Guangsha Construction Group Co., Ltd Lu Chunliang And China Hydroelectric Corporation In Matter of Qingtian Wulitin Hydropower Development Co., Ltd Enter Equity Interest Transfer Contract December 13, 2007

Exhibit 10.11

Guangsha Construction Group Co., Ltd

Lu Chunliang

And

China Hydroelectric Corporation

In Matter of

Qingtian Wulitin 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			15
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			25
Chapter Ten Employees			36
Chapter Eleven Confidentiality			37
Chapter Twelve Breach Of Contract			38
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 Corporation (hereinafter referred to as “Transferee”), a company registered and established under the laws of Cayman Islands, registered address at 000 Xxxx Xxxx Xxxx, Xxxx Xxxx, Xxxxxxxxxxx 00000, authorized representative Xxxx X. Xxxxx, and president of the company;

Party B: Guangsha Construction Group Co., Ltd, a company registered and established under the laws of People’s Republic of China, registered address at 000 Xxxxxxxx, Xxxxxxxx Xxxx, Xxxxxxxx Xxxxxxxx, legal representative and chairman of the board of directors Xxx Xxxx.

Party C: Lu Chunliang

ID Number: 000000000000000000

Residence Address: Zhenxinglu 0, Xxxxxx Xxxxxx, Xxxxxxxx Xxxx, Xxxxxxxx Province

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

WHEREAS:

Qingtian Wuliting Hydropower Development Co., Ltd (hereinafter referred to as “Object Company”), was established on December 21, 2001. Its business period is 20 years, and the registered capital is RMB 80,000,000. The company owns a hydropower project , i.e. Wuliting hydropower project, (“Hydropower Project”), whose total installation is three power units of 14,000 KW and total installed capacity is 42,000 KW. The Hydropower Project is still under construction, however, two units have been in operation, one is expected to be in operation in March 2008.

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

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Party B contributed RMB 16,000,000 to the registered capital of the Object Company, accounting for 20% of its total equity interest; Party C contributed RMB 64,000,000 to the registered capital of the Object Company, accounting for 80% 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: 20%, Party C’s interest: 80%, 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.

Zhejiang Guangsha Stock Co., Ltd, Zhejiang Guangsha Hydropower Investment Co., Ltd, Party C and the Transferee 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 Administration for 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 2.

“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 147,759,809 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 and in the course of the due diligence investigation of the Object Company, the 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.

“Examination and Approval Authority” shall mean the relevant

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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 12.1.

“Framework Agreement” shall mean the framework agreement executed by Zhejiang Guangsha Stock Co., Ltd, Zhejiang Guangsha Hydropower Investment Co., Ltd and Party C, and the Transferee on October 27, 2007 concerning 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.

“Hydropower Project” shall mean the hydropower project located in Qingtian Wuliting, 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 employee of the Object Company

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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 entity 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 Qingtian Wuliting 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 20% equity interest of the Object Company held by Party B, fully paid, and (ii) the 80% 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 Guangsha Construction GroupCo., Ltd, a company registered and established under the laws of People’s Republic of China, registered address at 166 Yugulu, Hangzhou City .

“Party C” Lu Chunliang

ID card No.: 332526194904180030

Residence Address: 1 Zhenxinglu , Wuning Street, Dongyang 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 Property 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 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 206,880,191 (the “Purchase Price”). The respective amount of payment made to each Transferor shall be as follows:

Party B: RMB 41,376,038

Party C: RMB 165,504,153

Article 6 The Purchase Price hereunder shall be paid by the Transferee in equal to the Purchase Price 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 one on the date of payment specified in this Contract.

Article 7 The Remittance and Payment 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 Price in a lump-sum to the Provisional Account.

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7.2.1		The Parties to this Contract agree that all obligations of the Transferee under this Contract including but not restricted to, remitting of the Purchase Price amount 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 20.8.3 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 resolutions 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 5, has been signed by on terms and conditions satisfactory to the Transferee.
7.2.1.5		The Transferors and the Transferee has determined the final amount as specified in Article 52.2.

Article 8 The Payment of the Purchase Price

8.1		First Installment
		On the date the Purchase Price reaches the Provisional Account in accordance with legal procedures and upon satisfaction of the following conditions, the Transferee shall pay 80% of the Purchase Price (“First Installment”) to the Transferors:

8.1.1 The Transferors has obtained written documents of Lishui municipal government’s consent to the Equity Stakes Transfer specified in Article 22.13 of the Contract

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8.1.2		The Object Company shall have legally obtained the Social Insurance Registration Certificate and Water Procurement Certificate.
8.1.3		The Transferors and the Transferee agree that 80% yield from power generation of the Hydropower Project belongs to the Object Company from the date of the First Installment to the date of the second installment, and the Transferors shall not dispose of or reduce the aforesaid yield in whatever manner, for which the Transferee is entitled to pursue compensation directly from the Transferors.
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 16% of the Purchase (“Second Installment”) to the Transferors.
		The Transferors and the Transferee agree that the entire yield from power generation of the Hydropower Project belongs to the Object Company upon payment of the Second Installment, and the Transferors shall not dispose of or reduce the aforesaid yield in whatever manner, for which the Transferee is entitled to pursue compensation directly from the Transferors.
8.3		Performance Deposit
		2% of the Purchase Price shall be reserved as a performance deposit for the Transferors. The performance deposit guarantees: on the date of examination and acceptance, the Object Company and its Hydropower Project are free of any material potential engineering trouble and any defect in contracts with respect to environment, land, relocation and settlement, uploading to and connecting to power grid , and shall have obtained the State-owned Land Use Right Certificate for the construction land. The Transferee is entitled to directly deduct the appropriate amount from the aforesaid performance deposit in the event of any damage or loss incurred due to such trouble or defect. Upon completion of examination and acceptance and issuance of the power business permit, the Transferee will return such performance deposit to the Transferors with no interest thereupon.

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8.4		2% of the Purchase Price shall be reserved and paid as quality deposit in accordance with Article 53 hereunder.
8.5		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 each of the Transferors is located, by 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, the Transferors shall repay RMB 2,500,000 of the entire deposit of RMB8,000,000 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 147,759,809 (the “Capital Increase”) will be injected into the Object Company to increase the registered capital to RMB 227,759,809.

Article 12 Payment of the Capital Increase

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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 Account for the Object Company(“Foreign Exchange Capital Account”) jointly maintained by them. The Object Company’s official seal (kept by the Transferors) and the personal seal of Transferee’s authorized representative (kept by the Transferee) will be reserved at the Foreign Exchange Capital Account.

Article 13 Use of the Capital Increase

13.1		The Capital Increase will be used to discharge those outstanding debts of the Object Company incurred after the restructuring of credits and debts as listed in Appendix 7, 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 7 of this Contract and sign official debt restructuring agreements (“Restructuring Agreements”) with creditors and debtors of the Object Company, the Object Company itself and the designated third party of the Transferors 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 (including but not limited to the difference from credits and debts restructuring, see Appendix 6 for the specific amount):
13.3.1		The Transferors shall have completed the restructuring of its credits and debts set forth in Appendix 7, as evidenced by a signed the restructuring agreement between the creditors and debtors, the Object Company and

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the third party designated by the Transferee in form and content 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 227,759,809.

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, the Development and Reform Commission, the Water Conservancy Department and the Power Department, this Contract shall he submitted to the competent departments of such organizations for such examination and approval.

Article 16 Upon payment of the First Installment, 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 payment of the First Installment, the Transferors and the Transferee shall organize a team responsible for the Hydropower Project 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, seals and project construction to the Transferee.

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17.2		The Transferor shall assure that the assets of the Object Company and all rights and interests handed over to the Transferee shall not have any loss or damage compared with the result of Appendix 7 and the audit by the Transferee listed in Appendix 2. The Transferors shall make a comprehensive and complete handover to the Transferees pursuant to the aforesaid result 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 procedure shall be compensated by the Transferors at the replacement 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

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	(6)		Handover of all 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 upon the First Installment. The completion of the handover shall be certified and confirmed by the representatives of the parties in writing.
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 relating to the Equity Interest Transfer. If the Transferors do not give cooperation and incur Damages to the Transferee or to the Object Company after the Equity Interest Transfer is completed, the Transferors shall bear the liability of compensation pursuant to the relevant laws.
17.7		The Transferors agree that the Hydropower Projects and related equipment and facilities of the Object Company have no quantitative and qualitative problems inconsistent with the evaluation report of Appendix 6. If any quantitative and qualitative problems with the hydropower projects and equipment incur any losses to the Transferee, the Transferee is entitled to deduct corresponding sum from the fund payable or seek compensation from the Transferors.

Chapter Six Assumption of Credits and Debts

Article 18 The credits and the debts of the Object Company listed in Appendix 6

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to this Contract (hereinafter referred to as the “Credits and Debts”) shall be assumed by the Object Company after the Equity Interest Transfer is completed:

Article 19 In accordance with Article 13.3, the following credits and debts of the Object Company shall be assumed by the Transferors:

19.1		Except the Original Bank Loans disclosed by the Transferors, the monetary fund, the accounts receivables and the accounts payable listed in Appendix 7 and arising prior to the Base Date shall be enjoyed or borne by the Transferors as may be applicable. In this regards, the Transferors shall indemnify and save harmless the Transferee from any Claims, demands and losses arising out of such monetary fund, accounts receivable and accounts payable noted in Appendix 7.
19.2		Except for the Disclosed Information set forth in Appendix 3, the debts (including contingent debts) of the Object Company as of the Base Date which the Transferors have not disclosed in Appendix 3 of this Contract, when executing this Contract.
19.3		All the debts (including contingent debts and debts that have not formed part of assets, for example 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 as otherwise provided for in Article 8, 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 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 Co., Ltd.

