EX-10.12





Exhibit 10.12 


Zhejiang Guangsha Stock Co., Ltd 



Zhejiang Guangsha Hydropower Investment Co., Ltd




And 


China Hydroelectric Corporation




In Matter of 


Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd




Enter 


Equity Interest Transfer Contract




December 13, 2007




 









 





Contents




	 	 	 	 	 
	Chapter One Definitions of the Contract
	 	 	3	 
	 	 
	Chapter Two Transfer Object
	 	 	9	 
	 	 
	Chapter Three Purchase Price
	 	 	10	 
	 	 
	Chapter Four Capital Increase
	 	 	13	 
	 	 
	Chapter Five Authorization Approval and Handover
	 	 	14	 
	 	 
	Chapter Six Assumption of Credits and Debts
	 	 	17	 
	 	 
	Chapter Seven Rights and Obligations
	 	 	19	 
	 	 
	Chapter Eight: Fulfillment and Unilateral Termination
	 	 	24	 
	 	 
	Chapter Nine Representations And Warranties By The Parties
	 	 	26	 
	 	 
	Chapter Ten Employees
	 	 	36	 
	 	 
	Chapter Eleven Confidentiality
	 	 	38	 
	 	 
	Chapter Twelve Breach Of Contract
	 	 	39	 
	 	 
	Chapter Thirteen Force Majeure
	 	 	41	 
	 	 
	Chapter Fourteen Resolution of Disputes
	 	 	41	 
	 	 
	Chapter Fifteen Applicable Law
	 	 	43	 
	 	 
	Chapter Sixteen Miscellaneous
	 	 	43	 






 









 





Equity Interest Transfer Contract



This equity interest transfer contract (hereinafter referred to as “Contract”) is made and entered
into on December 13, 2007 at Hangzhou City, Zhejiang Province of P. R. China by and among:



Party A: China Hydroelectric Co., Ltd (hereinafter referred to as “Transferee”), a company
registered and established under the laws of Cayman Islands, registered address at 558 Lime Rock
Road, Lime Rock, Connecticut 06039, authorized representative John D. Kuhns, and president of the
company;



Party B: Zhejiang Guangsha Stock Co., Ltd, a company registered and established under the laws of
People’s Republic of China, registered address at 21 Wuningxilu, Dongyang City, Zhejiang Province,
legal representative and chairman of the board of directors Lou
Jiangyue.



Party C: Zhejiang Guangsha Hydropower Investment Co., Ltd, a company registered and established
under the laws of People’s Republic of China, registered address at 1571 Liqinglu, Lishui City,
Zhejiang Province, legal representative and chairman of the board of directors Lu Chunliang.



Party B and Party C are hereinafter collectively referred to as “Transferors”. Each of them is
referred to as “Each Transferor”.



WHEREAS:



Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd (hereinafter referred to as “Object
Company”), was established on August 26, 1998. Its business period is 30 years, and the registered
capital is RMB 140,470,000. The Object Company owns the Hydropower Project (hereinafter defined)
whose total installation is two power units of 20,000 KW and total installed capacity is 40,000
KW. The Hydropower Project commenced operations in May, 2002.



The Object Company has legal ownership and operational right of the Hydropower Project.




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Party B contributed RMB 119,400,000 to the registered capital of the Object Company, accounting
for 85% of its total equity interest; Party C contributed RMB 21,070,000 to the registered capital
of the Object Company, accounting for 15% of its total equity interest.



Each Transferor will transfer to the Transferee, and the Transferee will purchase the Transferors’
total equity interest in the Object Company (Party B’s interest: 85%, Party C’s interest; 15%,
Party B’s and Party C’s interest will be collectively referred to as “Object Equity Interest”).
Upon the Transferee’s acquisition of such equity interest, the Object Company shall become a
wholly foreign-owned enterprise.



The Transferors, the Transferee and Mr. Lu Chunliang executed the Framework Agreement on October
27,2007.



For the above purpose, after friendly consultations on the principles of equality and mutual
benefit, the parties to this Contract have reached the following terms and conditions in accordance
with the Corporate Law of the People’s Republic of China, the Contract Law of the People’s Republic
of China, the Law of the People’s Republic of China on Wholly Foreign-owned Enterprises, and other
applicable Chinese laws and regulations. The parties will abide by and fulfill the Contract in good
faith.




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Chapter One Definitions of the Contract





			
	Article 1.	 	Definition






The terms hereinafter used in this Contract shall have the meanings set forth as
follows;




“AIC” means the authorities of industry and commerce of the PRC or, with respect to the
issuance of any business licenses, filings or registrations effected by or with the
State Administration of Industry and Commerce or any government entity which is
similarly competent to issue such business licenses or accept such filings or
registrations under the laws of the PRC.




“Audited Balance Sheet” shall mean the balance sheet audited by Beijing Jingdu CPA
Limited, a copy of which is attached hereto as Appendix 1.




“Base
Date” shall mean September 30, 2007.




“Capital Increase” shall mean the newly registered capital increase and investment in the
Object Company by the Transferee in the amount of RMB 12593,011 upon the Transferee’s
acceptance of the Object Equity Interest.




“Claims” shall mean claims (arbitration or litigation), actions, demands, proceedings,
judgment liabilities, damages, costs and expenses (including legal costs and
disbursements) howsoever arising.




“Delivery Date” shall mean the date on which the Object Equity Interest Transfer has
undergone the formality of registering the amendments with the Administration of
Industry and the Commerce (the “AIC”) which has issued the New Business License to the
Object Company upon examination and approval.



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“Damages” shall mean any and all damages caused by direct losses and liabilities, losses caused by
obligations, shared expenses, or judgments, awards and fines (including, without limitation, those
arising out of any pending or threatened action, suit, proceeding or judgment, as well as any
settlement fees), any related reasonable out-of-pocket costs and expenses (including, without
limitation, reasonable attorneys’, consultants’ and experts’ fees and expenses), and consequential
damages that include, but are not limited to loss of profit or any value reductions due to lost
earnings, shall be excluded to the extent permitted by applicable laws.




“Disclosed Information” shall mean the related materials, explanation statement and other
information disclosed and made by the Transferors to the Transferee and its retained intermediaries
in accordance with the Framework Agreement in the course of the due diligence investigation of the
Object Company, fee Hydropower Project and the Object Equity Interest, attached hereto as Appendix
2.




“Employees” shall mean all personnel who have either a labor or an actual or deemed employment
relationship with the Object Company or who were appointed by the Transferors to work in the Object
Company or who work in the Object Company based on some other form of employment relationship as of
the Base Date.




“Encumbrance” shall mean any mortgage, assignment, lien, charge, pledge, title retention, right to
acquire, security interest, option, trust interest, pre-emptive right, and any other restrictions
caused by other circumstances.




“Equity Interest Transfer” shall mean the transfer of all of the Object Equity Interest of the
Object Company by the Transferors to the Transferees as contemplated in the Contract.



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“Examination and Approval Authority” shall mean the relevant Chinese governmental departments
having authority defined by relevant Chinese regulations on examining and approving foreign
investment projects to examine and approve this Contract and to grant approval for the transfer of
the Object Equity Interest and the Capital Increase contemplated in this Contract, including
without limitation, the MOC, NDRC, SAFE, AIC and (CSRC, if applicable).




“Execution Date” shall mean the date this Contract is signed by the Parties.




“Force Majeure” shall bear the meaning ascribed thereto in Article 47.1.




“Foreign Exchange Capital Account” shall bear the meaning as ascribed thereto in Article 8.1.




“Framework Agreement” shall mean the Framework Agreement of Zhejiang Jingning Yingchuan Hydropower
Development Co., Ltd, Qingtian Wuliting Hydropower Development Co., Ltd, Suichang County
Jiulongshan Hydropower Development Co., Ltd and Zhejiang Guangsha Beichuan Hydropower Development
Co., Ltd executed by Transferee, Zhejiang Guangsha Stock Co., Ltd, Zhejiang Guangsha Hydropower
Investment Co., Ltd and Party C on October 27, 2007.




“Hydropower Project” shall mean the hydropower station project located in Yingchuan, legally owned
and operated by the Object Company.




“Material Agreements” includes any oral or written agreement, arrangement, or understanding
outside the ordinary course of business, including any (a) consulting agreement not terminable on
notice within thirty (30) days, (b) agreement with respect to any employee of the Object Company
providing any term of employment or compensation guarantee, (c) agreement on change in control or
any other agreement with any executive officer or other key employees of the Object



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Company of which the benefits are contingent, or the terms of which are materially altered, upon
the occurrence of a transaction involving the Object Company of the nature contemplated by the
Contract, (d) agreement or plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, of which any of the benefits will be increased, or
the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions
contemplated by the Contract or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by the Contract, (e) agreement containing
covenants that limit the ability of the Object Company to compete in any line of business or with
any person, or that involve any restriction on the geographic area in which, or method by which,
the Object Company may carry on its business (other than as may be required by law) or exclusive
dealings of contracts that limit the ability of the Object Company to contract certain persons or
to engage, whether directly or indirectly, in certain activities.




“MOC” means the Ministry of Commerce, or, with respect to any matter submitted for examination and
approval by the Ministry of Commerce of the People’s Republic of China, any local government
authority of commerce which is similarly competent to examine and approve such matter under the
laws and regulations of the PRC.




“NDRC” means the National Development and Reform Commission, and any local governmental
development and reform commissions.




“New Business License” shall mean the new business license of the Object Company issued by the
industrial and commercial administration after completion of the Capital Increase and Equity
Interest Transfer.




“Object Company” shall mean Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd.



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“Object Company Financial Statements” shall bear the meaning ascribed thereto in Article 32.16.




“Object Equity Interest” shall mean (i) the 85% equity interest of the Object Company held by
Party B, fully paid, and (ii) the 15% equity interest of the Object Company held by Party C, fully
paid.




“Original Bank Loans” shall mean all outstanding loans of the Object Company as of the Base Date,
a list of which is attached hereto as Appendix 4.




“Party B” shall mean Zhejiang Guangsha Stock Co., Ltd, a company registered and established under
the laws of People’s Republic of China, registered address at 21 Wuningxilu, Dongyang City,
Zhejiang Province.




“Party C” shall mean Zhejiang Guangsha Hydropower Investment Co., Ltd, a company registered and
established under the laws of People’s Republic of China, registered address at 157-1 Liqinglu,
Lishui City Zhejiang Province.




“Provisional
Account” shall bear the meaning as ascribed thereto in Article 7.1 of this Contract.




“Purchase Price” shall mean the price paid by Transferee for the purchase of the Object Equity
Interest as set out in Article 5 pursuant to the Contract.




“PRC” or “China” shall mean the People’s Republic of China, and insofar as this Contract is
concerned, shall exclude Hong Kong, Taiwan and Macao.




“Renminbi” or “RMB” shall mean the legal currency of the PRC.



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“SAFE” means the PRC State Administration of Foreign Exchange, and any local governmental foreign
exchange authorities.




“SCRS” means the China Securities Regulatory Commission and any of
its designated agencies.




“State-owned Properly Right”, pursuant to Property Law of the People’s Republic China and other
related regulations, shall mean all property rights owned by the PRC government or state-owned
enterprises which are not allowed or allowed under certain terms and conditions to be transferred
or allotted to natural persons, private companies, or institutions.




“Taxes” means all national and local internal revenue taxes under PRC laws including without
limitation all income, capital gains, withholding (including expanded, final and compensation
withholding), value added, documentary stamp, percentage, payroll, excise and any other taxes,
levies, charges, deductions or duties of any nature and includes any corresponding interest,
expense, fine, penalty or other charge payable, claimed, estimated or assessed in respect of any
such Taxes and imposed by any governmental authority.




“Taxation Claims” means claims for taxation which have been made or may hereafter be made against
the Object Company:




(a) before the Delivery Date and in respect of or arising from any transaction effected or deemed
to have been effected by the Object Company, whether reported or filed in respect of, prior to, on
or after such date; or




(b) by reference to any income, profits or gains earned, accrued or received by the Object Company
on or before the Delivery Date, whether reported or filed in respect of, prior to, on or after [
        ];




“Third Party” shall mean any natural person, legal entity, or any other



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organization or entity, other than the parties to this Contract.



Chapter Two Transfer Object





			
	Article 2.	 	Subject of the Equity Interest Transfer






The subject of this Contract is the Object Equity Interest. Subject to the terms and
conditions herein, the Transferors hereby sell and transfer to the Transferee, and the
Transferee buys and acquires from the Transferors the Object Equity Interest together
with all rights, interests and entitlements attached thereto and free of any
Encumbrance in consideration of the Transferee paying the Purchase Price to the
Transferors in accordance with the terms and conditions of this Contract.




			
	Article 3.	 	Pre-emptive purchase right






Each Transferor hereby waives its respective pre-emptive purchase rights to the equity
interest of the Object Company to be transferred by the Transferors to the Transferee
pursuant to the terms of this Contract.




			
	Article 4.	 	The Transferors agree to comply with the terms and conditions of this Contract and to
transfer to the Transferee the Object Equity Interest held by them and all the rights,
interests and entitlements attached thereto. The Transferee agrees to comply with the terms
of the Contract and accepts the Object Equity Interest. After the transfer of the Equity
Interest is completed in accordance with the provisions of this Contract, the Transferee will
hold 100 percent (100%) of the equity interest in the Object Company and the Transferor will
no longer hold any equity interest in the Object Company.





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Chapter Three Purchase Price





			
	Article 5	 	The Transferors and the Transferee agree that the Purchase Price shall be determined by consideration of and reference to the assessed value of the assets of the Object Company as set out in an evaluation report issued by an assets evaluation agency (with competent qualifications). Upon mutual consultation, the Transferors and the Transferee confirm and
agree that the final Purchase Price shall be RMB 291,436,989                      (the
“Purchase Price”). The respective amount of payment made to each Transferor shall be as follows:



Party B: RMB 247,721,441;


 Party C: RMB 43,715,548.






			
	Article 6	 	The Purchase Price hereunder shall be paid by the Transferee in RMB unless the Contract provides otherwise. The Transferors and the Transferee agree that in the event any amounts expressed in RMB are to be paid in US Dollars, the parties will apply the RMB/US Dollars exchange rate equivalent to the median rate of RMB and US Dollars published by People’s Bank of China on the date of payment specified in this Contract.






			
	Article 7	 	The Remittance of the Purchase Price






	7.1	 	Promptly upon approval of this Contract by the Examination and Approval Authority, thereby converting the Object Company into a wholly foreign invested enterprise (hereinafter referred to as a “WFOE”), and the approval by SAFE for the opening of a domestic provisional foreign exchange account for the Equity Interest Transfer, the Transferee shall open a provisional foreign exchange capital account (the “Provisional Account”).
	 
	7.2	 	Within five (5) days of opening the Provisional Account, and on the condition that the provisions under Article 7.2.1 are completed and satisfied by the Transferee, the Transferee shall remit the Purchase




10









 












	 	 	Price in a lump-sum to the Provisional Account.
	 
	7.2.1	 	The Parties to this Contract agree that all obligations of the Transferee
under this Contract including but not restricted to, remitting the Purchase Price to the Provisional Account, are subject to the fulfillment of the following conditions:
	 
	7.2.1.1	 	The assumption and succession of the previous bank loans of The Object Company has been consented and acknowledged by the lending bank in accordance with Article 22.8.3 of this Contract.
	 
	7.2.1.2	 	The obligations of the Object Company and the Transferors under the Contract shall have been duly performed and the representations and warranties of the Transferors contained in this Contract shall be true and correct.
	 
	7.2.1.3	 	The Transferee shall have completed all business, legal, project and financial due diligence, and any problems requiring resolution identified by any Transferee shall have been resolved to the Transferee’s satisfaction.
	 
	7.2.1.4	 	As of the exact day of execution of this Contract, the Letter of Guarantee, attached hereto as Appendix 4, has been signed on terms and conditions satisfactory to the Transferee.
	 
	8.1	 	First Installment
	 
	 	 	On the date the Purchase Price reaches the Provisional Account in accordance with legal
procedures, the Object Company obtains the power business permit issued by the Power
Regulatory Commission and





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	 	 	the social insurance registration certificate, the Transferee shall pay 80% of the
Purchase Price (“First Installment”) to the Transferors; both of the Transferee and the
Transferors agree that 80% of the yield generated by Yingchuan Hydropower Project shall
belong to the Object Company from the date of the First Installment to next
installment, and the Transferors shall not dispose of, reduce or damage the aforesaid
yield in any manner, otherwise, the Transferee is entitled to directly pursue the
Transferors for compensation.






	8.2	 	Second Installment






	 	 	While the transfer stipulated under Article 17 hereunder is completed and confirmed
in writing by both of the Transferors and the Transferee, the Transferee shall pay 18% of the
Purchase (“Second Installment”) to the Transferors; both of the Transferors and the
 Transferee agree that since the date of the Second Installment, all yield generated by
Yingchuan Hydropower Project shall belong to the Object Company, and the Transferors shall
 not reduce or damage such yield, otherwise the Transferee is entitled to directly pursue the Transferors for compensation.
	 
	8.3	 	Performance Deposit
	 
	 	 	Within five (5) days after the Object Company has
obtained the power business permit and the examining and accepting of the Yingchuan Hydropower Project is completed as evidenced by certificates of qualifications from all relevant government departments, the Transferee shall pay 2% of the Purchase Price as performance deposit to the Transferors.
	 
	8.4	 	If any Taxes, fees or other charges are levied on the Purchase Price in the PRC, the same shall be borne by the Transferee and the Transferors, however, the Stamp Tax, to be paid by the Transferee through the Transferors lawfully withholding it, shall be paid to the Transferors within three (3) days upon effectiveness of this Contract.






			
	Article 9	 	The Transferors shall issue official and valid receipts to the Transferee promptly after each receipt of the Transferee’s payment of the Purchase Price. Within five (5) days after receipt of the Transferee’s payment of the Purchase Price, the Transferors shall have completed the foreign exchange registration of the Equity Interest Transfer with SAFE where





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	 	 	each of the Transferors is located, obtained such certificate
of registration, and provided it to the Transferee.






			
	Article 10	 	On the date of the First Installment stipulated in Article 8.1 hereunder, Transferors shall repay RMB 2,500,000 out of the deposit of RMB 8,000,000 made by the Transferee pursuant to the Framework Agreement, to the Third Party company within China designated by Transferee.





Chapter Four Capital Increase





			
	Article 11	 	Capital Increase






	 	 	Simultaneously with the Equity Interest Transfer, the sum of RMB 12,593,011 (the
“Capital Increase”) will be injected to the Object Company to increase its registered
capital.






			
	Article 12	 	Remittance of the Capital Increase






	12.1	 	Promptly upon the approval of this Contract by the Examination and
Approval Authority, the Transferors and the Transferee shall work jointly on opening a Foreign Exchange Capital for the Object Company to be jointly kept by them. The Object Company’s official seal (to be kept by the Transferors) and the personal seal of Transferee’s authorized representative (to be kept by the Transferee) will be reserved at the Foreign Exchange Capital Account.

	 
	12.2	 	 The Transferee shall remit the Capital Increase to the Foreign
Exchange Capital Account simultaneously with the remittance of the Purchase Price to the Provisional Account as provided in Article 8.2 of this Contract.






			
	Article 13	 	Use of the Capital Increase






	13.1	 	The Capital Increase will be used to discharge those outstanding





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	 	 	debts of the Object Company incurred after the restructuring of credits and debts as
listed in Appendix 6, and to satisfy the requirements for running the Object Company
and expanding business.






	13.2	 	The Transferors shall, within three (3) days of the Transferee remitting
the Capital Increase to the Foreign Exchange Capital Account, complete the restructuring of its credits and debts listed in Appendix 6 of this Contract (“Credits and Debts Restructuring”), and the Third Party designated by the Transferors shall sign official credits and debts restructuring agreements (“Restructuring Agreements”) with creditors of the Object Company and the Object Company itself in form and content approved by the Transferee.
	 
	13.3	 	The Capital Increase amount shall not be disbursed by the Object Company until the following conditions
 have been satisfied:







The Transferors shall have completed the restructuring of its credits and debts as listed in Appendix 6 ( as evidenced by the restructuring agreement entered into between creditors, debtors, the Object Company and approved by the Transferee);






			
	Article 14	 	After the Equity Interest Transfer and the Capital Increase has been completed, the registered capital of the Object Company shall be changed to RMB 153,063,011.





Chapter Five Authorization Approval and Handover





			
	Article 15	 	Within three (3) days of execution of this Contract, the Transferors and the Transferee
shall make joint application to the Examination and Approval Authority to perform the
examination and approval procedures for this Contract. If examination and approval of this
Contract is required from CSRC, NDRC, the Water Conservancy Department and the Power
Department, this Contract shall be submitted to the competent





14









 






	 	 	departments of such organizations for such examination and approval.






			
	Article 16	 	The Transferors and the Transferee shall co-operate and jointly undertake the registration of the transfer of the Object Equity Interest and apply for the New Business License with the relevant governmental authorities.






			
	Article 17	 	Handover






	17.1	 	Upon the date on which this Contract is approved by the Examination and Approval Authority, the Transferors and the Transferee shall organize a team responsible for the handover and take joint and active actions to conduct the handover of the Object Company, the Hydropower Project and the Object Equity Interest, including but is not limited to handing over the production, operation and management, accounting and finance, assets checking and accounting, file documents, certificates and licenses, seal
s and project construction to the Transferee.
	 
	17.2	 	The Transferor shall assure that the assets of the Object
Company Hydropower Project to be handed over to the Transferee shall not have any loss or damage compared with the result of the due diligence listed in Appendix 5 and the audit by the Transferee listed in Appendix 1. The Transferors shall make a comprehensive and complete handover to the Transferees pursuant to the audit and completion of such handover is confirmed by the Transferees.
	 
	17.3	 	The handover shall include but is not limited to:






	 	(1)	 	The business seals, special financial seals and special contract
seals, [to list all] of the Object Company shall be handed over to the
Transferee;
	 
	 	(2)	 	The Transferors and the Transferee shall check and count the assets
of Object Company, compile the assets inventory and perform the handover with
confirmation via signatures of the jobsite representatives of the Transferors and
Transferee. The assets loss ascertained through the assets check and count




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	 	 	 	procedure shall be compensated by the Transferors at the assessed value for such
missing assets;
	 
	 	(3)	 	All original engineering drawings, contracts, agreements
(including but not limited to project contracts, equipment contracts,
installation contracts and material contracts) and any other file documents of the
Hydropower Project shall be handed over to the Transferee;
	 
	 	(4)	 	The financial books and the accounting files shall be handed over to
the Transferee;
	 
	 	(5)	 	The Transferors shall make technical disclosure to the Transferee
about the companies responsible for the construction of the Hydropower Projects,
equipment supply (manufacturer), design, supervision, quality inspection, output
line and otherwise; and
	 
	 	(6)	 	Handover of all other materials and files of the Object Company;
	 
	 	(7)	 	Other handover procedures as may be reasonably required by the
Transferee,






	17.4	 	The handover shall be completed within seven (7) days of the First Installment and confirmed by the signatures of respective representatives of the parties.
	 
