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SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO LTD

VIEWS: 18 PAGES: 57

									   SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO LTD
               2006’S ANNUAL REPORT



Important Notes:

   1. The directors, supervisors and senior managers guarantee that there exist
      no omission, misstatement, or misleading information in this annual
      report. The directors, supervisors and senior managers are responsible,
      individually and jointly, for the authenticity, accuracy and integrity of the
      information herein. There is no director, supervisor or senior manager
      who cannot guarantee the authenticity, accuracy and integrity of the
      content of this annual reportor does not agree with this report. The
      independent director, Mr. Lin Zhijun and Mr. Bai Youzhong were absent
      of the meeting for other business and authorized the independent director,
      Mr. Tian Rugeng to vote on behalf of them.

   2. The Annual Report is written in both English and Chinese. In case of
      conflict between the two versions, Chinese version shall prevail.

   3. PricewaterhouseCoopers presented audit reports with standard and
      non-reserved opinion for the Company.

   4. Dr. Fu Yuning, the Chairman of the Board, Mr. Huang Fanzhi, the
      Financial Controller, and Ms. Yu Zhongxia, the Financial Manager,
      guarantee the authenticity and integrity of the financial result of this
      annual report.




                                        1
                                         Catalogue



PART I.      Company Profile                                          3

PART II.     Highlights for Accounting and Business Data              4

PART III.    Change for Contributed Capital and Shareholders          6

PART IV.     Information of Directors, Supervisors, Senior Managers   9

PART V.      Corporate Governance                                     11

PART VI.     Review of Shareholder’ General Meetings                  13

PART VII.    The Board Report                                         14

PART VIII.   The Supervisory Committee Report                         18

PART IX.     Significant Events                                       19

PART X.      Financial Statements                                     20

PART XI.     Documents Available for Verification                     20




                                               2
PART I. Company Profile:


Name of the Company            Shenzhen Chiwan Petroleum Supply Base Co., Ltd (“Chiwan Base”)
Legal Representative           Dr. Fu Yuning
Secretary of the Board         Mr. Fu Jialin
Securities Representative      Mr. Song Tao
                               Tel                     26694211       Fax          26694227
                               E-mail Address           sa@chiwanbase.com
Office Address                 14/F, Chiwan Petroleum Building, Chiwan, Nanshan District,
                               Shenzhen, PRC
Post Code                      518068
E-mail Address                 sa@chiwanbase.com
Website of the Company
Designated Newspapers for      “Securities Times”,   ”Wen Wei Po”
Information Disclosure
Website for Publishing the     http://www.cninfo.com.cn
Annual Report
Place where the Annual         Secretary Department of Chiwan Base
Report is available
Stock Exchange                 Shenzhen Stock Exchange
Stock Series                   Chiwan Base -B
Stock Code                     200053
Date of Initial Registration   24th July 1995
Initial Registration Address   Industry and Commerce Administration Bureau of Shenzhen,
                               Guangdong, PRC
Registration Number for        QGYSZZ No. 101031
Business License
Number of Taxation             440301618833899 (N)
Registration
                               440305618833899 (L)
Domestic Certified Public      PricewaterhouseCoopers
Accountants
International Certified        PricewaterhouseCoopers
Public Accountants




                                                3
   PART II. Highlights of the Accounting and Business Data


   I.        Accounting Data
                                                                                              (Unit: RMB)
                                   2006                   2005             Increase(%)               2004
        Revenue                    194,705,759            164,468,106                18.39           156,545,213
          EBIT                     146,006,434            124,452,763                17.32           110,361,332
       Net profit                  136,256,670            114,725,739                18.77           100,412,034
Net profit after deducting
non-recurring gains and            136,552,196            114,760,316                18.99           98,599,229
          losses
  Net cash flows from
                                   107,725,133            107,404,321                 0.30           99,392,759
  operating activities
                               2006 year-end       2005 year-end           Increase(%)         2004 year-end
      Total assets               1,280,440,102         942,236,964                   35.89         843,030,599
  Shareholders’ equity
  (minorities’ equity              810,364,166            736,757,774                 9.99          672,238,052
      excluded)

   The impact of IFRS adjustments on the PRC statutory financial statements are as follows:
                                                                                        (Unit: RMB)
                         As per the PRC statutory financial
                                                                             As per the IFRS
                                     statements
     Shareholders’
                                                   810,256,670                                814,177,465
         equity
        Net profit                                 136,256,670                                139,493,883
     Explanation on
                              Differences between IFRS & PRC statutory financial statements
      Differences



   II. Main Financial Indices
                                                                                             (Unit: RMB)
                                       2006                 2005           Increase(%)            2004
        Earnings per share                    0.591                0.498            18.67              0.435
        Earnings per share*                   0.591                0.498                -              0.435
       Return on equity (%)                   16.81                15.57             7.96             14.937
       Return on equity after
    deducting of non-recurring                16.85                15.58             8.15             14.667
         gains & loses (%)
     Net cash flows per share
                                              0.467                0.466             0.21                0.431
     from operating activities
                                   2006 year-end      2005 year-end        Increase(%)       2004 year-end
        Shareholders’ equity per
                                              3.514                3.195             9.98                2.915
                  share
        Shareholders’ equity per
                                              3.507                3.191             9.90                2.911
         share after adjustment




                                                      4
      Note: Items included in the non-recurring gains & losses
                                                                                                                   RMB
           1. Loss from disposal of fixed assets(minus: revenue)                                                260,395
           2. Revenue from other non-operating activities                                                       -23,301
           3. Cost of other non-operating activities                                                             64,632
           4. Variance on Income tax from non-operating profit                                                   -6,200
           Total                                                                                                295,526


      III. Accessories of Profit & Loss Statement in 2006

            The hereby ROE and EPS were calculated in accordance with the requirement of
            “Regulation (9th) of Compilation and Report of Information Disclosure for Company
            Distributing Securities to the Public” issued by China Securities Regulatory Commission.


                                       2006                                               2005
           Item                ROE (%)              EPS (RMB)                     ROE (%)               EPS (RMB)
                           Fully Weighted          Basic  Dilute              Fully Weighted           Basic  Dilute
                          diluted average          EPS     EPS               diluted average           EPS     EPS
   Net profit               16.81       17.50        0.59           0.59       15.57         16.19      0.50          0.50

   Net profit after
   deducting
   non-recurring            16.85       17.54        0.59           0.59       15.58         16.19      0.50          0.50
   gains and losses



      IV. Change of Shareholders’ Equity
                                                                                                           (Unit: RMB)
                                                                                        Discretional
              Contributed        Capital                                                                Retained
   Item                                        Statutory surplus      Statutory           Surplus                      Equity
                capital         Reserves                                                                Earnings
                                                   Reserve            Welfares           Reserves
Year-begin        230,600,000    210,656,111           70,402,777          29,465,101      34,923,505 160,710,280 736,757,774

Increase                            448,879            43,090,768                            5,736,287 136,256,670 136,705,549

Decrease                                                                   29,465,101                    82,461,111    63,099,157

Year-end          230,600,000    211,104,990          113,493,545                          40,659,792 214,505,839 810,364,166

 Reasons of change:
1. The increment of Statutory Surplus Reserve were drawn in accordance with the company’s Articl
   e of Association. Statutory Surplus Reserves is 10% of the net profit. Discretional Surplus Reserve
   s is calculated as 5% of the net profit of last year.
2. The increase of Capital Reserves is caused by purchasing 10% equity of Chiwan Logistic.
3. The increase of Retained Earnings is the company’s undistributed net profit realized this year.




                                                              5
        PART III. Change of Contributed Capital and Particulars about Shareholders

        I. Changes for Contributed Capital:
              Illustration for Change of Contributed Capital:
                                                                                          (Unit: share)
                                                              Change in number of shares
                                     Before                         Conversion of                       After
                                     change          Share Bonus
                                                                       reserves    Others Subtotal     change
                                                   allotment shares
                                                                       to shares

1. Nontradable shares
a. Promotors’ shares including
  State owned shares
  Ownership by Domestic
   legal entities                    119,420,000                                                     119,420,000
  Ownership by Foreign
  legal entities

              Others
b. Shares raised from legal
     entities
c. Employee’s shares
d. Preferred shares
Total                                119,420,000                                                     119,420,000

2. Tradable shares
a. A shares
b. B shares                          111,180,000                                                     111,180,000
c. Shares traded in Overseas’
     Market
d. Others
Total                                111,180,000                                                     111,180,000

         3. Total of shares          230,600,000                                                     230,600,000



        II. Share Issue and List:

        The Company issued, at the par value of RMB 1.00 per share, a total number of 230.6 million
        shares of common B shares in June 1995, according to the approval of Shenzhen Securities and
        Exchange Commission. The total shares include 119.42 million non-tradable A shares, 51.18
        million non-tradable B-shares for foreign promoters, and 60 million public traded B-shares for
        ordinary investors. The public traded B shares were issued on June 23rd, 1995 at a price of
        HK$2.82 per and the fully diluted P/E of 10.5. The B shares became public listed on July 28th,
        1995.

        The Company haven’t issued any employees’ shares ever since.

        The number and the frame of the Company’s shares remained unchanged this year.


                                                          6
     III. Particulars about Shareholders

                                                                                    (December 31, 2006)
Total number of shareholders                                            9,351
Holding information of top ten shareholders
                                                           Ratio                   Un-tradable Impawned or
Name(full name)                           Character                   Shares
                                                           (%)                        shares     frozen
CHINA NANSHAN DEVELOPMENT        Domestic legal
(GROUP) INCORPORATION                                       51.79 119,420,000        119,420,000         0
                                  entity owned
OFFSHORE JOINT SERVICES(BASES) Foreign investment
CO. OF SGP. PTE LTD                                         22.19    51,180,000                  0       0
                                   shareholder
GOLDMAN SACHS INTL                   Other                    1.02    2,344,880                  0   Unknown
GUOTAI JUNAN SECURIES HONG KONG
                                     Other                    0.67    1,546,102                  0   Unknown
LIMITED
ZHONGXIN CAPITAL AND SECURITIES                               0.57                               0
                                     Other                            1,307,725                      Unknown
 CO LTD
ABN AMRO BANK NV                             Other            0.32       728,545                 0   Unknown
HE JING LIN                                  Other            0.26       588,500                 0   Unknown
SHANGHAI NO1 SECURITIES CO LTD               Other            0.21       491,250                 0   Unknown
BNP PARIBAS PRIVATE BANK                                      0.21                               0
                                            Other                        483,000                     Unknown
SINGAPORE BRANCH
WANG MEI LAN                                Other             0.19       440,190                 0   Unknown
Holding information of top ten tradable shareholders
Name(full name)                                         shares               Type(A、B、H or other)
OFFSHORE JOINT SERVICES(BASES) CO. OF
SGP. PTE LTD                                                  51,180,000                     B
GOLDMAN SACHS INTL                                               2,344,880                   B
GUOTAI JUNAN SECURIES HONG KONG
                                                                 1,546,102                   B
LIMITED
ZHONGXIN CAPITAL AND SECURITIES CO
                                                                 1,307,725                   B
 LTD
ABN AMRO BANK NV                                                   728,545                   B
HE JING LIN                                                        588,500                   B
SHANGHAI NO1 SECURITIES CO LTD                                     491,250                   B
BNP PARIBAS PRIVATE BANK SINGAPORE
                                                                   483,000                   B
BRANCH
WANG MEI LAN                                                        440,190                    B
MORGAN STANLEY INT'L (CHINA) -FIRM                                  393,000                    B
                                                 Among the top ten shareholders, the domestic legal entity
                                            shareholder China Nanshan Development (Group) Incorporation
                                            has no affiliated relations with other shareholders and does not fall
Explanation for the Affiliated Relations or
                                            into the scope of united action person stipulated by “Regulation of
United Action of the Top Ten Shareholders
                                            Information Disclosure of the Change of Shareholding of listed
                                            company”. It is unknown that whether other tradable-share
                                            shareholders fall into the scope of united action person.




                                                       7
IV. Profiles of Major Legal Entity Shareholders

4.1) China Nanshan Development (Group) Incorporation (CNDI)
     Legal representative: Fu Yuning
     Date of registration: October 1982
     Registered Capital: RMB500,000,000
     Business scope: land development; port transportation, industrial, commercial, real estate and
                       tourism; customs bonded warehouses business; etc.
4.2) Substantial Controller of Holding Shareholder
     Being the holding shareholder of CNDI, China Merchants (NanShan) Holdings Ltd holds
     37.01% equity in CNDI. China Merchants Holdings (International) Co, Ltd.(CMHI), which
     was listed on Hong Kong Exchange, indirectly or directly hold 100% shares of China
     Merchants (Nanashan) Holdings Ltd. Basic introduction about CMHI is presented as
     follows:
     Legal representative: Fu Yuning
     Date of registration: May 28, 1991
     Registered Capital: HKD300,000,000
     Business Scope: Port and port-related business, infrastructure construction and industrial
     production.


