Towngas and Climate Changes

Towngas and C LIMATE C HANGES Group: Ocean’s 5 Stefano DI GENUA Julia GOESSLER Shirley LIU Jon YAU Leo TUMWATTANA

How will Climate Changes affect Towngas?

Julia GOESSLER

Focus Diversification Financials & Implementation Conclusion Recommendations

How will Climate Changes affect Towngas?

Julia GOESSLER

Profit 2006 Profit 2016 Focus Diversification Financials & Implementation Conclusion Recommendations

Our Recommendation

Julia GOESSLER

what do we mean? Focus Diversification Financials & Implementation Conclusion Recommendations

Julia GOESSLER

Climate Changes bring Threats for Towngas Diversification against specific Threats Turn Threats into Opportunities Diversification Focus Diversification Financials & Implementation Conclusion Recommendations

Effects of Global Warming

Julia Goessler

Source: www.greenfacts.org Description Probability Impact Result Priority Response Plan Increase of floods High High Population migration Moderate Transfer Insurances Incentives for new technologies High Very High Possibilities for TG to enter new markets Moderate Exploit Enter renewable energy sector Incentives for cutting CO2 emissions High Very High Possibilities for improving the processes Moderate Mitigate/Exploit Review the plant processes Warmer and more frequent hot days and nights High Very High Reduced energy demand for heating Moderate Mitigate Diversify the decrease in sales of gas retailers Decrease in water availability High Very High "War for Water" Very High Exploit Increase the presence in the water business Ever increasing amount of waste High Very High Increased demand for waste management Very High Exploit Increase presence in waste management Focus Diversification Financials & Implementation Conclusion Recommendations

Julia GOESSLER

Source: www.greenfacts.org Focus Diversification Financials & Implementation Conclusion Recommendations Description Probability Impact Result Priority Response Plan Increase of floods High High Population migration Moderate Transfer Insurances Incentives for new technologies High Very High Possibilities for TG to enter new markets Moderate Exploit Enter renewable energy sector Incentives for cutting CO2 emissions High Very High Possibilities for improving the processes Moderate Mitigate Review the plant processes Warmer and more frequent hot days and nights High Very High Reduced energy demand for heating Moderate Mitigate Diversify the decrease in sales of gas retailers Decrease in water availability High Very High "War for Water" Very High Exploit Increase the presence in the water business Ever increasing amount of waste High Very High Increased demand for waste management Very High Exploit Increase presence in waste management

Julia GOESSLER

Source: www.greenfacts.org Focus Diversification Financials & Implementation Conclusion Recommendations Description Probability Impact Result Priority Response Plan Increase of floods High High Population migration Moderate Transfer Insurances Incentives for new technologies High Very High Possibilities for TG to enter new markets Moderate Exploit Enter renewable energy sector Incentives for cutting CO2 emissions High Very High Possibilities for improving the processes Moderate Mitigate Review the plant processes Warmer and more frequent hot days and nights High Very High Reduced energy demand for heating Moderate Mitigate Diversify the decrease in sales of gas retailers Decrease in water availability High Very High "War for Water" Very High Exploit Increase the presence in the water business Ever increasing amount of waste High Very High Increased demand for waste management Very High Exploit Increase presence in waste management

Julia GOESSLER

Source: www.greenfacts.org DIVERSIFY by adding water and waste management to our core business: Gas Focus Diversification Financials & Implementation Conclusion Recommendations Description Probability Impact Result Priority Response Plan Increase of floods High High Population migration Moderate Transfer Insurances Incentives for new technologies High Very High Possibilities for TG to enter new markets Moderate Exploit Enter renewable energy sector Incentives for cutting CO2 emissions High Very High Possibilities for improving the processes Moderate Mitigate Review the plant processes Warmer and more frequent hot days and nights High Very High Reduced energy demand for heating Moderate Mitigate Diversify the decrease in sales of gas retailers Decrease in water availability High Very High "War for Water" Very High Exploit Increase the presence in the water business Ever increasing amount of waste High Very High Increased demand for waste management Very High Exploit Increase presence in waste management

Our 1…2…3’s of Diversification Natural Gas / Biogas / Water Focus Diversification Financials & Implementation Conclusion Recommendations

1. Natural Gas Our Core Business Focus Diversification Financials & Implementation Conclusion Recommendations

Natural Gas – Demand in China

Jon YAU

Demand growing at 19% - Huge market Source: Professor Paul Foster, 2007 Focus Diversification Financials & Implementation Conclusion Recommendations

