NDRC Explains Issues on Domestic Oil Prices        

What is the price difference between oil products in the domestic and overseas markets? The National Development and Reform Commission (NDRC) of China released a report to answer such questions about oil products prices on July 15th. The gasoline retail price in China, excluding taxes, has remained close to that in the USA, and much lower than that in Europe, according to the report. In early July the price of gasoline in China, including taxes, averaged RMB5.91 per liter with a total tax of RMB2.04 per liter, compared with RMB5.21 - RMB5.41 per liter in USA and RMB9 - RMB14 per liter in Europe. The consumption tax in China is higher than in the USA but lower than in Europe. NDRC says it is normal that there are differences between countries because of different purchase costs and different tax rates. China lacks oil resources but increasingly relies on imports, therefore cannot practice policies of low tax or low selling price. Like many countries, China uses taxes and price means to control consumption of oil products and promote conservation of oil resources.
    To answer public concern about high margins in domestic petrochemical firms, NDRC also explained that the petroleum industry has high risk and there are frequent shutdowns and mergers of petroleum firms due to drastic fluctuations of oil prices. Thanks to the increased price in 2007-2008, profits tended to lift for petrochemical firms. The Chinese government has controlled the prices of oil products to protect consumers and has levied a special tax on oil produced, therefore the profit rate of Sinopec Group and CNPC were not higher than their overseas competitors. Ensuring the oil supply, NDRC pointed out, is a long term and hard challenge for China in its economic development. Both Sinopec Group and CNPC are state-owned enterprises, shouldering the responsibility of ensuring the oil supply of the country. The profit that the government shared from these two enterprises by equity has mainly been re-invested to explore new reserves and enhance oil supply capacity. In 2008 CNPC spent RMB184.5 billion in exploration and constructing new refineries, Sinopec Group spent RMB70.1 billion, both from the governmental profit built-up. To reassign the profit between oil producers and oil consumers, China started to levy a special tax on crude oil production from March 15th, 2006. In the period of 2006-2008, CNPC paid cumulatively RMB160 billion of this tax to the government, and Sinopec Group paid RMB53 billion. So the oil production cost for these two groups has never been lower than the global level.
    NDRC found that China's current oil pricing system agreed with the actual conditions in the domestic market. Now the market competition is far from enough, and the market system needs to be completed. Consumers would have poor ability to afford oil products without the control of government.
   Recently CNOOC was officially approved to do oil products retail business, which will help to promote market competition.    

Zhong Weike
July 28th, 2009