Notice of the China Banking Regulatory Commission (CBRC) and the National Development and Reform Commission (NDRC) on Issuing the

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1 Notice of the China Banking Regulatory Commission (CBRC) and the National Development and Reform Commission (NDRC) on Issuing the Energy Efficiency Credit Guidelines CBRC (2015) No.2 CBRC local offices, Development and Reform Commissions (Economic and Information Commissions, Economic Commissions, Industry and Information Technology Departments, Economic Development Bureaus) of all provinces, autonomous regions, direct-controlled municipalities and municipalities with partial economic management powers, and Xinjiang Production and Construction Corps, all policy banks, state-owned commercial banks, joint-stock commercial banks, financial asset management companies, the Postal Savings Bank of China, as well as all trust firms, enterprise group finance companies, and financial leasing firms directly regulated by the CBRC: The China Banking Regulatory Commission (CBRC) and the National Development and Reform Commission (NDRC) have jointly formulated the Energy Efficiency Credit Guidelines, with a view to implementing the national strategy of energyefficient and low-carbon development, promoting the sustained and healthy development of energy efficiency credit, actively supporting industrial restructuring and technological upgrading of enterprises, improving energy efficiency, and reducing energy consumption. The guidelines are hereby issued and published for strict compliance and implementation. China Banking Regulatory Commission (CBRC) National Development and Reform Commission (NDRC) (To be sent to all CBRC local offices and local banking institutions) Energy Efficiency Credit Guidelines Chapter 1 General Provisions January 13, 2015 Article 1 For the purpose of promoting the sustained and healthy development of energy efficiency credit extended by banking institutions, and actively supporting industrial restructuring and technological upgrading of enterprises, the present Guidelines are formulated pursuant to such laws and regulations as the Law of the People's Republic of China on Banking Regulation and Supervision, the Law of the People's Republic of China on Commercial Banks, and the Law of the People's Republic of China on Energy Conservation.

2 Article 2 The present Guidelines shall apply in cases where any banking institution established within the territory of the People s Republic of China upon approval by the CBRC conducts energy efficiency credit business. Key energy-using entities, energy service companies, and third-party energy efficiency audit organizations shall also conduct any and all activities relating to energy efficiency credit pursuant to the present Guidelines. Article 3 Energy efficiency credit mentioned herein refers to credit financing provided by relevant banking institutions for the purpose of helping energy-using entities to improve energy efficiency and reduce energy consumption. Article 4 The CBRC is responsible for, in accordance with applicable laws and regulations, regulating and supervising relevant banking institutions energy efficiency credit business. The NDRC is responsible for, in accordance with applicable laws and regulations, regulating and supervising any and all energy-saving activities conducted by key energy-using entities, energy service companies, and third-party energy efficiency audit institutions. Chapter 2 Service Areas and Key Projects Article 5 Energy efficiency credit business mentioned herein mainly includes: (1) Industrial energy efficiency, covering such key industries as electric power, coal, iron and steel, nonferrous metals, petroleum, petrochemicals, chemicals, building materials, paper, textiles, printing, food processing, and lighting; (2) Building energy efficiency, mainly covering existing and new residential buildings, government office buildings, other public buildings used for commercial, service, educational, scientific research, cultural and health purposes, energy-saving equipment and system optimization for central heating and cooling systems used in buildings, and applications of renewable energy in buildings; (3) Transportation energy efficiency, mainly covering rail transport, road transport, sea transport, air transport and urban transport; (4) Other key fields relating to energy efficiency programs, services, technologies and equipment. Article 6 Energy efficiency projects mentioned herein refer to energy conservation projects aimed at conserving primary and secondary energy resources through such means as optimizing the design of, and updating, energy-using equipment and systems, and strengthening the practice of energy recycling. They share the following characteristics: (1) Technically diverse and highly professional: covering boiler (kiln), motor system, information processing and other equipment, energy-efficient retrofitting of production line, cogeneration, energy system optimization, waste heat and waste pressure utilization, building energy efficiency, transportation energy efficiency, green lighting, and all types of specialized energy-saving and low-carbon technologies that are undergoing rapid innovation; (2) Wide-ranging in scope, with a multitude of participating entities: covering subsidized use of energy-saving technologies, production and sale of energy-saving equipment, construction of energy-saving projects, energy-saving operation and management, energy efficiency information services, and energy efficiency financial

