Shanghai Electric : ANNOUNCEMENT ON THE PROVISION OF EXPECTED LOSS ARISING FROM CONTRACT FOR A SIGNIFICANT PROJECT

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SHANGHAI ELECTRIC GROUP COMPANY LIMITED 上海電氣集團股份有限公司

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 02727)

ANNOUNCEMENT ON THE PROVISION OF EXPECTED LOSS ARISING FROM

CONTRACT FOR A SIGNIFICANT PROJECT

This announcement is made by Shanghai Electric Group Company Limited (the "Company") pursuant to Part XIVA of the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) and Rules 13.09(2)(a) and 13.10B of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The 48th meeting of the 5th session of the board of directors of the Company was held on 26 March 2021, at which the Resolution in relation to the Provision of Expected Loss Arising from Contract for A Significant Project was considered and approved. In view of the expected loss arising from the Dubai solarhermal power plant project undertaken by the Company, the board of directors agreed to make a provision of expected loss arising from contract for the project amounting to RMB1.062 billion at the end of 2020. The detailed information of the provision is now provided as follows:

I. Overview of the contract

In 2018, the Company undertook the photovoltaic solarhermal power plant project in Dubai (the "Dubai Project") with the world's largest installed capacity. The total installed capacity of the project was 950 MW, including one 100MW tower-type molten salt thermal storage generating unit, three 200MW groove type molten salt thermal storage generating units and one 250MW photovoltaic power generating unit, and the total price of the contract amounted to US$3.3 billion. For the Dubai Project, the Company has selected a number of domestic and foreign suppliers for sourcing relevant equipment and services around the world. It was officially started in December 2018, and the construction period is expected to be four years.

In 2020, with the outbreak and spread of COVID-19 pandemic on a global scale, various national governments began to launch a series of strict pandemic prevention and anti-pandemic measures such as traffic constraints and compulsory quarantine, which had substantial impacts on the procurement of equipment of the project, mainly including:

(1) the costs of materials, labour, transportation, storage and other expenses of related equipment have increased at varying degrees, resulting in a substantial increase in raw materials and manufacturing costs of equipment manufacturers; and (2) the COVID-19 pandemic delayed the manufacturing cycle of project equipment, even posed the failure of some suppliers to supply normally, which has narrowedthe range of suppliers available to the Company for sourcing , and further affected the purchase price bargaining power of the Company.

Affected by the aforesaid impacts, the equipment purchased price of Dubai Project exceeded the estimated range, affected the profitability of the project. Taking all factors into consideration, the Company decided to continue to accelerate the project. While actively implementing various anti-pandemic measures, the Company strived to promote the procurement, delivery and transportation of equipment and materials to ensure the orderly progress of the project construction. In order to truly reflect the operation of the Company, the Company decided to make a provision of expected loss arising from contract for the Dubai project.

II. Impact of the provision on the financial condition of the Company

Combined with the actual implementation of the Dubai Project, the Company calculated the profitability of the project and decided to make a provision of expected loss arising from contract for the project amounting to RMB1.062 billion. The impact of the provision on the net profit of the Company in 2020 amounted to RMB1.062 billion, and the net asset value of the Company at the end of 2020 would be reduced correspondingly, but there would be no impact on the Company's operating cash flows in 2020.

III. The opinions of the board of directors on the provision

The 48th meeting of the 5th session of the board of directors of the Company was held on 26 March 2021, at which the Resolution in relation to the Provision of Expected Loss Arising from Contract for A Significant Project was considered and approved.

According to the provisions of the Accounting Standards for Business Enterprises and related accounting policies, the provision of expected loss arising from contract of the Company is in accordance with the actual conditions and the accounting policy of the Company. The provisions will reflect the conditions of the Company's assets in a fairer manner and enable the accounting information of the Company to be more reliable and reasonable. There is no harm to the interests of the Company and its minority shareholders, and the relevant decision-making procedure is in compliance with the relevant laws and regulations. We agreed to the provision of expected loss arising from contract by the Company.

IV. The opinions of independent directors on the provision

The Company's provision for impairment was based on the principle of prudence, in line with the provisions of Accounting Standards for Business Enterprises and the relevant accounting policies, which is conducive to reflecting the actual situation of the Company's assets and has no harm to the interests of the Company and shareholders including minority shareholders in particular. The provisions will reflect the conditions of the Company's finance in a fairer manner. We agreed to the provision of expected loss arising from contract by the Company.

V. Opinions of the supervisory committee on the provision

The provision of expected loss arising from contract by the Company reflects the soundness of the accounting treatment, which reflects the conditions of the Company's finance in a fairer manner and has no harm to the interests of the Company and minority shareholders, and the relevant procedures are in compliance with laws and regulations. We agreed to the provision of expected loss arising from contract by the Company.

By order of the Board

Shanghai Electric Group Company Limited

ZHENG Jianhua

Chairman of the Board

Shanghai, the PRC, 26 March 2021

As at the date of this announcement, the executive directors of the Company are Mr. ZHENG Jianhua, Mr. HUANG Ou, Mr. ZHU Zhaokai and Mr. ZHU Bin; the non-executive directors of the Company are Ms. YAO Minfang and Ms. LI An; and the independent non-executive directors of the Company are Dr. XI Juntong, Dr. XU Jianxin and Dr. LIU Yunhong.

* For identification purpose only