10:59     SHANGHAI PECHEM<00338> - Announcement (15)                          

    The Company will pay the premium by way of cash payments.                 
    Caps: For the three years ending 31 December 2007, the annual             
    premium payable in relation to provision of insurance services to         
    China Petrochemical Corporation and its associates shall not, in          
    aggregate, exceed the caps of RMB 100.0 million, RMB 110.0 million        
    and RMB 150.0 million, respectively.                                      
                                                                              
    The caps referred to above are determined with reference to:              
    (a)                                                                       
    the previous transactions conducted and transaction amounts in            
    respect of provision of insurance services by China Petrochemical         
    Corporation and its associates;                                           
                                                                              
    (b)                                                                       
    the Company's estimate of the growth in the value its facilities in       
    view of the Company's existing and future development;                    
                                                                              
    (c)                                                                       
    the increase in the risk exposure of the Company; and                     
    (d)                                                                       
    the Company's estimate of the increase in the market price of             
    insurance services.                                                       
                                                                              
    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). The Company therefore expects that insurance premium will          
    increase in 2005, 2006 and 2007 so that these new facilities will         
    receive adequate insurance coverage.                                      
                                                                              
    The Company notes that the estimated premium for the year ending 31       
    December 2007 is substantially higher than the amount payable in          
    2006, as the Company is expected to obtain additional insurance           
    coverage for its new 380,000 ton/year glycol facility facility,           
    `fifth-stage' project, new air separation units and 3,300,000             
    ton/year hydrogenated diesel facility.                                    
                                                                              
    2.3.8                                                                     
    Provision of Financial Services                                           
    Background: Sinopec Finance Company Limited is a non-bank finance         
    company approved and regulated by the PBOC and the CBRC, and is an        
    associate of China Petrochemical Corporation. Since the Company's         
    initial public offer on 6 July 1993, the Company has obtained from        
    Sinopec Finance Company Limited, an associate of China Petrochemical      
    Corporation, financial services including:                                
                                                                              
                                                                              
    payment collection services;                                              
                                                                              
    loan services;                                                            
                                                                              
    negotiable instrument and letter of credit services;                      
                                                                              
    trust loan and trust investment services;                                 
                                                                              
    guarantee services;                                                       
                                                                              
    settlement services;                                                      
                                                                              
    internet banking services; and                                            
                                                                              
    any other services provided by Sinopec Finance Company Limited            
    approved by the China Banking Regulatory Commission.                      
                                                                              
    Essentially, Sinopec Financial Company Limited is a centralised body      
    that helps the Company in collecting and marking payments. Loans will     
    be granted by Sinopec Finance Company Limited to the Company, from        
    time to time, on a temporary basis on normal commercial terms and on      
    an unsecured basis. As such, pursuant to rule 14A.65(4) of the Hong       
    Kong Listing Rules, such loans will be considered to be financial         
    assistance, exempt from reporting, announcement and independent           
    shareholders' approval requirements.                                      
                                                                              
    The table below sets forth the historical figures of the aggregate        
    fees the Company paid to Sinopec Finance Company Limited 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 fees  0.49            1.58            4.89                      
    the Company                                                               
    paid to                                                                   
    Sinopec                                                                   
    Finance