Continuing Connected Transactions

--------------------------------------------------------------------------------- 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 a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in DATANG INTERNATIONAL POWER GENERATION CO., LTD., you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly 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. DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 00991) CONTINUING CONNECTED TRANSACTIONS Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders Mizuho Securities Asia Limited A letter from the Board is set out on pages 4 to 14 of this circular. A letter from the Independent Board Committee is set out on the page 15 of this circular. A letter from Mizuho Securities Asia Limited containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 16 to 27 of this circular. The Company will convene the EGM at the function room of 5/F, InterContinental Hotel, No. 11 Financial Street, Xicheng District, Beijing, the PRC on 25 March 2013 (Monday) at 9:00 a.m.. The notice and supplemental notice convening the EGM have been despatched to the Shareholders on 5 February 2013 and 4 March 2013, respectively. Completion and return of the proxy form shall not preclude you from attending and voting in person at the EGM or at any adjourned meetings should you so wish. 4 March 2013 --------------------------------------------------------------------------------- CONTENTS --------------------------------------------------------------------------------- Page DEFINITIONS LETTER FROM THE BOARD LETTER FROM THE INDEPENDENT BOARD COMMITTEE LETTER FROM MIZUHO SECURITIES APPENDIX �C GENERAL INFORMATION --------------------------------------------------------------------------------- DEFINITIONS --------------------------------------------------------------------------------- In this circular, unless the context otherwise requires, the following expressions have the following meanings: "associate(s)" has the meaning ascribed to it under the Listing Rules "Beijing Datang Fuel Company" Beijing Datang Fuel Company Limited, a subsidiary of the Company, details of which are set out in the section headed "Information on the Parties to the Agreements" "Board" the board of Directors "CDC" China Datang Corporation, a state-owned enterprise established under the laws of the PRC and is the controlling shareholder of the Company which, together with its subsidiaries, own approximately 34.71% of the issued share capital of the Company as at the Latest Practicable Date "Chaozhou Power Generation Guangdong Datang International Chaozhou Company" Power Generation Company Limited, a controlling subsidiary of the Company, details of which are set out in the section entitled "Information on the Parties to the Agreements" "Company" Datang International Power Generation Co., Ltd., a sino-foreign joint stock limited company incorporated in the PRC on 13 December 1994, whose H Shares are listed on the Stock Exchange and the London stock exchange and whose A Shares are listed on the Shanghai stock exchange "connected person(s)" has the meaning ascribed to it under the Listing Rules "connected transaction(s)" has the meaning ascribed to it under the Listing Rules "Directors" the director(s) of the Company "EGM" the extraordinary general meeting of the Company to be held at the function room of 5/F, InterContinental Hotel, No. 11 Financial Street, Xicheng District, Beijing, the PRC on 25 March 2013 (Monday) at 9:00 a.m. to consider and approve, among others, the Fuel Framework Agreements "Fuel Framework Agreements" the Fuel Purchase Framework Agreement, the Inner Mongolia Fuel Purchase Framework Agreements, the Hong Kong-Beijing Fuel Sale Framework Agreement and the Hong Kong-Power Plants Fuel Sale Framework Agreement "Fuel Purchase Framework the agreement dated 6 February 2012 entered Agreement" into between the Company and Beijing Datang Fuel Company "Group" the Company and its subsidiaries "Hong Kong-Beijing Fuel Sale the "Coal Sale and Purchase Framework Framework Agreement" Agreement" dated 6 February 2012 entered into between the Hong Kong Company and Beijing Datang Fuel Company "Hohhot Thermal Power Company" Inner Mongolia Datang International Hohhot Thermal Power Company, a subsidiary of the Company "Hong Kong Company" Datang International (Hong Kong) Limited, a wholly-owned subsidiary of the Company, details of which are set out in the section entitled "Information on the Parties to the Agreements" "Hong Kong-Power Plants Fuel the "Coal Sale and Purchase Framework Sale Framework Agreement" Agreement" dated 6 February 2012 entered into between each of the Hong Kong Company and the Company "Independent Board Committee" the independent board committee of the Company, comprising five independent non-executive Directors, and each of them does not have any material interest in the Fuel Framework Agreements "Independent Shareholders" has the meaning ascribed to it under the Listing Rules "Inner Mongolia Fuel Company" Inner Mongolia Electric Power Fuel Company Ltd., a wholly-owned subsidiary of Beijing Datang Fuel Company Limited, details of which are set out in the section entitled "Information on the Parties to the Agreements" "Inner Mongolia Fuel Purchase the eight Inner Mongolia fuel purchase Framework Agreements" framework agreements dated 6 February 2012 entered into respectively between six subsidiaries of the Company and Inner Mongolia Fuel Company "Latest Practicable Date" 28 February 2013, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular "Listing Rules" The Rules Governing the Listing of Securities on The Stock Exchange "Lvsigang Power Generation Jiangsu Datang International Lvsigang Power Company" Generation Company Limited, a subsidiary of the Company, details of which are set out in the section entitled "Information on the Parties to the Agreements" "Mizuho Securities" Mizuho Securities Asia Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Fuel Framework Agreements for types 1 (dealing in securities), 2 (dealing in futures contracts), 4 (advising on securities), 5 (advising on futures contracts), 6 (advising on corporate finance) and 9 (asset management) regulated activities under the SFO "PRC" the People's Republic of China "Renewable Resources Company" Inner Mongolia Datang International Renewable Energy Development Company Limited, a subsidiary of the Company "RMB" Renminbi, the lawful currency of the PRC "SFO" the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) "six subsidiaries of the Company" the six subsidiaries or power plants of the Company, namely Yungang Thermal Power Company, Zhang Jia Kou Power Plant, Tuoketuo Power Generation Company, Tuoketuo No.2 Power Generation Company, Hohhot Thermal Power Company and Renewable Resources Company "Stock Exchange" The Stock Exchange of Hong Kong Limited "Tuoketuo Power Generation Inner Mongolia Datang International Tuoketuo Company" Power Generation Company Limited, a subsidiary of the Company "Tuoketuo No.2 Power Generation Inner Mongolia Datang International Tuoketuo Company" No.2 Power Generation Company Limited, a subsidiary of the Company "Yungang Thermal Power Company" Shanxi Datang International Yungang Thermal Power Company Limited, a wholly-owned subsidiary of the Company "Zhang Jia Kou Power Plant" Datang International Power Generation Co. Ltd. Zhang Jia Kou Power Plant, the power plant directly managed and owned by the Company "%" Percent Note: Unless otherwise specified and for reference only, the conversion of US dollars into Renminbi is based on the exchange rate of USD1= RMB6.23 in this circular. --------------------------------------------------------------------------------- LETTER FROM THE BOARD --------------------------------------------------------------------------------- DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 00991) Executive Directors: Office address: Mr. Cao Jingshan No.9 Guangningbo Street Mr. Zhou Gang Xicheng District Beijing, 100033 Non-executive Directors: the PRC Mr. Liu Shunda (Chairman) Mr. Hu Shengmu Principal place of business Mr. Fang Qinghai in Hong Kong: Mr. Liu Haixia c/o Eversheds Ms. Guan Tiangang 21/F, Gloucester Tower Mr. Mi Dabin The Landmark Mr. Ye Yonghui 15 Queen's Road Central Mr. Li Gengsheng Hong Kong Independent non-executive Directors: Mr. Li Yanmeng Mr. Zhao Zunlian Mr. Li Hengyuan Ms. Zhao Jie Mr. Jiang Guohua 4 March 2013 To the Shareholders Dear Sir or Madam, CONTINUING CONNECTED TRANSACTIONS BACKGROUND On 6 February 2013, the Company and certain of its subsidiaries entered into the Fuel Framework Agreements with certain connected persons to carry out the following continuing connected transactions: 1. Purchase of coal from Beijing Datang Fuel Company and its subsidiaries by the Company and its subsidiaries (1) The Company entered into the Fuel Purchase Framework Agreement with Beijing Datang Fuel Company, pursuant to which the Company and certain of its subsidiaries agreed to purchase coal from Beijing Datang Fuel Company with a maximum aggregate annual transaction amount of approximately RMB35,505 million for a term of one year commencing from 1 January 2013 to 31 December 2013. (2) Six subsidiaries of the Company entered into eight Inner Mongolia Fuel Purchase Framework Agreements with Inner Mongolia Fuel Company respectively, pursuant to which each of such six subsidiaries of the Company agreed to purchase coal from Inner Mongolia Fuel Company with a maximum aggregate annual transaction amount of approximately RMB5,425 million for a term of one year commencing from 1 January 2013 to 31 December 2013. 