SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act of 1934
For the month of April, 2006
CHINA PETROLEUM & CHEMICAL CORPORATION
A6, Huixindong Street,
Chaoyang District Beijing, 100029
People's Republic of China
Tel: (8610) 6499-0060
(Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.)
Form 20-F __X__ Form 40-F _____
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934. )
Yes ____ No __X__
(If "Yes" is marked, indicate below the file number assigned to
registrant in connection with Rule 12g3-2(b): 82-__________.
)
N/A
This Form 6-K consists of:
The announcement on continuing connected transactions of China Petroleum &
Chemical corporation (the "Registrant"), made by the Registrant in English on
March 31, 2006.
The Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of this announcement, makes no representation as to its accuracy or completeness
and expressly disclaims any liability whatsoever for any loss howsoever arising
from or in reliance upon the whole or any part of the contents of this
announcement.
[LOGO GRAPHIC OMITTED]
(a joint stock limited company incorporated in the
People's Republic of China with limited liability)
(Stock Code: 0386)
CONTINUING CONNECTED TRANSACTIONS
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On 24 December 2003, the Hong Kong Stock Exchange granted a waiver to Sinopec
Corp. from strict compliance with the relevant requirements of the HK Listing
Rules in respect of the Continuing Connected Transactions. Such waiver will
expire on 31 December 2006. Please refer to the announcement and circular of
Sinopec Corp. dated 28 October 2003 and 31 October 2003, respectively, for the
background to and conditions of the waiver. The caps for the Continuing
Connected Transactions granted under the existing waiver is set out in section
1.2 of this announcement.
Sinopec Corp. expects to continue the Continuing Connected Transactions after
the expiry of the waiver.
On 31 March 2006, Sinopec Corp. and the Sinopec Group Company have entered into
the Continuing Connected Transactions Supplemental Agreement. The Continuing
Connected Transactions Supplemental Agreement made adjustments to the terms of
certain agreements regarding Continuing Connected Transactions. The adjustments
will become effective on 1 January 2007.
The Sinopec Group Company, a shareholder of approximately 71.2% interests in
Sinopec Corp., and its associates will constitute connected persons of Sinopec
Corp. under the HK Listing Rules. As such, the Continuing Connected Transactions
will consititute continuing connected transactions of Sinopec Corp. Pursuant to
Chapter 14A of the HK Listing Rules, Sinopec Corp. must comply with the
reporting, announcement and shareholders' approval requirements in respect of
such transactions (if necessary).
Sinopec Corp. will seek the approvals of Independent Shareholders in respect of
the Agreement Amendments, the Major Connnected Transactions, the caps of the
Major Continuing Connected Transactions and, at the request of the Shanghai
Stock Exchange, the Non-Major Continuing Connected Transactions. A circular
containing details of the Continuing Connected Transactions, a letter from the
independent Directors, an opinion of the independent financial adviser, ICEA,
together with a notice to convene the General Meeting, will be dispatched to the
shareholders as soon as practicable.
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1. CONTINUING CONNECTED TRANSACTIONS
1.1 Background
On 24 December 2003, the Hong Kong Stock Exchange granted a waiver to
Sinopec Corp. from strict compliance with the relevant requirements of the
HK Listing Rules in respect of the Continuing Connected Transactions. Such
waiver will expire on 31 December 2006. Please refer to the announcement
and circular of Sinopec Corp. dated 28 October 2003 and 31 October 2003,
respectively for the background and conditions of the waiver. The caps for
the Continuing Connected Transactions granted under the waiver is set out
in section 1.2 of this announcement.Sinopec Corp. has to date complied
with the conditions of the waivers. Please refer to the annual reports of
Sinopec Corp. for further details of its compliance.
During preparation for its listing overseas, Sinopec Corp. and the Sinopec
Group Company entered into a number of agreements in 2000 to govern and
manage the Continuing Connected Transactions between them. These
agreements include the Mutual Supply Agreement, the Community Services
Agreement, the Land Use Rights Leasing Agreement, the Properties Leasing
Agreement, the Intellectual Property Licence Agreements, the Agency
Agreement and the SPI Fund Document. On 11 June 2001, as a result of the
acquisition of Sinopec National Star Petroleum Company, additional
Continuing Connected Transactions were contemplated and a continuing
connected transactions adjustment agreement was entered into between
Sinopec Corp. and Sinopec Group Company under which the terms of the
Mutual Supply Agreement, the Community Services Agreement, the Agency
Agreement, the Land Use Rights Leasing Agreement and the Properties
Leasing Agreement were amended.
Besides, due to Sinopec Corp.'s business expansion, the Company leased
additional land with an area of approximately 50,000,000 square metres
from the Sinopec Group. As such, Sinopec Corp. and the Sinopec Group
Company entered into the Land Use Rights Leasing (Additional) Agreement on
22 August 2003. The annual rental was approximately RMB273 million. The
agreement provides that the terms of the Land Use Rights Leasing Agreement
shall be applicable to such lease. A waiver was then obtained by Sinopec
Corp. from the Hong Kong Stock Exchange from strict compliance with the
relevant requirements of the HK Listing Rules in respect of such connected
transactions for an indefinite period. Please refer to the announcement of
Sinopec Corp. dated 25 August 2003. As a result of the amendments to the
HK Listing Rules in March 2004, the transactions under the Land Use Rights
Leasing (Addition) Agreement, as the relevant percentage ratios of the
size tests (other than the profits test) fall below 0.1%, are exempted
from reporting, announcement and independent shareholders' approval
requirements under rule 14A.33 of the HK Listing Rules.