3 services, and involving myriad market participants, including energy-using entities, energy service companies, suppliers and sellers of energy-saving equipment and products, engineering design entities, and financial institutions. (3) Boasting great market potential, with economic, environmental and social benefits: as energy scarcity becomes increasingly prominent, energy prices will maintain a long-term upward trend, hence the obvious economic benefits of energy efficiency projects. Enhanced energy efficiency can also help reduce energy consumption and cut emissions of carbon dioxide and pollutants, and thereby deliver enormous social benefits. Article 7 Banking institutions shall intensify credit support for the following key energy efficiency projects, provided that effective risk control and sustainable business are ensured: (1) Key energy-using projects that are conducive to promoting industrial restructuring, technological upgrading of enterprises, and major product upgrades; (2) Key energy-saving projects in line with national planning, energy efficiency projects and energy performance contracting projects included in the Catalogue of National Key Energy-saving and Low-carbon Technologies to be Promoted, energy efficiency retrofit projects of the 10,000 Enterprises Program -listed enterprises with outstanding economic efficiency, good credit standing, and sound energy management systems; (3) Low-energy and ultra-low-energy new energy-efficient buildings exceeding the current national standard, new 2-star and 3-star green buildings and green affordable housing projects that meet the national evaluation standard for green buildings, energy efficiency retrofitting of existing buildings, green retrofit projects, buildings utilizing renewable energy, energy-efficiency retrofitting of central heating and cooling systems, energy-saving operation management projects, projects using 2-star or 3-star-rated green building materials, new docks and energy-saving and emissioncutting supporting facilities that fulfill national energy efficiency technical specifications and green evaluation standard; (4) Key energy-saving projects or pilot-demonstration projects that meet the requirements of the national green circular low-carbon transportation initiative, new ships that fulfill the ship energy efficiency technical specifications and comply with the carbon dioxide emissions limit, and energy-saving projects of the 1,000 Enterprises Low-carbon Transportation Program -listed enterprises; (5) LED lighting commercialization projects and indoor & outdoor LED lighting application projects that fulfill the national LED lighting energy efficiency industry planning; (6) Energy efficiency retrofit projects and major energy-saving product industrialization projects that have received financial assistance from the national or local governments; (7) Other key energy efficiency projects that comply with national industrial policies or sector planning. Chapter 3 Credit Type and Risk Control Article 8 Energy efficiency credit includes energy efficiency project credit for energy-using entities and energy performance contracting credit for energy service companies.

4 (1) Energy efficiency project credit for energy-using entities refers to credit financing provided by relevant banking institutions for energy efficiency projects invested in by energy-using entities, with the energy-using entity serving as the project investor and borrower. (2) Energy performance contracting credit refers to credit financing provided by relevant banking institutions for energy performance contracting projects performed by energy service companies, with the energy service company serving as the project investor and borrower. Energy performance contracting refers to an energy service mechanism wherein energy service companies provide necessary services to energy-using entities to fulfill an energy efficiency target contractually agreed upon by the two sides, for which the latter will repay the former with energy cost savings. There are multiple types of energy performance contracts, including shared savings contracts, guaranteed savings contracts, savings payment contracts, capital lease contracts, and hybrid contracts. Energy service company refers to a specialized business providing a broad range of energy solutions including energy use diagnostics, design, retrofitting (construction, equipment installation, and commissioning) and operational management of energy savings projects. Article 9 Banking institutions shall clearly define the eligibility requirements for relevant energy efficiency projects, energy-using entities, and energy service companies to access energy efficiency credit. (1) The capacity of relevant energy efficiency projects shall comply with national and regional planning policies, industrial development policies, and industry access requirements; (2) Relevant energy efficiency projects shall be technically feasible and economically feasible. Technically feasible means similar technologies have been successfully implemented and widely applied, or in the case of new technologies, there is ample evidence to suggest that they can be widely applied, or the technologies used have been included in the NDRC s Catalogue of National Key Energy-saving and Low-carbon Technologies to be Promoted or other catalogues of energy-saving technologies, equipment, and products released by such agencies as the Ministry of Industry and Information Technology, the Ministry of Housing and Urban-Rural Development, and the Ministry of Transport, with the projects energy efficiency improvements able to be measured, reported, and verified. Economically feasible means that relevant investments can be recovered within a predetermined period through energy savings, with the project s cash flow being attainable, continuous, and stable; (3) Relevant energy-using entities shall operate in a lawful and legitimate manner, with good financial and credit standing and capable of being carried on as a going concern. They shall have reliable sources of repayment comprised of energy savings generated by relevant energy efficiency projects and other lawful repayment sources. (4) In addition to meeting the conditions specified in the preceding paragraph, energy-using entities in energy performance contracting shall also keep a complete database of historical energy consumption statistics, or have an energy consumption baseline acknowledged by both the energy-using entity themselves and energy service company, have put in place and effectively implemented a sound energy statistics and management system, and have ample ability and willingness to make payment using energy savings;