2. Sale of coal by Hong Kong Company to certain subsidiaries of the Company (1) Hong Kong Company entered into the Hong Kong-Beijing Fuel Sale Framework Agreement with Beijing Datang Fuel Company, pursuant to which Hong Kong Company agreed to sell coal to Beijing Datang Fuel Company, with a maximum aggregate annual transaction amount of approximately USD380 million, equivalent to RMB2,367.4 million for a term of one year commencing from 1 January 2013 to 31 December 2013. (2) Hong Kong Company entered into the Hong Kong-Power Plants Fuel Sale Framework Agreement with the Company, pursuant to which Hong Kong Company agreed to sell coal to Lvsigang Power Generation Company and Chaozhou Power Generation Company, with a maximum aggregate annual transaction amount of approximately USD522 million, equivalent to RMB3,252.1 million, for a term of one year commencing from 1 January 2013 to 31 December 2013. The purpose of this circular is: (1) to provide you with further details of the Fuel Framework Agreements; (2) to set out the recommendation of the Independent Board Committee in respect of the Fuel Framework Agreements; and (3) to set out the letter of advice from Mizuho Securities to the Independent Board Committee and the Independent Shareholders in respect of the Fuel Framework Agreements. PURCHASE OF COAL FROM BEIJING DATANG FUEL COMPANY AND ITS SUBSIDIARIES BY THE COMPANY AND ITS SUBSIDIARIES 1. Fuel Purchase Framework Agreement Date: 6 February 2013 Parties: The Company, Beijing Datang Fuel Company Major terms: (1) Subject matter: the Company and its subsidiaries agreed to purchase coal from Beijing Datang Fuel Company during the term of the agreement. The parties may, from time to time during the term of the agreement, enter into specific purchase contracts in respect of the purchase of coal by the Company, and such specific purchase contracts shall be subject to the terms of the Fuel Purchase Framework Agreement. (2) Consideration: To be determined in the ordinary course of business on normal commercial terms on the basis of arm's length negotiation according to prevailing market conditions. (3) Settlement and payment: Settlement shall be made by the relevant parties in accordance with the confirmed settlement invoice. (4) Term: One year, commencing from 1 January 2013 to 31 December 2013. The Company confirms that each of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the transaction amounts under the Fuel Purchase Framework Agreement for the period from 1 January 2013 to the Latest Practicable Date does not exceed 5%. (5) The Fuel Purchase Framework Agreement becomes effective when they are duly signed by both parties. Annual cap It is expected that the maximum transaction amount in respect of the Fuel Purchase Framework Agreement for the year ending 31 December 2013 is RMB35,505 million; such amount is determined with reference to (i) the anticipated quantity of coal to be purchased by the Company and its subsidiaries from Beijing Datang Fuel Company for the year ending 31 December 2013; and (ii) the estimated market price of coal. Since it is anticipated that there will be an increase in the number of subsidiaries of the Company to purchase coal from Beijing Datang Fuel Company for the year ending 31 December 2013, the proposed annual cap for the year ending 31 December 2013 is substantially higher than the historical transaction amount. Historical transaction amounts The transaction amount of purchase of coal by the Company and its subsidiaries from Beijing Datang Fuel Company for the year ended 31 December 2012 was approximately RMB11,252 million. The transaction amount of purchase of coal by the Company and its subsidiaries from Beijing Datang Fuel Company for the year ended 31 December 2011 was approximately RMB15,809 million. The transaction amount of purchase of coal by the Company and its subsidiaries from Beijing Datang Fuel Company for the year ended 31 December 2010 was approximately RMB13,882 million. 2. Inner Mongolia Fuel Purchase Framework Agreements Date: 6 February 2013 Parties: six subsidiaries of the Company, Inner Mongolia Fuel Company Major terms: The terms of the eight Inner Mongolia Fuel Purchase Framework Agreements are materially the same, the material terms of which are summarized as follows: (1) Subject matter: The six subsidiaries of the Company agreed to purchase coal from Inner Mongolia Fuel Company during the term of the agreement. The parties may, from time to time during the term of the agreement, enter into specific purchase contracts in respect of the purchase of coal by the six subsidiaries of the Company provided that such specific purchase contracts shall be subject to the terms of the Inner Mongolia Fuel Purchase Framework Agreements. (2) Consideration: To be determined in the ordinary course of business on normal commercial terms on the basis of arm's length negotiation according to prevailing market conditions. (3) Settlement and payment: Settlement shall be made by the relevant parties in accordance with the confirmed settlement invoice. (4) Term: One year, commencing from 1 January 2013 to 31 December 2013. The Company confirms that each of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the transaction amount under the Inner Mongolia Fuel Purchase Framework Agreements for the period from 1 January 2013 to the Latest Practicable Date does not exceed 5%. (5) The Inner Mongolia Fuel Purchase Framework Agreements become effective when they are duly signed by the relevant parties. Annual cap It is expected that the maximum transaction amount in respect of the Inner Mongolia Fuel Purchase Framework Agreements for the year ending 31 December 2013 is RMB5,425 million; such amount is determined with reference to (i) the anticipated quantity of coal to be purchased by the six subsidiaries of the Company from Inner Mongolia Fuel Company for the year ending 31 December 2013; and (ii) the estimated market price of coal. Historical transaction amounts The transaction amount of purchase of coal by the six subsidiaries of the Company from Inner Mongolia Fuel Company for the year ended 31 December 2012 was approximately RMB4,730 million. The transaction amount of purchase of coal by the six subsidiaries of the Company from Inner Mongolia Fuel Company for the year ended 31 December 2011 was approximately RMB4,400 million. The six subsidiaries of the Company did not conduct any transaction in relation to purchase of coal with Inner Mongolia Fuel Company for the year ended 31 December 2010. SALE OF COAL BY HONG KONG COMPANY TO CERTAIN SUBSIDIARIES OF THE COMPANY 1. Hong Kong-Beijing Fuel Sale Framework Agreement Date: 6 February 2013 Parties: Hong Kong Company, Beijing Datang Fuel Company Major terms: (1) Subject matter: Hong Kong Company agreed to sell coal to Beijing Datang Fuel Company during the term of the agreement. The parties may, from time to time during the term of the agreement, enter into specific coal sale contracts in respect of the sale of coal by Hong Kong Company provided that such specific coal sale contracts shall be subject to the terms of the Hong Kong-Beijing Fuel Sale Framework Agreement. (2) Consideration: To be