	17.5	 	The Transferors shall assure in the course of the handover, the construction and production of the power station is continuous, steady and secure.
	 
	17.6	 	The Transferors shall give their full cooperation and complete the handover. If the Transferors do not give cooperation and incur




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	 	 	Damages to the Transferee or to the Object Company after the Equity Interest Transfer is completed, the Transferors shall bear the liability for compensation pursuant to the relevant laws.
	 
	17.7	 	The Transferors agree that the Hydropower Project and related
equipment and facilities of the Object Company have no quantitative and qualitative
problems inconsistent with the evaluation report. If any quantitative and qualitative
problems with the hydropower projects and equipment incur any losses to the
Transferee, the Transferee is entitled to pursue the Transferors for compensation.





Chapter Six Assumption of Credits and Debts





			
	Article 18	 	The Original Bank Loans of the Object Company as of the Base Date which have been disclosed by the Transferors to the Transferee, shall be assumed by the Object Company after the Equity Interest Transfer is completed.






			
	Article 19	 	The following financial items of the Object Company shall be assumed by the Transferors in accordance with Article 13.1 of this Contract:






	19.1	 	The monetary fund, the accounts receivables and the accounts payable listed in Appendix 6 and arising prior to the Base Date shall be enjoyed or borne by the Transferors. In this regards, the Transferors shall save harmless the Transferee or the Object Company from any Claims, demands and losses arising out of such monetary fund, accounts receivable and accounts payable noted in Appendix 6.
	 
	19.2	 	Except for the Disclosed Information set forth in Appendix 2, the




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	 	 	debts (including contingent debts) of the Object Company as
of the Base Date which the Transferors have not disclosed in Appendix 2 of this Contract, when executing this Contract.
	 
	19.3	 	All the debts (including contingent debts and debts that have not
been part of assets, e.g. litigation) of the Object Company incurred during the period from the Base Date of the Equity Interest Transfer to the Delivery Date.






			
	Article 20	 	Financial affairs from the Base Date to the Delivery Date (“Period”)






	20.1	 	Except for circumstances specified in Article 8 of this
Contract, the credits and yield of the Object Company within the Period shall belong to the Transferors, allocated and disposed of in accordance with the previous Articles of Association.
	 
	20.2	 	Taxes (if any return) incurred prior to the Delivery Date in the normal business course of the Object Company shall belong to the Transferors. The said taxes received by the Object Company after the Delivery Date shall be paid to Zhejiang Guangsha Hydropower Investment Corporation Limited within three (3) days upon receipt of the same.
	 
	20.3	 	Within the Period, the interest on the loans of the Object Company shall be borne by the Object Company.
	 
	20.4	 	On the immediate date following the Delivery Date, the Transferors and the Transferee shall jointly confirm the aforesaid amounts.






			
	Article 21	 	For the Credits and Debts which shall be assumed by the
Transferors in accordance with Article 19 of this Contract, if the right holder makes claim against the Object Company and the Object Company assumes the





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	 	 	credits and debts in advance in favor of the right holder, the Object Company or the
Transferee will be entitled to seek compensation from the Transferors separately
pursuant to this Contract and the Transferors shall indemnify the Object Company or the
Transferee (if the Transferee assumed such Credits and Debts) and save harmless the
same from all such claims and demands. The scope of compensations shall include the
debts themselves, all costs and expenses incurred by the Object Company and the
Transferee in handling and settling the debts, including but not limited to litigation
cost, arbitration cost, enforcement cost, attorney’s cost, and travel cost.





Chapter Seven Rights and Obligations





			
	Article 22	 	Rights and Obligations of the Transferors






	22.1	 	When this Contract is signed, the Transferors shall present to the Transferee the valid legal documents and the internal approval and authorization documents specified in Article 32.1 of this Contract that evidence the establishment of the Object Company and that the Transferors legally hold the Object Equity Interest.
	 
	22.2	 	Upon execution of the Contract, the Transferors shall not commit any act which damages and deceases or may damage and decrease the Object Company Hydropower Project’s assets, rights and interests.
	 
	22.3	 	Upon execution of this Contract, the Transferors shall not
exercise any rights over the Object Equity Interest, such as any actions to establish a mortgage, pledge, transfer and trusteeship over the Object Equity Interest which may influence the actual fulfillment of the Contract and the Transferee’s procurement of the Object Equity Interest as provided in this Contract.





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	22.4	 	Upon execution of the Contract, the Transferors agree that they and the
Object Company shall manage the Object Company normally with due care of a good faith
managing party, which shall include but not limited to (i) no change to the constitutional
documents of the Object Company; (ii) no change to the accounting policies of the Object
Company after the execution of the Contract; and when they dispose of the assets, credits and debts
and all other rights and obligations of the Object Company in the normal course of business, they shall give advance notice to the Transferee and procure approval from the Transferee, otherwise all consequences arising from such disposal actions shall be borne solely by the Transferors themselves.
	 
	22.5	 	The Transferors shall actively assist the Transferee to handle all approval procedures of the Equity Interest Transfer and provide all necessary cooperation.
	 
	22.6	 	The Transferors shall actively assist the Transferee to handle the registration procedures related to the Equity Interest Transfer and agree that they and the Object Company shall provide all necessary cooperation.
	 
	22.7	 	The Transferors shall pursuant to the provisions under this Contract conduct the procedures for the change of the Object Company and the Object Equity Interest and the Transferors agree that the assets of the Object Company’s Hydropower Project handed over to the Transferee shall not have any loss or damage compared with the assets of Hydropower Project confirmed by audit and due diligence on the Base Date.
	 
	22.8	 	The Transferors shall procure continuity of the original bank loans of the Object Company listed in the Appendix 4 to this Contract as follows:
	 
	22.8.1	 	Prior to the date of the Equity Interest Transfer, for matters concerning
the validity of the Original Bank Loan contracts of the Object Company, the amount of
the loans, the terms of the loans, the deadline of




20









 






	 	 	repayment and the terms of extension of the loans, the Transferors shall not commit
any act adverse to the interest of the Object Company after the Equity Interest
Transfer is completed.
	 
	22.8.2	 	The Transferors agree that, the finance amount, loan terms, repayment time period, extension terms and all other conditions promised to the Object Company by the lending banks of the Original Bank Loans prior to the Base Date of the Equity Interest Transfer, shall not have any change adverse to the Object Company prior to the date of the Equity Interest Transfer and Delivery Date.
	 
	22.8.3	 	The Transferors and the Transferee shall make joint efforts to coordinate with
 the related lending banks on succession of the Original Bank Loans
of the Object Company.
Procurement of the said consent and confirmation from the lending banks is a precondition for the Transferee
to remit the Purchase Price pursuant to Article 7.2 of this Contract.
	 
	22.8.4	 	In accordance with the provisions of Articles 22.8.2 and 22.9 of this Contract, the Transferors shall provide relevant guarantees on the Original Bank Loans to the satisfaction of the lending banks after the Equity Interest Transfer.
	 
	22.8.5	 	The Transferors shall obtain from all lending banks a waiver of them recovering all or part of the Original Bank Loans before they are due and payable in respect of matters concerning the Object Company’s assets mortgaged to the lending bank, contracted operations, the Equity Interest Transfer that may enable such lending banks to commit the said act.
	 
	22.9	 	The Transferors shall procure that the guarantees of the Original
Bank Loans of the Object Company shall continue to be fulfilled by the original
guarantor after the Equity Interest Transfer is completed. Upon execution of this
Contract, the Transferors shall provide the letter of commitment issued by the
original guarantor of the Original Bank Loans of the Object Company that the said




21









 






	 	 	guarantor will continue to fulfill the guarantees pursuant to the original terms and
conditions. Such letter of commitment is attached to this Contract as Appendix 8.
	 
	22.10	 	If the original guarantor of the Original Bank Loans or the
Transferors comply with Articles 21.8.4 and 21.9 of this Contract and provide the guarantees of the Original
Bank Loans of the Object Company, the Transferee shall pay the guarantee cost pursuant to the following terms

to the original guarantor or the Transferors: prior to the payment of performance deposit specified in
Article 8.3, the Transferee shall pay 75% of the market guarantee cost (3% of the performance deposit
per year); subsequent to the payment of performance deposit specified in Article 8.3, the Transferee shall pay fifty percent (50%) of the prevailing guarantee fee rate of the market
(i.e., 3% of the guarantee amount per year), that is, 1.5% of the
guarantee amount per year as a security fee, and the Transferee should accordingly provide a proportional counter guarantee with equity or assets acknowledged by the Transferors. Other items may be negotiated and specified by both parties separately.
	 
	22.11	 	The Transferors shall, prior to the date March 31, 2008, complete the legal “completion and acceptance” process for the Yingchuan Hydropower Station Project and bear the expenses for such completion and acceptance as well as renovation.
	 
	22.12	 	The Transferors shall ensure that the Object Company has obtained the power business license for the legal operation of the Hydropower Project prior to March 31, 2008.
	 
	22.13	 	The Transferors shall be responsible for and ensure that the Object Company has obtained the water procurement license with regard to Yingchuan Hydropower Station Project.
	 
	22.14	 	The Transferors shall give timely written notice to the Transferee






22











 






	 	 	when they come into knowledge of any acts, events or conditions which may make
the Contract impossible to be partly or completely fulfilled.
	 
	22.15	 	The Transferors shall be entitled to receive and accept the Purchase Price pursuant to
the provisions of this Contract.
	 
	22.16	 	The Transferors shall be jointly and severally liable for the obligations,
representations, statements and warranties of each Transferor under this Contract.





Article 23 Rights and Obligations of the Transferee





	23.1	 	Simultaneous with the Execution of this Contract, the Transferee shall present to the
Transferors the internal approval and authorization documents specified in Article 33.2 of
this Contract
	 
	23.2	 	The Transferee will assist the Transferors handle all approval procedures of the Equity
Interest Transfer and provide all necessary cooperation.
	 
	23.3	 	The Transferee will actively assist the Transferors to handle the registration procedures
with AIC of the Equity Interest Transfer and agree that they and the Object Company shall
provide all necessary cooperation.
	 
	23.4	 	The Transferee shall pay the Purchase Price to the Transferors and shall pay the
Increased Capital to the Object Company in accordance with the provisions of this
Contract.
	 
	23.5	 	The Transferee shall give timely written notice to the Transferors when it comes into
knowledge of any acts, events or conditions which may make the Contract impossible
to be partly or completely fulfilled.





23









 






			
	Article 24	 	The Transferors and the Transferees shall make joint efforts and
shall cooperate preparing/completing all necessary application documentation
and to complete all procedures to facilitate the Equity Interest Transfer
contemplated by this Contract, including but not limited to, the examination
and approval process and the registration and record filing process. All costs
incurred therein shall be borne by each party respectively.





Chapter Eight: Fulfillment and Unilateral Termination





			
	Article 25	 	The parties shall fulfill their Contractual obligations fully and completely pursuant
to the provisions of this Contract.





Article 26   The Transferee shall have the right to terminate this Contract if:





	26.1	 	Within five (5) days of opening the Foreign Exchange Capital Account
specified in this Contract, the Transferee and the Object Company fail to obtain
the consent and confirmation of the lending bank specified in Article 21.8.3 of
this Contract;
	 
	26.2	 	The Transferors have not disclosed relevant facts and events prior to the Base Date, and
such facts that will materially and negatively impact the continued legal and normal
operations of the Object Company after the Equity Interest Transfer.
	 
	26.3	 	The Transferors have not disclosed facts and events prior to the Base Date, that will
subject the Object Company to administrative penalty, and the administrative penalty arising
from such undisclosed facts and/or events will impact the continued legal and normal
operation of the Object Company after the Equity Interest Transfer.
	 
	26.4	 	If the Transferee elects to terminate this Contract as hereinbefore provided, it shall do
so by written notice to the Transferors. Within two (2) days of receipt of the termination
notice from the Transferee, the Transferors shall repay to the Transferee all payments made
by the




24









 












	 	 	Transferee pursuant to the Framework Agreement and this Agreement.
	 
	26.5	 	If the Transferee elects to terminate this Contract pursuant to Article
26.1 of this Contract, the Transferors and the Transferee shall be mutually
released from the provisions of this Contract and bear no further liability.
	 
	 	 	If the Transferee elects to terminates this Contract pursuant to Articles
26.2 or 26.3 of this Contract, the Transferors shall bear liability for
breaching this Contract under relevant provisions of this Contract.






			
	Article 27	 	If this Contract and the Equity Interest Transfer fail to be approved by the
Examination and Approval Authority, and such failure is not caused by either the Transferors
or the Transferee, this Contract shall be deemed to be terminated. The Transferors shall,
within 3 days of the termination of this Contract, repay to the Transferee all payments paid
by the Transferee pursuant to the Framework Agreement and this Contract. Thereafter, the
parties will be mutually released from this Contract without further liability.






			
	Article 28	 	If any Party fails to complete the transfer of the object company equity interest of
any of the other object companies under the Framework Agreement, both the Transferors and
the Transferee shall have the light to terminate this Contract.






			
	Article 29	 	Unless this Contract expressly specifies otherwise or the parties agree in writing,
neither party to this Contract shall terminate or dismiss this Contract without the consent of
the other Party.






			
	Article 30	 	Any Taxes or fees arising out of execution and fulfillment of this Contract shall be
bome by each of the Transferors and Transferee according to their respective tax liabilities
under PRC law.






			
	Article 31	 	Delivery Date





25









 






On Delivery Date, valid title to the Object Equity Interest will pass to the
Transferee free and clear of any Encumbrance.



Chapter Nine Representations And Warranties By The Parties





			
	Article 32.	 	Disclosures, Representations and Warranties by Transferors


As a material inducement to the Transferee to enter into this Contract and
acquire the Object Equity Interest hereunder, the Transferors, jointly and
severally, hereby represent and warrant to the Transferee as follows:






	32.1	 	Each of the Transferors has full corporate power to execute and deliver the Contract, to
perform its respective obligations hereunder, and to consummate the transactions contemplated
hereby. All corporate acts required to be taken by the Transferors to authorize the
execution, delivery and performance of the Contract and the consummation of the transactions
contemplated hereby have been duly and properly taken.
	 
	32.2	 	The Contract has been duly executed and delivered by the Transferors and, assuming the due
execution and delivery hereof by the Transferee, the Contract constitutes a legal, valid and
binding obligation of the Transferors, enforceable against each of the Transferors in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting the rights and remedies of
creditors generally.
	 
	32.3	 	As of the date hereof, the registered capital of the Object Company in the amount of RMB
140,470,000 has been fully paid in compliance with PRC law.
	 
	32.4	 	Each of the Transferors has full right and authority to transfer their portion of the
Object Equity Interest to the Transferee in accordance





26









 






	 	 	with the Contract. Unless otherwise provided by the law of PRC, the Object
Equity Interest is not classified as a State-owned Property Right that is not
allowed to be transferred or allotted or encumbered to any natural persons,
private companies, or institutions.
	 
	32.5	 	The execution, delivery and performance of this Contract by the Transferors, and the
consummation by the Transferors of the transactions contemplated hereby will not (i) violate
any provision of the charter, by laws or any other organizational document of the Object
Company, (ii) violate any provision of, or constitute a default (with or without notice or
lapse of time) under, or give rise to a right of termination, cancellation or acceleration of
(or entitle any party to accelerate whether after the giving of notice or lapse of time or
both) any obligation under any agreement, indenture, undertaking or other instrument to which
either the Object Company or the Transferors is a party or by which it or any of its
properties may be bound or affected, (iii) violate any law, administrative regulations,
regulatory documents, rules, approval documents or any judgment, injunction, order or
decree, the violation of which could have a material adverse effect on the business,
operations, assets or financial condition of the Object Company, or (iv) result in the
creation or imposition of (or the obligation to create or impose) any Encumbrance or
restriction of any kind on any of the properties of the Object Company or the Shares. Each
Transferor has obtained the consents, approvals or authorization to enter into the Contract
required from its board of directors and/or department in charge pursuant to its Articles of
Association or by law. Conclusion of the Contract does not constitute a breach of any
agreement or law, administrative regulations, regulatory documents, rules and approval
documents by which Transferor is bound.
	 
	32.6	 	All information and documents in relation to the Object Company and the Object Equity
Interest that a Transferor has provided to the Transferee prior to the execution of the
Contract are true and complete.
	 
	32.7	 	All Object Company related materials and facts known or held by the
Transferors, have been disclosed to the Transferee, including materials and facts
which have or may have an adverse material effect on any





27









 






	 	 	Transferors’ ability of full fulfillment of their obligations under the Contract,
or if disclosed to the Transferee, have or may have an adverse material effect on
the Transferee’s willingness to execute and fulfill the Contract. Such materials
and facts provided by the Transferors to the Transferee do not contain any false
or misleading statements. Except for the Disclosed Information, no such
conditions exist as affecting the legitimacy and validity of the Equity Interest
Transfer, or affecting the legal rights and interests of the Object Company. All
the copies of the materials supplied by the Transferors during the due diligence
to Transferee or any professional agencies delegated by the Transferee shall be
the authentic duplicates of the originals and shall be true and reliable. All
debts (including contingent debts) undisclosed by the Transferors in writing
shall be jointly assumed by the Transferors.
	 
	32.8	 	Subject to the matters set out in the Disclosed Information, the Object Company is a validly
established legal person, validly existing and in good standing under Chinese law .
	 
	32.9	 	The Object Company has a good and marketable title for all its properties and assets, real
and personal, as reflected in the Audited Balance Sheet as Appendix 1 (the “Assets”). except
as set out in the Disclosed Information, the Assets have been fully paid for and free of any
Encumbrance, pledge, mortgage or retention of title. All Assets are structurally sound with no
material defects, in good operating condition and fit for their purposes. None of the assets
is in need of maintenance or repairs except for ordinary routine maintenance and repairs,
except the conditions fully disclosed to the Transferee by the Transferors.
	 
	32.10	 	The Hydropower Project has been approved by all competent governmental authorities in China
and is in full compliance of all relevant laws, regulations, regulatory documents,
rules and approval documents in China including holding all required rights to use the Land
upon which is located the Hydropower Project. The Object Company has also obtained
all the licenses, registrations, permits and approvals to operate the same, a list of





28









 






	 	 	which is attached hereto as Appendix 2, all of which are currently valid with no
violations thereof.
	 
	31.11	 	The Object Company and any of its officers, agents or Employees,
have not committed or omitted to do any act or thing, the commission or omission
of which is in contravention of any law or legislation and which may have a
material adverse effect on the Object Company or any of its activities.
	 
	32.12	 	Neither the Object Company, the Assets, the Hydropower Project, the
interests of the Transferors in the Object Equity Interest, nor any person for
whom it may be liable, is or has been in the period from its establishment,
engaged in any prosecution, litigation, arbitration proceedings or administrative
or governmental investigation or challenge as plaintiff, defendant, Third Party
or in any other capacity. There are no such matters (including customer claims)
pending or threatened in respect of which verbal or written communication has
been given or received by or against the Object Company. There are no facts or
disputes which may or might give rise to any such matters.
	 
	32.13	 	The Object Company has been in compliance with all requirements under Chinese law in respect
of environmental protection, health and safety and hereby states that it has a clean accident
history. No notices, complaints, demands or proceedings have been received by either the
Object Company or any Transferor in relation to environmental issues. There is no condition of
the real property or the land and building which would require any person of the
Object Company to decontaminate or take other remedial action in or around that real
property or building or to contribute to the costs of doing so.
	 
	32.14	 	The Object Company has duly carried out all tax registrations required, filed in the
prescribed manner and within the prescribed time all tax returns required to be filed by it,
it has filed tax returns that are true, correct and complete, has made complete and accurate
disclosure in such tax returns and in all schedules, documents and other materials
accompanying such tax returns, has paid all taxes shown on such tax





29









 






	 	 	returns as being due and payable and has paid all taxes payable under any
assessment or reassessment which a relevant taxing authority is entitled to
collect from the Object Company. No Taxation Claims or any deficiencies for Taxes
of the Object Company have been made, claimed, proposed, or assessed in writing
or otherwise by any governmental authority with respect to the Object Company,
and there are no pending or Taxation Claims or such other threatened audits or
investigations for or relating to any liability or potential liability in the
respect of Taxes of the Object Company.
	 
	32.15	 	The Object Company has provided the Transferee with a list of all
policies (including scope, duration and amount of coverage) of fire, liability,
product liability, worker’s compensation and other forms of liability and casualty
insurance currently in effect with respect to the Object Company. It has no
liability (whether contingent or otherwise) for any unpaid salary, wages, unused
entitlements, long service leave, social contributions, housing fund, (medical)
insurance, taxation or other matter in relation to the employment of any person.
	 
	32.16	 	No claims have been asserted by any person to the use of intellectual
property rights including patents, trademarks, trade names, copyrights,
technology, know-how or processes or challenging or questioning the validity or
effectiveness of any such license or agreement, and there is no valid basis for
any such claim. The use of any intellectual property rights by the Object Company
does not infringe on the rights of any Third Party.
	 
	32.17	 	Attached hereto as Appendix 1 is a true and complete copy the audited
financial statements of the Object Company for the financial years ended on
September 30, 2007 (the “Object Company Financial
Statements”).
	 
	 	 	The Object Company Financial Statements: (a) are true, correct and complete, (b)
are in accordance with the books and records of the Object Company, (c) present
the consolidated financial condition, assets and liabilities of the Object
Company as of their respective dates





30









 






	 	 	and the results of operation and changes in cash flows of the Object Company for
the periods covered thereby, and (d) have been prepared in accordance with
generally accepted accounting principles, consistently applied.
	 
	32.18	 	The Transferors provide a true and complete list of all equipment,
other personal property and fixtures in the possession or custody of the Object
Company which is leased or held under licence or similar arrangement and of the
leases, licenses, agreements, or other documentation relating thereto.
	 
	32.19	 	Other than the leases and subleases listed by the Transferors, the
Object Company is not a party to or bound by any lease, sublease, license or
other instrument relating to real property and the Object Company has not entered
into any other instrument relating to real property. All interests held by the
Object Company under such leases or subleases are free and clear of any and all
liens, charges and Encumbrances of any nature and kind whatsoever.
	 
	32.20	 	All leases or subleases entered into by the Object Company are in good standing and in full
force and effect without amendment and the Object Company is entitled to the benefit of all
such leases or subleases to which the Object Company is a party.
	 
	32.21	 	All amounts of rent and other amounts presently owing under the leases or subleases to which
the Object Company is a party, have been paid.
	 
	32.22	 	The Object Company has complied with all of its obligations under the leases or subleases to
which it is a party, and the Object Company is not in default or breach or has received a
notice of default or breach of its obligations under such leases or subleases.
	 
	32.23	 	All of the information set forth in Appendix 2 to the
Contract is true and correct.






31









 









	32.24	 	All of the tangible assets, including but not limited to machinery,
equipment, vehicles, furniture, office equipment, computer hardware and software
wherever situated and owned by Object Company is set out in Appendix 5 are owned
free and clear of all Encumbrances.
	 
