October 14,2008

Oil Giant Lawsuit May Gain Sympathy, but Little Else

By CSC staff
 

China’s private petroleum companies are launching an anti-monopoly lawsuit against the two domestic behemoths, Sinopec and PetroChina, in order to gain a bit of living space. Unfortunately, as China’s Anti-monopoly Law includes no sanctions for administrative monopoly, lawsuits of this kind yield no outcome, except perhaps sympathy from the public.

Zhao Youshan, chairman of the Commercial Petroleum Flow Committee of China said on October 11 that the committee, formed by private petroleum companies, was planning an anti-monopoly lawsuit against Sinopec and PetroChina in order to break their complete dominance of China’s oil product retail market.

The administrative monopoly in the petroleum circulation field started from 1999, when the State Council released a file according to which oil products produced by all domestic refining plants must be sold to Sinopec and PetroChina, and other companies are not allowed into the oil product wholesale business.  

According to an investigation in 2008, China’s duopolized oil product wholesale market has seen 1/3 of its 663 private petroleum companies and 45,064 petroleum stations forced to closed.

Chinese private petroleum companies have written to the government time and again, pleading for it to improve the situation. But the two giants have made no response, and have not opened the market to private companies.

Sinopec and PetroChina are formally responsible for China’s national petroleum security. The world’s second largest crude oil consumer, China is increasingly dependent on overseas petroleum. The main task of the two companies is to ensure crude oil import. Because of this, they receive continuous subsidies from the government, despite high profit level.

Asking the two giants to open the market to private companies is like asking a Wall Street executive to give up his bonus.  It can be done, but expect a fight. A number of state-owned enterprises like PetroChina have gained the highest profits among Chinese enterprises. According to the latest tax information, most profits are made by state-owned enterprises.

China’s legislature deleted articles about punishment against administrative monopoly when deliberating Anti-monopoly Law last year in order to avoid possible lawsuits against state-owned enterprises.

 

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