In addition, on 31 October 2004, as a result of the acquisition of the
petrochemical, catalyst and gas station assets and the disposal of the
downhole operation assets, Sinopec Corp. and the Sinopec Group Company
entered into an adjustment agreement supplementing the Land Use Rights
Leasing Agreement and Properties Leasing Agreement, and announced the
increased cap for the transactions under the Land Use Rights Leasing
Agreement in an announcement dated 1 November 2004.
Morever, in respect of the Continuing Connected Transactions commencing
from 1 January 2007, Sinopec Corp. and the Sinopec Group Company have
entered into the Continuing Connected Transactions Supplemental Agreement
on 31 March 2006, in which adjustments were made to the terms of certain
agreements regarding Continuing Connected Transactions. Set out below are
the summaries of the Continuing Connected Transactions Agreements (as
adjusted) and the transactions contemplated thereunder:
The Continuing Connected Transactions are summarised below:
(1) Mutual Supply Agreement
On 3 June 2000, the Sinopec Group Company and Sinopec Corp. entered
into the Mutual Supply Agreement which term commenced on 1 January
2000 and will be valid until terminated by the parties. Pursuant to
the Continuing Connected Transactions Supplemental Agreement, the
term of the Mutual Supply Agreement was amended to expire on 31
December 2009. The following transactions are contemplated under the
Mutual Supply Agreement:
(a) The products and services which are contemplated to be
supplied by the Company, including: crude oil, natural gas,
refined and peetrochemcial products and by-products,
semi-finished products, water, electricity, gas, heat,
measurements quality inspection, provision of other related or
similar products and services and guarantee.
(b) The products and services which are contemplated to be
acquired by the Company, including:
(i) Supply: steel, wood, cement, coal, wind, hydrogen,
nitrogen, fresh water, chemical water, recycled water,
electricity, steam, heat supply, materials and equipment
parts, chemical raw materials, precious metals, the
sourcing of crude oil and natural gas, including crude
oil and natural gas from overseas1 and other related or
similar products and services.
(ii) Storage and transportation: railway, vehicular
transport, water transport, pipeline transmission,
loading and unloading, wharves, warehousing and other
related or similar services.
(iii) Ancillary production: well drilling, well surveying,
well logging, exploration and development testing,
technological research, communication, fire control,
security guards, public security, chemical examination,
material examination, information, pressure containers
and pipelines inspection, metering inspection, computer
services, equipment research, airports, feasibility
study, design, construction, installation, production of
electromechanical instruments, inspection and
maintenance of equipment devices and electrical
equipment meters, works supervision, environmental
protection, repair and maintenance of roads, bridges and
culverts and slope protection, flood control and other
related or similar services.
(iv) Others: deposits and loans of finance companies, loan
guarantees, acting as agent in the collection and
payment of administrative services fees, labour
services, asset leasing and other related or similar
services.
1 This is added pursuant to the Connected Transactions Supplemental Agreement.
According to the Mutual Supply Agreement, the transactions conducted
thereunder shall be priced in accordance with the following terms:
(a) government-prescribed price;
(b) where there is no government-prescribed price but where there
is government-guidance price, the government-guidance price
will apply;
(c) where there is neither a government-prescribed price nor a
government-guidance price, the market price will apply; or
(d) where none of the above is applicable, the price is to be
agreed between the relevant parties for the provision of the
above products or service, which shall be the reasonable cost
incurred in providing the same plus 6% or less of such cost.
The pricing mechanisms set out in (a) to (c) above are based on
governmental or market levels . As to the pricing mechanism set out
in (d) above, the Directors believe that the 6% margin set out
therein is in line with the respective industries in the PRC market,
accordingly, they are of the view that the pricing mechanisms are
fair and reasonable and on normal commercial terms.
(2) Land Use Rights Leasing Agreement
On 3 June 2000, Sinopec Group Company and Sinopec Corp. entered into
the Land Use Rights Leasing Agreement which term commenced on 1
January 2000. According to the Land Use Rights Leasing Agreement,
members of the Sinopec Group have agreed to lease to the Company
certain parcels of land with an area of approximately 427,000,000
square metres. The parcels of land which will be leased will mainly
be used for main production facilities, ancillary production
facilities and certain petrol stations operated by Sinopec Corp.
The land which will be leased can be divided into two types:
(i) those which members of the Sinopec Group have land use rights
certificates; and
(ii) those which members of the Sinopec Group have obtained
approval from the Ministry of Land and Resources evidencing
their rights to lease the land to the Company.
The rent payable under the Land Use Rights Leasing Agreement is
based on factors including the area of the land involved and their
location. According to the Land Use Rights Leasing Agreement, the
rent may be reviewed every three years commencing from 2000 and any
such revised rent shall not be higher than the prevailing market
rent as confirmed by an independent valuer.
