Guodian Technology & Environment : CONTINUING CONNECTED TRANSACTIONS - (1) ENTERING INTO UNITED POWER MASTER AGREEMENT; (2) ENTERING INTO LONGYUAN TECHNOLOGY MASTER AGREEMENT AND THE PROPOSED ANNUAL CAPS OF THE TRANSACTIONS IN RELATION TO THE PROVISION OF GOODS AND SERVICES BY LONGYUAN TECHNOLOGY AND ITS SUBSIDIARIES TO THE GROUP; (3) PROPOSED AMENDMENTS TO THE ARTICLES AND PROPOSED CHANGE OF COMPANY NAME AND (4) PROPOSED PUBLIC ISSUANCE OF SUPER SHORT-TERM DEBENTURES IN THE PRC

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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 Guodian Technology & Environment Group Corporation Limited*, you should at once hand this circular, together with the Proxy Form to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

國 電 科 技 環 保 集 團 股 份 有 限 公 司

GUODIAN TECHNOLOGY & ENVIRONMENT GROUP CORPORATION LIMITED*

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

(Stock code: 01296)

CONTINUING CONNECTED TRANSACTIONS

1. 1. 1. ENTERING INTO UNITED POWER MASTER AGREEMENT
   2. ENTERING INTO LONGYUAN TECHNOLOGY MASTER AGREEMENT AND THE PROPOSED ANNUAL CAPS OF THE TRANSACTIONS IN RELATION TO THE PROVISION OF GOODS AND SERVICES BY LONGYUAN TECHNOLOGY
   3. 1. 
         AND ITS SUBSIDIARIES TO THE GROUP
      2. PROPOSED AMENDMENTS TO THE ARTICLES AND PROPOSED CHANGE OF COMPANY NAME
         AND
2. PROPOSED PUBLIC ISSUANCE OF SUPER SHORT-TERM DEBENTURES IN THE PRC

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

The Company will convene the EGM at the Conference Room, 3rd Floor, Building 1, Yard 16, W. 4th Ring Middle Road, Haidian District, Beijing, the PRC at 10 a.m. on Monday, 23 December 2019. The notice of the EGM, the form of proxy and the reply slip for the EGM have been despatched and published on 30 October 2019.

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DEFINITIONS

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

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- iii -

- iv -

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LETTER FROM THE BOARD OF DIRECTORS

國 電 科 技 環 保 集 團 股 份 有 限 公 司

GUODIAN TECHNOLOGY & ENVIRONMENT GROUP CORPORATION LIMITED*

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

Mr. Xie Qiuye

Mr. Yeung Chi Tat

3 December 2019

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

1. 1. ENTERING INTO UNITED POWER MASTER AGREEMENT
2. ENTERING INTO LONGYUAN TECHNOLOGY MASTER AGREEMENT AND THE PROPOSED ANNUAL CAPS OF THE TRANSACTIONS IN RELATION TO THE PROVISION OF GOODS AND SERVICES BY LONGYUAN TECHNOLOGY
3. 1. 
      AND ITS SUBSIDIARIES TO THE GROUP
   2. PROPOSED AMENDMENTS TO THE ARTICLES AND PROPOSED CHANGE OF COMPANY NAME

AND

(4) PROPOSED PUBLIC ISSUANCE OF SUPER SHORT-TERM DEBENTURES IN THE PRC

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LETTER FROM THE BOARD OF DIRECTORS

1. INTRODUCTION
   Reference is made to the announcement of the Company dated 29 October 2019 in relation to entering into United Power Master Agreement, United Power Lease Agreement and Longyuan Technology Master Agreement.
   Reference is made to the announcement of the Company dated 29 October 2019 in relation to proposed amendments to the articles and proposed change of Company name.
   Reference is also made to the announcement of the Company dated 29 October 2019 in relation to proposed public issuance of super short-term debentures in the PRC.
   The purpose of this circular is to provide details of the resolutions in relation to the following matters to be proposed at the EGM: (1) entering into the United Power Master Agreement, (2) entering into the Longyuan Technology Master Agreement and the proposed annual caps of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group, (3) proposed amendments to the Articles and proposed change of Company name and (4) proposed public issuance of super short-term debentures in the PRC.
2. ENTERING INTO UNITED POWER MASTER AGREEMENT A. Summary of the terms of United Power Master Agreement

Date

29 October 2019

Parties

1. The Company; and
2. United Power

Material terms

Below is a summary of the material terms of United Power Master Agreement:

The goods and services to be provided by the Group to United Power and its subsidiaries include general contracting for construction of wind farms, parts and components of WTGs, distributed control system (DCS) for powers stations and relevant spare parts, on-site DCS configuration and commissioning.

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LETTER FROM THE BOARD OF DIRECTORS

The goods and services to be provided by United Power and its subsidiaries to the Group include products such as WTG assembly, parts and components, and accessories, and operation and maintenance services.

The parts and components of WTGs provided by the Group and United Power and its subsidiaries are not the same. The parts and components to be provided by the Group to United Power and its subsidiaries are pitch systems and converters of WTGs, while the parts and components to be provided by United Power and its subsidiaries to the Group are encoders, power management modules, cable switches during the operation and maintenance process of WTGs.

The Group, United Power and its subsidiaries will enter into separate agreements that will set out the terms and conditions of providing such goods and services according to the principles laid out by United Power Master Agreement and otherwise on normal commercial terms.

United Power Master Agreement has a term commencing from 1 January 2020 and ending on 31 December 2022. Either party may terminate United Power Master Agreement upon giving the other party at least three-month written notice in advance.

Pricing policy

In general, the pricing of goods and services in relation to the United Power Master Agreement will be based on the following pricing policies:

1. government-prescribedprice (including any price prescribed by any relevant local government, if applicable);
2. where there is no government-prescribed price but there is a government-guidance price, then the government-guidance price;
3. where there is no government-prescribed price and no government-guidance price, supplier shall be selected through bidding process or non-bidding quotation and competitive negotiation; or
4. where procurement procedures such as quotation and competitive negotiation are unfeasible or impracticable, contract negotiation may be adopted instead; or sole- source procurement process may be adopted directly in accordance with the relevant rules of CHN Energy. Where contract negotiation or sole-source process is adopted, comparisons and negotiations between quotations of the exclusive supplier and historical or market prices shall be carried out.

With respect to the goods and services to be provided under United Power Master Agreement and Longyuan Technology Master Agreement, neither government-prescribed price nor government-guidance price was applicable as at the Latest Practicable Date. Therefore, the foregoing policies (1) and (2) are only applicable in principle. Nonetheless, as the categories of goods and scope of services mutually provided by the Group and United Power and its subsidiaries in the future may be extended to goods and services that are regulated by government-prescribed price or government-guidance price, the Company has paid and will continue to pay close attention to the updates of government-prescribed price and government-guidance price and determine the prices for relevant goods and services accordingly.

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LETTER FROM THE BOARD OF DIRECTORS

In particular:

Pricing policy for sales

As the provider of goods/services, except for goods/services applicable to government- prescribed price/guidance price, the principle of reasonable cost plus reasonable profit of the Company will be normally considered for sales pricing. In addition, the sales of goods/services of the Company are required to be determined through the bidding process or non-bidding quotation organized by the purchaser, sole-source procurement and other procurement processes, which enable the Company to win the bid with competitive advantages in services and technology. Regardless of the purchasing method adopted by the purchaser, the Company would adhere to the inherent pricing policy.

Reasonable costs shall refer to provision costs or production costs as agreed by both parties after arms' length negotiations, or costs permitted by the PRC financial and accounting rules (inclusive of taxes and levies) as agreed by both parties after arms' length negotiations.

Reasonable profits shall be determined by the following factors: the overall average profit margin of the relevant industry (profit before tax/revenue of principal business), average profit margin for the relevant goods or services, overall historical transactional values and profit margins, superiority (technological or otherwise) of the goods or services, supply and demand, availability of substitutable goods or services, profit margin for the relevant business of the Group, local commodity prices and local economic development levels.

In principle, subsidiaries from each line of business should not determine the profit margin as lower than the average profit margin for that area of business (such data is updated on monthly basis by the corporate management department of the Company based on the data from several comparable companies, in consideration of easier access to data, mainly being state-owned enterprises with similar business scope and close enterprise scales). To be specific, the Company seeks to obtain information through various channels, for example, summarizing periodic reports published by listed companies, regular communication among companies within a certain range, conducting market price research through various independent industry information vendors (e.g., industry websites), and participating in activities organized by leading industry organizations. Such data vary from month to month depending on the operating conditions of those comparable companies.

Pricing policy for procurement

As the recipient of goods/services, except for goods/services applicable to government- prescribed price/guidance price, the suppliers of other goods/services shall solely be selected through bidding process or non-bidding quotation, sole-source procurement and other procurement processes, while comparisons and negotiation between historical or market prices shall be carried out to determine the price.

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LETTER FROM THE BOARD OF DIRECTORS

For non-bidding quotation and competitive negotiation, in principle, when the purchaser issues inquiry notices to non-specific legal persons or other organizations, the number of quotations from suppliers shall be greater than or equal to three before the evaluation process may commence.

For transactions in relation to the procurement of goods featured with simple processing and transparent price, the prices are basically market-driven which will be determined in accordance with the following order:

1. with reference to the price charged, by at least two independent third parties, in areas where such type of goods or service is provided and on normal terms in the area where the goods or service of comparable scale is being provided at that time; or
2. with reference to the price charged, by at least two independent third parties, in nearby areas where such type of goods or service is provided and on normal terms in the area or country adjacent to the area where the goods or service of comparable scale is being provided at that time.

Furthermore, the aforementioned market price will also be reviewed with reference to the industrial prevailing authoritative price platform. For instance, the major information collection channels of the Company for steel include: MySteel Website (我的鋼鐵網, https://www.mysteel.com/) and Lange Steel Website (蘭格鋼鐵網, https://www.lgmi.com/).

For equipment, projects or services with high technologies and high degree of customization involved, the price of which, in viewing of the difficulty in obtaining the market price, will mainly be determined with reference to the historical price by calculating the average price among the same or similar contracts entered into within a certain stable pricing period.

The Company has set up a Procurement Management Committee chaired by the deputy general manager in charge of procurement. The Procurement Management Commission will regularly monitor and review the implementation of the pricing policy for procurement, especially the historical price and market price, and periodically conduct internal assessments on price comparison and rationality analysis.

