PetroChina and Sinopec Corp. Apply for Government Subsidy Again    

Due to the sustained loss in the refining business and the import of several hundred thousand tons of oil products at a loss, Sinopec Corp. (SH: 600028) and PetroChina (SH: 601857) are reporting the actual status of loss caused by the policy to the central government.
   "The last week of 2007 is the possible time for the central government to decide on the offer of subsidies," said an executive from Sinopec Corp. "The state already offered subsidies twice in 2005 and 2006. Sinopec Corp. got a lump-sum subsidy of RMB10 billion and 5 billion respectively".
   Views on the possibility for Sinopec Corp. to get 2007 financial subsidy are different.
   Some people think that the loss caused by policy for 2007 is not only in the refining business but also in the imports of oil products. As a result, besides the possibility to get further financial subsidy oil players may also award tariff rebate or be exempted from the import tariff of oil products.
   People who hold the opposite view think that the loss caused by policy in refining business of Sinopec Corp. in 2007 is much less than the previous two years and the government already greatly increase the oil products prices in November 2007.
   The increase of the oil products prices from November 1st, 2007 did play some role in reducing the loss in the refining business, but the growing price of crude oil in the international market has offset the reduction effect.
   As the operating rate in refineries is already close to the possible highest, Sinopec Corp. and PetroChina have to suffer loss from importing several hundred thousand tons of oil products in the fourth quarter of 2007.
   By the end of November 2007 Petrochina Marketing Sales Company Limited already imported 410 000 tons of oil products from abroad.
   With the increase of the import amount, the supply shortage of oil products in the domestic market has been eased in December 2007. Oil importers, however, have to bear the loss of several hundred RMB for importing one ton of oil products.
   According to Zhang Xiaoqiang, Deputy Director of the National Development and Reform Commission, he himself is against giving subsidy to refining enterprises for 2007. He thinks that although the performance of refining enterprises may be unsatisfactory in the last quarter of 2007 their income and expenditure can still be balanced because they had good returns in the previous 9 months 2007.
   Cao Jianhai, Director of the Investment and Market Research Office, Institute of Economics Chinese Academy of Social Sciences, also says that PetroChina and Sinopec are enterprises with upstream/downstream integration and operation. They operate oil production, refining and oil sales. The calculation of profits must be done on an overall basis rather than on a separated basis. It is definitely irrational to omit the huge profits at the two ends, especially in oil production.