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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 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 and save harmless the Object Company or the Transferee from all such claims and demands (if the Transferee assumed such credits and debts). 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 draw or receive dividends of the Object Company or any other rights and interests of the Object Company Equity Interest and shall not commit any act which damages and deceases or may damage and decrease the Object Company’s assets, rights and interests and the shareholders’ rights and interests.

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22.3		Upon execution of this Contract, the Transferors shall not exercise any rights over the Object Equity Interest, such as 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.
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 handover of the Object Company and the Object Equity Interest and the Transferors agree that the assets, lights and interests of the Object Company handed over to the Transferee shall not have any loss or damage compared with the assets, rights and interests confirmed by audit and assessment 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:

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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 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 to the Provisional Foreign Capital Account of this Contract.
22.8.4		In accordance with the provisions of Articles 22.8.2 and 22.8.3 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, and the Transferors shall procure consent and confirmation from the lending banks that the relevant loans and loan rights shall remain available to the Object Company after the-Equity Interest Transfer is completed.
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 guarantor will continue to fulfill the guarantees pursuant to the original terms and conditions.

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		Such letter of commitment is attached to this Contract as Appendix 8.
22.10		If the original guarantor of the Bank Loans of the Object Company or the Transferors comply with this Contract and provide the guarantees of the Bank Loans of the Object Company upon completion of the Equity Transfer, the Transferee shall pay the guarantee cost pursuant to the following terms to the original guarantor or the Transferors: seventy-five percent (75%) of the prevailing guarantee fee rate of the market (i.e., 3% of the guarantee amount per year), that is, 2.25% of the guarantee amount per year prior to the payment to the Transferors of the performance deposit as specified in Article 8.3; if such payment has been made to the Transferors, the Transferee shall pay the guarantee cost at 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. Other items may be negotiated and specified by both parties separately.
22.13		The Transferors shall have obtained the written approval of the government of Zhejiang Province Lishui City for the Equity Interest Transfer.
22.14		The Transferors shall ensure Zhejiang Guangsha Hydropower Investment Co., Ltd has obtained the Construction Land Planning Permit, Construction Land Permit, and Construction Land Approval as they are required for the construction of the hydropower project.
22.15		The Transferors shall ensure that Zhejiang Guangsha Hydropower Investment Co., Ltd will complete the legal “completion and acceptance” process for the hydropower project and bear relevant fees for such acceptance and renovation.
22.16		The Transferors shall ensure and be responsible that the Object Company has obtained the Social Insurance Registration Certificate, and the Transferors will bear any consequence where the Object Company is imposed on administrative punishment due to lack of such certificate.
22.17		The Transferors shall ensure that Zhejiang Guangsha Hydropower Investment Co., Ltd has obtained the power business permit for the Object Company as require by operating the Hydropower Project.
22.18		The Transferors shall be responsible for and ensure that Zhejiang

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		Guangsha Hydropower Investment Co., Ltd has obtained for the Object Company approval of the water procurement license.
22.19		The Transferors shall give timely written notice to Transferee when they come into knowledge of any acts, events or conditions which may make the Contract impossible to be partly or completely fulfilled.
22.20		The Transferors shall be entitled to receive and accept the Purchase Price pursuant to the provisions of this Contract.
22.21		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 33.1 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 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.

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

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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 22.8.3 of this Contract;
26.2		The Transferors have not disclosed relevant facts and events prior to the Base Date, and such facts that will 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 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

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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 three (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 Transferor and the Transferees are entitled 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 borne by each of the Transferors and Transferee according to their respective tax liabilities under PRC law.

Article 31 Delivery Date

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

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As a material inducement to the Transferee to enter into this Contract and acquire the Object Equity Interest hereunder, each of the Object Company and 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 each 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 which is RMB 80,000,000 has been fully paid in compliance with PRC law, and the Object Equity Interest is owned by the Transferors.

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 with the Contract and 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 unless in accordance with the law of PRC.

32.5 The execution, delivery and performance of this Contract by the Object Company and the Transferors, and the consummation by the Object Company and the Transferors of the transactions contemplated hereby will not (i) violate any provision of the charter, by laws or any other

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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 as requested by the Transferee that a Transferor has provided to 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 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

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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(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.

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 which is attached hereto as Appendix 10, all of which are valid and subsisting and in good standing with no violations thereof.

32.11 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.

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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 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.

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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 2 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 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 Appendix 11 sets forth 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.

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32.19 Other than the leases and subleases of the Object Company expressly disclosed 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 (which leases and subleases are referred to in Appendix 10) 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 3 to the Contract is true and correct.

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 6 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.

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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 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.

32.30 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.

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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.

33.4 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

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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, subject to existing confidentiality arrangements and such further confidentiality arrangements reasonably acceptable to the Transferors, after 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.

34.2 Subject to the terms and conditions herein provided and after 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,

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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 tangible assets, ordinary wear and excepted tear), 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 and including [     ], 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, 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 (the “Indemnifying Party”) hereby agrees to jointly and severally indemnify, reimburse and hold the Transferee (including its successors and permitted assignees) and including, after the Delivery Date, the Object Company harmless from and

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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 Object Company or the Transferors 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 Object Company or the Transferors 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 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

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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, 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.

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:

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38.1.1 Keep the above materials and information confidential for five (5) years from the date hereof;

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 knows 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.

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

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shall pay the non-breaching party 1% of the Equity Interest Transfer 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.

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

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or use the name of the Object Company after the Equity Interest transfer is completed to seek compensation from the Transferors. If the Transferee discovers a breach of the Transferors before making any payment under the Contract, the Transferee is entitled to deduct due amount from the payment due.

Article 44 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, rights and interests of the Object Company 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 and the Transferee is entitled to deduct such amount from any payment payable to the Transferors.

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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.

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

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

42

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 Special agreement on the project under construction

52.1 Both the Transferors and the Transferee affirm that the project under construction refers to the part of the Wuliting hydropower project that should be constructed but has not been completed from the date hereof to the date of examination and acceptance.

52.2 Both the Transferors and the Transferee affirm that the total cost for the project under construction is RMB 12,500,000; upon execution of this Contract, both the Transferors and the Transferee shall appoint professional persons to verify the final cost for the project under construction; if the final cost is lower than provisional cost, the difference will be paid to the Transferors by the Transferee along with the difference in credits and debts restructuring; if the final cost is more than the provisional cost, the difference will be deducted upon payment of credits and debts and paid as the amount for the project under construction. The final cost has no impact on the total cost under this Contract.

52.3 The Transferee agrees that Zhejiang Guangsha Hydropower Investment Co., Ltd is to complete the project under construction specified in

43

Article 52.1 of the Contract; Zhengjiang Guangsha Hydropoer Investment Co., Ltd is to complete such project within the cost range specified in Article 52.2, however if the ultimate cost surpasses the above cost range, any additional cost will be borne by the Transferors; if the ultimate cost is less than the cost range, any balance will belong to the Transferors. The quality standard for the project under construction specified in Article 52.1 is to pass the examination and acceptance of Wuliting Hydropower Project and for the Object Company to obtain the power business permit. Consequences from failure to meet up the standard and obtain the permit will be borne by the Transferors jointly and severally and the Object Company or the Transferee may directly pursue the Transferors for compensation.

52.4 The Transferors agree that Zhejiang Guangsha Hydropower Investment Co., Ltd is to complete construction within the time limit approved by the State. If it completes construction of Wuliting Hydropower Project ahead of the time agreed, the Transferee shall give an appropriate award to such company; if the construction is behind schedule due to reasons of Zhejiang Guangsha Hydropower Investment Co., Ltd, then such company shall pay the Transferee an appropriate penalty. The Transferors shall bear a joint and several liability for the payment of such penalty by Zhejiang Guangsha Hydropower Investment Co., Ltd.

52.5 The Transferee agrees that Guangsha Enterprise Investment Holding Co., Ltd is to provide a guarantee for Zhejiang Guangsha Hydropower Co. Ltd’s completion of the project under construction specified in Article 52.1 of the Contract.

52.6 The Transferee agrees that Zhejiang Guangsha Hydropower Investment Co., Ltd and the Transferee are to sign a contract for the project under construction specified in Article 52.1 of the Contract in accordance with Article 52.1 to 52.5; such matters as the progress, quality standard, management, payment of cost and measures for award and punishment of such project are to be specified in this contract.

52.7 The Transferors and the Transferee agree that if extra approval or various land cost is imposed on the construction land for the Hydropower Project of the Object Company with no change of nature of such land, relevant fee will be borne by Guangsha Hydropower Investment Co., Ltd; the Transferors bear a joint and several liability to the Transferee for the fulfillment of the aforesaid obligation; the Transferee will bear the extra fee if it is required by change in land

44

acquiring method from allocation method to commercial use, enabling the conversion of the Object Company to a foreign-invested enterprise.

Article 53 The parties agree that the quality deposit for the temperature increase of unit 2 power generators staying within the range of the national standards when in operation for 72 hours consecutively is 2% of the Equity Interest Transfer Price, which shall be paid to the Transferors upon satisfaction of the said condition next day.

Article 54 Guarantee

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 55 Waiver

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

Article 56 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 57 Severability

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

Article 58 Language

45

This Agreement is written in Chinese.

Article 59 Validity of the Contract and Appendix

59.1 The Contract shall be effective upon the seals affixed by the parties and approval by the Examination and Approval Authority.

59.2 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.

59.3 This Contract has ( ) original copies executed in Mandarin and ( ) original copies executed in English with each party keeping one (1) copy or each version.

