------ ---------- ------------ ------ ------ ------
3.1 Products and services to be 7,772 9,323 14,516 6,932 39,003 19,134 23,472 26,910
provided by the Group to the
CNPC Group
3.2 Construction and technical 38,105 40,868 47,499 19,554 76,413 91,614 88,280 79,636
services to be provided by the
CNPC Group to the Group
3.3 Production services to be 15,743 16,042 16,313 8,945 33,740 27,513 28,923 32,647
provided by the CNPC Group
to the Group
3.4 Supply of materials services 936 971 884 707 6,748 4,471 4,331 4,500
to be provided by the CNPC Group
to the Group
3.5 Social and ancillary services 2,956 3,009 3,006 1,622 5,009 5,000 5,000 5,000
to be provided by the CNPC Group
to the Group
3.6 Financial services 21,154 25,803 25,161 25,651 59,413 43,312 50,132 56,547
(aggregate of the average daily
outstanding principal of loans;
the total amount of interest
paid in respect of these loans;
and other relevant charges) to
be provided by the CNPC Group to
the Group
3.7 Financial services 3,191 4,052 3,441 3,641 5,657 9,081 9,102 9,126
(aggregate of the average daily
amount of deposits; and the total
amount of interest received in
respect of these deposits) to be
provided by the CNPC Group to the
Group
3.8 Financial services to be -- -- -- -- -- 21,235 32,840 44,465
provided by the Group to the
Jointly-owned Companies
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LETTER FROM ICEA CAPITAL LIMITED
HISTORICAL FIGURES (IN RMB MILLION) PROPOSED CAPS
----------------------------------- (IN RMB MILLION)
FOR THE ----------------------
FOR THE YEARS ENDED SIX MONTHS FOR THE YEARS ENDING
31 DECEMBER ENDING ANNUAL CAPS 31 DECEMBER
---------------------- 30 JUNE FOR 2005 (IN ----------------------
2002 2003 2004 2005 RMB MILLION) 2006 2007 2008
------ ------ ------ ---------- ------------ ------ ------ ------
3.9 Fee for buildings leases paid 78 138 118 48 200 140 140 140
by the Company to CNPC
3.10 Fee for land use rights leases 1,838 1,863 1,988 948 2,000 2,260 2,260 2,260
paid by the Company to CNPC
3.11 Products and services to be -- -- -- -- -- 10,326 11,359 12,495
provided by the Group to
CRMSC
3.1 PRODUCTS AND SERVICES PROVIDED BY THE GROUP TO THE CNPC GROUP
The Proposed Caps for the products and services to be provided by the
Group to the CNPC Group are determined with reference to:
(a) the previous transactions conducted and transaction amounts in
respect of products and services provided by the Group to the
CNPC Group;
(b) the CNPC Group's estimate of its business growth;
(c) the volatility and possible increase in the international and the
PRC market price of refined oil products, chemical products,
natural gas, crude oil and other products and services; and
(d) the increase in transaction amount as increased by the enlarged
Group resulting from the completion of the Transactions.
We noted from the analysis in respect of the Proposed Caps for
products and services provided by the Group to the CNPC Group that the
increase in Proposed Caps for the three years ending 31 December 2006, 2007
and 2008 is mainly due to the increase in sales of refined oil products,
chemical products, and crude oil. In anticipation of (i) higher volume of
products demanded from the CNPC Group; and (ii) high volatility and
uncertainly of the future market price in relation to refined oil products,
chemical products, and crude oil, we concur with the view of the Directors
that larger caps should be set.
During the two years ended 31 December 2003 and 2004, the growth in
products and services provided by the Group to the CNPC Group has increased
year-on-year by 20% and 56% respectively. Based on the projected annualized
figures for the year-ended 31 December 2005 and the Proposed Caps, for each
of the three years ending 31 December 2006, 2007 and 2008, the products and
services provided by the Group to the CNPC Group would grow annually by
38%, 23% and 15% respectively. We consider the growth of the Proposed Caps
for each of the three years ending 31 December 2006, 2007 and 2008 to be
modest and reasonable and the Proposed Caps are reasonably determined.
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LETTER FROM ICEA CAPITAL LIMITED
Given the dominant position of the Group in the petroleum and
petrochemical industry in the PRC, and the increase in turnover and
activities of the CNPC Group, the quantity and amount of future
transactions between the Group and the CNPC Group are expected to increase.
The Directors are of the view that the Proposed Caps provide sufficient
increment for the Group to capture the Group's future anticipated expansion
plan. We are of the view that given the uncertainty in the world energy
market, the escalating energy prices and business development of the Group,
the Proposed Caps will provide a reasonable certainty of maintaining supply
to the CNPC Group within the Proposed Caps.
3.2 CONSTRUCTION AND TECHNICAL SERVICES PROVIDED BY THE CNPC GROUP TO THE
GROUP
The Proposed Caps for construction and technical services are
determined with reference to:
(a) the previous transactions conducted and transaction amounts in
respect of construction and technical services provided by the
CNPC Group to the Group;
(b) the Group's estimate of its business growth; and
(c) the increase in transaction amount as increased by the enlarged
Group resulting from the completion of the Transactions. Pursuant
to the circular of the Company dated 30 June 2005, those
additional ongoing connected transactions principally include the
provision of services including but not limited to geophysical
surveying, well drilling, logging, well testing, downhole
operations and oilfield construction by the CNPC Group to the
Company.
The CNPC Group has extensive experience in exploration and development
of crude oil and natural gas projects in the world, offering a premier
construction and technical services to the Group. The Group has, from time
to time, obtained, in the ordinary and usual course of business,
construction and technical services from the CNPC Group to update and
optimize existing products and processes and develop new technology,
products, processes and equipment relating to the business of the Group.
The CNPC Group is also one of the few companies in the PRC that
provides premier petrochemical related construction and technical services.
The services and terms offered by independent third parties are difficult
to match the same quality services provided by the CNPC Group. The CNPC
Group offers advantages including safety, reliability, technical expertise,
understanding of existing facilities and experience in providing
construction and technical services.
The transaction amounts of construction and technical services are
closely related to the capital expenditure incurred by the Group. The
greater the amount of capital expenditure, the greater will be the
anticipated amount for construction and technical services. For each of the
three years ended 31 December 2002, 2003 and 2004, the amount of
construction and technical services provided by the CNPC Group to the Group
compared to the amount of capital investment by the Group represent a ratio
of approximately 0.5. Applying the same basis, and after reviewing the
capital expenditure budget of the Group for each of the three years ending
31 December 2006, 2007 and 2008, we consider the Proposed Caps approximate
such ratios. Therefore, we are of the view that the Proposed Caps are
determined on a fair and reasonable basis.
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LETTER FROM ICEA CAPITAL LIMITED
We have discussed with the management of the Company on the future
capital expenditure plan and considered the plan was prepared by Company
after due and careful enquiry. We are of the view that the Proposed Caps
provide sufficient increment for the Group to capture the Group's future
anticipated expansion plan.
3.3 PRODUCTION SERVICES PROVIDED BY THE CNPC GROUP TO THE GROUP
The Proposed Caps for production services are determined with
reference to:
(a) previous transactions conducted and transaction amounts in
respect of production services provided by the CNPC Group to the
Group;
(b) the Group's estimate of its business growth; and
(c) the volatility and possible increase in the international and the
PRC market price of crude oil, petroleum and petrochemical
products, leading to higher energy costs during the production
process.
Production services provided by the CNPC Group to the Group including,
but not limited to, water supply, electricity generation and supply, gas
supply and communications. The Directors are of the view that the Proposed
Caps provide sufficient increment for the Group to capture the Group's
future anticipated expansion plan.
Based on the information provided by the Company, the transaction
amount for the production services provided by CNPC Group to the Group
amounted to RMB8,945 million for the six months ended 30 June 2005,
representing an annualized figure of RMB17,890 million for the year ending
31 December 2005. Comparing the annualized figure of the transaction from
this category for the year ending 31 December 2005 and the Proposed Caps,
the Proposed Caps increased from RMB17,890 million (annualized figure for
the year ended 31 December 2005) to RMB32,647 million for the year ending
31 December 2008, representing a modest compound annual growth rate of
22.2%. Considering (i) the volatility and possible increase in the
international and the PRC market price of crude oil, petroleum and
petrochemical products, leading to a higher energy costs during the
production process; and (ii) substantial capital investment of the Company
during the three years ending 31 December 2008, we are of the opinion that
the Proposed Caps are determined on a fair and reasonable basis.