determined in the ordinary course of business on normal commercial terms on the basis of arm's length negotiation according to prevailing market conditions. (3) Settlement and payment: Settlement shall be made by the relevant parties in accordance with the confirmed settlement invoice. (4) Term: Commencing from 1 January 2013 to 31 December 2013. The Company confirms that each of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the transaction amount under the Hong Kong- Beijing Fuel Sale Framework Agreement for the period from 1 January 2013 to the Latest Practicable Date does not exceed 5%. (5) The Hong Kong-Beijing Fuel Sale Framework Agreement becomes effective when it is duly signed by both parties. Annual cap It is expected that the maximum transaction amount in respect of the Hong Kong-Beijing Fuel Sale Framework Agreement for the year ending 31 December 2013 is USD380 million, equivalent to RMB2,367.4 million; such amount is determined with reference to (i) the anticipated quantity of coal to be sold by Hong Kong Company to Beijing Datang Fuel Company for the year ending 31 December 2013; and (ii) the estimated market price of coal. Since it is anticipated that there will be an increase in the quantity of coal to be sold by Hong Kong Company to Beijing Datang Fuel Company for the year ending 31 December 2013, the proposed annual cap for the year ending 31 December 2013 is substantially higher than the historical transaction amount. Historical transaction amounts The transaction amount of coal sale by Hong Kong Company to Beijing Datang Fuel Company for the year ended 31 December 2012 was approximately RMB299 million. The transaction amount of coal sale by Hong Kong Company to Beijing Datang Fuel Company for the year ended 31 December 2011 was approximately RMB183 million. The transaction amount of coal sale by Hong Kong Company to Beijing Datang Fuel Company for the year ended 31 December 2010 was approximately RMB71 million. 2. Hong Kong-Power Plants Fuel Sale Framework Agreement Date: 6 February 2013 Parties: Hong Kong Company, the Company Major terms: (1) Subject matter: Hong Kong Company agreed to sell coal to each of Lvsigang Power Generation Company and Chaozhou Power Generation Company during the term of the agreement. The parties may, from time to time during the term of the agreement, enter into specific coal sale contracts in respect of the sale of coal by Hong Kong Company provided that such specific coal sale contracts shall be subject to the terms of the Hong Kong-Power Plants Fuel Sale Framework Agreement. (2) Consideration: To be determined in the ordinary course of business on normal commercial terms on the basis of arm's length negotiation according to prevailing market conditions. (3) Settlement and payment: Settlement shall be made by both parties in accordance with the confirmed settlement invoice. (4) Term: Commencing from 1 January 2013 to 31 December 2013. The Company confirms that each of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the transaction amount under the Hong Kong- Power Plants Fuel Sale Framework Agreement for the period from 1 January 2013 to the Latest Practicable Date does not exceed 5%. (5) The Hong Kong-Power Plants Fuel Sale Framework Agreement becomes effective when it is duly signed by the relevant parties. Annual cap It is expected that the maximum transaction amount in respect of the Hong Kong-Power Plants Fuel Sale Framework Agreement for the year ending 31 December 2013 is US$522 million, equivalent to RMB3,252.1 million; such amount is determined with reference to (i) the anticipated quantity of coal to be sold by Hong Kong Company to Lvsigang Power Generation Company and Chaozhou Power Generation Company for the year ending 31 December 2013; and (ii) the estimated market price of coal. Since there will be an increase in the number of subsidiaries of the Company (i.e. Lvsigang Power Generation Company) to purchase coal from Hong Kong Company for the year ending 31 December 2013, the proposed annual cap for the year ending 31 December 2013 is substantially higher than the historical transaction amount. Historical transaction amounts The transaction amount of coal sale by Hong Kong Company to Chaozhou Power Generation Company for the year ended 31 December 2012 was approximately RMB1,285 million. The transaction amount of coal sale by Hong Kong Company to Chaozhou Power Generation Company for the year ended 31 December 2011 was approximately RMB742 million. The transaction amount of coal sale by Hong Kong Company to Chaozhou Power Generation Company for the year ended 31 December 2010 was approximately RMB568 million. Hong Kong Company did not conduct any transaction in relation to coal sale with Lvsigang Power Generation Company for the three years ended 31 December 2012. As set out in previous sections of this circular, the consideration for the sale and purchase of coal under the Fuel Framework Agreements are to be determined in the ordinary course of business on normal commercial terms with reference to market conditions. In order to ensure that this principle is adhered to, the Company has adopted the following internal procedures: (1) the relevant subsidiaries or power plants of the Group will make reference with the prevailing listed price of coal under the Qinhuangdao Port Coal Price Index, Bohai-Rim Steam-Coal Price Index and Jingtang Port Coal Price Index, which are market coal prices, in negotiating and determining the consideration of coal before entering into specific sale and purchase contracts and will ensure that coal will be supplied/purchased on terms no less favourable to the Group than terms available to or from independent third parties; and (2) the relevant consideration will be settled according to the quality and quantity of coal as agreed and confirmed by the parties taking into account the assessment result on the quality of coal issued by a qualified professional organization jointly appointed by the relevant purchaser and seller. The consideration of coal is determined with reference to the prevailing listed price of coal of same quality, the quantity of coal to be purchased, the relevant transportation costs and administration costs. REASONS FOR AND BENEFITS OF ENTERING INTO THE FUEL FRAMEWORK AGREEMENTS The purchase of coal by the Company and its subsidiaries from Beijing Datang Fuel Company and its subsidiaries is primarily for securing coal supply to the Company and the power generation enterprises of its subsidiaries, and fully leveraging the advantages in terms of supply and economy-of-scale of purchase of these specialized coal companies, so as to stabilize the market prices of coal to a certain extent, thereby exercising control over the costs of fuel and mitigating the adverse impact of changes in the coal market on the Group. The sale of coal by Hong Kong Company to the subsidiaries of the Company is primarily for leveraging on the advantage of the Hong Kong Company in imported coal purchasing, in order to guarantee the coal supply of the subsidiaries of the Company as well as to lower the purchasing cost of coal, and to increase the business revenue of the Hong Kong Company at the same time. The Directors are of the view that the terms of the Fuel Framework Agreements are fair and reasonable, have been entered into after arm's length negotiation between all parties thereto and determined on normal commercial terms and is in the interests of the Company and the Shareholders as a whole. INFORMATION ON THE PARTIES TO THE AGREEMENTS 1. The Group is principally engaged in the construction and operation of power plants, the sale of electricity and thermal power, the repair and maintenance of power equipment and power related technical services. The Group's main service areas are in the PRC. 2. Chaozhou Power Generation Company is a subsidiary of the Company. It is currently operating two 600MW and two 1,000MW coal-fired generating units. The equity holding structure of the company is as follows: 52.5% of its equity interest is held by the Company, 22.5% of its equity interest is held by CDC, 12% of its equity interest is held by Beijing China Power Huaze Investment Company Limited, 8% of its equity interest is held by Wenshan Guoneng Investment Company Limited and 5% of its equity interest is held by Chaozhou Xinghua Energy Investment Company Limited. 