4.3) Controlling graph

                          State-Owned Assets Supervisory and Administration Commission
                            mmission
                                                              100%

                                                China Merchants Group

                                                                 53.63%


                                   China Merchants Holdings (International) Co Ltd

                                                                 100%

                                         China Merchants (Nanshan) Holdings
                                                        Ltd
                                                             37.01%

                                China Nanshan Development (Group) Incorporation


                                                               51.79%

                                      Shenzhen Chiwan Petroleum Supply Base Co., Ltd




4.4) Other shareholders with shares of 10% or above :      OFFSHORE JOINT SERVICES (BASES)
                                                           COMPANY OF SINGAPORE PTE LTD
Legal representative: Mr. Koh Soo Keong
Business scope: investing in the companies engaged on offshore oil supply services.



                                                   8
PART IV. Information of Directors, Supervisors and Senior Managers

I. Brief information

            Name                    Position       Gender   Age      Office Term
Fu Yuning              Chairman                     male    50    2004.5—2007.5
Koh Soo Keong          Vice Chairman                male    56    2004.5—2007.5
Han Guimao             Executive Director           male    56    2004.5—2007.5
Fong Yue Kwong         Director                     male    54    2004.5—2007.5
Wang Fen               Director                    female   52    2004.5—2007.5
Liu Fu                 Director                     male    60    2004.5—2007.5
Lin Zhijun             Independent Director         male    52    2004.5—2007.5
Bai Youzhong           Independent Director         male    66    2004.5—2007.5
Tian Rugeng            Independent Director         male    71    2004.5—2007.5

Zhong Jingshen         Convener of the              male    60    2004.5—2007.5
                       Supervisor Committee
Ong Lee Keang          Supervisor                  female   52    2004.5—2006.9
Xiang Qingsheng        Supervisor                   male    60    2004.9—2007.5
Fan Zhaoping           Supervisor                   male    53    2004.5—2007.5
Zhang Xiang            Employee Supervisor          male    42    2004.5—2007.5
Liu Bojiang            Employee Supiervisor         male    60    2004.5—2007.5
Cui Wei                Administrative Deputy GM     male    50    2002.5—2007.5

Huang Fanzhi           Deputy GM & Financial        male    39    2005.12-2007.5
                       Controller
Huang Dong Er          Deputy GM                    male    56    2002.5—2007.5
Ren Yongping           Deputy GM                    male    54    2004.4—2007.5
Fu Jialin              Board Secretary              male    45    2002.5—2007.5




                                               9
         Brief information (continued)
                                                                            Whether receiving
                        Shares held Shares held            Total
                                                                            remuneration from
         Name             at the      at the            remuneration
                                                                           shareholder or other
                        year-begin year-end             (RMB’0000)
                                                                            relative companies
Fu Yuning                     0            0                                        Yes

Koh Soo Keong                 0            0                                       Yes

Han Guimao                 10000         10000                                     Yes

Fong Yue Kwong                0            0                                       Yes

Wang Fen                   10000         10000                                     Yes

Liu Fu                        0            0                                       Yes

Lin Zhijun                    0            0                6.00                    No

Bai Youzhong                  0            0                6.00                    No

Tian Rugeng                   0            0                6.00                    No

Zhong Jingshen                0            0                                       Yes

Ong Lee Keang                 0            0                                       Yes

Xiang Qingsheng               0            0                                       Yes

Fan Zhaoping               11600         11600                                     Yes

Zhang Xiang                   0            0               19.64                    No

Liu Bojiang                   0            0               16.22                    No

Cui Wei                       0            0               49.40                    No

Huang Fanzhi                  0            0               37.50                    No

Huang Dong Er                 0            0               37.00                    No

Ren Yongping               10000         10000             37.00                    No

Fu Jialin                     0            0               26.00                    No

Total                      41600         41600             240.76                    -




  Note:       Seven of above directors or supervisors hold posts in CNDI, one of above supervisors
              or senior managers hold posts in subsidiaries, details as follows:
                Dr. Fu Yuning as the Chairman since Dec. 1998;
                Mdm. Wang Fen as the President since March 2002;
                Mr. Liu Fu as the Vice Chairman since May 2003;
                Mr. Han Guimao as the Senior Vice President since March 2002;
                Mr. Zhong Jingshen as the Vice Chairman since Aug. 2000;
                Mr. Xiang Qingsheng as the Director since Aug 2004;

                                                   10
         Mr. Fan Zhaoping as the Senior Vice President since Dec. 1998.
          Mr. Zhang Xiang as Deputy GM, General Manager of Guangzhou Baowan Logistic
          Co Ltd since Jun. 2005.


II. Annual Salary of Directors, Supervisor and Senior Managers

1) Decision Procedure and Basis
     Salary standard of the Company was decided and approved by the Board of Directors.
Three independent directors, two employee supervisors and all senior executives draw their
salaries, bonuses and other welfares from the Company, while others including Fu Yuning, Koh
Soo Keong, Fong Yue Kwong, Wang Fen, Han Guimao, Liu Fu ,Xiang Qingsheng , Zhong
Jingshen, Ong Lee Keang and Fan Zhaoping, draw the pay from their respective shareholder
party instead of the Company.

2) Changes of directors, supervisors and senior managers
    Mdm Ong Lee Keang had resigned as Supervisor of the 4th Supervisory Committee on Sep.
2006 for her job change.

III. Information of Other Employees:

    As on Dec. 31, 2006, the Company has a staff of 463, including 182 labour engaging in
production, 235 clerk in accounting, administration and other department, 46 in management.


PART V. Corporate Governance

The Company strictly implements the PRC Company Law, the Securities Law and other laws,
and regulations issued by the CSRC; continuously improves the legal person administration
system, makes every effort to build modern enterprise system and regulates its operation.
According to “Administration Guideline for listed Company”, the Board of Directors explained
the practice situation of the legal person administration of the company as follows:

1)   In aspect of shareholders and shareholders’ general meeting: the company’s administration
     structure can ensure the equal status of all shareholders, especially the minority
     shareholders, and can ensure shareholders fully exercised their legal rights. The convening
     procedure, the qualification of the person attending the meeting and the voting procedure of
     the meeting are in accordance with the stipulation of “Company Law”, “Regulatory
     Opinion for General Meeting of Listed Company”, “Articles of Association”.

2)   In aspect of relations between the control shareholder and the Company: the Company’s
     control shareholders attached importance to the listed company, gave energetic support,
     exercised shareholder’s rights and undertook shareholder’s obligation legally. The
     Company is independent of its control shareholder in terms of business, assets,
     organization, employees and finance. The Company undertakes responsibilities and risks
     independently.

3)   In aspect of directors and Board of Directors: the Company elects directors strictly in line
     with the election procedure as regulated in the Articles of Association of the Company. The
     AOA stipulates that accumulative total voting system should be used in the Board election.
     All the directors shall exercise their duties loyally, bona fide and diligently. Both the
     number of directors and composition of the Board shall comply with relevant laws and
     regulations. The Company has established the independent director system, employed three
     independent directors taking charge of the special committee of the Board in accordance
                                               11
       with the requirements of the CSRC and the Shenzhen Securities Regulatory Office.

4)     In aspect of supervisors and Supervisory Committee: Both the election of the Company’s
       shareholder supervisors and employee supervisors shall comply with relevant laws and
       regulations. The member and the composition of the Supervisory Committee can ensure the
       Supervisory Committee to supervise and inspect directors, senior managers and the finance
       of the Company independently and efficiently. The Supervisory Committee stipulates Rules
       of Procedure of the Supervisory Committee. The meeting of the Supervisory Committee
       shall comply with the stipulated procedure.

5)     In aspect of person having correlative benefit: the company respects the legal rights of
       banks and other creditors, employees, consumers, suppliers, communities and other persons
       who have correlative benefit. The company shall cooperate actively with them so as to
       achieve continuous and healthy development.

6)     In aspect of information disclosure and transparency: The Company stipulates the
       regulation of information disclosure and authorizes the secretary of the Board and the
       authorized representative to take charge of securities affairs and information disclosure, and
       also to welcome the visit and inquiry of the shareholders. The Company discloses the
       relevant information in a real, accurate, complete and timely way strictly according to the
       law, regulations and the Articles of Association and the Companyensures all the
       shareholders to have equal opportunity in obtaining the information. Moreover, the
       Company timely disclosed the detailed information of the largest shareholder or concrete
       controller and changes in their shareholdings
          According to “Administration Guideline for listed Company”, the Board of Directors
       took the opinion that the practice situation of the Company’s administration is basically in
       accordance with the requirement of “Administration Guide Line for listed Company” after
       improving each systems of the Company according to the requirement of the CSRC’s
       Shenzhen Regional Office.


II. Information of Independent Directors’ Performance

    According to the requirement of the CSRC and Shenzhen Securities Regulatory Office, the
company employed three specialists as independent directors, majored in law, accounting and
professional area of the company. The Company established three special committees of the
Board of Directors and made and improved “Detailed Work Rules of Nomination and Salary
Committee of the Board of Directors”, “Detailed Work Rules of Strategy and Development
Committee the Board of Directors” and “Detailed Work Rules of Audit Committee of the Board
of Directors”.

    During the period under review, in accordance with the requirement of CSRC’s “Guidance
Opinion for Listed Company to Establish of Independent Directors System”,            “Articles of
Association” and “Work System of Independent Director” the Company’s independent directors
exercised their duties, took part in the decision-making of the Company’s importance affairs,
presented independent director’s opinion and fully exerted the function of independent director.
The information of independent directors to attend the directors’ meetings is as follows:

                      The number
                                          The
                      of directors’                 The number of    The number
        Name                           number of                                       Reference
                      meetings to                    authorizing     of absence
                                        presence
                       be present
                                                                                      Abroad for
 Bai Youzhong               8              7               1
                                                                                     other business
      Lin Zhijun            8              8
     Tian Rugeng            8              8
                                                   12
III. The Company is independent of its control shareholder in terms of business, assets,
     organization, employees and finance, and has independent and integrated ability of
     operation and management.

1) In the aspect of operation, the business of the Company is entirely independent of its control
   shareholder. The control shareholder and its subordinate units did not engage in the business
   that are the same or similar to the business of the listed company.
2) In the aspect of employees, the employees of the Company are independent of the control
   shareholder. The senior managements, the leading official of the finance and the secretary of
   the Board do not occupy any position in the control shareholder.
3) In the aspect of assets, the assets invested by the control shareholder is independent,
   integrated and has clear ownership.
4) In the aspect of organization, the Company’s Board of Directors, Supervisory Committee
   and other intern organizations operate independently. There is no affiliated relation between
   the control shareholder and its functional departments and the Company and the Company’s
   functional departments. The control shareholder and its subordinate organization do not give
   any plan and instruction as to the operation to the Company and its subordinate organization
   or intervene the independence of the Company’s management by other means.
5) In the aspect of finance, the Company establishes the regulatory system of finance and
   accounting and make it in accordance with correlative laws and regulations. The control
   shareholder will not intervene the Company’s finance and accounting affairs.


IV. Construction of internal control system

     The existing internal control system has been established. It can meet the requirements of
manufacturing, management and development. It also can meet the requirements of advancing
operation benefit and effectiveness of the Company, ensuring the safety of company assets and
the trueness, integrity and equity of company information. It has supplied strong secure for
carrying out law and internal regulation. The internal control system will be continuously
perfected to follow the company development and the change of laws and regulations. These
systems will be also carried out during the practice.



PART VI. Review of Shareholders’ General Meeting

The Company convened twice shareholders’ general meetings during the period under review,
the details of which are as follows:
1. The annual shareholders’ general meeting for the year 2005 was held on the 14th floor of
Chiwan Petroleum Building, Shenzhen between 10:00-12:00 am on May 16, 2006. The Public
Notice and Legal Opinions were published in Securities Times, Ta Kung Po and
http://www.cninfo.com.cn on May 17, 2006.

2. The first extraordinary shareholders’ general meeting was held on the 14th floor of Chiwan
Petroleum Building, Shenzhen between 10:00-12:00 am on Sep. 25, 2006. The Public Notice
and Legal Opinions were published in Securities Times, Wen Wei Po and
http://www.cninfo.com.cn on Sep. 26, 2006.