By implementing the above internal control measures and procedures, the Directors consider that the Company has established sufficient internal control measures to ensure the pricing of each transaction will be conducted in strict accordance with the various pricing principles and policies of continuing connected transactions as disclosed in this circular on normal commercial terms or better, and will be fair and reasonable to the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD OF DIRECTORS

1. Proposed annual caps

Historical transaction amounts

The actual amounts of the transactions under Existing United Power Master Agreement for the years/period ended 31 December 2017, 31 December 2018 and 30 June 2019 are set out below:

Proposed annual caps for 2020, 2021 and 2022 and basis of determination

The table below sets out the proposed annual caps for transactions contemplated under United Power Master Agreement for the years ending 31 December 2020, 2021 and 2022:

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LETTER FROM THE BOARD OF DIRECTORS

The proposed annual caps for the transactions in relation to the provision of goods and services by the Group to United Power and its subsidiaries are calculated after taking into account the following factors:

1. United Power has been able to convince its customers that, as compared with the goods produced by an independent third party, the parts and components provided by the Group (other than United Power and its subsidiaries) work better with the WTGs manufactured by United Power and its subsidiaries;
2. In the past two years, the Chinese government has intensively published various policies and measures, proactively promoted the grid parity of wind power without subsidies which will result in the rush of installation by the end of 2020. The businesses of United Power and its subsidiaries are expected to be promising in future years. Also it is expected that the effect of the foregoing policies and measures will reduce gradually from 2021.
   In particular:
   On 24 May 2018, the National Energy Administration issued the Notice on Relevant Requirements for the Construction of Wind Power in 2018* 《( 關於2018年度風電建 設管理有關要求的通知》) (the "Notice I"), which explicitly stated the deployment of competition methods while allocating wind power projects. At the same time, Guiding Measures for the Competitive Allocation of Wind Power Projects (Provisional)* 《( 風 電項目競爭配置指導方案（試行）》) was issued along with the Notice I, requiring local energy authorities to formulate measures for competitive allocation of wind power projects in compliance with the guiding measures. Upon issuance date of the notice, the newly invested centralized onshore wind power projects and the offshore wind power projects with undetermined investment entities in the areas where the annual plans for wind power has yet to be issued for 2018 shall be entirely allocated by way of competition, the on-grid tariff of which shall also be determined competitively. From 2019 onwards, the newly invested centralized onshore wind power projects and offshore wind power projects in all provinces shall be entirely allocated by way of competition, the on-grid tariff of which shall also be determined competitively. Decentralized wind power projects may be gradually phased into the marketized transaction scope of distributed power generation without participating in competitive allocation.

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LETTER FROM THE BOARD OF DIRECTORS

On 9 January 2019, the NDRC and the National Energy Administration issued the Notice to Actively Promote the Work concerning Subsidy-free Grid Parity for Wind Power and Photovoltaic Power Generation (Fa Gai Neng Yuan [2019] No. 19)* (《關於積極推進風電、光伏發電無補貼平價上網有關工作的通知》( 發改能源 [2019]19號)) (the "Notice II"). In respect of the organization, construction, operation and supervision of the grid parity projects, the Notice II sets forth corresponding requirements for the local energy authorities and the power grid enterprises, and clarifies a series of supporting policies such as preferential on-grid policy and full guaranteed acquisition of grid parity projects, providing a stable expectation for the industry as well as creating new areas of incremental market.

In May 2019, the NDRC issued the Notice on Improving Wind Power On-grid Tariff Policies* 《( 關於完善風電上網電價政策的通知》) (the "Notice III")：

1. in respect of onshore wind power, the benchmarked on-grid tariff for onshore wind power shall be changed to the guidance price. The on-grid tariff of newly approved centralized onshore wind power projects shall be determined by way of competition and shall not be higher than the guidance price of the resource zones where the project is located. For onshore wind power projects approved before the end of 2018, if the grid connection has not been completed by the end of 2020, the state will no longer grant subsidies. For the onshore wind power projects approved from 1 January 2019 to the end of 2020, if the grid connection has not been completed by the end of 2021, no subsidy will be granted by the state. Since 1 January 2021, the newly approved onshore wind power projects will fully achieve grid parity, and the state will no longer provide subsidies.
2. in respect of offshore wind power, the benchmarked on-grid tariff of offshore wind power shall be changed to the guidance price, and on-grid tariff for all newly approved offshore wind power projects shall be determined by way of competition. For offshore wind power projects approved before the end of 2018, if all units are connected to the grid by the end of 2021, the on-grid tariff at the time of approval will be applied. If the units are connected to the grid in 2022 or later, the guidance price at the time when grid connection is completed will be applied.

and

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LETTER FROM THE BOARD OF DIRECTORS

1. The historical transaction amounts as disclosed above.
   The proposed annual caps for the transactions in relation to the provision of goods and services by United Power and its subsidiaries to the Group are calculated after taking into account the following factors:
2. 1. Subsidiaries of the Group have placed great emphasis on wind power EPC and supervision projects, with a large number of projects currently being implemented, recently won bids or under preparation for bidding and tracking, and the prospects of wind power EPC business is favourable, which brings about significant demand of the Group for goods and services provided by United Power and its subsidiaries.
      There would be five wind power farm projects to be completed by the end of 2020 with WTGs assembly's total installed capacity of 300MW, (i) one of the five wind power projects with installed capacity of 50MW was obtained by the Group through successful bidding in November 2019; (ii) the Group participated in the tenders for two of the five wind power projects with total installed capacity of 100MW, the bidding results are expected to announce in late 2019 or beginning of 2020; and (iii) the Group expected the tenders for two of the five wind power projects with total installed capacity of 150MW to be proceeded in 2020 and the Group would participant in the tenders.
      It is expected that the Group will proceed projects with same level installed capacity in total (i.e. 300MW) during the two years ending 31 December 2022 (including the Group's possible self-development wind power projects, which are expected to commence construction in 2021 or 2022 based on current project applications status). The estimated cost for each installed capacity will remain at the current level and there will also be wind power EPC projects after 2021; and
   2. The failure in obtaining approval for or delay in certain self-developed wind power farm projects initially planned by the Group due to local policies adjustment has resulted in no amount or minimal amount incurred for 2017, 2018 and the first half of 2019.

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LETTER FROM THE BOARD OF DIRECTORS

In the past two years, discussion on the possibility of developing wind power in the local area has been carried out between the Company and local governments. Among which, some projects located in the north of Shanxi Province were terminated after the said area being categorized as the orange alert area, while some projects were shelved due to failure to reach a unanimous agreement on tax issues. The Company will, to the greatest extent, select the green areas for wind farm construction according to the wind power investment monitoring and warning information issued by the National Energy Administration at the beginning of each year.

Furthermore, new energy generation business has achieved sound profitability with bright prospects and we are proactively pushing forward the preliminary work of the projects held, which is expected to be conducive to the future operation of the Company.

The specific national policies are as follows:

The National Energy Administration issued the Notice on Establishing a Monitoring and Early Warning Mechanism to Promote the Sustainable and Healthy Development of the Wind Power Industry* 《( 國家能源局關於建立 監測預警機制促進風電產業持續健康發展的通知》) (the "2016 Policy") in July 2016. According to the 2016 Policy, the National Energy Administration established a wind power investment monitoring and early warning mechanism to guide rational investment by wind power enterprises, promote the sustained and healthy development of the wind power industry. There will be three categories of alert (i.e. red alert, orange alert and green alert) as results from wind power investment monitoring and early warning system to be used to guide the investment in wind power development in various provinces (autonomous regions, municipalities). It is not allowed to construct new wind power projects in the red alert areas of wind power development and construction.

According to The Notice on Monitoring and Early Warning Results of Investment in Wind Power in 2019* 《( 關於2019年度風電投資監測預警結果 的通知》), the National Energy Administration gave a red alert to Xinjiang and Gansu. Inner Mongolia is the orange alert area. Xinzhou, Shuozhou and Datong located in the north of Shanxi Province, Yulin located in the north of Shaanxi Province and Zhangjiakou and Chengde from Hebei Province are subject to orange alert management. Other provinces (including the autonomous regions and municipalities directly under the central government) and regions are green areas.

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LETTER FROM THE BOARD OF DIRECTORS

1. Reasons for and benefits of entering into United Power Master Agreement
   United Power and its subsidiaries are significant subsidiaries as well as important clients for the Group (other than United Power and its subsidiaries). United Power procures from subsidiaries of the Group converters and pitch control equipment as well as DCS goods and services, etc., and proceeds to sell WTGs equipped with such goods or services. Meanwhile, self-developed wind power farm projects of United Power also need to procure general contracting services for construction provided by subsidiaries of the Group.
   United Power and its subsidiaries are also providers of goods and services of the Group. Due to the commencement of wind power EPC business and self-developed wind power farm projects, the Group also has demands for products such as WTG assembly, parts and components, and accessories, and operation and maintenance services provided by United Power and its subsidiaries.
   The Group has been benefited from the cooperation with United Power and its subsidiaries, which is a mutually beneficial relationship.
   United Power Master Agreement was entered into in the Company's ordinary course of business and based on market prices, the terms of which are fair and reasonable and in the interest of the Company and the Shareholders as a whole.
2. Internal procedures
   To ensure that the considerations for the continuing connected transactions of the Group are on normal commercial terms and that the terms (in particular, pricing terms as defined in reasonable costs and reasonable profits used in determining appropriate price) thereunder are complied with, the Company has adopted the following supervision and internal control procedures:
3. 1. The Company has adopted and implemented a set of connected transactions administration rules. The finance and property department, the department of purchasing and material management and the department of securities financing and legal affairs, the unanimous approval of which is compulsory during the process of entering into agreements, are jointly responsible for evaluating terms, in particular, the fairness of the pricing terms, of each connected transaction agreement. To be specific, the department of securities financing and legal affairs of the Company is responsible for examining connected transaction agreements and continuing connected transaction agreements for compliance with applicable laws and regulations, company policies and the Listing Rules, establishing and overseeing the internal control systems for the continuing connected transactions; the finance and property department is responsible for reviewing the pricing strategies, rules and procedures, and regularly monitoring and reviewing the connected transactions (including but not limited to the implementation of pricing policies and transaction amounts etc.); the department of purchasing and material management is responsible for calculating and analysing the annual caps for procurement, ensuring reasonable pricing and that the procedures of the procurement comply with applicable laws and regulations. And the sales and marketing department is responsible for calculating and analysing annual cap of sales and participating in the process of the bidding of connected transactions.

