I.

Management Words Of the Conference for Introducing the

CBF Project of PETROCOM

II. The Conference for Introducing PETROCOM ENERGY

CBF Outline of Howard’ Speech

III. A New Topic of the National Energy Strategy

IV. Market Stabilization, Energy Saving and Making Profits

through Economies of Scale---Comment on System of

China Coal Superstore chain

V. The Strategic Significance of A New Coal Supply Chain

VI. A Coal Superstore Chain is the Foundation and Necessity

to Keep the Balance and Stabilization of China

Tthermorelectricity Development

VII. Transfer of CBF Technology from Holland to China and

Promotion of China Coal Superstore

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VIII. From Coal Superstore to Coal Futures Market

I. Management Words Of the Conference for Introducing the

CBF Project of PETROCOM

Ladies and Gentlemen,

Good afternoon!

It is my pleasure to be invited by China Logistics Alliance Network and PETROCOM

ENERGY to hold the conference.
I am the chief representitive of PETROCOM ENERGY in China. On behalf of
the organizers, I would like to express my welcome to all the attendances from the
national ministries, leaders from the governmental departments, experts and

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professionals from the rest of the world, friends from banking and financial industry,
and the representitives from the power systems, coal mines and the railway
departments, and the leaders and partners from the provinces which will have our
CBF.
PETROCOM ENERGY CBF project is a high-tech project in China. This project
can match the requirements of the national economy and social development and
also matching the ideas of energy saving. It is a great project for the development of
China.
The theme of the conference is importing the foreign advanced techology
according to the energy strategy of China and managing the coal resources inland
and in abroad. We will discuss the construction of CBF and coal supply system and
put forward the set up of China Coal Superstore Chain. Also the project should make
contribution to energy saving and environmental protection.

Now let’s welcome the importer of CBF project and also the chairman of
Petrocom Energy, Mr. Howard Au and the topic of his speech is Domestic and
International Resource Integration and Establishment of China Coal Superstore
System.

Next, let’s welcome the Mr. Zhang deqin, the director of Policy Research Office
and the topic of his speech giving us address with impassioned claps, his address
topic is “A New Topic of the National Energy Strategy”;

Next, let’s give impassioned welcome to the famous economist, the China People
University professor Mr. Wu yifeng, his address topic is “Market Stabilization, Energy
Saving and Making Profits through Economies of Scale-----Comment on System of
China Coal Superstore Chain.

Next, let’s welcome the famous millitary logistics expert, people’s liberating army
of China logistic command academy professor Mr. Wang zongxi giving us address
is “Military Resource Integration and Service for the China Energy Development

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Strategy on Peace and War”;

Next, let’s welcome the Datang International Power Generation Corporation

Limited the general economist Mr. Liu lizhi’s addressing, and his topic is “A Coal
Superstore Chain is the Foundation and Necessity to Keep the Balance and
Stabilization of China Tthermoelectricity Development”;
Next, let’s welcome the China Railway United Logistic board director Ms. Wu
lihua’s addressing, her topic is “Well Operating in Logistics and Management of the
Economically Efficient Energy”.

Next, let’s welcome the Iv-Bouw Groep president Mr. Rob van de Waal giving
us address with enthusiastic clap, and his topic is “Transfer of CBF Technology from
Holland to China and Promotion of China Coal Superstore”

Next, let’s welcome the president of USA Westminister Securities Corporation

Mr. John O’s Shea and the topic of his speech is “From Coal Superstore to Coal
Futures Market”;

Next, let’s welcome the Vice President of China Logistic Alliance Network
professor Mr. Ding junfa to give us a speech or the topic is “Making Profits through
Logistics Operations and Building an Economically Efficient of Society”;

This is the end of the speech.

The speeches represent the opinion of project establishment, government,

engineers, finance industry, power system and logistics system. The topic concerned
by everyone is the execution, development and close relationship with global energy
resources by CBF.
As the rapid development of China economy, the demand of energy is keeping
increase. Stable energy supply will be a key factor for the development of China and
global economy.

