Concession structure in Chinese oil industry to collapse

One of twin Chinese petroleum giants China National Petroleum Corporation is facing serious difficulties since late August due to corruption allegation.

Four executives of the company including two of vice-presidents were dismissed, and received investigation on suspicion of serious breach of discipline. Then, investigation against Jiang Jieming, who was former chairman of CNPC until March this year, was also started in September. He had become a minister in charge of supervise state-run companies after leaving CNPC.

In the company, section manager or higher class have already been confiscated passports in order to prevent escaping to overseas. More employees are likely to be detained or will be called as witness.

Final target of the series of investigations is expected to be Zhou Yongkang who was former CNPC chairman and ex-senior leader of Chinese Communist Party. Dismissed CNPC executives were Zhou's entourages.
Zhou is known as the big boss of petroleum faction in the Chinese political world. But he could be the first arrested ex-Politburo Standing Committee member after the Cultural Revolution.

Chinese media recently reported that family members of Zhou's daughter in law have earned 800 million US dollars through suspicious equipment deals with CNPC. The deals seems to be part of activities to make secret funds of the faction.

The petroleum faction has influenced on Chinese politics in the background of plenty financial power. Business scales of CNPC and Sinopec are not inferior to international oil major ExxonMobil.

However, profit structure of these Chinese companies are not equal. Downstream concentrated Sinopec earns more sales revenue than upstream concentrated CNPC, but Sinopec's profit is about half of CNPC due to unprofitable refining sector.
Since petroleum products prices in China are rigidly limited by the government, refineries often suffer losses when products prices do not cover crude oil costs.

CNPC has enjoyed steady oil prices after 2000s, while its profit ratio looks lower than ExxonMobil. It seems not only due to unprofitable refining sector, but also because of manipulation to make secret funds.

If purge of executives to expand broadly, could CNPC be able to maintain its organization? Collapse of the concession structure also could stimulate competition over it.

1 comment:

  1. Nowadays natural fuels such as oil and gas are in threat because of solar energy and bio fuel but prodigy oil and gas company things that the day of total eco friendly energy are not coming to early it will take more then hundred years to learn and make our equipment extensible for these to use so the market of oil and gas are save till 2110.