The recent oil prices hikes have a varied effect on China's
processed oil companies. The bigger state-backed ones such as China
Petroleum and Chemical Corporation (Sinopec), China National
Petroleum Corporation (CNPC) and China National Offshore Oil
Corporation (CNOOC), are reaping huge profits due to their secured
oil supply and rising number of retail outlets across the
country.
But private oil enterprises are facing some very hard times.
A new ruling on market entry requirements for the finished or
processed oil sector, expected to be released by the Ministry of
Commerce (MOFCOM) very soon, could drive some of these private
companies out of business.
The rule, revised earlier this year, states that companies must
own a minimum of 10 petrol or stations before they are allowed to
compete in the market.
MOFCOM promulgated the Provisional Rule on Finished Oil Market
Management on November 2, 2004. It was implemented on January 1,
2005, but not without strong reaction from privately run oil
companies.
In June 2005, technical criteria concerning finished oil
wholesaling enterprises were released, stipulating that private
enterprise should own at least 30 petrol stations for market
entry.
Although that threshold has been lowered to 10, few private
companies can meet the requirement in a sector that is controlled
by a semi-monopoly.
On June 12 this year, three local chambers of commerce for the
petroleum industry and seven private oil enterprises made a joint
appeal to MOFCOM, asking that the threshold be adjusted again for
the oil and gas distribution sector, their last market
opportunity.
The appeal was led by the Heilongjiang Provincial Chamber of Commerce
for the Petroleum Industry.
Incomplete statistics show that there are over 10,000 private
oil and gas enterprises with an asset value of 10 million yuan
(US$1.25 million) or above nationwide. Privately run petrol
stations accounts for 53 percent of the total in China. In
Heilongjiang alone, private oil wholesalers' equipment investments
are more than 1 billion yuan (US$125 million).
If the new measure takes effect, it will cause an estimated 15
billion yuan (US$1.876 billion) worth of losses nationwide, and
thousands of people will lose their jobs, warned Zhao Youshan, head
of the Heilongjiang chamber.
Further, the proposed entry threshold will only strengthen the
existing monopoly of the state-backed companies, which betrays the
country's efforts in breaking monopolies in general and encouraging
market competition, Zhao said.
However, if the government insists on implementing the
regulation, private companies ask that there be a period of
transition, failing which they will allow themselves to be bought
out by the government and thereafter quit the sector
altogether.
MOFCOM has held at least five seminars; reportedly to solicit
opinions on the rule from local government departments, and
state-owned, private and foreign-funded oil enterprises.
In a phone interview with China Business Times, a
ministry official said that MOFCOM has yet to comment on the
appeal, neither has it made a final decision.
(China.org.cn by Tang Fuchun June 28, 2006)