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Sinochem, Total setting up joint venture
By Xie Ye (China Daily)
Updated: 2004-10-11 08:39

Sinochem Corp, the fourth largest State oil company in China, signed an agreement with France's TotalFinaElf on Saturday to establish a joint venture to market oil products in North China.

The agreement accompanies the ongoing visit of French President Jacques Chirac to Beijing. The deal will allow Total to become the fourth foreign giant to build a stronghold in China's fast-growing retail market for oil products, after its global rivals BP, Royal Dutch/Shell and ExxonMobil.

According to the agreement, Sinopec and Total will invest 900 million yuan (US$108.8 million) in the joint venture. Sinochem will hold 51 per cent.

The JV is expected to build 200 petrol stations in Northeast China's Liaoning Province, North China's Hebei Province, Beijing and Tianjin in seven years.

Sinochem said in a statement that the annual gasoline and diesel sales of the joint venture would reach at least 800,000 tons by 2012.

The agreement, however, is still subject to central government approval.

Total's move reflects a fresh wave of foreign investment in China's once tightly controlled retail oil market. As the market is to open to foreign companies by December according to China's commitment to the World Trade Organization, foreign giants are teaming up with domestic companies to deploy their presence in the lucrative market.

In May, BP and Shell clinched separate deals to form joint ventures with Sinopec and PetroChina the two largest domestic oil companies to operate 1,500 service stations in the booming coastal provinces of Zhejiang, Jiangsu and Guangdong during the next three years.

The long-awaited deals mark the first time that China has officially allowed foreign companies into its retail oil market.

In August, ExxonMobil agreed with Sinopec to manage and operate more than 600 service stations in Fujian Province.

"Every big foreign company is craving to create a niche in China's retail market for oil products, which now is one of the fastest growing markets in the world," said Han Wenke, deputy director of the Energy Research Institute of the National Development Reform Commission.

Saturday's deal is also a breakthrough for the government in lifting its ban on new domestic players in the retail oil market, analysts said.

Since 2001, the government required that no companies other than Sinopec and PetroChina be allowed to build new service stations. The government hoped the move could help the big two sharpen their competitiveness to fend off competition from foreign giants before the market is opened.

Sinopec and PetroChina now own more than half of the 80,000 petrol stations in China.

As the market opens to foreign investors, the industry expects that domestic firms such as Sinochem and China National Offshore Oil Corp - China's third largest oil company - will be able to obtain retail licences and build service stations.

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