Now it the big transformation time for energy stragedy and great challenge, the
launch of CBF project, the establishment of coal blending supply system chain, and
the research of huge scale coal superstore, which will match national requirements

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and it is profitable for people. We are cherishing the opportunity to listen to the
suggestion of other people, meanwhile we wish we can have further discussion and
cooperation. We are willing to cooperate with the market research department of
Development Research Center of State Council P.R.China, China Logistics Alliance
Network, China Economic Times and other Institutions for providing contribution to
the promotion of society development and energy saving.
Thank you for your coming again! Thank you very much!

II. The Conference for Introducing PETROCOM ENERGY CBF

Outline of Howard’ Speech

1. First thanks all guests, including foreign guest, government personnel, army,
professors, and business partners.
2. Introduction to Petrocom Energy, make the guests feel the strength of our
Petrocom Energy.
3. Introduction to the CBF project of Petrocom Energy.

4. The reason of Petrocom Energy invest huge fund on the China coal market.

5. The specialty of Petrocom Energy in energy and coal aspect, which owns a
professional operation team, research team, and capital operation team.
6. By a market survey in recent years, Petrocom Energy has entered into major
coal production regions, coal consumption region, transportation and logistic field
and also has integrated foreign coal resources. The resources for CBF project
has been confirmed and a chain of coal superstores will be the target of CBF
development.

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7. Introduction to Holland coal blending technology, which make the Petrocom
Energy become exclusive, and embodied the CBF project high-tech.
8. Current major coal distribution: analysis the coal resources of Vietnam,
Indonesia, North Korea, Russia and other regions, therefore which proved that
the coal resource of Shanxi, Neimeng, Shandong, besides used in power
generation, other coal resource, including foreign resource, single coal sort
cannot match the current huge power corporation, also cannot satisfy the
different demand of coal consumption corporation; the good point is that,
because of different coal resource and quality, paving the way for the
development of coal blending market. Many coal sorts will do well to the
development of new coal product.

10. PETROCOM ENERGY will set up the material circulation system based on the
analyze of coal sales and supply market. The material circulation point and CBF
should be set up according to the sales and supply. And the coal which can match
requirement from various of places should be produced.
11. Introducing the four CBF projects for the first line and the chain CBF projects in
future. Also the operation system of coal supermarket of PETROCOM ENERGY
should be set up within three years.

12. PETROCOM ENERGY needs the support from the government and the army
during the setting up of coal material circulation system. The new material circulation
points should make full use of the transportation and land sources in each area.
PETROCOM ENERGY should cooperate with the army, and the exist technology
should be used effectively, including the floating type wharf, the dock system and the
automatic loading and unloading system. PETROCM will contribute to the state
economic construction during the peace time, and the choosing of material
circulation points will be multiplication. The construction period will be short and the
effect will be operated quickly.

13. The coal researching institute of PETROCOM ENERGY should be set up, and

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PETROCOM ENERGY will discuss with the realted experts in each area about CBF
project. Also PETROCOM ENERGY should do researching on the new market and
explore new products. Then the perfect coal material circulation path which can
match the market rules will be set up.
14. PETROCOM ENERGY will conform the capital marke and contribute to the
society based on the market, technolog, industry and commerce.

III. A New Topic of the National Energy Strategy

Despite of a vast territory, from the point of the natural gift, China is not a
country with rich resources. The exploitable energy reserve per capita is much lower
than that in the world. In 2000, oil exploitable reserve per capita was only 2.6 tons,
11.1% of that in the world, gas exploitable reserve per capita was 1070m3, 4.3% of
that in the world and coal exploitable reserve per capita was 90 tons, 55.4 % of that
in the world.

Although there are relatively rich coal resources in China, the proving up degree
is much too low. In 2000, the coal reserve of economical detailed exploration, which
can serve new coalmines and has not been utilized, was only 20.3 billion tons, far
from satisfying the demand from the coalmines built currently, 86% of which is
located in the middle and west , where it is dry , lacking water, far away from
consumption centre and with great difficulty to explore, transport and utilize.