Regarding authorised land for operation owned by members of the
Sinopec Group, land for industrial use are leased to the Company for
a term of 50 years and land for commercial use for 40 years.
Regarding land over which members of the Sinopec Group have been
granted land use rights with consideration, they are leased for a
term up to the date of expiry of the respective land use rights
certificates. The term of the lease in each case commenced from 1
January 2000. The Company may require members of the Sinopec Group
to renew the term of the lease by giving notice to it twelve months
before the expiry of the lease.
(3) Community Services Agreement
On 3 June 2000, the Sinopec Group Company and Sinopec Corp. entered
into the Community Services Agreements which term commenced on 1
January 2000 and will be valid until terminated by the parties.
Pursuant to the Continuing Connected Transactions Supplemental
Agreement, the term of the Community Services Agreement was amended
to expire on 31 December 2009. The following services are
contemplated to be acquired by the Company under the Community
Services Agreement:
(a) Culture, educational and hygiene services: education and
training centres, cadre schools, technical universities,
primary schools, secondary schools, technical schools, staff
polytechnic schools, medical care and sanitation, culture and
physical education, newspapers and magazines, broadcasting and
television, printing and other related or similar services.
(b) Community services: living services (including management
centres), property management, environmental sanitation,
greening, nurseries, kindergartens, sanatoriums, canteens,
collective quarters, public transport, resignation and
retirement management, settlement of land occupiers,
re-employment service centres and other related or similar
services.
The Community Services Agreement has identical pricing mechansim for
the Mutual Supply Agreement which is set out in section 1.1(1)
above.
(4) Safety Production Insurance Fund (the "SPI Fund")
With the approval of the Ministry of Finance, the Sinopec Group
Company has established the SPI Fund. The SPI Fund currently
provides insurance cover on a consolidated basis on certain assets
used in the operations of the Company.
Under the SPI Fund Document, Sinopec Corp. is required to pay twice
a year an insurance premium amounting to 0.2% of the historical
value of the fixed assets and the average month-end inventory value
of the Company of the previous six months.
After the receipt by Sinopec Group Company of the premium from
Sinopec Corp., the Sinopec Group Company will refund 20% of the paid
premium to Sinopec Corp. if Sinopec Corp. pays the semi-annual
premium on time according to the SPI Fund Document ("Refund"). The
Refund would equal to 17% of the paid premium if Sinopec Corp. fails
to pay the semi-annual premium on time. The Refund shall be used by
Sinopec Corp. in dealing with accidents and potential risks and
safety measures, in safety education and training, in preventing
major accidents and potential risks, and as rewards to units and
individuals who have made a special contribution to safety
production.
(5) Properties Leasing Agreement
On 3 June 2000, the Sinopec Group Company and Sinopec Corp. entered
into the Properties Leasing Agreement which term commenced on 1
January 2000. Properties which will be leased will mainly be used
for ancillary production facilities, offices premises and petrol
stations operated by the Company. Under the agreement, members of
the Sinopec Group have agreed to lease to the Company certain
properties with a gross floor area of approximately 2,608,000 square
metres. The rent payable under the Properties Leasing Agreement is
based on factors including the area of the properties involved,
their location and the nature and purpose of use of the properties.
The rent may be reviewed once a year and any revised rent shall not
be higher than the prevailing market rent. Property taxes and land
use fees in relation to the properties shall be borne by the Sinopec
Group.
The properties are leased by the Sinopec Group to the Company for a
term of 20 years commencing from 1 January 2000.
If Sinopec Group Company proposes to sell a property leased by the
Company to a third party, Sinopec Corp. shall have a pre-emptive
right to purchase such property under the same terms.
(6) Intellectual Property Licence Agreements
Sinopec Corp. and the Sinopec Group Company entered into the
Intellectual Property Licence Agreements on 3 June 2000. Each of the
Intellectual Property Licence Agreements is for a term of 10 years
commencing from 1 January 2000.
While the above intellectual property rights are granted to the
Company at no cost, Sinopec Corp. shall, before 31 December of each
year, pay to the Sinopec Group Company all such expenses which
Sinopec Group Company has paid in the relevant year according to the
relevant laws and regulations for maintaining the validity of the
relevant trademarks, patents and computer software.
(7) Agency Agreement
On 3 June 2000, Sinopec Group Company, representing the ethylene
enterprises, and Sinopec Corp. entered into the Agency Agreement
which became effective on 1 January 2000 and continues until
terminated by the parties. Sinopec Corp. is appointed as the
exclusive agent for the sale of the products produced by the
ethylene enterprises under the Agency Agreement. Sinopec Corp. will
receive an agency fee which is equal to 0.2% to 1% of the amount of
purchase price actually received by Sinopec Corp. Sinopec Corp.
shall bear the expenses incurred in collecting payment for the
purchases. As Sinopec Corp. has completed the acquisition of
principal ethylene production business from the Sinopec Group,
selling ethylene products of the Sinopec Group as agent is no longer
required. Sinopec Corp. does not envisage any transactions will be
conducted under the Agency Agreement which will trigger the
reporting, announcement and independent shareholders' approval
requirements under Chapter 14A of the HK Listing Rules.