5 (5) Energy service companies shall operate in a lawful and legitimate manner, possess core technologies, have professionals and project running experience in energy performance contracting, and boast good financial and credit standing. Article 10 Banking institutions shall, in accordance with relevant national regulations and by considering such factors as a given project s level of risk, the borrower's financial condition and their risk tolerance, reasonably estimate the project s investment and financing needs, and, on the basis of the estimated cash flow and payback period, reasonably determine the loan amount, loan term, and repayment plan. In determining the elements of an energy performance contracting loan, the energy savings of relevant energy performance contracting projects shall also be reasonably assessed, with such factors as the seasonal variations in energy savings, equipment maintenance, energy savings sharing ratio, term and payment methods specified in the relevant energy performance contract also sufficiently considered. Article 11 Banking institutions shall strengthen their due diligence in energy efficiency credit, and comprehensively understand and examine such information and risk points as energy-using entities, energy service companies, energy efficiency projects and energy service contracts, including, but not limited to, the following: (1) To conduct strict compliance audits on the borrower and energy efficiency project, including the authenticity and integrity of the approval documents (or documents for filing) required, the legitimacy of relevant procedures, and the compliance of environmental and social risk management, to confirm their compliance with national industrial policies and environmental protection regulations; (2) To conduct investigation and assessment of the borrower s financial condition, its production and operation status, and the implementation of preferential policies to encourage energy efficiency, such as tax incentives and financial rewards and subsidies, in the region where the borrower or the energy efficiency project is located; (3) To conduct investigation and assessment of the energy service company s eligibility for the government s preferential policies, whether its record-filing qualification has been revoked or whether it has been included in the negative list, its project design, implementation, and operational support capabilities, the number of its technical and project management team members and their qualifications, its core technologies and patents, its professional qualifications, its track record of successfully completed energy performance contracting projects, national and local financial rewards it has received, and product quality, market share, and after-sales service of major equipment suppliers; (4) To conduct investigation and assessment of the energy performance contracting project in such aspects as the technologies utilized, design goal, construction period, total investment, availability of funds, economic benefit calculation, construction status, and project progress, ascertain the construction readiness of projects yet to be started, and review the design scheme, contract performance, and energy savings settlement of completed projects; (5) To investigate the energy-using entity s operational performance, including its developments in technological sophistication, product quality, and market share, as well as its position in the industry, financial condition, financial management system, ability to pay in energy savings, bad credit history, energy statistics and management system, and historical energy consumption record; (6) To examine the clauses in the energy service contract that may adversely affect the borrower s ability to repay, including the project s operating mode, acceptance

6 criteria, period, and liability for delays, energy consumption baseline, energy savings calculation and measurement, energy efficiency calculation and allocation methods, payment terms, breach of contract and dispute settlement, and to assess whether there is any restriction on the borrower s rights to receivables, as well as assignment or pledge thereof, under the energy service contract, or whether there is any clause that may adversely affect the performance of the contract and payment for the project. (7) In cases where the project proceeds are derived from carbon asset trading or emissions trading, special attention shall be paid to local trading platforms and relevant policies of competent authorities, with efforts made to track asset transaction prices and conduct reasonable assessment of equity value. Article 12 Energy efficiency projects tend to involve an extensive range of industries and utilize complex technologies that are undergoing rapid innovation. In conducting energy efficiency credit business, banking institutions shall conduct appraisal of the technical risks and energy savings of relevant projects and form assessment opinions, with analysis and reporting focused on the following aspects: (1) Whether the capacity of the energy efficiency project is of the type subject to government-mandated phase-out or production limits, and whether the project s specialized technologies and key equipment are still at the demonstrative application or innovation application stage and are yet to be widely applied; (2) Whether the project implementer is capable of implementing specialized technologies, whether it has experience working on similar projects, and whether the project is prone to completion risk; (3) Whether the methods employed to forecast and assess energy savings are prudent, scientific, and reasonable; (4) Whether the energy-using entity s promise to make timely payment with energy savings is binding, and whether the project s economic viability can be effectively achieved. When necessary, banking institutions may ask competent, independent energy watchdogs, third-party energy efficiency audit institutions, and relevant authorities for guidance and assistance on project technology and energy savings assessment. Article 13 In cases where the borrower s rights to receivables under the energy service contract are pledged, banking institutions shall handle the registration of the pledge of receivables in a rigorous and standard manner, and shall also strengthen the subsequent tracking and maintenance of said registration. Article 14 Banking institutions shall strengthen their management of energy efficiency credit granting contracts. In the event of major breaches, such mutually agreed remedies as demanding additional collateral, suspending or terminating loan disbursement, accelerating loan recovery, and exercising pledgee s right of claim in advance may be resorted to, to ensure risk control measures are effectively implemented. Major breaches mentioned herein include, but are not limited to: energy efficiency project construction lagging seriously behind schedule; energy efficiency technologies and equipment being seriously flawed; production halt or decreased production of major facilities or equipment causing a substantial decline in energy use; actual energy savings being significantly less than expected; loan embezzlement; energy savings failing to be redirected to the designated account; the borrower participating in practices of civil usury; the borrower offering security to others or