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LETTER FROM THE BOARD OF DIRECTORS

1. 1. In compliance with the Listing Rules, the Company's independent non-executive Directors have reviewed and will continue to review the Company's connected transaction agreements or continuing connected transaction agreements to confirm that they are on normal commercial terms and in accordance with relevant agreements governing the relevant transactions. The auditors of the Company also conduct annual review on certain continuing connected transactions of the Group in accordance with the pricing policies of the Group stipulated under the relevant agreements governing such transactions, and that they have been entered into in accordance with the relevant agreements governing such transactions.
   2. Based on the strict implementation of the Law of the PRC on Tendering and Bidding and relevant national regulations, as well as relevant requirements of CHN Energy, the Company has prepared and issued eight systems and one regulation, including the procurement management measures. The Group has set up the purchase management committee and the purchase and materials management department. Through the unified bidding and price quotation and comparison platform of CHN Energy, the plan, standard, process and platform for procurement in the entire group are unified. During the procuring process, the bid evaluation committee, evaluation group members and staff member concerned have strictly enforced the relevant confidentiality disciplines and requirements on withdrawal by petition of CHN Energy. Meanwhile, the audit department of the Company performs regular and irregular spot check in respect of the procurement of the subsidiaries every year, ensuring that the selection of procurement methods and the execution of flow are in compliance with laws and regulations.
2. Listing Rules implications
   As of the date of this circular, the Company owns 70%, while Longyuan Power owns 30%, of equity interests in United Power. CHN Energy, the Company's controlling shareholder, owns approximately 58.44% of equity interests in Longyuan Power. United Power is therefore an associate of CHN Energy. As such, United Power is the Company's connected person, and the transactions between the Group and United Power constitute connected transactions of the Company under the Listing Rules.
   As one or more of the applicable percentage ratios (other than profit ratio) for the proposed annual caps in respect of continuing connected transactions contemplated under United Power Master Agreement exceed 5%, the proposed annual caps are subject to the reporting, announcement and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. An Extraordinary General Meeting will be held to seek the approval of the Independent Shareholders of United Power Master Agreement and the proposed annual caps for the continuing connected transactions thereunder.

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LETTER FROM THE BOARD OF DIRECTORS

CHN Energy and its associates (including GD Power) will abstain from voting at the Extraordinary General Meeting on resolutions to approve United Power Master Agreement as well as the proposed annual caps contemplated thereunder.

An Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders with regard to the fairness and reasonableness of entering into of United Power Master Agreement and the proposed annual caps contemplated thereunder, taking into account the recommendations of an independent financial adviser. Gram Capital has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

1. Directors' Opinion
   The Directors (including the independent non-executive Directors, but excluding Mr. Wang Zhongqu, Mr. Zhang Wenjian and Mr. Gu Yuchun, being connected Directors) confirm that the terms of United Power Master Agreement (including the proposed annual caps for the transactions contemplated thereunder) are on normal commercial terms that are fair and reasonable, and the transactions contemplated thereunder were entered into in the ordinary and usual course of business of the Company and are in the interest of the Company and its Shareholders as a whole.
   Directors associated with CHN Energy and other associates of CHN Energy, i.e., Mr. Wang Zhongqu, Mr. Zhang Wenjian and Mr. Gu Yuchun, being connected Directors, have abstained from voting regarding United Power Master Agreement and the proposed annual caps. Except as disclosed above, none of the Directors has any material interest in the above transactions or was required to abstain from voting at the Board meeting.

3. ENTERING INTO LONGYUAN TECHNOLOGY MASTER AGREEMENT AND THE TRANSACTIONS IN RELATION TO THE GOODS AND SERVICES PROVIDED TO THE GROUP BY LONGYUAN TECHNOLOGY AND ITS SUBSIDIARIES

1. Summary of the terms of Longyuan Technology Master Agreement

Date

29 October 2019

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LETTER FROM THE BOARD OF DIRECTORS

Parties

1. The Company; and
2. Longyuan Technology

Material Terms

Below is a summary of the material terms of Longyuan Technology Master Agreement:

The goods and services provided to the Group by Longyuan Technology and its subsidiaries include energy conservation and environmental protection equipment and services, software development and operation and maintenance, and market service relating to plasma ignition, less-oil ignition, low-NOx combustion, waste heat utilization, economizer and integrated retrofit for energy efficiency.

The goods and services provided to Longyuan Technology and its subsidiaries by the Group include catalyst, DCS and relevant spare parts, and on-site DCS configuration and commissioning service.

The Group and Longyuan Technology and its subsidiaries will enter into separate agreements that will set out the specific scope of goods and services, terms and conditions of providing such goods and services according to the principles laid out by Longyuan Technology Master Agreement.

Longyuan Technology Master Agreement has a term commencing from 1 January 2020 and ending on 31 December 2022. Either party may terminate Longyuan Technology Master Agreement upon giving the other party at least three-month written notice in advance.

Pricing Policy

The pricing policy for the goods and services to be provided under Longyuan Technology Master Agreement is as disclosed in the pricing policy under "2. ENTERING INTO UNITED POWER MASTER AGREEMENT - A. Summary of the terms of United Power Master Agreement".

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LETTER FROM THE BOARD OF DIRECTORS

1. Proposed annual caps

Historical transaction amounts

The actual transaction amounts of the transactions under Existing Longyuan Technology Master Agreement for the years/period ended 31 December 2017, 31 December 2018 and 30 June 2019, are set forth below:

Proposed annual caps for 2020, 2021 and 2022 and basis of determination

The table below sets forth the proposed annual caps for the transactions contemplated under Longyuan Technology Master Agreement for the years ending December 31, 2020, 2021 and 2022:

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LETTER FROM THE BOARD OF DIRECTORS

The proposed annual caps in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group are determined after taking into account (1) the expected business development of the Group, in particular the increase in demand for goods of Longyuan Technology and its subsidiaries as a result of the Group's general contracting business for environmental protection engineering and power stations engineering, as well as the estimates of contractual amount, and (2) the historical transaction amounts as disclosed above.

The proposed annual caps in relation to the provision of goods and services by the Group to Longyuan Technology and its subsidiaries are determined after taking into account (1) the demand of Longyuan Technology and its subsidiaries for goods and services such as catalysts and DCS provided by the Group, and (2) the historical transaction amounts as disclosed above.

In particular:

The Company's subsidiaries (excluding Longyuan Technology and its subsidiaries) will participant in more projects in general contracting of power station, ultra-low emissions, energy conservation and environmental protection, and filter cake processing areas. The Company's subsidiaries will be responsible for design and general contracting of power station etc., and will sub-contract goods and services such as plasma ignition equipment or smoke plume treatment to Longyuan Technology and its subsidiaries.

For example, the Group was selected as services providers for one smoke plume treatment project in October 2019, the Group estimated the amount of sub-contracting to Longyuan Technology and its subsidiaries would be approximately RMB63 million. The Group was also selected as provider for general contracting of power station project in October 2019. It was estimated that the amount of sub-contracting to Longyuan Technology and its subsidiaries would be approximately RMB20 million. In addition, the Group proposed to participant an energy conservation projects in 2020 with a total amount of approximately RMB45 million under tracking.

The actual amounts of goods and services provided by Longyuan Technology and its subsidiaries to the Group for the three years ending 31 December 2022 may fluctuate. Nevertheless, the Company expects that the actual amounts of goods and services provided by Longyuan Technology and its subsidiaries to the Group during each of the three years ending 31 December 2022 will be within RMB130 million.

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LETTER FROM THE BOARD OF DIRECTORS

1. Reasons for and Benefits of Entering into Longyuan Technology Master Agreement
   Longyuan Technology and its subsidiaries have been an important goods and services supplier for the Group (except for Longyuan Technology and its subsidiaries). The Group is of the view that the provision of energy conservation and environmental protection equipment and services such as plasma ignition by Longyuan Technology to the Group is of great importance for the Group's environmental protection and energy conservation solution businesses. Longyuan Technology also has stable demand for goods and services such as catalysts and DCS provided by the Group.
   The Group has been benefited from the cooperation with Longyuan Technology and its subsidiaries, which is a mutually beneficial relationship.
   Longyuan Technology Master Agreement was entered into in the Company's ordinary course of business and on market prices, and the terms thereof are fair and reasonable and in the interest of the Company and its Shareholders as a whole.
2. Internal procedures
   The internal control process under the Longyuan Technology Master Agreement is disclosed as "2. ENTERING INTO UNITED POWER MASTER AGREEMENT - D. Internal procedures" above.

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LETTER FROM THE BOARD OF DIRECTORS

1. Listing Rules Implications
   As of the date of this circular, the Company directly holds approximately 23.25% of the issued share capital of Longyuan Technology. The Company is the substantial shareholder of Longyuan Technology. Hero Asia (BVI) Company Limited, a wholly-owned subsidiary of Longyuan Power, owns approximately 18.75% of equity interests in Longyuan Technology. Given that Longyuan Power is a subsidiary of CHN Energy, Longyuan Technology is the Company's connected person. Therefore, the transactions between the Group and Longyuan Technology constitute connected transactions of the Company under the Listing Rules.
   As one or more of the applicable percentage ratios are more than 0.1% but all are less than 5%, the proposed annual caps for the transactions in relation to the provision of goods and services by the Group to Longyuan Technology and its subsidiaries under Longyuan Technology Master Agreement are subject to the reporting and announcement requirements but exempt from the Independent Shareholders' approval requirement as set out in Chapter 14A of the Listing Rules.
   As one or more of the applicable percentage ratios for the proposed annual caps in respect of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group under Longyuan Technology Master Agreement exceed 5%, the proposed annual caps are subject to the reporting, announcement and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules. An Extraordinary General Meeting will be held to seek the approval from the Independent Shareholders on entering into Longyuan Technology Master Agreement and certain proposed annual caps contemplated thereunder.
   CHN Energy and its associates (including GD Power) will abstain from voting at the Extraordinary General Meeting on resolutions to approve Longyuan Technology Master Agreement as well as certain proposed annual caps contemplated thereunder.
   An Independent Board Committee comprising all the independent non-executive Directors has been established to advise the Independent Shareholders with regard to the fairness and reasonableness of entering into of Longyuan Technology Master Agreement and certain proposed annual caps contemplated thereunder, taking into account the recommendations of an independent financial adviser. Gram Capital has been appointed to advise the Independent Board Committee and the Independent Shareholders in this regard.

