Refineries open to JV investment
By Wang Ying (China Daily)
Updated: 2005-09-20 08:36

Foreign companies still have opportunities to invest in China's refinery business, even though the government adopts a policy restricting foreign cash flow into the sector, said a senior official from the Ministry of Commerce (MOFCOM) yesterday.

"If these refinery projects (partly invested by foreign companies) meet the government standard, we will approve them," Hu Jingyan, director-general of Foreign Investment Administration under the Ministry of Commerce yesterday told the Oil and Gas 2005 forum in Beijing.

According to Hu, many projects (of joint-venture refinery construction) are under discussion between the Chinese and foreign oil companies.

But the MOFCOM official did not elaborate on the companies involved.

Currently, the government policy regulates that foreign investors shall not take a controlling stake in China's refineries.

"Foreign investors have to undergo strict and complicated policy procedures before getting final approval," said Gong Jinshuang, a senior analyst with the nation's largest oil producer, China National Petroleum Corp.

Although only a small number of refineries in China are partly controlled by foreign firms, due to government policy, there are still opportunities for foreign investors to cash in on the country's refinery business, because "China still lacks large-scale refineries with high quality, good management," said Hu.

Liu Xiaoli, a senior researcher at the energy research institute under the National Development and Reform Commission, yesterday on the sidelines of the forum told China Daily, that the country may need more foreign investment to process heavy oil, a kind of crude oil that requires more advanced facilities to turn it into refined oil.

Xiao Songqing, a technical engineer with Shell (China) Ltd yesterday told China Daily, most of China's existing refineries lag behind in technology and management, which reduces efficiency and increases production costs.

"In most cases, when we provide some new ideas to improve their production, managers of the State-owned refineries are deaf to advice, - because in their minds, the refineries are owned by the country, and so will only do what the government tells them to," said Xiao.

A. K. Roy, general manager of Corporate Planning & Economic Studies of Indian Oil Corp Ltd, yesterday said his company is also interested in China's refinery business, but is kept out by the country's policies.

Since China's entry to the World Trade Organization in 2001, many foreign companies such as Total, ExxonMobil and BP have started talks with the Chinese Government to build refineries across the nation, especially along the coastal regions for easier access to crude imports, said Hu.

But only a few of these foreign oil companies got government approval to build refineries by setting up joint-ventures with the domestic oil majors such as Sinopec and PetroChina, Hu said, partly because the country already has a wide layout of locally-managed refineries to feed domestic demand.

In the first half of this year, China processed 145 million tons of crude oil and imported 15.7 million tons of refined oil.

To date, foreign companies have been approved to own stakes in only two of China's refineries, which are mainly wholly-owned by the State-controlled PetroChina and Sinopec.

More than 10 years ago, France-based Total linked up with Chinese oil companies including Sinochem and PetroChina to build a refinery in the coastal city of Dalian in Northeastern China's Liaoning Province, of which the Chinese side owns the controlling stake.

Sinopec, Asia's largest oil refiner in July announced it had set up a joint refinery in East China's Fujian Province with ExxonMobil and Saudi Aramco, two foreign oil giants each controlling 25 per cent of the refinery.

(China Daily 09/20/2005 page9)

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