Coal is an important basic energy in our country, accounting for 70% of primary
goods consumption, and can not be replaced in the primary energy structure in long
run. In 2003, the total output of coal in our country was over 1.6 billion tons. By
2020, it is estimated the demand of domestic market for coal will reach 2 billion tons.

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 In addition, the development of the economic society in China depends on
much more energy than the developed countries. In 2001, the expense of the
energy consumption of the end users in China was 12,500 Yuan, accounting for
13% of GDP, compared with 7% in America.

In the energy utilization efficiency, energy consumption per unit product is at

relatively high level. Currently, the average energy consumption per unit product of 8
professions with high energy consumption industries is 47% higher than the
advanced level in the world, while they account for 73% of the total industrial energy
consumption. According to this, compared with the advanced level in the world, the
industrial sections in China consumed additions 0.23 billion tons spec-coal every
year. Generally, China is poor in natural gift, seriously short in energy resource,
greatly dependable on energy resource and low in utilization efficiency.

In view of these above, Chinese energetic strategy should take full advantage
of the domestic and international resources. It should be diverted from the single
domestic market into the domestic and international markets.

Regarding to national energy strategy, I will mainly discuss on two points: one
is about the upgrading of China’s energy strategy; and the other about import of
energy strategy and international cooperation of energy strategy.

Firstly, I will say something about energy strategy’s upgrading. The energy
strategy is upgraded from economic aspect to political, aspect from domestic to
overseas, from civilian to military and from interior to diplomatic. One reason why
USA started Iraq War is that the country expected to control the oil and gas
resources in Iraq. The fact is that USA built military facilities in Middle Asia and area
around Caspian Sea largely relies on the rich oil and gas resources in these regions.
And one important task for American’s navy dispatched in many strategic places
throughout the world is to control the global oil transportation. “China Energy

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Threatening” propagandized by USA, interrupting the energy cooperation between
Africa and Latin Countries, and his prevention from China National Offshore Oil
Corp to buying Unocal, demonstrated the real aim of the states. They want to control
the energy supply to China.
The energy problem create trables to the officials and enterprises. Thus
energy problem has become a problem for energy import. Every country regardless
energy importer or exporter is new energy stategies national policies. Currently, all
the countries try to strengthen the international cooperation and multilateral
negotiation and carry out cross-department adjustment and management thus
promoting competitive energy market’s building home and abroad and maximize the
saving energy. The aim of “the 11th Five Year” is to keep the national economy
development in a quick pace with smooth and healthy environment. To make GDP
in 2010 double to year 2000, it is required that the country’s total energy
consumption to be cut 20% from the end of “the 10 th Five Year”. We should diversely
develop our energy strategy to fit-in the local environment. It is also important to
enlarge cooperation with the overseas energy organizations.

The second topic is: To set up a strategy with the best use of foreign resources.

China is not only a large energy producer but also a large importer of energy
products. Under the rapid economic development, China has heavy demand on energy
resources. However, China is a latecomer in the international energy sector. With years
development internationally, China has archieved its goal. For instance, the 1st phase of
the project from Atasu to Allah Mountain of oil pipeline from China to Kazakstan has been
completed and putting into use. The leaders of China and Russia have come up an
important agreement in cooperating on energy resources development: the oil export
from Russia to China by railroad should be increased and two countries should
strengthen the cooperation on exploitation of gas and oil. The Tax Reduction Plan
cooperating between China and ASEAN has been started.

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 Thus, we come up with the idea of coal superstore chain in China by importing the
foreign coal resources from Indonesia, Vietnam, Russia and North Korea. Those
countries are the partners of China on international cooperation and coal resources
import for power plants.