We have discussed with the management of the Company on the future
business plan and considered the plan was prepared by Company after due and
careful enquiry. We consider that entering into the ongoing connected
transaction is fair and reasonable so far as the Independent Shareholders
are concerned.
3.4 SUPPLY OF MATERIAL SERVICES PROVIDED BY THE CNPC GROUP TO THE GROUP
The aforementioned annual caps for supply of material services
provided by the Group to the CNPC Group are determined with reference to:
(a) business growth of the Group;
(b) change in volume of purchases by the Group; and
(c) change in payment arrangement between the Group and the CNPC
Group.
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LETTER FROM ICEA CAPITAL LIMITED
The CNPC Group is one of the leading buyers of petrochemical raw
materials in the PRC and offers a range of products compatible to the
Group's needs. With the economy of scale and the collective bargaining
power of the CNPC Group, the centralized material purchase by the CNPC
Group stabilizes the purchase price of the Group's raw materials.
Compared to the historical amount of supply of materials services
provided by the CNPC Group to the Group for the three years ended 31
December 2004, there is a significant increase in the amount in the
Proposed Caps. Based on our understanding, the significant increase is
mainly due to the change in payment arrangement. Some material vendors have
recently indicated to the CNPC Group that, future purchases of certain
categories of materials require prepayment. Correspondingly, the CNPC Group
will charge the Group for those materials that require prepayments on gross
amount basis. As similar materials purchases have been charged on
commission basis during the three years ended 31 December 2004, the change
in payment arrangement to a gross amount basis requires significant
increase in the Proposed Caps. The Company has represented to us that the
commission charged for the three years ended 31 December 2004 ranged from
3% to 10%. The Proposed Caps for different categories are set out as below:
PROPOSED CAPS (IN RMB MILLION)
FOR THE YEARS ENDING 31 DECEMBER
--------------------------------
2006 2007 2008
----- ----- -----
(i) Supply of material services charged on
commission basis 1,054 1,074 1,033
(ii) Supply of material services charged on
gross amount basis 2,724 2,554 2,673
(iii) Quality control, storage of materials and
delivery of materials services 693 703 794
----- ----- -----
Total 4,471 4,331 4,500
Given the Group's dominant position and increase in turnover and
activities of the Group in the petroleum and petrochemical industry in the
PRC, the number and amount of these future transactions is expected to
increase. We are of the view that the Proposed Caps provide sufficient
increment for the Group to capture the Group's future anticipated expansion
plan.
Based on the above, we consider that entering into the ongoing
connected transaction is fair and reasonable so far as the Independent
Shareholders are concerned.
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LETTER FROM ICEA CAPITAL LIMITED
3.5 SOCIAL AND ANCILLARY SERVICES PROVIDED BY THE CNPC GROUP TO THE GROUP
The Proposed Caps for social and ancillary services are determined
with reference to:
(a) the previous transactions conducted and transaction amounts in
respect of social and ancillary services provided by the CNPC
Group to the Group;
(b) the Group's estimate of its business growth;
(c) the increase in transaction amount as increased by the enlarged
Group resulting from the completion of the Transactions; and
(d) the increase in transaction amount as increased by the possible
acquisitions in future.
Considering (i) the growth of the Group and increase in demand of
certain social and ancillary services in future, in particular renovation
of aged properties and possible future acquisitions leading to increment of
demand of social and ancillary services; (ii) possible increment in
transaction amounts by future possible acquisitions; and (iii) the nature
of the existing specific contracts for such services have not been revised,
we are of the view that it is prudent and reasonable for the Group to set
the Proposed Caps at the same level as the annual caps of the Existing
Waiver.
We are of the opinion that the Proposed Caps are determined reasonably
and entering into the ongoing connected transaction is fair and reasonable
so far as the Independent Shareholders are concerned.
3.6 FINANCIAL SERVICES (AGGREGATE OF THE AVERAGE DAILY OUTSTANDING
PRINCIPAL OF LOANS; THE TOTAL AMOUNT OF INTEREST PAID IN RESPECT OF
THESE LOANS AND OTHER RELEVANT CHARGES) PROVIDED BY THE CNPC GROUP TO
THE GROUP
The Proposed Caps for financial services provided by CPFC (a
subsidiary of CNPC) to the Company are determined with reference to:
(a) the estimated growth business growth of the Group;
(b) the interest rates offered by CPFC and its changes; and
(c) the increase in transaction amount as increased by the enlarged
Group resulting from the completion of the Transaction, in
particular, the financing provided by CPFC to Newco.
To optimize cash flow management and capital efficiency of the Group
and the CNPC Group, there is a specific target to maintain a centralized
financial management of the Group and the CNPC Group through CPFC, an
authorized financial institution under the regulation of the People's Bank
of China. CPFC offers a full range of financial services to the Group and
the CNPC Group, including but not limited to deposit services, loan
facilities, project financing, settlement services, financial advisory and
insurance services. With the continuous effort to centralize financial
management, the Group's utilization of loan facilities provided by CPFC is
expected to increase gradually.
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LETTER FROM ICEA CAPITAL LIMITED
The financial services provided by the CNPC Group to the Group are by
reference to the People's Bank of China guidelines, including the interest
rates and foreign exchange rates, as well as guidelines published by PRC
self-regulatory bodies such as the associations of finance companies.
Upon the completion of the Transactions, the Directors expect
significant amounts of loan to be provided by CPFC to Newco in foreign
currency. According to a notice issued by a PRC government authority to the
CNPC Group on 5 November 2004, it has granted the CNPC Group a permission
to maintain a foreign exchange account. As part of the growth strategy of
Newco is to acquire overseas energy assets, the Directors anticipate that
the acquisition activities of Newco will utilize major portion of the
foreign exchange account of the CNPC Group. Due to the business development
and increase in foreign exchange currency needed by the Group and the CNPC
Group for its operations, the Directors anticipate the upper limit of
foreign exchange account could be favourably adjusted in future. With the
anticipated increase in upper limit of foreign exchange account, the amount
of loan provided by the CNPC Group to Newco, which are denominated in
foreign currency, will further increase for the three years ending 31
December 2008.
To properly reflect the amount of financial services demanded by the
Group from the CNPC Group, the Directors have adjusted the Proposed Caps to
a level lower than the annual caps in the Existing Waiver.
We concur with the view of the Directors that the Proposed Caps are
reasonably sufficient for the Group to capture the Group's future
anticipated expansion plan. We are of the opinion that the Proposed Caps
are reasonably determined.
Based on the above, we consider that entering into the ongoing
connected transaction is fair and reasonable so far as the Independent
Shareholders are concerned.
3.7 FINANCIAL SERVICES (AGGREGATE OF THE AVERAGE DAILY AMOUNT OF DEPOSITS;
AND THE TOTAL AMOUNT OF INTEREST RECEIVED IN RESPECT OF THESE
DEPOSITS) PROVIDED BY THE CNPC GROUP TO THE GROUP
The Proposed Caps for financial services provided by the Group to the
CNPC Group are determined with reference to:
(a) the business growth of the Group;
(b) the Group's historical cash flow movements and level of deposits;
(c) the interest rate offered by the CPFC and its changes; and
(d) the increase in transaction amount as increased by the enlarged
Group resulting from the completion of the Transactions.
As mentioned above, in order to optimize cash flow management and
capital efficiency of the Group and the CNPC Group, there is a specific
target to maintain a centralized financial management of the Group and the
CNPC Group through CPFC. CPFC is a subsidiary of CNPC and offers a full
range of financial services to the Company and CNPC, including but not
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LETTER FROM ICEA CAPITAL LIMITED
limited to deposit services, loan facilities, project financing, settlement
services, financial advisory and insurance services. With the continuous
effort of central financial management, the utilization of deposit services
provided by CPFC is forecasted to increase gradually.
The financial services provided by the CNPC Group to the Group are by
reference to the People's Bank of China guidelines, including the interest
rates and foreign exchange rates, as well as guidelines published by PRC
self-regulatory bodies such as associations of finance companies.
As most of the inter-company settlements with the Group and CNPC Group
are made through the network of CPFC, the increase in business operations
made the annual caps of the Existing Waiver of RMB4,500 million
insufficient for the daily operations. However, to avoid substantial
reporting work involved in revising the annual caps of the Existing Waiver,
the Company has to constantly monitor the balance maintained at CPFC, and
has reallocated the cash balance from CPFC to other accounts when
necessary.