3. Lvsigang Power Generation Company is a subsidiary of the Company. It is currently operating four 660MW coal-fired generating units. The equity holding structure of the company is as follows: 55% of its equity interest was held by the Company, 35% of its equity interest is held by CDC and 10% of its equity interest is held by Nantong State-owned Assets Investment Holdings Co., Ltd. 4. Beijing Datang Fuel Company is a subsidiary of the Company. It is principally engaged in sale of coal, investment management and technical services. The equity holding structure of the company is as follows: 51% of its equity interest is held by the Company and 49% of its equity interest is held by Datang Electric Power Fuel Company Limited, a wholly-owned subsidiary of CDC. 5. Hong Kong Company is a wholly-owned subsidiary of the Company. It is principally engaged in information consulting in relation to domestic and international power and capital markets; investment and financing, and stock repurchases; and agency for the import of proprietary equipment (parts) and other businesses. 6. The six subsidiaries of the Company are subsidiaries or power plants of the Company which engage in power generation. 7. Inner Mongolia Fuel Co. is a wholly-owned subsidiary of Beijing Datang Fuel Company Limited, a subsidiary of the Company. It is principally engages in the business of electric fuel. 8. CDC was established on 9 March 2003 with registered capital of RMB15.394 billion. It is principally engaged in the development, investment, construction, operation and management of power energy, organisation of power (thermal) production and sales; manufacture, repair and maintenance of power equipment; power technology development and consultation; power engineering, contracting and consultation of environmental power engineering; development of new energy as well as development and production of power related coal resources. BOARD'S APPROVAL None of the Director has any material interest in the Fuel Framework Agreements. Those connected Directors, including Liu Shunda, Hu Shengmu and Fang Qinghai, who are current or former the principal management staff of CDC, have abstained from voting at the Board's meeting for approval of the relevant transactions in accordance with the requirements of the listing rules of the Shanghai Stock Exchange. LISTING RULES IMPLICATIONS As at the Latest Practicable Date, CDC is the controlling shareholder of the Company, which together with its subsidiaries hold approximately 34.71% of the issued share capital of the Company. Since CDC and its subsidiaries hold certain equity interests in Beijing Datang Fuel Company, Inner Mongolia Fuel Company, Lvsigang Power Generation Company and Chaozhou Power Generation Company, which are subsidiaries of the Company, such subsidiaries are connected persons of the Company. The transactions contemplated under the Fuel Framework Agreements constitute continuing connected transactions of the Company. Since (i) one or more of the applicable percentage ratios (as defined under Rule14.07 of the Listing Rules) in respect of the aggregated transaction amount for purchase of coal under the Fuel Purchase Framework Agreement and the Inner Mongolia Fuel Purchase Framework Agreements; and (ii) one or more of the applicable percentage ratios in respect of the aggregated transaction amount for sale of coal under the Hong Kong-Beijing Fuel Sale Agreement and the Hong Kong-Power Plants Fuel Sale Agreement are all higher than 5%, the Fuel Framework Agreements and the transactions contemplated thereunder are subject to the reporting and announcement requirements, as well as the independent shareholders' approval requirements under Chapter 14A of the Listing Rules. The Company will disclose the relevant details in the next annual report and accounts of the Company in accordance with the relevant requirements as set out in Chapter 14A of the Listing Rules. EGM The Company will convene the EGM to, among other things, consider and approve the Fuel Framework Agreements. The notice and supplemental notice convening the EGM and the relevant notice of attendance have been despatched to the Shareholders on 5 February 2013 and 14 March 2013, respectively. Any Shareholder with a material interest in the transactions and its associates shall abstain from voting at the relevant transactions at the EGM. Therefore, CDC and its associates, which hold approximately 34.71% of the issued share capital of the Company as at the Latest Practicable Date, shall abstain from voting at the EGM in approving the Fuel Framework Agreements and their respective annual caps. RECOMMENDATION Your attention is drawn to the letter from the Independent Board Committee as set out on the page 15 of this circular which contains its recommendation to the Independent Shareholders on the terms of the Fuel Framework Agreements. Your attention is also drawn to the letter of advice received from Mizuho Securities, the independent financial adviser to the Independent Board Committee and the Independent Shareholders as set out on pages 16 to 27 of this circular which contains, among others, its advice to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Fuel Framework Agreements, the casting of votes for or against the resolutions approving the Fuel Framework Agreements by poll at the EGM as well as the principal factors and reasons considered by it in concluding its advice. The Directors consider that the terms of the Fuel Framework Agreements are fair and reasonable and in the interest of the Shareholders and the Company as a whole and they recommend the Shareholders to vote in favour of the resolutions at the EGM. Yours faithfully, By Order of the Board of Datang International Power Generation Co., Ltd. Zhou Gang Secretary to the Board --------------------------------------------------------------------------------- LETTER FROM THE INDEPENDENT BOARD COMMITTEE --------------------------------------------------------------------------------- DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 00991) Office address No.9 Guangningbo Street Xicheng District Beijing, 100033 The PRC 4 March 2013 To the Independent Shareholders Dear Sir or Madam, CONTINUING CONNECTED TRANSACTIONS We refer to the circular issued by the Company to the shareholders dated 4 March 2013 (the "Circular") of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context otherwise requires. Under the Listing Rules, the Fuel Framework Agreements constitute continuing connected transactions of the Company, and are subject to the approval of the Independent Shareholders at the EGM. We have been appointed as the Independent Board Committee to consider the terms of the Fuel Framework Agreements and to advise the Independent Shareholders in connection with the Fuel Framework Agreements as to whether, in our opinion, their terms are fair and reasonable and whether the Fuel Framework Agreements are in the interests of the Company and the shareholders as a whole. Mizuho Securities has been appointed as the independent financial adviser to advise us in this respect. We wish to draw your attention to the letter from the Board and the letter from Mizuho Securities as set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, Mizuho Securities as set out in its letter of advice, we consider that the Fuel Framework Agreements are on normal commercial terms, and that the Fuel Framework Agreements are in the best interests of the Company and the Shareholders as a whole. We also consider that the terms of the Fuel Framework Agreements (including their respective annual caps contemplated thereunder) are fair and reasonable. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Fuel Framework Agreements (including their respective annual caps contemplated thereunder) at the EGM. Yours faithfully, For and on behalf of the Independent Board Committee Li Yanmeng, Zhao Zunlian, Li Hengyuan, Zhao Jie, Jiang Guohua Independent non-executive Directors Datang International Power Generation Co., Ltd. --------------------------------------------------------------------------------- LETTER FROM MIZUHO SECURITIES ASIA LIMITED --------------------------------------------------------------------------------- The following is the text of the letter of advice from Mizuho Securities Asia Limited, the independent financial adviser to the Independent Board Committee and Independent Shareholders, in respect of the Fuel Framework Agreements, which has been prepared for the purpose of inclusion in this circular. 