Unassociated Document


    Joint
Operation Agreement

    of
the Large Scale Group Furnaces Low Temperature Smoke-Steam Residual


    Heat
Comprehensive Usage Project (“Power Station Project”)

    


    Party
A: Inner Mongolia Erdos Metallurgy Co., Ltd.

    Legal
Representative: Linxiang Wang

    Registered
Address: Dian Ye Building, Chessboard Well Industrial Park, Etuoke Banner, City
of Erdos, Inner Mongolia, P.R.China

    Number of
Registered Business License: 1527042000704

    Mailing
Address: same as registered address

    Contact
Phone Number: 04776470618

    Fax:
04776470636

    Postal
Code: 016064

    


    Party
B: Xi’an TCH Energy Technology Co., Ltd.

    Legal
Representative: Guohua Ku

    Registered
Address: No. 86 Gaoxin Road, Gaoxin District, Xi’an City, Shan Xi Province,
P.R.China

    Number of
Registered Business License: 610100400001292

    Mailing
Address: Suite 909, Tower B, Chang An International Building, No. 88 Nan Guan
Zheng Jie, Xi’an City, Shan Xi Province, P.R.China

    Contact
Phone Number: 029-8765-1096

    Fax:
029-8765-1099

    Postal
Code: 710068

    


    In view
of:

    
      	
              1.

            	
              Party
      A is located in Chessboard Well Industrial Park, Etuoke Banner, City of
      Erdos, Inner Mongolia.  It is the largest ferroalloy production
      enterprise in P.R.China. Party A is planning to remould its existing
      submerged arc furnaces to recovery and reuse waste
  heat.

            


    

     

    
      	
              2.

            	
              China
      Recycling Energy Corporation is a listed company with its common stock
      being traded on the NASD’s Over-the-Counter Bulletin Board (ticker symbol
      “CREG”), with current capitalization of US$200 million.  Party B
      is a Chinese subsidiary controlled by CREG and is in charge of the
      investment and operation of CREG’s projects in China. Party B’s registered
      capital is RMB80 million. Its major business is to invest, construct, and
      operate energy recycling projects and new energy projects in
      China.  Party B has successfully completed several projects in
      the areas of TRT and residual heat power
  generation.

            


    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              3.

            	
              Both
      Parties hereby entered this agreement to jointly construct Party A’s Large
      Scale Group Furnaces Low Temperature Smoke-Steam Residual Heat
      Comprehensive Usage Project (“Power Station Project”) and steam recovery
      project.

            


    

    


    Article
1: Project Name and Location

    


    
      	
              1.

            	
              The
      name of the project is Inner Mongolia Erdos Metallurgy Co., Ltd. Large
      Scale Group Furnaces Low Temperature Smoke-Steam Residual Heat
      Comprehensive Usage Power Generation Project (“Power Station Project”) and
      steam recovery station project (collectively referred to herein as the
      “Projects” or “Stations”).

            


    

     

    
      	
              2.

            	
              The
      Projects are located in Chessboard Well Industrial Park, Etuoke Banner,
      City of Erdos, Inner Mongolia.

            


    

    


    Article
2: Joint Operation Methods

    


    
      	
              1.

            	
              Party
      A and Party B shall cooperate in all respects and during the entire course
      of constructing the Projects and operating the
  Stations.

            


    

    


    
      	
              2.

            	
              The
      two Parties jointly invest and establish a limited liability company
      (referred to herein as the “Joint Company”).  A board of
      directors shall be formed for the Joint Company, with the first chairman
      appointed by Party A.  The legal representative of the Joint
      Company shall be Party B and the President of the Joint Company shall be
      appointed by Party B.  The hiring of Vice Presidents, CFO and
      other senior members of the management shall be nominated by the President
      and approved by the board of directors.  The hiring of other
      members of management shall be approved by the
      President.  Detail matters are specified in the Joint Company’s
      Article of Incorporation.