1.2 Historical Figures and Existing Caps
The historical figures and existing caps of the above Continuing Connected
Transactions for the past three financial years are set out below:
Existing caps#
Existing caps (Expressed in
granted under monetary values
the existing using financial
waiver which is data of Sinopec
due to expire Corp. for the
on 31 December period ended 31
Transactions 2006 December 2005) 2003 2004 2005
Mutual Supply Agreement
(i) annual expenditures of 18% of RMB137.829 RMB55.656 RMB61.086 RMB75.486
the Company for the the total billion billion billion billion
purchase of products and operating (13.57%) (10.97%) (9.86%)
services (except expenses
financial services) from
the Sinopec Group
(ii) annual revenues generated 14% of RMB115.236 RMB32.134 RMB42.771 RMB58.579
by the Company for the the total billion billion billion billion
sale of products and operating (7.16%) (6.92%) (7.12%)
services (except revenues
provision of guarantee)
to the Sinopec Group
(iii) the aggregate of the 2.5% of RMB20.578 RMB4.039 RMB2.791 RMB2.605
average month-end balance the total billion billion billion billion
of deposits and total operating (0.91%) (0.45%) (0.32%)
amount of interest revenues
received in respect of
these deposits
Land Use Rights Leasing Agreement
annual rental payable by the RMB2.75 RMB2.146 RMB2.447 RMB2.557
Company billion* billion billion billion
Community Services Agreement
annual expenditures for the 2% of RMB15.314 RMB1.783 RMB1.74 RMB1.79
provision of products and the total billion billion billion billion
services by the Sinopec operating (0.43%) (0.31%) (0.23%)
Group to the Company expenses
Safety Production Insurance The amount RMB762 RMB876 RMB999
Fund Document specified in million million million
annual premium payable by the the SPI Fund
Company Document
Properties Leasing Agreement
annual rental payable by the RMB7.30 RMB567 RMB567 RMB568
Company million million million million
Intellectual Property Licence Agreements
annual payment by the Company RMB35 RMB10 RMB10 RMB10
million million million million
* The original cap was RMB2.15 billion. The cap was adjusted to
RMB2.45 billion in November 2004. After aggregating the existing
rent of RMB301 million under the Land Use Rights Leasing (Addition)
Agreement, the cap is RMB2.75 billion. In relation to the adjustment
in November 2004, please refer to the announcement of Sinopec Corp.
dated 1 November 2004. Sinopec Corp. also proposes to increase the
cap from RMB2.75 billion to RMB3.3 billion for the year 2006. Please
refer to section 1.3(4) below for further details.
# The monetary amounts are for illustration only.
1.3 Estimated cap amounts of the Continuing Connected Transactions
Sinopec Corp. estimates the annual caps for the applicable Continuing
Connection Transactions for the years 2007 to 2009 to be as follows:
Major Continuing Connected Transactions
(1) Annual revenues under the Mutual Supply Agreement: The products and
services sold by the Company to the Sinopec Group under the Mutual
Supply Agreement principally consist of raw materials and
petrochemical products such as crude oil, natural gas, refined oil
products and petrochemical products. Over the past three years,
international prices of raw materials such as crude oil have
experienced significant fluctuation. The price of crude oil
increased from over US$20 per barrel three years ago to the highest
of over US$70 per barrel.
The annual revenues received by the Company in respect of products
and services provided to the Sinopec Group under the Mutual Supply
Agreement from 2003 to 2005 were RMB32.134 billion, RMB42.771
billion and RMB58.579 billion, respectively, representing 7.16%,
6.92% and 7.12%, respectively, of the total operating revenues of
Sinopec Corp. in the relevant period.
Taking into account historical figures for the past three years and
material uncertainties such as possible price fluctuation in raw
materials and products such as crude oil, natural gas, refined oil
products and petrochemical products in the next three years,
possible changes in price control over refined oil products by the
Chinese government and possible increase in the volume of
procurement of crude oil by Sinopec Corp. for refineries of Sinopec
Group Company, and in view of the revenues which might be generated
by the Company through the provision of products and services to the
Sinopec Group under the Mutual Supply Agreement, Sinopec Corp. is of
the view that flexibility should be built into the cap for such
transactions. The Company expects that the annual revenue which may
be generated under the Mutual Supply Agreement can be maintained
within 14% of the Company's total operating revenues for the years
2007 to 2009. In view of the historical acceptance of maintaining
the cap at 14% of the total operating revenues by the Independent
Shareholders and the market, Sinopec Corp. proposes that the cap for
the revenues which may be generated from the the provision of
products and services under the Mutual Supply Agreement for the
years 2007 to 2009 shall be determined taking into account a
percentage of the total operating revenues of the relevant year.
However, in order to offer further protection to the Independent
Shareholders and in view of the requirement of expressing the cap in
monetary sums under the HK Listing Rules, Sinopec Corp. will comply
with the cap in absolute monetary terms as set out below.