12th Floor, Chater House, 8 Connaught Road Central, Hong Kong Tel: 2685-2000 Fax: 2685-2410 4 March 2013 To the Independent Board Committee and the Independent Shareholders Datang International Power Generation Co., Ltd. Dear Sirs, CONTINUING CONNECTED TRANSACTIONS INTRODUCTION We refer to our engagement as the independent financial adviser to the Independent Board Committee and Independent Shareholders in respect of the Fuel Framework Agreements. Further details of the Fuel Framework Agreements are set out in the letter from the Board (the "Letter from the Board") in the circular of the Company to its Shareholders dated 4 March 2013 (the "Circular"), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires. On 6 February 2013, the Company and certain of its subsidiaries entered into the Fuel Framework Agreements with certain connected persons to conduct the following continuing connected transactions: 1. Purchase of coal from Beijing Datang Fuel Company and its subsidiaries by the Company and its subsidiaries (1) The Company entered into the Fuel Purchase Framework Agreement with Beijing Datang Fuel Company, pursuant to which the Company and certain of its subsidiaries agreed to purchase coal from Beijing Datang Fuel Company with a maximum aggregate annual transaction amount of approximately RMB35,505 million for a term of one year commencing from 1 January 2013 to 31 December 2013. (2) Six subsidiaries of the Company entered into eight Inner Mongolia Fuel Purchase Framework Agreements with Inner Mongolia Fuel Company respectively, pursuant to which each of such six subsidiaries of the Company agreed to purchase coal from Inner Mongolia Fuel Company with a maximum aggregate annual transaction amount of approximately RMB5,425 million for a term of one year commencing from 1 January 2013 to 31 December 2013. 2. Sale of coal by Hong Kong Company to certain subsidiaries of the Company (1) Hong Kong Company entered into the Hong Kong-Beijing Fuel Sale Framework Agreement with Beijing Datang Fuel Company, pursuant to which Hong Kong Company agreed to sell coal to Beijing Datang Fuel Company, with a maximum aggregate annual transaction amount of approximately USD380 million, equivalent to RMB2,367.4 million for a term of one year commencing from 1 January 2013 to 31 December 2013. (2) Hong Kong Company entered into the Hong Kong-Power Plants Fuel Sale Framework Agreement with the Company, pursuant to which Hong Kong Company agreed to sell coal to Lvsigang Power Generation Company and Chaozhou Power Generation Company, with a maximum aggregate annual transaction amount of approximately USD522 million, equivalent to RMB3,252.1 million, for a term of one year commencing from 1 January 2013 to 31 December 2013. As at the Latest Practicable Date, CDC is the controlling shareholder of the Company, which together with its subsidiaries held approximately 34.71% of the issued share capital of the Company. Since CDC and its subsidiaries hold certain equity interests in Beijing Datang Fuel Company, Inner Mongolia Fuel Company, Lvsigang Power Generation Company and Chaozhou Power Generation Company, which are subsidiaries of the Company, such subsidiaries are connected persons of the Company under the Listing Rules. The transactions contemplated under the Fuel Framework Agreements constitute continuing connected transactions of the Company. Since (i) one or more of the applicable percentage ratios (as defined under Rule14.07 of the Listing Rules) in respect of the aggregated transaction amount for purchase of coal under the Fuel Purchase Framework Agreement and the Inner Mongolia Fuel Purchase Framework Agreements; and (ii) one or more of the applicable percentage ratios in respect of the aggregated transaction amount for sale of coal under the Hong Kong-Beijing Fuel Sale Agreement and the Hong Kong-Power Plants Fuel Sale Agreement are all higher than 5%, the Fuel Framework Agreements and the transactions contemplated thereunder are subject to the reporting and announcement requirements, as well as the independent shareholders' approval requirements under Chapter 14A of the Listing Rules. Our scope of work under this engagement is to assess whether the terms of the Fuel Framework Agreements and their respective annual caps are fair and reasonable so far as the Shareholders are concerned, and, from that perspective, whether the Fuel Framework Agreements are in the interests of the Company and the Shareholders as a whole. It is not within our scope of work to opine on any other aspects of the Fuel Framework Agreements. In addition, it is not within our terms of reference to comment on the commercial merits of the Fuel Framework Agreements which is the responsibility of the Directors. BASIS OF OUR OPINION In arriving at our opinion, we have relied on the information, opinions and facts supplied, and representations made to us, by the Directors, advisers and representatives of the Company (including those contained or referred to in the Circular). We have also assumed that the information and representations contained or referred to in the Circular were true and accurate in all respects at the time they were made and continue to be so at the date of dispatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and senior management 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 been advised by the Directors and believe that no material facts have been omitted from the Circular. We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs or other prospects of the Company and any of their respective subsidiaries or associates. PRINCIPAL FACTORS AND REASONS CONSIDERED In forming our opinion, we have considered the following principal factors and reasons: A. Information on the parties to the agreements 1. The Group is principally engaged in the construction and operation of power plants, the sale of electricity and thermal power, the repair and maintenance of power equipment and power related technical services. The Group's main service areas are in the PRC. 2. Chaozhou Power Generation Company is a subsidiary of the Company. It is currently operating two 600MW and two 1,000MW coal-fired generating units. The equity holding structure of the company is as follows: 52.5% of its equity interest is held by the Company, 22.5% of its equity interest is held by CDC, 12% of its equity interest is held by Beijing China Power Huaze Investment Company Limited, 8% of its equity interest is held by Wenshan Guoneng Investment Company Limited and 5% of its equity interest is held by Chaozhou Xinghua Energy Investment Company Limited. 3. Lvsigang Power Generation Company is a subsidiary of the Company. It is currently operating four 660MW coal-fired generating units. The equity holding structure of the company is as follows: 55% of its equity interest was held by the Company, 35% of its equity interest is held by CDC and 10% of its equity interest is held by Nantong State-owned Assets Investment Holdings Co., Ltd. 4. Beijing Datang Fuel Company is a subsidiary of the Company. It is principally engaged in sale of coal, investment management and technical services. The equity holding structure of the company is as follows: 51% of its equity interest is held by the Company and 49% of its equity interest is held by Datang Electric Power Fuel Company Limited, a wholly-owned subsidiary of CDC. 5. Hong Kong Company is a wholly-owned subsidiary of the Company. It is principally engaged in information consulting in relation to domestic and international power and capital markets; investment and financing, and stock repurchases; and agency for the import of proprietary equipment (parts) and other businesses. 