Economic Policy News
- Rules open oil sector to foreign companies
Date: 8-Dec-2006 Sources: (Shenzhen Daily)
THE Ministry of Commerce on Wednesday unveiled regulations on the wholesale distribution, storage and retail sales of oil products in the country, allowing foreign companies to invest in the sector.
Those seeking permits must have refining capacity, an import business or wholesale supplies, the ministry said in guidelines published on its Web site.
They must also have at least 10,000 cubic meters of storage capacity, and access to pipelines, dedicated rail lines, docks or specially equipped vehicles for transport.
Foreign firms will find the rules tough to comply with as China has until now kept a tight grip on import permits, and although international majors are queuing up to build refineries and some have deals, few joint ventures are up and running.
'Its not going to increase foreign competition until firms can supply themselves,'said David Hurd, analyst at Deutsche Bank in Beijing.
China is wary that it could dent its energy security by opening up such a strategic sector to foreign competition from giants like Exxon Mobil Corp. and BP, which have been eyeing the world's second-largest oil consumer for years.
Industry officials say the balance sheet-driven majors would anyway have little to offer China's consumers, insulated from global markets by years of subsidized fuel.
The result of several rounds of consultations between the Ministry of Commerce and industry players, including foreign and domestic oil majors and local independents, the rules come into effect from Jan. 1, 2007.
If relying on refining for supply, a firm will require a minimum 1 million tons per year of crude refining capacity and the ability to produce 500,000 tons of diesel and gasoline.
Alternatively would-be wholesalers can have an import business, or a supply deal for at least a year with an import firm with a minimum 100,000 tons a year of oil products.
The final option under a section of the rules designed to ensure 'long-term, stable supplies?is a supply contract for a year or longer with a wholesaling company with at least 200,000 tons per year of oil product turnover.
The relatively low refining requirement could open the door for some of the country's small independent refineries, known as teapots and which can have problems selling their product, to earn wholesaling permits.
Even if foreign firms do win the right to wholesale, they may find it hard to carve out a viable business between refining and retail sectors, both dominated by domestic oil majors Sinopec and PetroChina.
But the lure of China's 1.3 billion consumers means they are still likely to attempt to find customers among the commercial and industrial markets - from factories to fishing boats - that does not get its oil through service stations.
'China is such a big long-term opportunity that those in the business want to get any toehold in China and if the wholesale market is where that crack opens up, that is where they will go,'said Kurt Barrow, consultant at Purvin & Gertz in Singapore.
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