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LETTER FROM THE BOARD OF DIRECTORS

1. Directors' Opinion
   The Directors (including the independent non-executive Directors, but excluding Mr. Wang Zhongqu, Mr. Zhang Wenjian and Mr. Gu Yuchun, being connected Directors) confirm that terms of Longyuan Technology Master Agreement (including the proposed annual caps for the transactions contemplated thereunder) are on normal commercial terms that are fair and reasonable, and the transactions contemplated thereunder were entered into in the ordinary and usual course of business of the Company and are in the interest of the Company and its shareholders as a whole.
   Directors associated with CHN Energy, GD Power and other associates of CHN Energy, i.e., Mr. Wang Zhongqu, Mr. Zhang Wenjian and Mr. Gu Yuchun, being connected Directors, have abstained from voting regarding Longyuan Technology Master Agreement and the proposed annual caps thereunder. Except as disclosed above, none of the Directors has any material interest in the above transactions or was required to abstain from voting at the Board meeting.

4. PROPOSED AMENDMENTS TO THE ARTICLES AND PROPOSED CHANGE OF COMPANY NAME

1. INTRODUCTION
   The Board proposes to make several amendments to the Articles, to, among other things, reflect the change of Company name. Upon amendments to the Articles, the name of the Company will be changed from "國電科技環保集團股份有限公司" to "國家能源科技環保 集團股份有限公司" in Chinese, and from "GUODIAN TECHNOLOGY & ENVIRONMENT G R O U P C O R P O R A T I O N L I M I T E D" t o "C H N E N E R G Y T E C H N O L O G Y ＆ ENVIRONMENT GROUP CORPORATION LIMITED" in English. Amendments to the Articles and the change of Company name are subject to satisfaction of certain conditions, including approval by the Shareholders by way of special resolutions and ordinary resolutions, respectively, at the EGM.

1. PROPOSED AMENDMENTS TO THE ARTICLES
   As required by the Notice on Commencing the Work on Changes of Names of Subsidiaries of CHN Energy and the Provisional Regulations on Names of Subsidiaries of CHN Energy, and in light of amendments to regulations and rules, including the Company Law and the Guidelines for Articles of Association of Listed Companies, the Board proposes to make amendments to the current Articles. Proposed amendments to the current Articles are subject to approval by the Shareholders by way of special resolutions at the EGM.

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LETTER FROM THE BOARD OF DIRECTORS

The details of proposed amendments to the current Articles are as follows:

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LETTER FROM THE BOARD OF DIRECTORS

1. repurchase of shares made upon the

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LETTER FROM THE BOARD OF DIRECTORS

(vi) necessary to maintain the value of the Company and safeguard the interests of its shareholders; and

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LETTER FROM THE BOARD OF DIRECTORS

1. of Article 31 shall be cancelled (i) and (ii) of Paragraph 1 of Article 31

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LETTER FROM THE BOARD OF DIRECTORS

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LETTER FROM THE BOARD OF DIRECTORS

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LETTER FROM THE BOARD OF DIRECTORS

The English version of proposed amendments to the current Articles is the unofficial translation of the Chinese version and is for reference only. In case of any discrepancies between the Chinese and English versions, the Chinese version shall prevail.

1. REASONS FOR PROPOSED CHANGE OF COMPANY NAME
   The controlling shareholder of the Company has been changed to CHN Energy. The change of Company name is in line with relevant requirements of the Notice on Commencing the Work on Changes of Names of Subsidiaries of CHN Energy and the Provisional Regulations on Names of Subsidiaries of CHN Energy.

The Board is of the view that proposed amendments to the Articles and the change of Company name are in line with the interests of the Company and its Shareholders as a whole.

IV CONDITIONS FOR PROPOSED CHANGE OF COMPANY NAME

Proposed change of Company name is subject to, among other things, becoming effective of the amendments to the Articles. Upon passing the relevant special resolutions and ordinary resolutions at the EGM, the Company will apply to national industry and commerce administration authority of the PRC for handling industrial and commercial registration of the new Chinese name of the Company; and proposed change of Company name will take effect upon receipt of the new business licence from local industry and commerce administration authority. The Company will subsequently apply to the Companies Registry of Hong Kong for Certificate of Registration of Alteration of Name of Registered Non-Hong Kong Company.

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LETTER FROM THE BOARD OF DIRECTORS

1. Coupon Rate and Determination Method: The Super Short-term Debentures are in the form of fixed interest rate. The coupon rate will be inquired to the qualified investors who have the corresponding risk identification and bearing ability. The coupon rate range will be determined by the Company and the bookrunners according to the inquiry of coupon rate, and the coupon rate will then be determined by book-building. The coupon rate of the Super Short-term Debentures is fixed and unchanged within the period as prescribed therein;
2. Use of proceeds: Mainly used for the production and operation of the Company, including but not limited to replenishment of liquidity and repayment of corporate debts which shall be within the scope as permitted by the relevant regulatory authorities;
3. Underwriting: The issuance of the Super Short-term Debentures shall be underwritten by the principal underwriter by way of standby underwriting;
4. Term of validity of the resolution: This resolution shall remain effective for 24 months from the date of the passing at the General Meeting.

To ensure proper completion of the proposed issue of the Super Short-term Debentures, it is proposed to approve the delegation of the authority by the Board of the Company to the general manager office of the Company to deal with all such matters relating to the issue of Super Short- term Debentures. Details of the authority to be sought are set out below (including but not limited to):

1. So far as permitted by laws and regulations and according to the actual conditions of the Company and the market, determine the actual plans for the issue of the Super Short-term Debentures, amend and adjust the plans and relevant terms of the issue of the Super Short- term Debentures, including but not limited to the timing, method, quantity, actual total amount, price, term of the issue, interest rates and the method of determination, guarantee issues, tranche structure, use of proceeds etc.;
2. Take all such steps which are necessary for and incidental to the issue of the Super Short-term Debentures (including, but not limited to, signing all requisite legal documentations; selecting and engaging the intermediary institutions; determining the underwriting arrangements; preparing and submitting any relevant application documents to the regulatory authorities, and procuring approval from the regulatory authorities; selecting the principle underwriter for the issuance and signing the relevant agreements; handling other related matters in relation to the issue of Super Short-term Debentures; and conducting any disclosure of information in accordance with any applicable laws and regulations) and approve, confirm and ratify the aforementioned acts and steps to the extent that any of them have already been approved by the Board;

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LETTER FROM THE BOARD OF DIRECTORS

1. In the event of changes in regulatory policies or relevant accounting policies in relation to the issue of the Super Short-term Debentures, except for matters that shall be subject to resolutions by the Shareholders at the General Meeting as stipulated by relevant laws, regulations and the articles of association of the Company, make corresponding adjustments to the specific plans based on the comments and opinions, if any, of the regulatory authority, or exercise discretion to postpone or suspend the issue of the Super Short-term Debentures.

The issue of the Super Short-term Debentures shall only be implemented upon the approval of the regulatory authorities. The authority granted by the Board of the Company to deal with all such matters mentioned above should be effective on the date of passing the resolution at the Extraordinary General Meeting.

6. EGM

Notice of the EGM

The Company will convene the EGM at the Conference Room, 3rd Floor, Building 1, Yard 16, W. 4th Ring Middle Road, Haidian District, Beijing, the PRC at 10 a.m., on Monday, 23 December 2019, to approve (1) entering into the United Power Master Agreement, (2) entering into the Longyuan Technology Master Agreement and the proposed annual caps of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group, (3) proposed amendments to the Articles and proposed change of Company name and (4) proposed public issuance of super short-term debentures in the PRC. The notice of the EGM has been despatched to the Shareholders on 30 October 2019.

Closure of register of members

The register of members of the Company will be closed from Saturday, 23 November 2019 to Monday, 23 December 2019, both days inclusive, during which period no transfer of shares will be registered. In order to qualify to attend and vote at the EGM, all transfers, together with relevant share certificates, must be lodged with the H Share registrar of the Company, namely Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong (for holders of H Shares) or the head office of the Company (for holders of Domestic Shares) at Building 1, Yard 16, W. 4th Ring Middle Road, Haidian District, Beijing, PRC no later than 4:30 p.m. on Friday, 22 November 2019.

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LETTER FROM THE BOARD OF DIRECTORS

Reply slip and Proxy Form

If you are eligible and intend to attend the EGM, please complete and return the reply slip despatched on 30 October 2019 in accordance with the instructions printed thereon as soon as possible and in any event not later than 20 days before the date appointed for holding such meeting or any adjournment thereof.

Shareholders who intend to appoint a proxy to attend the EGM is required to complete and return the proxy form, 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 holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you wish.

Voting by poll at the EGM

Pursuant to Rule 13.39(4) of the Listing Rules, all resolutions at the general meeting will be taken by poll except where the chairman, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. The chairman of the EGM will therefore demand a poll for every such resolution put to the vote at the EGM. On a poll, every Shareholder present in person or by proxy or (being a corporation) by its duly authorized representative shall have one vote for each share of the Company registered in his or her name in the register of Shareholders. A Shareholder entitled to more than one vote need not use all his or her votes or cast all the votes he or she uses in the same way.

Recommendations

The Board considers that the resolutions set out in the notice of the EGM for Shareholders' consideration and approval are in the best interests of the Company and the Shareholders. As such, the Board recommends the Shareholders to vote in favor of the resolutions set out in the notice of the EGM.

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LETTER FROM THE BOARD OF DIRECTORS

Other Recommendations

Your attention is also drawn to the letter from the Independent Board Committee to the Independent Shareholders set out on pages 34 to 35 of this circular, and the letter from Gram Capital to the Independent Board Committee and the Independent Shareholders set out on pages 36 to 57 in respect of (1) entering into the United Power Master Agreement and (2) entering into the Longyuan Technology Master Agreement and the proposed annual caps of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group.

Yours faithfully,

By Order of the Board

Guodian Technology & Environment Group Corporation Limited*

Mr. CHEN Dongqing

Chairman

• For identification purposes only

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

國 電 科 技 環 保 集 團 股 份 有 限 公 司

GUODIAN TECHNOLOGY & ENVIRONMENT GROUP CORPORATION LIMITED*

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

(Stock code: 01296)

3 December 2019

To the Independent Shareholders

We refer to the circular of the Company to the Shareholders dated 3 December 2019 (the "Circular"), of which this letter forms a part. Unless the context requires otherwise, capitalized terms used in this letter will have the same meanings as given to them in the sections headed "Definitions" of the Circular.

