First private oil group set up amid disputes
(Xinhua)
Updated: 2005-06-29 23:53

China's first private petroleum group, the Great United Petroleum Holding Co., Ltd (GUPC), announced its establishment Wednesday at the Great Hall of the People, a symbolic site of the People's Republic of China.

Gong Jialong, chairman of the Great United Petroleum Holding Co., Ltd speaks at a press conference in Beijing on June 29, 2005. [Xinhua]

"It marks a breakthrough in China's oil industry long monopolized by the state-owned economy," said Bao Yujun, director of the All-China Society of the Private Economy at the ceremony.

However, with nearly 1,000 guests, including foreign envoys, experts and entrepreneurs of the petroleum industry, there is no official from the central government giving a formal attendance to the ceremony.

Initiated by several domestic private petroleum enterprises, the conglomerate declared to have nearly fifty private enterprises as shareholders and a capital of about five billion yuan (603.9 million US dollars) and announced to be the largest private petroleum enterprise of China.

Gong Jialong, chairman of GUPC, said that with GUPC as the parent company, they aim to establish a transnational group corporation with several subsidiaries covering all sectors of the oil industry chain including exploration and mining, refinery and chemicals, storage and logistics, wholesale and retailing, and import and export.

According to Gong, the corporation plans to draw a total capital of 500 billion yuan with nearly 1,000 enterprises as shareholders in three to five years and chooses to be listed at a proper time.

But Gong admitted that the group will still not have some necessary qualifications from the government including a wholesale license for oil products, the import licenses for oil products and fuel oil and a license for petroleum exploitation.

The unification of private enterprises to establish such a conglomerate will give impetus to breaking the monopoly of China's petroleum industry and bring more competition to the market, said Liang Yangchun, a researcher with the department of industrial economy of the Development Research Center of State Council.

However, to enter the market as an equal partner with China's state-owned giants, GUPC still has to wait for a long time, said Liang.

China's petroleum industry has been monopolized by large state- owned enterprises such as the China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation.

Although growing stronger in recent years due to the development of China's market economy, the country's private petroleum enterprises only saw some progress made in the refinery and sales sectors with the exploitation sector having been a taboo for the private economy.

Early in February, the State Council, China's cabinet, issued a document that for the first time allowed non-public capital the access to crucial industries like power, telecommunications, railway, civil aviation and oil exploitation.

It is deemed by Gong as one of the major supports from the government for the establishment of GUPC.

Despite the encouragement from the document, many private enterprises complain that as the operational methods were still not issued, it is just a ticket for them to enter the exploitation sector while not an assurance to play in the game.

The soaring oil price led to larger profits flowing to the exploitation sector of the industry, especially in China where the price of oil products is kept by the government at a much lower level than other countries.

To obtain oil sources either by entering the exploitation sector or going overseas is a major incentive for the unification of private petroleum enterprises, Liang said.

However, GUPC experienced a hard period before the establishment. Since starting preparations in January, the establishment date has been delayed again and again and debates have been heard from time to time.

With many different investors, the newly established entity will have to deal with their friction in or outside the corporation, said Cao Xiaoxi, deputy engineer-in-chief of the economic and technological research academy of Sinopec, China's second largest oil producer and the largest oil refiner.

Gong Jialong has expressed publicly many times the wishes to cooperate with state-owned petroleum giants and transnational giants in the domestic and overseas market.

However, experts do not hold a positive attitude for Gong's expectation.

Xu Zucheng, an official with the exploitation sector of CNPC, China's largest oil and gas producer, said that the necessary precondition for them to compete and cooperate with the private petroleum group as an equal entity is the assurance of laws and regulations, not only from the government but also from the enterprises themselves.

"Separately, China's private petroleum enterprises are just like boats jolting in the sea. The conglomerate is just like an aircraft carrier. We hope it will allow us to brave the wind and waves successfully," said Gong.

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