                                               13
PART VII. The Board Report
I    Information of Company Business and Financial Highlights


     1.1 Consolidated Major Indicators
     During the reporting period, revenue, net profit, ROE and cash flow generated from operating
activities posted YOY increases of 18.4%, 18.8%, 8% and 0.3% respectively.

     The main reasons of the achievement are as follows: CSE achieved net profit of RMB 232.11
million, which was increased of 35% compared with last year. The project of Shanghai Baowan
Logistic Park (Phase II) had been partly completed in succession, which caused the revenue and net
profit of Shanghai Baowan increase of 38% and 39%. At the end of reporting period, the total bank
loan was RMB 370 million, and financial expenses incurred was RMB 8.57 million. The bank loan
was mainly used to invest on the logistic park.

    1.2 Operation Costs
   The total operation costs for the year 2006 was RMB 105 million, an increase of 21.75% or
RMB 18.83 million as compared with last year.
     The main reasons are as follows: Cost and expense increased due to the operation of the second
phase of Shanghai Baowan and the starting operation of Guangzhou Baowan. Rental expenditure
increased because of the renting of work shops and lands in Chiwan. Salary increased due to the new
business development and increase of staff force.

    1.3 Review of Business Sectors

    Offshore Petroleum Services
    The offshore petroleum logistics registered 9% and 16.9% increases in revenue and net profit to
RMB 133.84 million and RMB 65.11 million respectively when excluding the headquarters’
expenditures. The using rates for the facilities was increased compared with last year.
     Chiwan Logistics: Revenue from Chiwan logistics sector increased by 22.8% to RMB17.34
million comparing with RMB 14.12 million of last year. Net profit jumped to RMB 2.71 million.

    Baowan Logistics Services
     Shanghai Baowan: The construction of the second phase was successful. Revenue of Shanghai
Baowan surged by 38% to RMB 39.32 million and net profit reached RMB 18.51 million, an
increase of 39%.

     Guangzhou Baowan: Starting operation in April of 2006, warehouse was fully used. Revenue
and net profit of 2006 were RMB 4.4 million and 0.92 million respectively.

    Offshore Engineering
    Chiwan Sembawang Engineering: 32% share held by Chiwan Base. Performance of Chiwan
Sembawang continually maintained rapid increase in 2006. Net profit reached RMB 232 million,
35.7% increase comparing with last year. Contribution to Chiwan Base was RMB 74.02 million.

   CPEC: 20% share held by Chiwan Base. Net profit in 2006 was RMB 1.29 million, of which
RMB 0.26 contributed to Chiwan Base.


                                                14
    1.4   Status of the Investment Projects and Construction Progress
     2ND phase of Shanghai Baowan: Eight warehouses (about 80,000 m2) have been constructed
and put in use in 2006. The rest two warehouses (about 17,000 m2) are scheduled to be constructed
and put in use in 2007.
     Guangzhou Baowan: Three warehouses (about 20,000 m2) have been constructed and put in use
in 2006.
     Kunshan Baowan: The warehouses will start to be constructed in 2007, and the construction
will be completed in 2008.
     Tianjin Baowan and Langfang Baowan: The Company was engaging on the prophase of the
projects.

    1.5 Key Tasks of Business of 2007

     Complete the second phase construction of Shanghai Baowan and fully put the warehouses in
use; continue to develop warehouse operation and foster the capability of value added service; Start
the construction of Kunshan project and put part into use; Study and research for new projects;
Ensure the business and operation of all projects.



     1.6 Effects of the Implementation of New Enterprise Accounting Standards
     According to the regulations of Enterprise Accounting Standards, the Company should
implement the new accounting standards from January 1, 2007. The confirmed differences between
the former accounting and the new accounting standards on the first implementation day of the new
standards, namely January 1, 2007 according to the new accounting standards of the Finance
Ministry are as follows.
    (1)Deferred income tax liabilities
    According to the related regulations, the credit balance of deferred tax (RMB4,630,550) is
adjusted to deferred income tax liabilities on Jan 1, 2007. The adjustment shall not influence the
retained earnings, other financial status or performance.
    (2) According to the related regulations on long-term equity investment, equity method shall be
changed to cost method. It shall decrease the influence to investment profit and net profit of the
parent company by the profit of subsidiaries, but it shall not influence the consolidated statements.
    (3) According to the related regulations on investment property,the Company shall choose
historical-costs method continuously, which shall not influence the retained earnings, the financial
status, or performance.
    (4) Other
    All the above and other adjustments shall not influence the retained earnings, they also shall not
influence the future financial statements and operating achievements.




                                                 15
    II. Main Business Statement Categorized by Business
                                                                                 (Unit: RMB’0000)
                      Main Business Statement Categorized by Business
                                     Gross                                      Increase of
                                                  Increase of Increase of cost
  Business      Revenue   Cost    interest rate                                gross interest
                                                revenue(%)        (%)
                                    (%)                                         rate(%)
Operation        7,018.90 2,393.29             65.90               16.77            7.14            4.87

Warehouse       10,806.13 4,180.84             61.31               16.15           15.87            0.15

Office rental    1,645.54      904.25          45.05               45.37           11.07           60.84

    III. Main Business Statement Categorized by District
                                                                                 (Unit: RMB’0000)
         District                  Revenue                      Increase of revenue(%)
        Shenzhen                                   15,107                            11.03
        Shanghai                                    3,923                                  38.13
       Guangzhou                                       440                                     -

    IV. Application of the Proceeds

         The company had invested US$20.5 million raised from stock market in its 1995 floatation in
    the projects approved by AGM. All projects had been completed by the end of 1996 and the results
    of which were disclosed accordingly. There is no application in this reporting period.


    V. Report on the Routine of Board of Directors

    1.Board Meetings and Resolutions

      The Board had held eight meetings in the reporting period.
      1) The 8th tele-communication meeting of the fourth Board of Directors was held by fasimile
      on Jan 23, 2006. The Public Notice was published in Securities Times, Ta Kung Pao and
      http://www.cninfo.com.cn on Feb 7, 2006.

      2) The fifth meeting of the fourth Board of Directors was held on the 16th floor of Chiwan
      Petroleum Building, Shenzhen on April 10, 2006. The Public Notice was published in
      Securities Times, Ta Kung Pao and http://www.cninfo.com.cn on April 14, 2006.

      3) The 9th tele-communication meeting of the fourth Board of Directors was held by facsimile
      on April 24, 2006. The Public Notice was published in Securities Times, Ta Kung Pao and
      http://www.cninfo.com.cn on April 26, 2006.

      4) The 10th tele-communication meeting of the fourth Board of Directors was held by
      facsimile on July 11, 2006. The Public Notice was published in Securities Times, Wen Wei Po
      and    http://www.cninfo.com.cn on July 14, 2006.
                                                  16
  5) The 11th tele-communication meeting of the fourth Board of Directors was held by
  facsimile on August 25, 2006. The Public Notice was published in Securities Times, Wen Wei
  Po and    http://www.cninfo.com.cn on August 29, 2006.

  6) The 12th tele-communication meeting of the fourth Board of Directors was held by
  facsimile on Sep 7, 2006. The Public Notice was published in Securities Times, Wen Wei Po
  and   http://www.cninfo.com.cn on Sep 9, 2006.

  7) The 13th tele-communication meeting of the fourth Board of Directors was held by
  facsimile on Oct 25, 2006. The Public Notice was published in Securities Times, Wen Wei Po
  and   http://www.cninfo.com.cn on Oct 27, 2006.

  8) The sixth meeting of the fourth Board of Directors was held on the 16th floor of Chiwan
  Petroleum Building, Shenzhen on Nov 30, 2006. The meeting examined the business and
  operating achievements and discussed the future development of the Company.

2. Implementation of the Dividend Distribution Plan
    During the year under review, the Company implemented its 2006 dividend distribution
    plan on July 14, 2006: RMB2.7363 cash bonus for each 10-share (tax included). Dividend
    for B shares was converted into HK dollars for distribution.


VI. Dividend Distribution Preplan for the Year 2006
     In accordance with the audited report by PriceWaterhouseCoopers, the Company’s net profit for
the year 2006 is RMB136,256,670. To conform with the Articles of the Company and relevant rules
and regulations of PRC, the Board of Directors would like to propose the dividends distribution plan
as follows:

   (1)Profit Distribution                                                            RMB

    Retained Earning B/F                                                           91,874,836
    Profits available for distribution                                            228,131,506
    Less:    Statutory surplus public reserve        (10%)                         13,625,667
             Discretionary public reserve            (5%)                            6,812,834
             Dividends (tax included)                (50%)                         68,128,335
             The balance                             (35%)                         47,689,834
    Retained profits                                                              139,564,670

      (2)The cash dividend for the year 2006 of RMB2.95 for every ten shares (tax included) or
RMB68,128,335 in total would be paid by the Company and for this purpose the conversion will be
based on the closing rate between HK$ and RMB announced by the People’s Bank of China on the
first working day after the resolution is passed by the AGM.
     The above dividend distribution plan will be carried out after the final approval of the AGM
2006. The Company neither declared interim dividend nor converted any reserves into share capital
in the year of 2006.

                                                17
VII. Estimated Profit Distribution Policy for 2006

The estimated profit distribution policy for the year 2007 is as follows:

(1) The Company will conduct profit distribution once in 2007;
(2) Approximately 40%-60% of net profit realized in 2007 will be distributed as dividend;
(3) The distribution will take the form of cash bonus.


VIII. The Company did not plan to transfer Capital - Reserves into share capital for the
       year 2007.




PART VIII. The Supervisory Committee Report
I. Supervisory Committee Meetings

     Corporation Supervisory Committee convened five meetings in the reporting period.

1)   The fourth meeting of the fourth supervisory committee was held on the 16th floor of Chiwan
     Petroleum Building, Shenzhen, on April 10, 2006. The public notice was published in Securities
     Times, Ta Kung Pao and http://www.cninfo.com.cn on April 14, 2006.

2)   The third tele-communication meeting of the fourth Supervisory Committee was held by
     facsimile on April 24, 2006. The meeting reviewed and approved to sign the written
     examination opinion for the first quarterly report of 2006.

3)   The fourth tele-communication meeting of the fourth Supervisory Committee was held by
     facsimile on August 25, 2006. The meeting reviewed and approved to sign the written
     examination opinion for the interim report of 2006.


4)   The fifth tele-communication meeting of the fourth Supervisory Committee was held by
     facsimile on October 25, 2006. The meeting reviewed and approved to sign the written
     examination opinion for the third quarterly report of 2006.

5)   The fifth meeting of the fourth supervisory committee was held on the 16th floor of Chiwan
     Petroleum Building, Shenzhen, on November 30, 2006. The meeting examined the business
     and operating achievements and discussed the future development of the Company.


II. Opinions Formed by the Supervisory Committee as to the Company’s operation
    in the Reporting Period as follows:

1)   The Company’s decision procedures were both healthy and lawful. The Company’s
     management systems and internal control procedures were in place. The meeting also
     confirmed that neither the directors nor senior managers had acted in contravention of the
     laws, regulations, Articles of Association or detrimental to the interest of the company.

2)   The Supervisory Committee carefully reviewed the financial report of the company and
     confirmed that the company was in good financial situation. The meeting further confirmed
     that the audit report prepared by the independent auditors PricewaterhouseCoopers gave a
                                                18
     true and fair presentation of the Company’s financial performance by offering clear opinion
     in the audit report for the year 2006.

3)   In 2006 the Company did not raise capital or engage in any acquisition and disposal of the
     Company’s assets.

4)   All the affiliated transactions in 2006 were conducted in market principle and the
     Company’s interests were safeguarded.


PART IX. Significant Events

1)   The Company did not experience any significant lawsuit or arbitration in the reporting year.

2)   During the reporting period, neither the director nor the senior manager was fined or
     penalized by Securities Supervisory and Administration Authorities of PRC.

3)   The Annual Shareholders’ General Meeting of the year 2006 was held on May 16, 2006.
     The meeting reviewed and approved the resolution of: “Resolution on the project of Tianjin
     Baowan Logistic Center”. The further information was published in Securities Times, Ta
     Kung Pao and http://www.cninfo.com.cn on February 7, 2006.

4)   The first extraordinary shareholders’ meeting of the year 2006 was held on September 25,
     2006. The meeting reviewed and approved the resolution of: “Resolution on the project of
     Langfang Baowan Logistic Center”. The further information was published in Securities
     Times, Wen Wei Po and http://www.cninfo.com.cn on July 14, 2006.

5)   The first extraordinary shareholders’ meeting of the year 2006 was held on September 25,
     2006. The meeting reviewed and approved the resolution of: “Resolution on the project of
     Kunshan Baowan Logistic Center”. The further information was published in Securities
     Times, Wen Wei Po and http://www.cninfo.com.cn on July 14, 2006.