The proposed caps for the transactions regarding the provision of
products and services by Sinopec Corp. under the Mutual Supply
Agreement are as follows:
o 2007 - RMB131 billion
o 2008 - RMB134.1 billion
o 2009 - RMB136.2 billion
(2) Annual expenditures of the Company under the Mutual Supply
Agreement: The product and services bought by the Company from the
Sinopec Group under the Mutual Supply Agreement principally consist
of certain ancillary raw materials and services required by the
major operating business of Sinopec Corp.
The annual expenditures in respect of products and services bought
by Sinopec Corp. from the Sinopec Group under the Mutual Supply
Agreement from 2003 to 2005 were RMB55.656 billion, RMB61.086
billion and RMB75.486 billion, respectively, representing 13.57%,
10.97% and 9.86%, respectively, of the total operating expenses of
Sinopec Corp. in the relevant period.
Taking into account historical figures for the past three years and
material uncertainties such as possible price fluctuation in raw
materials and products in the next three years, possible changes in
price control over refined oil products by the Chinese government,
possible increase of production volume of Sinopec Group Company's
refineries and possible increase of Sinopec Corp's oil from PSC, and
in view of the necessity of purchasing products and services from
the Sinopec Group under the Mutual Supply Agreement for Sinopec
Corp.'s continued operation, Sinopec Corp. is of the view that
flexibility should be built into the caps for such transactions. The
Company expects that the cap for the Mutual Supply Agreement can be
maintained within 18% of the Company's total operating expenses for
the years 2007 to 2009. In view of the historical acceptance of
fixing the caps at 18% of the total operating expenses by the
Independent Shareholders and the market, Sinopec Corp. proposes that
the cap for the purchase of products and services under the Mutual
Supply Agreement for the years 2007 to 2009 shall be determined
taking into account a percentage of the total operating expenses of
the relevant year. However, in order to offer further protection to
the Independent Shareholders and in view of the requirement of
expressing the cap in monetary sums under the HK Listing Rules,
Sinopec Corp. will comply with the cap in absolute monetary terms
set out below. The proposed caps for the purchase of products and
services by Sinopec Corp. under the Mutual Supply Agreement are as
follows:
o 2007 - RMB147.6 billion
o 2008 - RMB148.7 billion
o 2009 - RMB152.8 billion
Non-Major Continuing Connected Transactions
(3) The total amount of deposits under the Mutual Supply Agreement: The
average amount of deposits of the Company with the Sinopec Group's
financial institutions under the Mutual Supply Agreement from 2003
to 2005 were RMB4.039 billion, RMB2.791 billion and RMB2.605
billion, respectively, representing 0.91%, 0.45% and 0.32%,
respectively, of Sinopec Corp.'s total operating revenues of the
relevant year.
Sinopec Corp. is of the view that the Sinopec Group's financial
institutions can generally offer more favourable terms and interest
rates as compared to other financial institutions or banks. As such,
Sinopec Corp. is of the view that provided the potential risks
associated can be contained, depositing with the Sinopec Group's
financial institutions on an continuing basis will bring commercial
advantages and better returns to Sinopec Corp. and its shareholders
as a whole. Taking into account historical figures, estimated cash
flow situation of Sinopec Corp. in the future and the historical
acceptance of fixing the caps at 2.5% of the total operating
revenues by the Independent Shareholders and the market, Sinopec
Corp. proposes that the average month-end balance of deposits with,
and total amount of interest revenues from, the Sinopec Group's
financial institutions under the Mutual Supply Agreement for the
years 2007 to 2009 shall be determined taking into account a
percentage of the total operating revenues of the relevant year.
However, in order to offer further protection for the Independent
Shareholders and in view of the requirement of expressing the cap in
monetary sums under the HK Listing Rules, Sinopec Corp. will comply
with the cap in absolute monetary terms set out below. The proposed
cap for the transactions regarding the deposits with the Sinopec
Group's financial institutions under the Mutual Supply Agreement are
as follows:
o 2007 - RMB5.5 billion
o 2008 - RMB5.5 billion
o 2009 - RMB5.5 billion
(4) Land Use Rights Leasing Agreement: At present, the Company leases
land use rights from the Sinopec Group under two agreements, namely
the Land Use Rights Leasing Agreement and the Land Use Rights
Leasing (Addition) Agreement. As the nature of these transactions
are identical, Sinopec Corp. will combine the two into one category
and, through amendments to the agreements, the Land Use Rights
Leasing Agreement will also govern the transactions under the Land
Use Rights Leasing (Addition) Agreement and the Land Use Rights
Leasing (Addition) Agreement will be terminated. In 2005, the annual
rent payable by the Company under the Land Use Rights Leasing
Agreement (after the combination) was RMB2.557 billion. According to
the Land Use Rights Leasing Agreement, the Sinopec Group Company may
adjust the rent once every three years.
Due to a substantial increase in land values in China as a result of
the growing economy, rapid govermental policies reforms which
restrict the use of state-owned land without payment, the level of
rent paid by Sinopec Corp. at present is below market levels. After
negotiations between Sinopec Corp. and Sinopec Group Company, as the
continue use of the relevant land is crucial to the ongoing
operation of the Company, Sinopec Corp. and Sinopec Group Company
have agreed that the rent level for 2006 should be brought closer to
market levels. To ensure that the rent payable by Sinopec Corp. for
2006 will remain to be on normal commercial terms, a PRC qualified
property valuer, Beijing Zhongdi Real Estate Appraisal Co. Ltd, was
appointed to value the adjusted rent and it has concluded that it is
lower than market level of RMB11.31 per square meter which was
determined using average land prices. Accordingly, Sinopec Corp.
proposes that the cap for 2006 shall be adjusted to RMB3.3 billion.