            


    

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    The Joint
Company is located at where Party A is located.  The incorporation and
registration for the Joint Company shall be started once this agreement takes
effective.

    


    
      	
              3.

            	
              The
      registered capital of the Joint Company is tentatively determined to be
      RMB18 million, with the initial investment installment to be injected by
      Party B.

            


    

    


    
      	
              4.

            	
              Prior
      to the recovery of all investments: Party A shall be entitled to 20%
      ownership interest in the Joint Company by providing resources such as
      residual heat, land, and water, etc. and 10% of the capital investment;
      Party B shall be  entitled to 80% ownership interest in the
      Joint Company by providing 90% of the capital
  investment.

            


    

    


    
      	
              5.

            	
              Subsequent
      to the recovery of all investments: Party A shall be entitled to 40%
      ownership interest and Party B shall be entitled to 60% ownership interest
      in the Joint Company.

            


    

    


    
      	
              6.

            	
              During
      the later course of joint operation, if Party A requests to raise its
      investment proportion, it has to be approved by written consents from both
      Parties.

            


    

    


    Article
3: Project Objectives

    


    
      	
              1.

            	
              To
      recover residual heat generated by Party A’s existing 54 submerged arc
      furnaces (26 ferrosilicon furnaces of 25,000 KVA each, 22 ferrosilicon
      furnaces of 12,500 KVA each, and 6 calcium carbide furnaces of 25,000 KVA
      each, with total capacity of 1,075,000 KVA) and to construct residual heat
      power generation stations or steam recovery stations. The capacity upon
      completion is expected to be 70 MW electricity and/or 30tons/hour of
      steam.

            


    

    


    
      	
              2.

            	
              The
      technical plan for the Projects is detailed in another document which is
      an appendix to this agreement (“Technical Appendix”).  This
      technical plan shall list Party A’s existing 54 submerged arc furnaces,
      including models, capacities and
locations.

            


    

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    
      	
              3.

            	
              To
      save energy, reduce emission of carbon dioxide, protect atmospheric
      environment, lower production costs, and enable both Parties to achieve
      good economic benefits from construction of the Projects and operation of
      the Stations. It is targeted to reduce by 10% the quantity of electricity
      to be purchased by Party A from external sources and to increase the
      production of steam and therefore reduce the investment required for
      constructing coal-fired boilers.

            


    

    


    Article
4: Joint Operation Period

    


    
      	
              1.

            	
              The
      joint operation period for the two Parties shall be 20 years, commencing
      from the date when the Joint Company obtained its business
      license.  The joint operation period shall include construction
      period for the Projects. It shall start from year 2009 and be terminated
      in year 2029.

            


    

    


    
      	
              2.

            	
              The
      first Station shall be completed and put in operation within 10 months
      after this agreement takes effective. The construction of all Projects is
      expected to be completed by the end of December of
  2011.

            


    

    


    
      	
              3.

            	
              Ninety
      days prior to expiration of the joint operation period, the two Parties
      shall discuss and negotiate for settlement and
  transfer.

            


    

    


    Article
5: Project Design, Construction and Operation

    


    
      	
              1.

            	
              The
      Joint Company shall be the owner of the Projects and shall be in charge of
      project design, construction and
operation.

            


    

    
      	
              2.

            	
              The
      Joint Company shall select design institute/company with established
      history of success in designing for residual heat power generation
      projects to conduct preliminary design and construction
      design.

            


    

    
      	
              3.

            	
              The
      Joint Company shall be responsible for equipment selection and purchase
      for the Projects.

            


    

    
      	
              4.

            	
              If
      Party B is to conduct the design work and perform as the general
      contractor for the Projects, then Party B shall be responsible for
      achieving the technical specifications provided in the Technical
      Appendix.

            


    

    
      	
              5.