Natural Gas - Consumption

Jon YAU

Opportunity for growth Towngas’ core competency Source: Professor Paul Foster, 2007 3% 20% Reserves × 100 Focus Diversification Financials & Implementation Conclusion Recommendations

Natural Gas – Summary

Jon YAU

seed2 Focus Diversification Financials & Implementation Conclusion Recommendations

2. Biogas Towngas Complementation Focus Diversification Financials & Implementation Conclusion Recommendations

Biogas – The Problem

Jon YAU

Landfill CH 4 & CO 2 emissions increasing

3 to 29 billion tonnes by 2050

Source: “Waste Management”, 2006 How can Towngas capitalize ? Focus Diversification Financials & Implementation Conclusion Recommendations

Biogas – The Solution

Recover CH 4

Use in towngas production

Better alternative to incineration

Cheaper (can be zero cost )

Jon YAU

CO 2 CH 4 IPCC Study “Waste Management”, 2006 Reduce emissions & Benefits Towngas Waste material Landfill Towngas LFG plant Focus Diversification Financials & Implementation Conclusion Recommendations

Biogas – Summary

Jon YAU

3. Water Towngas Diversification Focus Diversification Financials & Implementation Conclusion Recommendations

Global Drinking availability

Shirley LIU

seed2 The world faces dramatic water shortage! IPCC Study, Sep 2006 Focus Diversification Financials & Implementation Conclusion Recommendations

Water Shortage - China

Shirley LIU

China has 20% of world’s population but only 7% of it has access to water resources

½ of 660 cities (population 160million) faces shortages

Increased demand and funding for efficient water supply systems Population % by country China 20% India 20% USA 5% Others 55% Focus Diversification Financials & Implementation Conclusion Recommendations

Opportunities

Shirley LIU

Donald Tsang, SCMP, Sep 2006 US$ 120 billion Demand grow by 66% in the next 23 years Government guarantees return of 12 to 18% US$ 200 billion Great opportunity for Towngas US$ 90 – 100 million Focus Diversification Financials & Implementation Conclusion Recommendations

Competition in the China Water Market

Shirley LIU

Domestic water giants International water giants Veolia Suez & Tames Water More than 200 water plants in China Foreign companies accounts only 1% of the water market Beijing Capital Shenzhen Water Co. Tsinghua Tongfang Co. Strong support from government Need improvement in management and technologies There is still large market for Towngas to enter Focus Diversification Financials & Implementation Conclusion Recommendations

Water – Summary

Shirley LIU

Diversification - summary

Shirley LIU

and what do we mean? Focus Diversification Financials & Implementation Conclusion Recommendations

Towngas should FOCUS on…

Core Competencies:

Distribution Network

Expertise in Gas

Location

Leo TUMWATTANA

What do we mean by location? Focus Diversification Financials & Implementation Conclusion Recommendations

China and the Climate Model

Leo TUMWATTANA

Financials Focus Diversification Financials & Implementation Conclusion Recommendations