59.4 The appendix of the Contract is inseparable and integral part of the Contract and shall have equal validity as the Contract.

Article 60 Notification

60.1 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.

60.2 All notices and correspondences shall be sent to the following addresses unless the other party gives written notice to update such addresses.

		Transferors’ Address:		000 Xxxx Xxxx, Xxxxxxxx Xxxx
		Telephone Number:		0000-00000000
		Facsimile Number:		0571-87963818
		Addressee:		CHENG Gang

46

		Transferee’s Address:		1201, Xxxxx X0, Xxxxxxxx Xxxxx, 00 Xxxxxx, Xxxxxxxx Xxxxxxxx, Xxxxxxx
		Telephone Number:		010—64928483
		Facsimile Number:		010—64961540
		Addressee:		XX Xxx-wei

Article 61 Appendix

61.1 Appendix 1 Audit Report by September 30, 2007 by Beijing Jingdu CPA Limited

61.2 Appendix 2 The Information Disclosed by the Transferors

61.43 Appendix 3 List of Original Bank Loans by September 30, 2007 audited by Beijing Jingdu CPA Limited

61.4 Appendix 4 Letter of Security

61.5 Appendix 5 Assets Assessment Report by September 30, 2007 confirmed by an assets assessment agency

47

61.6 Appendix 6 Credits and Debtors Restructuring Agreements of the Object Company

61.7 Appendix 7 Letter of Undertaking

48

[No more 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 Hydro electric Corporation

Representative’s Signature

Party B: Guangsha Constrution Group Co., Ltd

Representative’s Signature:

Party C: LU Chunliang

Representative’s Signature:

The End

Appendix 1 — Audit Report

Qingtian Wuliting Hydroelectric

Development Co., Ltd.

Audit Report

Sep. 30^th, 2007

Contents

The audit report
The balance sheet		1-2
The profit and statement of profit distribution		3
Notes of financial statement		4-16

		Dehao International Beijing Jingdu Certified Public		Dehao International Beijing Jingdu Certified Public Accountants Co., Ltd. Scitech Place 5th floor, Jianguomenwai
		Accountants Co., Ltd.		Xxxxxx Xx.00, Xxxxxxx
				Zip Code: 100004
				Tel: 00-00-00000000
				Fax: 00-00-00000000

Audit Report

(English Translation)Beijing JINGDUSHENZI (2007) No.1315

China Hydroelectric Corporation:

We have audited the enclosed financial statements of Qingtian County Wuliting Hydroelectric Development Co., Ltd. (hereinafter referred to as “Wuliting Hydroelectric Company”), including the balance sheet on Dec. 31^st, 2006 and Sep. 30^th, 2007, the profit and financial statement of profit distribution 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 Wuliting 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 includes: (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 task 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.		Xxxxxx Xx.00, Xxxxxxx
				Zip Code: 100004
				Tel: 00-00-00000000
				Fax: 00-00-00000000

III. Audit opinions

We believe that the financial statements of Wuliting Hydroelectric Company has given a fair and true view of the financial situation of Dec. 31^st, 2006 and Sep. 30^th, 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		The Chinese Certified Public
Public Accountants Co.,		Accountant(CICPA)
Ltd.
		The Chinese Certified Public
		Accountant(CICPA)

Beijing China Nov. 15^th, 2007

THE PROFIT AND STATEMENT OF PROFIT DISTRIBUTION

FOR THE PERIOD FROM JANUARY TO SEPTEMBER 2007

[English Translation ]

Prepared by: Qingtian Wuliting Hydroelectric Development Co., Ltd. In RMB Yuan

Items		NOTES				2007.01 — 2007.09				2006.01 — 2006.12
Revenues from main operations							—				—
Less: Cost of main operations							—				—
Tax and levies on main operations							—				—
Profit from main operations (loss is expressed in “—”)							—				—
Add: Profit from other operations (loss is expressed in “—”)							—				—
Less: Selling expenses							—				—
General and administrative expenses							—				—
Financial expenses							—				—
Operating profit (loss is expressed in “—”)							—				—
Add: Income from investment (loss is expressed in “—”)							—				—
Subsidy income							—				—
Non-operating income							—				—
Less: Non-operating expenses							—				—
Total Profit (loss is expressed in “—”)							—				—
Less: Income tax							—				—
							—				—
Net profit (loss is expressed in “—”)							—				—
Add:Undistributed profit at beginning of the year							—				—
Other transferred-in fund							—				—
Distributed profit							—				—
Less:withdraw statutory surplus reserve							—				—
withdraw statutory public welfare fund							—				—
Undistributed profit							—				—

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

3

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

Notes of Financial Statements

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

I. The company’s basic information

Qingtian Wuliting Hydroelectric Development Co., Ltd. (hereinafter referred to as “the company”) was invested and established by Zhejiang Guangsha Hydroelectric Development LLC., and Zhejiang Guangning Hydroelectric Development Co., Ltd. It registered in Qingtian County Administration for Industry and Commerce on Dec. 21, 2001 and obtained the business license of enterprise legal person. The registration No. is 3325221001187.

At the beginning of the establishment, the company’s registered capital was 2 million yuan. The shareholders and the investment amount were as follows:

		investment				Holding
shareholders		amount				proportion
Zhejiang Guangsha Hydroelectric Development LLC.			1,600,000.00				80	%
Zhejiang Guangning Hydroelectric Development Co., Ltd.			400,000.00				20	%
Total			2,000,000.00				100	%

On Nov. 18, 2003, the company’s shareholders pari passu performed the capital increase of 28 million. After that, the amounts of investment were as follows:

		investment				Holding
shareholders		amount				proportion
Zhejiang Guangsha Hydroelectric Development LLC.			24,000,000.00				80	%
Zhejiang Guangning Hydroelectric Development Co., Ltd.			6,000,000.00				20	%
Total			30,000,000.00				100	%

On April 22, 2004, the company’s shareholders pari passu performed capital increase. After that, the registered capital was 80 million yuan. The shareholders and the investment amount were as follows:

4

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

		investment				Holding
shareholders		amount				proportion
Zhejiang Guangsha Hydroelectric Development LLC.			64,000,000.00				80	%
Zhejiang Guangning Hydroelectric Development Co., Ltd.			16,000,000.00				20	%
Total			80,000,000.00				100	%

According to the decision of board of shareholders on Dec. 00^xx, 0000, Xxxxxxxx Guangning Hydroelectric Development Co., Ltd. transferred its 20% interests to Lu Chunliang. Up to Sep. 30, 2007, the registered capital was 80 million yuan, the details were as follows:

		investment				Holding
shareholders		amount				proportion
Zhejiang Guangsha Hydroelectric Development LLC.			64,000,000.00				80	%
Lu Chunliang			16,000,000.00				20	%
Total			80,000,000.00				100	%

Registered address: Lingxia Village, Zhenbu Town, Xxxx Xxxx County

Legal representative: Lu Chunliang;

Business Scope: water resource development, generation and distribution of electrical energy; purchase and sale of hardware and electromechanical products, chemical products and building materials;

The company is in test operation phase. The income of test operation of this period offsets the costs of projects under construction. The related costs occurred are included in the costs of the project.

II. Major accounting policy and accounting estimates

1.		Accounting standards and accounting systems
		The company implements the Accounting Standards for Business Enterprises and Accounting Systems of Enterprises issued by the Ministry of Finance.
2.		Financial year

5

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

		The financial year means a calendar year starting on January 1 and ending on December 31.
3.		Standard money
		The standard money is Renminbi (RMB).
4.		Accounting base and pricing principles
		The company adopts the accrual basis as accounting base, and the pricing principle is based on the historical cost.
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.
6.		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 5% of the balance for bad debts to the receivables (including account receivable and other receivables) after deducting the funds of the related parties as well as the Electric Utility Bureau.

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

	(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.

6

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

The salvage value rate, depreciation life and annual depreciation rate of all kinds of fixed assets:

										Annual
Fixed assets group		salvage value rate				Depreciation life				depreciation rate (%)
Buildings and structures			3	%			20-30				3.23%–4.85	%
General-purpose equipment			3	%			8				12.13	%
Special-purpose equipment			3	%			20-25				3.88%–4.85	%
Vehicles			3	%			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.
8.		The accounting method for project under construction

	(1)		The project under construction adopts actual cost accounting. The Company project under construction is divided into construction project investment, installation work investment, equipment investment, miscellaneous investment and prepaid and deferred expenses investment.
			For exterior product sales formed in the trial run process before reaching prearranged serviceable condition of project under construction, its generated cost is counted into the cost of project under construction, when it is sold or turned into commodity stocks; the engineering cost is subtracted according to effective sales income or according to predicted sales price.

7

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

			From the date of the built project reaching prearranged serviceable condition, according to project budget, cost or project actual cost, appraisal value is turned into fixed assets. The fixed assets depreciation is provided according to prescription of depreciation of fixed assets provision.
	(2)		The depreciation preparation for project under construction: the Company inspected the project under construction in terminal and estimated receivable sum of various project under construction. If there is any evidence indicating that the project under construction induced depreciation, the provision of project under construction depreciation preparation is made according to depreciation sum.

9.		Accounting process for borrowing cost
		If the Company’s generant borrowing cost can directly be classified under conforming to capitalization condition assets, it should be capitalization and be counted into the related assets cost. For miscellaneous borrowing cost, it should be confirmed as expense according to its sum and be counted in the profit and loss in the current period.
10.		Validation criteria for revenue
		The operating revenues of the company are mainly power generation revenue. The validation criteria for revenues 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 correlative economic benefits likely flow in the company;
	(4)		The amount of revenue can be measured reliably;

11.		Accounting treatment method for income tax
		The accounting treatment method of the corporate income tax is taxes payable method.