We have been appointed by the Board as the Independent Board Committee to advise the Independent Shareholders on whether (1) entering into the United Power Master Agreement and (2) entering into the Longyuan Technology Master Agreement and the proposed annual caps of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group is: (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better; and

1. fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Gram Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (1) entering into the United Power Master Agreement and (2) entering into the Longyuan Technology Master Agreement and the proposed annual caps of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group.

We wish to draw your attention to the letter from Gram Capital, as set out on pages 36 to 57 of the Circular and the section headed "Letter from the Board of Directors" as set out on pages 1 to 33 of the Circular.

Having considered the terms and conditions of (1) entering into the United Power Master Agreement and (2) entering into the Longyuan Technology Master Agreement and the proposed annual caps of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group and the opinion of Gram Capital as stated in its letter of advice, we consider that (1) entering into the United Power Master Agreement and (2) entering into the Longyuan Technology Master Agreement and the proposed annual caps of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group is: (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or better; and (iii) fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve, among others, (1) entering into the United Power Master

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Agreement and (2) entering into the Longyuan Technology Master Agreement and the proposed annual caps of the transactions in relation to the provision of goods and services by Longyuan Technology and its subsidiaries to the Group to be proposed at the EGM.

• For identification purpose only

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LETTER FROM GRAM CAPITAL

Set out below is the text of a letter received from Gram Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Transactions for the purpose of inclusion in this circular.

Room 1209, 12/F.

Nan Fung Tower

88 Connaught Road Central/

173 Des Voeux Road Central

Hong Kong

3 December 2019

To: The independent board committee and the independent shareholders of Guodian Technology & Environment Group Corporation Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (i) provision of goods and services by the Group to United Power and its subsidiaries under the United Power Master Agreement (the "UP Sale Transactions"); (ii) provision of goods and services by United Power and its subsidiaries to the Group under the United Power Master Agreement (the "UP Purchase Transactions", collectively with the UP Sale Transactions, the "UP Transactions"); and (iii) provision of goods and services by Longyuan Technology and its subsidiaries to the Group under the Longyuan Technology Master Agreement (the "LT Transactions") (together with the UP Transactions, the "Transactions"), details of which are set out in the letter from the Board (the "Board Letter") contained in the circular dated 3 December 2019 issued by the Company to the Shareholders (the "Circular"), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

As the Existing United Power Master Agreement and Existing Longyuan Technology Master Agreement will expire on 31 December 2019, the Company entered into the United Power Master Agreement with United Power and entered into the Longyuan Technology Master Agreement with Longyuan Technology, respectively, both for a term commencing from 1 January 2020 and ending on 31 December 2022.

With reference to the Board Letter, each of the Transactions constitutes a continuing connected transaction of the Company and is subject to the reporting, announcement and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM GRAM CAPITAL

The Independent Board Committee comprising Mr. Shen Xiaoliu, Mr. Qu Jiuhui, Mr. Xie Qiuye and Mr. Yeung Chi Tat (all being independent non-executive Directors) has been established to advise the Independent Shareholders on (i) whether the terms of the Transactions are on normal commercial terms and are fair and reasonable; (ii) whether the Transactions are in the interests of the Company and the Shareholders as a whole and are conducted in the ordinary and usual course of business of the Group; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to approve the Transactions and the transaction contemplated thereunder at the EGM. We, Gram Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

INDEPENDENCE

During the past two years immediately preceding the Latest Practicable Date, Mr. Graham Lam was the person signing off (i) the opinion letter from the independent financial adviser contained in the Company's circular dated 12 December 2017 in respect of (a) continuing connected transactions; and (b) major and continuing connected transactions; (ii) the opinion letter from the independent financial adviser contained in the Company's circular dated 11 December 2018 in respect of continuing connected transactions; and

1. the opinion letter from the independent financial adviser contained in the Company's circular dated 24 May 2019 in respect of a major and connected transaction.

Notwithstanding the aforesaid past engagements, as at the Latest Practicable Date, we were not aware of any relationships or interests between Gram Capital and the Company, or any other parties that could be reasonably regarded as hindrance to Gram Capital's independence to act as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders.

Besides that, apart from the advisory fee payable to us in connection with our appointment as the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, no arrangement exists whereby we shall receive any other fees or benefits from the Company.

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LETTER FROM GRAM CAPITAL

BASIS OF OUR OPINION

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on the statements, information, opinions and representations contained or referred to in the Circular and the information and representations as provided to us by the Directors. We have assumed that all information and representations that have been provided by the Directors, for which they are solely and wholly responsible, are true and accurate in all material respects at the time when they were made and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Company and/or the Directors, which have been provided to us. Our opinion is based on the Directors' representation and confirmation that there are no undisclosed private agreements/arrangements or implied understanding with anyone concerning the Transactions. We consider that we have taken sufficient and necessary steps on which to form a reasonable basis and an informed view for our opinion in compliance with Rule 13.80 of the Listing Rules.

The 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 the 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 the Circular misleading. We, as the Independent Financial Adviser, take no responsibility for the contents of any part of the Circular, save and except for this letter of advice.

We consider that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent in- depth investigation into the business and affairs of the Company, the Group, United Power, Longyuan Technology and each of their respective subsidiaries or associates, nor have we considered the taxation implication on the Group or the Shareholders as a result of the Transactions. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Shareholders should note that subsequent developments (including any material change in market and economic conditions) may affect and/or change our opinion and we have no obligation to update this opinion to take into account events occurring after the Latest Practicable Date or to update, revise or reaffirm our opinion. In addition, nothing contained in this letter should be construed as a recommendation to hold, sell or buy any Shares or any other securities of the Company.

Lastly, where information in this letter has been extracted from published or otherwise publicly available sources, it is the responsibility of Gram Capital to ensure that such information has been correctly extracted from the relevant sources while we are not obligated to conduct any independent in-depth investigation into the accuracy and completeness of those information.

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LETTER FROM GRAM CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion in respect of the Transactions, we have taken into consideration the following principal factors and reasons:

Information on the Group

With reference to the Company's interim report for the six months ended 30 June 2019 (the "2019 Interim Report"), the Group is principally engaged in manufacturing and sale of wind turbines, plasma ignition equipment and other related electric equipment for power plants, construction engineering of desulphurisation, denitrification, water treatment and other environmental protection and energy conservation projects, rental of desulphurisation and denitrification facilities and provision of integrated services relating to environmental protection, energy conservation and renewable energy businesses.

Set out below are the financial information of the Group for the six months ended 30 June 2019 (with comparative figures) and the two years ended 31 December 2018 as extracted from the 2019 Interim Report and the Company's annual report for the two years ended 31 December 2018 (the "2018 Annual Report"), respectively:

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LETTER FROM GRAM CAPITAL

We noted from the above table that the Group's revenue decreased by approximately 2.5% from approximately RMB11.70 billion for the year ended 31 December 2017 ("FY2017") to approximately RMB11.41 billion for the year ended 31 December 2018 ("FY2018"). With reference to the 2018 Annual Report and among the total revenue (from continuing operations), (i) revenue derived from environmental protection solutions increased by approximately 12.9% from FY2017 to FY2018, which was mainly due to confirmed revenue from the new business, coal closure renovation and plume treatment; (ii) revenue derived from energy conservation solutions increased by approximately 2.5% from FY2017 to FY2018, which was mainly due to the increase in revenue generated from general contract of power stations business; and (iii) revenue derived from wind power products and services decreased by approximately 18.6% from FY2017 to FY2018, which was mainly due to the decrease in the sales volume of wind turbine generators of the Group in 2018.

With reference to the 2019 Interim Report, the Group's revenue decreased by approximately 11.6% from first half of 2018 ("1H2018") to first half of 2019 ("1H2019"). As compared to 1H2018, revenues from environmental protection solutions, energy conservation solutions and wind power products and services decreased by approximately 9.5%, 14.2% and 11.2% during 1H2019 respectively.

1. UNITED POWER MASTER AGREEMENT
   Background of and reasons for the UP Sale and Purchase Transactions

1. Information on United Power

United Power is a limited liability company established in the PRC. United Power is a leading supplier of total solutions for wind turbine generator system and focuses on the green energy industry.

As at the Latest Practicable Date, the Company owned 70%, while Longyuan Power owns 30%, of equity interests in United Power. CHN Energy, the Company's controlling shareholder, owns approximately 58.44% of equity interests in Longyuan Power. United Power is therefore an associate of CHN Energy. As such, United Power is the Company's connected person.

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LETTER FROM GRAM CAPITAL

2. Reasons for and benefits of entering into the United Power Master Agreement

As confirmed by the Directors, as the UP Transactions are conducted in the ordinary and usual course of business of the Group and on a frequent and regular basis, it would be (i) costly and impractical to make regular disclosure of each of the relevant transactions and obtain the prior approval from the Independent Shareholders as required by the Listing Rules, if necessary; and (ii) impracticable to seek Independent Shareholders' approval upon confirmation of members of United Power/the Group's successful bidding for goods or services to be provided regarding contract value over certain thresholds under the Transactions which are selected through bidding process with the specific timetable. Accordingly, the Directors are of the view that the UP Transactions will be beneficial to the Company and the Shareholders as a whole.

In light of the above factors, we concur with the Directors that the UP Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole.

3. Principal terms of the United Power Master Agreement

Summarised below are the major terms of the United Power Master Agreement, details of which are set out under the section headed "Summary of the terms of United Power Master Agreement" of the Board Letter:

Date

29 October 2019

Parties

1. The Company; and
2. United Power

Subject of the transaction

The goods and services to be provided by the Group to United Power and its subsidiaries include general contracting for construction of wind farms, parts and components of WTGs, distributed control system (DCS) for power stations and relevant spare parts, on-site DCS configuration and commissioning.

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LETTER FROM GRAM CAPITAL

The goods and services to be provided by United Power and its subsidiaries to the Group include goods such as WTGs assembly, parts and components, and accessories, and operation and maintenance services.

United Power Master Agreement has a term commencing from 1 January 2020 and ending on 31 December 2022. Either party may terminate United Power Master Agreement upon giving the other party at least three-month written notice in advance.

Pricing Policy

As the provider of goods/services, except for goods/services applicable to government- prescribed price/guidance price, the principle of reasonable cost plus reasonable profit of the Group will be normally considered for sales pricing. In addition, the sales of goods/services of the Group are required to be determined through the bidding process or non-bidding quotation organized by the purchaser, sole-source procurement and other procurement processes, which enable the Company to win the bid with competitive advantages in services and technology.