	32.25	 	All material tangible assets of the Object Company used in or in connection with the
business of the Object Company (as is currently being carried out) or any part thereof are in
good condition, repair and (where applicable) proper working order, having regard to the use
and age thereof, except only for reasonable wear and tear.
	 
	32.26	 	The Transferors hereby jointly confirm and assure to the Transferee that the land for the
Hydropower Project of the Object Company is obtained legally.
	 
	32.27	 	The Object Company has provided the Transferee with a list of all governmental licenses,
permits, franchises, approvals and other authorizations of any governmental authority
necessary for the Object Company to own, lease and operate its properties and enable it to
carry on the business as presently conducted.
	 
	32.28	 	True and complete copies of all written Material Agreements have been made available to the
Transferee by the Transferors prior to the date hereof in the course of the due diligence
process.
	 
	32.29	 	No material adverse change has occurred in any of the assets, business, financial condition,
results of operation or prospects of the Object Company or the Hydropower Project has any
other event, condition or state of facts occurred or arisen that might materially and
adversely affect, or threaten to materially and adversely affect, the Object Company, or the
business, operations or prospects of the Object Company or Hydropower Project.





32









 






	32.30	 	From the execution of this Contract till the Delivery Date of the Equity
Interest Transfer, the Transferors will operate and manage the Object Company
and the Hydropower Project in the ordinary course, provided that the operation,
business and conditions of the Object Company and the Hydropower Project will
not have any materially adverse change compared with the status on Base Date;
and that after the execution of this Contract, Transferors shall not take any
acts that might adversely affect the Object Equity Interest, the Object Company
or its Hydropower Project.
	 
	32.31	 	Term of the above representations and warranties: one (1) year from
the date of examination and acceptance or the effective date of this Contract,
whichever comes later.





Article 33 Disclosures, Representations and Warranties by Transferee





	33.1	 	The Transferee is a limited liability company duly established that validly exists and
normally operates under the laws of Cayman Islands.
	 
	33.2	 	The Transferee has full corporate power to execute and deliver the Contract, to perform its
respective obligations hereunder, and to consummate the transactions
contemplated hereby. All
corporate acts required to be taken by the Transferee to authorize the execution, delivery
and performance of the Contract and the consummation of the transactions contemplated hereby
have been duly and properly taken.
	 
	33.3	 	The Contract has been duly executed and delivered by the Transferee
and, assuming the due execution and delivery hereof by the other parties hereto,
the Contract constitutes the legal, valid and binding obligation of the
Transferee, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting the rights and remedies of creditors generally and to
general principles of equity.





33









 






	33.4	 	The execution, delivery and performance of this Contract by the
Transferee, and the consummation by the Transferee of the transactions
contemplated hereby will not (a) violate any provision of the charter, by laws
or any other organizational document of the Transferee, (b) violate any
provision of, or constitute a default (with or without notice or lapse of time)
under, or give rise to a right of termination, cancellation or acceleration of
(or entitle any party to accelerate whether after the giving of notice or lapse
of time or both) any obligation under any agreement, indenture, undertaking or
other instrument to which the Transferee is a party or by which it or any of its
properties may be bound or affected, or (c) violate any law, statute, ordinance,
rule or regulation or any judgment, injunction, order or decree, the violation
of which could have a materially adverse effect on the business, operations,
assets or financial condition of the Transferee.
	 
	33.5	 	The Transferee undertakes that, the new income, credits and debts
of the Object Company generated outside the result of the audit and evaluation
during the period from the base date to the transfer and Delivery Date of the
Equity Interest, shall be enjoyed and borne by the Transferors.





Article 34 Undertakings





	34.1	 	The Transferors hereby agrees with and undertakes to the Transferee
that, from the date hereof and prior to the Delivery Date, the Object Company
shall, and the Transferors shall procure the Object Company to, provide to the
Transferee and such representatives of the Transferee who are directly involved
in and, at the reasonable request of the Transferee, to potential financing
sources in connection with the transactions contemplated hereby (the “Transferee’s Representatives”), reasonable access to the Object Company’s
offices, properties, books and records, officers, counsel, accountants and
contracts during normal business hours, in order for the Transferee and the
Transferee’s Representatives to have an opportunity to make such investigations
of the affairs of the Object Company and its business; provided, however, that
any on-site investigation shall be upon reasonable prior notice and shall not
unreasonably disrupt the personnel and operations of the Object Company.





34









 






	34.2	 	Subject to the terms and conditions herein provided and prior the
Delivery Date, each of the Transferors and the Transferee agrees to, from time to
time, whether before, at or after the Delivery Date, use all commercially
reasonable efforts to take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated hereby and to
cooperate with the other parties in connection with the foregoing, including,
without limitation, using all commercially reasonable efforts (a) to obtain all
necessary consents and approvals from other parties to material loan agreements,
leases and other contracts, (b) to obtain the consents, approvals, licenses,
permits and authorizations that are required to be obtained from any governmental
authority, (c) to prevent the entry of, or to lift or rescind, any judgments or
outstanding orders, injunctions, decrees, stipulations or awards of any nature
adversely affecting the ability of the parties to consummate the transactions
contemplated hereby, (d) to effect all necessary registrations and filings and
submissions of information requested by governmental authorities, and (e) to
fulfill all conditions to the Contract.
	 
	34.3	 	Subject to the terms and conditions of the Contract and until the
Delivery Date, the Object Company and the Transferors shall use all reasonable
efforts to preserve the Object Company’s business intact, to maintain the assets
business, unusual condition, results of operation or prospects of the Object
Company (including the Hydropower Project) in the same condition as on the date
hereof (and with respect to assets, ordinary wear and tear excepted), to keep
available to the Object Company the services of persons employed by the Object
Company and to preserve the goodwill of customers and others having business
relations with the Object Company.
	 
	34.4	 	From the date hereof up to the Delivery Date, the Transferors and the
Object Company shall not, directly or indirectly, (a) solicit, initiate or
encourage the submission of any inquiries, discussions or proposals or offers from
any person relating to a possible disposition of any registered capital or any
material portion of the assets of the Object Company, (b) continue, propose,
solicit, initiate, encourage or enter into negotiations or discussions relating to
a possible disposition of any registered capital or any material portion of the
assets of the Object Company, (c) enter into or consummate any agreement or
understanding providing for the disposition of any capital stock or any material
portion of the assets of the Object Company, or (d) assist,




35









 






	 	 	participate in or encourage any effort or attempt by any other person to do or
seek any of the foregoing. The Transferors and the Object Company shall
promptly notify the Transferee of, and communicate to the Transferee the terms
of, any such inquiry, proposal or request for information received by, or
negotiations or discussions sought with, the Object Company.





Article 35 Indemnification





	 	 	The Transferors and the Transferee (the “Indemnifying Party”) hereby
agrees to jointly and severally indemnify, reimburse and hold the counterpart
(including its successors and permitted assignees) and including, after the
Delivery Date, the Object Company harmless from and against, any one or more of
the following (without duplication): (a) any and all Damages arising out of or
 resulting from a misrepresentation or breach of warranty of any of
the Transferors and the Transferee contained in the Contract or in any exhibit
or annex hereto, and (b) any and all Damages arising out of or resulting from
any breach of any covenant or obligation of any of the Transferors and the
Transferee contained in this Contract.





Chapter Ten Employees





			
	Article 36	 	Dismissal of Employees and Employees’s leaving office






	36.1	 	All the Employees of the Object Company shall be resettled by the Transferors and the
labor contracts, employment contracts and other legal relations shall be terminated.
	 
	36.2	 	All expenses arising from resettling the Employees of the Object Company by the Transferors shall
be borne by the Transferors. If the resettlement dispute between the transferors and the Employees
results in Claims against the Object Company by the Employees after the Equity Interest Transfer is
completed and the Object Company suffers losses therefrom, the Object Company and the Transferee
are entitled be fully compensated for its loss and





36









 






	 	 	 	Damages from the Transferors.
	 
	 	36.3	 	The Transferors agree that when they resettle the original
Employees of the Object Company, they shall not cause any adverse influence on
the Object Company, the Object Equity Interest, the management, handover and
ongoing work of the Hydropower Project.
	 
	 	36.4	 	When the original Employees of the Object Company terminate their
labor relations, employment relations or terminate their other work relations
with the Object Company and leave the Object Company, the Transferee shall
appoint a representative to participate in the outgoing employees’ job handover
with the Object Company or the Transferors. The Transferors agree that all
outgoing employees will only leave their position after they complete all job
handover procedures and such handover obligations have been confirmed by the
Transferee.
	 
	 	36.5	 	If as a result of the non-cooperation and non-coordination of the
original Employees of the Object Company in the leave-office handovers before
the Delivery Date, the Object Company or the Transferee suffers Damages
therefrom, the Transferors shall fully compensate the Transferee for its loss
and Damages.






			
	Article 37	 	Recruitment of employees


After the Equity Interest Transfer is completed, the Transferee shall employ
operational and managerial personnel for the Object Company through social
recruitment and the original Employees of the Object Company shall be given
employment priority with the Object Company upon the same conditions
and terms
as such original Employees enjoyed as employees with the Object Company prior to
the Delivery Date. If the construction, production and business management
requires and the Transferee is willing to retain the original Employees of the
Object Company, the Object Company shall sign new employment contracts with the
retained employees.





37









 





Chapter Eleven Confidentiality





			
	Article 38	 	Confidentiality






	 	38.1	 	Upon receipt of the Disclosed Information pursuant to the provision of
this Contract the receiving party shall:
	 
	 	38.1.1	 	Both parties shall keep the above materials and information
confidential for five (5) years;
	 
	 	38.1.2	 	Except in cases when a Party needs to provide Disclosed
Information to it’s employees or advisors for the purpose of this Contract,
neither Party shall disclose the above materials and information to any Third
Party.
	 
	 	38.2	 	Article 38.1 shall not apply to the following cases:
	 
	 	38.2.1	 	Before the disclosing party discloses the information to the receiving
party, the receiving party already known the information or the receiving party
can prove the materials and information may be known through other legal
channels.
	 
	 	38.2.2	 	The materials and information have become public material and
information not as a result of any breach of the Contract by the receiving Party;
	 
	 	38.2.3	 	The receiving party obtains the materials and information from the Third Party who is not
subject to any confidentiality obligations.
	 
	 	38.2.4	 	The materials and information must be disclosed pursuant to applicable laws and
regulations.





38









 





Chapter Twelve Breach Of Contract





			
	Article 39	 	If, either the Transferors or the Transferee fail to obtain internal approval and
authorization or due to a reason attributable to one party, or this Contract is made invalid
or impossible to be fulfilled, it shall be deemed a breach of this Contract by such party.
The breaching party shall pay the non-breaching party 1% of the Purchase Price as liquidated
Damages. If the non-breaching party’s economic losses suffered in executing and fulfilling
this Contract is not fully covered and remedied by the liquidated Damages, then the breaching
party shall compensate the non-breaching party for the rest of such economic losses as stated
under this Article.






			
	Article 40	 	If the Transferors, prior to the date this Contract is executed, have not disclosed all
the matters that may impact the legal existence of the Object Company and the Hydropower
Project whereby, the legal existence of the Object Company and the Hydropower Project is
impacted after the Equity Interest Transfer is completed, the Transferee is entitled to
terminate this Contract and to require the Transferors to pay one percentage ( 1%) of the
Equity Interest Transfer Price to the Transferee as liquidated
Damages.






			
	Article 41	 	If either the Transferors or the Transferee has a delay in fulfilling the contract
obligations, it shall be deemed a breach of this Contract. However, the following cases shall
not be deemed a breach of this Contract: The other party shall be the first to fulfill its
obligations yet it has a delay fulfilling its obligations, or the other party does not
fulfill its obligations, or the other party has an obligation to give cooperation and
assistance yet does not do it, consequently the party is unable to make timely fulfillment of
the Contract obligations,.


The delaying party as hereinbefore set out, shall pay the non-defaulting party
liquidated Damages based on the Purchase Price and at the rate for annual bank
loan announced by the People’s Bank of China.





39









 






			
	Article 42	 	During the period from the date of execution of the Contract to the
Delivery Date, if the Transferors commit any act that damages the assets,
rights and interests of the Object Company and the Object Equity Interest, it
shall be deemed a breach of the Contract by the Transferors. The Transferors
shall be liable to compensate the Transferee or the Object Company for any
Damages arising from its breach of the Contract. The Transferee is entitled to
use its own name or use the name of the Object Company after the Equity
Interest transfer is completed to seek compensation from the Transferors.






			
	Article 43	 	If any party terminates or dismisses this Contract without justified reasons, or due to
reasons attributable to one party, the Contract is made invalid fully or partially, it shall
be deemed a breach of the Contract. The breaching party shall pay the non-defaulting party
one percentage ( 1%) of the Purchase Price as liquidated Damages. If the non-breaching
party’s economic losses suffered in executing and fulfilling this Contract is not fully
covered and remedied by the liquidated Damages, then the breaching party shall compensate the
non-breaching party for the remainder of such economic losses.






			
	Article 44	 	If any party violates this Contract obligations, representations and warranties, it
shall be deemed a breach of this Contract and the breaching party shall compensate the other
party the losses incurred by the breach.






			
	Article 45	 	If any of the Transferors breaches this Contract, it shall be deemed that all the
Transferors collectively have breached this Contract and all the Transferors shall bear joint
liability for the breach of any single breaching party.






			
	Article 46	 	If the assets of the Object Company’s Hydropower Project handed over by the Transferors
to the Transferee have any damage or loss compared with that confirmed by the audit and due
diligence as of the Base Date, the Transferors shall be liable to the Transferee for such
loss and damage.





40









 





Chapter Thirteen Force Majeure





			
	Article 47	 	Force Majeure






	47.1	 	“Force Majeure” refers to the special incidents or events, including
earthquake, typhoon, flood, fire, war, political unrest, etc., or events that
are deemed to be Force Majeure pursuant to relevant laws and regulations of
China.
	 
	47.2	 	In the event of a Force Majeure event, the obligations of the party affected by such
event and any time period binding on such affected party shall pause and be extended
automatically during the period of the Force Majeure event. The affected party shall not
bear any liability of breach of the Contract as provided therein in such situations.
	 
	47.3	 	The Party claiming the occurrence of a Force Majeure event shall promptly inform the
other Party in writing within seven (7) days of the occurrence, and shall provide sufficient
evidence (notarized) of the occurrence and the continuation of the Force Majeure event. The
party shall do its best to eliminate the adverse effect of the Force Majeure event on the
fulfillment of this Contract.





Chapter Fourteen Resolution of Disputes





			
	Article 48	 	Arbitration






	48.1	 	If the Parties have disputes relating to the Contract, it shall first be
resolved through friendly consultation. If the dispute cannot be resolved through friendly
consultation, any Party may submit the dispute to Shanghai branch of China International
Economic and Trade Arbitration Commission (hereinafter referred to as “CIETAC”) for arbitration
pursuant to the prevailing CIETAC arbitration rules.





41









 






	48.2	 	The arbitration tribunal shall be constituted by three (3) arbitrators. The
claimant shall select and appoint or, the claimants shall jointly select and
appoint, as the case may be, one (1) arbitrator. Failing to perform such
selection and appointment within twenty (20) days after service of the notice
for arbitration, the Chairman of CIETAC shall select and appoint such
arbitrator; and
	 
	 	 	The respondent shall select and appoint, or the respondents shall jointly
select and appoint, as the case may be, one (1) arbitrator. Failing to perform
such selection and appointment within twenty (20) days after service of the
notice for arbitration, the Chairman of CIETAC shall select and appoint such
arbitrator.
	 
	 	 	Both arbitrators shall be selected and appointed, as specified above, within
thirty (30) days after receiving the notice for arbitration.
	 
	 	 	The third arbitrator shall be jointly selected and appointed
by the claimant(s)
and respondent(s) and failing an agreement in respect thereof selected and
appointed by the Chairman of CIETAC upon the joint authorization of the
claimant(s) and respondent(s). In case the claimant(s) and respondent(s) fail to
jointly select and appoint the third arbitrator or fail to jointly entrust the
Chairman of CIETAC to appoint the third arbitrator within twenty (20) days from
the date on which the respondent(s) receives (or receive) the notice for
arbitration, the third arbitrator will be appointed by the Chairman
of CIETAC.
The third arbitrator will act as the presiding arbitrator.
	 
	48.3	 	The arbitration proceedings shall be conducted in Mandarin.






			
	Article 49	 	Validity of the Arbitration Award


The arbitration award issued by CIETAC shall be final and shall be binding on
each party. Each party to this Contract agrees to be bound by said award, and
to act pursuant to the terms of the said award.






			
	Article 50	 	Continuation of Rights and Obligations


After a dispute has occurred and during its arbitration process, other than the
disputed matter, each party to this Contract shall continue to





42









 






exercise its other respective rights under this Contract, and shall continue to
implement its other respective obligations under this Contract.



Chapter Fifteen Applicable Law





			
	Article 51	 	Applicable Law


The establishment, validity, interpretation and implementation of the Contract
shall be governed and bound by the laws and regulations of the PRC. All disputes
arising out of the Contract shall be determined pursuant to the laws of PRC. In
the event the laws of the PRC do not have provision on a certain issue relating
to this Contract, a reference shall be made to the general international
business practice.





Chapter Sixteen Miscellaneous





			
	Article 52	 	Guarantee






	 	52.1	 	Guangsha Enterprise Investment Holding Co., Ltd shall guarantee
the obligations of the Transferors under this Contract in the form attached to
this Contract as Appendix 5.






			
	Article 53	 	Waiver


The non-exercise or delay in exercise of any right under this Contract shall
not be deemed a waiver of the said right.






43









 





			
	Article 54	 	Amendment






An Amendment of this Contract is only effective if in writing signed by all
Parties to this Contract. Provided that, if any approval by relevant
administrative departments is required pursuant to the law of China, it shall
be approved by such competent administrative departments before such amendment
becomes effective.




			
	Article 55	 	Severability


The invalidity of any article in the Contract shall not affect the validity of
the other articles in this Contract.






			
	Article 56	 	Language


This Agreement is written in both English and Chinese and both versions are of
equal effect. In the event of any inconsistency or error in translation between
the English and Chinese versions, the Chinese version shall prevail.






			
	Article 57	 	Validity of the Contract and Appendix






	 	57.1	 	The Contract shall be effective upon the seals affixed by the parties and approval by the
Examination and Approval Authority.
	 
	 	57.2	 	All preceding contracts or documents executed by the parties in relation to the Object
Equity Interest Transfer shall be subject to this Contract if they are inconsistent with
this Contract.
	 
	 	57.3	 	This Contract has 10 original copies executed in Mandarin with each of the three (3)
parties keeping two (2) copies and the remaining four (4) copies for record filing.
	 
	 	57.4	 	The appendix of the Contract is inseparable and integral part of the
Contract and shall have equal validity as the Contract.






44









 







			
	Article 58	 	Notification







	58.1	 	Unless otherwise provided in the Contract, any notice or written communication
sent by one party to the other party as per the Contract, shall be written in
Chinese and English and shall be sent by a courier service. All notices shall be
deemed to be received on the fifth day after posting day (subject to the postal seal)
as per the correspondence addresses specified by the Contract. If the date of actual
receipt is earlier than the said time, the date of actual receipt
shall be the date
of receipt.
	 
	58.2	 	All notices and correspondences shall be sent to the following
addresses unless the other party gives written notice to update such
addresses.





	 	 	 	 	 
	 

	 	Transferors’ Address:
	 	166 Yugu Road, Hangzhou City
	 	 
	 

	 	Telephone Number:
	 	0571-87969988
	 	 
	 

	 	Facsimile Number:
	 	0571-87963818
	 	 
	 

	 	Addressee:
	 	CHENG Gang






	 	 	 	 	 
	 

	 	Transferee’s Address:
	 	1201, Tower C2, Sunshine Plaza, 68

Anlilu, Chaoyang District, Beijing
	 	 
	 

	 	Telephone Number:
	 	010—64928483
	 	 
	 

	 	Facsimile Number:
	 	010—64961540
	 	 
	 

	 	Addressee:
	 	LI Wei-wei







			
	Article 59	 	Appendix






	59.1	 	Appendix 1 Audit Report by September 30, 2007 by Beijing Jingdu CPA Limited
	 
	59.2	 	Appendix 2 Index to Information Disclosed by the Transferors





45









 






	59.3	 	Appendix 3 List of Original Bank Loans ending on September 30, 2007 audited by Beijing
Jingdu CPA Limited
	 
	59.4	 	Appendix 4 Letter of Security
	 
	59.5	 	Appendix 5 Assets Assessment Report by September 30, 2007 affirmed by the Assets
Evaluation Company Limited
	 
	59.6	 	Appendix 6 Restructuring Details and Measures for credits and debts of the Object Company in
its Equity Interest Transfer
	 
	59.7	 	Appendix 7 Letter of Undertaking





46









 









ore text hereinafter]



IN “WITNESS WHEREOF, the duly authorized representatives of Party A, Party B and Party C have
signed this Contract on the date borne on the first page.




Party A: China Hydroe





Signature representative:





Party B: Zhejiang Guangsha C





Representative’s Signature:




Party C: Zhejiang Guangsha Hydropower Investment Co., Ltd.





Representative’s Signature:




The End




 









 





Appendix 1 — Audit Report





 











 







Zhejiang Jingning Yingchuan




Hydroelectric Development Co., Ltd.


Audit Report


Sep. 30, 2007




 









 





Contents




	 	 	 	 	 
	The audit report
	 	 	 	 
	 
	 	 	 	 
	The balance sheet

	 	 	1-2	 
	 
	 	 	 	 
	The income statement

	 	 	3	 
	 
	 	 	 	 
	The statement of changes in ownership interests

	 	 	4	 
	 
	 	 	 	 
	Notes of financial statement

	 	 	5-18	 







 











 





	 	 	 	 	 
	

	 	
Dehao International



Beijing Jingdu Certified Public
	 	
Dehao International

Beijing Jingdu Certified Public

Accountants Co., Ltd.

Scitech Place 5th floor, Jianguomenwai
	 

	 	Accountants Co., Ltd.
	 	Avenue No. 22, Beijing
	 

	 	 	 	Zip Code: 100004
	 

	 	 	 	Tel: 86-10-65264838
	 

	 	 	 	Fax: 86-10-65227521






Audit Report




(English
Translation)Beijing JINGDUSHENZI (2007) No. 1314




China Hydroelectric Corporation:



We have audited the enclosed financial statements of Yingchuan Hydroelectric
Development Co., Ltd. in Jingning Country, Zhejiang Province (hereinafter
refered to as “Yingchuan Hydroelectric Company”), including the balance sheet on
Dec. 31st, 2006 and Sep. 30th, 2007, the income statement
and the notes of financial statements of 2006 and Jan. to Sep., 2007.



I. Management Personnel’s responsibilities for financial statements



The management Personnel of Yingchuan Hydroelectric Company is responsible for
the preparation and fair presentation of these financial statements in
accordance with the Accounting Standards for Business Enterprises and China
Accounting System for Business Enterprises. The responsibilities include: (i)
designing, implementing and maintaining internal control relevant to the
preparation and fair presentation of financial statements that are free from
material misstatement, whether due to fraud or error;(ii) selecting and applying
appropriate accounting policies; (iii) making reasonable accounting estimates.