            	
              If
      a third party is to conduct the design work and perform as the general
      contractor for the Projects, then this third party shall be responsible
      for achieving the technical specifications provided in the Technical
      Appendix.

            


    

    


    
      
         

      

      
        4

        
          

        

      

      
         

      

       

    

    Article 6
Project Investment and Related Expenditure

    


    
      	
              1)

            	
              The
      Project shall outsource a special design firm for preparation of estimate
      on investment budget. The estimate shall be examined by experts employed
      by part A and B. The investment for the project shall be within the range
      of the budget.

            


    

    


    A total
investment of the project is preliminarily estimated at approximately RMB 500
million is, with an initial investment of RMB 60 million in the first 9MW
capacity electricity generation units. The final total number of investment
shall be based on the actual amount to be invested into the
project.

    


    
      	
              2)

            	
              Either
      party shall contribute its share of capitals into the JV’s account. The JV
      shall provide with certificates of shares and receipt of the funds to the
      both parties and certify the JV’s registered paid-in capital after the
      funds are received from both
parties.

            


    

    


    
      	
              3)

            	
              Party
      A shall provide temporary office space for the
  project;

            


    

    


    
      	
              4)

            	
              All
      the upfront expenses and fees, such as modification on old equipment for
      improvement of energy efficiency, feasibility research for the project,
      application for CDM, registration of JV, and other changes under this
      project, as well as application for government incentive policy and
      subsidies, shall be expenses in the JV as “Construction in
      Progress”.

            


    

    


    Article 7
Usage and Transporting of Power to be generated

    


    
      	
              1)

            	
              All
      the electricity to be generated in the project, deducted in the
      consumption of the JV, shall be sold to Party. If possible in future, some
      can be sold to the state grid.

            
	2)	The
      JV shall supply electricity to Party A through a way that is
  “


    

     

    Article 8
Measurement and Calculation on Energy-saving Service Fees to be paid by Party
A

    
      	
              1)

            	
              The
      tariff shall base on the current local electricity price Party A can get
      for its furnaces.

            


    

    
      	
              2)

            	
              The
      project shall install separate meter for gauging electricity or gas, as
      its own basis for calculating power
volume.

            


    

    
      	
              3)

            	
              Gas
      price shall base on local current price
  standard;

            


    

    
      	
              4)

            	
              Tariff
      rate shall be subject to change with a same range of change in the local
      electricity price Party A can get for its furnace, if the government makes
      adjustments in local electricity
prices.

            


    

    


    
      
         

      

      
        5

        
          

        

      

      
         

      

       

    

    Article 9
Investment Return and Income Sharing

    


    
      	
              1)

            	
              All
      the electricity revenges, deducted all the costs, expense, taxes, reserves
      and fees to be incurred by applicable laws, regulation and policies, shall
      be recognized as incomes of the JV energy-saving
  business.

            


    

    
      	
              2)

            	
              Both
      Parties shall share the incomes in the name of energy-saving service fees
      to cover their capital expenditure in the
  project.

            


    

    
      	
              3)

            	
              Upon
      the project starting in operation, it shall be based on the prescript in
      Article 2 (4) to distribute the income between the two parties, which is
      20% for Party A and 80% for Party B prior to recovering all the investment
      and subsequent to the point of revering, 40% for Party A and 60% for Party
      B

            


    

    
      	
              4)

            	
              All
      the CDM revenue, incentives, rewards or subsidies from the state or local
      governments, shall be distributed equally (50%/50%) between two parties.
      See the Annex for financial arrangement for detail
      implementation.

            


    

    


    Article
10 Payment and Financial Arrangement

    


    
      	
              1)

            	
              Party
      A shall pay the JV for energy-saving service fees in the way of banking
      transfer.

            


    

    
      	
              2)

            	
              The
      25th
      of each month shall be settlement date and the 15th
      of the following month shall be due date for monthly
    payment.