As the recipient of goods/services, except for goods/services applicable to government- prescribed price/guidance price, the suppliers of other goods/services shall solely be selected through bidding process or non-bidding quotation, sole-source procurement and other procurement processes, while comparisons and negotiation between historical or market prices shall be carried out to determine the price.

Details of the pricing policies for goods/services under the UP Transactions are set out under the sub-section headed "Pricing policy" under the section headed "Summary of the terms of United Power Master Agreement" of Board Letter. For the avoidance of doubt, the Group applies the same pricing policies regardless of whether the counterparty in a transaction is a connected person or an independent third party.

To ensure that the considerations for the continuing connected transactions of the Group are on normal commercial terms and that the terms thereunder are complied with, the Company adopted the supervision and internal control procedures as detailed in the section headed "Internal procedures" of the Board Letter. We consider that the implementation of the aforesaid internal control would help to ensure fair pricing of the UP Transactions according to the pricing policies.

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LETTER FROM GRAM CAPITAL

UP Sale Transactions

Upon our request, we obtained five sale agreements/invoices showing a subsidiary of the Company provided goods under the UP Sale Transactions to United Power/its subsidiaries during 2017 to 2019. As advised by the Directors, as the goods were customised, there were no similar goods sold to independent third parties by the Group. Upon our further request, the Directors advised us the gross profit margin of the aforesaid transactions. In addition, the Directors also provided the subsidiaries' gross profit margin for FY2017 and FY2018. We noted that gross profit margins of the aforesaid transactions were not lower than or in line with the relevant subsidiary's/subsidiary group's gross profit margins.

With reference to Rule 14A.56 of the Listing Rules, among other things, the auditors of the Company must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the continuing connected transactions were not, in all material respects, in accordance with the pricing policies of the listed issuer's group if the transactions involve the provision of goods or services by the listed issuer's group. We obtained the letter from the Company's auditors, showing their confirmation that, among other things, nothing has come to their attention that causes them to believe that the UP Sales Transaction was not, in all material respects, in accordance with the pricing policies of Group.

UP Purchase Transactions

Upon our request, we obtained one purchase agreement showing the Group purchased goods under the UP Purchase Transactions from United Power/its subsidiaries in December 2018. As advised by the Directors, the agreement is a framework agreement with fixed purchase price for certain goods. Upon our further request, the Directors also advised us the two products' quotations offered by independent third parties for such goods. Based on the available information, the prices of goods offered by United Power/its subsidiaries were not higher than those offered by independent third parties.

Having considered the above factors, in particular that the Group applies the same pricing policies regardless of whether the counterparty in a transaction is a connected person or an independent third party, we consider that the terms of the United Power Master Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM GRAM CAPITAL

4. The proposed annual caps

The table below set out are (i) the historical transaction amounts of the Existing United Power Master Agreement for the two years ended 31 December 2018 and the six months ended 30 June 2019 with the existing annual caps; and (ii) the proposed annual caps for the three years ending 31 December 2022 under the United Power Master Agreement:

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LETTER FROM GRAM CAPITAL

Note: the figures were for the six months ended 30 June 2019

With reference to the Board Letter, the UP Sale Caps and UP Purchase Caps for the three years ending 31 December 2022 were calculated after taking into account of various factors, details of which are set out in the sub-section headed "Proposed annual caps for 2020, 2021 and 2022 and basis for determination" under the section headed "ENTERING INTO UNITED POWER MASTER AGREEMENT" of the Board Letter.

For our due diligence purpose, we obtained from the Company a list (the "UP List"), showing the sales/purchases estimation of the goods and services under UP Transactions.

In addition, as advised by the Directors, they took into account of recent policy in respect of wind power industry when determining the proposed annual caps under the UP Transactions.

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LETTER FROM GRAM CAPITAL

Based on our independent research, we noted that:

The NEA issued《國家能源局關於建立監測預警機制促進風電產業持續健康發展的通 知》(Notice of the NEA on Establishing a Monitoring and Early Warning Mechanism to Promote the Sustainable and Healthy Development of the Wind Power Industry*, the "2016 Policy") in July 2016. According to the 2016 Policy, the NEA established a wind power investment monitoring and early warning mechanism to guide rational investment by wind power enterprises, promote the sustained and healthy development of the wind power industry. There will be three categories of alert (i.e. red alert, orange alert and green alert) as results from wind power investment monitoring and early warning system to be used to guide the investment in wind power development in various provinces (autonomous regions, municipalities). It is not allowed to construct new wind power projects in the red alert areas of wind power development and construction. According to《2016年全國風電投資監測預警 結果》(The Notice on Monitoring and Early Warning Results of Investment in Wind Power of China in 2016*), being an annex to the 2016 Policy, the NEA gave a red alert to five provinces (i.e. Jilin, Heilongjiang, Gansu, Ningxia and Xinjiang). According to《關於2017 年度風電投資監測預警結果的通知》(The Notice on Monitoring and Early Warning Results of Investment in Wind Power in 2017*), the NEA gave a red alert to one more province in addition to the aforesaid five provinces, being east of and west of Inner Mongolia. According to《關於2018年度風電投資監測預警結果的通知》(The Notice on Monitoring and Early Warning Results of Investment in Wind Power in 2018*), the NEA released red alert on Heilongjiang, Gansu, Ningxia and east of and west of Inner Mongolia. According to《關於 2019年度風電投資監測預警結果的通知》(The Notice on Monitoring and Early Warning Results of Investment in Wind Power in 2019*), the NEA gave a red alert Xinjiang and Gansu. Inner Mongolia is the orange alert area. Xinzhou, Shuozhou and Datong located in the north of Shanxi Province, Yulin located in the north of Shaanxi Province and Zhangjiakou and Chengde from Hebei Province are subject to orange alert management. Other provinces (including the autonomous regions and municipalities directly under the central government) and regions are green areas.

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LETTER FROM GRAM CAPITAL

With reference to《關於完善風電上網電價政策的通知》(the Notice on Improving Wind Power On-grid Tariff Policies*, the "Notice") issued by the NDRC in May 2019:

• in respect of onshore wind power, the benchmarked on-grid tariff for onshore wind power shall be changed to the guidance price. The on-grid tariff of newly approved centralized onshore wind power projects shall be determined by way of competition and shall not be higher than the guidance price of the resource zones where the project is located. For onshore wind power projects approved before the end of 2018, if the grid connection has not been completed by the end of 2020, the state will no longer grant subsidies. For the onshore wind power projects approved from 1 January 2019 to the end of 2020, if the grid connection has not been completed by the end of 2021, no subsidy will be granted by the state. Since 1 January 2021, the newly approved onshore wind power projects will fully achieve grid parity, and the state will no longer provide subsidies.
• in respect of offshore wind power, the benchmarked on-grid tariff of offshore wind power shall be changed to the guidance price, and on-grid tariff for all newly approved offshore wind power projects shall be determined by way of competition. For offshore wind power projects approved before the end of 2018, if all units are connected to the grid by the end of 2021, the on-grid tariff at the time of approval will be applied. If the units are connected to the grid in 2022 or later, the guidance price at the time when grid connection is completed will be applied.

The UP Sale Caps

We noted from the above table the utilisation rate of existing annual caps under the UP Sale Transactions were at low level. However, the UP Sale Caps represented substantial increases as compared to the historical amounts of the UP Sale Transactions. As advised by the Directors, such estimated increase was mainly due to the recent policy in respect of wind power industry, which was expected to accelerate the construction of wind power farm, leading the increase of demand of relevant goods or services under the UP Sale Transactions.

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LETTER FROM GRAM CAPITAL

Upon our further request, the Directors provided figures showing the historical contract amounts of the UP Sale Transactions during the period from July 2019 (which was the second month immediately after the issue of the Notice) to September 2019 with comparable figures during the corresponding period in 2018. We noted that the historical contract amounts of the UP Sale Transactions during the period from July 2019 to September 2019 increased by over 7 times as compared to that during the corresponding period in 2018. In addition, United Power's revenue for the period from July 2019 to September 2019 also increased by 135% as compared to that for the corresponding period in 2018. It indicated that the Notice accelerate the construction of wind power farm.

Accordingly, we consider that the substantial increase in UP Sale Caps for the year ending 31 December 2020 as compared to the historical amounts under the UP Sale Transactions to be justifiable. We therefore consider that the UP Sale Cap for the year ending 31 December 2020 to be fair and reasonable.

As also advised by the Directors, based on their expectation, the effect of the Notice will reduce gradually from 2021, accordingly they reduced the UP Sale Caps for the two years ending 31 December 2022. As the UP Sale Caps for the two years ending 31 December 2022 were less than that for the year ending 31 December 2020, we consider the UP Sale Caps for the two years ending 31 December 2022 to be fair and reasonable.

The UP Purchase Caps

We noted from the above table the historical amount under the existing UP Purchase Transactions were nil for the two years ended 31 December 2018 and RMB1.03 million for the six months ended 30 June 2019. Despite the Group recorded very low historical amounts, the Group significantly increased the UP Purchase Caps for the three years ending 31 December 2022. As advised by the Directors, (i) the previous low historical amounts was mainly due to the failure in obtaining approval for or delay in certain self-developed wind power farm projects originally planned by the Group due to local policies adjustment (i.e. some projects located in the north of Shanxi Province were terminated after the said area being categorized as the orange alert zone; while some projects were shelved due to failure to reach a unanimous agreement on tax issues), resulting in no amount/very few amount incurred for 2017, 2018 and the first half of 2019; and (ii) the significant increase in the UP Purchase Caps was mainly due to the recent issue of policy for wind power subsidy, which was expected to accelerate the construction of wind power farm.

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LETTER FROM GRAM CAPITAL

Based on the above policy, we concur with the Directors that the construction of wind power farms are expected to be accelerated, which may increase of the Group's EPC services in respect of the wind power farm (under the Group's wind power EPC projects, the Group will normally procure WTGs assembly from United Power).

According to the List, the estimated demand for the purpose of constructions wind power farm projects for the year ending 31 December 2020 represented approximately 98.2% to the UP Purchase Caps.

Upon our further enquiry, the Directors advised us (i) that there would be five wind power farm projects (which were not located in the red and orange alert zones) to be completed by the end of 2020 with WTGs assembly's total installed capacity of 300MW; and (ii) the estimated cost for each installed capacity (i.e. RMB/Kw)(the "Average Unit Cost").