6. Inner Mongolia Fuel Co. is a wholly-owned subsidiary of Beijing Datang Fuel Company Limited, a subsidiary of the Company. It is principally engaged in the business of electric fuel. 7. CDC was established on 9 March 2003 with registered capital of RMB15.394 billion. It is principally engaged in the development, investment, construction, operation and management of power energy, organisation of power (thermal) production and sales; manufacture, repair and maintenance of power equipment; power technology development and consultation; power engineering, contracting and consultation of environmental power engineering; development of new energy as well as development and production of power related coal resources. B. Reasons and benefits for entering into the Fuel Framework Agreements Beijing Datang Fuel Company is a subsidiary of the Company and is principally engaged in sale of coal, investment management and technical services. The purchase of coal by the Company and its other subsidiaries from Beijing Datang Fuel Company and its subsidiaries can assist the Group to secure coal supply, and leverage on the benefits of economies of scale of these specialized coal companies, so as to stabilize the market prices of coal to a certain extent, thereby exercising more control. The sale of coal by Hong Kong Company to the subsidiaries of the Company is primarily for leveraging on the advantage of the Hong Kong Company in imported coal purchasing, in order to secure the coal supply of the subsidiaries of the Company as well as to lower the purchasing cost of coal, and to increase the business revenue of the Hong Kong Company at the same time. We understand that the Group has also purchased coal from overseas. Coal is a major raw material for the coal-fired power generation plants of the Group. Coal supply might not be secured at relatively favourable prices if each power generation company of the Group purchases its own coal separately. The centralized supply of coal for power generation by Beijing Datang Fuel Co. and Hong Kong Company to the power generation companies of the Group may help the Group to leverage on the experience and expertise of these coal-procurement specialized companies and achieve the advantage of bulk purchase. The collective purchase of coal shall achieve enhancement in bargaining power to secure stable coal supply and stabilize purchase prices of coal to a certain extent, and enhancement in flexibility to adjust the composition of coal portfolios, and reduction in overall procurement and administration costs. Having considered the importance of coal supply and the substantial amount of coal needed for power generation, in selecting coal suppliers, the power plants of the Group will take into account a number of factors, including the quantity and quality of coal being supplied, prices of coal, and transportation costs. It is important for coal-fired power plants to secure smooth supply of quality coal so as to ensure continuous power generation. We note that the Fuel Framework Agreements do not require the Group to purchase coal from Beijing Datang Fuel Co. and Hong Kong Company on an exclusive basis, and it is possible that the Group can still purchase coal from third party suppliers. The Fuel Framework Agreements provide the Group a channel to secure the quality and quantity of domestic coal and imported coal purchased efficiently throughout the year so as to ensure smooth operations of the coal-fired power plants of the Group. Such arrangements are expected to stabilise average purchase prices of Coal for the Group, and might serve to save some procurement costs through bulk purchase by companies specialised in coal procurement, i.e. Beijing Datang Fuel Co. and Hong Kong Company. C. The Fuel Framework Agreements Purchase of coal from Beijing Datang Fuel Company and its subsidiaries by the Company and its subsidiaries 1. Fuel Purchase Framework Agreement Date: 6 February 2013 Parties: The Company, Beijing Datang Fuel Company Major terms: (1) Subject matter: the Company and its subsidiaries agreed to purchase coal from Beijing Datang Fuel Company during the term of the agreement. The parties may, from time to time during the term of the agreement, enter into specific purchase contracts in respect of the purchase of coal by the Company, and such specific purchase contracts shall be subject to the terms of the Fuel Purchase Framework Agreement. (2) Consideration: To be determined in the ordinary course of business on normal commercial terms on the basis of arm's length negotiation according to prevailing market conditions. (3) Settlement and payment: Settlement shall be made by the relevant parties in accordance with the confirmed settlement invoice. (4) Term: One year, commencing from 1 January 2013 to 31 December 2013. The Company confirms that each of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the transaction amounts under the Fuel Purchase Framework Agreement for the period from 1 January 2013 to the Latest Practicable Date does not exceed 5%. (5) The Fuel Purchase Framework Agreement becomes effective when they are duly signed by both parties. Annual cap It is expected that the maximum transaction amount in respect of the Fuel Purchase Framework Agreement for the year ending 31 December 2013 is RMB35,505 million. Such amount is determined with reference to (i) the anticipated quantity of coal to be purchased by the Company and its subsidiaries from Beijing Datang Fuel Company for the year ending 31 December 2013; and (ii) the estimated market price of coal. Such maximum transaction amount is approximately 216% higher than the actual transaction amount for the year ended 31 December 2012 as advised by the Company. We have discussed with the management of the Company and understand that in determining the maximum transaction amount in respect of the Fuel Purchase Framework Agreement for the year ending 31 December 2013, the Group has considered its expected coal demand and the expected percentage of coal to be purchased from Beijing Datang Fuel Company. The Group anticipated that there will be a substantial increase in the number of subsidiaries of the Company which shall purchase coal from Beijing Datang Fuel Company. Such subsidiaries are expected to increase from a total of 5 companies for the year ended 31 December 2012 to around 20 companies for the year ending 31 December 2013. Furthermore, the Company advised that its subsidiaries that had purchased coal from Beijing Datang Fuel Company in 2012 intend to increase its purchase from Beijing Datang Fuel Company after considering the advantages of bulk purchase through Beijing Datang Fuel Company. In this connection, the maximum transaction amount in respect of the Fuel Purchase Framework Agreement for the year ending 31 December 2013 is estimated after considering the anticipated increase in the amount of coal to be purchased from Beijing Datang Fuel Company. Having considered the basis for the estimation of the maximum amount in respect of the Fuel Purchase Framework Agreement as discussed above, we concur with the Directors' view that the annual cap of the Fuel Purchase Framework Agreement for the year ending 31 December 2013 is reasonably determined. Historical transaction amounts The transaction amount of purchase of coal by the Company and its subsidiaries from Beijing Datang Fuel Company for the year ended 31 December 2012 was approximately RMB11,252 million. The transaction amount of purchase of coal by the Company and its subsidiaries from Beijing Datang Fuel Company for the year ended 31 December 2011 was approximately RMB15,809 million. The transaction amount of purchase of coal by the Company and its subsidiaries from Beijing Datang Fuel Company for the year ended 31 December 2010 was approximately RMB13,882 million. 