To import the foreign coal resources, we should pay attention to :

Firstly, we should have good understanding on the comparative advantage of domestic

coal resources and international coal resources, we should develop our home economy
by importing international coal resources, and protect domestic resources to sustain the
economic development.
Secondly, we should pay attention to the quality, price and quantity between domestic
coal resources and international coal resources. Our product should achieve the
optimum confect on these aspects, such as of heating value, moisture, ash and
contamination emission and so on.
Thirdly, the analysis on costs and benefits of international marine transport and domestic
land transport to realize the reasonably regional collocation of coal resources and
balance the Chinese coal market.
Fourthly, we should consider the safety standard of the coal mine and the protection of
local small coal enterprise when we trying to induce the foreign energy cooperation.
Lastly, allow me to congratulate this meeting making active contributions to China coal
market! Wish a success of this meeting! And wish a success in setting up the China coal
superstore!

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IV. Market Stabilization, Energy Saving and Making Profits through

Economies of Scale---Comment on System of China Coal

Superstore Chain

Ⅰ China coal market is indispensable to the macro control of government. (Examples

showing macro controls and guiding of South Korea, France and Germany)
Ⅱ China is a large country of coal producing and selling, Energy-saving is the leading
problem in the economy development. Lack of coal resources is the bottleneck of
the national economy development. The first thing for building an economical
society is to save energy. The establishment of coal supermarket chain is to take
good use of energy, to maximize the coal resource profit, to be a best way to
resolve the contradictions of need & demand regionally and of transportation.
Ⅲ Modern economy is a kind of scale economy. And economy can’t be called so
without scale. Coals scattered throughout the country can’t satisfy the increasing
demand due to national economy’s current development. By saying to build coal
supermarket chain, it means to build scale coal market in China. Only scale can
bring forth profits. (Two examples showing regional orders for coals for power
plants can’t satisfy the demands of China’s energy development strategy)

by----Wu Yifeng

V. The Strategic Significance of A New Coal Supply Chain

Ladies and Gentlemen,

A strong coal supply chain will be built by utilizing the advanced coal blending
technology and efficiently integrating the supply logistic resources.
There is no doubt that this new coal supply chain will be very valuable for the
promotion of China’s energy strategy and logistic strategy.
This new coal supply chain shows that the modern logistics integrates

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modernization and the advanced concept of service-first.

From the vertical point of view, CBF links up the upstream areas and directly
connects to the coal mines. The utilization of advanced coal blending technology
eliminates the coal enterprises’ worry for coal sales while the downstream areas in
the center directly face the users, where the strong coal blending function can
completely meet the users’individualized requirement.

From another side, the coal supply chain can manage the transportation
resources effectively, and it can perfect the coal blending plan from the varies
transportation ways. Then the aim of energy saving and environmental protection
can be achieved.
This kind of new operation pattern can raise the utilization rate of coal
resources. Also it can reduce the cost of material circulation. Besides, this operation
pattern can benefit all the enterprises in this chain. Through this kind of supplying
chain, it can increase the competitive capacity of the energy enterprises and material
circulation enterprises. Based on these, I hope that the CBF projects can be started
successfully.

Thank you very much!

VI. A Coal Superstore Chain is the Foundation and Necessity to

Keep the Balance and Stabilization of China Coal & Electric Power

Development

Liu Lizhi （ Economist of Datang International Power Generation

Co.Ltd）

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Ladies and Gentlemen,

Good afternoon!

It is my pleasure to join this conference! I am Liu Lizhi from Datang International

Power Generation Co.,Ltd. It’s my pleasure to talk about the supply of coal for power
generation from the angle of thermal power generation business. The title of my
speech is It is necessary to Set up the Coal Market System and the way to Keep the
Steady Development of Electric Power.

