Euro Tech Holdings has entered into a letter of intent to acquire a 20% equity interest in Zhejiang Tianlan Desulfurization and Dust-Removal Company, a company in flue gas desulphurization, flue gas de-nitration, dust removal and purification of industrial waste gases.

As the economy of China is growing rapidly, China now becomes the world's largest emitter of sulfur dioxide. The damage due to acid rain caused by sulfur dioxide is enormous, and is also affecting the neighbouring countries due to air currents. To tackle these environmental and complicated issues, Chinese authorities have set up targets to reduce key pollutants, namely, sulfur dioxide, nitrogen oxides and suspended particulates. Heavy polluters are warned to cut their emissions or they will be penalized. As the target to cut emission is getting tighter and tighter, the demand of desulphurization and dust removal equipment will
increase accordingly.

The acquisition price has been set at a maximum of US$4.5 million at a price/earnings ratio of 12 to 19 and subject to final negotiation. BlueSky, started in 2000, is a fast growing company which provides a comprehensive service for design, general contract, equipment manufacturing, installation, testing and operation management of the treatment of waste gases emitted from various boilers and industrial furnaces of power plants, steel works and chemical plants.

Euro Tech believes that by securing equity in BlueSky's business, Euro Tech has a strategic partner to work with in China for the environmental protection business. With BlueSky's technology and technical support, Euro Tech can now provide services and environmental solutions not only for water and wastewater treatment but also for air pollution control for industrial clients in China.

The acquisition of an equity stake in BlueSky is to be financed from Euro Tech's internal resources and is subject to the negotiation of a definitive agreement, Euro Tech's due diligence investigation of BlueSky, its finances, operations, certain legal requirements, and local government approval, all to be accomplished in the second quarter of 2007.

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