STRATEGIC REVIEW

In 2007, on the basis of CR Power’s existing strategies, including our business development strategy which focuses on more affluent regions in the country and large scale, more efficient generation units and our operational strategy which emphasises on being a cost leader, following our “total cost control” philosophy, and in response to the changes in the internal and external operational conditions, we changed our strategies for investment in the coal industry from equity participation to wholly-control or majority control. Such a big step forward will enable us to control our production cost and form CR Power’s strategic competitive advantages on a long-term sustainable basis.

In 2007, CR Power continued to implement our business strategies and maintain our fast expansion pace, through both internal growth and external development, and achieved satisfactory results.

During the reporting period, our operational attributable capacity increased significantly. As at 31 December 2007, our operational attributable capacity was 12,505MW, up 4,502MW or 56% from 8,003MW as at the end of 2006, of which 2,128MW increase was from greenfield projects and 2,374MW was from acquisitions, representing 47% and 53% of the total capacity increase respectively.

As for construction and operation of power plants, we have maintained our leading position in the power industry. The construction period of Liyujiang B Power Plant and Cangzhou Power Plant which commenced operation during the year is the shortest in the power generation industry in the PRC. The construction cost of these power plants was significantly below the PRC power industry average. In the meantime, our power plants were accredited with various quality awards.

In 2007, coal price increased rapidly in China. However, the average standard coal cost for our subsidiary power plants recorded a moderate year-on-year increase of 4.4%. The unit fuel cost increase for our subsidiary power plants in the reporting periods was only 2.3%. In addition, our management team also actively took advantage of the flexibility of raising funds in both PRC domestic and international capital markets in order to minimise our funding cost.

CORPORATE GOVERNANCE

CR Power has been committed to improving the overall standard of corporate governance with reference to international corporate governance practices. The Board acknowledges its responsibilities in establishing and enforcing a good corporate governance structure in order to improve its transparency and create value for all shareholders.

Since its listing, CR Power has been using the Code on Corporate Governance Practices (the “Code”) and Code of Best Practice as set out by The Stock Exchange of Hong Kong Limited as a base to improve its corporate governance. During the reporting period, we complied with all of the provisions and most of the recommended best practices under the Code.

INVESTOR RELATIONS

The Board believes that maintaining effective communications with shareholders is an important aspect of corporate governance and is also a building block to create value. In order to ensure that shareholders are closely informed of our latest developments and shareholders’ feedback can reach the management in a timely manner, we have been actively maintaining effective communications with our shareholders. With a view to deepen shareholders’ understanding of our company, we have been actively participating in investment conferences held by various large securities brokers in and outside China, conducting road shows worldwide after the announcements of our interim and annual results, and organising cocktail receptions for analysts and plant visits for fund managers. In September 2007, we held domestic road shows in the major financial cities in the PRC for the first time and met a number of major domestic institutional investors in Beijing, Shanghai, Shenzhen and Guangzhou with satisfactory feedback. Meanwhile, we held a cocktail party again and provided an opportunity for analysts and fund managers to directly exchange opinions with our front-line plant managers.

In 2007, CR Power was selected by Platts as one of the top 250 global energy enterprises. We ranked the 18th in the independent power generation and electric energy trading industry sector worldwide; we were ranked the 4th fastest growing energy enterprise in the world and the fastest growing energy company in Asia. The Institute of Industrial Economics of Chinese Academy of Social Sciences (“IIE-CASS”) and China Business Press (“CBP”) jointly published an enterprise competitiveness evaluation report and awarded CR Power as the “most competitive company listed in Hong Kong in 2007” and ranked the Company the first in the Chinese Hong Kong listed company evaluation category.

SOCIAL RESPONSIBILITIES

As an enterprise citizen, our company always pays close attention to our social responsibility, including environmental protection, community development and participation in charities. All the power plants which were constructed and managed by CR Power have installed or are in the process of installing flue gas desulphurisation (“FGD”) facilities. As for the power plants under construction, we have already considered the installation of denitration facilities; such movement transcends the environmental protection requirements set by the PRC Government and puts us in a leading position in the PRC power sector. Our Company and our subsidiary power plants have also been actively participating in social services, for example, natural disaster relief fund and tuition assistance for impoverished students in the forms of scholarships and grants. In February 2007, CR Power made donations to an education subsidy fund set up by China Resources (Holdings) Company Limited to help the impoverished students in Hebei Province. In December 2007, our company, together with the Chinese Juvenile Foundation and Yunnan Nujiang Lisu Autonomous Regional People’s Government, entered into the “Nujiang - China Resources strategic cooperation framework agreement” to support the impoverished students of Nujiang.

OUTLOOK

The PRC power sector is facing a severe challenge in 2008 with rising coal cost being a major challenge for all major Chinese power producers. Coal price in the PRC domestic markets increased rapidly during 2007. Since the beginning of 2008, coal price has gone up further. However, the PRC government has not implemented the third tariff hike in accordance with its ‘coal-cost-pass-through’ policy in 2007 and so far in 2008. This will result in significant pressure on the profitability of the Chinese power producers. Nonetheless, CR Power has made great efforts to control costs through various measures and aims to improve our utilisation hours so as to continuously create satisfactory returns for our shareholders.

The awareness of energy conservation in the PRC is rising on the back of its fast economic development. In 2007, small generation units with a total generation capacity of more than 14GW were closed down nationwide. In August 2007, the State Council issued a new energy saving dispatchment scheme for trial run. Under the scheme, the more environmentally friendly and efficient units are prioritised to dispatch. As most of the generation units of CR Power are large-scale and efficient units, our subsidiary power plants will strive to enhance our utilisation hours in 2008 and reduce the unit coal consumption rate so as to conserve energy and protect the environment whilst boosting our profitability.

In 2008, due to the problems of production safety, transportation bottleneck and strong demand growth, coal price continued to increase in China. We will make great efforts to improve our operational efficiency and to explore room for cost savings in order to mitigate as much as possible the negative impact caused by the rise in coal price. In addition, CR Power is pursuing vertical integration and proactively searching for suitable coal resources with significant strategic importance in the PRC in order to secure stable coal supply and enhance cost control. In the long term, as the coal production volume increases and when the construction works of various large-scale railways for coal transportation is completed, we believe coal supply will improve gradually.

In the future, CR Power will continue to develop according to our set business strategies, keep the rapid pace of growth in installed capacity, and maintain our low cost and operational advantages with a view to delivering and creating value for our shareholders.