BP Cracks Open China's Retail Market for Refined Oil

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Last updated at: (Beijing Time) Tuesday, June 11, 2002

BP Cracks Open China's Retail Market for Refined Oil

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Oil giant BP is catching up with its rival Royal/Dutch Shell in China's retail market for refined oil products, even as Shell is set to become the first foreign company officially allowed in the once-tightly controlled market.

Sinopec, China's second largest oil company, said Monday it submitted a feasibility study report to the central government on a joint venture with BP to run 500 petrol stations in coastal Zhejiang Province within three years.

Sinopec said in a statement that it will control 60 per cent of the US$264 million joint venture, while BP will hold the remaining 40 per cent in the "initial operation period."

Sinopec Chairman Li Yizhong and BP Group's Chief Executive Lord John Browne signed the agreement Monday in Beijing.

If the feasibility report is approved, BP would be the second foreign company officially admitted to the lucrative retail market for gasoline and diesel fuel after Shell, although some have already run a handful of petrol stations by acquiring them privately.

Sinopec had earlier agreed with Shell, BP and ExxonMobil to operate 500 stations each in booming Jiangsu, Zhejiang and Fujian provinces within three years as part of the deal for the world's three largest oil companies to back Sinopec's overseas listing in 2000.

But observers said BP's and ExxonMobil's deals, originally scheduled to be completed before June, would most likely be postponed until next year, because the government has only given the go-ahead for Shell's plan this year.

Late last month, Shell's officials said their petrol stations with Sinopec are likely to be set up this month in Jiangsu Province, making it the first.

The statement issued by Sinopec said BP plans to add 150 petrol stations under the joint venture every year upon its approval, by either acquiring existing stations or building new ones.

They will be located in three thriving cities in Zhejiang Province including Ningbo, Hangzhou and Shaoxing.

The stations will sell Sinopec's refined oil before foreign companies are allowed to market their own products in China in 2005.

Foreign companies are eager to enter China's market for refined oil, where the demand is growing at 4.5 per cent annually.

But they will not be allowed to fully engage in the retail market until three years have passed since China's accession to the World Trade Organization (WTO).

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, remain viable on the world financial market.

Sinopec sold 67.7 million tons of refined oil in 2001 or 65 per cent of the nation's total consumption, while PetroChina, the nation's largest oil company, takes 20.6 per cent.

The two giants control half of the country's petrol stations with the rest owned by private companies or local governments.

The companies are scrambling to acquire existing stations to dominate the market.

Source: Agencies

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