            


    

    
      	
              3)

            	
              Net
      Income of the JV shall be distributed once a
  year;

            


    

    
      	
              4)

            	
              It
      is stipulated in Annex for Financial Arrangement in details for amount to
      be paid by Party A to JV, payment tem, settlement detail and related
      issues.

            


    

    


    Article
11 Acceptance

    


    
      	
              1)

            	
              Both
      Parties shall be responsible for acceptance of the project, including
      acceptance on arrival of equipments on –site, acceptance upon the
      completion of the project ordered
on-site.

            


    

    
      	
              2)

            	
              The
      JV shall coordinate the contractors to prepare for acceptance of the
      project to be completed. It shall be acceptable if the systems of the
      project have been steadily and stably working for 168 hours. The chief
      technicians from both parties shall sign and seal on the acceptance
      report. On the report it shall record all the data, status and instant
      outcomes of all the instruments and
meters.

            


    

    
      	
              3)

            	
              After
      the acceptance reports is agreed by related parties, the date of
      acceptance shall be the starting date for charging Party A for electricity
      to be generated.

            


    

    
      	
              4)

            	
              If
      the acceptance needs to be regulated by government, the JV shall file
      written application for acceptance of the project within 3 days after the
      acceptance procedure is made on-site. The date of receiving the acceptance
      notice from government shall be regarded as the starting date of
      operation.

            


    

    


    Article
12 Project Assets Ownership

    


    
      	
              1)

            	
              All
      the assets under the project shall belong to the
  JV.

            


    

    
      	
              2)

            	
              During
      building the project, the assets, which are used for the projects, but
      separately and originally owned by either party, shall still belong to
      either party.

            


    

    


    
      
         

      

      
        6

        
          

        

      

      
         

      

       

    

    Article
13 Equipment Maintenance or Modification

    


    
      	
              1)

            	
              All
      the maintenances and repairs on daily basis shall be expenses in Operating
      Expenses;

            


    

    
      	
              2)

            	
              It
      shall be agreed by both parties and have resolution from the Board for any
      major modification or overhauls on equipments of the project. It shall
      apply depreciation expense to cover all related costs and
      expenses.

            


    

     

    Article
14 Operation and Improvement of Party A’s
self-owned  Equipment

     

    1. Party
A shall ensure the priority of the furnaces that will  support heat
and gas for power plants of the JV.

    2.
Minimum working hours for these furnace shall be not less than 300 days per
year

    3. The JV
shall make an evaluation on the working hours of the furnace at each year end
and give a report to the Board to determine if ask for deferred compensation.
..

    4. Party
A shall notify the JV in advance its annual operation plan, overhaul &
maintenance plan. In case of any emergencies occurring, Party A shall duly
inform the JV of it. The JV shall compile and adjust its own operation plans
accordingly.

    


    Article
15 Party A’s Responsibility

     

    In
addition to other responsibilities prescribed in the provisions of this
Agreement, Party A shall undertake the following corresponding
responsibilities:

     

    1. In
accordance with an agreement, supply heat resources, Land and 10% of total
investment funds.

    2. pay
electricity (gas) fees to the JV in accordance with the measurement of
meter.

    3.
complete the registration of the JV,

    4.
conduct all application procedures for the projects and provide all the relevant
documentation,

    5. assist
and coordinate the JV in building, construction and all project-related
matters,

    6.
actively cooperate with Part B in their due diligence, and provide the Party B
with true, effective, non-misleading,non-fasle and
non-mispresentation,  7.

    7. The
Project shall not make any adverse impact on normal working of the furnace and
the normal operation of dust removal system. However,in the process of project
construction and connection to the furnace, Party A shall should be given active
support and to ensure that the shutdown time, to meet the needs for
connecting.

    8. Party
A's parent holding company - Erdos Power Metallurgy co., Ltd. shall provide
guaranty for the Party A to pay the electricity.