II. Auditor’s responsibility



Our responsibility is to express an opinion on the financial statements based on
the auditing task. We have performed the auditing task under the provision of
CICPA auditing guideline. CICPA auditing guideline requires us to comply with
the professional ethics, to plan and perform audit tasks to obtain reasonable
assurance on whether the financial statements are free from material
misstatement.


An audit involves performing procedures to obtain audit evidence regarding the
amounts and disclosures in the financial statements. The procedures selection is
depended on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements


We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.



 









 





	 	 	 	 	 
	

	 	
Dehao International



Beijing Jingdu Certified Public
	 	
Dehao International

Beijing Jingdu Certified Public

Accountants Co., Ltd.

Scitech Place 5th floor, Jianguomenwai
	 

	 	Accountants Co., Ltd.
	 	Avenue No. 22, Beijing
	 

	 	 	 	Zip Code: 100004
	 

	 	 	 	Tel: 86-10-65264838
	 

	 	 	 	Fax: 86-10-65227521






III. Audit opinions




We believe that the financial statements of Yingchuan Hydroelectric Company
have given a fair and true view of the financial situation of Dec. 31, 2006 and
Sep. 30, 2007, as well as operating results of 2006 and Jan. to Sep., 2007 in
accordance with the Accounting Standards for Business Enterprises and China
Accounting System for Business Enterprises.



	 	 	 
	Beijing Jingdu Certified

Public Accountants Co.,
Ltd.

	 	The Chinese Certified

Public Accountant(CICPA)
	 
	 	 
	 

	 	The Chinese Certified

Public Accountant(CICPA)






			
	 	 	 
	Beijing·China
	 	Nov. 15th, 2007






 









 






BALANCE SHEET

AS AT 30 SEPTEMBER 2007

[English Translation ]




Prepared by: Zhejiang Jingning Yingchuan Hydroelectric Development Co., Ltd.



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	In RMB Yuan
	ASSETS	 	NOTES	 	2007.09.30	 	2007.01.01
	CURRENT ASSETS
	 	 	 	 	 	 	 	 	 	 	 	 
	Cash
	 	 	6-1	 	 	 	228,386.62	 	 	 	259,959.65	 
	Current financial assets
	 	 	 	 	 	 	—	 	 	 	—	 
	Notes receivable
	 	 	 	 	 	 	—	 	 	 	—	 
	Accounts receivable
	 	 	6-2	 	 	 	10,639,814.20	 	 	 	2,953,805.13	 
	Advances to suppliers
	 	 	 	 	 	 	—	 	 	 	—	 
	Interest receivable
	 	 	 	 	 	 	—	 	 	 	—	 
	Dividends receivable
	 	 	 	 	 	 	—	 	 	 	—	 
	Other receivables
	 	 	6-3	 	 	 	8,417,616.45	 	 	 	8,322,000.00	 
	Inventories
	 	 	 	 	 	 	—	 	 	 	—	 
	Current maturity nonliquid assets
	 	 	 	 	 	 	—	 	 	 	—	 
	Other current assets
	 	 	 	 	 	 	—	 	 	 	—	 
	Total current assets
	 	 	 	 	 	 	19,285,817.27	 	 	 	11,535,764.78	 
	NON-CURRENT ASSETS
	 	 	 	 	 	 	—	 	 	 	—	 
	Financial assets for sale
	 	 	 	 	 	 	—	 	 	 	—	 
	Hold-to-maturity investment
	 	 	 	 	 	 	—	 	 	 	—	 
	Long-term accounts receivable
	 	 	 	 	 	 	—	 	 	 	—	 
	Long-term equity investments
	 	 	 	 	 	 	—	 	 	 	—	 
	Investment real estate
	 	 	 	 	 	 	—	 	 	 	—	 
	Fixed assets — net book value
	 	 	6-4	 	 	 	258,457,391.06	 	 	 	264,821,150.82	 
	Construction in progress
	 	 	 	 	 	 	—	 	 	 	—	 
	Construction supplies
	 	 	 	 	 	 	—	 	 	 	—	 
	Fixed assets disposal
	 	 	 	 	 	 	—	 	 	 	—	 
	Productive biological assets
	 	 	 	 	 	 	—	 	 	 	—	 
	Oil gas assets
	 	 	 	 	 	 	—	 	 	 	—	 
	Intangible assets
	 	 	6-5	 	 	 	8,216,520.74	 	 	 	8,511,137.00	 
	Exploitation expenses
	 	 	 	 	 	 	—	 	 	 	—	 
	Goodwill
	 	 	 	 	 	 	—	 	 	 	—	 
	Long-term prepaid expenses
	 	 	 	 	 	 	—	 	 	 	—	 
	assets of deferred income tax
	 	 	 	 	 	 	—	 	 	 	—	 
	Other non-current assets
	 	 	 	 	 	 	—	 	 	 	—	 
	Total non-current assets
	 	 	 	 	 	 	266,673,911.80	 	 	 	273,332,287.82	 
	TOTAL ASSETS
	 	 	 	 	 	 	285,959,729.07	 	 	 	284,868,052.60	 







					
	 	 	 	 	 
	Legal representative:
	 	Person in charge of accounting:
	 	Person in charge of financial function:






1









 






BALANCE SHEET

AS AT 30 SEPTEMBER 2007

[English Translation ]




Prepared by: Zhejiang Jingning Yingchuan Hydroelectric Development Co., Ltd.



	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	In RMB Yuan
	LIABILITIES AND SHAREHOLDERS’ EQUITY	 	NOTES	 	2007.09.30	 	2007.01.01
	CURRENT LIABILITIES
	 	 	 	 	 	 	 	 	 	 	 	 
	Short-term loans
	 	 	6-6	 	 	 	—	 	 	 	10,000,000.00	 
	Current financial liabilities
	 	 	 	 	 	 	—	 	 	 	—	 
	Notes payable
	 	 	 	 	 	 	—	 	 	 	—	 
	Accounts payable
	 	 	 	 	 	 	—	 	 	 	—	 
	Advances from customers
	 	 	 	 	 	 	—	 	 	 	—	 
	Payable workers’salary
	 	 	6-7	 	 	 	427,050.62	 	 	 	682,741.90	 
	Taxes payable
	 	 	6-8	 	 	 	6,794,633.00	 	 	 	880,871.91	 
	Interest payable
	 	 	6-9	 	 	 	169,505.00	 	 	 	220,000.00	 
	Dividends payable
	 	 	6-10	 	 	 	—	 	 	 	9,973,267.33	 
	Other payables
	 	 	6-11	 	 	 	24,487,639.81	 	 	 	10,445,561.14	 
	Current maturity of non-current liability
	 	 	6-12	 	 	 	—	 	 	 	35,000,000.00	 
	Other current liabilities
	 	 	 	 	 	 	—	 	 	 	—	 
	Total current liabilities
	 	 	 	 	 	 	31,878,828.43	 	 	 	67,202,442.28	 
	NON-CURRENT LIABILITIES
	 	 	 	 	 	 	—	 	 	 	—	 
	Long-term loans
	 	 	6-13	 	 	 	75,000,000.00	 	 	 	50,000,000.00	 
	Debentures payable
	 	 	 	 	 	 	—	 	 	 	—	 
	Payables due after one year
	 	 	 	 	 	 	—	 	 	 	—	 
	Government grants payable
	 	 	 	 	 	 	—	 	 	 	—	 
	Accrued liabilities
	 	 	 	 	 	 	—	 	 	 	—	 
	liabilities of deferred income tax
	 	 	 	 	 	 	—	 	 	 	—	 
	Other non-current liabilities
	 	 	 	 	 	 	—	 	 	 	—	 
	Total non-current liabilities
	 	 	 	 	 	 	75,000,000.00	 	 	 	50,000,000.00	 
	Total liabilities
	 	 	 	 	 	 	106,878,828.43	 	 	 	117,202,442.28	 
	SHAREHOLDERS’ EQUITY
	 	 	 	 	 	 	—	 	 	 	—	 
	Paid-in capital
	 	 	6-14	 	 	 	140,470,000.00	 	 	 	140,470,000.00	 
	Capital surplus
	 	 	 	 	 	 	—	 	 	 	—	 
	Less: treasury stock
	 	 	 	 	 	 	—	 	 	 	—	 
	Surplus reserve
	 	 	6-15	 	 	 	9,595,985.22	 	 	 	9,595,985.22	 
	Undistributed profits
	 	 	6-16	 	 	 	29,014,915.42	 	 	 	17,599,625.10	 
	Total shareholders’ equity
	 	 	 	 	 	 	179,080,900.64	 	 	 	167,665,610.32	 
	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
	 	 	 	 	 	 	285,959,729.07	 	 	 	284,868,052.60	 







					
	 	 	 	 	 
	Legal representative:
	 	Person in charge of accounting:
	 	Person in charge of financial function:







2











 





The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




Notes of Financial Statements




(If there is no special explanation, the notes use yuan as monetary unit)




I. The company’s basic information




Zhejiang Jingning Yingchuan Hydroelectric Development Co., Ltd. (hereinafter referred to as “the
company”) was invested and established by Zhejiang Guangsha Jingning Hydroelectric Development Co.,
Ltd. and Lishui Nanfang Hydroelectric Development Co., Ltd.. It registered in Jingning She
Nationality Autonomous County Administration for Industry and Commerce on Aug. 26, 1998 and
obtained the business license of enterprise legal person. The registration No. is 3325291000832.



At the beginning of the establishment, the company’s registered capital was11 million yuan. The
shareholders and the investment amount were as follows:



	 	 	 	 	 	 	 	 	 
	 	 	investment	 	holding
	shareholders	 	amount	 	proportion
	Zhejiang Guangsha Jingning Hydroelectric
Development Co., Ltd.
	 	 	9,560,000.00	 	 	 	86.91	%
	Lishui Nanfang Hydroelectric Development
Co., Ltd.
	 	 	1,440,000.00	 	 	 	13.09	%
	Total
	 	 	11,000,000.00	 	 	 	100	%






On Dec. 31, 2002, The shareholders changed to Zhejiang Guangsha Joint Stock Limited Partnership and
Zhejiang Guangning Hydroelectric Development Co., Ltd.. The capital increased to 64 million yuan.



     The shareholders and the investment amount were as follows:



	 	 	 	 	 	 	 	 	 
	 	 	investment	 	holding
	shareholders	 	amount	 	proportion
	Zhejiang Guangsha Joint Stock Limited
Partnership
	 	 	54,400,000.00	 	 	 	85	%
	Zhejiang Guangning Hydroelectric Development
Co., Ltd.
	 	 	9,600,000.00	 	 	 	15	%
	Total
	 	 	64,000,000.00	 	 	 	100	%






5









 





 The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




On June 24, 2003, the company’s shareholders performed capital increase. After that, the registered
capital was 140.47 million yuan. The shareholders and the investment amount were as follows:



	 	 	 	 	 	 	 	 	 
	 	 	investment	 	holding
	shareholders	 	amount	 	proportion
	Zhejiang Guangsha Joint Stock Limited
Partnership
	 	 	119,400,000.00	 	 	 	85	%
	Zhejiang Guangning Hydroelectric
Development Co., Ltd.
	 	 	21,070,000.00	 	 	 	15	%
	Total
	 	 	140,470,000.00	 	 	 	100	%






According to the dicision of board of shareholders and the share transfer agreement on Jan. 18
2007, Zhejiang Guangning Hydroelectric Development Co., Ltd. Transferred all of its 15% equity to
Zhejiang Guangsha Hydroelectric Development Co., Ltd.. Up to Sep. 30, 2007 the registered capital
was 140.47 million yuan, the details were as follows:



	 	 	 	 	 	 	 	 	 
	 	 	investment	 	Holding
	shareholders	 	amount	 	proportion
	Zhejiang Guangsha Joint Stock Limited
Partnership
	 	 	119,400,000.00	 	 	 	85	%
	Zhejiang Guangsha Hydroelectric Development
Co., Ltd.
	 	 	21,070,000.00	 	 	 	15	%
	Total
	 	 	140,470,000.00	 	 	 	100	%







			
	Registered address:	 	Huangyangkou Village, Yingchuan Town, Jingning She Nationality Autonomous
County.






			
	Legal representative:	 	Lu Chunliang;






			
	Business Scope:	 	Hydropower development manufacturing, hydropower installation, hardware and
building material, subsidiary agricultural products’ (exclusive of cotton, silkworm cocoon,
tobacco) purchase and sale.





II. Preparation base for financial statements





The company’s financial statements adopt continuing operating as preparation base. According to
the actually happened trades and events, it is prepared in accordance with Accounting Criteria
for Enterprises issued by Ministry of Finance on Feb. 15, 2006 and its application guidance.



III. Major accounting policy and accounting estimates




6









 






The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007






	1.	 	Financial year
	 
	 	 	The financial year means a calendar year starting on January 1 and ending on December 31.
	 
	2.	 	Standard money
	 
	 	 	The standard money is Renminbi (RMB).
	 
	3.	 	Measurement attributes
	 
	 	 	Unless otherwise stated, the pricing principle is based on the historical cost.
	 
	4.	 	Validation criteria for cash equivalent
	 
	 	 	Cash equivalent means those investments featuring short term (generally due within 3 months
from purchase date), high mobility, easy to change into cash, and low value disturbance.
	 
	5.	 	Entry method of bad debt loss for the account receivable






	 	(1)	 	Bad debt validation criteria: a. the debtor goes into liquidation or death, and his
liquidated property and heritage cannot cover the all the debts; b. the debtor fails to
perform its repayment obligations overdue and it’s obvious that the debt is unable to be
repaid.
	 
	 	(2)	 	The entry method of bad debt loss: allowance method is used for reckoning the bad
debt loss. By the end of each year, the company will draw some provisions for bad debts
to the receivables (including account receivable and other receivables) according to the
account age analysis method. The provision proportion is showed in the following sheet:





	 	 	 	 	 
	Duration of account receivable	 	Provision proportion
	Overdue within a year
	 	 	5	%
	Overdue one-two years
	 	 	10	%
	Overdue two-three years
	 	 	30	%
	Overdue more than three years
	 	 	100	%







	 	 	For those accounts receivable featuring conclusive evidence of the obvious difference of
repayment, individual recognizing method is used to draw bad debt provision.
	 
	6.	 	Fixed assets pricing and depreciation method




7









 






The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007










	 	(1)	 	Validation criteria for fixed assets: the fixed assets concurrently feature the following
characteristics: 1. tangible assets; 2. high unit value; 3. service life
more than one year; 4. purchased for the purposes of production, offering labour services,
lease or operation management.
	 
	 	(2)	 	The fixed assets pricing and depreciation method: the fixed asset is booked at the actual
cost of procurement, and depreciated according to straight-line method from the next month
after reaching the serviceable conditions.
	 
	 	 	 	The salvage value rate, depreciation life and annual depreciation rate of all kinds of fixed
assets:





	 	 	 	 	 	 	 	 	 
	 	 	Depreciation	 	Annual
	Fixed assets group	 	life	 	depreciation rate (%)
	Buildings and structures
	 	 	20-30	 	 	 	4.85 — 2.16	 
	General-purpose equipment
	 	 	8	 	 	 	12.13	 
	Special-purpose equipment
	 	 	20-25	 	 	 	4.85-3.88	 
	Vehicles
	 	 	10	 	 	 	9.70	 







	 	(3)	 	The validation criteria and provision method for the depreciation provision of fixed
assets: by the end of each year, the company will inspect all the fixed assets. If the
following factors are found, including continual downslide of market price, technical
obsolescence, damage or long-term idling, then the recoverable amount is evaluated for the
fixed assets so as to check whether the fixed asset is devaluated or not. If the recoverable
amount is lower than the book value of the fixed assets, then the depreciation provision is
drawn as the difference between the recoverable amount and the book value. Once the fixed
assets depreciation provision is confirmed, it shall not be reverted in the subsequent
accounting period.






	7.	 	Accounting treatment method for borrowing costs
	 
	 	 	For the borrowing cost occurred, if it complies to the capitalization conditions of fixed assets
construction or procurement, it can be added into the corresponding assets costs; the other
borrowing costs shall be determined as expenses and listed in the income statement according to
the amount occurred. The assets compliant to the capitalization conditions means those assets can
reach operation conditions or sales conditions after a long period




8









 





The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




	 	 	of procurement, construction
or production, including fixed assets, inventory and investment-type properties.
	 
	8.	 	Entry method for intangible assets






	 	(1)	 	The intangible assets are initially evaluated at cost.
	 
	 	(2)	 	The intangible assets with limited service life can be rationally amortized according to
the anticipation of the related economic benefits within its service life; for those without
reliable and ascertained realization way, straight-line amortization method is adopted. For
those intangible assets without ascertained service life, their service life shall be
rechecked every year and depreciation test shall be carried out.






	9.	 	Validation criteria for revenue
	 
	 	 	The operating revenues of the company are mainly power generation revenue. The validation
criteria for revenue are as follows:






	 	(1)	 	The major risk and remuneration of the ownership are transferred to the buyers;
	 
	 	(2)	 	The company neither keeps the ownership-related management right, nor implements effective
control on the sold goods;
	 
	 	(3)	 	The amount of revenue can be measured reliably;
	 
	 	(4)	 	The correlative economic benefits are likely to flow in the company;
	 
	 	(5)	 	The related cost occurred or to be occurred can be measured reliably.






	10.	 	Accounting treatment method for income tax






		 	The accounting treatment method of the corporate income tax is balance sheet debt method.
	 
		 	If the book value of assets is greater than its tax base or the book value of liabilities is
less than its tax base, the liabilities of deferred income tax shall be determined; if the book
value of assets is less than its tax base or the book value of liabilities is greater than its
tax base, the assets of deferred income tax shall be determined.





IV. Accounting policies changes, changes in accounting estimate and accounting error correction




     1. Accounting policies changes



9









 





The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007



     The company implemented the Accounting Standard for Business Enterprises issued by the
Ministry of Finance in 2006 and its guidance from Jan. 1st, 2007.



     2. Changes in accounting estimate



     No.



     3. Significant accounting error correction



     No.



V. Major taxes



The company’s applicable taxes and tax rates are as follows:





	1.	 	Corporate income tax
	 
	 	 	the applicable rate of corporate income tax is 33%. Approved by the Local Taxation Bureau of
Jingning She Autonomous County (JINGDISHUIZHENG [2006] No.20), the company was exempt from
corporate income tax in 2006 but cannot enjoy the exemption policies any longer from January 1,
2007.
	 
	2.	 	The value added tax
	 
	 	 	Pay at 6% of the business income
	 
	3.	 	Urban construction tax
	 
	 	 	Pay at 1% of the turnover tax payable
	 
	4.	 	Education surtax
	 
	 	 	The education surtax should be paid at 4% of the turnover tax payable from January to April,
2006, and at 3% of the turnover tax payable from May 1, 2006. The local education surtax should
be paid at 2% of the turnover tax payable from May 1, 2006





VI. Notes on the financial statement’s main items





	1.	 	Monetary Resources





	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Opening amount of the
	Items	 	Closing amount	 	year
	Cash
	 	 	338.26	 	 	 	438.39	 
	Bank deposits
	 	 	228,048.36	 	 	 	259,521.26	 
	 	 	 	 	 	 	 	 
	Total
	 	 	228,386.62	 	 	 	259,959.65	 
	 	 	 	 	 	 	 	 






10









 





The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




	2.	 	Account receivable
	 
	(1)	 	Duration of account receivables is as follows:





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Opening amount of the year
	 	 	Closing amount	 	Balance at the	 	 
	 	 	Closing	 	Provision for	 	beginning of	 	Provision for
	Duration	 	balance	 	Bad Debts	 	the year	 	Bad Debts
	Within 1 year
	 	 	11,199,804.42	 	 	 	559,990.22	 	 	 	3,109,268.56	 	 	 	155,463.43	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	11,199,804.42	 	 	 	559,990.22	 	 	 	3,109,268.56	 	 	 	155,463.43	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 







	 	(2)	 	Receivables are all funds of Electricity Generating Board.
	 
	 	(3)	 	No receivables of related parties






	3.	 	Other receivables






	 	(1)	 	Duration of other receivables is as follows:





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Opening amount of the year
	 	 	Closing amount	 	Balance at the	 	 
	 	 	Closing	 	Provision for	 	beginning of	 	Provision for
	Duration	 	balance	 	Bad Debts	 	the year	 	Bad Debts
	Within 1 year
	 	 	8,860,648.89	 	 	 	443,032.44	 	 	 	8,760,000.00	 	 	 	438,000.00	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	8,860,648.89	 	 	 	443,032.44	 	 	 	8,760,000.00	 	 	 	438,000.00	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 







	 	(2)	 	Other receivables’ details:





	 	 	 	 	 	 	 	 	 
	Item	 	Amount	 	Contents
	Zhejiang Guangsha Joint Stock Limited
Partnership
	 	 	8,355,648.89	 	 	current loan

	China Life Insurance Company Limited
	 	 	500,000.00	 	 	deposit premium

	Cheng Jun
	 	 	5,000.00	 	 	deposits

	 	 	 	 	 	 	 
	Total
	 	 	8,860,648.89	 	 	 	 	 
	 	 	 	 	 	 	 







	 	(3)	 	Arrears of related parties, see VII. (III)






	4.	 	Original value of fixed assets, accumulated depreciation and provision for diminution in
value:




11









 




The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007











	 	(1)	 	Original value of fixed assets and accumulated depreciation





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	decrease	 	 
	Original value of	 	Opening amount	 	Increase of	 	of current	 	 
	fixed assets	 	of the year	 	current period	 	period	 	Closing amount
	Buildings and
structures
	 	 	260,955,316.25	 	 	 	0.00	 	 	 	0.00	 	 	 	260,955,316.25	 
	General-purpose
equipment
	 	 	201,253.00	 	 	 	0.00	 	 	 	0.00	 	 	 	201,253.00	 
	Special-purpose
equipment
	 	 	42,436,275.91	 	 	 	0.00	 	 	 	0.00	 	 	 	42,436,275.91	 
	Vehicles
	 	 	130,677.00	 	 	 	0.00	 	 	 	0.00	 	 	 	130,677.00	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	303,723,522.16	 	 	 	0.00	 	 	 	0.00	 	 	 	303,723,522.16	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accumulated	 	 	 	 	 	 	 	 	 	decrease	 	 
	Depreciation of	 	Opening amount	 	Increase of	 	of current	 	 
	Fixed Assets	 	of the year	 	current period	 	period	 	Closing amount
	Buildings and
structures
	 	 	29,761,036.71	 	 	 	4,869,993.33	 	 	 	0.00	 	 	 	34,631,030.04	 
	General-purpose
equipment
	 	 	112,228.34	 	 	 	18,134.08	 	 	 	0.00	 	 	 	130,362.42	 
	Special-purpose
equipment
	 	 	8,973,121.90	 	 	 	1,466,125.56	 	 	 	0.00	 	 	 	10,439,247.46	 
	Vehicles
	 	 	55,984.39	 	 	 	9,506.79	 	 	 	0.00	 	 	 	65,491.18	 
	Total
	 	 	38,902,371.34	 	 	 	6,363,759.76	 	 	 	0.00	 	 	 	45,266,131.10	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net value of fixed
assets
	 	 	264,821,150.82	 	 	 	-6,363,759.76	 	 	 	0.00	 	 	 	258,457,391.06	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






	 	(2)	 	No recoverable amount of a single asset in the company’s fixed assets is below the book value,
therefore there is no need to draw provisions for diminution in value of fixed assets.