To highlight the substantial growth in the Group cash and bank
balance, the cash and bank balance was RMB11,304 million as at 31 December
2004 and RMB69,857 million as at 30 June 2005, representing a growth of 6.2
times in cash and bank balance for the six months ended 30 June 2005 when
comparing with the balance as at 31 December 2004. In order to cope with
the significant increase in cash and bank balance, and to satisfy the
target to maintain a centralized financial management by CPFC, higher
Proposed Caps will be needed. Based on a forecast report of the deposit
service provided by the Group, which take into account the following
factors including, among other things, (i) daily settlements between
inter-companies; and (ii) growth in business of the Group, a Proposed Caps
of RMB9,000 million will be required for each of the three years ending 31
December 2006, 2007 and 2008. We have the opinion that, to facilitate the
business operations of the Group, and to provide necessary buffer for the
future growth in business, the amount of Proposed Caps are fair and
reasonable.
We concur with the view of the Directors that the Proposed Caps
provide sufficient increment for the Group to capture the Group's future
anticipated expansion plan, and are of the view that the Proposed Caps are
reasonably determined.
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LETTER FROM ICEA CAPITAL LIMITED
3.8 FINANCIAL SERVICES PROVIDED BY THE GROUP TO JOINTLY-OWNED COMPANIES
Financial services provided by the Groups to Jointly-owned Companies
is divided into (i) financial services provided by the Group to Newco; and
(ii) financial services provided by the Group to PetroChina Field Oil
Company Limited ("PFOC"). The Proposed Caps for each category are set out
as below:
PROPOSED CAPS (IN RMB MILLION)
FOR THE YEARS ENDING 31 DECEMBER
--------------------------------
2006 2007 2008
------ ------ ------
(i) Financial services provided by the Group 15,500 26,000 36,500
to Newco
(ii) Financial services provided by the Group 5,735 6,840 7,965
to PFOC
------ ------ ------
Total 21,235 32,840 44,465
3.8.1 Financial services provided by the Group to Newco
The Proposed Caps for financial resources provided by the Group
to Newco include, among other things, loan guarantees, entrustment
loans and their related charges, and are determined with reference to:
(a) the business development of Newco;
(b) the financial requirement of Newco for possible acquisition
opportunities arises from time to time; and
(c) the financing provided to Orifuel Sinoven S.A.
("SINOVENSA").
Upon the completion of the Transactions, Newco will be owned by
the Company as to 50%. The businesses of Newco are conducted outside
the PRC, and include, among other things, exploration, development,
production and sales of crude oil and natural gas. In order to support
the business development of Newco, particularly to increase the
exploration and production of crude oil and natural gas, the Directors
are of the opinion that funding provided by the Group to Newco will be
needed. Those fundings will be provided in the form of loan guarantees
and/or entrustment loans.
As mentioned in the circular to the Shareholders dated 30 June
2005, the strategy of the Group is to become an internationalized oil
company with significant oil and gas assets both onshore and offshore
as well as in both the PRC and international markets. Newco will act
as the platform for the Group's future acquisition of international
oil and gas assets. With Newco's international experience, the Group
can seek acquisition targets in a more aggressive and effective manner
which will facilitate the development of a significant international
asset base. The Directors are of the view that the financial services
provided by the Group will facilitate such efforts.
-48-
LETTER FROM ICEA CAPITAL LIMITED
Amidst the globally tight energy supply, we understand the top
priority among top PRC petroleum companies is to secure overseas
energy reserves. The Group, being the largest petroleum company in
PRC, is prepared to secure good acquisition targets when the
opportunity appears. As overseas acquisition is part of the growth
strategy of Newco, the Directors considered that the Proposed Caps
will provide the resources for the Company to speed up the process in
making acquisitions and developments in future. Therefore, improving
the Group's chances of securing prime energy reserves.
In April 2001, the governments of the PRC and Venezuela signed a
memorandum to strengthen their co-operation in the development of
orimulsion, a rich natural resource in Venezuela. Subsequently on 27
December 2001, a Venezuela registered company named Sinovensa was set
up. Sinovensa is a joint venture owned as to 40% by Newco, 30% by PFOC
and 30% by the independent third parties. Due to the increase in
market demand of orimulsion, Sinovensa was set up to capture the
growth in this energy resource. The operation field of Sinovensa is
approximately 114.6 square miles, with enough reserve capacity to
supply 30 years of exploration. Pursuant to the agreement signed
between PFOC and Sinovensa on 17 November 2003, Sinovensa will supply
approximately 6.5 million tons of orimulsion to the Company annually
for 30 years. Due to the expanding business development of Sinovensa,
the Directors anticipated that financial resources by the Group to
Sinovensa through Newco will be needed for each of the three years
ending 31 December 2006, 2007 and 2008. The financial resources will
be provided in the form of loan guarantees and/or entrustment loans
through Newco, the largest shareholder of Sinovensa. The financial
resources to be provided to Sinovensa will be used for funding
exploration, development, production and sales of orimulsion, as well
as for operational needs of Sinovensa.
We note that it is a common practice amongst PRC major
state-owned companies to have financing services provided by the
parent groups to the related companies.
The Directors are of the view that the Proposed Caps provide
sufficient capacity for the Newco and Sinovensa to capture the future
anticipated expansion plan.
3.8.2 Financial services provided by the Group to PFOC
The Proposed Caps for financial services to be provided by the
Group to PFOC, amongst other things, include loan guarantees,
entrustment loans and their related charges, and are determined with
reference to:
(a) the business development of PFOC; and
(b) the development plan of Zhan Jiang Zhong Yue Energy Company
Limited (the "ZHAN JIANG ENERGY COMPANY").
As part of the business plan to increase the usage of orimulsion
in the PRC and strengthen the co-operation with Venezuela energy
projects, PFOC and Zhan Jiang Energy Company were set up for the
purpose of downstream businesses development.
As present, PFOC is owned 31.4% by the Company, 35.73% by CNPC
and the rest by independent third parties. With the steady supply of
orimulsion from Sinovensa as mentioned above, PFOC serve an important
function of importing, sales, distribution and refinery of orimulsion
in the PRC. The Directors considered that PFOC is the largest
-49-
LETTER FROM ICEA CAPITAL LIMITED
company in respect of production and sales of orimulsion in the PRC.
In view of the increase in market demand of orimulsion and the
business development of PFOC, the Group need to provide financial
support to PFOC for each of the three years ending 31 December 2006,
2007 and 2008. The Directors are of the view that the financial
support can reinforce PFOC's status as the largest orimulsion resource
agent and producer in the PRC. The financial support will be used for,
among other things, construction of orimulsion storage facilities,
construction of port facilities and building up a transportation
network, as well as other capital investments and general working
capital needs by PFOC.
Zhan Jiang Energy Company is registered in the PRC and was set up
on 28 June 2004. Zhan Jiang Energy Company is owned as to 51% by PFOC
and 49% by independent third parties. The purpose of setting up Zhan
Jiang Energy Company is for the production of electricity using
orimulsion as fuel. The electricity output capacity of the power
station to be constructed is approximately 1,200 mega watts, and when
put into production, it will help to alleviate the energy shortage in
the Guangdong province. In order to support the development of Zhan
Jiang Energy Company, the Directors are of the opinion that funding
provided by the Group to Zhan Jiang Energy Company through PFOC will
be needed. Those funding will be provided in the form of loan
guarantees and/or entrustment loans. The funding will be used mainly
for the construction of Zhan Jiang Energy Company and general working
capital needs.
We note that it is a common practice amongst PRC major
state-owned companies to have financial support provided by the parent
groups to the related companies.
We concur with the view of the Directors that the Proposed Caps
provide sufficient increment for PFOC and Zhan Jiang Energy Company to
capture the their future anticipated plans. We consider that the
Proposed Caps are reasonably determined.
3.9 FEE FOR BUILDINGS LEASES PAID BY THE COMPANY TO CNPC
We note that Savills (Hong Kong) Limited, an independent valuer
retained by the Company has appraised the buildings leased to the Company
by CNPC pursuant to the Building Leasing Contract dated 27 March 2000, and
the buildings leased pursuant to the Supplemental Buildings Agreement dated
26 September 2002, and confirmed that the current rentals payable by the
Company to CNPC and the Proposed Caps under these contracts and agreement
are fair and reasonable to the Company and do not exceed the market level.
Savills (Hong Kong) Limited value the rentals of the leased properties
which are leased by the Company from CNPC, by adopting "Direct Comparison
Approach" by making reference to comparable rental evidences as available
on the market in the locality.
The Directors consider that pursuant to the Buildings Leasing Contract
(as amended by the Supplemental Buildings Agreement), the annual proposed
caps in respect of the building leases provided by the CNPC Group to the
Group, which are lower than the existing annual limit for 2005 due to a
reduced requirement by the Group, are sufficient for the Group to implement
future business development and planning.
