China Hydroelectric (CHC) Addresses Minority Shareholder Efforts to Replace Board

The Board of Directors of China Hydroelectric Corporation (NYSE: CHC) has issued the following letter to its shareholders in response to recent actions taken by a minority shareholder group:

September 13, 2012

Dear Shareholder of China Hydroelectric Corporation:

As you are aware, a group of minority shareholders (the "Insurgents") of China Hydroelectric Corporation (the "Company") has sought to unilaterally call an extraordinary general meeting of shareholders in an attempt to acquire control of your Company by seeking to replace the Company's Board of Directors (the "Board") with their own nominees.

The Board continues to strongly believe that these efforts being pressed by the Insurgents are not in the best interests of a majority of shareholders. In order to refute the unfounded criticisms lodged by the Insurgents and highlight the progress the Company has made to date, the Company made a presentation to Institutional Shareholder Services Inc. (the "ISS Presentation"), a copy of which is attached to this letter. The Board would like to direct your attention to the following key points addressed in the ISS Presentation:

• The Insurgents' Criticisms of the Company, the Board and Management are Unfounded, Inaccurate and Simply UNTRUE. The Insurgents have criticized the Company and management by pointing to purported shortcomings of the Company which are simply not true. They argue that the Board and management have failed to turn around our stock price, have failed to address liquidity issues, spend too much on G&A expenses, suffer from conflicts of interest and have failed to engage with the Insurgents and ignored their concerns. These claims are categorically untrue.
  
  
• The Insurgents' Claim that the Company's Stock Price Remains Depressed is UNTRUE. In fact, the Company's share price has INCREASED 95% over the last two months. The historical decrease in the Company's share price was a result of a "perfect storm" of events continuing throughout 2011 that were beyond the Company's and management's control: market-wide reaction to Chinese stock frauds, drought, and restrictions on PRC bank lending. But in 2012, the storm has cleared, the drought is over, PRC bank lending is increasingly available and the Company is experiencing a RECORD YEAR to date in 2012. Don't be misled by the Insurgents false claims.
  
  
• The Insurgents' Claim that the Company Suffers from Conflicts of Interest is UNTRUE. Our Chief Executive Office founded the Company in 2006, has invested a significant amount of his own money, and devotes the SUBSTANTIAL MAJORITY of his time to the success of the Company. In fact, he has commuted to China on average for two weeks each month for last 6 years for the benefit of the Company and all of its shareholders. While he remains either a majority shareholder, a board member or an officer of other corporations, his involvement is minimal, and he has made a deliberate effort to focus his energies on ensuring the success of the Company. In addition, there is no mystery as to the relationship between the Company and Vicis. As our first and largest investor, Vicis has been a key supporter of the Company, providing funding to us during difficult periods. While they have one seat on our Board, they have never sought control or any special "Lead Investor" status from the Company.
  
  
• The Insurgents' Claim that G&A Expenses are Wasteful is INACCURATE and the Company Takes Securities Law Requirements and Good Corporate Governance Practices SERIOUSLY. As a company trading in the U.S., the Company must comply with stringent securities laws and requirements, including Sarbanes-Oxley. We are committed to ensuring transparency and accuracy and maintaining adequate internal controls. In doing so, the Company incurs increased costs and G&A expenses, a fact the Insurgents fail to acknowledge. Nevertheless, the Company's cash G&A expense has been stable to trending down over time, from $15.4 million and $16.1 million in 2010 and 2011, respectively, to a projected $13.8 million in 2012. But most importantly, the Company has more projects now than it did two years ago, and to that point, the Company's cash G&A has DECLINED STEADILY on a per Megawatt basis. Also, on an absolute dollar basis, the Company has REDUCED cash G&A by approximately 15% between 2011 and 2012.
  
  The Insurgents seem to assume the costs of operating an international, transparent public company are unnecessary, and propose unrealistic cost cuts that would gut internal controls, undercut shareholder accountability, and also jeopardize our key economic relationships with banks and grids.
  • The Insurgents' Claim that the Company Ignores them is UNTRUE. The Company spends a significant amount of time engaging with shareholders, and is always receptive to suggestions for improvement for the success of the Company. The Company maintains an active investor relations program, speaks at investor conferences monthly and visits investors directly. In fact, despite the Insurgents' claim to the contrary, the Company regularly visits the Insurgents' offices to provide status updates, and has done so as recently as the end of July of this year. Communication received from the Insurgents, however, has generally been to address their needs, and not the Company's.
    
    
  • The Insurgents' Accusation that the Board and Management are Obstacles to Value Creation is UNTRUE. Our existing Board and management has built the Company up from scratch 5 years ago to becoming China's largest small hydro company, receiving accolades for being the "Best Chinese Company in the renewable energy business". As noted above, the Company prides itself on good corporate practice, and has been Sarbanes-Oxley compliant 2 years in advance. Furthermore, all compensation at the Company is approved by its Compensation Committee in consultation with an independent compensation consultant and in compliance with requirements for a U.S. listed company. So far in 2012, the Company has enjoyed RECORD electric production, revenues, EBITDA, cash flow and earnings. The Board believes the Company has yet to reach its full potential, is committed to realizing its full value and has a clear plan on how to achieve this goal. This is in sharp contrast to the Insurgents who present NO plan and have NO experience operating any type of commercial business. Should they succeed in wresting control from our currently experienced Board and management team without paying a premium to shareholders, the Company would be left with NO continuing directors, NO senior management team, NO operating experience and NO plan going forward.
  The Board and management are determined to increase value for all shareholders. WE urge you to vote "Against" THE REMOVAL OF the CURRENT DIRECTORS and "AGAINST" THE INSURGENTS' PROPOSED DIRECTORS on the Insurgents' white proxy card.
  
  If you have any questions, please do not hesitate to contact John Kuhns or Mary Fellows at either 646-467-9810 or 860-435-7000.
  
  Best regards,
  
  John Kuhns, Chairman

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