The financial point of view

Stefano DI GENUA

NPV = 8,700,000 US$ As profits go up… Costs kg/CM g CM g CM Cons. Pop. 262,500,000 4500 1,642,500.00 7,305.94 LFG 7% IRR $3,532.58 NPV GAS 63% Cost 0.21 WATER 165,625.00 CM/ton 3 % ,000 ton garb a year % CH4 Year Costs Revenues Revenues* Profits Revenues Profits Maintanance Progress Costs Revenues Profits TOTAL a. Capital cost 0.10 0 $7,305.94 $1,926.68 $192.67 ($7,113.27) 8348.30 5256.337037 0 750,000.00 - ($750,000.00) ($751,856.93) Gas holder and frame $93.50 0.28 532.50 0.30 1 $1,073.32 $1,926.68 $578.00 ($495.32) 8932.68 5624.28063 0.47% 5 828,125.00 259,947.22 ($568,177.78) ($563,048.81) Piping and stove $34.70 0.10 197.62 0.50 2 $1,073.32 $1,926.68 $963.34 ($109.98) 9557.97 6017.980274 0.03 1.04% 11 1,018,593.75 571,883.89 ($446,709.86) ($440,801.86) Civil engineering construction (tank, inlet and outlet, etc.) $210.10 0.62 1196.56 0.70 3 $1,073.32 $1,926.68 $1,348.67 $275.35 10227.03 6439.238893 0.03 1.88% 20 1,512,156.25 1,029,391.01 ($482,765.24) ($476,050.65) Total $338.30 7305.94 0.90 4 $1,073.32 $1,926.68 $1,734.01 $660.69 10942.92 6889.985615 0.04 3.01% 32 2,098,800.00 1,647,025.62 ($451,774.38) ($444,223.71) b. Annual expenditure 1.00 5 $1,073.32 $1,926.68 $1,926.68 $853.35 11708.92 7372.284608 0.05 4.81% 51 3,410,550.00 2,635,240.99 ($775,309.01) ($767,083.37) Interest expenses $26.40 3.77 7266.33 1.00 6 $1,073.32 $1,926.68 $1,926.68 $853.35 12528.55 7888.344531 0.06 7.69% 81 5,540,832.00 4,216,385.58 ($1,324,446.42) ($1,315,704.72) Depreciation on gas holder and frame at 7% $8.30 1.19 2284.49 1.00 7 $1,073.32 $1,926.68 $1,926.68 $853.35 13405.55 8440.528648 0.07 12.31% 130 8,999,654.40 6,746,216.93 ($2,253,437.47) ($2,244,143.59) Depreciation on piping and stove at 5% $2.00 0.29 550.48 1.00 8 $1,073.32 $1,926.68 $1,926.68 $853.35 14343.93 9031.365654 0.08 17.24% 182 10,316,021.76 9,444,703.70 ($871,318.06) ($861,433.34) Depreciation on structure at 3% $6.30 0.90 1734.01 1.00 9 $1,073.32 $1,926.68 $1,926.68 $853.35 15348.01 9663.561249 0.09 24.13% 254 14,743,314.43 13,222,585.17 ($1,520,729.26) ($1,510,212.34) Cost of painting, once a Year $6.70 0.96 1844.11 1.00 10 $1,073.32 $1,926.68 $1,926.68 $853.35 16422.37 10340.01054 0.1 33.78% 356 21,061,877.76 18,511,619.24 ($2,550,258.52) ($2,539,065.15) Total $49.70 0.15 1073.32 1.00 11 $1,073.32 $1,926.68 $1,926.68 $853.35 17079.26 10753.61096 0.11 43.92% 463 24,179,035.67 24,065,105.02 ($113,930.65) ($102,323.68) c. Annual income 1.00 12 $1,073.32 $1,926.68 $1,926.68 $853.35 17762.44 11183.7554 0.12 57.09% 602 32,199,398.72 31,284,636.52 ($914,762.20) ($902,725.09) Gas @ $1.5 $50.30 3000.00 1.00 13 $1,073.32 $1,926.68 $1,926.68 $853.35 18472.93 11631.10561 0.13 68.51% 722 32,889,385.83 37,541,563.83 $4,652,177.99 $4,664,662.45 Total $50.30 3000.00 1.00 14 $1,073.32 $1,926.68 $1,926.68 $853.35 19211.85 12096.34984 0.14 80.84% 852 38,271,285.34 44,299,045.32 $6,027,759.98 $6,040,709.69 d. Net annual income (b - c) $0.60 1926.68 1.00 15 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.15 92.97% 980 42,337,609.40 50,943,902.12 $8,606,292.71 $8,619,726.27 1.00 16 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.16 100.00% 1054 38,241,647.73 54,796,875.00 $16,555,227.27 $16,568,660.83 1.00 17 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.17 29,676,687.50 54,796,875.00 $25,120,187.50 $25,133,621.06 1.00 18 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.18 31,422,375.00 54,796,875.00 $23,374,500.00 $23,387,933.56 1.00 19 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.19 33,168,062.50 54,796,875.00 $21,628,812.50 $21,642,246.06 1.00 20 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.2 34,913,750.00 54,796,875.00 $19,883,125.00 $19,896,558.56 1.00 21 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.21 36,659,437.50 54,796,875.00 $18,137,437.50 $18,150,871.06 1.00 22 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.22 38,405,125.00 54,796,875.00 $16,391,750.00 $16,405,183.56 1.00 23 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.23 40,150,812.50 54,796,875.00 $14,646,062.50 $14,659,496.06 1.00 24 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.24 41,896,500.00 54,796,875.00 $12,900,375.00 $12,913,808.56 1.00 25 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.25 43,642,187.50 54,796,875.00 $11,154,687.50 $11,168,121.06 1.00 26 $1,073.32 $1,926.68 $1,926.68 $853.35 19980.32 12580.20383 0.26 45,387,875.00 54,796,875.00 $9,409,000.00 $9,422,433.56 0.90 27 $1,073.32 $1,926.68 $1,734.01 $660.69 19980.32 12580.20383 0.27 47,133,562.50 54,796,875.00 $7,663,312.50 $7,676,553.39 0.70 28 $1,073.32 $1,926.68 $1,348.67 $275.35 19980.32 12580.20383 0.28 48,879,250.00 54,796,875.00 $5,917,625.00 $5,930,480.56 0.50 29 $1,073.32 $1,926.68 $963.34 ($109.98) 19980.32 12580.20383 0.29 50,624,937.50 54,796,875.00 $4,171,937.50 $4,184,407.72 0.10 30 $1,073.32 $1,926.68 $192.67 ($880.65) 19980.32 12580.20383 0.3 52,370,625.00 54,796,875.00 $2,426,250.00 $2,437,949.55 Focus Diversification Financials & Implementation Conclusion Recommendations