6)   The Annual Shareholders’ General Meeting of the year 2006 was held on May 16, 2006.
     The meeting reviewed and approved the resolution on the Transaction of Land with
     Relative Party. The further information was published in Securities Times, Ta Kung Pao
     and http://www.cninfo.com.cn on April 14, 2006.

7)   The eleventh tele-communication meeting of the fourth board of directors was held on
     August 25, 2006. The meeting reviewed and approved the resolution on the Acquisition of
     the 10% Equity Shenzhen Chiwan Logistic co., ltd with Relative Party. The further
     information was published in Securities Times, Wen Wei Po and
     http://www.cninfo.com.cn on August 29, 2006.

8)   The eleventh tele-communication meeting of the fourth board of directors was held on
     August 25, 2006. The meeting reviewed and approved the resolution on the Financing of
     RMB230 million with Relative Party. The further information was published in Securities
     Times, Wen Wei Po and http://www.cninfo.com.cn on August 29, 2006.

9)   The Company paid RMB670,000 to PricewaterhouseCoopers, the accounting firm has
     provided auditing services for twelve years continually since the company listed.

10) The Company maintained its autonomy in personnel and financial management and
    possesses integrated assets.

11) The Company did not entrust, contract or lease other company’s assets or was entrusted,
                                               19
    contracted or leased with its own assets.

12) There were neither other significant contract signed nor significant guarantee event
    happened in the reporting year.

13) There were no change in the Company’s name or stock’s short form in the reporting period.

14) On June 23, 2006, the Notice was published for the changing of oversea disclosure
    newspaper from Ta Kung Pao to Wen Wei Po.

15) Reception, investigation and interview situation of company during report period
    According to pertinent regulations of listed company information disclosures direct of
    Shenzhen bourse and Working system in management of investor relation of company, we
    always carry out the principle of equity, justice and publicity when receiving, investing,
    interviewing and developing activities to fair play total investors, guarantee all investors
    enjoying right to learn the truth and other lawful rights and interests, to introduce and
    reflect practical situation of the company objectively, really and insider dealing.

16) During the reporting period, the Company made all necessary disclosures. No significant
    events that should be disclosed were missing.


PART X.        Financial Statements(Attached)

Audited by PWC according to IFRS



PART XI. Documents Available for Verification:
1. Original copy of Annual Report carrying the signature of the Chairman;
2. Original copy of Auditor’s Statements sealed by CPA and signed by registered accountants;
3. Original copy and press release of all the documents disclosed in 2006 in the newspapers
    specified by the China Securities Regulatory Commission;
4. Articles of Association;
5. Other related documents.




Chairman of the Board:     Dr Fu Yuning


Shenzhen Chiwan Petroleum Supply Base Co., Ltd.




Dated: 20th April 2007




                                                20
SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

INDEPENDENT AUDITORS’ REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2006




Contents


Independent auditors‟ report



Consolidated balance sheet



Consolidated income statement



Consolidated statement of changes in equity



Consolidated cash flow statement



Notes to the consolidated financial statements




                                                 21
                                                                                                     PricewaterhouseCoopers
                                                                                                     22/F, Prince's Building
                                                                                                     Central, Hong Kong
                                                                                                     Telephone (852) 2289 8888
                                                                                                     Facsimile (852) 2810 9888
                                                                                                     www.pwchk.com

                                  INDEPENDENT AUDITORS’ REPORT


TO THE BOARD OF DIRECTORS OF
SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.
(Incorporated as a joint stock limited company in the People‟s Republic of China)

Report on the financial statements

We have audited the accompanying consolidated financial statements of Shenzhen Chiwan Petroleum
Supply Base Co., Ltd. (the “Company”) and its subsidiaries (together the “Group”) which comprise the
consolidated balance sheet as of 31 December 2006 and the consolidated income statement, consolidated
statement of changes in equity and consolidated cash flow statement for the year then ended and a
summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards. This responsibility includes:
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; selecting and
applying appropriate accounting policies; and making accounting estimates that are reasonable in the
circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We do not assume responsibility towards or accept liability to any other person for the contents of this report.
We conducted our audit in accordance with International Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditors‟ 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

In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial
position of the Group as of 31 December 2006, and of its financial performance and its cash flows for the
year then ended in accordance with International Financial Reporting Standards.




[18 April], 2007

                                                      22
SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

CONSOLIDATED BALANCE SHEET
(All amounts in Rmb unless otherwise stated)



                                                                2006           2005
ASSETS

Non-current assets
 Property, plant and equipment                            147,601,125   106,248,612
 Investment property                                      293,445,203   210,600,874
 Leasehold land                                           234,412,807   111,969,436
 Progress payments for leasehold land                      29,423,683    94,620,826
 Construction in progress                                   1,357,288    84,538,559
 Intangible assets                                            279,034       710,818
 Investments in associates                                299,085,089   220,966,467
 Other non-current assets                                 203,060,000             -
                                                        1,208,664,229   829,655,592

Current assets
 Inventories                                               1,667,370      2,217,363
 Trade and other receivables                              31,665,702     26,645,742
 Restricted cash                                             210,000        100,000
 Cash and cash equivalents                                42,398,837     84,995,972
                                                          75,941,909    113,959,077

Total assets                                            1,284,606,138    943,614,669




                                               - 23 -
SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

CONSOLIDATED BALANCE SHEET (CONTINUED)
(All amounts in Rmb unless otherwise stated)



                                                   Note             2006          2005
EQUITY

Capital and reserves attributable to equity
 holders of the Company
 Share capital                                         17    223,841,503    223,841,503
 Other reserves                                        18    372,115,887    352,305,054
 Retained earnings                                           218,220,075    161,636,182
                                                             814,177,465    737,782,739
Minority interest in equity                                            -      4,631,707
Total equity                                                 814,177,465    742,414,446

LIABILITIES

Non-current liabilities
 Borrowings                                            19    230,000,000              -
 Deferred income tax liabilities                       20      4,630,549      5,872,938
 Deferred revenue                                      21     33,315,194     32,915,755
                                                             267,945,743     38,788,693

Current liabilities
 Borrowings                                            19    140,000,000    100,000,000
 Trade and other payables                              22     58,220,368     56,790,344
 Current income tax liabilities                                4,262,562      5,621,186
                                                             202,482,930    162,411,530

Total liabilities                                            470,428,673    201,200,223

Total equity and liabilities                                1,284,606,138   943,614,669




                                              - 24 -
SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

CONSOLIDATED INCOME STATEMENT
(All amounts in Rmb unless otherwise stated)

                                                    Note           2006           2005



Revenue                                                  5   194,705,759    164,468,106
Cost of sales                                           23   (83,589,909)   (73,846,187)
Gross profit                                                 111,115,850     90,621,919
Other gains - net                                                132,644         89,997
Administrative expenses                                 23   (31,664,594)   (20,433,951)
Operating profit                                         5    79,583,900     70,277,965

Financial income                                        25       780,716        287,344
Finance costs                                           25    (9,239,591)    (1,099,607)
Finance assets - net                                    25    (8,458,875)      (812,263)

Share of profit of associates                           12    78,118,622     55,771,478
Profit before income tax                                     149,243,647    125,237,180
Income tax expense                                      26    (9,262,906)    (9,432,994)

Profit for the year                                          139,980,741    115,804,186

Attributable to:

Equity holders of the Company                                139,493,883    115,510,156
Minority interest                                                486,858        294,030
                                                             139,980,741    115,804,186



Earnings per share for profit attributable to
 the equity holders of the Company
 (expressed in Rmb per share)

- basic and dilated                                     27           0.60          0.50




                                               - 25 -
      SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

      CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
      (All amounts in Rmb unless otherwise stated)



                                                  Attributable to
                                          equity holders of the Company
                                           Share                Other       Retained                       Minority          Total
                                            capital          reserves       earnings             Total     Interest         equity
                                         (Note 17)          (Note 18)


Balance at 31 December 2004/
 Balance at 1 January 2005              223,841,503       335,811,878     112,825,219      672,478,600    4,337,677     676,816,277
Profit for the year                                   -             -     115,510,156      115,510,156      294,030     115,804,186
Dividend relating to 2004 (Note 28)                   -             -     (50,206,017)     (50,206,017)            -    (50,206,017)
Transfer to reserves                                  -   16,493,176      (16,493,176)               -             -              -
Balance at 31 December 2005/
 Balance at 1 January 2006              223,841,503 352,305,054           161,636,182      737,782,739    4,631,707     742,414,446
Profit for the year                                   -             -     139,493,883      139,493,883      486,858     139,980,741
Dividend relating to 2005 (Note 28)
                                                      -             -     (63,099,157)     (63,099,157)            -    (63,099,157)
Transfer to reserves                                  -   19,361,954      (19,361,954)               -             -              -
Capital contributions                                 -             -                  -             -             -              -
Acquisition of minority interest of a
  subsidiary (Note 18 (d))                            -             -                  -             -    (5,118,565)    (5,118,565)
Transfer to reserves for gain on
  acquisition of minority interest of
  a subsidiary                                        -      448,879         (448,879)               -             -              -
Balance at 31 December 2006
                                        223,841,503       372,115,887     218,220,075      814,177,465             -    814,177,465




                                                                 - 26 -
SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

CONSOLIDATED CASH FLOW STATEMENT
(All amounts in Rmb unless otherwise stated)



                                                     Note           2006             2005

Cash flows from operating activities
 Cash generated from operations                      29     119,531,335      119,728,470
 Interests paid                                              (8,937,510)      (1,475,823)
 Income tax paid                                            (11,649,707)     (11,901,902)

 Net cash generated from operating activities                98,944,118      106,350,745

Cash flows from investing activities
 Purchases of property, plant and equipment                  (23,092,639)       (6,311,521)
 Payments for construction in progress                       (49,432,025)     (70,937,270)
 Payments for leasehold land                                 (74,023,150)      (2,895,506)
 Purchases of intangible assets                                   (31,110)        (175,475)
 Dividends received from an associate                                   -        3,312,000
 Proceeds from disposals of property, plant and
    equipment                                        29          416,112        2,877,008
 Long-term prepayment of leasehold land                     (203,060,000)               -
 Interests received                                              780,716          287,344

 Net cash used in investing activities                      (348,442,096)     (73,843,420)

Cash flows from financing activities
 Borrowings from holding company                             230,000,000      100,000,000
 Proceeds from bank borrowings                               340,000,000       55,668,000
 Repayments of bank borrowings                              (300,000,000)    (138,668,000)
 Dividends paid to shareholders                              (63,099,157)     (50,206,017)

 Net cash generated from/(used in) financing
   activities                                               206,900,843       (33,206,017)

Net decrease in cash and cash equivalents                    (42,597,135)        (698,692)

Cash and cash equivalents at beginning of year       16      84,995,972       85,694,664

Cash and cash equivalents at end of year             16      42,398,837       84,995,972




                                            - 27 -
      SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts in RMB unless otherwise stated)



1     General information

      Shenzhen Chiwan Petroleum Supply Base Co., Ltd. (the “Company”) was incorporated as a
      Sino-foreign equity joint venture company in Shenzhen, the People‟s Republic of China (the
      “PRC”) in February 1984. On 11 May 1995, the Company obtained the approval from the
      Shenzhen Municipal Government for its reorganisation into a joint stock limited company. On 28
      July 1995, the Company‟s B shares were listed for trading on Shenzhen Stock Exchange.

      The Company and its subsidiaries (collectively the “Group”) are principally engaged in leasing of
      office space and warehouses, provision of management, storage and marine logistics services in
      the PRC.

      The address of the Company‟s registered office is Base Building, Chiwan, Nanshan District,
      Shenzhen, PRC.

      These consolidated financial statements have been approved for issue by the Board of Directors
      on 18 April 2007.

2     Summary of significant accounting policies

      The principal accounting policies applied in the preparation of these consolidated financial
      statements are set out below. These policies have been consistently applied to all the years
      presented, unless otherwise stated.

2.1   Basis of preparation

      The consolidated financial statements of the Group have been prepared in accordance with
      International Financial Reporting Standards (“IFRS”). This basis of accounting differs from that
      used in the statutory financial statements of the Company which are prepared in accordance with
      the Accounting Standards for Business Enterprises and the Accounting System for Business
      Enterprises promulgated by the State of the PRC (“PRC GAAP”). Adjustments incorporated to
      restate the financial statements for conformity with IFRS have not been taken up in the Company‟s
      books.

      The financial statements have been prepared under the historical cost convention.