Before I express my point of view, I would like to introduce Datang International

Power Generation Co., Ltd and Datang International. Datang International was set
up in 1994 which listed in Hong Kong and New York in 1997. It is the first state
owned enterprise get listed in London, also it is the first listed state owned power
generation enterprise in Hong Kong. Till the end of Dec. 31st, 2005, the register
capital of the company reached 51.63 million Yuan. The total capital of this company
and its subsidaries are 645.36 million Yuan. Total amount of profit is 3.86 billion
Yuan. The annual cash return is about 7 billion Yuan. The company has achieved
long-term development with support from the local government, the state
departments and committees in the 6 years after listed. The power generation
enterprises which are being operated or constructed located at 17 provinces in
China. In order to keep the steady supply of coal for power generation and the
steady price, Datang International corrected its development strategy to improve its
ability in reducing the risk. It started preparation work of the power generation chain
which involves the coal mine, power plants, railway, ports, and deep processing of
coal. The whole plan has been made.
Datang International Power Generation Co., Ltd was set up in December of
2002 which is the stock owner of Datang International. In the five largest power
generation enterprises, the development of Datang International Power Generation
Co., Ltd is the most quick one no matter in the install capacity or the economic profit.
And all these showed that it is right to change the development strategy for Datang

13
International Power Generation Co., Ltd.

After you have the basic understanding of our company, I would like to express
my point of view in the following three aspects:
First of all, the fast and healthy development of China economy and the
structure of the non-renewable energy resource decided that the main fuel for power
generationis coal, and this situation will not be changed for a long time. The
development of China economy encourages the development of power generation
enterprises. In 1987, the install capacity reached 100 million kw. From 1988 to 1994,
the intall capacity was added by 100 million kw. From 1995 to 2004 the new added
install capacity was added by 200 million kw. From 2005 to 2006, the new added
install capacity was added by 100 million kw. And the total install capactiy in China
reached 500 million kw. Since 1996, the install capacity and the amount of power
generation in China are the no.2 in the world, and China becomes to the large
country of power generation.

Under this background, the Datang Group Corporation had the installed capacity
less than 25 million kw at their establishing in September 2002, however it broke 40
million kw at the end of 2005 and it is predicted that the installed capacity can reach
50 million kw to August of this year to realize doubling installed capacity. As the core
enterprise of the Datang Group Corporation, the Datang Internation Power
Generation Co., Limited. had installed capacity just in 3.15 million kw at the
beginning of establishing in 1994. After ten years’ striving, it had 13.8 million installed
capacity till the end of 2005 and realized twice doubling installed capacity; it is
predicted that the installed capacity in the end of 2006 will exceed 20 million kw.

As far as these units feeding fuel, it is mainly the coal. So the coal fed power plant
will still be the main body and the key power of china power generation in the long

14
term of future.

The second, the steady, fit for the boiler’s features and high quality coal supply is
either concerned by power generating enterprise or the requirement of constructing
economizing and environment protection type society. Now that the china current
resource situation has determined that coal is the main power of the china power
generation industry, we should research the coal supply and high efficiency applying
issues. The “the state energy strategy basic conceiving” finished by state council
indicated, the coal proportion will remain more than 63% between 2000 and 2020 of
once energy total requirement. This also determined our power generation industry
will last the coal based pattern for a long term. The coal fed power generation has
taken 78% under the case of that the china total installed capacity exceeded 0.5
billion kw. Therefore, the electrical coal supply will be the important factors to ensure
national economy rapid and steady increasing, maintaining power generating
industry. Due to huge quatity coal consumption, the slightly changes of coal supply
integrated price will make large affect to electrical enterprise business, especially the
consumption increasing and emission adding issue cased by coal quality
decreasing, which not only affects the benefit of the power generating enterprise but
also was harmful to state economy decreasing energy consumption at the
macroscopical aspect. As far as the Datang Group Corporation,

Now the consumption of coal for power generation is 120 million tons. It is
expected that in 2006 the consumption will be 150 million tons. If the changing of the
cost of coal for power generation is limited in 10 Yuan, or the coal is not suitable for
the boiler, and the burning effeciency is reduced by 3% to 5%. The cost will be
added by more than 1 billion Yuan.

From the angle of reality and development, the steady market and high

15
effeciency and low cost can guarantee the steady development of power generation
business.
Thirdly, setting up the coal superstore chain plays important role in the healthy
development of China coal business, electricity business and China economy.

