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China Communications Services Corporation Limited Annual Report 2015
REPORT OF THE DIRECTORS
SUPPLIES PROCUREMENT SERVICES FRAMEWORK AGREEMENT
Pursuant to the Supplies Procurement Services Framework Agreement, the Company agreed to provide to China Telecom Group
with comprehensive supplies procurement services, including, among others, (i) procurement of imported telecommunications
supplies, domestic telecommunications supplies and domestic non-telecommunications supplies; (ii) agency services of supplies
procurement; (iii) sales of telecommunications supplies manufactured by the Group; (iv) resale of supplies purchased from
independent third parties; and (v) management of biddings, verification of technical specifications, warehousing, transportation
and installation services. According to the same agreement, China Telecom agreed to provide to the Group with comprehensive
supplies procurement services, including, among others, (i) sales of telecommunications supplies manufactured by China Telecom
Group, (ii) resale of supplies purchased from independent third parties; (iii) agency services of supplies procurement; and (iv)
warehousing, transportation and installation services.
The price for the provision of comprehensive supplies procurement services under the Supplies Procurement Services Framework
Agreement is determined as follows:
(1) 1% of the contract value at the maximum for procurement services relating to imported telecommunications supplies;
(2) 3% of the contract value at the maximum for procurement services relating to domestic telecommunications supplies and
other domestic non-telecommunications materials; and
(3) for other services:
(i)
market price. In determining the market price, the business and financial department of the relevant subsidiary of the
Company shall collect the relevant market information (including but not limited to the change in price for the same
or similar type of services), review and compare the costs and profits of transactions conducted in the most recent
year of the same or similar type entered into with China Telecom Group or independent third parties, and prepare
fee quotes for review by the marketing department of the relevant subsidiary of the Company, or the marketing
department of the relevant subsidiary will further submit the fee quotes to the management of such subsidiary for
review depending on the actual situations (such as the amount and size of the transaction). The marketing
department or management of the relevant subsidiary of the Company shall primarily consider the following factors: (i)
cost of service; (ii) prices of the same or similar type of services provided to China Telecom Group or the Company by
other service providers in the market; (iii) prices of the same or similar type of services provided to China Telecom
Group and independent third parties by the Company, or prices of the same or similar type of services provided to
the Company by China Telecom Group and independent third parties; or
(ii) in the absence of market price or where the market price cannot be determined, the price shall be agreed between
both parties, which shall be the aggregate amount of reasonable costs, the taxes in sales and reasonable profits. In
determining such price, the business and financial department of the relevant subsidiary of the Company will review
and compare the costs and profits of transactions conducted in the most recent year of the same or similar type
entered into with China Telecom Group or independent third parties, take into account factors such as historical
price, transaction size, average profit ratio within the relevant industry, supply and demand, labour cost, local
commodity prices and economic development levels, and prepare fee proposals for review by the marketing
department of the relevant subsidiary of the Company, or the marketing department of the relevant subsidiary will
further submit the fee quotes to the management of such subsidiary for review depending on the actual situations (such
as the amount and size of the transaction).