5. Intangible assets




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Opening	 	Increase	 	amortization	 	 	 	 	 	the age limits
	 	 	 	 	 	 	amount of the	 	of current	 	of current	 	closing	 	of spare
	Item	 	original amount	 	year	 	period	 	period	 	amount	 	amortization
	use right to the
transmission line
	 	 	10,344,304.86	 	 	 	8,511,137.00	 	 	 	0.00	 	 	 	294,216.26	 	 	 	8,216,520.74	 	 	251 months
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	10,344,304.86	 	 	 	8,511,137.00	 	 	 	0.00	 	 	 	294,216.26	 	 	 	8,216,520.74	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





No recoverable amount of the intangible assets is below the book value, therefore there is no need
to draw provisions for diminution in value of intangible assets.




12









 







The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




6. Short-term loans




	 	 	 	 	 	 	 	 	 
	Loan Conditions	 	closing amount	 	Opening amount of the year
	the guaranteed loan
	 	 	0.00	 	 	 	10,000,000.00	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	0.00	 	 	 	10,000,000.00	 
	 	 	 	 	 	 	 	 	 




The guarantor of the guaranteed loan at the beginning of the year was Zhejiang Guangsha
Hydroelectric Investment Co. Ltd..




7. Payable workers’ salary




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Opening	 	 	 	 	 	 
	 	 	amount of	 	Increase of	 	decrease of	 	Closing
	Item	 	the year	 	current period	 	current period	 	amount
	wage
	 	 	320,000.00	 	 	 	476,889.50	 	 	 	796,889.50	 	 	 	0.00	 
	workers’ welfarism
	 	 	247,123.53	 	 	 	66,235.33	 	 	 	11,000.00	 	 	 	302,358.86	 
	Social Insurance
	 	 	64,004.82	 	 	 	15,370.40	 	 	 	15,759.20	 	 	 	63,616.02	 
	labour union outlay
	 	 	51,613.55	 	 	 	9,462.19	 	 	 	0.00	 	 	 	61,075.74	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	682,741.90	 	 	 	567,957.42	 	 	 	823,648.70	 	 	 	427,050.62	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






8.Taxes payable




	 	 	 	 	 	 	 	 	 
	Items	 	Closing amount	 	Opening amount of the year
	Value added tax
	 	 	952,039.29	 	 	 	330,991.59	 
	Urban construction tax
	 	 	9,635.16	 	 	 	3,309.91	 
	Individual income tax
	 	 	595.00	 	 	 	530.00	 
	Stamp duty
	 	 	5,087.42	 	 	 	862.97	 
	Education surtax
	 	 	48,175.79	 	 	 	16,549.57	 
	Special funds for water
conservancy construction
	 	 	16,279.73	 	 	 	2,227.87	 
	Water resource cost
	 	 	1,200,806.10	 	 	 	389,900.00	 
	Small hydropower station
management costs
	 	 	420,317.13	 	 	 	136,500.00	 
	Corporate income tax
	 	 	4,472,694.86	 	 	 	0.00	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	7,125,630.48	 	 	 	880,871.91	 
	 	 	 	 	 	 	 	 	 






9. Interest payable




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Opening amount of the
	Items	 	Closing amount	 	year
	Interest on bank loans
	 	 	169,505.00	 	 	 	220,000.00	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	169,505.00	 	 	 	220,000.00	 
	 	 	 	 	 	 	 	 	 






13









 





The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




10. Dividend payable




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Opening amount of the
	Items	 	Closing amount	 	year
	Zhejiang Guangsha Joint Stock
Limited Partnership
	 	 	0.00	 	 	 	9,973,267.33	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	0.00	 	 	 	9,973,267.33	 
	 	 	 	 	 	 	 	 	 






11. Other accounts payable




	 	 	 	 	 	 	 	 	 
	Items	 	Closing balance	 	Fund discription
	Zhejiang Guangsha
Hydroelectric Development
Co., Ltd.
	 	 	22,881,639.81	 	 	current loan
	Lishui Oujiang
Electricity Generating LLC.
	 	 	1,500,000.00	 	 	The payment for the use of state funds
	Zhejiang Institute
Hydraulics & Estuary
	 	 	45,000.00	 	 	Consulting fee
	Luishui Electric Power Association
	 	 	50,000.00	 	 	Dues of the hydropower guild
	Jingning Feihe Hydroelectric Company
	 	 	11,000.00	 	 	10kv circuital maintenance cost
	 	 	 	 	 	 	 
	Total
	 	 	24,487,639.81	 	 	 	 	 
	 	 	 	 	 	 	 






12. Current maturity of non-current liability




	 	 	 	 	 	 	 	 	 
	Items	 	Closing amount	 	Opening amount of the year
	Guaranteed loans
	 	 	0.00	 	 	 	35,000,000.00	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	0.00	 	 	 	35,000,000.00	 
	 	 	 	 	 	 	 	 	 






13. Long-term loans




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Balance at the beginning
	Loan categorie	 	Closing balance	 	of the year
	Guaranteed loans
	 	 	50,000,000.00	 	 	 	50,000,000.00	 
	Mortgage loan
	 	 	25,000,000.00	 	 	 	0.00	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	75,000,000.00	 	 	 	50,000,000.00	 
	 	 	 	 	 	 	 	 	 





The guaranty of the mortgage loan is the property of the power station of our company.;

The guarantor of all the guaranteed loans is Guangsha Building Group Co., Ltd..




14









 






The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007





14. Paid-up capital




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Opening amount of the year	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Increase of	 	Decrease of the	 	Closing amount of the year
	Investors	 	amounts	 	Proportion	 	the year	 	year	 	amounts	 	Proportion
	Zhejiang Guangsha
Joint Stock Limited
Partnership
	 	 	119,400,000.00	 	 	 	85	%	 	 	0.00	 	 	 	0.00	 	 	 	119,400,000.00	 	 	 	85	%
	Zhejiang Guangning
Hydroelectric
Development Co.,
Ltd.
	 	 	21,070,000.00	 	 	 	15	%	 	 	0.00	 	 	 	21,070,000.00	 	 	 	0.00	 	 	 	0	%
	Zhejiang Guangsha
Hydroelectric
Investment Co.,Ltd.
	 	 	0.00	 	 	 	0	%	 	 	0.00	 	 	 	0.00	 	 	 	21,070,000.00	 	 	 	15	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	140,470,000.00	 	 	 	100	%	 	 	0.00	 	 	 	0.00	 	 	 	140,470,000.00	 	 	 	100	%
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





According to the decision of board of shareholders on Jan. 18, 2007, Zhejiang Guangning
Hydroelectric Development Co., Ltd. transferred all its 15% equity to Zhejiang Guangsha
Hydroelectric Investment Co., Ltd.. After that, Zhejiang Guangsha Hydroelectric Investment Co.,
Ltd. had 15% of the equity.




15. Surplus reserve




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Opening	 	Increase of	 	 	 	 
	 	 	amount of the	 	current	 	decrease of	 	Closing
	Item	 	year	 	period	 	current period	 	amount
	Legal reserve
	 	 	9,595,985.22	 	 	 	0.00	 	 	 	0.00	 	 	 	9,595,985.22	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	9,595,985.22	 	 	 	0.00	 	 	 	0.00	 	 	 	9,595,985.22	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






16. Unappropriated profit




	 	 	 	 	 
	Item	 	Closing amount
	Unappropriated profit at the beginning of the year
	 	 	17,599,625.10	 
	Increase of current period
	 	 	11,415,290.32	 
	Thereinto: transferred from the net profit of the year
	 	 	11,415,290.32	 
	Decrease of current period
	 	 	0.00	 
	Minus: withdrawal surplus reserves of the year
	 	 	0.00	 
	Cash dividend distribution of the year
	 	 	0.00	 
	 	 	 	 
	Unappropriated profit at the end of the year
	 	 	29,014,915.42	 
	 	 	 	 






15









 





The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




17. The takings and operating costs




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	The takings	 	Operating coats
	Income	 	Amount of	 	Amount of last	 	Amount of current	 	Amount of last
	categories	 	current period	 	yea	 	period	 	year
	Electricity
generation income
	 	 	35,235,375.65	 	 	 	39,714,620.77	 	 	 	8,082,252.90	 	 	 	12,515,043.00	 
	Other business
income
	 	 	40,000.00	 	 	 	0.00	 	 	 	2,132.00	 	 	 	0.00	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Total
	 	 	35,275,375.65	 	 	 	39,714,620.77	 	 	 	8,084,384.90	 	 	 	12,515,043.00	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






18. Sales tax and the extra charges




	 	 	 	 	 	 	 	 	 
	Item	 	Amount of current period	 	Amount of last year
	Urban construction tax
	 	 	27,836.76	 	 	 	23,828.76	 
	Education surtax
	 	 	106,279.96	 	 	 	111,170.86	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	134,116.72	 	 	 	140,999.62	 
	 	 	 	 	 	 	 	 	 






19. Financial expenses




	 	 	 	 	 	 	 	 	 
	Item	 	Amount of current period	 	Amount of last year
	Interest expense
	 	 	8,131,889.62	 	 	 	7,734,350.68	 
	Minus: interest return
	 	 	12,502.82	 	 	 	13,837.15	 
	Others
	 	 	1,724.36	 	 	 	1,650.54	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	8,121,111.16	 	 	 	7,722,164.07	 
	 	 	 	 	 	 	 	 	 






20 Loss on impairment




	 	 	 	 	 	 	 	 	 
	Item	 	Amount of current period	 	Amount of last year	 
	Withdrawal provision
for bad debts

	 	 	409,559.23	 	 	 	–718,717.32	 
	 	 	 	 	 	 	 	 	 	 
	Total

	 	 	409,559.23	 	 	 	–718,717.32	 
	 	 	 	 	 	 	 	 	 	 






21.Non-business expenditure




	 	 	 	 	 	 	 	 	 
	Item	 	Amount of current period	 	Amount of last year
	Donations
	 	 	2,000.00	 	 	 	45,000.00	 
	Funds for water
conservancy construction
	 	 	35,426.66	 	 	 	39,714.62	 
	Compensatory payments
	 	 	35,000.00	 	 	 	30,374.75	 
	 	 	 	 	 	 	 	 	 
	Total
	 	 	72,426.66	 	 	 	115,089.37	 
	 	 	 	 	 	 	 	 	 






16









 





The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




VII. Related parties relationships and their transactions




(•) Related parties relationships




1. Related parties which have controlling relationships




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Relationships with	 	 	 	 
	Enterprise	 	Registered addresses	 	Major businesses	 	the company	 	Economic character	 	Legal representative
	Zhejiang Guangsha 

Joint Stock Limited 

Partnership

	 	Wuning West Road

21#, Dong Yang

City,Zhejiang

Province
	 	Investments in real
estates, etc.
	 	Majority

shareholders
	 	Joint-stock Company
	 	Lou Jiangyue






2. The registered capital and its changes by related parties which have controlling relationships




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Opening amount of	 	Increase of current	 	Decrease of current	 	 
	Related parties’ name	 	the year	 	period	 	period	 	Closing amount
	Zhejiang Guangsha
Joint Stock Limited
Partnership
	 	 	483,633,492.00	 	 	 	388,155,600.00	 	 	 	—	 	 	 	871,789,092.00	 






3. The stocks held by related parties which have controlling relationships and the changes




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	The amount of shareholding	 	Holding proportion
	 	 	Opening amount of	 	 	 	 	 	Opening amount of	 	 
	Related parties’ name	 	the year	 	Closing amount	 	the year	 	Closing amount
	Zhejiang Guangsha
Joint Stock Limited
Partnership
	 	 	119,400,000.00	 	 	 	119,400,000.00	 	 	 	85	%	 	 	85	%






4. Related parties which have other relationships with the company




	 	 	 
	Related parties’ name	 	relationship
	Zhejiang Guangsha Hydroelectric
Investment Co., Ltd.

	 	Shareholder of the company
	Guangsha Building Group Co., Ltd.

	 	Significant impact to our Company






(•) Related transaction





	 	1.	 	From Jan., 2007 to Sep., 2007, Zhejiang Guangsha Hydroelectric Investment Co., Ltd.
should be paid 649,594.08 yuan as payment for the use of state funds. Up to Sep. 30, 2007,
it has not been paid.
	 
	 	2.	 	From Jan., 2007 to Sep., 2007, Zhejiang Guangsha Hydroelectric Investment Co., Ltd.
shoud be paid 239,040.27 yuan for power station




17









 





The Notes of Financial Statement of Yingchuan Hydroelectric Company on Sep, 30th, 2007




	 	 	 	administration, of which 136,760.42 yuan
has been paid and the remaining 93,279.65 yuan, has not been paid.
	 
	 	3.	 	Acceptance of guarantee




Up to Sep. 30, 2007, the amount of guarantee accepted was 50 million yuan. The guarantor was
Guangsha Building Group Co., Ltd..




(III) Balance of related parties




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	Opening amount of
	Related parties’ name	 	Categories	 	Closing amount	 	the year
	Zhejiang Guangsha
Joint Stock Limited
Partnership
	 	Other receivables	 	 	8,355,648.89	 	 	 	0.00	 
	Zhejiang Guangsha
Hydroelectric Investment Co., Ltd.
	 	Other accounts payable	 	 	22,881,639.81	 	 	 	4,539,232.44	 
	Zhejiang Guangsha
Joint Stock Limited
Partnership
	 	Dividend payable	 	 	0.00	 	 	 	9,973,267.33	 






VIII. Commitment matters



Up to the deadline of the report, we do not have commitment matters which should be disclosed.




IX. Contingencies



Up to the deadline of the report, we do not have contingencies whicn should be disclosed such as
pending action, external guarantee, etc..




X. Other important matters



Up to the report deadline of the, China Hydroelectric Fund Beijing Management Company plans to
purchase all the equity of the company. The correlative work is ongoing. Other than this, we do not
need to explain other important matters.




XI. The subsequent events of the balance sheet



Up to the deadline of the report, we did not have any significant subsequent event of the balance
sheet which shall be disclosed.




Zhejiang Jingning Yingchuan Hydroelectric Development Co., Ltd.




Nov. 15th, 2007





18











 





Appendix 2 Index to information disclosed by the Transferors




Including but no limited to:




Company profile




Registration documents for Company establishment (August 1998)




Registration documents for company change (November 18, 2001)




Registration documents for company changes (November 28, 2001)




Registration documents for company changes (August 15, 2001)




1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005

Annual inspection report (1998,1999,2000,2001,2002,2003,2004 and 2005)




Annual audit report (2003,2004 and 2005)




Enterprise Legal Person Business License




Articles of Association




Amendments to Articles of Association




Amendments to Articles of Association




Resolutions of the shareholders’ meeting




Resolutions of the Board of Directors




Resolutions of the Supervisory Board




Capital verification report (2003)




Capital verification report (2002)




Capital verification report (1998)




List of key personnel




Tax registration certificate




Tax registration certificate (copy)




Organization or agency code (copy)




Permit to open a bank account




Zhejiang Water Resources Bureau, Approval on the Water and Soil Conservancy Plan for Jingning Yingchuan Hydropower Project, Zhe Shui Zheng (1997) No.854




Zhengjiang Planning and Economic Commission, Approval on Forwarding the Project Suggestion of Yingchuan Hydropower Project, Zhe Jing Ji Tou (1997) No.1206




Zhengjiang Planning and Economic Commission, Approval on the Feasibility Study Report of Jingning Yingchuan Hydropower Project, Zhe Jing Ji Tou (1998) No.181




Zhejiang Water Resources Bureau, Apply on the Preliminary Design of Jingning Yingchuan Hydropower Project, Zheng Shui Zheng (1998) No.531




Zhengjijang Lishui District Planning Commission, Report on the Request to Review the Preliminary Report of Jingning Yingchuan Hydropower Project, Zhe Di Ji Tou (1998), No.241




Zhejiang Water Resources Bureau, Approval on the Water and Soil Conservancy Plan for Jingning Yingchuan Hydropower Project, Zhe Shui Zheng (1997) No.854




Jingning County Construction Bureau: Construction Land Planning Permit 1084073




Application for Forest Requisition (Original and copy)




Construction Land Application (Original and copy)




1









 





Redline map of land condemnation




Zhejiang Construction Land Permit, Jing Guo Jian Di Zi (1998) No.62




Jingning Shezu Autonomous County Government, Circular on Immigrant Relocation and Compensation Standards of Yingchuan Hydropower Project as well as the supplementary circular, Jing Zheng [1999] No.23 and 26




Jingning Shezu Autonomous County Government, Compensation Measures for the Requisition of Land and Trees by Yingchuan Hydropower Project as well as the supplementary circular, Jing Zheng Fa [1999] No.12 and No.98




Jingning Shezu Autonomous Region Government, Circular on Adjusting Compensation Standards in the Requisition of Land by Yingchuan Hydropower Project, Jing Zheng Fa [2001] No.94




Jingning County Yingchuan Town Government, Assets Assessment Report (2001) No.16




State-owned Land Use Certificate (2003) No.29




State-owned Land Use Certificate (2003) No.30




Land Use Right Certificate Jing Guo Yong (2004) No.866




State-owned Land Use Right Certificate Jing Guo Yong (2004) No.867




Lishui City Public Security Bureau, Opinion on Fire-fighting Examination and Acceptance of Jingning Yingchuan Hydropower Project, Li Gong Xiao Yan [2002] No.059




Zhejiang Water Resources Bureau, Circular on Publishing the Examination and Acceptance Report on the Launch into Operation of Power Generators of Jingning Yingchuan Hydropower Project, Zhe Shui Jian [2002] No.58




Quality Assessment Report on Examination and Acceptance upon Operation of Power Generators




Examination and Acceptance Report by Flood-discharging Units




Examination and Acceptance Report by Ground Voltage Transformation Units




Examination and Acceptance Report by Water Channeling Units




Examination and Acceptance Report by Water Introduction Units




Acceptance by Xikangyuan Water Introduction Unit




Jingning County Construction Bureau, Examination and Acceptance Record for Houses




Li Shui Power Supply Bureau, Opinion on Jingning Yingchuan Hydropower Project Grid Connection




Zhejiang Price Bureau, Apply on Grip Upload Price of Jingning Yingchuan Hydropower Project, Zhe Jia Shang [2002] No.183




Jingning Shezu Autonomous County Government, Apply on Preferential Policies for Yingchuan Hydropower Project




Jingning Shezu Autonomous County Local Taxation Bureau, Apply on Reducing and Waiving the Enterprise Annual Income Tax of 2006 for 6 Enterprises (including Daming Trading Corporation Limited)




House Ownership Certificate 11244




House Ownership Certificate 11245




House Ownership Certificate 11246




State-owned Land Use Certificate (2003) No.29




State-owned Land Use Certificate (2003) No.30




State-owned Land Use Certificate (2004) No.866




2









 





State-owned Land Use Certificate (2004) No.867




Assets Assessment Report (2007) No.41




Audit Report for the year of 2006




Audit Report for the year of 2005




Audit Report for the year of 2004




Exclusive Report on Expenses in Jingning Yingchuan Hydropower Project




Electricity Bill by Lishui Power Supply Bureau (June, July, August and September of 2007)




Explanation to the Delay in Payment of Interest to Oujiang Power Generating Co., Ltd




Credits and Debts Settlement Agreements




Economic Agreement on Grid Connection




Contract for Operating and Managing Yinchuan Hydropower Project




Loan Contract, Nong Yin Jie Zi (2001) No.0037




Guarantee Contract (2001) No.37




Loan Contract, Nong Yin Jie Zi (2001) No.0038




Guarantee Contract, Nong Yin Bao Zi (2001)No.006




Loan Contract 42760




Loan Contract 17980




Mortgage Contract 24141




Loan Contract Nong Yin Jie Zi (2000) No.63




Guarantee Contract for Loans (99) Nong Yin Bao Jie Zi No.001




Exclusive Invoice for Insurance




Economic Agreement on Grid Connection




Contract for Operating and Managing Yinchuan Hydropower Project




Tax Statement of Enterprise Income Tax




Tax Statement of Urban Land Use Tax




Tax Statement of House Tax




Sample of Labor Contract





3











 





Appendix 3




Breakdown of Bank Loans Borrowed by Yingchuan




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	by September 30, 2007	 	Unit: RMB
	No.	 	Lending Bank or Agency	 	Lending Date	 	Expiry Date	 	Annual Rate	 	Currency	 	Amount	 	Notes
	1	 	Agricultural Bank of China, Mingzhu Sub-branch
	 	 	 	2008.10.31	 	7.1154%- 7.3278%	 	RMB	 	30,000,000.00	 	Guarantor: Guangsha Construction Co., Ltd
	2	 	Agricultural Bank of China, Jingning Shezu Autonomous County Sub-branch
	 	 	 	2009.08.20	 	7.33%	 	RMB	 	20,000,000.00	 	Guarantor: Guangsha Construction Co., Ltd
	3	 	Agricultural Bank of China, Jingning Shezu Autonomous County Sub-branch
	 	 	 	2010.05.09	 	7.88%	 	RMB	 	25,000,000.00	 	Mortage: Assets of Yingchuan Hydropower Project
	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Total
	 	 	 	 	 	 	 	 	 	75,000,000.00	 	 






 









 






Appendix 4




Letter Of Guarantee




China Hydroelectric Corporation (CHC):



We hereby issue this Letter to you to provide a joint liability guarantee for all contractual
obligations and maters under the “Formal Equity Interest Transfer Contract of Jingning Yingchuan
Hydropower Development Co., Ltd” signed by CHC, Zhejiang Guangsha Stock Co., Ltd, and Zhejiang
Guangsha Hydropower Investment Co., Ltd (hereinafter collectively referred to as “the
Transferors”)on                     , 2007.




1. Guarantee Scope



The Guarantee’s scope is all contractual obligations and matters of the Transferors under the
“Formal Equity Interest Transfer Contract of Jingning Yingchuan Hydropower Development Co., Ltd,”
and all payment obligations, liabilities for breach of contracts and compensation caused by the
Transferors’ failure to perform any contractual obligations thereof.




2. Guarantee Term



It shall be two years from the expiration date of the performance of the contractual obligations
and matters under the “Formal Equity Interest Transfer Contract of Jingning Yingchuan Hydropower
Development Co., Ltd.”




3. Guarantee manner: Joint liability guarantee.




4. Performance of the Guarantee obligations



If the Transferors fail to perform its contractual obligations and matters in accordance with the
provisions of the Contract, CHC is entitled to request us to bear liability under the guarantee. We
shall fulfill our obligations set out in this letter, within two (2) work days of receipt of your
written notice affixed with your company seal, setting out our relevant contractual obligations, we
will honor our payment obligations, our liability for breach of contractual provisions and remit
the appropriate compensation.