In respect of the five wind power projects, the Directors further advised that (i) one of the five wind power projects with installed capacity of 50MW was obtained by the Group through successful bidding in November 2019; (ii) the Group participated in the tenders for two of the five wind power projects with total installed capacity of 100MW, the bidding results are expected to announce in late 2019 or beginning of 2020; and (iii) the Group expected the tenders for two of the five wind power projects with total installed capacity of 150MW to be proceeded in 2020 and the Group would participant in the tenders.

To assess the reasonableness of the Average Unit Cost, we searched for reliable public information regarding wind power equipment selling price. However, to the best of our endeavor, we could only find such selling prices from Xinjiang Goldwind Science & Technology Co., Ltd.'s (2208 & SZ002202, "Xinjiang Goldwind")(being a China-based company, principally engaged in the manufacture and distribution of wind turbine generator sets and spare parts) presentation materials. Xinjiang Goldwind's latest presentation materials (the "Presentation Materials") showed bidding price for wind power equipment for the nine months ended 30 September 2019. In addition, we also obtained a report named "China Wind Energy Development Roadmap 2050 (version 2014)" issued by China National Renewable Energy Centre in 2014, showing unit investment amount of onshore and offshore wind farm in 2013 and estimated unit investment amount of onshore wind farm in 2020. Based on the aforesaid documents/information, we noted that (i) the cost/bidding price as shown in the Presentation Materials was not deviated from the estimated unit investment amount of onshore wind farm in 2020; and (ii) the Average Unit Cost is in line with cost/bidding price as shown in the Presentation Materials.

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LETTER FROM GRAM CAPITAL

Having considered that the estimated demand for the purpose of constructions wind power farm projects for the year ending 31 December 2020 (which was calculated based on (i) the total estimated installed capacity of 300MW; and (ii) the Average Unit Cost) represented approximately 98.2% to the UP Purchase Caps, we consider that the UP Purchase Caps for the year ending 31 December 2020 to be fair and reasonable.

The Directors also assumed that (i) the Group will proceed projects with same level installed capacity in total (i.e. 300MW) during the two years ending 31 December 2022 (including the Group's possible self-development wind power projects, which are expected to commence construction in 2021 or 2022 based on current project applications status). For our due diligence purpose, we obtained documents showing basic information of certain projects; (ii) the Average Unit Cost will remain at the current level; and (iii) there will also be wind power EPC projects after 2021. Therefore, we also consider that the UP Purchase Caps for the two years ending 31 December 2022, which are the same as the UP Purchase Caps for the year ending 31 December 2020, to be fair and reasonable.

Shareholders should note that as the UP Sale Caps and UP Purchase Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2022, and they do not represent forecasts of revenue/ expenses to be recorded/incurred from the UP Transactions. Consequently, we express no opinion as to how closely the actual revenue/expenses to be recorded/incurred from the UP Transactions will correspond with the UP Sale Caps and/or the UP Purchase Caps.

5. Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the values of the UP Transactions must be restricted by the UP Sale Caps/UP Purchase Caps for the period concerned under the United Power Master Agreement; (ii) the terms of the UP Transactions must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors' annual review on the terms of the UP Transactions must be included in the Company's subsequent published annual reports.

Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the UP Transactions (i) have not been approved by the Board;

1. were not, in all material respects, in accordance with the pricing policies of the Group if the transactions involve the provision of goods or services by the Group; (iii) were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iv) have exceeded the caps.

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LETTER FROM GRAM CAPITAL

In the event that the total amounts of the continuing connected transactions are anticipated to exceed their respective annual caps, or that there is any proposed material amendment to the terms of the United Power Master Agreement, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transaction.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the transactions contemplated under the United Power Master Agreement and thus the interest of the Independent Shareholders would be safeguarded.

6. Recommendation on the UP Transactions

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the UP Transactions are on normal commercial terms and are fair and reasonable; and (ii) the UP Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the United Power Master Agreement and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

1. THE LONGYUAN TECHNOLOGY MASTER AGREEMENT
   1. Information on Longyuan Technology
   With reference to the Board Letter, Longyuan Technology is a limited liability company established in the PRC and an approximately 23.25% owned subsidiary of the Company. Longyuan Technology is primarily engaged in environmental protection and energy conservation solutions business.
   As of the Latest Practicable Date, the Company directly held approximately 23.25% of the issued share capital of Longyuan Technology. Hero Asia (BVI) Company Limited, a wholly- owned subsidiary of Longyuan Power, owns approximately 18.75% of equity interests in Longyuan Technology. Given that Longyuan Power is a subsidiary of CHN Energy, Longyuan Technology is the Company's connected person.

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LETTER FROM GRAM CAPITAL

1. Reasons for and benefits of the LT Transactions
   As confirmed by the Directors, as the LT Transactions are conducted in the ordinary and usual course of business of the Group and on a frequent and regular basis, it would be (i) costly and impractical to make regular disclosure of each of the relevant transactions and obtain the prior approval from the Independent Shareholders as required by the Listing Rules, if necessary; and (ii) impracticable to seek Independent Shareholders' approval upon confirmation of members of Longyuan Technology's or its subsidiaries' successful bidding for service to be provided regarding contract value over certain thresholds under the LT Transactions which are selected through bidding process with the specific timetable. Accordingly, the Directors are of the view that the LT Transactions will be beneficial to the Company and the Shareholders as a whole.
   In light of the above factors, we concur with the Directors that the LT Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole.
2. Principal terms of the LT Transactions
   Summarised below are the major terms of the LT Transactions, details of which are set out under the section headed "Summary of the terms of Longyuan Technology Master Agreement" of the Board Letter:
   Date
   29 October 2019
   Parties
3. 1. The Company; and
   2. Longyuan Technology

Subject of the LT Transactions

The goods and services provided to the Group by Longyuan Technology and its subsidiaries include energy conservation and environmental protection equipment and services, software development and operation and maintenance, and market service relating to plasma ignition, less-oil ignition, low-NOx combustion, waste heat utilization, economizer and integrated retrofit for energy efficiency.

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LETTER FROM GRAM CAPITAL

The Group and Longyuan Technology and its subsidiaries will enter into separate agreements that will set out the specific scope of goods and services, terms and conditions of providing such goods and services according to the principles laid out by Longyuan Technology Master Agreement.

Effective period

Longyuan Technology Master Agreement has a term commencing from 1 January 2020 and ending on 31 December 2022. Either party may terminate Longyuan Technology Master Agreement upon giving the other party at least three-month written notice in advance.

Pricing Policy

The pricing policy for the LT Transactions is the same as the pricing policy for the UP Purchase Transactions.

For our due diligence purpose, we requested the Directors to provide contracts/invoices showing the selling price of goods provision by Longyuan Technology/its subsidiaries to the Group and independent third parties respectively. As advised by the Directors, during 2017-2019, there were only four agreements which can simply reflect the selling price of comparable services offered by Longyuan Technology (a) to the Group; (b) to an independent third party; and (c) other member of China Energy respectively. According to the aforesaid documents and as explained by the Directors, we noted that the price offered by Longyuan Technology to the Group was not higher than that offered by Longyuan Technology to (a) the independent third party; and (b) other member of China Energy for comparable services.

To ensure that the considerations for the continuing connected transactions of the Group are on normal commercial terms and that the terms thereunder are complied with, the Company adopted the supervision and internal control procedures as detailed in the section headed "Internal procedures" of the Board Letter. We consider that the implementation of the aforesaid internal control would help to ensure fair pricing of the LT Transactions according to the pricing policies.

In light of the above, we are of the view that the terms of the LT Transactions are on normal commercial terms and are fair and reasonable.

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LETTER FROM GRAM CAPITAL

4. The proposed annual caps

The table below set out are (i) the historical transaction amounts of the existing LT Transactions for the two years ended 31 December 2018 and the six months ended 30 June 2019 with the existing annual caps; and (ii) the proposed annual caps for the three years ending 31 December 2022 for the LT Transactions:

Note: the figure was for the six months ended 30 June 2019.

With reference to the Board Letter, the LT Caps for the three years ending 31 December 2022 were calculated after taking into account of various factors, details of which are set out in the sub-section headed "Proposed annual caps for 2020, 2021 and 2022 and basis of determination" under the section headed "ENTERING INTO LONGYUAN TECHNOLOGY MASTER AGREEMENT" of the Board Letter.

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LETTER FROM GRAM CAPITAL

We noted from the above table that the LT Caps for the three years ending 31 December 2022 were the same as the existing annual cap for the year ending 31 December 2019. In addition, the historical amounts of the LT Transactions for FY2018 significantly increased as compared to that for FY2017. As advised by the Directors, such increase was mainly due to the procurement of economizer and related renovation services in 2018 pursuant to an EPC project.

We further obtained from the Company a list (the "LT List"), showing the purchases estimation of the goods and services under LT Transactions.

According to the LT List, the purchase estimation of the goods and services under LT Transactions was determined based on the proposed constructions services and proposed procurement amounts for EPC constructions.

As advised by the Directors, the Group was selected as services providers for two EPC projects in October 2019. Based on the nature of the EPC projects, the Group estimated the proposed procurements amounts from Longyuan Technology of approximately RMB83 million.

We understood that the Group proposed to participant an energy conservation projects in 2020 with estimated contract amount of RMB150 million, of which approximately RMB18 million was expected to sub-contract to Longyuan Technology.

The Directors expected that in the future, the Company's subsidiary (e.g. Beijing Guodian Longyaun Environmental Engineering Co., Ltd) will participant in EPC projects in ultra- low emissions, energy conservation and environmental protection, and filter cake processing (濾餅處理) areas. The Company's subsidiary will be responsible for engineering and will sub-contract procurement and construction duty to Longyuan Technology. Therefore, the Directors assumed there would be approximately RMB27 million in demand of goods and services from Longyuan Technology for the year ending 31 December 2020.

As advised by the Directors, the actual amounts of LT Transactions for the three years ending 31 December 2022 may fluctuate. Nevertheless, the Company expects that the actual amounts of LT Transactions amount during each of the three years ending 31 December 2022 will be within RMB130 million. Accordingly, the LT Caps for the three years ending 31 December 2022 were set at the same level (i.e. RMB130 million per annum) as the LT Caps for the year ending 31 December 2020.

In light of the above factors, we consider that the LT Caps for the three years ending 31 December 2022 to be fair and reasonable.