                                                   - 28 -
      SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts in RMB unless otherwise stated)



2.    Summary of significant accounting policies (continued)

2.1   Basis of preparation (continued)

       (a) Standards, amendments and interpretations effective in 2006 but not relevant for the
      Company’s operations

      The following standards, amendments and interpretations are mandatory for accounting periods
      beginning on or after 1 January 2006 but are not relevant to the Company‟s operations:
       IAS 19 (Amendment), Employees Benefits;
       IAS 21 (Amendment), Net Investment in a Foreign Operation;
       IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast IntraCompany Transactions;
       IAS 39 (Amendment), The Fair Value Option;
       IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts;
       IFRS 6, Exploration for and Evaluation of Mineral Resources;
       IFRS 1 (Amendment), First-time Adoption of International Financial Reporting Standards and
        IFRS 6 (Amendment), Exploration for and Evaluation of Mineral Resources;
       IFRIC 6, Liabilities arising from Participating in a Specific Market – Waste Electrical and
        Electronic Equipment;
       IFRIC 4, Determining whether an Arrangement contains a Lease; and
       IFRIC 5, Rights to Interests arising from Decommissioning, Restoration and Environmental
        Rehabilitation Funds.

      (b) Standards, interpretations to existing standards that are not yet effective and not relevant for
      the Company’s operations

      The following standards, interpretations to existing standards have been published that are
      mandatory for the Company‟s accounting periods beginning on or after 1 May 2006 or later
      periods that not relevant for the Company‟s operations:

       IFRS 7, Financial Instruments: Disclosures, and the complementary Amendment to IAS 1,
        Presentation of Financial Statements – Capital Disclosures;
       IFRIC 7, Applying the Restatement Approach under IAS 29, Financial Reporting in
        Hyperinflationary Economies (effective from 1 March 2006);
       IFRIC 8, Scope of IFRS 2;
       IFRIC 9, Reassessment of embedded derivatives (effective for annual periods beginning on or
        after 1 June 2006), and
       IFRIC 10, Interim Financial Reporting and Impairment (effective for annual periods beginning
        on or after 1 November 2006).




                                                     - 29 -
      SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts in RMB unless otherwise stated)



2.    Summary of significant accounting policies (continued)

2.2   Consolidation

      (a) Subsidiaries

      Subsidiaries are all entities (including special purpose entities) over which the Group has the
      power to govern the financial and operating policies generally accompanying a shareholding of
      more than one half of the voting rights. The existence and effect of potential voting rights that are
      currently exercisable or convertible are considered when assessing whether the Group controls
      another entity. Subsidiaries are fully consolidated from the date on which control is transferred to
      the Group. They are de-consolidated from the date that control ceases.

      The purchase method of accounting is used to account for the acquisition of subsidiaries by the
      Group. The cost of an acquisition is measured as the fair value of the assets given, equity
      instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly
      attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities
      assumed in a business combination are measured initially at their fair values at the acquisition
      date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over
      the fair value of the Group‟s share of the identifiable net assets acquired is recorded as goodwill
      (see Note 2.9).

      Inter-company transactions, balances and unrealised gains on transactions between group
      companies are eliminated. Unrealised losses are also eliminated but considered an impairment
      indicator of the asset transferred. Accounting policies of subsidiaries have been changed where
      necessary to ensure consistency with the policies adopted by the Group.

      (b) Transactions and minority interests

      The Group applies a policy of treating transactions with minority interests as transactions with
      parties external to the Group. Disposals to minority interests result in gains and losses for the
      Group that are recorded in the income statement. Purchases from minority interests result in
      goodwill, being the difference between any consideration paid and the relevant share acquired of
      the carrying value of net assets of the subsidiary.




                                                       - 30 -
       SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (All amounts in RMB unless otherwise stated)



2.     Summary of significant accounting policies (continued)

2.2    Consolidation (continued)

       (c)Associates

       Associates are all entities over which the Group has significant influence but not control,
       generally accompanying a shareholding of between 20% and 50% of the voting rights.
       Investments in associates are accounted for using the equity method of accounting and are
       initially recognised at cost.

       The Group‟s share of its associates‟ post-acquisition profits or losses is recognised in the income
       statement, and its share of post-acquisition movements in reserves is recognised in reserves.
       The cumulative post-acquisition movements are adjusted against the carrying amount of the
       investment.

       Unrealised gains on transactions between the Group and its associates are eliminated to the
       extent of the Group‟s interest in the associates. Unrealised losses are also eliminated unless the
       transaction provides evidence of an impairment of the asset transferred. Accounting policies of
       associates have been changed where necessary to ensure consistency with the policies adopted
       by the Group.

2.3   Segment reporting

       A business segment is a group of assets and operations engaged in providing products or
       services that are subject to risks and returns that are different from those of other business
       segments. A geographical segment is engaged in providing products or services within a
       particular economic environment that are subject to risks and returns that are different from those
       of segments operating in other economic environments.




                                                     - 31 -
      SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts in RMB unless otherwise stated)



2.    Summary of significant accounting policies (continued)

2.4   Foreign currency translation

      (a) Functional and presentation currency

      Items included in the financial statements of each of the Group's entities are measured using the
      currency of the primary economic environment in which the entity operates (the "functional
      currency"). The consolidated financial statements are presented in Renminbi (RMB), which is
      the Company‟s functional and presentation currency.

      (b) Transactions and balances

      Foreign currency transactions are translated into the functional currency using the exchange
      rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting
      from the settlement of such transactions and from the translation at year-end exchange rates of
      monetary assets and liabilities denominated in foreign currencies are recognised in the income
      statement.

2.5   Property, plant and equipment

      Property, plant and equipment are stated at historical cost less depreciation.        Historical cost
      includes expenditure that is directly attributable to the acquisition of the items.

      Subsequent costs are included in the asset's carrying amount or recognised as a separate asset,
      as appropriate, only when it is probable that future economic benefits associated with the item
      will flow to the Group and the cost of the item can be measured reliably. All other repairs and
      maintenance are charged to the income statement during the financial period in which they are
      incurred.




                                                     - 32 -
       SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (All amounts in RMB unless otherwise stated)



2.     Summary of significant accounting policies (continued)

2.5    Property, plant and equipment (continued)

       Depreciation on other assets is calculated using the straight-line method to allocate their cost or
       revalued amounts to their residual values over their estimated useful lives, as follows:

       Buildings                                                          10 - 50 years
       Wharfs                                                                  50 years
       Machinery                                                           3 - 20 years
       Motor vehicles                                                      3 - 14 years
       Fixture                                                                  5 years
       Office equipment and others                                              5 years

       The assets‟ residual values and useful lives are reviewed, and adjusted if appropriate, at each
       balance sheet date.

       An asset‟s carrying amount is written down immediately to its recoverable amount if the asset‟s
       carrying amount is greater than its estimated recoverable amount (Note 2.10).

       Gains and losses on disposals are determined by comparing proceeds with carrying amount and
       are recognised within “others gains - net" in the income statement.

2.6     Construction in progress

       Construction in progress comprises infrastructure projects under construction, which are stated
       at cost. This includes all expenditure and other direct costs, prepayments and deposits
       attributable to the construction and interest charges arising from borrowings used to finance the
       construction during the construction period. Depreciation is not provided on construction in
       progress until the related asset is completed and transferred for intended use.

2.7 Investment property

       Investment property, principally comprising office buildings and warehouses, is held for long-term
       rental yields and is not occupied by the Group. Investment property is treated as a long-term
       investment and is carried at cost less accumulated depreciation and impairment loss.

       Depreciation is calculated on the straight-line method to write off the cost of each asset to their
       residual values over 20 to 45 years.

2.8     Leasehold land

       Leasehold land are up-front payments to acquire long-term interests in the usage of land. They
       are stated at cost and charged to the income statement over the remaining period of the lease on
       a straight-line basis, net off any impairment losses.




                                                     - 33 -
       SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (All amounts in RMB unless otherwise stated)



2.     Summary of significant accounting policies (continued)

2.9    Intangible assets

       (a) Goodwill

       Goodwill represents the excess of the cost of an acquisition over the fair value of the Group‟s
       share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition.
       Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions
       of associates is included in investments in associates. Separately recognised goodwill is tested
       annually for impairment and carried at cost less accumulated impairment losses. Impairment
       losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the
       carrying amount of goodwill relating to the entity sold.

       Goodwill is allocated to cash-generating units for the purpose of impairment testing. The
       allocation is made to those cash-generating units or groups of cash-generating units that are
       expected to benefit from the business combination in which the goodwill arose.

       (b) Computer software

       Acquired computer software licences are capitalised on the basis of the costs incurred to acquire
       and bring to use the specific software. These costs are amortised over their estimated useful
       lives.

2.10   Impairment of non-financial assets

       Assets that have an indefinite useful life are not subject to amortisation and are tested annually
       for impairment. Assets that are subject to amortisation are reviewed for impairment whenever
       events or changes in circumstances indicate that the carrying amount may not be recoverable.
       An impairment loss is recognised for the amount by which the asset‟s carrying amount exceeds
       its recoverable amount. The recoverable amount is the higher of an asset‟s fair value less costs
       to sell and value in use. For the purposes of assessing impairment, assets are grouped at the
       lowest levels for which there are separately identifiable cash flows (cash-generating units).
       Non-financial assets other than goodwill that suffered an impairment are reviewed for possible
       reversal of the impairment at each reporting date.




                                                      - 34 -
       SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (All amounts in RMB unless otherwise stated)



2.     Summary of significant accounting policies (continued)

2.11   Financial assets

       The Group classifies its financial assets in the following categories: financial assets at fair value
       through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale
       financial assets. The classification depends on the purpose for which the investments were
       acquired. Management determines the classification of its investments at initial recognition.
       During the year, the Group only has loans and receivables.

       Loans and receivables are non-derivative financial assets with fixed or determinable payments
       that are not quoted in an active market. They are included in current assets, except for
       maturities greater than 12 months after the balance sheet date. These are classified as
       non-current assets. Loans and receivables are classified as trade and other receivables in the
       consolidated balance sheet (Note 2.13).

       Financial assets are derecognised when the rights to receive cash flows from the investments
       have expired or have been transferred and the Group has transferred substantially all risks and
       rewards of ownership. Loans and receivables are carried at amortised cost using the effective
       interest method.

       The Group assessed at each balance sheet date whether there is objective evidence that a
       financial asset or a group of financial assets is impaired. Provision for impairment of trade and
       other receivables is described in Note 2.13.

2.12   Inventories

       Inventories are stated at the lower of cost or net realisable value. Cost is determined using the
       weighted average method. Net realisable value is the estimated selling price in the ordinary
       course of business, less applicable variable selling expenses.

2.13   Trade and other receivables

       Trade and other receivables are recognised initially at fair value and subsequently measured at
       amortised cost using the effective interest method, less provision for impairment. A provision for
       impairment of trade and other receivables is established when there is objective evidence that
       the Group will not be able to collect all amounts due according to the original terms of
       receivables. Significant financial difficulties of the debtor, probability that the debtor will enter
       bankruptcy or financial reorganisation, and default or delinquency in payments are considered
       indicators that the trade and other receivables are impaired. The amount of the provision is the
       difference between the asset's carrying amount and the present value of estimated future cash
       flows, discounted at the original effective interest rate. The carrying amount of the asset is
       reduced through the use of an allowance account, and the amount of the loss is recognised in
       the income statement within administrative expenses. When a trade receivable is uncollectible, it
       is written off against the allowance account for trade receivables. Subsequent recoveries of
       amounts previously written off are credited against administrative expenses in the income
       statement.



                                                      - 35 -
       SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (All amounts in RMB unless otherwise stated)


2.     Summary of significant accounting policies (continued)

2.14   Cash and cash equivalents

       Cash and cash equivalents include cash in hand, deposits held at call with banks and other
       short-term highly liquid investments with original maturities of three months or less.

2.15   Trade and others payables

       Trade and other payables are recognised initially at fair value and subsequently measured at
       amortised cost using the effective interest method.

2.16   Borrowings

       Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
       subsequently stated at amortised cost; any difference between the proceeds (net of transaction
       costs) and the redemption value is recognised in the income statement over the period of the
       borrowings using the effective interest method.

       Borrowings are classified as current liabilities unless the Group has an unconditional right to
       defer settlement of the liability for at least 12 months after the balance sheet date.

2.17   Borrowing costs

       Borrowing costs incurred for the construction of any qualifying asset are capitalised during the
       period of time that is required to complete and prepare the asset for its intended use. Other
       borrowing costs are expensed.