III. Major taxes

8

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

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

1.		Corporate income tax
		The company’s applicable tax rate of income tax is 33%.
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 3% of the turnover tax payable, 2% of the turnover tax payable for the local education surtax.

IV. Notes on the financial statement’s main items

1. Monetary Resources

Items		Closing amount				Opening amount of the year
Cash			830.89				317.80
Bank deposits			536,481.70				364,495.80
Total			537,312.59				364,813.60

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

3,739,709.76

0.00

0.00

0.00

Total

3,739,709.76

0.00

0.00

0.00

	(2)		Receivables are all funds of Electricity Generating Board. As the company is in operation test phase, the bad debt reserve has not been set up.
	(3)		No receivables of related parties

9

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

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			286,592.50				0.00				62,213.00				0.00
1-2 years							0.00				10,000.00				0.00
2-3 years			10,000.00				0.00								0.00
More than 3 years			1,000.00				0.00				1,000.00				0.00
Total			297,592.50				0.00				73,213.00				0.00

As the company is in test operation phase, the bad debt reserve has not been set up.

The details of the ending balance are as follows:

Items		Amounts				Contents
Zhejiang Guangsha Beichuan Hydroelectric Development Co., Ltd			283,592.50			Incomings and outgoings
Wu Feihua			10,000.00			Office building deposit
Dong Shilin			1,000.00			Building site house deposit
Xxxx Xxxxxxxx			2,000.00			Fund of disbursement
Xx Xxxxxxx			1,000.00			Fund of disbursement
Total			297,592.50

4. Projects under construction

																										Inputs to
		Budge tamount																								the work
		(10 thousand				Opening amount of				Increase of				decrease of								funds				account
project Name		yuan)				the year				current period				current period				Closing amount				Source				in budget
Wuliting Hydroelectric project			43117																			Self-financing					90	%
investment of construction project							127,553,091.94				30,264,132.13				0.00				157,817,224.07
Investment of installation project							35,593,617.64				8,191,256.79				0.00				43,784,874.43
Investment of equipment							66,857,675.23				10,987,500.63				0.00				77,845,175.86

10

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

																										Inputs to
		Budge tamount																								the work
		(10 thousand				Opening amount of				Increase of				decrease of								funds				account
project Name		yuan)				the year				current period				current period				Closing amount				Source				in budget
other Investment							7,927,867.88				433,975.00				0.00				8,361,842.88
Investment of deferred expenses							150,613,136.95				3,837,554.60				0.00				154,450,691.55
Total							388,545,389.64				53,714,419.15				0.00				442,259,808.79
Thereinto: capitalized interest							31,936,034.88				23,183,037.22				0.00				55,119,072.10

		The company is in test operation phase. The income of test operation of this period offset the cost of projects under construction. The related costs occurred are included in the costs of the project.
5.		Taxes payable

Taxes		Closing amount				Opening amount of the year
Value added tax			479,752.92				0.00
corporate income tax			6,099,803.21				0.00
urban construction tax			4,797.53				0.00
Individual income tax			51,143.00				605.00
Stamp tax			1,072.28				0.00
Total			6,636,568.94				605.00

6. Other taxes payable

Taxes		Closing amount				Opening amount of the year
The extra charges of education funds			23,987.64				0.00
Special funds for water conservancy construction			7,995.88				0.00
Total			31,983.52				0.00

7. Other accounts payable

Items		Closing balance				Fund discription
Zhejiang Guangsha Hydroelectric Investment Co., Ltd.			78,858,600.94			Current loan
Guangsha Construction Group Co., Ltd.			4,154,862.00			Current loan
Workers raised funds of Guangsha Imbarking Investment Holding Co., Ltd.			14,125,000.00			raised funds
Zhejiang Guangning Hydroelectric Development Co. Ltd.			159,550.00			Interest payble

11

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

Items		Closing balance				Fund discription
Jinhua Shuntai Hydroelectric Development Co. Ltd.			28,697,316.31			deposits Construction costs
Shanghai Power Transmission & Distribution Co., Ltd.			238,880.00			deposits
Nanjing Nari Automatization Control Co., Ltd.			236,800.00			deposits
Shanghai Fuji Electric Switch Co., Ltd.			194,240.00			deposits
Shanghai Zhaoyin Electric Power Equipment Co., Ltd.			163,200.00			deposits
Hangzhou Hosting Machinery Company			108,000.00			deposits
Hangzhou Guorui Electric Power Co., Ltd.			88,560.00			deposits
Hangzhou E-lord Electric Technology Co., Ltd			64,000.00			deposits
labour security cost			110,825.50			account payable
Labour union outlay			60,750.20			account payable
Wei Xiaofei			1,255.80			Dismissal wages payable
forestation subsidy funds			330,000.00			Subsidy of Qingtian County Forestry Bureau
industrial project growth funds			1,835,000.00			Appropriate of Ministry of Finance of Qingtian County
forestation subsidy funds			400,000.00			Subsidy of Qingtian County Forestry Bureau
farmland reclamation funds			744,944.00			finance special funds of Qingtian County
tax on land occupation			827,565.00			finance special funds of Qingtian County
Hydrologic Station of Liandu District, Lishui City			12,500.00			service fee
bounty			20,000.00			bounty payable
Total			131,431,849.75

8. Accrued Expenses

Item		Closing amount				Opening amount of the year
Loan interests			627,464.00				0.00
operation training cost of power station			252,000.00				0.00
Total			879,464.00				0.00

9. Current maturity of long-term debt

12

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

Item		Closing amount				Opening amount of the year
Guaranteed loans			24,000,000.00				6,000,000.00
Total			24,000,000.00				6,000,000.00

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

10. Long-term loans

Loan categories		Closing balance				Balance at the beginning of the year
Guaranteed loans			203,000,000.00				224,000,000.00
Total			203,000,000.00				224,000,000.00

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

11. Paid-up capital

		Opening amount of the year								Increase of				Decrease of				Closing amount of the year
Investors		amounts				Proportion				the year				the year				amounts				Proportion
Zhejiang Guangsha Hydroelectric Investment Co., Ltd.			64,000,000.00				80	%			0.00				0.00				64,000,000.00				80	%
Lu Chunliang			16,000,000.00				20	%			0.00				0.00				16,000,000.00				20	%
Total			80,000,000.00				100	%			0.00				0.00				80,000,000.00				100	%

V. Related parties relationships and their transactions

(I) Related parties relationships

1. Related parties which have controlling relationships

		Registered				Relationships with		Economic		Legal
Enterprise		addresses		Major businesses		the company		character		representative
Zhejiang Guangsha Hydroelectric Investment Co., Ltd.		Xxxxxx Xxxx 000-0#, Xxxxxx Xxxx		Xxxxx resource development, etc.		Majority shareholders		Limited liability		Lu Chunliang

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

13

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

Opening amount of

Increase of

Decrease of

Related parties’ name

the year

current period

current period

Closing amount

Zhejiang Guangning Hydroelectric Development Co., Ltd.

180,000,000.00

—

—

180,000,000.00

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 Hydroelectric Investment Co., Ltd.

64,000,000.00

64,000,000.00

80

%

80

%

4. Related parties which have other relationships with the company

Related parties’ name		relationship
Lu Chunliang		Shareholder of the company
Guangsha Building Group Co., Ltd.		The same ultimate controller
Zhejiang Guangsha Beichuan Hydroelectric Development Co. Ltd.		The same ultimate controller

(II) Related transaction

	1.		Up to Sep. 30th, 2007, Zhejiang Guangsha Hydroelectric Development Co., Ltd. shoud be paid 78,934,340.94 yuan from other payables, of which accumulated amount of 7,635,493.68 yuan should be paid as payment for the use of state funds.
	2.		From Jan., 2007 to Sep., 2007, management fees of 196,579.74 yuan should be paid to Zhejiang Guangsha Hydroelectric Investment Co., Ltd., of which 74,773.90 yuan has been paid, the residual payment of 59,819.12 yuan has not been paid.
	3.		Acceptance of guarantee
			The guarantor is Guangsha Building Group Co., Ltd.. Up to Sep. 30, 2007, the guarantee amount accepted is 227 million yuan.

(III) Balance of related parties

14

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

Opening amount of

Related parties’ name

Categories

Closing amount

the year

Zhejiang Guangsha Beichuan Hydroelectric Development Co., Ltd.

Other payables

283,592.50

22,211.00

Zhejiang Guangsha Hydroelectric Investment Co., Ltd.

Other payables

78,858,600.94

37,091,283.12

Guangsha Building Group Co., Ltd.

Other payables

4,154,862.00

4,154,862.00

VI. Commitment matters

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

VII. Contingencies

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

VIII. Other important matters

1.		Up to the deadline of the report, 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.
2.		According to the Development Project Agreement signed on Nov. 7th, 2001 between the People’s Government of Lishui City and Guangsha Building Group Co., Ltd., within 5 years from the issuing day of the acceptance check expertise report of the first unit of power station, the government’s net income part of corporate income taxes, water resource costs and hydropower station management costs of the company should be given full allowance for the first 3 years and 50% allowance for the last 2 years. The allowance of the year will be paid before March of the next year to Guangsha Building Group Co., Ltd..