Also taking into account possible payment of additional rent as a
result of potential business expansion, Sinopec Corp. estimates that
the total annual rent payable under the Land Use Rights Leasing
Agreement (including the rent previously included under the Land Use
Rights Leasing (Addition) Agreement), and in respect of the land
leased by the Sinopec Group to the subsidiaries of Sinopec Corp.,
will be RMB3.5 billion for each year from 2007 to 2009. The revised
rent has been considered by a PRC qualified property valuer to be
lower than the market value.
(5) Community Services Agreement: The fees paid under the Community
Services Agreement from 2003 to 2005 were RMB1.783 billion, RMB1.74
billion and RMB1.79 billion, respectively. Taking into account
historical figures and possible increase in the costs of raw
material and labour, Sinopec Corp. proposes that the annual cap for
the Community Services Agreement from 2007 to 2009 shall be RMB2
billion, respectively.
(6) SPI Fund Document: The premium paid under the SPI Fund Document from
2003 to 2005 were RMB762 million, RMB876 million and RMB 999
million, respectively. Taking into account historical figures and
possible expansion of Sinopec Corp.'s operations, it is proposes
that the annual cap for the SPI Fund Document from 2007 to 2009
shall be RMB1.25 billion, RMB1.4 billion and RMB1.55 billion,
respectively.
(7) Properties Leasing Agreement: The annual rent paid under the
Properties Leasing Agreement from 2003 to 2005 were RMB567 million,
RMB567 million and RMB568 million, respectively. Taking into account
historical figures, Sinopec Corp. proposes to maintain an annual cap
of RMB730 million for the rent payable under the Properties Leasing
Agreement.
Exempted Continuing Connected Transactions
(8) Intellectual Property Licence Agreements: Based on historial
figures, Sinopec Corp. estimates that the annual fee payable by the
Company to the Sinopec Group under the Intellectual Property License
Agreements will not exceed 0.1% of each of the percentage raios
(other than the profit ratio). As such, the relevant transactions
will be exempt from reporting, announcement and independent
shareholders' approval requirements pursuant to the exemption for de
minimis transactions under rule 14A.33 of the HK Listing Rules.
1.4 The HK Listing Rules Requirements
Pursuant to rule 14A.34 of the HK Listing Rules, the annual amount of each
of the transactions under 1.3(3) to (7) above (i.e. the Non-Major
Continuing Connected Transactions) are less than 2.5% the percentage
ratios (other than the profit ratio), and as such, the transactions in (4)
to (7) above will be exempted from the independent shareholders approval
requirement pursuant to rule 14A.34, and the transaction in (3) above will
be exempted from independent shareholders' approval requirement pursuant
to rule 14A.66, of the HK Listing Rules. Sinopec Corp. will still be
subject to reporting and announcement requirements under Chapter 14A of
the HK Listing Rules.
The transactions under 1.3(1) to (2) above (i.e. Major Continuing
Connected Transactions) will be subject to the reporting, announcement and
independent shareholders approval requirements in accordance with rule
14A.35 of the HK Listing Rules.
Sinopec Corp. will convene an general meeting for the Independent
Shareholders to consider the approval of the Agreement Amendments, Major
Continuing Connected Transactions, at the request of the Shanghai Stock
Exchange, the Non-Major Continuing Connected Transactions and the caps for
the Major Continuing Connected Transactions at the same time. Sinopec
Group Company and its associates will abstain from voting at the General
Meeting in respect of the ordinary resolution to approve the above
matters. The notice of the General Meeting, and the circular providing
other information regarding the Continuing Connected Transactions and
containing the advice of an independent financial adviser to the
independent Directors in relation to the matters set out in section 3
below and the recommendation from the independent Directors, will be
dispatched to the shareholders shortly. As the General Meeting will also
be the annual general meeting of Sinopec Corp. for 2005, Sinopec Corp.
believes more shareholders would be encouraged to participate at the
meeting and would minimise adminstrative costs of Sinopec Corp. and avoid
the inconvenience of convening a separate general meeting. Sinopec Corp.
believes that information contained in this announcement and to be
contained in the circular will be sufficient for Independent Shareholders
to make an informed decision.
2. REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS
As the Sinopec Group Company and/or its associates have operated with the
Company as an integrated organisation prior to the restructuring of
Sinopec Group Company and the establishment of Sinopec Corp., a number of
internal transactions are being conducted every year. After the
restructuring and the listing of the shares of Sinopec Corp. on the Hong
Kong Stock Exchange, a number of transactions conducted or to be conducted
between the Company and the Sinopec Group Company and/or its associates
will constitute continuing connected transactions under the HK Listing
Rules.