2.18   Deferred income tax

       Deferred income tax is provided in full, using the liability method, on temporary differences
       arising between the tax bases of assets and liabilities and their carrying amounts in the
       consolidated financial statements. However, the deferred income tax is not accounted for if it
       arises from initial recognition of an asset or liability in a transaction other than a business
       combination that at the time of the transaction affects neither accounting nor taxable profit or loss.
       Deferred income tax is determined using tax rates (and laws) that have been enacted or
       substantially enacted by the balance sheet date and are expected to apply when the related
       deferred income tax asset is realised or the deferred income tax liability is settled.

       Deferred income tax assets are recognised to the extent that it is probable that future taxable
       profit will be available against which the temporary differences can be utilised.

2.19   Employee benefits

       The Group participates in defined contribution retirement schemes organised by the local
       government authorities in the PRC. Employees are entitled to an annual pension equivalent to a
       fixed portion of their basic salaries at their retirement dates. The Group is required to make
       contributions to the retirement schemes at a rate ranging from 8% to 22% of the standard salary
       of those employees and have no further obligation for post-retirement benefits. The contributions
       are charged to the income statement of the Group as they become payable in accordance with
       the rules of the scheme.
                                                      - 36 -
       SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (All amounts in RMB unless otherwise stated)


2.     Summary of significant accounting policies (continued)

2.20   Revenue recognition

       Revenue comprises the fair value of the consideration received or receivable for the sale of
       services in the ordinary course of the Group‟s activities. Revenue is shown net of rebates and
       discounts and after elimination of sales within the Group.

       The Group recognises revenue when the amount of revenue can be reliably measured, it is
       probable that future economic benefits will flow to the entity and specific criteria have been met
       for each of the Group‟s activities as described below. The amount of revenue is not considered to
       be reliably measurable until all contingencies relating to the sale have been resolved. The Group
       bases its estimates on historical results, taking into consideration the type of customer, the type
       of transaction and the specifics of each arrangement.

       (a) Sales of services

       Sales of services are recognised in the accounting period in which the services are rendered, by
       reference to completion of the specific transaction assessed on the basis of the actual service
       provided as a proportion of the total services to be provided.

       (b) Interest income

       Interest income is recognised on a time-proportion basis using the effective interest method.

       (c) Dividend income

       Dividend income is recognised when the right to receive payment is established.

2.21   Leases

       (a) When a group company is the lessee

       Leases where a significant portion of the risks and rewards of ownership are retained by the
       lessor are classified as operating leases. Payments made under operating leases (net of any
       incentives received from the lessor) are charged to the income statement on a straight-line basis
       over the period of the lease.

       (b) When a group company is the lessor

       Assets leased out under operating leases are included in investment property in the balance
       sheet. They are depreciated over their expected useful lives on a basis consistent with similar
       owned property, plant and equipment. Rental income (net of any incentives given to lessees) is
       recognised on a straight-line basis over the period of the lease.

2.22   Dividend distribution

       Dividend distribution to the Company's shareholders is recognised as a liability in the Group's
       financial statements in the period in which the dividends are approved by the Company's
       shareholders.

                                                     - 37 -
      SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
      (All amounts in RMB unless otherwise stated)


3     Financial risk management

3.1   Financial risk factors

      The Group‟s activities expose it to financial risks including the effects of changes in foreign
      currency exchange rates and interest rates. The Group‟s overall risk management seeks to
      minimise potential adverse effects on the financial performance of the Group.

      (i)     Foreign exchange risk

      RMB is not freely convertible into foreign currencies. Since most of the transactions of the
      Group were settled in RMB, in the opinion of directors, the Group would not have significant
      foreign currency risk exposure.

      (ii)    Interest rate risk

      The Group has no significant interest-bearing assets but it has borrowed short-term loans from a
      related company at fixed rates.

      Other financial assets and liabilities do not have material interest rate risk.

      (iii)   Credit risk

      The Group has no significant concentrations of credit risk. The Group has policies in place to
      ensure that sales of services are made to customers with an appropriate credit history. Cash
      transactions are limited to high credit quality financial institutions.

      (iv)    Liquidity risk

      Liquidity risk management implies funding through an adequate amount of committed bank
      facilities. The Group aims at maintaining flexibility in funding by keeping committed bank facilities
      available.

3.2   Fair value estimation

      The carrying value less impairment provision of trade and other receivables and payables are
      assumed to approximate their fair values due to their short-term nature.

      The fair value of investment property is determined by the discounted cash flow method based
      on the reasonable anticipative investment return rate.




                                                      - 38 -
           SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
           (All amounts in RMB unless otherwise stated)


4          Critical accounting estimates and judgements

           The preparation of financial statements in conformity with IFRS requires the use of certain critical
           accounting estimates. It also requires management to exercise its judgement in the process of
           applying the Group‟s accounting policies. The Group makes estimates and assumptions
           concerning the future. The resulting accounting estimates will, by definition, seldom equal the
           related actual results. However, there are no estimates and assumptions that have a significant
           risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
           next financial year.

5          Segment information

           Primary reporting format - business segments

           As at 31 December 2006, the Group is organised on a regional basis in the PRC into three main
           business segments:

      i.             Office leasing and management services;
     ii.             Storage services; and
    iii.             Marine logistics services

           Year ended 31 December 2006

                                           Office leasing
                                                     and                     Marine
                                           management          Storage      logistics
                                                 services      services     services    Unallocated            Total

           Revenue                           11,050,155     125,527,077   58,128,577              -     194,705,759

           Operating profit                   2,592,921      61,347,356   36,920,794    (21,277,171)     79,583,900
           Finance costs - net                                                                           (8,458,875)
           Share of profit of associates                                                                 78,118,622
           Profit before income tax                                                                     149,243,647
           Income tax expense                                                                            (9,262,906)
           Profit for the year                                                                          139,980,741


           Assets                            96,481,024     823,041,265   63,627,362      2,371,398     985,521,049
           Associates                                                                                   299,085,089
           Total assets                                                                                1,284,606,138


           Liabilities                       33,315,194     143,908,740     670,653     292,534,086     470,428,673


           Other segment items
           Capital expenditure                  879,647      66,871,771     789,778       1,430,412      69,971,608
           Expenditure on leasehold land                -    74,023,150             -             -      74,023,150
           Depreciation                       4,983,838      15,391,066    5,811,836      2,061,682      28,248,422
           Amortisation                       1,140,154      15,494,249     142,519         33,519       16,810,441




                                                              - 39 -
    SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (All amounts in RMB unless otherwise stated)



5   Segment information (continued)

    Primary reporting format - business segments (continued)

    Year ended 31 December 2005

                                    Office leasing
                                              and                     Marine
                                    management           Storage     logistics
                                         services       services     services    Unallocated          Total


    Revenue                           11,319,828      93,039,672   60,108,606              -    164,468,106


    Operating profit                   3,178,866      47,738,837   37,771,168    (18,410,906)   70,,277,965
    Finance costs - net                                                                            (812,263)
    Share of profit of associates                                                                55,771,478
    Profit before income tax                                                                    125,237,180
    Income tax expense                                                                           (9,432,994)
    Profit for the year                                                                         115,804,186


    Assets                            93,714,156     531,156,138   84,953,558    12,824,350     722,648,202
    Associates                                                                                  220,966,467
    Total assets                                                                                943,614,669


    Liabilities                       32,815,755     148,226,947     516,771     19,640,750     201,200,223


    Other segment items
    Capital expenditure                1,592,750      83,958,089    2,790,369     3,338,323      91,679,531
    Expenditure on leasehold land                -     2,895,506             -             -      2,895,506
    Depreciation                       4,076,908      14,254,591    5,723,761       896,343      24,951,603
    Amortisation                       1,140,154      13,478,578     142,519         20,110      14,781,361


    Unallocated costs mainly represent corporate expenses.

    Segment assets consist primarily of property, plant and equipment, investment property,
    leasehold land, progress payments for leasehold land, construction in progress, intangible assets,
    inventories, receivables and operating cash. They exclude investments in associates.

    Segment liabilities comprise operating liabilities. They exclude items such as taxation.

    Capital expenditure comprises additions to property, plant and equipment, investment property,
    construction in progress and intangible assets (Notes 6, 7, 10 and 11).




                                                       - 40 -
    SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

    NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    (All amounts in RMB unless otherwise stated)



5   Segment information (continued)

    Secondary reporting format - geographical segments

    The Group's activities are conducted predominantly in the PRC, which is considered as one
    geographical location in an economic environment with similar risks and returns. As a result, no
    separate geographical segment information is presented.

    Analysis of revenue by category

                                                                          2006               2005


    Revenue from services rendered                                 75,363,273         82,034,592
    Revenue from operating leases                                 119,342,486         82,433,514
                                                                  194,705,759        164,468,106




                                                 - 41 -
       SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

       NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
       (All amounts in RMB unless otherwise stated)

6   Property, plant and equipment
                                                                                                                                                                      Office
                                                                                                                                  Motor                           equipment
                                                                       Buildings           Wharfs          Machinery            vehicles            Fixture       and others               Total
       At 1 January 2005

       Cost                                                          16,226,685         48,650,662        72,749,019         18,526,157        21,262,764         61,013,634       238,428,921
       Accumulated depreciation                                      (6,661,080)       (25,469,974)      (47,213,771)       (10,448,164)       (8,969,442)       (18,737,609)     (117,500,040)
       Net book amount                                                9,565,605         23,180,688        25,535,248          8,077,993        12,293,322         42,276,025       120,928,881

       Year ended 31 December 2005

       Opening net book amount                                        9,565,605        23,180,688         25,535,248          8,077,993        12,293,322         42,276,025       120,928,881
       Reclassification                                              30,571,640        (3,707,948)         3,068,655            931,780                 -        (30,864,127)                -
       Additions                                                      2,814,022                 -            118,766            664,814         2,650,497            693,639         6,941,738
       Transferred from construction in progress (Note 10)                    -            50,395                  -                  -                 -                  -            50,395
       Transferred to investment property (Note 7)                   (1,107,751)                -                  -                  -                 -                  -        (1,107,751)
       Disposals                                                     (2,606,384)                -            (73,718)          (209,723)                -           (870,891)       (3,760,716)
       Depreciation charge                                           (3,664,130)         (847,880)        (3,259,221)        (3,343,250)       (3,187,088)        (2,502,366)      (16,803,935)
       Closing net book amount                                       35,573,002        18,675,255         25,389,730          6,121,614        11,756,731          8,732,280       106,248,612

       At 31 December 2005

       Cost                                                          47,384,672         44,650,946        71,642,061         23,281,450        23,913,261         27,290,647       238,163,037
       Accumulated depreciation                                     (11,811,670)       (25,975,691)      (46,252,331)       (17,159,836)      (12,156,530)       (18,558,367)     (131,914,425)
       Net book amount                                               35,573,002         18,675,255        25,389,730          6,121,614        11,756,731          8,732,280       106,248,612

       Year ended 31 December 2006

       Opening net book amount                                       35,573,002        18,675,255         25,389,730          6,121,614        11,756,731          8,732,280       106,248,612
       Reclassification                                                (362,798)                -            380,694                  -                 -            (17,896)                -
       Additions                                                     16,979,746                 -          2,458,999          1,348,067         1,283,115          1,022,712        23,092,639
       Transfer from construction in progress (Note 10)              52,056,115                 -            737,359                  -           327,277                  -        53,120,751
       Transfer to investment property (Note 7)                     (16,913,539)                -                  -                  -                 -                  -       (16,913,539)
       Disposals                                                              -                 -            (19,955)          (572,166)                -            (84,384)         (676,505)
       Depreciation charge                                           (3,636,806)         (857,455)        (3,360,331)        (1,337,132)       (5,484,977)        (2,594,132)      (17,270,833)
       Closing net book amount                                       83,695,720        17,817,800         25,586,496          5,560,383         7,882,146          7,058,580       147,601,125

       At 31 December 2006

       Cost                                                          99,144,196         44,650,946        74,898,845         19,109,682        25,523,653         25,902,245       289,229,567
       Accumulated depreciation                                     (15,448,476)       (26,833,146)      (49,312,349)       (13,549,299)      (17,641,507)       (18,843,665)     (141,628,442)
       Net book amount                                               83,695,720         17,817,800        25,586,496          5,560,383         7,882,146          7,058,580       147,601,125

       Depreciation expense of 15,721,279 (2005: 14,955,572) was charged in „cost of sales‟ and 1,549,554 (2005: 1,508,872) in „administrative expenses‟. At 31 December 2006, the certificates of
       certain buildings with cost totalling 4,482,398 (2005: 2,689,104) have not been obtained as the certificates of the relevant leasehold land have not been obtained by the previous owner (Note
       8).