IX. The subsequent events of the balance sheet

On Nov. 17, 2007, Zhejiang Guangsha Hydroelectric Investment Co., Ltd. , Guangsha Building Group Co., Ltd. and Lu Chunliang signed the share transfer agreement. Zhejiang Guangsha Hydroelectric Investment Co., Ltd. transferred its 20% equity to Guangsha Building Group Co., Ltd., and 60% equity to Lu

15

The Notes of Financial Statement of Qingtian Wuliting Hydroelectric Development Co., Ltd. on Sep, 30^th, 2007

Chunliang. After that, the shareholders and the investment amount are as follows:

		investment				Holding
shareholder		amount				proportion
Lu Chunliang			64,000,000.00				80	%
Guangsha Building Group Co., Ltd.			16,000,000.00				20	%
Total			80,000,000.00				100	%

Qingtian Wuliting Hydroelectric Development Co., Ltd.

          Nov. 15^th, 2007

16

Appendix 2 Index to information disclosed by the Transferors

Including but not limited to:

Company profile

Annual Inspection records

Project Development Agreement

Application for the establishment of the company

Capital verification report, Qing Xxx Xxx (2001) NO.148

Resolutions of shareholders’ meeting, amendments to Articles of Association and shareholders’ list

Capital verification report, Xxxxx Xxx Suo Yan (2003) No.17

House Lease Agreements and proof

Resolutions of shareholders’ meeting, capital increase agreements, amendments to Articles of Association and shareholders’ list

Capital verification report, Xxxxx Xxx Suo Yan (2003) No.16

Resolutions of the shareholders’ meeting, amendments to Articles of Association

Enterprise Legal Person Business License

Capital verification for the year of 2001

List of key personnel

Articles of Association

Resolutions of the shareholders’ meeting

Tax Registration Certificate

Tax Registration Certificate(copy)

Organization or agency code (copy)

Account opening permit, No.3310-01837533

Zhejiang government, Approval on the Comprehensive Plan for Qiantangjiang Drainage Area, Xxx Xxxxx Fa [2000] No.23

Zhejiang Power Supply Company, Opinion on the Launch of Qingtian Wuliting Water Resources Project, Zhe Xxxx Xxxx [2003] No.291

Zhejiang Development and Planning Commission, Notice of Initiation of the Project, [2003] No.64

Zhejiang Development and Planning Commission, Apply on the Feasibility Study Report of Lishui Wuliting Key Water Project (Hydropower Project), Zhe Ji Xx Xxx [2003] No.833

Zhejiang Water Resources Bureau, Approval on the Water and Soil Conservancy Plan for Wuliting Key Water Project, Zhe Xxxx Xxxxx [2003] No.70

Zhejiang Water Resources Bureau, Approval on the Water Resources Study of Wuliting Key Water Project, Zhe Xxxx Xxxxx [2003] No.84

Zhejiang Environmental Protection Bureau, Approval on the Review Opinion on Environmental Impact of Lishui Wuliting Key Water Project, Xxxxx Xxxx Xxxx (2003) No.154

Application for Assessing Dangers of Geological Disasters and the Assessment Report

Zhejiang Water Resources Bureau, Pr-application for Water Procurement, Xx Xxxx [2003] No.003

Zhejiang Communications Bureau, Approval on Navigation Standards of Qingtian Wuliting Key Water Project, Zhe Jiao Hang Zheng [2004] Xx.00

0

Xxxxxxxx Development and Reform Commission, Apply on the Preliminary Design of Lishui Wuliting Key Water Project (Hydropower), Zhe Fa Gai She Ji (2004) No.130

Principle Agreement on Grid Connection of Qingtian Wuliting Hydropower Project

Economic Agreement on Grid Connection 2006020

Audit Report, Xxxxx Xxx Suo Xxxx (2005) 18

Audit Report, Xxxxx Xxx Suo Shen (2006) 25

Audit Report, Xxxxx Xxx Suo Xxxx (2007) 4

Balance Sheet

Loan Card

Circular on Financing Work, Zhejiang Guangsha Hydropower Development Co., Ltd

Bank Statement

Breakdown of other payables

Breakdown of other receivables

Project Development Agreement for Zhejiang Lishui Wuliting Hydropower Project

Principle Agreement on Grid Connection and Economic Agreement on Grid Connection of Qingtian Wuliting Hydropower Project

Economic Agreement on Grid Connection

House Lease Contract

Loan Contract

Loan Contract

Loan Contract

Loan Contract

Guarantee Contract

Loan Contract

Loan Contract

Guarantee Contract

Loan Contract

Guarantee Contract

Loan Contract

Guarantee Contract

Loan Contract

Guarantee Contract

Loan Contract

Guarantee Contract

Breakdown of insurance for construction projects

Bid-inviting contract for construction projects

Bidding documents, tendering documents and bid-winning notice

Project Survey and Design Contract

Contract and bid-winning notice regarding hydraulic power generators and their attached equipment

Bid-inviting documents, tendering documents, bid-winning notice and agreement for metal structure manufacturing and installation

Contract for Low Voltage Cabinets

Contract for Designing and Manufacturing Common Enclosure Bus

2

Contract for 110KV WLT/JD-03

Contract for designing, manufacturing and supplying 6KV set-in switch cabnets

Agreement for installing mechanical equipment

Value-added Tax Statement

Comprehensive Application for Local Tax (Charge)

3

     Appendix 3

Bank Loans of Wuliting

												Ending on Sep. 30, 2007												Unit: RMB
				Borrowing								Annual
No.		Lending Bank or agency		Date				Expiry Date				Rate				Currency		Amount				Guarantor
1		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2007.11.15				6.912			RMB			3,000,000.00			Guangsha Construction Group Co., Ltd		Repaid on Oct. 22, 2007
2		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.30				2008.2.15				0.000			XXX			3,000,000.00			Guangsha Construction Group Co., Ltd
2		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2008.5.15				0.000			XXX			3,000,000.00			Guangsha Construction Group Co., Ltd
2		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2008.8.15				0.000			XXX			5,000,000.00			Guangsha Construction Group Co., Ltd
2		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2008.11.15				7.020			RMB			4,000,000.00			Guangsha Construction Group Co., Ltd
3		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2009.2.15				0.000			XXX			3,000,000.00			Guangsha Construction Group Co., Ltd
3		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2009.5.15				0.000			XXX			9,000,000.00			Guangsha Construction Group Co., Ltd
3		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2009.8.15				0.000			XXX			12,000,000.00			Guangsha Construction Group Co., Ltd
3		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2009.11.15				7.020			RMB			5,000,000.00			Guangsha Construction Group Co., Ltd
4		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2010.2.15				0.000			XXX			3,000,000.00			Guangsha Construction Group Co., Ltd
4		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2010.5.15				0.000			XXX			9,000,000.00			Guangsha Construction Group Co., Ltd
4		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2010.8.15				0.000			XXX			15,000,000.00			Guangsha Construction Group Co., Ltd
4		Agricultural Bank of China, Qingtian County Sub-branch			2004.11.29				2010.11.15				7.344			RMB			3,000,000.00			Guangsha Construction Group Co., Ltd
5		Agricutural Bank of China, Mingzhu Sub-branch			2005.1.20				2010.11.15				7.344			RMB			4,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
5		Agricutural Bank of China, Mingzhu Sub-branch			2005.1.20				2011.2.15				7.344			RMB			3,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
5		Agricutural Bank of China, Mingzhu Sub-branch			2005.1.20				2011.5.15				7.344			RMB			10,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
5		Agricutural Bank of China, Mingzhu Sub-branch			2005.1.20				2011.8.15				7.344			RMB			15,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
6		Agricutural Bank of China, Mingzhu Sub-branch			2005.1.20				2011.11.15				7.344			RMB			7,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
6		Agricutural Bank of China, Mingzhu Sub-branch			2005.1.20				2012.2.15				7.344			RMB			3,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
6		Agricutural Bank of China, Mingzhu Sub-branch			2005.1.20				2012.5.15				7.344			RMB			8,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
7		Agricutural Bank of China, Mingzhu Sub-branch			2005.4.27				2012.11.10				7.344			RMB			3,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
7		Agricutural Bank of China, Mingzhu Sub-branch			2005.4.27				2012.5.10				7.344			RMB			2,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
7		Agricutural Bank of China, Mingzhu Sub-branch			2005.4.27				2012.8.10				7.344			RMB			15,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
8		Agricutural Bank of China, Mingzhu Sub-branch			2005.7.19				2008.8.15				7.344			RMB			10,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
8		Agricutural Bank of China, Mingzhu Sub-branch			2005.7.19				2013.5.15				7.344			RMB			10,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
8		Agricutural Bank of China, Mingzhu Sub-branch			2005.7.19				2013.8.15				7.344			RMB			10,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
8		Agricutural Bank of China, Mingzhu Sub-branch			2005.7.19				2013.11.15				7.344			RMB			10,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
9		Agricutural Bank of China, Mingzhu Sub-branch			2006.1.5				2014.2.15				7.344			RMB			10,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
9		Agricutural Bank of China, Mingzhu Sub-branch			2006.1.5				2014.5.15				7.344			RMB			10,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
10		Agricutural Bank of China, Mingzhu Sub-branch			2006.10.23				2013.2.15				8.208			RMB			3,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
10		Agricutural Bank of China, Mingzhu Sub-branch			2006.10.23				2014.11.15				8.208			RMB			8,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
10		Agricutural Bank of China, Mingzhu Sub-branch			2006.10.23				2014.8.15				8.208			RMB			9,000,000.00			Guangsha Construction Group Co., Ltd		Repaid to the city branch upon grant of the loan
		Total																	227,000,000.00

     Appendix 4

Letter Of Guarantee

China Hydroelectric Corporation:

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 Qingtian Wuliting Hydropower Development Co., Ltd” signed by CHC, Zhejiang Guangsha Construction Group Co., Ltd, and Zhejiang Guangsha Hydropower Investment Co., Ltd (hereinafter collectively referred to as “the Transferee”)on ______________, 2007.