Another point of view

Stefano DI GENUA

… so does our contribution to the environment Focus Diversification Financials & Implementation Conclusion Recommendations

Implementation Plan So how do we do this? Focus Diversification Financials & Implementation Conclusion Recommendations

Our plan

Stefano DI GENUA

20 years tentative schedule Focus Diversification Financials & Implementation Conclusion Recommendations

Summary Profit 2016: HK$ 31.7 million Profit 2006: HK$ 5.7 million China 4% HK 96% Gas 61% Property 25% Water 2% HK 33% Gas 40% Water 41% Waste 8% China 67% Equipment Sales Other Sales Maintenance & Service Focus Diversification Financials & Implementation Conclusion Recommendations

Q&A Profit 2016: HK$ 31.7 million Profit 2006: HK$ 5.7 million China 4% HK 96% Gas 61% Property 25% Water 2% HK 33% Gas 40% Water 41% Waste 8% China 67% Equipment Sales Other Sales Maintenance & Service Focus Diversification Financials & Implementation Conclusion Recommendations

SUPPORTING SLIDES

Towngas’ current position seed2 On a combined basis, Towngas and Panva will have 60 projects spanning 55 cities and 12 provinces across mainland China Including Panva

Strategies in China water market

Middle sized cities around Yangtse river region and Pearl river delta region

Focus on piped business and overall services

Partnership with regional water companies by BOT model

Calculations, etc…

Financials

Basic assumptions:

Gas

Yearly increase in sales of 7% for the first 10 years

It will help to pay the Water management projects in China

Water

Target of 2 cities, around 1,000 km to be installed plus maintenance

Continue the slow entrance in the market

LFG

2 landfills, the first in a 900 tons/day capacity, the second in a 2,000 tons/day

Considered the whole 30 years life cycle

Climate Changes

Government Assistance

Post-2001 foreign companies can develop pipelines

Joint venture with Government (BOT TOT…)

CEPA Supplement IV

Guaranteed return by government

“ Behind the 3.3 billion RMB water business”, Nangfang Weekend, Jan 2004 Towngas 2007 Interim Financial Statements

Calculations, etc…

Water use in excess of natural supply (average annual)

SUB SECTION HEADINGS

Title

Point 1

Sub point

Sub sub point

Another sub point

Further sub point

Ocean

Section 1 Section 2 Section 3 Section 4

Feasibility analysis---price Water bills account for 1.2 monthly household income in China while in developing countries is 2.5% Average water price is 1.67yuan/cube meter Average water consumption is 75.4 tons per person The reasonable water price will range from 2.9yuan-7.1yuan

Sources: Financial Statements Financial position Towngas Sinopec CNOOC China Resources Xinao Gas Gearing 24% 43% 19% 67.3% 5.5% Interest cover 23 12 34 4 9 Net profit 44% 4.9% 36% 4.3% 19.6% Current ratio 1.8 0.7 3.3 0.9 1.1

Opportunities in Chinese water market

Favorable government policies

Privatization of water market

Pipeline construction

Average leakage of pipelines is 25%

Water supply

Demands for water supply increase 15% per year

High profit margin

Increasing trend for water price

Source: The third international water forum 2006

Water Funding World Bank, 2007 Water Municipal government 20-30% Domestic banks 20-30% State bond program 10-20% Private sector 10-20% China Development Bank 10% International Financial Institutions 5%

Natural Gas – Favourable Politics seed2