    


    Article
16 Party B’s responsibility

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    


     

    In
addition to other responsibilities prescribed in the provisions of this
Agreement, Party B shall undertake the following corresponding
responsibilities:

     

    1. In
accordance with the provisions of this contract, in full and on time complete
the project investment plan and construction plan,

    2.
cooperate with the Party A for the registration of the JV,

    3.
transfer the ownship of the JV to the Party A free of charge after the JV term
expires and all the investment of Party B has been recovered.

    4. Assist
the JV in project construction and other related issues;

    5.
provide mature, reliable technical support and
operation  maintenance,

    6. pay
its share of capital in full and on time, within 25 days after signing this
agreement

     

    Article
17 Default Liability

     

    1 Party
A’s Default

     

    1.1,
After this contract is effective and before the project is built up, if Party A
is not willing to execute the contract or fails in supply the heat as required,
Party A shall reimburse all the costs and expenses incurred by Party B,
including engineering, equipment, installation, transportation fees and contract
cost.

     

    1.2 If
Party A fails punctually in payment of electricity and still fails in paying the
due amount within 30 days after for e notice from the JV, Party A shall be
charged a 0.1 % penalty interest for defaults.

    


    1.3  If
Party A’s operation violates laws, regulations, especially the energy saving and
environmental protection related laws, regulations and industry policies, and
which causes the project to be stopped, Party A should take full
responsibility.

    


    2. Party
B’s Liability for Breach

    


    2.1  After
this agreement takes effective and before the project is finished and put into
operation, if Party B refuses to implement this agreement or fails to provide
construction capital to this project under this agreement, it should reimburse
all the actual costs and expenses of Party A on this project, including project
construction and preparation expenses, etc.

    


    2.2 Party
B fails to timely and fully make the payment to the project investment, and
within 30 days of Party A’s notice, Party B still cannot make the payment for
its investment due, it shall pay the penalty fee at 0.05% of the amount due per
day.

    


    2.3 If
Party B is the general contractor of the project, Party B shall be responsible
for technical plan and designs provided. If there is any defect, and after the
adjustment and correction,  it still cannot meet the requirements of
this agreement or technical attachment, and fails to pass the test operation
inspection, Party B shall reimburse the direct loss of Party A due to such
failure.

    


    
      
         

      

      
        8

        
          

        

      

      
         

      

       

    

    Article
18 Change, Dismissal and Termination of the Agreement

    


    1.  Change

    


    1.1 Any
amendment or change to this agreement or its attachment shall be negotiated and
mutually agreed by Party A and B and signed in writing;

    


    1.2 If
the market and industry policy has changed, after mutual agreement, parties can
make changes to the agreement;

    


    1.3 If
there is any force majeure event, but such event is not severe enough to cause
non-performance of this agreement, Party A and B shall decide to delay or make
partial exemption of certain responsibilities based upon its affect to this
agreement, and make changes to this agreement accordingly.

    


    2.
dismissal or termination

    


    2.1 If
there is any force majeure event or due to change of market and industry policy
that causes the agreement could not be performed, this agreement can be
terminated early.

    


    2.2 If
one party cannot perform its obligation under this agreement which causes the
project cannot make progress, the other party has the right to terminate this
agreement. The breaching party should be liable for the breach.

    


    2.3 Any
party’s action indicates that it is not going to fulfill its obligation under
this agreement or being passive or neglect its obligations under this agreement,
it should be considered as a unilateral termination. The non-performing party
should assume the responsibility of breach.

    


    2.4 Upon
the mutual agreement of parties, this agreement can be terminated.

    


    2.5 If
any Party wants an early termination of this agreement, it shall notify the
other party with 60 days prior written notice with specific time and details on
how to deal with the post termination matters.

    


    2.6 If
Party B is the general contractor of this project, and when this project is
finished but fails to pass 168 hour stable operation test and inspection
process, Party B shall at its own expense to make adjustment to achieve the
requirements in the technical attachment, and there will be a second inspection
in three month, and if it fails again, Party A has the right to terminate this
agreement and make claims against Party B.

