China likely to open market for refined oil products

China's once tightly controlled market for refined oil products is likely to open wider with the establishment this month of a joint venture between major industry player Shell and Sinopec, China's second largest oil company, to operate petrol stations. "We are working towards the target to establish the joint venture by June," said Tan Chongmeng, managing director of Shell China. "But the schedule is flexible, pending government approval."
The joint venture aims to build a retail network of 500 petrol stations in the coastal Jiangsu Province in three years. This would be the first time China officially has allowed foreign companies into the lucrative retail market for gasoline and diesel fuel, although some have been already running a handful of petrol stations acquired from private owners. Sinopec has also agreed with ExxonMobil and BP, to run similar ventures in Zhejiang and Guangdong provinces, as part of the deal in which the world's three largest oil companies backed Sinopec's overseas listing in 2000.

Tan said Shell and Sinopec submitted the feasibility study report to the State Council for final approval last December, ahead of the other two oil giants. "We are confident to be the first one," Tan told on the sidelines of the third China/Asia Clean Fuels Symposium. "But it is more important for us to be on the top in four or five years."
Earlier reports said Sinopec would postpone the joint ventures with ExxonMobil and BP, which were scheduled to begin the first half of this year, to the second half because the Chinese Government only approved the plan for Shell's 500 petrol stations at that time. Tan said Shell and Sinopec are interested in expanding the chain to 1,000 stations if the joint venture is successful.
"Better service in petrol stations is badly needed in China before the market is fully liberalized in five years," said Tan.

But the current study does not involve the expansion plan. Foreign companies are eager to slice into China 's market for refined oil, where the demand is growing 4.5 % annually. But they will not be allowed full participation in the retail market until three years after China 's accession to the World Trade Organization.
Government officials have said Sinopec's joint ventures with foreign companies are "special cases" as part of the government's efforts to help Sinopec, one of the largest State-owned enterprises, float on the world financial market. Sinopec sold 67.7 mm tons of refined oil in 2001 or 65 % of the nation's total consumption.

Earlier, C.K. Albert Young, the China retail general manager of Shell Companies in Northeast Asia, has said among the 500 joint-venture stations, 80 % will comprise those now owned by Sinopec and the remaining 20 % will be jointly built by the two companies. Sinopec will hold a controlling 51 % interest while Shell will hold 49 %.
Young has said Shell plans to invest around $ 100-200 mm in petrol stations over 3-5 years, depending on the pace of the opening of the market and the implementation of thealliance with Sinopec.