We have discussed the basis of the opinion with the Savills (Hong
Kong) Limited, and have no reason to believe that their opinion is not
reasonable. We consider that the Proposed Caps are reasonably determined.
-50-
LETTER FROM ICEA CAPITAL LIMITED
3.10 FEE FOR LAND USE RIGHTS LEASES PAID BY THE COMPANY TO CNPC
We note that Savills (Hong Kong) Limited, an independent valuer
retained by the Company has appraised the land leased to the Company by
CNPC pursuant to the Land Use Rights Leasing Contract dated 27 March 2000
and confirmed that the current rentals payable by the Company to CNPC and
the Proposed Caps under these contracts and agreement are fair and
reasonable to the Company and do not exceed the market level. Savills (Hong
Kong) Limited value the rentals of the leased properties which are leased
by the Company from CNPC, by adopting "Direct Comparison Approach" by
making reference to comparable rental evidences as available on the market
in the locality.
Each of the annual proposed caps comprises of the annual leasing fee
of RMB2,000 million and the relevant PRC tax of RMB260 million, which are
in accordance with the Land Use Rights Leasing Contract.
We have discussed the basis of the opinion with the Savills (Hong
Kong) Limited, and have no reasons to believe that their opinion is not
reasonable. We consider that the Proposed Caps are reasonably determined.
3.11 PRODUCTS AND SERVICES TO BE PROVIDED BY THE GROUP TO CRMSC
The Proposed Caps for the products and services to be provided by the
Group to CRMSC, amongst other things, gasoline, diesel and other petroleum
products, and are determined with reference to:
(a) the volatility and possible increase in the price of petroleum
products;
(b) the historical transaction levels for the same type of
transactions; and
(c) the estimated future transaction levels based on estimated market
need in the coming three years.
As mentioned in the Circular, the historical revenue in relation to
the provision of the products and services which are the subject matter of
CRMSC Products and Services Agreement between the Company and CRMSC was
RMB4,041 million for the six months ended 30 June 2005. Based on the above
figure, the annualized figure of the transaction for the year ending 31
December 2005 is approximately RMB8,082 million. The annual compound growth
rate of the CRMSC Transactions for the three years ending 31 December 2008
is therefore a modest 15.6%.
Considering (i) the business growth of CRMSC; (ii) the fluctuation and
potential upside in the petroleum products; and (iii) the modest annual
compound growth rate of the CRMSC Transactions, we are of the opinion that
Proposed Caps are reasonably determined.
-51-
LETTER FROM ICEA CAPITAL LIMITED
4. RECOMMENDATION
Having considered the above principal factors and reasons, we consider that
(i) the Ongoing Connected Transactions will be carried out in the ordinary
course of business of the Group and on normal commercial terms; (ii) the
Proposed Caps of the Ongoing Connected Transactions are reasonably determined;
(iii) the terms of the Ongoing Connected Transactions are fair and reasonable so
far as the independent shareholders of the Company are concerned; and (iv) the
entering into the Ongoing Connected Transactions is in the interest of the
Company and the independent shareholders of the Company as a whole. Accordingly,
we advise the Independent Board Committee to recommend the independent
shareholders of the Company to vote in favour of ordinary resolutions as
detailed in the notice of the Extraordinary General Meeting set out at the end
of the Circular.
Yours faithfully,
For and on behalf of
ICEA CAPITAL LIMITED
FENG SHEN JIANG
Deputy Chief Executive Officer
-52-
APPENDIX GENERAL INFORMATION
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 INTEREST
As at the Latest Practicable Date:
(a) other than Zou Haifeng, a Director, who holds 3,550 A shares in Jilin
Chemical Industrial Company Limited, a subsidiary of the Company, none
of the Directors, supervisors or chief executives of the Company had
any interest and short positions in the shares, underlying shares and
debentures of the Company or any associated corporation (within the
meaning of Part XV of the Securities and Futures Ordinance (Cap. 571
of the Laws of Hong Kong)) ("SFO"), which are required to be notified
to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of
Part XV of the SFO (including interests and short positions which he
is taken or deemed to have under such provision of the SFO); or are
required pursuant to section 352 of the SFO to be entered in the
register referred to therein, or as otherwise notified to the Company
and the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors of Listed Companies;
(b) the Company has not granted its Directors, chief executive or their
respective spouses or children below 18 any rights to subscribe for
its equity securities or debt securities;
(c) none of the Directors was materially interested in any contract or
arrangement entered into by any member of the Group since 31 December
2004, being the date to which the latest published audited financial
statements of the Company were made up, and which was significant in
relation to the business of the Group; and
(d) none of the Directors, ICEA and Savills (Hong Kong) Limited had any
direct or indirect interest in any assets which had since 31 December
2004, being the date to which the latest published audited financial
statements of the Company were made up, been 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.
3. DIRECTORS' INTEREST IN COMPETING BUSINESS
As at the Latest Practicable Date, none of the Directors or, so far as is
known to them, any of their respective associates was interested in any business
(apart from the Group's business) which competes or is likely to compete either
directly or indirectly with the Group's business (as would be required to be
disclosed under Rule 8.10 of the Listing Rules if each of them were a
controlling shareholder).
4. SUBSTANTIAL SHAREHOLDERS
Save as disclosed herein, as at the Latest Practicable Date, based on the
information available and as far as is known to the Directors and the chief
executive of the Company, the following persons have an interest or short
position in the shares or underlying shares of the Company which
-53-
APPENDIX GENERAL INFORMATION
would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of
the SFO or who are 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 member of the Group:
NUMBER OF SHARES
----------------------------
PERCENTAGE PERCENTAGE
OF THE TOTAL PERCENTAGE OF THE TOTAL PERCENTAGE
NUMBER OF OF THE TOTAL NUMBER OF OF THE TOTAL
CLASS OF LONG POSITION (L)/ THAT CLASS IN SHARE LENDING THAT CLASS IN SHARE
SHAREHOLDERS SHARES SHORT POSITION (S) ISSUE CAPITAL POOL(3) ISSUE CAPITAL
------------ -------- ------------------ ------------- ------------ ---------- ------------- -------------
(%) (%) (%) (%)
CNPC Domestic 158,241,758,000(L) 100.00 90 -- -- --
shares
Deutsche Bank H shares 3,917,340,707(L) 22.28 2.228 -- -- --
Aktiengesellschaft(1) 185,768,859(S) 1.06 0.106
Warren E. Buffett(2) H shares 2,347,761,000 (L) 13.35 1.335 -- -- --
Citigroup Inc.(3) H shares 1,603,635,927 (L) 9.12 0.912 76,502,143 0.44 0.044
392,782,129 (S) 2.23 0.223
Credit Suisse H shares 905,755,245 (L) 5.15 0.515 3,472,055 0.02 0.002
Group(4) 1,487,734,600 (S) 8.46 0.846
Notes:
(1) Deutsche Bank Aktiengesellschaft directly holds 3,516,482,000 H shares
and through its controlled corporations has an additional interest in
400,858,702 H shares.
(2) By virtue of Warren E. Buffett's 35.4% interest in Berkshire Hathaway
Inc., Berkshire Hathaway Inc.'s 100% interest in OBH Inc., OBH Inc.'s
100% interest in National Indemnity Co. and 100% interest in GEICO
Corporation, and GEICO Corporation's 100% interest in Government
Employees Inc. Company, each of Warren E. Buffett, Berkshire Hathaway
Inc. and OBH Inc. is deemed to be interested in the 2,279,151,000 H
shares held by National Indemnity Co. and the 68,610,000 H shares held
by Government Employees Inc. Company, totaling 2,347,761,000 H shares.
(3) (i) By virtue of Citigroup Inc's 100% interest in Citigroup Global
Markets Holdings Inc., Citigroup Global Markets Holdings Inc.'s
100% interest in Citigroup Financial Products Inc., Citigroup
Financial Products Inc.'s 100% interest in Salomon Brothers
Pacific Holding Company Inc., Salomon Brothers Pacific Holding
Company Inc.'s 24.3% interest in Citigroup Global Markets
Holdings GmbH, Citigroup Global Markets Holdings GmbH's 100%
interest in Citigroup Global Markets Financial Products LLC, each
of Citigroup Inc., Citigroup Global Markets Holdings Inc.,
Citigroup Financial Products Inc., Salomon Brothers Pacific
Holding Company Inc., Citigroup Global Markets Holdings GmbH is
deemed to be interested in 520,443,795 H shares directly held by
Citigroup Global Market Financial Products LLC (long position --
244,957,769 H shares; short position -- 275,486,026 H shares).
