10:22 SINOPEC KANTONS<00934> - Announcement (10) of competition. (D) The DIRECTORS' view The Directors are of the opinion that the Existing Ongoing Connected Transactions are entered into and carried out in the ordinary course of business of the Group, on an arm's length basis, and either (1) where there are comparable transactions, on normal commercial terms; or (2) in accordance with State-prescribed prices or government-approved prices (as the case may be) prescribed or approved by relevant governmental or regulatory authorities; or (3) in accordance with the terms of the agreements governing the Existing Ongoing Connected Transactions in question that are fair and reasonable and in the interests of the shareholders of the Company as a whole; or (4) if applicable, on terms no less favourable than terms available to or from independent third parties. The Directors are of the view that the Existing Ongoing Connected Transactions are entered into in the ordinary course of business of the Group and are fair and reasonable so far as the Company and its shareholders are concerned. (E) Listing Rules implications Under the Listing Rules, for so long as Sinopec Group Company remains a substantial shareholder of the Company for the purposes of the Listing Rules, and Sinopec Group Company holds not less than 30 per cent. of Sinopec Guangzhou Branch, Guangdong Company, Unipec, CPIC, CPIGC, GPC and other relevant members of the Sinopec Group, all of the Existing Ongoing Connected Transactions will constitute "connected transactions". Since the value of each of the caps of these Existing Ongoing Connected Transactions will likely exceed 2.5% of the percentage ratios of the Group, pursuant to rule 14A.35 of the Listing Rules, these Existing Ongoing Connected Transactions will require disclosure by way of press notice, preparation and dispatch of circulars to shareholders and approval and ratification by poll by the independent shareholders. (F) Information on the Company and the Sinopec Group The Company was incorporated in Bermuda with limited liability and its shares are listed on the Stock Exchange. The principal activities of the Group are the trade of crude oil, petroleum, and petrochemical products, the operation of crude oil jetties and its ancillary facilities and petrol stations. Sinopec Corp. is an integrated energy and chemical company with upstream, midstream and downstream operations and is publicly listed on the stock exchanges of Hong Kong, Shanghai, New York and London. The principal operations of Sinopec Corp. and its subsidiaries include: (1) exploring for and developing, producing and trading crude oil and natural gas; (2) processing crude oil into refined oil products, producing refined oil products and trading, transporting, distributing and marketing refined oil products; and (3) producing, distributing and trading chemical products. Sinopec Group Company, the controlling shareholder of Sinopec Corp. and the ultimate controlling shareholder of the Company, is a state-authorised investment vehicle in oil and petrochemical business which integrates the upstream and downstream assets. Unipec (China International United Petroleum and Chemicals Co. Ltd. *) is a company Due to foreign trade laws and regulations of the PRC, the Group cannot supply petroleum and petrochemical products to, or enter into written agreements with its end users in the PRC directly, but has to supply through corporations that have crude oil, petroleum and petrochemical product import rights in the PRC, for example, Unipec, CPIC and CPIGC respectively. Also, the sale of petroleum and petrochemical products to Sinopec Group for resale to the end users will strengthen the collective bargaining power of Sinopec Group as and when Sinopec Group negotiates the selling price of the petroleum and petrochemical products with the end users. Moreover, this arrangement reduces the finance cost of the Group: Sinopec Group will be entering into the agreements with the petroleum and petrochemical products vendors directly. Generally, the Group is not required to issue letters of credit to Sinopec Group in these transactions. Thus, the finance cost incurred by the Group is thereby reduced. In addition, given its trading nature, the amount of business to be conducted is market and customer demand driven. It is in the interest of the Company and its future business development that it can capture any increase in the volume and the quantity or other new opportunities in its trading businesses as they arise. Futhermore, with reference to the dominant position and increase in turnover and activities of Sinopec Group in the petroleum and petrochemical industry of the PRC, the number and amount of these connected transactions between the Sinopec Group and the Group is expected to increase. Apart from the above reasons, in arriving at the above cap, the following factors are taken into account: (a) the respective historical figures of these connected transactions. (b) the expected increase in the consumption of petroleum and petrochemical products in the relevant markets, the expected increase in the demand of crude oil by the crude oil refineries and the expected increase in crude oil refining capacities of these refineries, including the Sinopec Guangzhou Branch Expansion. (c) the volatility and possible increase in the international and the PRC market price of crude oil, petroleum and petrochemical products. (C) Sinopec Group Company's undertaking On 14 May 1999, Sinopec Group Company undertook in writing to the Company: (a) to treat the Group equally with all other subsidiaries that are within the scope of Sinopec Group Company's management; (b) in respect of all transactions between any member of the Group and Sinopec Group Company or its other subsidiaries, to treat the Group no less favourably than other subsidiaries which are within the scope of Sinopec's management; and (c) that the ordinary business and normal operations of the Company will be carried out by the Directors, and that Sinopec Group Company will not, and will procure that other subsidiaries within the scope of management of Sinopec Group Company will not, interfere in the Group's business or normal operations, or adopt any unfair means