The first reason is that it provides a new mode and way for solving regional
unbalanced economy and coal resource unbalanced distribution. The establishment
of coal supermarket, which solved the coal transportation problem, meanwhile it
meet coal demand of the South–east region for West region;
The second reason is that it makes full use of international coal resource, part of
it make up domestic steam coal. From the start of lacking power to lacking coal, this
enhanced the supply and demand contradiction in steam coal market. The export of
Indonesia coal is the third one in coal business in the world, and the recoverable
reserve is 5.4 billion tons. Half of the reserves are brown coal. The export amount of
Indonesia coal is about 70%. According to the expectation of Indonesia Coal
Association, the proportion will not be changed in future few years. From the
distribution of Indonesia coal, 77% exports to Asia. The utilization of foreign coal is
much less. Therefore there is a great market for the export of Indonesia coal. RMB
increase in value, the reduction tax in China-ASEAN free trade zone, national
reduce the coal import tariff, and international freight expenses reduction will do
good to the transformation of coal import. Recently the power project of Datang
International Power begin to research and implement the importation coal from
Indonesia, the price is lower 30 Yuan/ton than domestic coal. Because the coal
index did not march the boiler design quality, which need to mixes with domestic
coal for burning. And the coal blending condition of power plants is not good; the
volume of coal blending is small, which will influence the import volume. We thought
that establish the CBF and make use of advanced coal blending technology, which

16
can solve the problem.

The third reason is that it can promote the sound of domestic coal market
system and advanced the national economy developed healthy. From the
establishment of coal supermarket to shape the futures supply market, which
advanced the adjustment of regional supply and demand for domestic coal market,
react the national economy system to the energy supplying adjustment, meanwhile
avoid the economic venture.
In a word, the establishment of coal linkage supermarket is necessary and
market demand. Power plants welcome and support coal linkage, establishment coal
supermarket linkage, which can reduce the purchase cost, highlight the boiler
burning efficiency, reduce the environment drainage, save the sources. During the
establishment of coal supermarket, which need the corporation between power
plants, government integrate management department and coal supermarket
Management Corporation. At the premise of ensure the corporation efficiency,
environmental and save society profit, provide stable market demand; government
will monitor the coal supermarket and avoid the monopoly; coal supermarket must
regulated itself, and ensure the professional ethnics, and confirm the power plant
supply the qualified coal for the boiler.

At last, we wish the big coal country and power country, at the guide of scientific
development opinion and during the establishment process, which will build
gorgeous history in world thermal history.

Thank you

VII. Transfer of CBF Technology from Holland to China and

Promotion of China Coal Superstore

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Lady’s and gentlemen,
This is a special day, a very special day.

This ceremony has been convened to launch Petrocom Energy ideas to build a Coal
Blending Facility. It will be the first one in a row.

In doing so, Petrocom Energy, and in particular its President Mr. Howard Au, shows
its entrepreneurship. This plan of building a number of Coal Blending Facilities is
very innovative and very new for this region.

As far as I know, only one plant in the whole world can be compared with what
Petrocom Energy wants to achieve. And that plant is located in the port of Rotterdam
in the Netherlands.
This plant has been built about ten years ago and serves power plants with blended
coal in both The Netherlands as Germany.

Some figures:

The plant has a capacity of blending 10 millions of tonnes of coal. Six different types
of coal can be blend at the same time. Therefore the facility counts six silo’s, with a
content of 8000 tonnes each.
The owner of the plant is EMO, who operates this facility now for 10 years and is
very satisfied with the working of the plant.

The company I represent, Iv-Bouw, was responsible for the design of this facility.
During the time we were working on this design for our Dutch client, we performed
several studies to other concepts. At the end we chose this silo-concept of which we
are still convinced to be the best solution.

And now we are in the position to transfer our know-how of designing Coal Blend
Facilities and our experience with operations and maintenance of the installation to
China.