The Continuing Connected Transactions of the Company are conducted in the
ordinary and usual course of business of the Company. Such transactions
will continue to be conducted on an arm's length basis and on terms that
are fair and reasonable to the Company. Owing to the long-term
co-operation relationship between the Company and the Sinopec Group and
the advantages, good reputation and gigantic scale of the Sinopec Group in
various aspects, the Board is of the opinion that the entering into of
such transactions on an continuing basis is essential to the continuation
of Sinopec Corp's business and will be beneficial to the Company as the
Continuing Connected Transactions facilitate and will facilitate the
business operation and growth of the Company and reduce the unnecessary
risks which might incur during the course of operation.
3. BOARD OF DIRECTORS
The Board considers that the terms of each of the Continuing Connected
Transactions are based on normal commercial terms, are fair and reasonable
to its Independent Shareholders and are in the interests of Sinopec Corp.
and the shareholders as a whole. According to the requirements of the HK
Listing Rules, the independent Directors of Sinopec Corp. will advise the
Independent Shareholders of Sinopec Corp. in connection with the Major
Continuing Connected Transactions, the new caps for the Major Continuing
Connected Transactions and the Agreement Amendments. ICEA, an independent
financial adviser, has been appointed to advise the independent Directors
in respect of the fairness and reasonableness of the Major Continuing
Connected Transactions, the new caps for the Major Continuing Connected
Transactions and the Agreement Amendments. The independent financial
advisers will also advise on the duration of the Land Use Rights Leasing
Agreement, the Properties Leasing Agreement and the SPI Fund Document in
accordance with rule 14A.35(1) of the HK Listing Rules.
4. GENERAL INFORMATION
The principal operations of Sinopec Corp. and its subsidiaries include:
exploring for and developing, producing and trading crude oil and natural
gas; processing crude oil into refined oil products, producing refined oil
products and trading, transporting, distributing and marketing refined oil
products; producing, distributing and trading chemical products.
The business scope of the Sinopec Group Company covers: industrial
investments and investment management; exploration and development,
production and construction, storage and transportation and sale of
petroleum and natural gas resources; the wholesale of gasoline, kerosene
and diesel; production, storage and transportation and sale of
petrochemical and related products; the design, implementation and
construction of petroleum and petrochemical installations; maintenance and
repair of petroleum and petrochemical installations; the research,
development, implementation and related consulting services of technology;
IT and energy substitute products; and the import and export of
self-produced products and third parties' products and technologies (other
than those prohibited by the state).
5. AGREEMENT AMENDMENTS
Rule 14A.35 of the HK Listing Rules provides that the duration of
continuing connected transactions should generally be no more than 3
years. Accordingly, Sinopec Corp. and Sinopec Group Company have entered
into the Continuing Connected Transactions Supplemental Agreement under
which the duration of the Mutual Supply Agreement and the Community
Services Agreement will be reduced to 3 years commencing from 1 January
2007. Incidentally, the parties have agreed to include the sourcing of
crude oil and natural gas, including crude oil and natural gas from
overseas, as one of the products and services to be provided by the
Sinopec Group under the Mutual Supply Agreement.
Under rule 14A.36 of the HK Listing Rules, the above amendments relating
to the Mutual Supply Agreement (ie. the Agreement Amendments) will be
subject to the approval of the Independent Shareholders.
6. DEFINITIONS
In this announcement, the following expressions have the meanings set out
below unless otherwise indicated in the context:
"Agency Agreement" the agency agreement dated 3 June 2000
regarding the appointment of Sinopec
Corp. as the exclusive sales agent of the
Sinopec Group ethylene enterprises
(as amended);
"Agreement Amendments" means the amendment of the
term of the Mutual Supply Agreement to 3
years commencing from 1 January 2007 and
the addition of sourcing of crude oil and
natural gas, including crude oil and
natural gas from overseas, as one of the
products and services to be provided by
the Sinopec Group under the Mutual Supply
Agreement;
"associates" has the meaning ascribed to it in the HK
Listing Rules;
"Board" the board of directors of Sinopec Corp.;
"Community Services
Agreement" the community services agreement dated 3
June 2000 and the supplemental agreement
dated 26 September 2000 (as amended by the
Continuing Connected Transactions
Supplemental Agreement) regarding the
provision of, inter alia, certain
cultural, educational, hygiene and
community services by the Sinopec Group to
the Company;
"Company" Sinopec Corp. and its subsidiaries;
"Computer Software the computer software licence agreement
Licence Agreement" dated 3 June 2000 regarding the granting
of licence by the Sinopec Group to the
Company to use certain computer software
of the Sinopec Group;
"Continuing Connected the transactions under the Exempted
Transactions" Continuing Connected Transactions, the
Non-Major Continuing Connected
Transactions and the Major Continuing
Connected Transactions;
"Continuing Connected the agreement dated 31 March 2006 entered