                                                                                            - 42 -
            SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
            (All amounts in RMB unless otherwise stated)

7   Investment property

                                                                       2006              2005
    Cost

    At 1 January                                                289,689,966       288,696,131
    Transfer from property, plant and equipment (Note 6)         16,913,539         1,117,629
    Transfer from construction in progress (Note 10)             76,908,379                 -
    Disposals                                                             -          (123,794)
    At 31 December                                              383,511,884       289,689,966

    Accumulated depreciation

    At 1 January                                                 79,089,092        71,377,228
    Charge for the year                                          10,977,589         7,741,184
    Transfer from property, plant and equipment (Note 6)                  -             9,878
    Disposals                                                             -           (39,198)
    At 31 December                                               90,066,681        79,089,092

    Net book amount

    At 31 December                                              293,445,203       210,600,874

    Depreciation expense was charged in cost of sales.

    At 31 December 2006, the certificates of certain investment property with cost totalling
    309,996,232 (2005: 218,481,263) have not been obtained as the certificates of the relevant
    leasehold land have not been obtained by the previous owner (Note 8).

    The fair value of the investment property as at 31 December 2006 was determined by directors
    of the Company to be approximately 502 million (2005: 388 million) using the discounted cash
    flow method.




                                                  - 43 -
            SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
            (All amounts in RMB unless otherwise stated)


8   Leasehold Land

                                                                          2006                 2005

    Opening net book amount                                        111,969,436         127,746,938
    Additions                                                       74,023,150                   -
    Transfer from progress payments for leasehold land
       (Note 9)                                                     65,197,143                   -
    Amortisation charge                                            (16,776,922)        (15,777,502)
    Closing net book amount                                        234,412,807         111,969,436

    At 31 December 2006, the land use right certificates of certain leasehold land with a net book
    amount of 132,858,557 (2005: 69,846,821) have not been obtained. These include a piece of
    land with a net book value of 28,967,516 (2005: 40,180,748) injected by China Nanshan
    Development (Group) Incorporation (“Nanshan Development”), the immediate holding company,
    and two pieces of land leased from Nanshan Development with prepaid rentals of 22,508,809
    (2005: 23,953,224) and 4,118,565 (2005: 5,712,849) for periods of 25 years and 14 years
    respectively under two lease agreements.

    For the land injected by Nanshan Development, the prevailing PRC laws at the time of the
    incorporation of the Company did not allow for the issuance of official documents for transfer of
    leasehold land. Therefore, Nanshan Development has not obtained the formal leasehold land
    documentation associated with the land and the assignment of such rights to the Company has
    not been completed up to the date of the approval of these consolidated financial statements.
    Nanshan Development entered into two deeds with the Company on 1 January 1995 and 18 July
    1997 in respect of the two pieces of land leased from it, under which Nanshan Development
    undertakes to indemnify the Company all losses, costs, expenses and any other liabilities that
    may incur or be suffered by the Company arising from the use and occupation of the land and
    wharf areas throughout the terms of the grant of such rights.

9   Progress payments for leasehold land

                                                                          2006               2005

    At 1 January                                                    94,620,826         91,725,320
    Additions                                                                -          2,895,506
    Transfer to leasehold land (Note 8)                            (65,197,143)                 -
    At 31 December                                                  29,423,683         94,620,826




                                                 - 44 -
             SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             (All amounts in RMB unless otherwise stated)

10   Construction in progress

                                                                            2006             2005

     Beginning of year                                                 84,538,559           26,636
     Additions                                                         46,847,859       84,562,318
     Transfer to property, plant and equipment (Note 6)               (53,120,751)         (50,395)
     Transfer to investment properties (Note 7)                       (76,908,379)               -
     End of year                                                        1,357,288       84,538,559

11   Intangible assets

                                                      Goodwill           Software            Total
     At 1 January 2005

     Cost                                                  560,929        178,200          739,129
     Accumulated amortisation                             (131,554)       (24,668)        (156,222)
     Net book amount                                       429,375        153,532          582,907

     Year ended 31 December       2005

     Opening net book amount                              429,375         153,532         582,907
     Additions                                                  -         175,475         175,475
     Amortisation charge                                        -         (47,564)        (47,564)
     Closing net book amount                              429,375         281,443         710,818

     At 31 December      2005

     Cost                                                 429,375         353,675         783,050
     Accumulated amortisation                                   -         (72,232)        (72,232)
     Net book amount                                      429,375         281,443         710,818

     Year ended 31 December 2006

     Opening net book amount                               429,375        281,443          710,818
     Additions                                                   -         31,110           31,110
     Write off (Note 18)                                  (429,375)             -         (429,375)
     Amortisation charge                                         -        (33,519)         (33,519)
     Closing net book amount                                     -        279,034          279,034

     At 31 December 2006

     Cost                                                  429,375        384,785          814,160
     Accumulated amortisation                             (429,375)      (105,751)        (535,126)
     Net book amount                                             -        279,034          279,034

     Amortisation of 33,519 (2005: 47,564) was included in “administrative expenses”.



                                                   - 45 -
               SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               (All amounts in RMB unless otherwise stated)

12   Investments in associates

                                                                                  2006                 2005

     Beginning of year                                                 220,966,467            165,194,989
     Share of profit                                                    78,118,622             55,771,478
     End of year                                                       299,085,089            220,966,467

     The results, assets and liabilities of its associates, Shenzhen Chiwan Sembawang Engineering
     Co., Ltd. (“Chiwan SBW”) and Shenzhen Chiwan Offshore Petroleum Equipment Repair/
     Manufacture Co., Ltd. (“Chiwan Offshore)”, all of which are unlisted companies incorporated in
     the PRC, are as follows:

                                                                                                             %
                                          Total            Total                         Profit/       interest
     Name                                assets       liabilities    Revenues            (loss)            held

     2005
       Chiwan SBW                   841,191,668    166,809,518      623,210,748     174,140,162          32%
        Chiwan Offshore              24,101,806      8,395,956       16,766,392         233,130          20%
                                    865,293,474    175,205,474      639,977,140     174,373,292
     2006
       Chiwan SBW                  1,068,086,065   149,607,237      904,146,481     243,315,004          32%
        Chiwan Offshore               24,898,258     8,227,007       25,681,668       1,289,094          20%
                                   1,092,984,323   157,834,244      929,828,149     244,604,098


13   Other non-current assets

     Other non-current represent the long-term rental prepayment of the land on which the
     Company‟s operation locates to Nanshan Development for the period of 19 July 2009 to 18 July
     2034.

14   Inventories

                                                                                  2006                 2005
     At cost

     Materials and spare parts                                            1,467,585                1,902,812
     Low-valued consumables                                                 199,785                  314,551
                                                                          1,667,370                2,217,363

     The cost of inventories recognised as expense and included in „cost of sales‟ amounted to
     1,584,904 (2005: 1,650,453) and in „administrative expenses‟ amounted to 172,452 (2005:
     122,165).




                                                   - 46 -
                SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                (All amounts in RMB unless otherwise stated)

15    Trade and other receivables

                                                                                         2006                  2005

      Trade receivables                                                          17,792,081              15,188,066
      Less: provision for impairment                                               (677,568)               (300,118)
      Trade receivables - net                                                    17,114,513              14,887,948
      Other receivables, prepayments and deposits                                 6,581,382               3,945,277
      Receivables from related parties (Note 32(i))                               7,969,807               7,812,517
                                                                                 31,665,702              26,645,742

16    Cash and cash equivalents

                                                         Note                            2006                  2005

      Cash at bank and in hand                                                   42,608,837              40,095,972
      Short-term bank deposits                             (a)                            -              45,000,000
      Less: Restricted cash                                (b)                     (210,000)               (100,000)
                                                                                 42,398,837              84,995,972

(a)   The effective interest rate on short-term bank deposits was 1.71%; these deposits have a
      maturity of three months.

(b)   It represented the deposits pledged for the transportation business supervised by the local
      Customs.

17    Share capital

      Registered, issued and fully paid ordinary shares of RMB 1 each:

                                                        Unlisted       A
                                                                shares Unlisted      B
                                                        held          by        shares
                                          Number of            Nanshan held by a legal      B shares,
                                             shares       Development           person          listed           Total
                                                                  RMB            RMB            RMB              RMB

      Registered, issued and fully paid   230,600,000      119,420,000     51,180,000      60,000,000      230,600,000
      At 31 December 2005/
        1 January 2006                    230,600,000      115,920,000              -     107,921,503      223,841,503


      At 31 December 2006                 230,600,000      115,920,000              -     107,921,503      223,841,503


      Pursuant to the Company‟s articles of association, all shares are registered ordinary shares and shall carry
      equal rights.




                                                             - 47 -
               SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
               (All amounts in RMB unless otherwise stated)

18    Reserves

                                                        Share           Statutory       Discretionary      Statutory
                                                premium and              surplus              surplus public welfare
                                               other reserves            reserve             reserve           fund              Total

      Balance at 1 January 2005                  217,513,671          58,930,203          29,902,903     29,465,101        335,811,878
      Transfer from retained earnings                      -          11,472,574           5,020,602              -         16,493,176
      Balance at 31 December 2005/1
       January 2006                              217,513,671          70,402,777          34,923,505     29,465,101        352,305,054


      Recalss                                                   -     29,465,101                   -    (29,465,101)                 -
      Transfer from retained earnings                           -     13,625,667           5,736,287               -        19,361,954
      Retain on acquisition of minority
        interest of a subsidiary transferred
        from retained earnings (Note (d))            448,879                        -               -                  -      448,879
      At 31 December 2006                        217,962,550         113,493,545          40,659,792                   -   372,115,887


(a)   Pursuant to the relevant PRC regulations and articles of association of the Company, before distributing
      profit to shareholders, the Company should transfer 10% of its profit after tax to statutory surplus reserve
      (except where the reserve balance has reached 50% of the paid up share capital). The Company may make
      appropriation from its profits after tax to discretionary surplus reserve provided it is approved by resolutions
      of shareholders‟ general meeting or the meetings of board of directors, where appropriate.

      The amounts of transfers to the statutory surplus reserve shall be made based on profit after tax reflected in
      the PRC statutory accounts prepared in accordance with PRC accounting standards.

(b)   Statutory surplus reserve and discretionary surplus reserve


      According to the relevant PRC regulations, statutory surplus reserve and discretionary surplus reserve can
      be used to make up losses or to increase the share capital of a company. Except for the reduction of
      losses incurred, any other usage should not result in the reserve balance falling below 25% of the
      registered capital amount.

(c)   Statutory public welfare fund

      According to the relevant PRC regulations, no statutory public welfare fund is to be appropriated
      from the profit after tax for the year. The closing balance of statutory public welfare fund were
      transferred to surplus reserve on 1 January 2006.

(d)   On 31 December 2006 (the “acquisition date”), the Company acquired the remaining 10% equity
      interest in Shenzhen Chiwan Logistics Co., Ltd. (“SCLC”), a subsidiary of the Company, from
      Nanshan Development, at a consideration 4,455,000, resulting a gain of 663,567, which was
      recognised in the income statement after offsetting the 429,375 of goodwill balance arising from
      the previous acquisition of 90% equity interest in SCLC under IFRS on the acquisition date in
      accordance with IFRS, whereas it was written back to capital reserve after offsetting the 214,688
      of goodwill balance arising from the previous acquisition of 90% interest in SCLC under PRC
      GAAP on the acquisition date in accordance with PRC GAAP. Accordingly, the amount written
      back was transferred from retained earnings to capital reserve.




                                                                    - 48 -
              SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

              NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
              (All amounts in RMB unless otherwise stated)

19   Borrowings

                                                                               2006                 2005

     Current
     - Unsecured bank borrowings                                        40,000,000                    -
     - Borrowings from Nanshan Development                             100,000,000          100,000,000
                                                                       140,000,000          100,000,000
     Non-current
     - Borrowings from Nanshan Development                             230,339,167                      -

     Borrowings bear a weighted average effective interest rate of 4.49% (2005: 3.50%) per annum.

     Included in the borrowings from Nanshan Development, 100,000,000 of current borrowings are
     unsecured, bearing an interest rate of 3.5% per annum and repayable on demand, the remaining
     230,000,000 non-current borrowings are unsecured, bearing an weighted-average interest rate
     of 4.9% per annum and repayable on 5 September 2008.

     The exposure of the Company‟s borrowings to interest rate changes and the contracted repaying
     dates at the balance sheet date are 6 months or less.

     The carrying amounts of the above borrowings approximate their fair value and are denominated
     in RMB.