(ii) By virtue of Citigroup Inc's 100% interest in Citigroup Global
Markets Holdings Inc., Citigroup Global Markets Holdings Inc.'s
100% interest in Citigroup Financial Products Inc., Citigroup
Financial Products Inc.'s 100% interest in Citigroup Global
Markets (International) Finance AG, Citigroup Global Markets
(International) Finance AG's 75.7% interest in Citigroup Global
Markets Holdings GmbH, Citigroup Global Markets Holdings GmbH's
100% interest in Citigroup Global Markets Financial Products LLC,
each of Citigroup Inc., Citigroup Global Markets Holdings Inc.,
Citigroup Financial Products Inc., Citigroup Global Markets
(International) Finance AG, Citigroup Global Markets Holdings
GmbH is deemed to be interested in 520,443,795 H shares directly
held by Citigroup Global Markets Financial Products LLC (long
position -- 244,957,769 H shares; short position -- 275,486,026 H
shares).
(iii) By virtue of Citigroup Inc's 100% interest in Citigroup Global
Markets Holdings Inc., Citigroup Global Markets Holdings Inc.'s
100% interest in Citigroup Financial Products Inc., Citigroup
Financial Products Inc.'s 100% interest in Citigroup Global
Markets Inc., each of Citigroup Inc., Citigroup Global Markets
Holdings Inc., Citigroup Financial Products Inc. is deemed to be
interested in 45,087,764 H shares directly held by Citigroup
Global Markets Inc. (long position -- 45,007,661 H shares; short
position -- 80,103 H shares).
-54-
APPENDIX GENERAL INFORMATION
(iv) By virtue of Citigroup Inc's 100% interest in Citigroup Global
Markets Holdings Inc., Citigroup Global Markets Holdings Inc.'s
100% interest in Citigroup Financial Products Inc., Citigroup
Financial Product's 100% interest in Citigroup Global Markets
LLC, Citigroup Global Markets LLC's 97.33% interest in Citigroup
Global Markets Europe Ltd., Citigroup Global Markets Europe
Ltd.'s 100% interest in Citigroup Global Markets Ltd., each of
Citigroup Inc., Citigroup Global Markets Holdings Inc., Citigroup
Financial Products Inc., Citigroup Global Markets LLC, Citigroup
Global Markets Europe Ltd. is deemed to be interested in
56,055,370 H shares directly held by Citigroup Global Markets
Ltd..
(v) By virtue of Citigroup Inc's 100% interest in Citigroup Global
Markets Holdings Inc., Citigroup Global Markets Holdings Inc.'s
100% interest in Citigroup Financial Products Inc., Citigroup
Financial Products Inc.'s 100% interest in Citigroup Global
Markets (International) Finance AG, Citigroup Global Markets
(International) Finance AG's 2.67% interest in Citigroup Global
Markets Europe Ltd., Citigroup Global Markets Europe Ltd.'s 100%
interest in Citigroup Global Markets Ltd., each of Citigroup
Inc., Citigroup Global Markets Holdings Inc., Citigroup Financial
Products Inc., Citigroup Global Markets (International) Finance
AG, Citigroup Global Markets Europe Ltd. is deemed to be
interested in 56,055,370 H shares directly held by Citigroup
Global Markets Ltd..
(vi) By virtue of Citigroup Inc.'s 100% interest in Citigroup Holdings
Company, Citigroup Holdings Company's 100% interest in Citicorp
Inc., Citicorp Inc.'s 100% interest in Citibank N.A., each of
Citigroup Inc., Citigroup Holdings Company, Citicorp Inc. is
deemed to be interested in 70,688,084 H shares directly held by
Citibank N.A..
(vii) By virtue of Citigroup Inc's 100% interest in Citigroup Global
Markets Holdings Inc., Citigroup Global Markets Holdings Inc.'s
100% interest in Citigroup Financial Products Inc., Citigroup
Financial Products Inc.'s 48% interest Citigroup Global Markets
Hong Kong Holdings Ltd., Citigroup Global Markets Hong Kong
Holdings Ltd.'s 100% interest in Citigroup Global Markets Hong
Kong Futures Ltd., each of Citigroup Inc., Citigroup Global
Markets Holdings Inc., Citigroup Financial Products Inc.,
Citigroup Global Markets Hong Kong Holdings Ltd. is deemed to be
interested in 1,224,737,000 H shares directly held by Citigroup
Global Markets Hong Kong Futures Ltd. (long position --
1,107,521,000 H shares; short position -- 117,216,000 H shares).
(viii) By virtue of Citigroup Inc's 100% interest in Citigroup Global
Markets Holdings Inc., Citigroup Global Markets Holdings Inc.'s
100% interest in Citigroup Financial Products Inc., Citigroup
Financial Products Inc.'s 100% interest in Citigroup Global
Markets (International) Finance AG, Citigroup Global Markets
(International) Finance AG's 52% interest in Citigroup Global
Markets Hong Kong Holdings Ltd., Citigroup Global Markets Hong
Kong Holdings Ltd's 100% interest in Citigroup Global Markets
Hong Kong Futures Ltd., each of Citigroup Inc., Citigroup Global
Markets Holdings Inc., Citigroup Global Markets Holdings Inc.,
Citigroup Financial Products Inc. Citigroup Global Markets
(International) Finance AG, Citigroup Global Markets Hong Kong
Holdings Ltd. is deemed to be interested in 1,224,737,000 H
shares directly held by Citigroup Global Markets Hong Kong
Futures Ltd. (long position -- 1,107,521,000 H shares; short
position -- 117,216,000 H shares).
(ix) By virtue of Citigroup Inc.'s 100% interest in Citigroup Global
Markets Corporation Trust, Citigroup Inc. is deemed to be
interested in 110,000 H shares directly held by Citigroup Global
Markets Corporation Trust.
(x) By virtue of Citigroup Inc.'s 100% interest in Citicorp Banking
Corporation, Citigroup Banking Corporation's 100% interest in
Associates First Capital Corporation, Associates First Capital
Corporation's 100% interest in CitiFinancial Credit Company,
CitiFinancial Credit Company's 100% interest in Citicorp Trust
Bank, each of Citigroup Inc., Citicorp Banking Corporation,
Associates First Capital Corporation and CitiFinancial Credit
Company is deemed to be interested in 2,793,900 H shares directly
held by Citigroup Trust Bank.
(xi) Citigroup Inc. is also the custodian of 76,502,143 H shares.
(xii) Please note the duplications in (i) & (ii), (iv) & (v), (vii) &
(viii) above.
-55-
APPENDIX GENERAL INFORMATION
(4) (i) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse's 57% interest in Credit Suisse First
Boston, Inc., Credit Suisse First Boston Inc.'s 100% interest in
Credit Suisse First Boston (USA), Inc., Credit Suisse (USA),
Inc.'s 100% interest in Credit Suisse First Boston LLC, each of
Credit Suisse Group, Credit Suisse, Credit Suisse First Boston,
Inc., Credit Suisse First Boston (USA), Inc. will be deemed to be
interested in 163,973,600 H shares directly held by Credit Suisse
First Boston LLC (long position -- 106,423,600; short position --
57,550,000).
(ii) By virtue of Credit Suisse Group's 43% interest in Credit Suisse
First Boston, Inc., Credit Suisse's 100% interest in Credit
Suisse First Boston (USA), Inc., Credit Suisse First Boston
(USA), Inc.'s 100% interest in Credit Suisse First Boston LLC,
each of Credit Suisse Group, Credit Suisse First Boston, Inc.,
Credit Suisse First Boston (USA), Inc. will be deemed to be
interested in 163,973,600 H shares directly held by Credit Suisse
First Boston LLC (long position -- 106,423,600; short position --
57,550,000).
(iii) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse's 100% interest in Credit Suisse First
Boston (International) Holding AG, Credit Suisse First Boston
(International) Holding AG's 24 % interest in Credit Suisse First
Boston International, each of Credit Suisse Group, Credit Suisse,
Credit Suisse First Boston (International) Holding AG will be
deemed to be interested in 297,012,822 H shares directly held by
Credit Suisse First Boston International (long position --
218,797,222; short position -- 78,215,600).
(iv) By virtue of Credit Suisse Group's 20% interest in Credit Suisse
First Boston International, Credit Suisse Group will be deemed to
be interested in 297,012,822 H shares directly held by Credit
Suisse First Boston International (long position -- 218,797,222;
short position -- 78,215,600).
(v) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse's 56% interest in Credit Suisse First
Boston International, each of Credit Suisse Group, Credit Suisse
will be deemed to be interested in 297,012,822 H shares directly
held by Credit Suisse First Boston International (long position
-- 218,797,222; short position -- 78,215,600).
