10:58     SHANGHAI PECHEM<00338> - Announcement (11)                          

    Caps: For the three years ending 31 December 2007, the annual             
    agency commission payable to China Petroleum & Chemical Corporation       
    and its associates for sales of the Company's petrochemical products      
    shall not, in aggregate, exceed the caps of RMB 19.2 million, RMB         
    22.0 million and RMB 22.0 million, respectively.                          
                                                                              
    The caps referred to above are determined with reference to:              
    (a)                                                                       
    the previous transactions conducted and transaction amounts in            
    respect of agency sales of petrochemical products through China           
    Petroleum & Chemical Corporation and its associates;                      
                                                                              
    (b)                                                                       
    the Company's estimate of the increase in the overall demand for          
    petrochemical products in the PRC; and                                    
                                                                              
    (c)                                                                       
    the Company's estimate of its business growth.                            
    Additionally, the Company has recently completed the construction of      
    several facilities, including the 8,000,000 ton/year atmosphere and       
    vacuum distillation plants (completed on 15 December 2004), the           
    expansion of the capacity of the PTA plant to 400,000 ton/year            
    (completed at the end of September 2004), the three-kettle process        
    150,000 ton/year PET plant (completed on 1 October 2004), and the         
    construction of the technology upgrade project for industrial             
    polyester filament of 12,000 ton/year (completed on 28 December           
    2004). These newly completed projects have significantly increased        
    the production capacity of the Company. Accordingly, the Company          
    expects that its sales through its agents would increase as a result      
    of the Company's enlarged production capacity.                            
                                                                              
    The Company notes that the estimated commission amount for the year       
    ending 31 December 2005 is substantially higher than the amount for       
    2004. The Company estimates that the demand for acrylic and our other     
    petrochemical products will grow substantially in 2005. As such, the      
    Company expects that the commission amount payable to China Petroleum     
    & Chemical Corporation and its associates in relation to agency sales     
    of the Company's petrochemical products will increase in 2005. Taking     
    into account these factors, the Company arrives at the caps above.        
                                                                              
    2.3.5                                                                     
    Provision of Transportation Services                                      
    Background: The Company's products are transported from the               
    Company's factories by water, rail and pipeline. The Company owns a       
    chemical wharf with three berths of 3,000, 5,000 and 10,000 tons, and     
    a connecting pipeline capable of loading up to approximately 1.4          
    million tons per annum of chemical products into ocean-going barges       
    and ships. The Company has a facility to load ships and barges which      
    use the region's inland waterways. The Company has facilities for         
    receiving crude oil at docks owned by the Company and for                 
    transporting them by pipeline to its production facilities. The           
    Company also owns a 500,000 ton per annum railroad loading depot that     
    provides access via a spur line to the PRC's railway system.              
                                                                              
    However, the Company does not currently have transportation               
    facilities to enable it to transport its products by road and by oil      
    pipelines. The Company has in the past appointed Shanghai                 
    Petrochemical Transportation Company, a wholly owned subsidiary of        
    China Petrochemical Corporation, to complement its transportation         
    needs beyond the scope Company's existing transportation facilities.      
                                                                              
                                                                              
    The table below sets forth the historical figures of the aggregate        
    fees the Company paid to Shanghai Petrochemical Transportation            
    Company for each of the three years ended 31 December 2004:               
                                                                              
                                                    Historical                
                                                    Figures for               
                                                    the year ended            
                                                    31 December               
                    2002            2003            2004                      
                    (RMB million)   (RMB million)   (RMB million)             
                                                                              
    Aggregate       40              45              151                       
    transportation                                                            
    fees the                                                                  
    Company paid                                                              
    to Shanghai                                                               
    Petrochemical                                                             
    Transportation                                                            
    Company                                                                   
                                                                              
                                                                              
                                                                              
    The Company proposes to enter into the Comprehensive Services             
    Framework Agreement to continue to obtain transportation services         
    from China Petrochemical Corporation and its associates for the three     
    years ending 31 December 2007.                                            
                                                                              
    Reasons for such transactions: The Company believes that this             
    transaction enables it to ensure a reliable supply of transportation      
    services, at a stable price. In addition, Shanghai Petrochemical          
    Transportation Company is a specialist in the transportation of           
    petrochemical products. The Company believes that Shanghai