China's private oil dealers need a yearly quota

CHINA'S leading private oil dealers' organisation is applying for special policies from the top economic planner for changes in an industry that is now overwhelmingly dominated by state-owned giants. It says the appeal is a matter of survival.

"What we are asking for is that the state gives us a certain quota every year to access oil from major refiners and oil producers so that we can survive and develop under the industrial monopoly," Zhao Youshan, director of the Petroleum Distribution Committee of the China General Chamber of Commerce, told China Business Weekly last week.

The group is asking for a quota of about five million tonnes of oil a year.

Zhao's organisation represents 138 private oil companies across the country and is a major force for private dealers' interests in the face of a market monopoly by state-owned oil conglomerates Sinopec and PetroChina.

While he declines to give details, Zhao says that he is optimistic about the possibility of a new policy.

"Some senior officials have responded to the matter? In fact, a special policy for private oil companies is in the process of formulation. Perhaps by October, it will be available for public release," Zhao says.

China's wholesale oil sector has long been dominated by Sinopec and PetroChina, which produce and sell the lion's share of oil products in the nation. Private companies have no choice but to rely on the two giants for oil supplies.

Although the Ministry of Commerce deregulated the market late last year in line with China's World Trade Organisation commitments, private firms still find it difficult to succeed because they have to meet stringent standards when doing business by themselves.

Whether the state will grant any preferential policy for private oil companies or not, Zhao says one thing is crystal clear ¨C the survival and development of private oil companies can benefit the economy by increasing employment and better securing oil supplies.

Insiders at Sinopec and PetroChina do not totally agree.

A source from Asia's top refiner Sinopec, who does not want to be named, says that because major oil companies are state-owned, it is natural for the oil supply to be under tight governmental control.

"We can guarantee oil supplies regardless of cost. That is what private oil companies are reluctant to do," the Sinopec source says.

He notes that Sinopec has in fact been suffering refining losses since June as international crude prices soared and local oil prices remained fixed as part of the government effort to control inflation.

Under its oil pricing mechanism and with a requirement to ensure stable oil supplies, Sinopec has no choice but to keep its refineries running non-stop and import crude from abroad to feed them.

"We used to operate a certain proportion of filling stations with private companies. These outlets turned out to be totally market-driven. During a tight season, they desperately want oil supplies from Sinopec. During more plentiful times, they do not buy from us at all," the Sinopec source says.

Also, the quality of fuel from private stations cannot be guaranteed from time to time, he says. "That is why we almost completely phased out such joint operations," the Sinopec insider says.

Zhao notes that despite some projections it is impossible for an oil crisis to break out in China because of state ownership of major petroleum giants.

"China will not lack oil because the authority is not going to allow that to happen?. We do not want to change the ownership of the segment. We only want a share of the pie," Zhao says, refuting the International Energy Agency's (IEA) forecast that China could run short of oil.

The IEA projects the nation may face a shortage of oil if it keeps its current price mechanism and deprives refiners of profit incentives.