(vi) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse's 100% interest in Credit Suisse First
Boston (International) Holding AG, Credit Suisse First Boston
(International) Holding's 70.2% interest in Credit Suisse First
Boston (Hong Kong) Limited, each of Credit Suisse Group, Credit
Suisse, Credit Suisse First Boston (International) Holding AG
will be deemed to be interested in 1,781,811,368 H shares
directly held by Credit Suisse First Boston (Hong Kong) Limited
(long position -- 492,600,368; short position -- 1,289,211,000).
(vii) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse's 100% interest in Credit Suisse First
Boston (International) Holding AG, Credit Suisse First Boston
(International) Holding AG's 100% interest in Credit Suisse First
Boston International (Guernsey) Limited, Credit Suisse First
Boston International (Guernsey) Limited's 29.8% interest in
Credit Suisse First Boston (Hong Kong) Limited, each of Credit
Suisse Group, Credit Suisse, Credit Suisse First Boston
(International) Holding AG, Credit Suisse First Boston
International (Guernsey) Limited will be deemed to be interested
in 1,781,811,368 H shares directly held by Credit Suisse First
Boston (Hong Kong) Limited (long position -- 492,600,368; short
position -- 1,289,211,000).
(viii) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse's 100% interest in Credit Suisse First
Boston (International) Holding AG, Credit Suisse First Boston
(International) Holding AG's 100% interest in Credit Suisse First
Boston (UK) Investments, Credit Suisse First Boston (UK)
Investments' 98.07% interest in Credit Suisse First Boston (UK)
Investment Holdings, Credit Suisse First Boston (UK) Investment
Holdings' 100% interest in Credit Suisse First Boston (Europe)
Limited, each of Credit Suisse Group, Credit Suisse, Credit
Suisse First Boston (International) Holding AG, Credit Suisse
First Boston (UK) Investments, Credit Suisse First Boston (UK)
Investment Holdings will be deemed to be interested in
118,796,000 H shares directly held by Credit Suisse First Boston
(Europe) Limited (long position -- 59,988,000; short position --
58,808,000).
(ix) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse's 100% interest in Credit Suisse First
Boston (International) Holding AG, Credit Suisse First Boston
(International) Holding AG's 100% interest in Credit Suisse First
Boston Management AG, Credit Suisse First Boston Management AG's
1.93% interest in Credit Suisse First Boston (UK) Investment
Holdings, Credit Suisse First Boston
-56-
APPENDIX GENERAL INFORMATION
(UK) Investment Holding's 100% interest in Credit Suisse First
Boston (Europe) Limited, each of Credit Suisse Group, Credit
Suisse, Credit Suisse First Boston (International) Holding AG,
Credit Suisse First Boston Management AG, Credit Suisse First
Boston (UK) Investment Holdings will be deemed to be interest in
118,796,000 H shares directly held by Credit Suisse First Boston
(Europe) Limited (long position -- 59,988,000; short position --
58,808,000).
(x) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse Group will be deemed to be interested in
28,424,000 H shares directly held by Credit Suisse (long position
-- 24,474,000; short position -- 3,950,000).
(xi) By virtue of Credit Suisse Group's 100% interest in Credit
Suisse, Credit Suisse's 100% interest in Credit Suisse First
Boston New York Branch, each of Credit Suisse Group, Credit
Suisse will be deemed to be interested in 3,472,055 H shares
directly held by Credit Suisse First Boston New York Branch.
(xii) Please note the duplications in (i) & (ii), (iii) & (iv) & (v),
(vi) & (vii), (viii) & (ix) above.
(5) The term "lending pool" is defined as (i) shares that the approved
lending agent holds as agent for a third party which he is authorised
to lend and other shares that can be lent according to the
requirements of the Securities Borrowing and Lending Rules; and (ii)
shares that have been lent by the approved lending agent, and only if
the right of the approved lending agent to require the return of the
shares has not yet been extinguished.
SAVE AS DISCLOSED ABOVE, AS AT THE LATEST PRACTICABLE DATE, NO OTHER PERSON
HAS AN INTEREST OR SHORT POSITION IN THE SHARES OR UNDERLYING SHARES OF THE
COMPANY WHICH WOULD FALL TO BE DISCLOSED TO THE COMPANY UNDER DIVISIONS 2 AND 3
OF PART XV OF THE SFO OR WHO IS 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 MEMBER OF THE GROUP.
5. EXPERTS' QUALIFICATIONS AND CONSENTS
The following are the qualifications of the experts who have given opinions
or advice which are contained in this circular:
NAMES QUALIFICATIONS
----- --------------
ICEA a corporation licensed under the SFO to carry out
regulated activities Type 1 (dealing
in securities) and Type 6 (advising on corporate
finance)
Savills (Hong Kong) Limited a member of The Hong Kong Institute of Surveyors
(a) None of ICEA and Savills (Hong Kong) Limited is beneficially
interested in the share capital of any member of the Group and none of
them has any right, whether legally enforceable or not, to subscribe
for or to nominate persons to subscribe for securities in any member
of the Group.
(b) ICEA and Savills (Hong Kong) Limited have given and have not withdrawn
their respective written consents to the issue of this circular with
inclusion of their opinions and letters, as the case may be, and the
reference to its name included herein in the form and context in which
they respectively appear.
-57-
APPENDIX GENERAL INFORMATION
6. MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the Directors are not aware of any
material adverse change in the financial or trading positions of the Company
since 31 December 2004, the date to which the latest published audited financial
statement of the Company were made up.
7. SERVICE CONTRACT
As at the Latest Practicable Date, none of the Directors had entered into
any service contract with the Company or any member of the Group which will not
expire or is not determinable by the employer within one year without payment of
compensation (other than statutory compensation).
8. GENERAL
(a) The secretary to the Board of the Company is Mr. Li Huaiqi.
(b) The registered office of the Company is at 16 Andelu, Dongcheng
District, Beijing, 100011, The People's Republic of China.
(c) The principal share register and transfer office is Hong Kong
Registrars Limited, Room 1901-5, 19th Floor, Hopewell Centre, 183
Queen's Road East, Hong Kong.
(d) In the event of inconsistency, the English language text of this
circular shall prevail over the Chinese language text.
9. PROCEDURES OF DEMANDING A POLL
Pursuant to the Articles of Association, the vote of a general meeting of
the Company shall be taken on a show of hands unless a request for a voting by
poll is made by the following person(s) before or after a voting by a show of
hands:
(1) the chairman of the meeting;
(2) at least two Shareholders with voting rights or their proxies;
(3) a Shareholder or Shareholders (including his or their proxies) who
solely or jointly hold(s) 10% or more of the Shares with rights to
vote at the meeting.
Unless a request for a voting by poll has been made, the chairman of the
meeting shall, based on the results of the voting by a show of hands, announce
the results of voting on a resolution and enter the same in the minutes of the
meeting.
In accordance with Rule 13.39(4) of the Listing Rules, the chairman of the
EGM will demand a poll in relation to the ordinary resolutions for approving,
among other things, the Ongoing Connected Transactions and the Proposed Caps at
the EGM.
-58-
APPENDIX GENERAL INFORMATION
10. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection during
normal business hours at the offices of Baker & McKenzie at 14th Floor,
Hutchison House, 10 Harcourt Road, Hong Kong from the date of this circular up
to and including 6 October 2005 :
(a) the Articles of Association;
(b) the connected transactions agreements entered into between the Company
and CNPC;
(c) the CRMSC Products and Services Agreement;
(d) the letter of recommendation from the Independent Board Committee, the
text of which is set out on page 29 of this circular;
(e) the letter issued by ICEA, the text of which is set out on pages 30 to
52 of this circular;
(f) the confirmation letter by Savills (Hong Kong) Limited;
(g) the written consent of ICEA and Savills (Hong Kong) Limited referred
to paragraph 5 of this appendix;
(h) the annual report of the Company for the year ended 31 December 2004;
and
(i) the interim report of the Company for the six months ended 30 June
2005.
-59-
NOTICE OF EXTRAORDINARY GENERAL MEETING
(PETROCHINA COMPANY LIMITED LOGO)
(CHINESE CHARACTER)
PETROCHINA COMPANY LIMITED
(A joint stock limited company incorporated in the People's Republic of
China with limited liability)
(STOCK CODE: 857)
NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the
shareholders of PetroChina Company Limited (the "Company") will be held at
Beijing Continental Grand Hotel, Beijing International Convention Center, No. 8,
Beichendong Road, Chaoyang District, Beijing, The People's Republic of China at
9 : 00 a.m. on 8 November 2005 for the purpose of considering and, if deemed
appropriate, passing, with or without modification, the following resolutions as
Ordinary Resolutions:
ORDINARY RESOLUTIONS
1. "THAT the appointment of Mr. Su Shulin as a director of the Company
which is to take effect immediately upon the close of this meeting, be
and is hereby approved."