7 taking on new debt without the lender s consent; main financial indicators seriously deteriorating; failing to pay the loan principal and interest in a timely manner. Article 15 Banking institutions shall strengthen their post-loan management of energy efficiency credit, pay close attention to the country's industrial structural adjustment, as well as the material impact exerted by energy efficiency policy change and higher energy efficiency standards on the credit-receiving enterprise and project, assess credit risk on a regular basis, and put in place a credit quality control and risk warning system. Post-loan management mainly comprises on-site examination and off-site surveillance: (1) On-site examination involves making periodic visits to the project site, to learn about the overall operation of the borrower, inspect the actual use of the granted loan, check the construction, completion, and operating status of the project, and assess energy savings. In the case of energy performance contracting credit, the energy-using entity s operating stability and its evaluation of relevant project services shall also be ascertained. In addition, the energy savings confirmation form (or the audit report issued by the third-party energy audit institution, or the actual energy savings estimated through fiscal incentives and recognized by the government) jointly acknowledged by the energy-using entity and energy service company shall also be examined on-site. By comparing the actual energy savings and the projected savings, efforts shall also be made to examine the actual payment record of the energy-using entity and determine the stability and reliability of repayment sources. (2) Off-site surveillance involves staying up-to-date on the latest changes in industrial adjustment and energy efficiency policy, collecting financial statements from the borrower on a regular basis, and assessing the changes in the borrower s financial condition. In the case of energy performance contracting credit, an account management system shall be established, wherein such items as the project s energy savings, the energy service company s share of proceeds, fiscal incentives and rewards, mutually agreed amount of payment, actually shared proceeds and debt service shall be listed on an item-by-item basis, with efforts made to regularly monitor the continuity and reliability of repayment of energy savings. In the event that major anomalies occur, or actual energy savings are found to be significantly less than expected, such mutually agreed risk control measures as demanding additional collateral from the borrower, accelerating loan recovery, and exercising the pledgee s right of claim in advance shall be taken to reduce credit risk. Chapter 4 Financial Innovation and Incentive & Restraint Mechanism Article 16 With necessary risk prevention measures taken, banking institutions shall accelerate innovation in their energy efficiency credit products and services, and actively make available multiple modes of financing including bank loans, foreign government loans, bond underwriting, factoring, financial leasing, and investment funding, so as to expand the scope of their financial support and enhance their service efficiency. Efforts shall also be made to actively explore the pilot securitization of credit assets based on energy efficiency credit, promote the issuance of green bonds, and increase the funding sources for energy efficiency credit. Article 17 Banking institutions shall actively explore innovative ways of security for energy efficiency credit, and make active use of receivables pledges, performance guarantees, loss-sharing (or credit guarantee) between international financial

8 institutions and domestic guaranty companies, intellectual property pledges and equity pledges, etc. to ease common problems plaguing energy service companies such as shortage of effective guarantees and funding difficulties, while also ensuring the effectiveness of risk control. Article 18 Banking institutions shall strengthen their capacity building efforts in terms of energy efficiency credit, improve their ability to identify and manage energy efficiency credit risks, actively organize training sessions on energy efficiency credit, accumulate specialized knowledge concerning the key industries carrying out energy efficiency campaigns and relevant technologies, and cultivate and hire interdisciplinary and professional personnel with financial and energy efficiencyrelated technical capabilities. Article 19 Banking institutions shall establish an incentive and restraint mechanism oriented toward promoting and innovating energy efficiency credit, allocate relevant resources, provide internal incentives, such as bank headquarters giving priority to ensuring the necessary scale of energy efficiency credit, implementing differentiated economic capital allocation and providing internal matching funds, strengthen internal performance appraisal, and encourage relevant banks to expand their energy efficiency credit business while ensuring the effectiveness of risk control. Article 20 Banking institutions shall apply the conceptual elements of energy efficiency credit to other credit business, actively conduct pre-loan screening, and proactively provide clients with value-added services relating to energy efficiency improvements. Priority shall be given to addressing the financing needs of fixed assets and projects that have met credit-granting criteria and reached high energy efficiency levels; and those failing to meet national energy efficiency standards shall not be supported. Chapter 5 Supplementary Provisions Article 21 In extending credit to projects aimed at improving water and other natural resource use efficiency and reducing emissions of carbon dioxide and pollutants, or companies providing relevant services, banking institutions shall refer to these Guidelines. Article 22 These Guidelines are subject to interpretation by CBRC and NDRC. Article 23 These Guidelines become effective as of the date of promulgation.