2. Inner Mongolia Fuel Purchase Framework Agreements Date: 6 February 2013 Parties: six subsidiaries of the Company, Inner Mongolia Fuel Company Major terms: The terms of the eight Inner Mongolia Fuel Purchase Framework Agreements are materially the same, the material terms of which are summarized as follows: (1) Subject matter: The six subsidiaries of the Company agreed to purchase coal from Inner Mongolia Fuel Company during the term of the agreement. The parties may, from time to time during the term of the agreement, enter into specific purchase contracts in respect of the purchase of coal by the six subsidiaries of the Company provided that such specific purchase contracts shall be subject to the terms of the Inner Mongolia Fuel Purchase Framework Agreements. (2) Consideration: To be determined in the ordinary course of business on normal commercial terms on the basis of arm's length negotiation according to prevailing market conditions. (3) Settlement and payment: Settlement shall be made by the relevant parties in accordance with the confirmed settlement invoice. (4) Term: One year, commencing from 1 January 2013 to 31 December 2013. The Company confirms that each of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the transaction amount under the Inner Mongolia Fuel Purchase Framework Agreements for the period from 1 January 2013 to the Latest Practicable Date does not exceed 5%. (5) The Inner Mongolia Fuel Purchase Framework Agreements become effective when they are duly signed by the relevant parties. Annual cap It is expected that the maximum transaction amount in respect of the Inner Mongolia Fuel Purchase Framework Agreements for the year ending 31 December 2013 is RMB5,425 million. Such amount is determined with reference to (i) the anticipated quantity of coal to be purchased by the six subsidiaries of the Company from Inner Mongolia Fuel Company for the year ending 31 December 2013; and (ii) the estimated market price of coal. The maximum transaction amount for the year ending 31 December 2013 is approximately 15% higher than the transaction amount for the year ended 31 December 2012. We understand from the management of the Company that such increase was mainly due to the expected increase in the quantity of coal to be purchased from Inner Mongolia Fuel Company by the six subsidiaries of the Company. Having considered the above, we concur with the Directors' view that the annual cap of the Hong Kong-Power Plants Fuel Sale Framework Agreement is reasonably determined. Historical transaction amounts The transaction amount of purchase of coal by the six subsidiaries of the Company from Inner Mongolia Fuel Company for the year ended 31 December 2012 was approximately RMB4,730 million. The transaction amount of purchase of coal by the six subsidiaries of the Company from Inner Mongolia Fuel Company for the year ended 31 December 2011 was approximately RMB4,400 million. The six subsidiaries of the Company did not conduct any transaction in relation to purchase of coal with Inner Mongolia Fuel Company for the year ended 31 December 2010. Sale of coal by Hong Kong Company to certain subsidiaries of the Company 3. Hong Kong-Beijing Fuel Sale Framework Agreement Date: 6 February 2013 Parties: Hong Kong Company, Beijing Datang Fuel Company Major terms: (1) Subject matter: Hong Kong Company agreed to sell coal to Beijing Datang Fuel Company during the term of the agreement. The parties may, from time to time during the term of the agreement, enter into specific coal sale contracts in respect of the sale of coal by Hong Kong Company provided that such specific coal sale contracts shall be subject to the terms of the Hong Kong-Beijing Fuel Sale Framework Agreement. (2) Consideration: To be determined in the ordinary course of business on normal commercial terms on the basis of arm's length negotiation according to prevailing market conditions. (3) Settlement and payment: Settlement shall be made by the relevant parties in accordance with the confirmed settlement invoice. (4) Term: Commencing from 1 January 2013 to 31 December 2013. The Company confirms that each of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the transaction amount under the Hong Kong-Beijing Fuel Sale Framework Agreement for the period from 1 January 2013 to the Latest Practicable Date does not exceed 5%. (5) The Hong Kong-Beijing Fuel Sale Framework Agreement becomes effective when it is duly signed by both parties. Annual cap It is expected that the maximum transaction amount in respect of the Hong Kong-Beijing Fuel Sale Framework Agreement for the year ending 31 December 2013 is USD380 million, equivalent to approximately RMB2,367.4 million. Such amount is determined with reference to (i) the anticipated quantity of coal to be sold by Hong Kong Company to Beijing Datang Fuel Company for the year ending 31 December 2013; and (ii) the estimated market price of coal. Such maximum transaction amount is approximately 692% higher than the actual transaction amount for the year ended 31 December 2012 as advised by the Company. Hong Kong Company is a wholly-owned subsidiary of the Company established in Hong Kong. One of its businesses is to act as an agent of imported coal. We understand from the management of the Company that the Group intends to leverage on the import capability of Hong Kong Company to increase the purchase of imported coal, so as to enjoy the advantages of bulk purchase of imported coal and exercise more control over the procurement of imported coal. Furthermore, the number of subsidiaries of the Company which shall purchase coal from Beijing Datang Fuel Company is expected to increase substantially during the year ending 31 December 2013. Having considered the bulk purchase strategy of the Group in importing coal via Hong Kong Company, we concur with the Directors' view that the annual cap of the Hong Kong-Power Plants Fuel Sale Framework Agreement is reasonably determined. Historical transaction amounts The transaction amount of coal sale by Hong Kong Company to Beijing Datang Fuel Company for the year ended 31 December 2012 was approximately RMB299 million. The transaction amount of coal sale by Hong Kong Company to Beijing Datang Fuel Company for the year ended 31 December 2011 was approximately RMB183 million. The transaction amount of coal sale by Hong Kong Company to Beijing Datang Fuel Company for the year ended 31 December 2010 was approximately RMB71 million. 4. Hong Kong-Power Plants Fuel Sale Framework Agreement Date: 6 February 2013 Parties: Hong Kong Company, the Company Major terms: (1) Subject matter: Hong Kong Company agreed to sell coal to each of Lvsigang Power Generation Company and Chaozhou Power Generation Company during the term of the agreement. The parties may, from time to time during the term of the agreement, enter into specific coal sale contracts in respect of the sale of coal by Hong Kong Company provided that such specific coal sale contracts shall be subject to the terms of the Hong Kong-Power Plants Fuel Sale Framework Agreement. (2) Consideration: To be determined in the ordinary course of business on normal commercial terms on the basis of arm's length negotiation according to prevailing market conditions. (3) Settlement and payment: Settlement shall be made by both parties in accordance with the confirmed settlement invoice. (4) Term: Commencing from 1 January 2013 to 31 December 2013. The Company confirms that each of the applicable percentage ratios (as defined under Rule 14.07 of the Listing Rules) in respect of the transaction amount under the Hong Kong-Power Plants Fuel Sale Framework Agreement for the period from 1 January 2013 to the Latest Practicable Date does not exceed 5%. (5) The Hong Kong-Power Plants Fuel Sale Framework Agreement becomes effective when it is duly signed by the relevant parties. Annual cap It is expected that the maximum transaction amount in respect of the Hong Kong-Power Plants Fuel Sale Framework Agreement for the year ending 31 December 2013 is US$522 million, equivalent to RMB3,252.1 million. Such amount is determined with reference to (i) the anticipated quantity of coal to be sold by Hong Kong Company to Lvsigang Power Generation Company and Chaozhou Power Generation Company for the year ending 31 December 2013; and (ii) the estimated market price of coal. Such maximum transaction amount is approximately 153% higher than the actual transaction amount for the year ended 31 December 2012 as advised by the Company. We have discussed with the management of the Company and understand that the Group intends to leverage on the import capability of Hong Kong Company for increasing the purchase of imported coal, in order to enjoy the advantages of bulk purchase of imported coal and exercise more control over the procurement of imported coal. In this connection, Chaozhou Power Generation Company expects to increase the quantity of purchase of imported coal from Hong Kong Company. Furthermore, one more subsidiary of the Company (i.e. Lvsigang Power Generation Company) is expected to purchase imported coal from Hong Kong Company for the year ending 31 December 2013. In determining the maximum transaction amount, the Group has also considered the price level of imported coal for the quality required by Chaozhou Power Generation Company and Lvsigang Power Generation Company, as well as transportation cost and administration cost. Having considered the bulk purchase strategy of the Group in importing coal via Hong Kong Company and the increase in the number of subsidiaries purchasing from Hong Kong Company as explained above, we