2. "THAT the appointment of Mr. Gong Huazhang as a director of the
Company which is to take effect immediately upon the close of this
meeting, be and is hereby approved."
3. "THAT the appointment of Mr. Wang Yilin as a director of the Company
which is to take effect immediately upon the close of this meeting, be
and is hereby approved."
4. "THAT the appointment of Mr. Zeng Yukang as a director of the Company
which is to take effect immediately upon the close of this meeting, be
and is hereby approved."
5. "THAT the appointment of Mr. Jiang Fan as a director of the Company
which is to take effect immediately upon the close of this meeting, be
and is hereby approved."
6. "THAT the appointment of Mr. Chee-Chen Tung as an independent director
of the Company which is to take effect immediately upon the close of
this meeting, be and is hereby approved."
7. "THAT the appointment of Mr. Liu Hongru as an independent director of
the Company which is to take effect immediately upon the close of this
meeting, be and is hereby approved."
8. "THAT the appointment of Mr. Wang Fucheng as a supervisor of the
Company which is to take effect immediately upon the close of this
meeting, be and is hereby approved."
9. "THAT the appointment of Mr. Wen Qingshan as a supervisor of the
Company which is to take effect immediately upon the close of this
meeting, be and is hereby approved."
-60-
NOTICE OF EXTRAORDINARY GENERAL MEETING
10. "THAT the appointment of Mr. Li Yongwu as an independent supervisor of
the Company which is to take effect immediately upon the close of this
meeting, be and is hereby approved."
11. "THAT the appointment of Mr. Wu Zhipan as an independent supervisor of
the Company which is to take effect immediately upon the close of this
meeting, be and is hereby approved."
12. "THAT the agreement dated 1 September 2005 entered into between the
Company and China National Petroleum Corporation ("CNPC") in relation
to certain amendments of the comprehensive products and services
agreement dated 10 March 2000 ("Second Supplemental Comprehensive
Agreement"), a copy of which has been initialed by the Chairman and
for the purpose of identification marked "A", be and is hereby
approved, ratified and confirmed and the chief financial officer of
the Company, Wang Guoliang, be and is hereby authorised to do all such
further acts and things and execute such further documents or
supplemental agreements or deeds on behalf of the Company and take all
such steps which in his opinion may be necessary, desirable or
expedient to implement and/or give effect to the terms of the Second
Supplemental Comprehensive Agreement and to make and agree with such
changes in the terms of the Second Supplemental Comprehensive
Agreement as he may in his discretion consider necessary, desirable
and expedient and in the interest of the Company."
13. "THAT the agreement dated 1 September 2005 entered into between the
Company and China Railway Materials and Supplies Corporation ("CRMSC")
in relation to the provision of certain products and services ("CRMSC
Products and Services Agreement"), a copy of which has been initialed
by the Chairman and for the purpose of identification marked "B", be
and is hereby approved, ratified and confirmed and the chief financial
officer of the Company, Wang Guoliang, be and is hereby authorised to
do all such further acts and things and execute such further documents
or supplemental agreements or deeds on behalf of the Company and take
all such steps which in his opinion may be necessary, desirable or
expedient to implement and/or give effect to the terms of the CRMSC
Products and Services Agreement and to make and agree with such
changes in the terms of the CRMSC Products and Services Agreement as
he may in his discretion consider necessary, desirable and expedient
and in the interest of the Company."
14. "THAT the ongoing connected transactions, as set out in the circular
of the Company dated 22 September 2005 ("Circular"), which the Company
expects to occur on a regular and continuous basis in the ordinary and
usual course of business of the Company and its subsidiaries, as the
case may be, and to be conducted on normal commercial terms, be and
are hereby generally and unconditionally approved."
15. "THAT the proposed annual caps of each of the ongoing connected
transactions (except the proposed annual limit in respect of the
products and services to be provided by the Group to CRMSC pursuant to
the CRMSC Products and Services Agreement) as set out in the Circular
be and are hereby approved, ratified and confirmed."
-61-
NOTICE OF EXTRAORDINARY GENERAL MEETING
16. "THAT the proposed annual caps in respect of the products and services
to be provided by the Group to CRMSC pursuant to the CRMSC Products
and Services Agreement as set out in the Circular be and are hereby
approved, ratified and confirmed.
By Order of the Board
PETROCHINA COMPANY LIMITED
LI HUAIQI
Secretary to the Board
Beijing, The PRC
22 September 2005
NOTES:
1. Holders of H shares and State-owned shares whose names are registered in
the register of members of the Company on 10 October 2005 are entitled to
attend and vote at the Extraordinary General Meeting. Persons holding the
Company's H shares should note that the register of members of the
Company's H shares will be closed from 10 October 2005 to 8 November 2005,
both days inclusive, during which period no transfer of shares will be
effected.
2. Shareholders who intend to attend the Extraordinary General Meeting are
required to send the Notice of Attendance to the Secretariat of the Board
of the Company by 20 October 2005. Please refer to the form of Notice of
Attendance for details.
3. Any shareholder entitled to vote at the Extraordinary General Meeting is
entitled to appoint one (1) or more proxies to attend and vote on his
behalf. A proxy need not be a shareholder of the Company. Shareholders must
appoint a proxy in writing. Such instrument should be signed by the person
appointing the proxy or by such person's authorised representative. If the
form of proxy is signed by another person so authorised by the shareholder,
the power of attorney or other authorising document must be certified by a
notary. The notarially certified power of attorney or other authorising
document together with the proxy form must be returned to the Secretariat
of the Board of the Company not later than 24 hours prior to the
commencement of the Extraordinary General Meeting. The completion and
deposit of a form of proxy will not preclude any shareholder from attending
and voting at the Extraordinary General Meeting.
4. Each shareholder (or his/her proxy) shall be entitled to one vote for each
share held. If a shareholder has appointed more than one proxy to attend
the meeting, the voting rights can only be exercised by way of poll.
Address of Secretariat of the Board of the Company:
Secretariat of Board of Directors of PetroChina Company Limited
16 Andelu, Dongcheng District
Beijing, 100011, The PRC
Tel: 8610-8488 6270
Fax: 8610-8488 6260
-62-
(PETROCHINA COMPANY LIMITED LOGO)
(CHINESE CHARACTER)
PETROCHINA COMPANY LIMITED
(A joint stock limited company incorporated in the People's Republic of
China with limited liability)
(STOCK CODE: 857)
FORM OF PROXY FOR THE EXTRAORDINARY GENERAL MEETING
TO BE HELD ON 8 NOVEMBER 2005
Number of shares to which this
Proxy relates(1)
Type of shares (State-owned
shares or H shares) to which
this Proxy relates(1)
I/We(2) ________________________________________________________________________
of _____________________________________________________________________________
(address as shown in the register of members) being shareholder(s) of PetroChina
Company Limited (the "Company ") hereby appoint the Chairman of the Meeting
or(3) __________________________________________________________________________
of _____________________________________________________________________________
as my/our proxy to attend, act and vote for me/us and on my/our behalf at the
Extraordinary General Meeting of the Company to be held at Beijing Continental
Grand Hotel, Beijing International Convention Center, No. 8, Beichendong Road,
Chaoyang District, Beijing, The People's Republic of China (Post Code 100016) at
9:00 a.m. on 8 November 2005 and at any adjournment thereof as hereunder
indicated in respect of the resolutions set out in the Notice of Extraordinary
General Meeting, and, if no such indication is given, as my/our proxy thinks
fit.
ORDINARY RESOLUTIONS FOR(4) AGAINST(4) ABSTAIN(4)
-------------------- ------ ---------- ----------
1. "THAT the appointment of Mr. Su Shulin as a director of the Company which
is to take effect immediately upon the close of this meeting, be and is
hereby approved."
2. "THAT the appointment of Mr. Gong Huazhang as a director of the Company
which is to take effect immediately upon the close of this meeting, be and
is hereby approved."
3. "THAT the appointment of Mr. Wang Yilin as a director of the Company which
is to take effect immediately upon the close of this meeting, be and is
hereby approved."
4. "THAT the appointment of Mr. Zeng Yukang as a director of the Company which
is to take effect immediately upon the close of this meeting, be and is
hereby approved."