    


    Article
19  Transfer Rights and Obligation of Agreement

    


    
      
         

      

      
        9

        
          

        

      

      
         

      

       

    

    1. Party
A shall receive approval from Party B before it could transfer the rights and
obligations of this agreement;

    


    2.  Party
B can transfer its rights and obligations to its subsidiaries or affiliated
companies but it should get Party A’s approval.

    


    3. The
joint venture company can use its equity or rights as collateral to refinance
the project for its own development and needs, but it shall receive the approval
of Party A and Party B and its board of director.

    


    Article
20 Confidentiality

    


    1. Party
A and Party B are responsible for the confidentiality to the contents of this
agreement, any intellectual property and business secrets related to this
project.  Unless it is required by the law, no party shall disclose it
to any third party.

    


    2. Any
party shall keep the information regarding to intellectual property or business
secrets that it learned from the other party during the construction and
operation of the project in confidence.

    


    Article
21 Insurance

    


    JV
company shall buy certain liability insurance based on its actual needs,
including pension, unemployment, health, life and property insurance and pay for
the insurance fee. The property insurance amount should be no less than the
actual value of the property it insured.  Life and liability insurance
type and amount should be based upon the actual needs, usage and requirement of
law and regulations. The details should be set up in the financial
attachment.

    


    Article
22  Force Majeure

    1.  If
due to earthquake, typhoon, flooding, war, riot, pandemic, policy and law and
other force majeure events that could not be foreseen and its consequences
cannot be overcome or avoided, this whole agreement or part of it
cannot  be performed, the party encountering the force majeure shall
report the situation immediately to the other party, and provide facts and
details with proofs after that.  The degree that force majeure has
been affecting to the project should be discussed and decided by Parties: delay,
termination or partial exemption of the obligation.

    


    2. If
this agreement is delayed, the obligation of the party encountering the force
majeure event will be suspended until the event is over but it should not be
more than 180 days. If it is more than 180 days, the agreement should be
terminated.

    


    3. If the
force majeure cause this agreement and its attachments cannot be performed at
all, the agreement shall be terminated after 10 days when the party encountering
the force majeure event informs the other party of the force majeure, and
neither party is responsible to the other party.

    


    
      
         

      

      
        10

        
          

        

      

      
         

      

       

    

    Article
23 Dispute Settlement

    


    Any
disputes arising out of or caused by this agreement, parties shall discuss to
solve them by consultation, if it cannot be solved by consultation, it should be
brought to the court where the plaintiff is located.

    


    Article
24 Effect of Agreement and Others

    


    1. This
agreement becomes effective upon the signatures of legal representatives or
authorized representatives of parties and their company seals and when the first
registered capital is injected.

    


    2. The
attachments are a part of this agreement and have the same effect of this
agreement. When this agreement has inconsistence to the attachments, the final
signed documents should govern.

    Attachments
2 copies:

    attachment
1: technical attachment

    attachment
2: financial attachment

    


    3. Any
issues not in this agreement, parties can discuss and sign addendum of this
agreement. The addendum has the same effect to this agreement.

    


    4. The
execution, performance and interpretation of this agreement should comply with
the requirements of the laws and regulations of China.

    


    5. If
Party A or Party B uses phone, fax or email to send notice to the other party
and the notice involves the rights or obligations, it should be followed with a
written letter or courier to the other party.

    


    The
addresses listed at the beginning of this agreement of Party A and Party B are
their addresses to receive mails.

    


    6. The
agreement is signed by representatives of parties on January 20, 2009 and it has
6 original copies and each party holds 3 copies and they all have same legal
effect.

     

    
      	      
              Party
      A seal:

              legal
      representative

              or
      authorized representative

            	
              Party B
      seal

              legal representative

              or authorized
representative