     As of 31 December 2006, the Group had unutilised banking facilities of 350 million, which was
     sufficient to finance the obligations arising from the net current liabilities of 127 million as at 31
     December 2006. Consequently, directors are of the opinion that the Group has sufficient working
     capital resources for the foreseeable future.

20   Deferred income tax liabilities

     A deferred tax liability was recognised according to certain PRC regulations for the appreciation
     in valuation at the time of reorganisation of the Company into a joint stock company. The
     balance is payable over a period of 14 years up to 10 February 2009.

     The movement in deferred tax liabilities account is as follows:

                                                                               2006                 2005

     At 1 January                                                         5,872,938           7,115,327
     Transfer to current tax liabilities                                 (1,242,389)         (1,242,389)
     At 31 December                                                       4,630,549           5,872,938

     No other provision for deferred taxation had been recognised as there were no material
     temporary differences arising between the tax bases of assets and liabilities and their carrying
     amounts in the consolidated financial statements.


                                                     - 49 -
             SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             (All amounts in RMB unless otherwise stated)

21   Deferred revenue

                                                                             2006        2005

     At 1 January                                                    32,915,755     31,449,527
     Additions                                                        3,768,987      5,722,613
     Transfer to current revenue                                     (3,369,548)    (4,256,385)
     At 31 December                                                  33,315,194     32,915,755

     Deferred revenue represents rentals received in advance from tenants.

     The balance at 31 December includes rental of 16,101,617 (2005: 16,526,612) received in
     advance from Chiwan SBW.

22   Trade and other payables

                                                                             2006        2005

     Trade payables                                                   1,115,316        689,259
     Construction payables                                            9,099,313     25,425,331
     Other payables and accruals                                     26,849,113     13,333,165
     Amounts due to related parties (Note 32(i))                     21,156,626     17,342,589
                                                                     58,220,368     56,790,344

23   Expenses by nature

                                                                             2006        2005

     Depreciation and amortisation                                   45,058,863     39,732,964
     Employee benefit expenses (Note 24)                             30,532,312     24,294,642
     Raw materials and consumables used                               1,757,356      1,772,618
     Transportation expenses                                          2,735,815      1,806,314
     Rental charges                                                   3,007,341      2,341,280
     Utility expenses                                                 3,406,515      2,595,211
     Repair and maintenance                                           3,392,138      2,417,210
     Auditors‟ remuneration                                             893,152        555,000
     Taxes and levies                                                11,614,407     10,477,570
     Other expenses                                                  12,856,604      8,287,329
     Total cost of sales and administrative expenses                115,254,503     94,280,138




                                                   - 50 -
             SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             (All amounts in RMB unless otherwise stated)

24   Employee benefit expenses

                                                                             2006                2005

     Wages, salaries and other benefits                               27,132,622          23,071,784
     Pension costs – defined contribution plans                        3,399,690           1,222,858
                                                                      30,532,312          24,294,642

25   Finance costs - net

                                                                             2006                2005

     Interest expenses                                                  9,384,563           1,582,767
     Net exchange gains                                                  (144,972)           (483,160)
     Financial costs                                                    9,239,591           1,099,607
     Finance income                                                      (780,716)           (287,344)
     Financial costs - net                                              8,458,875             812,263

26   Income tax expense

                                                                             2006                2005

     Current tax                                                        9,262,906           9,432,994

     The tax on the Group‟s profit before tax differs from the theoretical amount that would arise using
     the preferential income tax rate of 15% in Shenzhen Special Economic Zone of the PRC, the
     location in which the Company operates, as follows:

                                                                             2006                2005

     Profit before tax                                               149,243,646         125,237,180

     Tax calculated at the tax rate of 15% (2005: 15%)
        applicable to the Company                                     22,386,547          18,785,577
     Effect of different tax rates in the subsidiaries of the
        Group                                                          (1,439,329)         (1,034,687)
     Share of profit of associates not subject to tax                 (11,717,793)         (8,365,722)
     Expenses not deductible for tax purposes                             125,593              47,826
     Tax charge                                                         9,355,018           9,432,994




                                                   - 51 -
             SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             (All amounts in RMB unless otherwise stated)

27   Earnings per share

     Basic earnings per share is calculated by dividing the profit attributable to equity holders of the
     Company by the number of ordinary shares in issue during the year.

                                                                             2006                2005

     Profit attributable to equity holders of the Company            139,493,883          115,510,156

     Number of ordinary shares in issue                              230,600,000         230,600,000

     Basic earnings per share                                                 0.60                0.50

     The Company has no dilutive potential shares and diluted earnings per share are therefore not
     presented.

28   Dividends per share

     A dividend in respect of the year ended 31 December 2006 of [0.295] per share is to be proposed
                                           nd
     at the Annual General Meeting on 22 May 2007. These financial statements do not reflect this
     dividend payable.




                                                    - 52 -
             SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

             NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
             (All amounts in RMB unless otherwise stated)

29   Cash generated from operations

                                                                          2006              2005

     Profit before income tax                                     149,243,647        125,237,180
     Adjustments for:
     Depreciation                                                  28,248,422         24,951,603
     Amortisation of leasehold land                                16,776,922         14,733,797
     Amortisation of intangible assets                                 33,519             47,564
     (Gains)/losses on disposal of property, plant and
         equipment and investment property                            (260,393)           (49,009)
     Gain on acquisition of monitory interest of a subsidiary
         (Note 18)                                                    (234,192)                -
     Provision for impairment of receivables                           377,450            93,202
     Interest income                                                  (780,716)         (287,344)
     Interest expenses                                               9,384,563         1,582,767
     Share of profit of associates                                 (78,118,622)      (55,771,478)

     Changes in working capital:
     Decrease/(increase) in inventories                                549,993        (1,038,230)
     (Increase)/(decrease) in trade and other receivables           (5,507,411)        3,566,182
     Increase in deferred revenue                                      399,439         1,466,228
     (Decrease)/increase in trade and other payables                  (581,286)        5,196,008
     Cash generated from operations                               119,531,335        119,728,470

     In the cash flow statement, proceeds from sale of property, plant and equipment and investment
     property comprise:

                                                                         2006               2005

     Net book amount (Notes 6 and 7)                                   676,505          3,845,312
     Profit/(loss) on sale                                            (260,393)            49,009
     Settlement by receivables                                               -         (1,017,313)
     Proceeds from sale                                                416,112          2,877,008




                                                  - 53 -
              SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

              NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
              (All amounts in RMB unless otherwise stated)

30    Contingencies

      In 2005, Chiwan SBW entered into a subcontracting agreement with Offshore Oil Engineering Co.,
      Ltd. (“Offshore Oil Engineering”), a related company of Chiwan SBW, to construct a steel works for
      project PY30-1 (the “PY 30-1 Steel Works”), which had been completed in April 2006. In June
      2006, the PY 30-1 Steel Works were broken during the process of offshore installation (the
      “Accident”). As at the date of approval of these consolidated financial statements, the Accident is
      still under investigation and no actions have been taken by Offshore Oil Engineering against
      Chiwan SBW to claim for any compensation for damages. The directors of the Company are in the
      opinion that the claim, if any, relating to the Accident is remote on the grounds that: (i) Chiwan SBW
      had properly fulfilled all contracted obligation; (ii) Offshore Oil Engineering had signed off the
      completion report of the PY 30-1 Steel Works; (iii) Offshore Oil Engineering settled the final bill in
      February 2007. Accordingly, no provision has been made in these consolidated financial
      statements.

31    Commitments

(a)   Capital commitments

      Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

                                                                                2006                2005

      Property, plant and equipment                                      53,037,672           81,746,780

(b)   Operating lease commitments – when the Group is the lessee

      The future aggregate minimum lease payments under non-cancellable operating leases are as
      follows:

                                                                                2006                2005

      Not later than 1 year                                             211,964,875           39,123,246
      Later than 1 year and not later than 5 years                        8,220,657            5,477,362
      Later than 5 years                                                 10,984,830           16,410,332
                                                                        231,170,362           61,010,940

(c)   Operating lease commitments – when the Group is the lessor

      The future minimum lease payments receivable under non-cancellable operating leases are as
      follows:

                                                                                2006                2005

      Not later than 1 year                                              67,890,466          53,455,026
      Later than 1 year and not later than 5 years                       75,708,537          19,040,489
      Later than 5 years                                                 22,489,168          24,050,907
                                                                        166,088,171          96,546,422

                                                     - 54 -
            SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
            (All amounts in RMB unless otherwise stated)

32   Related party transactions

     The immediate holding company of the Company is Nanshan Development, which owns 52% of
     the Company‟s equity interests and is a state-controlled enterprise (“SCE”) controlled by the
     PRC government. The PRC government is therefore regarded by the directors as the ultimate
     controlling party of the Company. In addition to Nanshan Development group companies and the
     Company‟s associates, those companies directly or indirectly controlled by the PRC government
     are also regarded by the directors as related parties of the Group.

     Apart from those related party transaction disclosed in Notes 12, 18 and 19, the Group has the
     following significant transactions were carried out with related parties:

                                                                         2006               2005
     (a) Sales of services
     Service income from immediate holding company
     - Nanshan Development                                           3,446,200         3,277,003

     Service income from associates
     - Chiwan Offshore                                               2,089,661         1,183,115
     - Chiwan SBW                                                    5,786,831         7,725,872
                                                                     7,876,492         8,908,987

     Service income from a fellow subsidiary
     - Shenzhen Chiwan Wharf Holdings Limited                        1,371,313           658,807

     Service income from other SCEs                                33,515,228         30,538,860

     Land usage income from an associate
     - Chiwan SBW                                                    2,881,440         2,881,440

     (b)              Purchases of construction services and leasehold land
     Construction services provided by related companies

     Fellow subsidiaries
     - Shenzhen Chixiao Engineering Construction Co., Ltd.           1,230,390        37,216,555
     - Shenzhen Chixiao Compound Estate Inc.                                 -         6,166,278
                                                                     1,230,390        43,382,833

     Other SCEs                                                              -        11,603,247

     Purchase of leasehold land from other SCEs                              -                  -

     (c)     Rental for land and buildings leased from immediate holding company
     - Nanshan Development                                      2,383,382        2,314,280




                                                  - 55 -
        SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

        NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
        (All amounts in RMB unless otherwise stated)

32. Related party transactions (continued)

                                                                   2006             2005

(d)           Bank deposits at state-controlled banks         36,713,116       56,282,049

(e)           Borrowings from state-controlled banks         230,000,000                -

(f)           Interest income from bank deposits with
                                state-controlled banks          495,255           253,811

(g)        Interest charges on borrowings from state-
                                   controlled banks            4,048,615        1,048,288

(h) Key management compensation

Wages and salaries                                       [                 ]     1,544,895
Pension costs – defined contribution scheme              [                 ]        52,368
                                                         [                 ]    1,597,263

(i)   Year-end balances

Receivables from related parties

Immediate holding company
- Nanshan Development                                                  -          19,126

Associates
- Chiwan Offshore                                              1,064,201          33,315
- Chiwan SBW                                                     678,931         556,630
                                                               1,743,132         589,945

A fellow subsidiary
- Shenzhen Chiwan Wharf Holdings Limited                        259,513             2,510

Other SCEs                                                     5,967,162        7,200,936

                                                               7,969,807        7,812,517




                                              - 56 -
                SHENZHEN CHIWAN PETROLEUM SUPPLY BASE CO., LTD.

                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                (All amounts in RMB unless otherwise stated)

32. Related party transactions (continued)

       (i)   Year-end balances (continued)

                                                                              2006                2005
       Payables to related parties

       Immediate holding company
       - Nanshan Development                                             5,469,800            370,400

       Fellow subsidiaries
       - Shenzhen Chiwan Wharf Holdings Limited                                  -            115,353
       - Shenzhen Chixiao Engineering Construction Co., Ltd.             1,426,826                  -
                                                                         1,426,826            115,353

       Other SCEs                                                      14,260,000          16,856,836

                                                                       21,156,626          17,342,589

       All current accounts maintained with related parties are interest-free, non-secured and repayable
       on demand.

33     Events after the balance sheet date

       Pursuant to the PRC enterprise income tax law passed by the Tenth National People‟s Congress
       on 16 March 2007, the new enterprise income tax rates for domestic and foreign enterprises are
       unified at 25%, which will be effective from 1 January 2008. The impact of such change of
       enterprise income tax rate on the Group‟s consolidated financial statements will depend on the
       implementation details that have not been issued as of the date of the approval of these
       consolidated financial statements, therefore, the Group cannot reasonably estimate the financial
       impact of the new tax law to the Group at this stage.




                                                    - 57 -

								
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