5. "THAT the appointment of Mr. Jiang Fan as a director of the Company which
is to take effect immediately upon the close of this meeting, be and is
hereby approved."
6. "THAT the appointment of Mr. Chee-Chen Tung as an independent director of
the Company which is to take effect immediately upon the close of this
meeting, be and is hereby approved."
7. "THAT the appointment of Mr. Liu Hongru as an independent director of the
Company which is to take effect immediately upon the close of this meeting,
be and is hereby approved."
8. "THAT the appointment of Mr. Wang Fucheng as a supervisor of the Company
which is to take effect immediately upon the close of this meeting, be and
is hereby approved."
9. "THAT the appointment of Mr. Wen Qingshan as a supervisor of the Company
which is to take effect immediately upon the close of this meeting, be and
is hereby approved."
10. "THAT the appointment of Mr. Li Yongwu as an independent supervisor of the
Company which is to take effect immediately upon the close of this meeting,
be and is hereby approved."
11. "THAT the appointment of Mr. Wu Zhipan as an independent supervisor of the
Company which is to take effect immediately upon the close of this meeting,
be and is hereby approved."
ORDINARY RESOLUTIONS FOR(4) AGAINST(4) ABSTAIN(4)
-------------------- ------ ---------- ----------
12. "THAT the agreement dated 1 September 2005 entered into between the Company
and China National Petroleum Corporation ("CNPC") in relation to certain
amendments of the comprehensive products and services agreement dated 10
March 2000 ("Second Supplemental Comprehensive Agreement"), a copy of which
has been initialed by the Chairman and for the purpose of identification
marked "A", be and is hereby approved, ratified and confirmed and the chief
financial officer of the Company, Wang Guoliang, be and is hereby
authorised to do all such further acts and things and execute such further
documents or supplemental agreements or deeds on behalf of the Company and
take all such steps which in his opinion may be necessary, desirable or
expedient to implement and/or give effect to the terms of the Second
Supplemental Comprehensive Agreement and to make and agree with such
changes in the terms of the Second Supplemental Comprehensive Agreement as
he may in his discretion consider necessary, desirable and expedient and in
the interest of the Company."
13. "THAT the agreement dated 1 September 2005 entered into between the Company
and China Railway Materials and Supplies Corporation ("CRMSC") in relation
to the provision of certain products and services ("CRMSC Products and
Services Agreement"), a copy of which has been initialed by the Chairman
and for the purpose of identification marked "B", be and is hereby
approved, ratified and confirmed and the chief financial officer of the
Company, Wang Guoliang, be and is hereby authorised to do all such further
acts and things and execute such further documents or supplemental
agreements or deeds on behalf of the Company and take all such steps which
in his opinion may be necessary, desirable or expedient to implement and/or
give effect to the terms of the CRMSC Products and Services Agreement and
to make and agree with such changes in the terms of the CRMSC Products and
Services Agreement as he may in his discretion consider necessary,
desirable and expedient and in the interest of the Company."
14. "THAT the ongoing connected transactions, as set out in the circular of the
Company dated 22 September 2005 ("Circular"), which the Company expects to
occur on a regular and continuous basis in the ordinary and usual course of
business of the Company and its subsidiaries, as the case may be, and to be
conducted on normal commercial terms, be and are hereby generally and
unconditionally approved."
15. "THAT the proposed annual caps of each of the ongoing connected
transactions (except the proposed annual limit in respect of the products
and services to be provided by the Group to CRMSC pursuant to the CRMSC
Products and Services Agreement) as set out in the Circular be and are
hereby approved, ratified and confirmed."
16. "THAT the proposed annual caps in respect of the products and services to
be provided by the Group to CRMSC pursuant to the CRMSC Products and
Services Agreement as set out in the Circular be and are hereby approved,
ratified and confirmed.
Dated 2005 Signature(s)(5)
-------------------------- ------------------------
Notes:
1. Please insert the number of shares registered in your name(s) to which this
form of proxy relates. If no number is inserted, this form of proxy will be
deemed to relate to all the shares in the Company registered in your
name(s). Please also insert the type of shares (State-owned shares or H
shares) to which this form of proxy relates.
2. Please insert the full name(s) (in Chinese or in English) and address(es)
(as shown in the register of members) in block letters.
3. If any proxy other than the Chairman of the Meeting is preferred, delete
the words "the Chairman of the Meeting or" and insert the name and address
of the proxy desired in the space provided. A shareholder may appoint one
or more proxies to attend and vote in his stead. A proxy need not be a
shareholder of the Company. A proxy of a shareholder who has appointed more
than one proxy may only vote on a poll. ANY ALTERATION MADE TO THIS FORM OF
PROXY MUST BE DULY INITIALED BY THE PERSON WHO SIGNS IT.
4. IMPORTANT: IF YOU WISH TO VOTE FOR ANY RESOLUTION, PLEASE TICK IN THE BOX
MARKED "FOR". IF YOU WISH TO VOTE AGAINST ANY RESOLUTION, PLEASE TICK IN
THE BOX MARKED "AGAINST". IF YOU WISH TO ABSTAIN FROM VOTING ON ANY
RESOLUTION, TICK IN THE BOX MARKED "ABSTAIN". ANY ABSTAIN VOTE OR WAIVER TO
VOTE SHALL BE DISREGARDED AS VOTING RIGHTS FOR THE PURPOSE OF CALCULATING
THE RESULT OF THAT RESOLUTION. If you do not indicate how you wish your
proxy to vote, your proxy will be entitled to exercise his discretion.
Unless you have indicated otherwise in this form of proxy, your proxy will
also be entitled to vote at his discretion on any resolution properly put
to the Meeting other than those referred to in the Notice convening the
Meeting.
5. This form of proxy must be signed by you or your attorney duly authorised
in writing or, in the case of a legal person, must either be executed under
seal or under the hand of a director or an attorney duly authorised to sign
the same. If this form of proxy is signed by an attorney of the appointor,
the power of attorney authorising that attorney to sign, or other document
of authorisation, must be notarised.
6. Where there are joint holders of any shares, any one of such persons may
vote at the Meeting, either personally or by proxy, in respect of such
shares as if he were solely entitled thereto. However, if more than one of
such joint holders is present at the Meeting, either personally or by
proxy, then one of the said persons so present whose name stands first in
the register of members in respect of such shares shall alone be entitled
to vote in respect thereof.
7. To be valid, for holders of State-owned shares, this form of proxy,
together with the notarised power of attorney or other document of
authorisation (if any), must be delivered to the Secretariat of the Board
of Directors of the Company at Room 1521, 16 Andelu, Dongcheng District,
Beijing, The PRC (Postal code 100011) not less than 24 hours before the
time appointed for the Meeting. In order to be valid, for holders of H
shares, the above documents must be delivered to Hong Kong Registrars
Limited, 46/F Hopewell Centre, 183 Queen's Road East, Hong Kong within the
same period.
(PETROCHINA COMPANY LIMITED LOGO)
(CHINESE CHARACTER)
PETROCHINA COMPANY LIMITED
(A joint stock limited company incorporated in the People's Republic of
China with limited liability)
(STOCK CODE: 857)
REPLY SLIP
To: PetroChina Company Limited (the "Company")
I/We(1) _____________________________ (English name): _______________________ of
________________________________________________________________________________
(address as shown in the register of members) (telephone numbers(s)(2) :
____________________________________) being the registered holder(s) of(3)
_________________________________________ State-owned/H(4) share(s) of RMB1.00
each in the capital of the Company, hereby inform the Company that I/we intend
to attend (in person or by proxy) the Extraordinary General Meeting of the
Company to be held at Beijing Continental Grand Hotel, Beijing International
Convention Center, No. 8, Beichendong Road, Chaoyang District, Beijing, The
People's Republic of China at 9 : 00 a.m. on 8 November 2005.
Date: 2005
--------------------------
Signature(s):
-----------------------
Notes:
1. Please insert full name(s) (in Chinese or in English) and address(es) (as
shown in the register of members) in block letters.
2. Please insert the telephone number(s) at which you can be contacted for
confirmation purpose.
3. Please insert the number of shares registered under your name(s).
4. Please delete as appropriate.
5. The completed and signed reply slip should be delivered to the Secretariat
of the Board of Directors of the Company at Room 1521, 16 Andelu, Dongcheng
District, Beijing, The People's Republic of China (Postal code 100011) by
Thursday, 20 October 2005 personally, by mail or by fax (fax number: (8610)
8488 6260).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PetroChina Company Limited
Dated: September 22, 2005 By: /s/ Li Huaiqi
------------------------------------
Name: Li Huaiqi
Title: Company Secretary