concur with the Directors' view that the annual cap of the Hong Kong-Power Plants Fuel Sale Framework Agreement is reasonably determined. Historical transaction amounts The transaction amount of coal sale by Hong Kong Company to Chaozhou Power Generation Company for the year ended 31 December 2012 was approximately RMB1,285 million. The transaction amount of coal sale by Hong Kong Company to Chaozhou Power Generation Company for the year ended 31 December 2011 was approximately RMB742 million. The transaction amount of coal sale by Hong Kong Company to Chaozhou Power Generation Company for the year ended 31 December 2010 was approximately RMB568 million. Hong Kong Company did not conduct any transaction in relation to coal sale with Lvsigang Power Generation Company for the three years ended 31 December 2012. On the basis of the above, we consider that the annual caps for the Fuel Framework Agreements are reasonably determined. As mentioned in the letter from the Board, the consideration for the sale and purchase of coal under the Fuel Framework Agreements are to be determined in the ordinary course of business on normal commercial terms with reference to market conditions. In order to ensure that this principle is adhered to, the Company has adopted the following internal procedures: (1) the relevant subsidiaries or power plants of the Group will make reference with the prevailing listed prices of coal under the Qinhuangdao Coal Price Index, Bohai-Rim Steam-Coal Price Index and Jingtang Coal Price Index, which are market indicators for coal prices, in negotiating and determining the considerations for coal transactions before entering into specific sale and purchase contracts and will ensure that coal will be supplied/purchased on terms no less favourable to the Group than terms available to or from independent third parties; and (2) the relevant considerations will be settled according to the quality and quantity of coal as agreed and confirmed by the parties taking into account the assessment result on the quality of coal issued by a qualified professional organization jointly appointed by the relevant purchaser and seller. Having considered that the consideration of coal will be determined with reference to the prevailing listed prices of coal of similar quality under certain market indicators, the quantity of coal to be purchased, the relevant transportation costs and administration costs, we are of the view that the considerations will be determined on normal commercial terms with reference to the prevailing market conditions, and are fair and reasonable to the Company and its shareholders as a whole. OPINION Having considered the principal factors and reasons described above, we are of the opinion that the terms of the Fuel Framework Agreements are on normal commercial terms, and their terms and respective annual caps are fair and reasonable as far as the interests of the Independent Shareholders are concerned, and, from this perspective, the Fuel Framework Agreements are in the interests of the Company and its shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the Fuel Framework Agreements as well as their respective annual caps at the EGM. Yours faithfully, For and on behalf of MIZUHO SECURITIES ASIA LIMITED Kelvin S. K. Lau Managing Director Equity Capital Markets & Corporate Finance --------------------------------------------------------------------------------- APPENDIX GENERAL INFORMATION --------------------------------------------------------------------------------- 1. RESPONSIBILITY STATEMENT This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading. 2. DISCLOSURE OF INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE OF THE COMPANY (i) As at the Latest Practicable Date, save and except Mr. Fang Qinghai, being a Director, who held 24,000 A shares of the Company, none of the Directors, supervisors and chief executive of the Company have any interests and short positions in the shares, underlying shares and/ or debentures (as the case may be) of the Company or any of its associated corporations (within the meaning of the SFO) which was 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 any such Director, chief executive or supervisor is taken or deemed to have under such provisions of the SFO) or which was required to be entered into the register required to be kept by the Company under section 352 of the SFO or which was otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules. (ii) As at the Latest Practicable Date, none of the Directors, proposed Directors, supervisors or proposed supervisors of the Company has any direct or indirect interest in any assets which have since 31 December 2011 (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. SERVICE AGREEMENTS As at the Latest Practicable Date, none of the Directors, proposed directors, supervisors or proposed supervisors of the Company had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the Company within one year without payment of compensation (other than statutory compensation). 4. INTEREST IN CONTRACT As at the Latest Practicable Date, none of the Directors or supervisors of the Company was materially interested in any contract or arrangement entered into by any member of the Group, and which was significant in relation to the business of the Group. 5. MATERIAL CHANGES The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2011, being the date to which the latest published audited financial statements of the Group were made up. 6. COMPETING INTEREST As at the Latest Practicable Date, none of the directors of the Company and its Subsidiaries, or their respective Associates has interests in the businesses which compete or are likely to compete, either directly or indirectly, with the businesses of the Company and its subsidiaries. 7. EXPERT (a) The following sets out the qualifications of the expert which has given its opinion or advice as contained in this circular: Name Qualifications Mizuho Securities A licensed corporation to engage in types 1 (dealing in securities), 2 (dealing in futures contracts) 4 (advising on securities), 5 (advising on futures contracts), 6 (advising on corporate finance) and 9 (asset management) regulated activities under the SFO (b) Mizuho Securities did not have any shareholding, direct or indirect, in any members of the Group or any rights (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any members of the Group as at the Latest Practicable Date. (c) Mizuho Securities does not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any members of the Group, or which are proposed to be acquired or disposed of by or leased to any members of the Group since 31 December 2011, the date to which the latest published audited financial statements of the Company were made up. (d) Mizuho Securities has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they are included. 8. LITIGATION No member of the Company and its subsidiaries is at present engaged in any litigation or arbitration of material importance to the Company and its subsidiaries and no litigation or claim of material importance to the Company and its subsidiaries is known to the Directors or the Company to be pending or threatened by or against any member of the Company and its subsidiaries. 9. MISCELLANEOUS (a) The registered office of the Company is No. 482, Guanganmennei Avenue, Xuanwu District, Beijing, the PRC and the office address of the Company is No. 9 Guangningbo Street, Xicheng District, Beijing, the PRC. (b) The place of business of the Company in Hong Kong is at c/o Eversheds, 21/F, Gloucester Tower, The Landmark, 15 Queen's Road Central, Hong Kong. (c) The Hong Kong share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong. (d) The secretary to the Board of the Company is Mr. Zhou Gang. Mr. Zhou graduated from East China Institute of Water Conservancy (currently known as Hehai University), and is a senior engineer. 10. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the Fuel Framework Agreements, the consent letter and the letter of advice from Mizuho Securities are available for inspection at the principal place of business in Hong Kong of the Company at 21/F, Gloucester Tower, The Landmark, 15 Queen's Road Central, Hong Kong during normal business hours from the date of this circular up to and including 18 March 2013.

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