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LETTER FROM GRAM CAPITAL

Shareholders should note that as the LT Caps are relating to future events and were estimated based on assumptions which may or may not remain valid for the entire period up to 31 December 2022, and they do not represent forecasts of revenue/expenses to be incurred from the LT Transactions. Consequently, we express no opinion as to how closely the actual revenue/expenses to be incurred from the LT Transactions will correspond with the LT Caps.

5. Listing Rules implication

The Directors confirmed that the Company shall comply with the requirements of Rules 14A.53 to 14A.59 of the Listing Rules pursuant to which (i) the values of the LT Transactions must be restricted by the LT Caps for the period concerned under the Longyuan Technology Master Agreement; (ii) the terms of the LT Transactions must be reviewed by the independent non-executive Directors annually; (iii) details of independent non-executive Directors' annual review on the terms of the LT Transactions must be included in the Company's subsequent published annual reports.

Furthermore, it is also required by the Listing Rules that the auditors of the Company must provide a letter to the Board confirming whether anything has come to their attention that causes them to believe that the LT Transactions (i) have not been approved by the Board;

1. were not entered into, in all material respects, in accordance with the relevant agreement governing the transactions; and (iii) have exceeded the caps.

In the event that the total amounts of the continuing connected transactions are anticipated to exceed their respective annual caps, or that there is any proposed material amendment to the terms of the Longyuan Technology Master Agreement, as confirmed by the Directors, the Company shall comply with the applicable provisions of the Listing Rules governing continuing connected transaction.

Given the above stipulated requirements for continuing connected transactions pursuant to the Listing Rules, we are of the view that there are adequate measures in place to monitor the transactions contemplated under the Longyuan Technology Master Agreement and thus the interest of the Independent Shareholders would be safeguarded.

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LETTER FROM GRAM CAPITAL

6. Recommendation on the LT Transactions

Having taken into consideration the factors and reasons as stated above, we are of the opinion that (i) the terms of the LT Transactions are on normal commercial terms and are fair and reasonable; and (ii) the LT Transactions are conducted in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution(s) to be proposed at the EGM to approve the LT Transactions and the transactions contemplated thereunder and we recommend the Independent Shareholders to vote in favour of the resolution(s) in this regard.

Yours faithfully,

For and on behalf of

Gram Capital Limited

Graham Lam

Managing Director

Note: Mr. Graham Lam is a licensed person registered with the Securities and Futures Commission and a responsible officer of Gram Capital Limited to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. He has over 20 years of experience in investment banking industry.

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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 Group. 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
   Interests of Directors, Supervisors and chief Executives
   As at the Latest Practicable Date, other than as disclosed herein, none of the Directors, supervisors or chief executive of the Company had an interest or short position in any shares, underlying shares or debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which would have 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/she was taken or deemed to have under such provisions of the SFO) or which was required, pursuant to section 352 of the SFO, to be entered in the register to therein, or pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers in the Listing Rules to be notified to the Company and the Stock Exchange.
   Except for the positions held by Mr. Wang Zhongqu and Mr. Zhang Wenjian at China Energy, Mr. Gu Yuchun at GD Power and Mr. Yan Andrew Y. at SAIF IV GP Capital Ltd., as at the Latest Practicable Date, none of the Directors was a director or employee of a company that had an interest or short position in the shares and underlying shares that would need to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

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Interests of Substantial Shareholders

As at the Latest Practicable Date, so far as is known to the Directors, the following persons (other than the Directors, Supervisors and senior management of the Company) had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO(the table has been updated according to the records of CCASS and the latest information in the Company's possession):

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Notes:

1. This percentage is calculated based on the number of relevant shares/total shares issued by the Company as at the Latest Practicable Date. As at the Latest Practicable Date, the total number of shares of the Company is 6,063,770,000, of which 4,754,000,000 shares are Domestic Shares and 1,309,770,000 shares are H Shares.
2. As China Energy consolidated Guodian Group by absorption, since the completion of the consolidation, shareholding or interest of the subsidiaries and branches of Guodian Group as well as the subordinate enterprises held by Guodian Group would be vested in China Energy. On 30 July 2019, the Company received a Confirmation on Share Transfer from China Securities Depository & Clearing Co., Ltd, according to which, an aggregate of 2,377,500,000 domestic shares in the Company directly held by Guodian Group were transferred to China Energy on 30 July 2019. China Energy is holding an aggregate of 4,754,000,000 domestic shares in the Company directly or indirectly, which represent approximately 78.40% of the Company's total issued share capital, and is the controlling shareholder of the Company.
3. Mr. YAN Andrew Y. indirectly held 22.00% interest in the H shares indirectly via SAIF Partners IV L. P. through SAIF IV GP Capital Ltd. and SAIF IV GP LP. He is the controlling shareholder of SAIF IV GP Capital Ltd., SAIF IV GP LP, and SAIF Partners IV L. P.. SAIF IV GP Capital Ltd. is the controlling shareholder of SAIF IV GP LP. SAIF IV GP LP is the controlling shareholder of SAIF Partners IV L.P.. SAIF Partners IV L.P. has 22.00% interest in the H shares. Therefore, Mr. YAN Andrew Y., SAIF IV GP Capital Ltd. and SAIF IV GP LP are deemed to have the interests in the H shares held by SAIF Partners IV L. P..

Service Contracts

Each of the executive Directors and supervisors of the Company has entered into a service contract with the Company on 8 August 2017, and each of the non-executive Directors and independent non-executive Directors has entered into a letter of appointment with the Company on 8 August 2017, in compliance with relevant laws and regulations, the articles and the relevant regulations of arbitration. Each service contract is for an initial term of three years commencing from 8 August 2017. Each letter of appointment is for a term of three years commencing from 8 August 2017, with a clause of one-year automatic renewal.

Except as disclosed above, none of the Directors or supervisors of the Company has entered into any service agreements with the Group (other than contracts expiring or determinable by any member of the Group within one year without payment of compensation, other than statutory compensation).

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Interests in Other Competing Business

As at the Latest Practicable Date, save as disclosed below, none of the Directors and their close associates had any competing interests in any business that competed or was likely to compete, either directly or indirectly, with the business of the Group:

Interests in Assets

As at the Latest Practicable Date, none of the Directors, supervisors or chief executive of the Company had any direct or indirect interest in any assets which have been, since 31 December 2018, being the date to which the latest published audited consolidated accounts of the Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

Interests in Contract or Arrangement

As at the Latest Practicable Date, none of the Directors, supervisors, or chief executive of the Company was materially interested, either directly or indirectly, in any subsisting contract or arrangement that is significant in relation to the business of the Group.

3. EXPERT AND CONSENT

Gram Capital is a corporation licensed to carry out Type 6 (advising on corporate finance) regulated activity under the SFO. Its letter of advice to the Independent Board Committee and the Independent Shareholders dated as of the date of this circular was given for the purpose of incorporation herein.

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Gram Capital has given and has not withdrawn its written consent to the issue of this circular with a copy of its letter and the reference to its name and its advice included in this circular in the form and context in which they respectively appear.

As at the Latest Practicable Date, Gram Capital did not have any shareholding, directly or indirectly, in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, Gram Capital did not possess any direct or indirect interests in any assets which had been, since 31 December 2018, being the date to which the latest published audited consolidated accounts of the Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

1. LITIGATION
   As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.
2. MATERIAL ADVERSE CHANGE
   References are made to the profit warning announcement of the Company dated 16 August 2019 in relation to the expected decrease in the financial results for the six months ended 30 June 2019 and the interim results announcement for the same period of the Company dated 28 August 2019. As disclosed in these announcements, the results decrease was mainly attributable to the fact that the selling price of wind power products decreased, due to the intensified market competition and the sales revenue and gross margin of wind power products and service business decreased accordingly.
   Save as disclosed above, as at the Latest Practicable Date, the Directors confirmed that they were not aware of any material adverse changes in the financial or business position of the Group since 31 December 2018, being the date to which the latest published audited consolidated accounts of the Group were made up.

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6. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered into by members of the Group within the two years immediately preceding the Latest Practicable Date and are, or may be, material:

1. CHN Energy will provide full guarantee to the corporate bonds and private placement note proposed to be issued by the Company, and GD Power will provide counter-guarantee by the same proportion to CHN Energy based on its shareholding ratio of 39.19% in the Company. The guarantee principal is 39.19% of the face amount of the corporate bonds, that is, no more than RMB470.28 million, and 39.19% of the face amount of the private placement note, that is, no more than RMB391.9 million. The Company has agreed that Longyuan Environmental, a wholly-owned subsidiary of the Company, will provide GD Power with the same amount of counter-guarantee by letter of counter-guarantee;
2. Yantai Longyuan Power Technology Co., Ltd. (煙台龍源電力技術股份有限公司) ("Yantai Longyuan"), a subsidiary of the Company, entered into the Structured Deposit Framework Agreement with Bank of Shizuishan Co., Ltd. (石嘴山銀行股份有限公司) ("Bank of Shizuishan") Yinchuan Jinfeng Branch, on 29 March 2019 pursuant to which Yantai Longyuan agreed to utilize not more than RMB1,100 million for subscribing for the Structured Deposit at Bank of Shizuishan Yinchuan Jinfeng Branch;
3. Yantai Longyuan entered into the Structured Deposit Agreement with Bank of Shizuishan on 23 January 2019, pursuant to which the subscription amount of RMB300 million that Yantai Longyuan used for subscribing for the structured deposit under the structured deposit agreement entered into by Yantai Longyuan and Bank of Shizuishan on 30 July 2018 will be considered as deposit amount, which is used for subscribing for the Structured Deposit at Bank of Shizuishan;
4. Yantai Longyuan entered into the Structured Deposit Agreement with Bank of Shizuishan on 30 July 2018, pursuant to which the subscription amount of RMB453 million that Yantai Longyuan used for subscribing for the structured deposit under the structured deposit agreement entered into by Yantai Longyuan and Bank of Shizuishan on 17 April 2018 will be considered as deposit amount, which is used for subscribing for the Structured Deposit at Bank of Shizuishan;
5. Yantai Longyuan entered into the Structured Deposit Agreement with Bank of Shizuishan on 17 April 2018, pursuant to which the subscription amount of RMB453 million (equivalent to approximately HK$566 million) that Yantai Longyuan used for subscribing for the structured deposit under the structured deposit agreement entered into by Yantai Longyuan and Bank of Shizuishan on 28 December 2017 will be considered as deposit amount, which is used for subscribing for the Structured Deposit at Bank of Shizuishan;

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