1. Guarantee Scope

The Guarantee’s scope is all contractual obligations and matters under the “Formal Equity Interest Transfer Contract of Qingtian Wuliting Hydropower Development Co., Ltd,” and all payment obligations, liabilities for breach of contracts and compensation caused by the Transferee’s 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 Qingtian Wuliting Hydropower Development Co., Ltd.”

3. Guarantee manner: Joint liability guarantee

4. Performance of the Guarantee obligations

If the Transferee fails 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:
 

Signature of legal representative or authorized
representative (signed and Sealed)

           ______________, 2007

Qingtian Wuliting

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

Qingtian Wuliting 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			30
XIII Explanations to Particular Issues					32
XIV Major Issues after Appraisal Base Day					33
XV		Legal Effect of the Appraisal Report			34
XVI		Appraisal Reporting Day			34
Document for Future Reference					36
Statement on the Application Scope of Document for Future Reference of the Assets Appraisal Report					37

Beijing Jingdu Assets Valuation Co., Ltd.     0X, Xxxxxxx Xxxxx     Fax: 0000-00-00000000     1

Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project

Assets Appraisal Report

Share Transfer Project by Qingtian Wuliting

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 Qingtian Wuliting Hydropower Development Co., Ltd. (hereinafter referred to as “Wuliting Hydroelectric Development Company) on the appraisal base day.

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

The appraisal base day is September 30, 2007.

Appraisal Subject is all shareholders’ equity of Wuliting Hydropower Development Company. The net assets nominal value of the Wuliting Hydropower Development Company on appraisal base day is XXX 00 Xxxxxxx.

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

Beijing Jingdu Assets Valuation Co., Ltd.     0X, Xxxxxxx Xxxxx     Fax: 0000-00-00000000     2

Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project

Assets Appraisal Report

and data collection for property right, obligation and operation status, the 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 Wuliting Hydropower Development Company is RMB 419.5352 Million and all shareholders’ equity appraisal value is RMB 182.5352 Million, under the condition of continual operation.

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 Sept. 30, 2007 to Sept. 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.

Beijing Jingdu Assets Valuation Co., Ltd.     0X, Xxxxxxx Xxxxx     Fax: 0000-00-00000000     3

Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project

Assets Appraisal Report

(No text in this passage)

     Assets Appraisal Institution: Beijing Xxxx Xx Assets Valuation Company Ltd.

     Legal Representative of Assets Appraisal Institution: Xxxxx Xxxxxxxx

     China Certified Public Valuer: Wang Ri

     China Certified Public Valuer: Sun Chaohui

     Nov. 15, 2007

Beijing Jingdu Assets Valuation Co., Ltd.     0X, Xxxxxxx Xxxxx     Fax: 0000-00-00000000     4

Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project

Assets Appraisal Report

Qingtian Wuliting 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 Qingtian Wuliting Hydropower Development Co., Ltd. (hereinafter referred to as “Wuliting 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 judgement 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 Wuliting 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

The appraised enterprise of the project is Wuliting Hydropower Development

Beijing Jingdu Assets Valuation Co., Ltd.     0X, Xxxxxxx Xxxxx     Fax: 0000-00-00000000     5

Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project

Assets Appraisal Report

Company.

1. Company name:  Qingtian Wuliting Hydropower Development Co., Ltd. (hereinafter referred to as “Wuliting Hydroelectric Development Company)

			Registered address: Lingxia Village, Zhenbu Town, Xxxx Xxxx County Legal Representative: Lu Chunliang Registered Capital: RMB 80m Paid-up Capital: RMB 80m
			Company Type: Company with Limited Liability
			Business Scope:  Hydropower, power sale, hardware electromechanical (exclusive of cars), chemical product (exclusive of chemical dangerous articles), building material sale.
			Establishment Date: Dec. 21, 2001 Operation Period: from Dec. 21, 2001 to Dec. 21, 2021
	2.		History evolution
			Wuliting Hydropower Development Company was established and invested by Zhejiang Guangsha Hydropower Development Co., Ltd. and Zhejiang Guang Ning Hydropower Development Co., Ltd. on December 18, 2001. Its registered capital is XXX 0 Xxxxxxx. Xxxx, Xxxxxxxx Guangsha Hydropower Development Co., Ltd. invested RMB 1.6 Million (occupies 80% of the registered capital) and Zhejiang Guang Ning Hydropower Development Co., Ltd. invested RMB 0.4 Million (occupies 20% of the registered capital).The registered capital of Wuliting Hydropower Development Company was increased to XXX 00 Xxxxxxx on November 18, 2003 from the initial registered capital RMB 2 Million. After capital increase, the contributed capital of Zhejiang Guangsha Hydropower Development Co., Ltd. is XXX 00 Xxxxxxx (xxxxxxxx 80% of the registered capital) and the contributed capital of Zhejiang Guang Ning Hydropower Development Co., Ltd. is RMB 6 Million (occupies 20% of the registered capital). The registered capital of Wuliting Hydropower Development Company was increased to XXX 00 Million on April 22, 2004 from the registered capital XXX 00 Xxxxxxx. After capital increase, the

Beijing Jingdu Assets Valuation Co., Ltd.     0X, Xxxxxxx Xxxxx     Fax: 0000-00-00000000     6

Qingtian Wuliting Hydropower Development Co., Ltd. Share Transfer Project

Assets Appraisal Report

contributed capital of Zhejiang Guangsha Hydropower Development Co., Ltd. is XXX 00 Xxxxxxx (xxxxxxxx 80% of the registered capital) and the contributed capital of Zhenjiang Guang Ning Hydropower Development Co., Ltd. is XXX 00 Xxxxxxx (xxxxxxxx 20% of the registered capital).

The prime assets of the Company are Wuliting Hydropower Station. Wuliting Hydropower Station located in Qingtian County, Lishui City, Southwest of Zhejiang Province. It located in the Oujiang River main stream Lishui section. The dam site is located in the large brook near Wuliting Village downstream of Oujiang River main stream midstream. It is 29km to the Lishui urban area and about 45km to the Xxxx Xxxx County. The right and left banks passed No. 330 national highway, Lishui-Wenzhou Expressway (under construction) and Jinhua-Wenzhou Railway respectively. The traffic is convenient.

Wuliting hydropower station project is low head and large discharge power station in river channel. The normal pool level is 36.5m. The reservoir capacity under normal pool level is 24,240,000 m3. The installed plant capacity is three sets×14MW. The average annual power output is 121,350,000 kW h. The shipping flow condition of the shipping channel is 300t and it belongs to Class III project. The hydropower station assets include: the main construction are flood diversion sluice, power station in river channel main workshops and upstream water retaining part buildings, shipping flow buildings (the upper and lower channel of the shipping channel and chamber), both banks junction buildings; the water retaining part of ht power station’s upstream and downstream, auxiliary workshops and voltage ascending station. The secondary building possesses slope protection (bank), navigation and docking structures. The main equipment collocated in the power station includes: water-turbine generator sets and related self-contained complete set of equipment and voltage ascending facility. The accessory machinery collocated in the power station includes: hoisting and machine repair facility and technology water supply system, drainage system, compressed-air system, and oil system as well as hydropower measurement system.

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			The valley comprehensive planning was finished in February, 2000. On November 7, 2001, Zhejiang Guangsha Construction Group Co., Ltd. signed “Agreement on Zhejiang Lishui Wuliting Hydropower Station Project Development” with Zhejiang Lishui People’s Government. The “Opinion on Xxxx Xxxx Wuliting Hydro-junction Project Establishment” was obtained on April 3, 2003. The “Endorsement on Lishui Wuliting Hydro-junction Project (hydropower station) feasibility study report” was obtained on October 22, 2003. The “Endorsement on Lishui Wuliting Hydro-junction Project (hydropower station) Preliminary Design” was obtained on October 22, 2003. The project was started from October, 2004. The total project duration is about 3.5 years. At present, the main works has been basically finished. The little civil works and installation work haven’t been finished yet. Part temporary works haven’t been dismantled yet. The channel cleanout project, bridge rehabilitation works and roadbed reinforcement projects haven’t been completed yet. The No. 1 and 2 water-turbine generator sets of the facility have been in trial run. The No. 3 water-turbine generator set has not been installed.
			Wuliting Hydropower Development Company signed “Parallel in economic agreement” with Lishui Power Industry Bureau in January, 2007. The peak power price to internet is RMB 0.535 per kWh. And the valley power price is RMB 0.268 per kWh.
	3.		The assets, liabilities, financial status and operation achievements in recent three years

Assets liabilities and financial status unit: XXX 00 xxxxxxxx

Item		2004				2005				2006				Sep. 30, 2007
Total assets			17,007.61				28,471.23				38,898.34				44,683.44
Liabilities			9,007.61				20,471.23				30,898.34				36,683.44
Net assets			8,000.00				8,000.00				8,000.00				8,000.00

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Wuliting Hydropower Development Company didn’t work any more during the Wuliting Hydropower Station construction stage from 2004- 2006. Wuliting Hydropower Development Company was carried out annual audit in 2004, 2005 and 2006 by Zhejiang Suichang Public League CPAs Firm , which issued unqualified opinion on their audit reports as ZHONGKUAISUOSHEN [2005]No. 18, ZHONGKUAISUOSHEN[2006] No. 25 and ZHONGKUAISUOSHEN [2007]No. 4 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 Xxxx Xx CPAs Firm carried out special audit for balance sheet of the Wuliting Hydropower Development Company on Sep. 30, 2007 and presented the audit report BEIJINGJINGDUSHENZI ( 2007) No. 1315 .