This facility has two main objectives. By blending different types of coal, the air-
pollution with sulphate can be reduced considerably. That means that this installation
can contribute to a much better environment.
A second goal of the installation is a better and more effective burning of the
material. This saves a great quantity of fuel and so a lot of money.

This project is not the only project in China where we as Iv-Bouw are involved in. We
just got the contract for the design of a great wheel in Beijing. This wheel will be
comparable to the one which has been built in London, called the London Eye. Iv-
Bouw was responsible for the design of this wheel also. The major difference

18
between the two is that the one in Beijing is much bigger off course. As it is planned
to be finished before the Olympic Games of 2008, the diameter of the wheel in
Beijing will be 208 meter, where the London Eye is only 140 meter.

Both projects, the Coal Blending Facility and the Beijing Wheel, are beautiful
examples of know-how transfer from Europe to China. These projects will contribute
to the economic development of China.

Saying this does remind me to a very strange phenomenon. As you all will know,
China was the oldest civilisation in the world. Thousands of years ago, China was
the most important power and most developed area in the world.
From China, this civilisation went to India, from there to Mesopotamia, then to Egypt,
from there to Greece, then to Italy, Rome, to Europe and nowadays the United
States are the most powerful country in the world.

Did not you notice that civilisation in the past went from East to West, from China via
Europe to the United States. Elaborate on this, after the United States it will be
China again that will be the most important economic power in the world. It would
not surprise me, when this would happen must sooner than we all expect now. Mr.
Bush, you are warned, always keep history in mind!!

I hope that this project will contribute to the prosperity of China and off course will be
a great success for Petrocom Energy, Howard Au and all the employees involved
with this project.

VIII. From Coal Superstore to Coal Futures Market

I would like to first express my sincere appreciation and thanks to Mr. Howard Au
and Petrocom Energy for this opportunity to speak before this conference of
government officials of the People’s Republic of China, the people of China,
business leaders and esteemed guests. It is truly an honor to present with this
distinguished panel of speakers. I speak before this conference as CEO and
President of Westminster Securities Corporation. We are a New York Wall Street
brokerage firm specializing in investments in China and Energy. We at Westminster
are proud to play the role as investment bankers to PETROCOM ENERGY and to
Mr. Howard Au.

China and Foreign Investments

First, I would like to speak regarding foreign investments in China and Chinese
growth warranting such investments into the region. Last year, Chinese companies
raised some $20 billion from foreign equity investors, compared with a combined

19
total of $5 billion for all other countries in the region. Most of this money enters via
Hong Kong, where a third of the market capitalization now represents mainland
companies. China is already the third-largest market for foreign investment in Asia
after Hong Kong and Tokyo. Eventually, the integration of pools of liquidity will allow
China to be ranked in world’s top three along with America and Japan.

The underlying Chinese economy is enticing. Many economists predict that in 15 or

20 years’ time, China will become “the next $10 trillion economy after America”.
Moreover, there is something special about China’s expansion. Not only has the
economy been growing faster than any other over the past six years, but in stark
contrast to other emerging markets this growth was not volatile. Even now, as
economists scale back their growth forecasts for most of Asia to reflect falling
demand from America, their projections for China remain unaffected. The reason:
China’s economic growth is, to a large extent, generated domestically rather than by
exports—which reflects its growing economy.

China is beginning to drive, in a new and pervasive way, economic trends. China’s
contribution to global GDP growth since 2000 has been almost twice as large as that
of the next three biggest emerging economies, India, Brazil and Russia, combined.
Moreover, there is another crucial reason why China's integration into the world
economy is today having a bigger global impact than other emerging economies.
Uniquely, China combines a vast supply of labor with an economy that is (for its size)
unusually open to the rest of the world, in terms of trade and foreign direct
investment. The sum of its total exports and imports of goods and services amounts
to around 75% of China's Gross Domestic Product.