5. Effective Date




 









 







This letter shall come into effect on the date when the legal representative or authorized
representative signs and affixes our official business seal.



Guarantor: Guangsha Shareholding 

Investment Corporation



Signature of legal representative or

authorized representative (signed and

Sealed)



         
                   , 2007





 











 





Zhejiang Jingning Yingchuan

Hydropower Development Co., Ltd.

Share Transfer Project

Assets Appraisal Report




JINGDUPINGBAOZI (2007) No.***

One volume only




Beijing Jingdu Assets Valuation Co., Ltd.

November 15, 2007




 









 





			
	 	 	 
	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report






Contents




	 	 	 	 	 
	I. Entrusting Party and Other Appraisal Report Users
	 	 	5	 
	 
	 	 	 	 
	II. Basic Information and Financial Status of the Appraised Enterprise
	 	 	5	 
	 
	 	 	 	 
	III. Appraisal Objectives
	 	 	13	 
	 
	 	 	 	 
	IV. Appraisal Subject
	 	 	13	 
	 
	 	 	 	 
	V. Value Type and Definition
	 	 	14	 
	 
	 	 	 	 
	VI. Appraisal Base Day
	 	 	15	 
	 
	 	 	 	 
	VII. Appraisal Assumptions and Restrictive Conditions
	 	 	15	 
	 
	 	 	 	 
	VIII. Appraisal Principle
	 	 	16	 
	 
	 	 	 	 
	IX. Appraisal Basis
	 	 	16	 
	 
	 	 	 	 
	X. Appraisal Method
	 	 	18	 
	 
	 	 	 	 
	XI. Implementation Process and Conditions of Appraisal Procedures
	 	 	29	 
	 
	 	 	 	 
	XII. Appraisal Conclusions
	 	 	31	 
	 
	 	 	 	 
	XIII. Explanations to Particular Issues
	 	 	34	 
	 
	 	 	 	 
	XIV. Major Issues after Appraisal Base Day
	 	 	35	 
	 
	 	 	 	 
	XV. Legal Effect of the Appraisal Report
	 	 	35	 
	 
	 	 	 	 
	XVI. Appraisal Reporting Day
	 	 	36	 
	 
	 	 	 	 
	Document for Future Reference
	 	 	38	 
	 
	 	 	 	 
	Statement on the Application Scope of Document for Future Reference
of the Assets Appraisal Report
	 	 	39	 






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	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report






Share Transfer Project by Zhejiang Jingning

Yingchuan Hydropower Development Co., Ltd.

Abstract




JINGDUPINGBAOZI (2007) No.***



Beijing Jingdu Assets Valuation Co., Ltd. (hereinafter referred to as Jingdu Company) has been
entrusted by China Hydroelectric Corporation and developed appraisal work for all shareholders’
equity value of Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. (hereinafter referred
to as “Yingchuan Hydroelectric Development Company) on the appraisal base day.



Appraisal objectives: Because China Hydroelectric Corporation planed to purchase all stock rights
of Yingchuan Hydropower Development Company, the Jingdu Company accepted its entrustment and
developed value appraisal for all shareholders’ equity of Yingchuan Hydropower Development Company
on the appraisal base day and supplied references for the forementioned economic behavior.



The appraisal base day is September 30, 2007.



Appraisal Subject: all shareholders’ equity of Yingchuan Hydropower Development Company. The net
assets nominal value of the Yingchuan Company on appraisal base day is RMB 178.7499 Million.



Appraisal method: Income approach.



Value type: the value type of the appraisal is investment value. The investment value is the assets
possessed value for special investors with investment objective or certain of investors.



Referring to relevant data provided by the appraised enterprise, the appraisers
have carried out necessary appraisal procedures including the verification, inquiry and data
collection for property right, obligation and operation status, the




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	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report





investigation, analyses and judgment for the market environment and state of operation, financial
status, and future development status for appraised enterprise according to national provisions
concerning assets appraisal, at the same time complying with principles of independence,
objectivity and impartial. Also, according to the effective price data on the appraisal base day,
the fair value of the entrusted assets on the appraisal base day has been reflected objectively.



Till September 30, 2007, the appraisal base day expiration, through adopting income approach
appraisal, the entity value appraisal value of the Yingchuan Hydropower Development Company is RMB
452.7187 Million. And all shareholders’ equity appraisal value is RMB 355.5799 Million.



Appraisal conclusions are drawn on some assumptions and restrictive conditions, so it is hereby
noted that the report user shall pay attention to the legal ownership explanation of the entrusted
assets as well as influences on appraisal conclusions and trade pricing generated by these
assumptions and restrictions.



This appraisal report will be valid for one year, namely, from September 30, 2007 to September 29,
2008.



The aforesaid content is picked from the asset appraisal report. To learn the comprehensive
information of the appraisal report, please earnestly read the full text of this asset appraisal
report. If any questions, take the Chinese version as criterion.



The use right of the appraisal report belongs to entrusting party. Without the permission of the
entrusting party, the organization can’t supply or publicize the report. For any miscellaneous
purposes, or somebody else presented and mastered the report, the appraisal organization will neither admit nonrecognize nor take on any responsibility,
without the written approval of Jingdu.




     Assets Appraisal Institution: Beijing Jing Du Assets Valuation Company Ltd.



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	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report






(No text in this passage)




     Legal Representative of Assets Appraisal Institution: Jiang Jianying



     China Certified Public Valuer: Wang Ri



     China Certified Public Valuer: Sun Chaohui



     Nov. 15, 2007



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	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report






Zhejiang Jingning Yingchuan Hydropower

Development Co., Ltd.

Share Transfer Project

Assets Appraisal Report




JINGDUPINGBAOZI (2007) No.***



Beijing Jingdu Assets Valuation Co., Ltd. (hereinafter referred to as Jingdu Company) has been
entrusted by China Hydroelectric Corporation and developed appraisal work for all shareholders’
equity value of Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. (hereinafter referred
to as “Yingchuan Hydroelectric Development Company) on the appraisal base day, according to
relevant provisions on assets appraisal and guided by the principle of independence, impersonality,
fairness and scientificness. The appraisers of Jingdu Company verified, inquired and collected data
of the property right, obligation and operation status for entrusted assets according to necessary
appraisal procedures. The market environment of the appraised enterprise is investigated. The
investigation, analyses and judgment are carried out for the state of operation, financial status
and forthcoming development of the appraised enterprise. The fair value of the entrusted assets on
September 30, 2007 has been reflected objectively. The assets appraisal conditions and results are
reported as follows:




I. Entrusting Party and Other Appraisal Report Users



The entrusting party of the appraisal project is China Hydroelectric Corporation. The China
Hydroelectric Corporation planed to purchase all stock rights of Yingchuan Hydropower Development
Company. Except the entrusting party, the proceeding involved related parties will use the report.




II. Basic Information and Financial Status of the Appraised Enterprise




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	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report





The appraised enterprise of the project is Yingchuan Hydropower Development Company.





	 	1.	 	Company name:	 	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. (hereinafter
referred to as “Yingchuan Hydroelectric Development Company)






	 
	 	 	 	Registered address: Huangyangkou Village, Yingchuan Town, Jingning She Nationality Autonomous
County.
	 
	 	 	 	Legal Representative: Lu Chunliang
	 
	 	 	 	Registered Capital: RMB 140.47m
	 
	 	 	 	Paid-up Capital: RMB 140.47m
	 
	 	 	 	Company Type: Company with Limited Liability






	 	 Business Scope:	 	Hydropower development manufacturing, hydropower installation, the purchase
and sale of hardware, building material, subsidiary agricultural products (exclusive of
cotton, silkworm cocoon, tobacco)






	 	 	 	Establishment Date: August 26, 1998
	 
	 	 	 	Operation Period: from August 26, 1998 to August 25, 2028






	 	2.	 	History evolution
	 
	 	 	 	Yingchuan Hydropower Development Company came into existence on August 26, 1998. Its
registered capital is RMB 11 million, of which RMB 9.56 million is invested by Zhejiang
Guangsha Jingning Hydropower Development Co. Ltd. and RMB 1.44 million is invested by
Zhejiang Lishui Nanfang Hydropower Development Co., Ltd. According to the resolution of
board of shareholders dated on October 31, 2002 and the modified Articles of Association,
the former shareholders, Guangxia Jingning Hydropower Development Co. Ltd. (occupies 86.91%
of the interests) and Lishui Nanfang Hydropower Development Co. Ltd. (occupies 13.09% of the interests), transferred
their shares to Zhejiang Guangsha Joint Stock Limited Partnership and Zhejiang Guangning
Hydropower Development Co. Ltd.respectively. On the basis of that, Zhejiang Guangsha Joint
Stock





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	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report







	 	 	 	Limited Partnership and Zhejiang Guangning Hydropower Development Co., Ltd. increased
investment. After the change, the contributed capital of the Guangsha Joint Stock Limited
Partnership is RMB 54.40 Million (occupies 85% of the registered capital), and the
contributed capital of the Zhejiang Guangning Hydropower Development Co. Ltd. is RMB 9.60
Million (occupies 15% of the registered capital). The total registered capital is increased
to RMB 64 Million. On June 24, 2003, according to the resolution of board of shareholders
on May 25, 2003 and the resolution of board of shareholders on June 12, 2003 and the
modified Articles of Association, the registered capital of Yingchuan Hydropower
Development Company was increased from RMB 64 Million to RMB 140.47 Million. After the
capital increase, the total contributed capital of Zhejiang Guangsha Joint Stock Limited
Partnership is RMB 119.4 Million (occupies 85% of the registered capital), and the total
contributed capital of Zhejiang Guangning Hydropower Development Co., Ltd. is RMB 21.07
Million (occupies 15% of the registered capital). Thus the total registered capital is
increased to RMB 140.47 Million. On January 18, 2007, the Company convened a shareholder
conference and accepted that Zhejiang Guangning Hydropower Development Co., Ltd. could
transfer its 15% shares of the company to Zhejiang Guangsha Hydropower Investment Co.,
Ltd.. The transfer price is RMB 21.07 Million. Zhejiang Guangning Hydropower Development
Co., Ltd. will not hold any shares of the Zhejiang Jingning Yingchuan Hydropower
Development Co., Ltd. any more after transferred.






	 	 	 	The Yingchuan Hydropower Station located on the upstream branch — Yingchuan stream of
Oujiang River water system. It is in the Yingchuan, Jingning County. The reservoir dam is
located 500m down the conflux of Huanghu Port and Chayuan River, two main streams of Yingchuan River. It’s just 4km away
from Yingchuan Town. The factory located in Huangqiangkou Village which is about 8km to
downstream of Yingchuan Town. It is about 58km to Jingning County. The maximum height of
the dam in Yingchuan Hydropower Station is 87m. The dam top width is 6m. The reservoir
capacity is 37.31 Million m3. The power plant installation is 2×20000KW and
belongs to Class III project. The water turbine adopted





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	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report







	 	 	 	vertical shaft mixed-flow turbine. The annual design power output is 108.76 Million KWH.
The prime assets of the hydropower station includes: barrage, spillway, escape pipe,
offlet, power generation water piloting tunnel, Xikengyuan water diversion works, power
plant, booster station, surge shaft, penstock, tail water system, water-turbine generator
sets and related full set facility, lifting pressure facility, power station manufacturing,
living and office auxiliary buildings and the land use right.
	 
	 	 	 	The river basin planning was carried out for the hydropower station in November, 1997. The
preliminary design was carried out in May, 1998. The supplement material of preliminary
design after review was completed in Aug., 1998 and obtained preliminary design
endorsement. It was started in early 1999; the total project duration is about 2.5 years.
In May, 2002, two sets 20000KW water turbine sets paralleled in power generation.
	 
	 	 	 	In 2004, Yingchuan Company’s contracted grid power was 104 million KWH, but the actual grid
power was 110.84 KWH. The income (power fee revenue) is RMB 17.22 Million. In 2005, its
contracted grid power was 100.13 million KWH, but the actual grid power was 119.07 KWH. The
income (power fee revenue) is RMB 17.22 Million. In 2006, its contracted grid power was
99.5 million KWH, but the actual grid power was 119.07 KWH. The income (power fee revenue)
is RMB 16.57 Million.






	 	3.	 	The assets, liabilities, financial status and operation achievements in recent three
years





	 	 	 
	Assets liabilities and financial status

	 	unit: RMB 10 thousand






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Item	 	2004	 	2005	 	2006	 	Sep. 30, 2007
	Total assets
	 	 	28179.16	 	 	 	27330.64	 	 	 	28486.81	 	 	 	28696.27	 
	Liabilities
	 	 	14689.86	 	 	 	12895.05	 	 	 	11720.24	 	 	 	10720.98	 
	Net assets
	 	 	15500.71	 	 	 	16462.97	 	 	 	16766.56	 	 	 	17975.29	 
	Operation income
	 	 	3,378.15	 	 	 	4,381.27	 	 	 	3,971.46	 	 	 	3,527.54	 






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	Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project
	 
	 	Assets Appraisal Report






	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Item	 	2004	 	2005	 	2006	 	Sep. 30, 2007
	Operation costs
	 	 	2,210.62	 	 	 	3,022.92	 	 	 	2,705.86	 	 	 	1,625.93	 
	Operation profit
	 	 	940.55	 	 	 	1,869.75	 	 	 	1,815.10	 	 	 	1811.32	 
	Gross profit
	 	 	937.75	 	 	 	1,863.12	 	 	 	1,803.60	 	 	 	1804.08	 
	Net profit
	 	 	937.75	 	 	 	1,863.12	 	 	 	1,803.60	 	 	 	1208.73	 







	 	 	 	Yingchuan Hydropower Development Company was carried out annual audit in 2004, 2005 and 2006 by
Zhejiang Tianjian CPAs Firm , which issued unqualified opinions on their audit reports as
ZHETIANKUAISHENZI(2005) No. 893, ZHETIANKUAISHENZI(2006) No. 1153 and ZHETIANKUAISHENZI
(2007)NO.1339 respectively. The audit report considered that the company finacial statements
conformed to the prescription of Accounting Standard for Business Enterprises and Accounting
System of the Small enterprises. It reflected the financial status, operation achievement and
the fund variation in the important aspects. The accounting process selection complies with
principle of consistency. Beijing Jing Du CPAs Firm carried out special audit for balance sheet
of the Yingchuan Hydropower Development Company on September 30, 2007 and presented the audit
report BEIJINGJINGDUSHENZI ( 2007) No. 1314 .






	 	4.	 	Major accounting policies
	 
	 	4.1	 	Financial system
	 
	 	 	 	The financial statements of Yingchuan Hydroelectric are compiled on the base of continual
operation. All the statements, based on the actually occurred transactions and items, are
compliant to Accounting Standards for Business Enterprises and its application guide that were
issued by the Ministry of Finance on February 15, 2006.
	 
	 	4.2	 	Financial year
	 
	 	 	 	The financial year means a calendar year starting on January 1 and ending on December 31.





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	 	4.3	 	Standard money
	 
	 	 	 	The standard money is Renminbi (RMB).
	 
	 	4.4.	 	Accounting base and pricing principles
	 
	 	 	 	Unless otherwise stated, the pricing principle is based on the historical cost.
	 
	 	4.5	 	Validation criteria for cash equivalent
	 
	 	 	 	Cash equivalent means those investments featuring short term (generally due within 3 months
from purchase date), high mobility, easy to change into cash, and low value disturbance.
	 
	 	4.6	 	Entry method of bad debt loss for the account receivable






	 	(1)	 	Bad debt validation criteria: a. the debtor goes into liquidation or is death, and
his liquidated property and heritage cannot cover the all the debts; b. the debtor fails
to perform its repayment obligations overdue and it’s
obvious to indicate that the debt is unable to be repaid.
	 
	 	(2)	 	The entry method of bad debt loss: allowance method is used for reckoning the bad
debt loss. By the end of each year, the company will draw some provisions for bad debts
to the receivables (including account receivable and other receivables) according to the
account age analysis method. The provision proportion sees the following:





	 	 	 	 	 
	Duration of account receivable	 	Provision proportion
	overdue within a year
	 	 	5	%
	Overdue one-two years
	 	 	10	%
	Overdue two-three years
	 	 	30	%
	Overdue more than three years
	 	 	100	%







	 	 	 	For those accounts receivable featuring conclusive evidence of the obvious difference of
repayment, individual recognizing method is used to draw bad debt provision.






	 	4.7.	 	Fixed assets pricing and depreciation method






	 	(1)	 	Validation criteria for fixed assets: the fixed assets concurrently feature the





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	 	 	 	following characteristics: 1. tangible assets; 2. high unit value; 3. service life is more
than one year; 4. purchased for the purposes of production, offering labor services,
lease or operation management.
	 
	 	(2)	 	The fixed assets pricing and depreciation method: the fixed asset is booked at the
actual cost of procurement, and depreciated according to straight-line method from the
next month after reaching the serviceable conditions.
	 
	 	 	 	The salvage value rate, depreciation life and annual depreciation rate of all
kinds of fixed assets:





	 	 	 	 	 	 	 	 	 
	Fixed assets group	 	Depreciation life	 	Annual depreciation rate (%)
	Buildings and structures
	 	 	20-45	 	 	 	4.85-2.16	 
	General-purpose equipment
	 	 	8	 	 	 	12.13	 
	Special-purpose equipment
	 	 	20-25	 	 	 	4.85-3.88	 
	Vehicles
	 	 	10	 	 	 	9.70	 







	 	(3)	 	The validation criteria and provision method for the depreciation provision of
fixed assets: by the end of each year, the company will inspect all the fixed assets. If
the following factors are found, including continual downslide of market price, technical
obsolescence, damage or long-term idling, then the recoverable amount is evaluated for
the fixed assets so as to check whether the fixed asset is devaluated or not. If the
recoverable amount is lower than the book value of the fixed assets, then the
depreciation provision is drawn as the difference between the recoverable amount and the
book value. Upon being determined, the depreciation provision of fixed assets cannot be
inverted in the following accounting periods.






	 	4.8	 	Accounting treatment method for borrowing costs
	 
	 	 	 	For the borrowing cost occurred, if it compliant to the capitalization conditions of fixed
assets construction or procurement, it can be added into the corresponding assets costs; the
other borrowing costs shall be determined as expenses and listed in the income statement
according to the amount occurred. The assets compliant to the capitalization conditions means
those assets can reach operation conditions or sales conditions after a long period





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	 	 	 	of procurement, construction or production, including fixed assets, inventory and
investment-type properties.






	 	4.9	 	Entry method for intangible assets






	 	(1)	 	The intangible assets are initially evaluated at cost.
	 
	 	(2)	 	The intangible assets with limited service life can be rationally amortized
according to the anticipation of the related economic benefits within its service life;
for those without reliable and ascertained realization way, straight-line amortization
method is adopted. For those intangible assets without ascertained service life, their
service life shall be rechecked every year and carried out depreciation test.






	 	4.10	 	Validation criteria for revenue
	 
	 	 	 	The operating revenues of the company mainly cover power generation revenue. The validation
criteria for revenue as follows:






	 	(1)	 	The major risk and remuneration of the ownership are transferred to the buyers;
	 
	 	(2)	 	The company neither keeps the ownership-related management right, nor implements
effective control to the sold goods;
	 
	 	(3)	 	The amount of revenue can be measured reliably;
	 
	 	(4)	 	The correlative economic benefits likely flow in the company;
	 
	 	(5)	 	The related cost occurred or to be occurred can be measured reliably.






	 	4.11	 	Accounting treatment method for income tax
	 
	 	 	 	The accounting treatment method of the corporate income tax is balance sheet debt method.
	 
	 	 	 	If the book value of assets is greater than its tax base or the book value of
liabilities is less than its tax base, the liabilities of deferred income tax shall be
determined; if the book value of assets is less than its tax base or the book value of
liabilities is greater than its tax base, the assets of deferred income tax shall be
determined.
	 
	 	4.12	 	Taxation (tax rate)
	 
	 	 	 	Value added tax rate is 6%, urban construction tax rate is 1% of the value





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	 	 	 	added tax (business tax), education surtax is 3% of the value added tax (business tax),
local education surtax is 2% of the value added tax (business tax), the applicable rate of
corporate income tax is 33%. Approved by the Local Taxation Bureau of Jingning She Autonomous
County (JINGDISHUIZHENG [2006] No.20), the company was exempt from corporate income tax in
2006 but cannot enjoy the exemption policies by January 1, 2007. The water resource fee is
charged as RMB 0.01 per KWH for the grid power.





III Appraisal Objectives



The project appraisal objective is that China Hydroelectric Corporation planed to purchase all
interests of Yingchuan Hydropower Development Company. Jingdu Company has been entrusted by China
Hydroelectric Corporation to develope appraisal work for all shareholders’ equity value of
Yingchuan Hydropower Development Company on the appraisal base day and supplied value references
for the aforementioned economic behavior.




IV Appraisal Subject



The appraisal covers all the shareholders’ equity of Yingchuan Hydropower Development Company.



The audited balance sheet of the Yingchuan Hydropower Development Company on the appraisal base day
is as follows: the assets are RMB 285.9597 Million. The liabilities are RMB 107.2098 Million. The
net assets are RMB 178.7499 Million. Including:





	1.	 	Assets
	 
	 	 	The current assets book value is RMB 19.2858 Million, including monetary fund, receivable
account and other receivables.
	 
	 	 	The fixed assets book value is RMB 258.4574 Million; it is the assets of





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	 	 	Yingchuan hydropower station. The maximum height of Yingchuan Hydropower Station dam is 87m.
The dam top width is 6m. The reservoir capacity is 37.31 Million m3. The power plant
installation is 2×20000KW and belongs to Class III project. The water turbine adopted vertical
shaft mixed-flow turbine. The yearly design power output is 108.76 Million KWH. The prime
assets of the hydropower station includes: barrage, spillway, escape pipe, offlet, power
generation water piloting tunnel, Xikengyuan water diversion works, power plant, booster
station, surge shaft, penstock, tail water system, water-turbine generator sets and related
full set facility, lifting pressure facility, power station manufacturing, living and office
auxiliary buildings and four transferred land use right.






	2.	 	Liabilities
	 
	 	 	The current liabilities book value is RMB 32.2098 Million, including other payables, the payable
staff salary, taxes payable and accrued interest payable.
	 
	 	 	The long-term liability book value is RMB 75 Million, it is funded debt.





V Value Type and Definition



The value type of the appraisal project is the investment value. The investment value means the
value of assets for the specific investors who have investment target or the investors of a certain
kind.



The connotation of the appraisal project investment value is the all equity value of the
shareholders of Yingchuan Hydropower Development Company. It corresponds to net assets value of the
Yingchuan Hydropower Development Company.



The appraisal values stated in the report, means the value of all the stockholders’ equity on the
base date, including cash flow and appreciate depreciation and cash convention, provided that the
enterprise is running continually. Appraisal values in




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this report are drawn by Jing Du according to the agreed appraisal assumptions and restrictive
conditions on the appraisal subject and by means of procedures and method stated in this report.
They only serve in providing appraisal opinions to these appraisal objectives.




