Rapid economic development and industrialisation have aggravatedthe already acute water and power shortage problems in the PRC. Public awareness and emphasis on environmental protection and control issues have also heightened considerably. In its 10th 5-Year Plan, the PRC Government has shown strong determination and support by providing for the allocation of more funds for water pollution control to raise the national wastewater treatment rate to above 60 per cent in all cities by 2010, as well as for initiatives to combat the problem of water and power shortages.

Our focus on the PRC market will further entrench our domestic leadership position and provide an edge over competition to seize opportunities for growth.

We intend to implement the following key plans to grow and expand our business:

FOR OUR WASTEWATER TREATMENT BUSINESS SEGMENT

Expand our range of technologies

Our success depends on our ability to offer innovative solutions to our customers. As such, we would continue to explore the expansion of our range of technologies by either entering into additional cooperative agreements with strategic technology partners or developing additional technologies of our own. We believe in expanding on our range of technologies in order to incorporate leading wastewater treatment technologies in our projects. We will also cooperate closely with our international partners in the area of research and development.

Expand into the municipal wastewater treatment industry through BOT-type projects

In the PRC's 10 th Five-Year Plan, the PRC government has indicated that its objective is to raise the national wastewater treatment rate to above 60% in all cities by 2010. The Plan also indicates that the PRC government plans to build water treatment facilities in all cities and treat 45% of sewage water by 2005 . As our directors believe that there is good potential in this industry, we intend to focus on and grow this segment of our business by tendering for more municipal wastewater treatment projects.

We have recently established our associated company, Wuhan Hanxi, with three other parties, namely Wuhan Electric, Wuhan Gelin (a subsidiary of Wuhan Electric) and an unrelated party, Wuhan Urban Waste Water, with equity interests of 43%, 22%, 15% and 20% respectively. Wuhan Hanxi was set up to engage in a BOT wastewater project which will involve the construction and operation of a municipal wastewater treatment plant in the west of Han Kou within Hubei Province (the "Hanxi Project"). This wastewater treatment plant is expected to serve an area of 54.67 square kilometres and an estimated population of 600,000, as well as treat and supply up to 400,000 tonnes of water daily to the city government.

Wuhan Hanxi is licensed to operate this wastewater treatment plant for an aggregate of 25 years, of which the first two years will be devoted to the construction of the plant. During the remaining 23 years that Wuhan Hanxi will operate the wastewater treatment plant, the Wuhan City Government has guaranteed a capacity usage of 80% in the first two years of operation and 100% for the remaining 21 years. After 25 years, the operation of the plant will be transferred over to the Wuhan City Government. The Hanxi Project has been approved by the Hubei Provincial Government and is a critical environmental project as it is expected to enable Wuhan City to self-contain its wastewater treatment capacity at a threshold of 60% by the end of FY2005. The future income stream of the Hanxi Project will be derived from the collection of water tariffs, which are determined by the municipal government based on the costs of constructing the wastewater treatment plant and the expected operational costs. The municipal government also has the discretion to adjust such water tariffs in the event of increasing operating expenses. Upon due consideration of the governmental support behind the Hanxi Project, the tariff payments to be received by Wuhan Hanxi following the capacity usage guarantee provided by the Wuhan City Government and after conducting a detailed internal feasibility study, we have proceeded with our investment in the Hanxi Project.

In addition to our first foray into the Hanxi project, we intend to explore and invest capital in additional BOT projects for wastewater treatment plants. Where certain large-scale BOT projects require substantial capital investment, we may either undertake such projects on our own or collaborate with suitable business partners.

Under the BOT business model, we will run the operations of the facilities for a period of between 20 and 30 years, during which we are entitled to the fees paid by the PRC government, which are obtained from levies imposed on residents. At the end of our operating period of such facilities, the facilities are transferred to the PRC government without any additional costs and liabilities incurred by us. As such, we believe that BOT projects will enhance our profitability as they generate a steady and recurring source of income for our Group over a sustained period of time.

Management of industrial wastewater and sewage discharge facilities

We believe that there will be a trend towards the outsourcing of the management of water treatment plants to third party professionals such as ourselves. In this regard, we have obtained the Certificate for Operation of Environmental Facilities issued by the PRC State Environmental Protection Administration and are therefore well-positioned to offer our management services to industrial wastewater and sewage discharge facilities. We believe that the management of such facilities will provide us with a steady revenue stream as our management fees are subject to a minimum pre-determined fixed charge and are based on the tonnage of treated water from such facilities.

FOR OUR WATER PURIFICATION BUSINESS SEGMENT

Expand our existing market share in the power generation industry

We intend to leverage on our existing good track record in the power generation industry to consolidate and expand our existing market share in the industry. We believe that we can do so by building on our existing networks to gain market information on upcoming projects and continuing to provide quality water purification treatment systems and solutions.

Diversify the application of existing technologies to expand into other industries

We may explore diversifying the application of our existing technologies, such as electrodeionization, reverse osmosis and ultrafiltration to expand into other industries, such as the seawater desalination industry, as and when opportunities arise.We believe that the increasing demand for potable water, especially in the PRC coastal cities, creates a corresponding increase in demand for seawater desalination plants. This presents a good potential market for us to tap into.