China has undeniably enjoyed an investment boom. Its growth of 9.1% in 2003
required investment of 42% of GDP, and last year's 9.5% probably needed an even
higher ratio. Anywhere else, capital accumulation on that scale would look like a
bubble. However, few economists expect China’s growth to change. First, they
argue, there is no reason to expect investment suddenly dry up. And second, there
are signs that consumption is stronger than in recent years, and may withstand a
falling-off in investment. For the first time in 20 years, consumption growth may be
uncoupling itself from investment.

China’s economy will expand at least 10% in 2006. China’s economy is steaming
ahead, with investment in factories and other fixed assets in the first five months of
2006 up 30.3% from the year before. China’s GDP increased 10.3% in the first
quarter of 2006.

As a result, the dragon is awake.

The Energy Sector

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If you had to name the world’s largest industry, which would you pick? No, not
information technology or telecommunications, nor car manufacturing. Energy is the
biggest business in the world; there just isn’t any other industry that begins to
compare. The turnover of the global energy business amounts to at least $1.7 trillion
to $2 trillion a year. The World Energy Council, an umbrella body for various energy
interests, estimates that global investment in energy between 1990 and 2020 will
total some $30 trillion. “Energy is the very fuel of society, and societies without
access to competitive energy suffer.”

Paradoxically, its very importance has been a curse for the energy business: until
recently, governments the world over have felt that it was too crucial to be left to the
vagaries of the market. In many ways, they have ensured that oil, gas and electricity
operated outside proper market principles. Now, albeit in fits and starts,
governments everywhere are liberalizing energy markets, and encouraging
consolidation, cross-fertilization and cross-border trading on a scale this business
has never seen before. The resulting competition should be good for consumers,
who will enjoy lower prices and more innovative services in the long run.

Coal in China

Coal remains king. China is the world’s largest producer and consumer of coal. Its
mines employ millions of its people, and coal provides around 75% of its energy.
With the demand for energy growing by about 3.5% a year and expected to double
over the next 20 years, coal will remain the country's dominant energy source for the
foreseeable future. As the world’s largest coal market, with production in 2006
predicted at approximately 2.25 billion tons and the demand predicted at 2.3 billion
tons: coal is big business for China.

To look back on the history of coal for a brief moment; I am reminded that the
modern economies were built on coal. But they didn’t spring out of the ground; they
sprang out of demand. Around 1700, England faced a fuel crisis. Much worry was
expressed about the soaring cost of wood for heating and for the already booming
iron industry; the price of charcoal, used in iron-smelting, doubled in real terms
between 1630 and 1700. Yet, not for the last time in the history of such crises,
demand produced supply. Entrepreneurs developed and marketed Britain’s vast
reserves of a fuel that lay ready for extraction under their feet, once the market
made it worth extracting: coal.

Coal was to power Britain’s industrial revolution. This is true of China. Without coal,
there would have been no industrial revolution around the world. Today’s oil-driven
world and tomorrow’s driven by who knows what, owe their birth to coal.

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Petrocom Energy

As we are all aware, the purpose of this conference is to discuss the energy sector
in China and formally launch Petrocom Energy’s project which uses advanced
foreign coal blending technology to integrate domestic and international coal
resources to develop a new reliable coal logistics supply chain. Petrocom Energy will
establish a network of CBFs across China and highlight the importance of protecting
the environment in China.

There are many other benefits to China from Petrocom Energy’s CBF facilities: they
will change the way coal assets are valued by providing value to the previously
unusable coal. They allow efficient use of coal resources by allowing all coals to be
mined in an area even if it has high sulfur content. They save transportation
resources by transporting blended coals which have lower ash etc. and so contain
more energy per ton. They allow provinces which don’t produce coal to use the
CBF stockpiles as strategic reserves. They establish R & D centers for coal
beneficiation and mine safety. Lastly, they provide basis for investment to set up port
terminals as well as coal distribution centers in China.

As I stated in beginning, we at Westminster are extremely proud to have the

opportunity to be the investment bank to Petrocom Energy and to Mr. Howard Au.

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