VI Appraisal Base Day



The asset appraisal base day of this project is September 30, 2007.



In favor of guaranteeing appraisal result and effectively in the service of appraisal objectives,
the appraisal base day has little effect on the appraisal result and is capable of correctly
reflecting the up-to-date status of related assets. The day is decided by the entrustee after the
joint negotiation and approaches the realization day of relevant economic activities as possible.



The pricing standard adopted in this appraisal is the effective pricing standard on the appraisal
base day.




VII Appraisal Assumptions and Restrictive Conditions





	1.	 	Yingchuan Hydropower Development Company will continue its operations and its scope of
business, method and decision-making process will have few changed in the future.
	 
	2.	 	The future macroeconomic environment of Yingchuan Hydropower Development Company will have no
significant changes and the enterprise will completely observe national laws and regulations.
Laws, regulations and relevant industrial policies and supervising measures under which the
profit is forecast will also have no or few changes in the future.
	 
	3.	 	Inflation rate, national current back credit interest rate, tax base and tax rate, service
and product price fluctuations can be kept in a normal range and will have no significant
changes.
	 
	4.	 	With the local government’s reconstruction for the external power transmission circuit, the
power transmission capability improvement can increase the power generation capacity of the
Yingchuan Hydropower Station in high water period,





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	5.	 	In the forecast year, the entrustee can improve the power generation peak-valley ratio via
coordination and reach the expected goal through Lishui Electricity Generating Board
(80%:20%).
	 
	6.	 	In the forecast year, no force majeure or unpredictable factors that would cause major
detrimental effects to the main operations of the enterprise or result in great losses of the
enterprise properties would happen.
	 
	7.	 	The operator of the enterprise is responsible and top management of the enterprise is
competent for their duties.
	 
	8.	 	No legal disputes or obstacles of assets and business of Yingchuan
Hydropower Development Development Company exist. The property right of assets is clear.
	 
	9.	 	The Yingchuan Hydropower Development Company is able to be in sustained operation. The
continued operation qualification can be obtained when the business license recorded operation
expiry date reached.




During the appraisal, appraisers have observed requirements of assets appraisal and adopted current
terms and conditions of policies, industrial conventions, statistical parameters or preconditions
concerning the universal industrial parameters and on the appraisal base day, no deviation factors
existed. In case that great change has taken place to further economic environment, appraisers will
assume no responsibility for different results deduced from the changed preconditions.




VIII Appraisal Principle





	1.	 	Acceptable principles stated in national and industrial regulations;
	 
	2.	 	Principles of independence, objectivity and specialty;
	 
	3.	 	Principle of continuous operation of assets, substitutability and open market;
	 
	4.	 	Principle of variation of main beneficiaries of the property right.





IX Appraisal Basis



This appraisal is made by observing related national laws, regulations and other fair appraisal
basis, pricing standard, appraisal references concerning assets appraisal.




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	1.	 	Behavior Basis
	 
	(1)	 	Assets Appraisal Business Agreement concluded between Jing Du and China Hydroelectric
Corporationl
	 
	2.	 	Legal Basis
	 
	(1)	 	Management Measures for State-owned Assets (No.91) issued by the State Department in 1991;
	 
	(2)	 	Evaluation Management Detailed Rules on State-owned Assets (GUOZIBANFA [1992] No.36) issued
by the original State State-owned Assets Administration Bureau;
	 
	(3)	 	Opinions on Assets Appraisal Operation Norms (try out) issued by China Appraisal Society;
	 
	(4)	 	Temporary Provisions for Assets Appraisal Report Basic Content and Format (CAIPINGZI No.91)
issued by the Ministry of Finance;
	 
	(5)	 	Opinion on Certified Public Valuer Focusing on the Legal Right of Appraisal Subject (HUIXIE
[2003] No.18) issued by the China Institute of Certified Public Accountants(CICPA );
	 
	(6)	 	Instruction Opinion on Business Valuation ([2004] No.134) issued by China Appraisal Society;
	 
	(7)	 	Assets appraisal criteria;
	 
	(8)	 	Policies and regulations concerning enterprise finance, accounting, revenue and assets
management established by the Ministry of Finance, Headquarters of People’s Bank of China,
National Taxation Bureau and the original State State-owned Assets Administration Bureau.
	 
	3.	 	Property Right Basis
	 
	(1)	 	Business license of the enterprise as a legal person;
	 
	(2)	 	The file ZHESHUIZHENG [1998] No. 531 Endorsement on preliminary design of Yingchuan
hydropower station in Jingning County by Water Resource Bureau of Zhejiang Province;
	 
	(3)	 	State land use permit submitted, Building ownership certificate and vehicle driving
certificate;
	 
	(4)	 	Financial materials like accounting statements;
	 
	(5)	 	Application materials for assets appraisal.





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	4.	 	Pricing Basis
	 
	(1)	 	Current deposit and loan rates of financial institutions issued by the People’s Bank of
China;
	 
	(2)	 	Loan Contract, Mortgage Contract, Contract of Guarantee, Parallel in Economic Agreement and
Preliminary Design Report of Yingchuan hydropower station.
	 
	(3)	 	The annual interest of the registered national debt (seven-year term) face value in 2007 (the
fourteenth term)
	 
	(4)	 	The Income Tax Law of the People’s Republic of China;
	 
	(5)	 	The production record and the power fee statistics from the year 2002 to September, 2007.
Offered by Yingchuan Hydropower Development Company;
	 
	(6)	 	Relevant information of the listed power generation companies.
	 
	5.	 	Other References
	 
	(1)	 	The audit reports of Yingchuan Hydropower Development Company in the year 2004, 2005, 2006
and September 30, 2007;
	 
	(2)	 	Price information and other materials collected from news, journals, webs, manufacturers and
other channels;
	 
	(3)	 	Relevant contracts and agreements provided by the appraised enterprise;
	 
	(4)	 	The analysis of the efficiency increasing statement of Yingchuan Hydroelectric Station
provided by entrustee;
	 
	(5)	 	Relevant information mastered by appraisers and materials from field investigation.





X Appraisal Method





	 	 	The income approach is adopted in this appraisal assuming the continuous operation of the
enterprise.






	1.	 	Preconditions for Application of the Income Approach
	 
	 	 	The income approach refers to such an assets appraisal approach that the
value of the appraised assets is decided by means of estimating the expected return of the
appraised assets and converting them into present value. Preconditions for application of the
income approach as follows:






	 	(1)	 	The clear property right of the enterprise assets appraised;




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	 	(2)	 	The future income of enterprises able to be monetarily quantified;
	 
	 	(3)	 	The future operating risk of the enterprise able to be monetarily quantified.






	2.	 	Profit Forecast Basis
	 
	(1)	 	The basis of this appraisal is established on the precondition of the normal operation of the
enterprise and all earnings are from the normal operation of the enterprise, taking no account
of accidental factors and non-comparable factors.
	 
	(2)	 	The profit forecast takes the actual stock assets of the enterprise and has taken the
influence on the normal earnings of the enterprise from the reasonable improvement of stock
assets and the additional investment into consideration.
	 
	(3)	 	The profit forecast is established on the findings of audit from Yingchuan Hydropower
Development Company, in accordance with the profit forecast submitted by the enterprise and
the working plan provided by entrustee’s and according to relevant information collection from
inquiry carried out by appraisers. It has necessarily analyzed, estimated and confirmed the
reasonableness of the profit forecast by the enterprise and some adjustments have been made.
	 
	(4)	 	Operation materials of the past years and the preliminary design report provided by Yingchuan
Hydropower Development Company;
	 
	(5)	 	The analysis of the efficiency increasing statement of Yingchuan Hydroelectric Station
provided by entrustee
	 
	(6)	 	The unification of accounting process adopted.






	3.	 	Appraisal Model of the Income Approach




The discounted cash flow model adopts entity cash flow. Its computing formula is:
The basic format of entity cash flow model is:




     Entity value=entity cash flow t/ (1+ weighted average cost of capital)
t



     Shareholders equity value=entity value— liability value



     Liability value = payable liability cash flow/ (1+equal risk liability cost) t



     The entity cash flow= after-tax profit before interest+ depreciation and



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amortization — operation capital increment- capital expenditure




	4.	 	Establishment of the Forecast Period




So as to be able to reflect cash flow of the power station operation in a long time, we confirmed
the predicted period is five years (including the fourth-quarter of the year 2007). It is from the
year 2007 (the first year) to the year 2011.





	5.	 	Establishment of Benefit Period




The operation period of the Yingchuan Hydropower Development Company is thirty years as stated in
the company regulations, counting from the issuance of the operation license. The operation period
stated in the business license of the enterprise as a legal person is from Aug. 26, 1998 to Aug.
25, 2028. On the base of the economic development prospect of generating power by water conservancy
and supposing the enterprise to be operate continentally, the appraisal benefit period is
permanent, namely from Sep. 30, 2007 to the permanency.





	6.	 	Establishment of the Discounting Rate




According to the principle of unifying the earning capacity and the discounting rate, the earning
capacity is entity cash flow, so the discounting rate” r” will choose the weighted average cost of
capital (WACC), i.e., the return on investment capital, also called investment capital cost, a
comprehensive return rate decided by the structure and return rate of the shareholders’ equity
capitals and interest-payment debenture capitals.




     The computing formula is:


WACC = Ke*We+Kd*(1-T)*Wd

Ke: Shareholders’ equity capital cost;

Kd: debenture capital cost;

We: the ratio of shareholders’ equity capital in the capital structure;

Wd: the ratio of debenture capital in the capital structure;

T: valid income tax rate of the company;





	(1)	 	Definition of Ke





According to the capital asset pricing model (CAPM) and on this base, considering



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the individual
risk earning of Yingchuan Hydropower Development Company, the computing formula is:


Ke= Rf+β×Rpm+A



Rf: risk-free return rate;



RPm: market risk premium;



A: individual risk adjustment.





	1	 	Risk-free Return Rate Rf





     The annual interest of the registered national debt (seven-year term) face value in 2007 (the
fourteenth term) is 3.9% and if converted into the compound interest, the interest is 3.51%, so
the risk-free return rate is 3.51%.




	•	 	Enterprise risk coefficient β
	 
	 	 	It is confirmed according to inquiry the enterprise analogous Hu Shen A shares stock listed
company Beta value, the specific confirmation process as follows:
	 
	 	 	Firstly, on the base of Beta without the finance lever from the listed companies of the same
kind, the average Beta without the finance lever can be worked out. According to the
interest-bearing debt status as well as the future financing plan of the enterprise, the Beta
of the enterprise can be worked out.
	 
	 	 	Through calculation, the Beta without finance level in the listed companies of the same kind is
0.2939.
	 
	 	 	According to the operation capacity, financing capacity and the future capital structure of the
enterprise, the debt/equity ratio (D/E) from October 2007 to 2011 can be determined. Through
the formula βL=(1+(1-T)×D/E)×βU, we can work out the Beta coefficient of the enterprise, see
the following table.





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Oct.- Dec., 2007	 	2008	 	2009	 	2010	 	2011
	Payment of interest liability D/ equity E
	 	 	0.14	 	 	 	0.54	 	 	 	0.35	 	 	 	0.18	 	 	 	0.13	 
	corporate income tax
	 	 	33	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%
	BETA
	 	 	0.32	 	 	 	0.41	 	 	 	0.37	 	 	 	0.33	 	 	 	0.32	 






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	3	 	Market Risk Premium Rpm
	 
	 	 	Domestic securities market is an emerging but bundle one. On one hand, the domestic market has
a relatively shorter history data and in the first several years of its establishment, the
speculation atmosphere was pregnant, so the market fluctuation is large; on the other hand,
presently, the control over the exchange flow under the capital account is strict, plus the
particularity of the stock equity separation, so the stock equity risk premium deduced directly
from the history data has a low reliability, while in the mature market, owing the long history
data, the overall stock equity risk premium on the market could be got from analyzing the
history data, so the risk premium of international emerging markets commonly could be decided
by the risk premium of the mature market. In this appraisal, the market risk premium Rpm is
7.5%.






	•	 	The risk adjustment coefficient
	 
	 	 	According to the operation data statistics in the previous years, the power station has reached
power generation capacity stated in the preliminary design report. Its installed capacity is
40,000kW, and its income is stable under the current power generation capacity. With the local
government’s reconstruction on the power transmission circuit, the local power transmission
capability is improved, and its power generation capacity is increased in the rainy season, so
that its annual power generation capacity can be improved accordingly. Meanwhile, the
coordination of Lishui Hydropower Bureau can improve its peak/valley ratio so as to increase
income. Considering the influence of the aforesaid factors on revenue, this appraisal believes
that it has certain operation risk. At present, the assets/liabilities ratio of the enterprise is
not high and its business finance risk is not high. Whereas the above content, the specific risk
adjustment “A” is confirmed to be 1%.






	•	 	Equity Capital Return Rate r





     Ke = Rf+β×Rpm+A



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Oct.- Dec., 2007	 	2008	 	2009	 	2010	 	2011
	Rf
	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%	 	 	3.51	%
	Rm
	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%	 	 	7.50	%
	BETA
	 	 	0.32	 	 	 	0.41	 	 	 	0.37	 	 	 	0.33	 	 	 	0.32	 
	A
	 	 	1	%	 	 	1	%	 	 	1	%	 	 	1	%	 	 	1	%
	Ke
	 	 	6.91	%	 	 	7.59	%	 	 	7.29	%	 	 	6.99	%	 	 	6.91	%






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	(2). 	 	 Kd, the ratio of calculated finance expenses (according to the actually performed
interest-paid accounting contract) / the actual interest-paid accounts (in the same period).
Kd value shall be determined year by year.
	 
	(3). 	 	 Definition of We and Wd
	 
	 	 	In combination with the future operation condition, financing capability and capital structure
planning of the company, the proportion of the capitals in the total capital;
	 
	(4). 	 	Definition of WACC
	 
	 	 	The WACC is estimated according to corporate income tax rate and forementioned indices.





	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Oct.- Dec., 2007	 	2008	 	2009	 	2010	 	2011
	Liability proportion ( Wd))
	 	 	0.12	 	 	 	0.35	 	 	 	0.26	 	 	 	0.15	 	 	 	0.11	 
	Equity proportion (We)
	 	 	0.88	 	 	 	0.65	 	 	 	0.74	 	 	 	0.85	 	 	 	0.89	 
	Corporate income tax rate (T)
	 	 	33	%	 	 	25	%	 	 	25	%	 	 	25	%	 	 	25	%
	WACC
	 	 	6.77	%	 	 	7.19	%	 	 	7.20	%	 	 	7.17	%	 	 	7.14	%







	7.	 	Shareholders Equity Value Calculation




The entire shareholders’ equity is decided according to the present actual operation status of the
appraised enterprise, by means of subsection forecast of the future income of Yingchuan Hydropower
Development Company and converting the income into cash to realize its entity value, which then
shall be deducted by the interest-payment liabilities. Firstly, the annual cash flow of the
Yingchuan Hydropower Development Company from 2007 to 2011 is forecast; secondly, it is presumed
that the enterprise will run permanently and the entity cash flow remains the same as that of 2012
after the year 2012; Thirdly, according to the selected discounting rate, the aforesaid two-stage
entity cash flows are converted into cash; Fourthly, they shall be summed up and the entity value
of
Yingchuan Hydropower Development Company is figured out; Finally, The shareholders equity value is
obtained by liability value subtracted from entity value. Entity value computing formula is:



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	 	In which 	 	P: the entity value of the enterprise
	 
	 	 	 	Rt: the entity cash flow in the Tth year
	 
	 	 	 	R: weighted average cost of capital; l.
	 
	 	 	 	T: the forecast year;






	 	 	n and n+1:	 	 are the last year of the forecast period
and the first year after the forecast period respectively;
	 
	 	 	Rn+1: 	 	 the entity cash flow of the (n+1) th year,
namely the first-year pre-interest cash flow after taxes after the forecast
period.






	8.	 	Selection of Data Estimations




The financial data forecast of Yingchuan Hydropower Development Company has been adjusted based on
the manufacturing and operation capacity in the preliminary design, in accordance with national
current related laws, codes and macro-policies, the status and foreground of the China power
industry, and trend of Zhejiang power and according to the analysis the predominance and risk of
the enterprise, especially the market environment and development prospect and potentials of the
enterprises, the appraisers carried out necessary analyses and judgment for the profit forecast
from the year 2007 to the year 2011. And the rationality of forecast is affirmed, specific
adjustment are based on this.





	(1)	 	Prime Operating Revenue
	 
	 	 	The prime operating revenue Yingchuan Hydropower Development Company, as a hydroelectric
enterprise, is the income from power sales.
	 
	 	 	In the forecast, various operational indicators influence on the income should be taken into
consideration.






	 	1	 	Installed generation capacity: refer to preliminary design, it is confirmed
according to practical installed generation capacity.
	 
	 	2	 	Utilization hours in a year: it is confirmed according to preliminary design
capability, refer to operation of the unit record in pass years and the future




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	 	 	 	power
generation growth factor should be taken into consideration.
	 
	 	3	 	The station service power consumption rate, transformer loss rate and the line loss
rate for the exclusive power supply and transformation:
	 
	 	 	 	the station service power consumption rate and transformer loss rate are calculated
according to ratio of operation record statistic the grid power to annual power generation.
The line loss rate for the exclusive power supply and transformation is calculated by
adopting 2%.
	 
	 	4	 	The estimation of the grid power: it is estimated based on the aforesaid indicators.
	 
	 	5	 	Establishment of the power price: it is established according to Parallel in economic
agreement that was signed by the enterprise and Lishui Electric Power Bureau, the actual
settlement power price and Explanation on Yingchuan Power Station ‘ parallel in economic
agreement.
	 
	 	6	 	The estimation of the prime operating revenue: it is estimated based on the aforesaid
indicators.






	(2)	 	Prime Operating Cost
	 
	 	 	The prime operating cost includes salary, depreciation and amortization, water resources fee,
repair charge, mini hydro management fee, running cost. It is estimated according to cost real
data of Yingchuan Hydropower Development Company during its main business trial running and the
break-even cost data during preliminary design. The future increase is also considered.






	 	1	 	Based on the 2007 level, wages of workers will rise 5% per annum to 2011. the wage
level in the year 2012 and the year after will held the line. The number of employee is
confirmed according to personnel arrangement in preliminary design report and practical
situation
	 
	 	2	 	Depreciation and amortization are determined according to practical provision of
monthly depreciation level. The cost of water resources shall exercise the current
standard: RMB 0.01 yuan for 1kW.
	 
	 	3	 	Maintenance expenses: because the hydropower station is nearly established, the
maintenance expenses are increasingly growing year by year from the year 2007. It will
reach 0.5% of the predicted original value of 




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	 	 	 	fixed assets in the year 2011. Subsequently,
the annual maintenance expenses retain constant.
	 
	 	4	 	The cost of water resources shall exercise the current standard: RMB 0.01 yuan for
1kW.
	 
	 	5	 	The cost of mini hydro management shall exercise the current standard: it is taken
according to 35% of the cost of water resources.






	(3)	 	Tax and Associate Charge of Main Operations
	 
	 	 	Taxes and associate charges of main operations include urban construction tax and education
surtax, which shall be estimated according to current tax standards, namely the urban
construction tax is 1% of the actual paid value added tax and the education surtax is 3% of the
actual paid value added tax. The local education surtax is 2% of the actual paid value added
tax, The water conservancy construction fund is 0.1% of the actual paid value added tax
	 
	(4)	 	Management cost
	 
	 	 	The management cost includes salary, employee welfare cost, labor union expenditure, staff
education expenditure, staff endowment insurance, bonus, amorization of intangible assets and
other management cost.






	 	1	 	Based on the 2007 level, wages of workers will rise 5% per annum to 2011. The wage
level in the year 2012 and the year after will hold the line. The number of employee is
confirmed according to personnel arrangement in preliminary design report and practical
situation.
	 
	 	2	 	Staff welfare cost is estimated according to the current standard.
	 
	 	3	 	Labor union expenditure is estimated according to the current standard.
	 
	 	4	 	Staff education expenditure is estimated according to the current standard.
	 
	 	5	 	Staff endowment insurance is referred to the current standard.
	 
	 	6	 	Bonus is estimated according to the current bonus standard.
	 
	 	7	 	the amortization of the intangible assets is estimated on the base of the
actual amounts incurred in the previous years.
	 
	 	8	 	Other management expenses are estimated on the base of the actual amounts incurred in
the previous years.




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	(5)	 	Financial expenses
	 
	 	 	Financial expenses: it is estimated according to enterprise implementary loan agreement and in
combination with the future operation condition, financing capability and future capital
structure planning of the enterprise.
	 
	(6)	 	Non-operating Income and Non-operating Expenses
	 
	 	 	Non-operating revenues and expenses are not recur renting items, so they haven’t been taken
into consideration in this profit forecast.
	 
	(7)	 	Corporate income tax
	 
	 	 	The corporate income tax is determined according to the Company’s implemented tax rate: in
2007, it is estimated according to the current income tax rate (33%). After the year 2008, it
will carry out the new income tax rate stated by the newly-published “Enterprise Income Tax Law
of the People’s Republic of China”, i.e. 25%.
	 
	(8)	 	After-tax Profit
	 
	 	 	Based on the said profit and loss items like income and cost, the after-tax profit is decided.
	 
	(9)	 	Net Investment





          Net investment = capital expenditure + increase of operation funds - depreciation
and amortization





	 	1	 	Capital Expenditure
	 
	 	 	 	The capital expenditure is decided by the new power station plan. At the same time, on the
condition of the permanent operation of the enterprise, the funds of depreciation and
amortization are equivalent to the capital expenditure. Because the appraisal takes no
account of additional
investment, provided that the enterprise kept simple reproduction and the facility requires
resetting, the annual capital expenditure sum is equal to the provision of depreciation of
equipment.
	 
	 	2	 	Increase of Operation Funds




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	 	 	 	The demand for the operation funds in the company is slim and the cash flow brought by the
daily power sales is able to support the daily operation turnover, so the increase of
operation funds is taken no account of.
	 
	 	3	 	Depreciation and Amortization
	 
	 	 	 	The forecast value of the depreciation and amortization is decided on the basis of forecast
depreciation of fixed assets of main business cost.