	4.		Major accounting policies
	4.1		Financial system
			Accounting Standards for Business Enterprises and Accounting Systems of Enterprises issued by the Ministry of Finance of Wuliting Hydropower Development Company.
	4.2		Financial year
			The financial year means a calendar year starting on January 1 and ending on December 31.
	4.3		Standard money
			The standard money is Renminbi (RMB).
	4.4.		Accounting base and pricing principles
			The company adopts the accrual basis as accounting base, and its pricing principle is based on the historical cost.
	4.5		Validation criteria for cash equivalent

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			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 5% of the balance for bad debts to the receivables (including account receivable and other receivables) after deducting the incoming and outgoing and funds of disbursement of the related parties.

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 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:

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										Annual depreciation
Fixed assets group		Salvage value rate				Depreciation life				rate (%)
Buildings and structures			3	%			20-30				3.23%-4.85	%
General-purpose equipment			3	%			8				12.13	%
Special-purpose equipment			3	%			20-25				3.88%-4.85	%
Vehicles			3	%			10				9.70	%

(3) The validation criteria and provision method for the depreciation provision of fixed assets: Because the market price fell continuously, technical obsolescence, spoilage and long-term idle, the receivable sum is lower than its book value fixed assets. The provision depreciation preparation is made according to difference of single item fixed assets receivable sum lower than its book value.

4.8 The accounting method for project under construction

	(1)		The project under construction adopts actual cost for accounting. The project under construction is divided into construction project investment, installation engineering investment, equipment investment, miscellaneous investment and deferred expense investment.
			For the sale products formed in the trial running process before reaching preset service condition of project under construction, its cost is counted in the cost of project under construction; when it is sold or turned into commodity inventory; the engineering cost is subtracted according to actual sales income or according to predicted sales price.
			From the date when the project reaches predicted service conditions, according to project budget, cost or project actual cost, the appraisal value is turned into the fixed assets. The fixed assets depreciation provision is provided according to the relevant depreciation methods.
	(2)		The depreciation provision for project under construction: the Company will inspect the project under construction by the end of the construction and estimate the receivable sum of various items. If there is any evidence

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indicates that the project under construction is devalued, the depreciation provision of project under construction is made according to the depreciation amount.

	4.9		Accounting treatment method for borrowing cost
			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.

	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
			Tax payable method is adopted to check the corporate income tax.

	4.12		Taxation (tax rate)
			Value added tax rate is 6%, urban construction tax rate is 1% of the value 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

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for the grid power. (at present, it enjoys three exemption and two reduction by one half policies).

III Appraisal Objectives

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

IV Appraisal Subject

The appraisal covers all the shareholders’ equity of Wuliting Hydropower Development Company. The audited balance sheet of the Wuliting Hydropower Development Company on the appraisal base day is as follows: the assets are RMB 446.8344 Million. The liabilities are RMB 366.20988344 Million. The net assets are XXX 00 Xxxxxxx. Xxxxxxxxx:

1.		Assets
		The current assets book value is RMB 4.5746 Million, including monetary fund, receivable account and other receivables.

The fixed assets book value is RMB 442.2598 Million; it is the assets of Wuliting hydropower station under construction. Wuliting hydropower station project is low head and large discharge power station in river channel. The normal pool level is 36.5m. The reservoir capacity under normal pool level is 24,240,000 m3. The installed plant capacity is three sets×14MW. The average annual power output is 121,350,000 kWH. The shipping flow condition of the shipping channel is 300t and it belongs to Class III project. The hydropower

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station assets include: the main construction are flood diversion sluice, power station in river channel main workshops and upstream water retaining part buildings, shipping flow buildings (the upper and lower channel of the shipping channel and chamber), both banks junction buildings; the water retaining part of ht power station’s upstream and downstream, auxiliary workshops and voltage ascending station. The secondary building possesses slope protection (bank), navigation and docking structures. The main equipment collocated in the power station includes: water-turbine generator sets and related self-contained complete set of equipment and voltage ascending facility. The accessory machinery collocated in the power station includes: hoisting and machine repair facility and technology water supply system, drainage system, compressed-air system, and oil system as well as hydropower measurement system.

2.		Liabilities
		The current liabilities book value is RMB 163.8344 Million, including other payables, wage payable, payable welfare expense, payable taxation, miscellaneous payables, accrued expenses, current maturity of long term debt.
		The long-term liability book value is RMB 203 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 Wuliting Hydropower Development Company. It corresponds to net assets value of the Wuliting Hydropower Development Company.

The appraisal value stated in the report, means the value of all the stockholders’

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equity on the base date, including cash flow and appreciate depreciation and cash convention, provided that the enterprise is running continually. Appraisal values in this report are drawn by Xxxx Xx 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 Sept. 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.		Wuliting Hydropower Station power generation amount is able to reach preliminary designed generating capacity, and will continue its operations. Its scope of business, method and decision-making process will have few changed in the future.
2.		The future macroeconomic environment of Wuliting 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.

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4.		Wuliting hydropower station, under construction, can be completed on schedule and passed through the construction quality acceptance. The generator units can supply power to the grid normally. Its future practical generation capacity can reach the generation capacity stated in the preliminary design.
5.		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.
6.		The operator of the enterprise is responsible and top management of the enterprise is competent for their duties.
7.		No legal disputes or obstacles of assets and business of Wuliting Hydropower Development Development Company exist. The property right of assets is clear.
8.		The Wuliting 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 changes have 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

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fair appraisal basis, pricing standard, appraisal references concerning assets appraisal.

1.		Behavior Basis
(1)		Assets Appraisal Business Agreement concluded between Xxxx Xx 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)		Zhejiang Commission of Development and Reform file “Endorsement on Lishui Wuliting Hydro-junction Project (hydropower station) feasibility study report” ZHEJIJICHU No. 833 [2003];
(3)		Zhejiang Commission of Development and Reform file “Endorsement on Lishui Wuliting Hydro-junction Project (hydropower station) preliminary design” ZHEFAGAISHEJI No. 130 [2004];

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(4)		Financial materials like accounting statements;
(5)		Application materials for assets appraisal.
4.		Pricing Basis
(1)		Current deposit and loan rates of financial institutions issued by the People’s Bank of China;
(2)		Loan Contract, Guaranty Contract , Agreement on Zhejiang Lishui Wuliting Hydropower Project Development, Parallel in Economic Agreement and Lishui Wuliting Hydro-junction Project ( hydropower station) Preliminary Design Report offered by Wuliting Hydropower Development Company
(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 trail running production record and the power fee statistics from in the year 2007 offered by Wuliting Hydropower Development Company;
(6)		Wuliting Hydropower Station Preliminary Design Report offered by Wuliting Hydropower Development Company
(7)		Relevant information of the listed power generation companies.
5.		Other References
(1)		The audit reports of Wuliting Hydropower Development Company in the year 2004, 2005 , 2006 and Sep. 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)		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

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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;

(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 Wuliting Hydropower Development Company, in accordance with the profit forecast submitted by the enterprise 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)		The trial running operation materials and the preliminary design report provided by Wuliting Hydropower Development Company;
(5)		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

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     The entity cash flow = after-tax profit before interest+ depreciation and 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 2015.

5. Establishment of Benefit Period

The operation period of the Wuliting Hydropower Development Company is twenty 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 Dec. 21, 2001 to Dec. 21, 2021. On the base of the economic development prospect of generating power by water conservancy and supposing the enterprise to be operate continually, 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;

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(1) Definition of Ke

According to the capital asset pricing model (CAPM) and on this base, considering the individual risk earning of Wuliting 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.

• 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 Xx Xxxx 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 2015 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				2012				2013				2014				2015
Payment of interest liability D/ equity E			0.49				2.81				2.46				2.08				1.65				1.22				0.84				0.36				0.13

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		Oct.-Dec.,
		2007				2008				2009				2010				2011				2012				2013				2014				2015
corporate income tax			33	%			25	%			25	%			25	%			25	%			25	%			25	%			25	%			25	%
BETA			0.39				0.91				0.84				0.75				0.66				0.56				0.48				0.37				0.32

• 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 preliminary design report, the hydropower station installed capacity should reach 42,000kW, in consideration of the hydropower station approaching to completion, the 1# and 2# sets has been in trial run. The income of the power station is relatively xxxxxxx and the operating risk is not high. 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				2012				2013				2014				2015
Rf			3.51	%			3.51	%			3.51	%			3.51	%			3.51	%			3.51	%			3.51	%			3.51	%			3.51	%
Rm			7.50	%			7.50	%			7.50	%			7.50	%			7.50	%			7.50	%			7.50	%			7.50	%			7.50	%
BETA			0.39				0.91				0.84				0.75				0.66				0.56				0.48				0.37				0.32
A			1	%			1	%			1	%			1	%			1	%			1.00	%			1.00	%			1.00	%			1.00	%
Ke			7.44	%			11.34	%			10.81	%			10.14	%			9.46	%			8.71	%			8.11	%			7.29	%			6.91	%

(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

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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				2012				2013				2014				2015
Liability proportion ( Wd))			0.33				0.74				0.71				0.68				0.62				0.55				0.46				0.27				0.11
Equity proportion (We)			0.67				0.26				0.29				0.32				0.38				0.45				0.54				0.73				0.89
Corporate income tax rate (T)			33	%			25	%			25	%			25	%			25	%			25	%			25	%			25	%			25	%
WACC			6.65	%			7.15	%			7.20	%			7.19	%			7.23	%			7.22	%			7.23	%			7.21	%			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 Wuliting 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 Wuliting Hydropower Development Company from 2007 to 2015 is forecast; secondly, it is presumed that the enterprise will run permanently and the entity cash flow remains the same as that of 2016 after the year 2016; 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 Wuliting 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:

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;

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		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 Wuliting 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 2015. And the rationality of forecast is affirmed, specific adjustment are based on this.

