a leading supplier of wind turbines based in Germany (50.01% equity interest) and the Inner Mongolia North Heavy Industrial Group Co., Ltd (NHIC), a major local manufacturing conglomerate (33.34% equity interest). The Group (through its wholly owned subsidiary Honiton Energy (Barbados) Ltd.) is a minority shareholder (16.65% equity interest) in the Joint Venture Company based in Baotou City, Inner Mongolia which will initially build 2MW REpower turbines under licence to supply the Group and other wind power developers.

However, the Joint Venture Company is obliged to build wind turbines using Chinese sources for various turbine parts in order to address recent Chinese Government legislation dictating that all future wind turbines installed in China must have a locally manufactured content of at least 70%.

Honiton’s Directors believe that the Joint Venture Agreement establishes two key strategic and competitive advantages for the Group through vertical integration. With a “Most Favoured Nation” clause in the agreement, Honiton has first rights on most of production from 2008 to 2010 (and thereafter should the Group negotiate extensions). This ensures partially assured supply to the Group in its initial and critical first three years of build-out. Elsewhere in the world, turbine shortages threaten the economics of all other wind developers.

Secondly, the equity participation in the manufacturing initiative has wrought a favourable pricing mechanism which is exclusive only to Honiton. Based on a cost model of “Cost plus”, the Group will be able to purchase these cutting-edge turbines at a significant discount to the JV’s other premier customers. This will further the Group’s objective of remaining in the upper echelon of developers based on profitability.

Under the Joint Venture Agreement, the Group will invest a total of RMB 16.65 million

Production is expected to commence in 2007 with an initial annual output of 20-30 turbines per year, rising to 400 turbines per year within three years thereafter. It is the intention of the JV to regard the Group as a most favoured customer but to maintain a multiple customer strategy to maximise value creation in the JV and higher profit margins.

As the Group’s projects are all located in very Northern regions of China, it will require the “Cold Climate Version” of Repower North’s MM82 WTG. The JV estimates that successful production of these specific WTGs will roll off the assembly line in the latter half of 2008. It is from that time forward that Honiton expects to proudly outfit the majority of its build-out with Repower North’s output.