PRIVATE POWER: China’s first private petroleum group, the Great United Petroleum Holding Co. Ltd., announces its establishment
　　
　　When Li Qi, owner of a private gasoline station in Guangzhou, capital of south China’s Guangdong Province, returned from a business trip to central China’s Jiangxi Province, he began to wonder who his competitors were. This was not because his business had grown large and prosperous, but because his former competitors had been acquired by domestic oil giants.
　　“Those private gasoline stations that used to be both my competitors and partners seemed to vanish over a year,” he said.
　　He recalled that he did a lot of business with private gasoline station owners in Jiangxi last year, but now 90 percent of the stations have been purchased by PetroChina and Sinopec, the two largest oil conglomerates, which monopolize the oil market on the Chinese mainland.
　　He Zhiyuan, head of a Jiangxi-based private oil company, confirmed Li’s comments, saying, “There are few private gasoline stations left in Jiangxi.” Since the end of 2004, according to He, many private gasoline stations that previously refused to be acquired by Sinopec or PetroChina have been forced to either offer themselves to the two giants or close their business. They can’t manage to go on because they have to buy oil products from the two giants at a high price and sell them at the low retail price set by the government.
　　Life became harder for China’s private oil sector after China opened its oil product retail market to foreign capital on December 11, 2004. And the sector is poised to suffer more blows from foreign competitors, so that experts worry that China’s private oil sector might disappear.
　　Statistics show that private gasoline stations accounted for 60 percent of the total before 1999. But after 2001, 90 percent of them were acquired by the two giants. By 2005, Sinopec owned some 31,200 gasoline stations nationwide, pushing its share in the domestic retail sales to 55 percent. PetroChina expanded its gasoline stations to 18,164, with its share standing at some 32 percent. Private gasoline stations, however, were reduced to 20,000, or 15 percent of the sales.
　　Now the remaining private gasoline stations are struggling to survive, with many on the verge of collapse, according to Li. “The misery of the private sector should mainly be blamed on the monopoly in the industry,” he added.
　　
　　Breaking the monopoly
　　
　　Back in 1998, oil product smuggling was rampant, leaving Sinopec and PetroChina suffering losses of some 5 billion yuan. To combat the chaotic market, the State Council, China’s cabinet, under the influence of the two giants, issued a document suspending the operation of all private gasoline stations.
　　According to related regulations, while the midstream and downstream sectors of the oil industry have been opened to private and foreign capital, the upstream (exploration) sector is only open to those who hold licenses granted by the Ministry of Land and Resources. Only Sinopec, PetroChina and China National Offshore Oil Corp. (CNOOC) enjoy this right. Foreign capital must cooperate with PetroChina and Sinopec when it comes to land resources development and CNOOC is their legal partner in offshore oil exploration.
　　After 1998, of the 200-odd private companies engaged in the oil product business in Shanghai, 99 percent survived by affiliating with Sinopec or PetroChina. Every private company has to pay an annual fee of 35,000 yuan for such an affiliation and to obtain some small oil fields to explore from the three giants. According to He Zhiyuan, a private company exploring for oil in the Xinjiang Autonomous Region last year had to sell petroleum to the state company for only about 900 yuan per ton, compared with the market price of 2,000 yuan per ton.
　　Due to a lack of petroleum resources, private gasoline stations have to buy oil products from Sinopec and PetroChina at a higher price. During periods of oil shortages, they often have no oil to sell. While Sinopec and PetroChina are competing with foreign petroleum giants such as Shell and BP in establishing retail outlets, private oil companies are struggling to survive.
　　State-owned and private companies should enjoy the same rights to such energy resources as petroleum and natural gas, and private companies should compete with the state-owned ones in a fair market, He said.
　　According to Chinese Customs figures, the energy industry is in a key stage, as it imported 130 million tons of petroleum last year, an increase of 3.3 percent over the previous year. The Ministry of Commerce predicted that China’s annual petroleum and oil product imports will reach about 160 million tons in the next four years. China’s dependence on imported petroleum will rise to almost 50 percent of total consumption from the current 37 percent.
　　Zheng Jinquan, Chairman of Xiamen Hai’ao Group, said the private oil sector, an important supplement to satisfying market demand, can play an active role in safeguarding China’s energy security, and therefore it is imperative to break the monopoly in the oil industry.
　　The China Chamber of Commerce for the Petroleum Industry, a private organization made up of more than 50 companies, is now dedicated to breaking that monopoly. It is seeking an adjustment of the current oil industry policy in order to promote the private sector’s development. Meanwhile, it is strengthening cooperation with petroleum exporting countries, aiming to open up more business opportunities.
　　The oil industry should be open to more enterprises to strengthen competition, since it is impossible to depend on only three groups to quench the oil thirst of a fast-growing country such as China, noted Mei Xinyu, an expert at a think tank under the Ministry of Commerce. He added that greater participation by private companies in the sector would exert an important influence on the oil industry’s future development.
　　
　　Going global
　　
　　Since it will take some time to break the industry’s monopoly, the more imperative action is for the private sector to battle its way out of the difficult situation.
　　On May 9, the China International Petroleum Industry Investment Union, which promotes the idea of “stock ownership of petroleum sources,” obtained six oil fields, worth about $400 million, in Indonesia and the Middle East. The event marks substantial progress for the private sector in the search for oil.
　　“Four of the six areas are located in Indonesia and two in the Middle East, and relevant agreements have been signed,” said Cui Xinsheng, Chairman of the China International Petroleum Industry Investment Union.
　　As a federation for transnational petroleum and energy investment, the union was sponsored by the Beijing Minsheng-Shanglian Petrol Resource International Consulting Co. and organizations and companies from major petroleum-producing countries. The union aims to promote energy cooperation between China, especially the private sector, and global resources.
　　Cui said the idea of “stock ownership of petroleum sources” was designed especially for the Chinese market. Under the plan, oil-producing countries can join the Investment Capital for the China Petroleum Industry registered in Hong Kong. Chinese enterprises buy shares of the Investment Capital and cooperate with foreign partners in building oil loading facilities, oil pipeline systems, storage facilities and refineries, as well as retail outlets, so as to satisfy China’s oil demand. In doing so, foreign companies can make inroads into the fast-expanding Chinese market.省略. Han said oil-producing countries can thus find a long-term and steady market, and China can avoid the fluctuations in international oil prices.
　　Zhou Fengqi, senior advisor to the Energy Research Institute under the State Development and Reform Commission, noted that it is a mutually beneficial plan, as oil exporters want to participate in the retail market to get the maximum profit, while Chinese private enterprises can get around many unnecessary links.
　　But Zhou was concerned about some policy obstacles. She said even if private companies obtain oil resources, they can only sell them to Sinopec or PetroChina, as private companies don’t have wholesale rights.
　　But Cui believed that the policy obstacle could be resolved as private companies improve in product quality and corporate governance.
　　Zhou Lijun, Director of the Economic and Technological Research Center of the China National Petroleum Corp., a founder of PetroChina, agreed with Cui. He said policy is not the biggest obstacle for private companies, adding that it is more important for them to strengthen their competitive edge.

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