(1)		Prime Operating Revenue
		The prime operating revenue Wuliting Hydropower Development Company, as a hydroelectric enterprise, is the income from power sales.
		In the forcast, 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.
	3		The station service power consumption rate, transformer loss rate and the line loss rate for the exclusive power supply and transformation: according to the preliminary design report,.the station service power consumption rate is calculated by 0.5%, transformer loss rate is calculated by 1%, and the line loss rate for the exclusive power supply and transformation is calculated by adopting 1.11%.
	4		The estimation of the grid power: it is estimated based on the aforesaid indicators.

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	•		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 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 Wuliting 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 2013. the wage level in the year 2014 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, the building structures and hydraulic structures are depreciated according to 50 years. The facility is depreciated according to 25 years.
	3		The cost of water resources shall exercise the current standard: RMB 0.01 yuan for 1kW. (it enjoys three exemption and two reduction by one half policies from the year 2007).
	4		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 fixed assets in the year 2012. Subsequently, the annual maintenance expenses retain constant.
	5		The cost of small hydropower station 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

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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, and so on.

	1		Based on the 2007 level, wages of workers will rise 5% per annum to 2013. the wage level in the year 2014 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		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 preliminary design report.

(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 recurrenting items, so they haven’t been taken into consideration in this profit forecast.

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(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%. Because the enterprise has not obtained related file of income tax relief, the appraisal takes no account of the influence of income tax relief.

(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
			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.
	•		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.

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

Unit: XXX, 00 xxxxxxxx

		Oct.-
		Dec.,
Item		2007				2008				2009				2010				2011				2012				2013				2014				2015
I. Prime Operating Revenue			770.00				4,971.29				4,971.29				4,971.29				4,971.29				4,971.29				4,971.29				4,971.29				4,971.29
Minus: discount distribution			—
Prime Operating net sale			770.00				4,971.29				4,971.29				4,971.29				4,971.29				4,971.29				4,971.29				4,971.29				4,971.29
Minus: Cost of Main Operations			249.59				1,361.77				1,381.84				1,437.52				1,461.92				1,522.38				1,525.88				1,525.88				1,525.88
Tax and Associate Charge of Main Operations			3.54				22.87				22.87				22.87				22.87				22.87				22.87				22.87				22.87
II. Profits from Main Operations			516.87				3,586.65				3,566.58				3,510.90				3,486.50				3,426.04				3,422.54				3,422.54				3,422.54
Add: other business profit
Minus: the operation expenses
General and Administrative Expense			43.25				259.50				267.43				275.77				284.55				293.72				303.38				303.38				303.38
Financial Expenses			295.83				1,699.73				1,503.93				1,287.84				1,033.86				779.27				557.40				272.28				120.00
III. Operating Income			177.79				1,627.42				1,795.22				1,947.29				2,168.09				2,353.05				2,561.76				2,846.88				2,999.16
Add: investment income
Subsidiary earnings
Non-operating Income
Minus: Non-operating Expense
Iv. Income Before Tax			177.79				1,627.42				1,795.22				1,947.29				2,168.09				2,353.05				2,561.76				2,846.88				2,999.16
Minus: Income Tax			58.67				406.86				448.81				486.82				542.02				588.26				640.44				711.72				749.79
V. Net Income			119.12				1,220.56				1,346.41				1,460.47				1,626.07				1,764.79				1,921.32				2,135.16				2,249.37
VI. Pre-interest Profit After Taxes			317.33				2,495.36				2,474.36				2,426.35				2,401.46				2,349.24				2,339.37				2,339.37				2,339.37
Add: depreciation and amortization			191.58				1,149.43				1,149.43				1,149.43				1,149.43				1,149.43				1,149.43				1,149.43				1,149.43
Minus: the capital expenditure			82.72				496.29				496.29				496.29				496.29				496.29				496.29				496.29				496.29
Minus: business current assets increment			—				—				—				—				—				—				—				—				—
VIII Entity cash flow			426.19				3,148.50				3,127.50				3,079.49				3,054.60				3,002.38				2,992.51				2,992.51				2,992.51

(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 419.9352 Million.
(12)		Shareholders equity value calculation
		Shareholders equity value = entity value— liability value

	•		Liability value
			The enterprise has RMB 237 Million for various loans on appraisal base day. The liability value is XXX 000 Xxxxxxx.

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• Interests Value

Shareholders equity value =entity value - liability value
=419,535,200-237,000,000
= 182,535,200

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 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

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		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.

(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

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(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 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.
		The prime assets of Wuliting Hydropower Development Company are the Wuliting hydropower station under construction. The project has not been completed. The acceptance of works has not been transacted yet. The state-owned land use certificate and building ownership certificate have not been transacted yet.
(II)		Appraisal conclusion
		Up to the appraisal base day Sep. 30, 2007, by means of income approach, the entity value appraisal value of Wuliting Hydropower Development Company is RMB 419.5352 Million and all shareholders’ equity appraisal value is RMB 182.5352 Million, under the condition of continual operation.
(III)		Explanations to Appraisal Conclusions

1. The selling price of power in Wuliting Hydropower Development Company is in accordance with the current standard, taking no consideration of prospective adjustment.

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2.		Because the enterprise has not obtained related file of income tax relief. The appraisal takes no account of the influence of income tax relief.
3.		The peak and valley power generation ratio of the appraisal is confirmed according to data in “Zhejiang Lishui Wuliting hydro-junction project preliminary design report” and in combination with the statistical data of trial operation. The appraisal takes no account of the influence of the peak and valley power generation ration change on income.
4.		Wulingting Hydropower Development Company estimated the predicted grid power on the basis of long term average annual power output of the preliminary design. 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 Wuliting 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 Wuliting Hydropower Development Company and other personnel are the basis of this report, so Wuliting Hydropower Development Company shall be responsible for the authenticity, legitimacy and allsidedness of such materials. For defect issues that exist in Wuliting 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.

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3.		The Wuliting Hydropower Development Company submitted Zhejiang Lishui Wuliting Hydro-junction Project Preliminary Design Report and The Profit Forecast from the Year 2007 to 2015, which are one of the main bases for the appraisal report.
4.		Wuliting Hydropower Station has not been completed yet, this appraisal supposes the appraisal result that the hydropower station can be completed and can be operated normally. It takes no account of the payable associated costs for completing the hydropower station project and putting into normal operation conditions.
5.		This appraisal supposes that the hydropower station can be completed on schedule and passed through construction quality acceptance. The power generation can reach multi-year average annual power output stated in the preliminary design report.
6.		The influence from pledge and guarantee in the appraisal conclusions hasn’t been taken into consideration.
7.		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.		On November 7, 2007, Zhejiang Guangsha Hydropower Investment Co., Ltd. signed stock rights transfer agreement with Guangsha Construction Group Co., Ltd and Lu Chunliang. Zhejiang Guangsha Hydropower Investment Co., Ltd. transferred 20% stock rights of Wuliting Hydropower Development Co., Ltd. to Guangsha Construction Group Co., Ltd. and transferred 60% stock rights of Wuliting Hydropower Development Co., Ltd. to Lu Chunliang. After stock rights transfer, the shareholder and amount of investment, Lu Chunliang XXX 00 Million, occupies 80% stock rights; Guangsha Construction Group Co., Ltd. XXX 00 Million, occupies 20% stock rights.

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3.		Other key issues that haven’t been provided by the appraised enterprise or discovered by appraisers after the appraisal base day;
4.		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 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

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

Assets Appraisal Institution: Beijing Xxxx Xx Assets Valuation Company Ltd.

Legal Representative of Assets Appraisal Institution: Xxxxx Xxxxxxxx

China Certified Public Valuer: Wang Ri

China Certified Public Valuer: Sun Chaohui

Nov. 15, 2007

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Suichang Jiulongshan Hydropower

Development Co., Ltd.

Share Transfer Project

Document for Future Reference

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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.

Nov. 15, 2007

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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 Wuliting Hydropower Project (“Object Company”, same as below) is RMB 537,312.59, the balance of accounts receivable is RMB 3,739,709.76, the balance of other receivables is RMB 297,592.50 and the balance of liabilities other than those from banks is RMB 139,834,423.64.

     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 135,259,808.79 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.

     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

1

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

2

Breakdown of Wuliting Credits and Debts

		By September 30								Unit: Yuan
Item		Unit or detail		Amount				Content		Note
Currency capital					228,386.62
								Revenue of power		Bad debt reserve
Receivables		Lishui City Power Bureau			11,199,804.42			generation		559,990.22
										Bad debt reserve
Other receivables					8,860,648.89					443,032.45
		Zhangjiang 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
		Xxxxxxxx Xxxxx Hydropwer 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
		Individual income tax			595.00

3

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

4

Appendix 7

Letter of Undertaking

China Hydroelectric Corporation:

We had provided guarantee for the following bank loans of Qingtian Wuliting Hydropower Development Co., Ltd as set forth in Appendix 4:

Whereas CHC is willing to purchase one hundred percent of the equity interest of Qingtian Wuliting 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 7.2 of “Formal Equity Interest Transfer Contract of Qingtian Wuliting Hydropower Development Co., Ltd” signed by CHC, Zhejiang Guangsha Construction Group Co., Ltd and Lu Chunliang, we will provide the relevant guarantee and perform the procedure unconditionally in accordance with the creditor’s requirements and upon the Transferee’s provision of counter guarantee and assumption of the guarantee cost and provide an ongoing guarantee for the undue loans of Qingtian Wuliting Hydropower Development Co., Ltd.

Guangsha Construction Group Co., Ltd.

December 13 , 2007