	(10)	 	Forecast of Annual Stockholders’ Cash Flow
	 
	 	 	According to the said forecasts, the forecast of annual shareholders’ cash flow is as follows:





Unit: RMB, 10 thousand     




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Oct.- Dec.,	 	 	 	 	 	 	 	 
	Item	 	2007	 	2008	 	2009	 	2010	 	2011
	I. Prime Operating Revenue
	 	 	636.68	 	 	 	4,655.93	 	 	 	5,028.09	 	 	 	5,028.09	 	 	 	5,028.09	 
	Less: discount distribution
	 	 	—	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Prime Operating net sale
	 	 	636.68	 	 	 	4,655.93	 	 	 	5,028.09	 	 	 	5,028.09	 	 	 	5,028.09	 
	Less: Cost of Main Operations
	 	 	325.63	 	 	 	1,196.09	 	 	 	1,209.81	 	 	 	1,221.43	 	 	 	1,233.23	 
	Tax and Associate Charge of Main
Operations
	 	 	2.93	 	 	 	21.42	 	 	 	23.13	 	 	 	23.13	 	 	 	23.13	 
	II. Profits from Main Operations
	 	 	308.12	 	 	 	3,438.42	 	 	 	3,795.15	 	 	 	3,783.53	 	 	 	3,771.73	 
	Add: other business profit
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Less: the operation expenses
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	General and Administrative Expense
	 	 	81.30	 	 	 	283.70	 	 	 	295.10	 	 	 	307.15	 	 	 	319.63	 
	Financial Expenses
	 	 	207.30	 	 	 	792.53	 	 	 	560.47	 	 	 	331.37	 	 	 	265.67	 
	III. Operating Income
	 	 	19.52	 	 	 	2,362.19	 	 	 	2,939.58	 	 	 	3,145.01	 	 	 	3,186.43	 
	Add: investment income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Subsidiary earnings
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-operating Income
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Less: Non-operating Expense
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Iv. Income Before Tax
	 	 	19.52	 	 	 	2,362.19	 	 	 	2,939.58	 	 	 	3,145.01	 	 	 	3,186.43	 






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	 	 	Oct.- Dec.,	 	 	 	 	 	 	 	 
	Item	 	2007	 	2008	 	2009	 	2010	 	2011
	Less: Income Tax
	 	 	6.44	 	 	 	590.55	 	 	 	734.90	 	 	 	786.25	 	 	 	796.61	 
	V. Net Income
	 	 	13.08	 	 	 	1,771.64	 	 	 	2,204.68	 	 	 	2,358.76	 	 	 	2,389.82	 
	VI. Pre-interest Profit After Taxes
	 	 	151.97	 	 	 	2,366.04	 	 	 	2,625.04	 	 	 	2,607.29	 	 	 	2,589.08	 
	Add: depreciation and amortization
	 	 	222.12	 	 	 	887.78	 	 	 	887.78	 	 	 	887.78	 	 	 	887.78	 
	Less: the capital expenditure
	 	 	49.79	 	 	 	199.15	 	 	 	199.15	 	 	 	199.15	 	 	 	199.15	 
	Less: business current assets increment
	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 
	VII. Entity cash flow
	 	 	324.30	 	 	 	3,054.67	 	 	 	3,313.67	 	 	 	3,295.92	 	 	 	3,277.71	 







	(11)	 	The estimation for entity cash flow present value
	 
	 	 	Through above indictor’s estimation, it is calculated by adopting the above-mentioned entity
cash flow calculation of present value. The entity value of enterprise forever operation state
is RMB 452.7187 Million.
	 
	(12)	 	Shareholders equity value calculation
	 
	 	 	Shareholders equity value = entity value– liability value







	 	1	 	Liability value
	 
	 	 	 	The enterprise has RMB 97.1388 Million for various payment of interest accounting on
appraisal base day. The liability value is RMB 97.1388 Million.
	 
	 	2	 	Interests Value
	 
	 	 	 	Shareholders equity value = entity value  -  liability value= 452,718,700-97,138,800 =
355,579,900





XI Implementation Process and Conditions of Appraisal Procedures



The appraisal process can be divided into five stages:





	(I)	 	Acceptance of Commission




Main jobs of this stage include: defining appraisal objectives, scope and the


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appraisal base day,
establishing work scheme of assets appraisal and signing agreement on assets appraisal.





	(II)	 	Preparations






	1.	 	As required by the assets appraisal, arranging the application form of assets appraisal for
the entrustee and the appraised enterprise and assisting the appraised enterprise for assets
declaration;
	 
	2.	 	Collecting and preparing materials required by assets appraisal.
	 
	(III)	 	Assets Check and Verification
	 
	1.	 	Listening to introductions on the enterprise status, the history and status of the appraised
assets by persons concerned in the assets-holding enterprise;
	 
	2.	 	Consulting and discriminating the application form of assets appraisal provided by the
enterprise, checking and verifying the physical assets with the financial records of the
enterprise, proving the authenticity and integrality of declaration materials submitted by the
enterprise;
	 
	3.	 	Verifying the real objects on the scene according to the application form of assets
appraisal, looking into and recording the assets conditions, talking with asset management
personnel to learn the operation and management status of assets, investigating whether there
are overage assets influencing appraisal;
	 
	4.	 	Examining certificates of the property right of the appraised assets, equipment purchase
contract, accounting materials like account current and invoices, and making clear of the
enterprise assets property right;
	 
	5.	 	Consulting the project approximate budget and audit materials, spot-examining assets
discharge statement, equipment operation records, maintenance and accident records and looking
into the remaining status of assets to confirm the continuous development of assets operation;
	 
	6.	 	Investigating the operation, financial and future development status of the
enterprise, making proper adjustments after analyzing related indices;
	 
	7.	 	Investigating and confirming the market environment where the appraised enterprise is
located.




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	(IV)	 	Estimations and Gathering
	 
	1.	 	Analyzing obtained materials and selecting proper appraisal approaches according to the
status and features of the appraised assets;
	 
	2.	 	Acquiring pricing basis and price materials;

	 
	3.	 	Calculating the appraisal value;
	 
	4.	 	Analyzing the appraisal conclusion and adjusting, amend and perfecting the assets appraisal
result;
	 
	5.	 	Writing appraisal explanations and appraisal report;
	 
	6.	 	Carrying out three-level double checks, supplementing and amending the appraisal report and
appraisal explanations.
	 
	(V)	 	Submittal of the Report
	 
	 	 	According to the appraisal condition, submitting Assets Appraisal report discussion
draft to the entrustee; according to opinions from the entrustee and the assets-holding
enterprise, making necessary amendments; submitting a formal Assets Appraisal report to the
entrustee after it has been confirmed all right by the entrustee and the appraised
enterprise.





XII Appraisal Conclusions





	(I)	 	The Legal Property Right of the Appraisal Subject
	 
	 	 	The work of certified public valuers aims to estimate and professionally comment the value of
the appraisal subject, but the confirmation of the legal property right of the appraisal
subject or comment on them is beyond their work scope. The entrustee and the related disputing
party shall offer materials on the legal property right of the appraisal subject and shall
assume all responsibilities on the authenticity, legitimacy and integrality of such materials.
Certified public valuers are not entitled to confirm or comment the legal property right of the
appraisal subject, so we hereby provide no guarantee to the legal property of
the appraisal subject. The entrustee and related disputing parties shall pay attention to this.
	 
	 	 	According to Opinion on Certified Public Valuer Focusing on the Legal Right of 




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	 	 	Appraisal
Subject, on the appraisal scene, appraisers have properly paid attention to the property right
to the appraisal subject, collected and checked certificates of the legal property right of the
appraisal subject and investigated issues concerning the property right.
	 
	 	 	Yingchuan Hydropower Station is the major assets of Yingchuan Hydropower Development Co., Ltd.
The property ownership certificates of the hydropower station (JINGZI No.00011244, No.00011245
and No.00011246) have been transacted already. The owner of the properties is Jingning
Yingchuan Hydropower Development Co., Ltd.
	 
	 	 	The hydropower station has four plots of land, for which the state-owned land use certificates
have been transacted already.

The land use certificate No. of the plant site land is JINGGUOYONG No.029 (2003), and the land
user hereof is Zhejiang Guangsha Jingning Yingchuan Hydropower Development Co., Ltd., for which
the user name alteration formalities have not been transacted.
	 
	 	 	The land use certificate No. of the reservoir is JINGGUOYONG No.030 (2003), and the land user
hereof is Zhejiang Guangsha Jingning Yingchuan Hydropower Development Co., Ltd., for which the
user name alteration formalities have not been transacted.
	 
	 	 	The land use certificate No. of Zhidongkou, Xincun Village is JINGGUOYONG No.866 (2003), and
the land user hereof is Zhejiang Guangsha Jingning Yingchuan Hydropower Development Co., Ltd.
	 
	 	 	The land use certificate No. of Zhidongkou, Huangyangcun Village is JINGGUOYONG No.867 (2003),
and the land user hereof is Zhejiang Guangsha Jingning Yingchuan Hydropower Development Co.,
Ltd.
	 
	 	 	The land use right type of the four plots of land is transfer.
	 
	 	 	The Santana Car with license Zhe No.KA8375, owned by Yingchuan 




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	 	 	Hydropower Company, its owner is
Zhejiang Guangsha Jingning Yingchuan Hydropower Development Co., Ltd., for which the user name
alteration formalities have not been transacted.
	 
	 	 	Yingchuan Hydropower Company signed mortgage contract (mortgage contract
No33902200700024141) with Jingning She Autonomous County Branch, Agricultural Bank of China.
The assets of Ying Chuan hydropower station is mortgaged to She Nationality Autonomous County
Branch, Jingning, Agricultural Bank of China. The medium term loan sum is RMB 25 Million. The
term of performance of an obligation of the debtor is from May 10, 2007 to May 9, 2010.






	(II)	 	Appraisal conclusion
	 
	 	 	Up to the appraisal base day Sep. 30, 2007, by means of income approach, the entity value
appraisal value of Yingchuan Hydropower Development Company is RMB 452.7187 Million and all
shareholders equity appraisal value is RMB 355.5799 Million.
	 
	(III)	 	Explanations to Appraisal Conclusions
	 
	1.	 	The selling price of power in Yingchuan Hydropower Development Company is in accordance with
the current standard, taking no consideration of prospective adjustment.
	 
	2.	 	As the enterprise has been operated for more than 5 years, it enjoys the preferential
policies of corporate income tax relief no longer.
	 
	3.	 	With the local government’s reconstruction for the external power transmission circuit, the
power transmission capability improvement can increase the power generation capacity of the
Yingchuan Hydropower Station in high water period, subsequently; the annual power generation
capacity can be improved. In the forecast year, as the consummating of the locat electrical
network structure
and the fortified management the entrustee would improve the power generation peak-valley ratio
via coordination and reach the expected goal through Lishui Electricity Generating Board. This
appraisal takes the above factors’ influence on the power generation and peak to valley ratio
into 




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	 	 	consideration.
	 
	4.	 	The estimation of grid power quantity is estimated on the base of the operation data in the
previous years, considering the multi-year average power output as well as the improved power
transmission capability from the grid reconstruction into consideration. In the actual
operation, the grid power quantity may be higher or lower than the aforesaid level due to the
impacts of the natural factors.
	 
	5.	 	The appraisal conclusion is the working results after carrying out all the aforesaid
appraisal procedure. The appraisal conclusion is not a guarantee for the operation status and
operation achievements of the enterprise in the future.





XIII Explanations to Particular Issues





Issues that may influence the appraisal conclusions but are beyond the capabilities of
appraisers for estimation are including but not limited to:




	1.	 	Assets and liabilities of Yingchuan Hydropower Development Company to be appraised
have already been audited by the China certified account and acquired the audited
accounting statement on the appraisal base day.
	 
	2.	 	Materials provided by the top management of Yingchuan Hydropower Development Company
and other personnel are the basis of this report, so Yingchuan Hydropower Development
Company shall be responsible for the authenticity, legitimacy and allsidedness of such
materials. For defect issues that exist in Yingchuan Hydropower Development Company and
may influence the appraisal conclusions, if not particularly stated or expressed clearly
in the appraisal field investigation or unable to be obtained according to the
professional experience, the appraisal institution and appraisers shall be exempt from any
responsibilities thereof.
	 
	3.	 	The Yingchuan Hydropower Development Company submitted Yingchuan
hydropower station preliminary design report and The Profit Forecast from the Year 2007 to
2011 and the analysis of the efficiency increasing statement of Yingchuan Hydroelectric
Station, which are one of the main bases for the appraisal report.




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	4.	 	It has been assumed that assets of the Yingchuan Power Station have been
pledged, so the influence from other rights like pledge and guarantee in the appraisal
conclusions hasn’t been taken into consideration.
	 
	5.	 	Interests or obligations beyond the appraisal scope, such as contingent benefit,
contingent assets or contingent liabilities, haven’t been taken into consideration.






It is hereby notified that the report users shall pay attention to the influence on the appraisal
conclusions from the said issues.



XIV Major Issues after Appraisal Base Day





	1.	 	They refer to key issues that happen between the appraisal base day and the submittal day of
the appraisal report.
	 
	2.	 	Other key issues that haven’t been provided by the appraised enterprise or discovered by
appraisers after the appraisal base day;
	 
	3.	 	After the appraisal base day and within the valid period of the appraisal report, if the
amount of assets varies, it shall be priced according to the original appraisal approach of
such assets and corresponding adjustments of assets shall be made. Due to specific causes, if
the price standard of assets has been changed, which has obviously influenced the appraisal
assets. the entrustee shall request the appraisal institution to reassess the appraisal value
according to the practical situations.





XV Legal Effect of the Appraisal Report




	1.	 	Appraisal conclusions stated in the report are merely a reflection of the current fair market
price that was decided according to the principle of open market, of the appraised assets
under the appraisal objectives, taking no consideration of influences from losses caused by
activities like pledge and guarantee, or significant changes of the national macroeconomic
policies, or natural forces
and other force majeure. The precondition of this report is the continuous operation of the
assets, so if the precondition is changed, the appraisal conclusions will be null. The report is
exclusive for the appraisal objectives, so the signing certified public valuers and the appraisal
institution shall be
exempt





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	 	 	from any responsibilities from results caused by misapplications.
	 
	2.	 	The valid date of this report is one year, namely from September 30, 2007 to September 29,
2008. During this period, if the appraisal objectives are to be realized, the report shall
work as the pricing basis and shall be adjusted, in the form of self-regulating or entrusting
the appraisal company, according to issues concerned after the appraisal base day, the
appraisal conclusions in this will be invalid after one year.
	 
	3.	 	Appraisal conclusions in this report are exclusive for the entrustee to realize the appraisal
objectives.





XVI Appraisal Reporting Day



The formal presentation data of the Assets Appraisal report is November 15, 2007.



(No text in this passage)



Assets Appraisal Institution: Beijing Jing Du Assets Valuation Company Ltd.



Legal Representative of Assets Appraisal Institution: Jiang Jianying



China Certified Public Valuer: Wang Ri



China Certified Public Valuer: Sun Chaohui





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November 15, 2007




Beijing Jingdu Assets Valuation Co.,
 Ltd.     3F, Scitech Plaza      Fax: 0086-10-65227608     37




 









 





Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report








Zhejiang Jingning Yingchuan Hydropower




Development Co., Ltd.




Share Transfer Project




Document for Future Reference




Beijing Jingdu Assets Valuation Co.,
 Ltd.     3F, Scitech Plaza      Fax: 0086-10-65227608     38




 









 





Zhejiang Jingning Yingchuan Hydropower Development Co., Ltd. Share Transfer Project




Assets Appraisal Report




Statement on the Application Scope of Document for




Future Reference of the Assets Appraisal Report



This document is exclusive for the economic activities to fulfill appraisal objectives and
delivered to the administrative competent departments for assets appraisal for review. The use
right of the appraisal report belongs to the entrustee, so without the permission of the entrustee,
no offer or disclosure of this report shall be made by the appraisal institution. At the same time,
without the approval of us, the whole or partial report shall not be published on the open media by
the entrustee. Jingdu is exempt from any legal responsibilities for any other results of economic
activities by due to the inappropriate quotation by the entrustee of the appraisal result.




Beijing Jingdu Assets Valuation Co., Ltd.




November 15, 2007




 Beijing Jingdu Assets Valuation Co.,
 Ltd.     3F, Scitech Plaza      Fax: 0086-10-65227608     39




 










 





Appendix 6



Breakdown of Restructuring Credits and Debts of the Object Company and Measures therefore




     By September 30, 2007, the Audit Report of Beijing Jingdu CPA Limited affirms that the capital
balance in the finance account of Yingchuan Hydropower Project (“Object Company”, same as below) is
RMB 238,386.62, the net worth balance of accounts receivable is RMB 10,639,814.20 (provision of
bad-debt reserve RMB 559,990.22), the net worth balance of other receivables is RMB 8,417,616.45
(Provision of bad-debt reserve RMB 443,032.45) and the balance of liabilities other than those from
banks is RMB 31,878,828.43.



     Upon consultation between the Transferors and the Transferee, they have agreed as follows
regarding the aforesaid credits and debts (including currency capital):



     1. In accordance with the Equity Interest Transfer Contract, the Transferors shall restructure
the credits (including currency capital, amounts receivable and other receivables, same as below)
and debts (including other payables, payable compensation to staff, tax payable, interest payable,
excluding bank loans, same as below) of the Object Company, in other words, the Object Company will
pass the credits and debts to Zhejiang Guangsha Hydropower Investment Co., Ltd by signing credits
and debts agreements with creditors and debtors.



     2. Upon restructuring, the Object Company shall receive from or pay Zhejiang Guangsha
Hydropower Investment Co., Ltd RMB 12,593,011.16 as the difference between the credits and debts;
in accordance with the Equity Interest Transfer Agreement and Framework Agreement, the Transferee
shall pay Zhejiang Guangsha Hydropower Investment Co., Ltd such amount by increasing the registered
capital; the credits and debts of the Object Company shall be enjoyed and borne by Guangsha
Hydropower Investment Co., Ltd.



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     3. Changes in the credits and debts from the Base Date to Delivery Date shall be settled by
the Transferors and Transferee through settling the credits and debts as of the Delivery Date in
accordance with the Equity Interest Transfer Contract and these measures.



     4. Prior to the Delivery Date, returned taxes (if any) during the normal course of business of
the Object shall belong to the Transferors; if such taxes are received by the Object Company after
the Delivery Date, they shall be paid to Zhengjiang Guangsha Hydropower Investment Co.,Ltd within
three (3) days upon receipt.



     5. Breakdown of the credits and debts as of the assessment date is as follows (attached
hereto):



Date: _________ 2007




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Breakdown of Yingchuan Credits and Debts




	 	 	 	 	 	 	 	 	 	 	 
	 	 	By September 30	 	Unit: Yuan
	Item	 	Unit or detail	 	Amount	 	Content	 	Note
	Capital currency

	 	 	 	 	228,386.62	 	 	 	 	 
	Receivables

	 	Lishui City Power Bureau
	 	 	11,199,804.42	 	 	Revenue of power
generation
	 	Bad debt reserve
559,990.22
	Other receivables

	 	 	 	 	8,860,648.89	 	 	 	 	Bad debt reserve
443,032.45
	 

	 	Zhejiang Guangsha
Shareholding Co., Ltd.
	 	 	8,355,648.89	 	 	Loans	 	 
	 

	 	Loan deposit at
Jingning Agricultural
Bank of China
	 	 	500,000.00	 	 	Pre-paid insurance
through the life
insurance company	 	 
	 

	 	Cheng Jun
	 	 	5,000.00	 	 	Reserve	 	 
	Total credits

	 	 	 	 	20,288,839.93	 	 	 	 	 
	Other payables

	 	 	 	 	24,487,639.81	 	 	 	 	 
	 

	 	Guangsha Hydropower
Investment
	 	 	22,881,639.81	 	 	Loans	 	 
	 

	 	Lishui Oujiang
Power-generating
Engineering Co., Ltd.
	 	 	1,500,000.00	 	 	Capital occupancy fee	 	 
	 

	 	Zhejiang Water
Conservancy Hekou
Research Institute
	 	 	45,000.00	 	 	Consultancy fee	 	 
	 

	 	Lishui Power Industry
Association
	 	 	50,000.00	 	 	Membership fee to
hydropower industry
association	 	 
	 

	 	Jingning Feihong
Hydropower Company
	 	 	11,000.00	 	 	Maintenance fee for
10kv wire	 	 
	Compensation
payable to staff

	 	 	 	 	427,050.62	 	 	 	 	 
	 

	 	Staff welfare
	 	 	302,358.86	 	 	 	 	 
	 

	 	Social insurance
	 	 	63,616.02	 	 	 	 	 
	 

	 	Union fee
	 	 	61,075.74	 	 	 	 	 
	Taxes payable

	 	 	 	 	6,794,633.00	 	 	 	 	 
	 

	 	VAT
	 	 	952,039.29	 	 	 	 	 
	 

	 	Urban maintenance and
construction tax
	 	 	9,635.16	 	 	 	 	 






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	 	 	By September 30	 	Unit: Yuan
	Item	 	Unit or detail	 	Amount	 	Content	 	Note
	 

	 	Individual income tax
	 	 	595.00	 	 	 	 	 
	 

	 	Stamp tax
	 	 	5,087.42	 	 	 	 	 
	 

	 	Education surcharge
	 	 	48,175.79	 	 	 	 	 
	 

	 	Special fund for Water
conservancy projects
	 	 	16,279.73	 	 	 	 	 
	 

	 	Water resource fee
	 	 	1,200,806.10	 	 	 	 	 
	 

	 	Micro hydropower
management fee
	 	 	420,317.13	 	 	 	 	 
	 

	 	Enterprise income tax
	 	 	4,141,697.38	 	 	 	 	 
	Interest payable

	 	 	 	 	169,505.00	 	 	 	 	 
	 

	 	Total debts
	 	 	31,878,828.43	 	 	 	 	 






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Appendix 7




Letter of Undertaking




China Hydroeletric Corporation (CHC):





We had provided guarantee for the following bank loans of Zhejiang Jingning Yingchuan
Hydropower Development Co., Ltd:



	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Lending Bank or	 	 	 	 	 	 	 	 
	No.	 	Agency	 	Expiry Date	 	Annual Rate	 	Currency	 	Amount
	1

	 	Agricultural Bank
of China, Mingzhu
Sub-branch
	 	Oct. 31, 2008
	 	 	7.1154%-7.3278	%	 	RMB
	 	 	30,000,000.00	 
	2

	 	Agricultural Bank
of China, Jingning
Shezu Autonomous
County Sub-branch
	 	Aug.20,2009
	 	 	7.33	%	 	RMB
	 	 	20,000,000.00	 







	 	 	Whereas CHC is willing to purchase one hundred percent of the equity interest of Jingning
Yingchuan Hydropower Development Co., Ltd, we hereby undertake that:
	 
	1.	 	We will continually fulfill our guarantee obligations under above-mentioned guarantee
contracts until the fulfillment of the guarantee contracts are legally completed.
	 
	2.	 	If the creditor, the lending bank, requests us to provide the guarantee and perform the
procedure separately, we hereby undertake that, prior to the 




 









 












	 	 	remitting date specified in
Article 8.3 of “Formal Equity Interest Transfer Contract of Jingning Yingchuan Hydropower
Development Co., Ltd” signed by CHC, Zhejiang Guangsha Stock Co., Ltd and Zhejiang Guangsha
Hydropower Investment Co., Ltd, we will provide the relevant guarantee and perform the
procedure unconditionally in accordance with the creditor’s requirements and provide an
ongoing guarantee for the undue loans of Qingtian Wuliting Hydropower Development Co., Ltd.




Guangsha Construction Group Co., Ltd.



December 13, 2007