Transactions Supplemental into between Sinopec Corp. (for itself and
Agreement" on behalf of its subsidiaries) and the
Sinopec Group Company (foritself and on
behalf of the members of the Sinopec
Group) regarding the amendments of the
terms of the Continuing Connected
Transactions;
"Directors" the directors of Sinopec Corp.;
"Exempted Continuing the transactions contemplated under the
Connected Transactions" Intellectual Property Licence Agreement;
"General Meeting" the general meeting of Sinopec Corp. to be
held for Independent Shareholders of
Sinopec Corp. to consider and to approve
the Agreement Amendments, the Major
Continuing Connected Transactions, the
Non-Major Continuing Connected
Transactions and the caps for the Major
Continuing Connected Transactions;
"HK Listing Rules" the Rules Governing the Listing of
Securities on the Stock Exchange;
"Independent Shareholders" the shareholders of Sinopec Corp. other
than Sinopec Group Company and its
associates;
"Intellectual Property the Trademarks Licence Agreement, the
Licence Agreements" Computer Software Licence Agreement and
the Patents and Proprietary Technology
Licence Agreement;
"ICEA" ICEA Capital Limited, a corporation
licensed under the Securities and Futures
Ordinance to carry out Type 1 regulated
activities (dealing in securities) and
Type 6 regulated activities (advising on
corporate finance);
"Land Use Rights the land use rights leasing agreement
Leasing Agreement" dated 3 June 2000 (as amended) regarding
the leasing of certain land use rights by
the Sinopec Group to the Company;
"Land Use Rights Leasing the land use rights leasing agreement
(Additional) Agreement" dated 22 August 2003 regarding the leasing
of certain land use rights by the Sinopec
Group to the Company;
"Major Continuing the transactions relating to the sales and
Connected Transactions" purchases of the products and services
under the Mutual Supply Agreement;
"Mutual Supply Agreement" the mutual supply agreement dated 3 June
2000 and the supplemental agreement dated
26 September 2000 (as amended) regarding
the provision of a range of products and
services from time to time (1) by the
Sinopec Group to the Company; and (2) by
the Company to the Sinopec Group;
"Non-Major Continuing the transactions relating to the desposit
Connected Transactions" of money under the Mutual Supply
Agreement, the SPI Fund Document, the Land
Use Rights Leasing Agreement, the
Community Services Agreement and the
Properties Leasing Agreement;
"Patents and Proprietary the patents and proprietary technology
Technology Licence licence agreement dated 3 June 2000
Agreement" regarding the granting of licence by the
Sinopec Group to the Company to use
certain patents and proprietary technology
of the Sinopec Group;
"Properties Leasing the properties leasing agreement dated 3
Agreement" June 2000 (as amended) regarding the
leasing of certain properties by the
Sinopec Group to the Company;
"RMB" the lawful currency of the People's
Republic of China;
"Shanghai Stock Exchange" the Stock Exchange of Shanghai;
"Sinopec Corp." China Petroleum & Chemical Corporation, a
joint stock limited company incorporated
in the PRC with limited liability;
"Sinopec Group" Sinopec Group Company and its subsidiaries
(other than the Company);
"Sinopec Group Company" China Petrochemical Corporation, being the
controlling shareholder of Sinopec Corp.;
"SPI Fund Document" a document jointly issued in 1997 by the
Ministry of Finance and the ministerial
level enterprise of the Sinopec Group
Company and its associates before the
industry reorganisation in 1998 (Cai Gong
Zi [1997] No. 268) relating to the payment
of insurance premium by Sinopec Corp. to
the Sinopec Group Company. Under the SPI
Fund Document, Sinopec Corp. is required
to pay twice a year an insurance premium.
Each time Sinopec Corp. shall pay 0.2% of
the historical value of the fixed assets
and the average month-end inventory value
of the Company of the previous six months;
after the Sinopec Group Company has
received the premium from Sinopec Corp.,
the Sinopec Group Company will refund 20%
of the paid premium to Sinopec Corp. if
Sinopec Corp. pays the semi-annual premium
on time according to the SPI Fund Document
("Refund"). The Refund would be 17% of the
paid premium if Sinopec Corp. failed to
pay the semi-annual premium on time. The
Refund shall be used by Sinopec Corp. in
the following manner: 60% shall be used in
dealing with accidents and potential risks
and safety measures; 20% shall be used in
safety education and training and 20%
shall be used in preventing major
accidents and potential risks and as
awards to units and individuals who have
made a special contribution to safety
production;
"Stock Exchange" The Stock Exchange of Hong Kong Limited;
Agreement" "Trademarks Licence the trademarks licence
agreement dated 3 June 2000 regarding the
granting of licence by the Sinopec Group
to the Company to use certain trademarks
of the Sinopec Group.
By Order of the Board
CHINA PETROLEUM & CHEMICAL CORPORATION
CHEN GE
Secretary to the Board of Directors
Beijing, PRC, 31 March 2006
As at the date of this announcement, the directors of Sinopec Corp. are Messrs.
Chen Tonghai, Wang Jiming, Mou Shuling, Zhang Jiaren, Cao Xianghong, Liu
Genyuan, Gao Jian and Fan Yifei; the independent non-executive directors of the
Company are Messrs. Chen Qingtai, Ho Tsu Kwok Charles, Shi Wanpeng and Zhang
Youcai; and the employee representative director of the Company is Mr. Cao
Yaofeng.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
China Petroleum & Chemical Corporation
By: /s/ Chen Ge
------------
Name: Chen Ge
Title: Secretary to the Board of Directors
Date: April 3, 2006