Oil import reform needed: think tank

A Chinese think tank said Friday that a deep reform is needed of China's oil monopoly system, which has led to low efficiency, and suggested that the first step should be opening import access to crude oil to all oil refineries.

The total welfare loss caused by the country's oil monopoly system, including profit loss in the oil industry, reached as high as 3.477 trillion yuan ($561 billion) from 2001 to 2011, the Unirule Institute of Economics said in a report.

From 2000 to 2011, the country's three State-owned oil companies - China National Petroleum Corp, Sinopec Group, and China National Offshore Oil Corporation - made profits for the government that were 1.47 trillion yuan less than what they should have been, the report said.

The main cause of the loss is a high degree of monopoly in the oil sector, covering the whole industry chain of exploration, mining, refining, wholesale, retail, imports and exports, the report said.

The report suggested the government allow oil refinery companies with a production capacity of over 5 million tons to import crude oil this year, and authorize all oil refinery companies to import crude oil next year.

Currently private oil enterprises in China are not permitted to import crude oil directly. For instance, the major resource for the private refineries in East China's Shandong Province is heavy fuel oil, a less efficient resource, which they are allowed to import from overseas, Liu Aiying, director of the Shandong Oil Refining Association, told the Global Times in a previous interview.

The heavy fuel oil import quota is generally not enough for private refineries and they sometimes have to purchase it from the State-owned oil groups, according to Liu.

Media have quoted government officials as saying that the central government has concerns about opening crude oil import access to private oil companies, saying for example that if all the private oil companies go overseas to negotiate prices and purchase crude oil, crude oil prices could rise to an unpredictably high level.

But Sheng Hong, director of the Unirule Institute of Economics, told the Global Times during the report release press conference that "actually China has already lost its pricing power for international crude oil by only permitting the State-owned enterprises to buy crude oil overseas."

Song Xiaowu, president of the China Society of Economic Reform, said at the conference that Unirule's suggestion for a reform of the oil monopoly system is enlightening but unlikely to be achieved in the short term due to its complexities.

Song said the Chinese government must first make clear the role of the State-owned oil companies. "A State-owned company cannot play the roles of an administrative agency and a market-economy driver at the same time," Song said, citing Norway as an example of successful nationalization of an oil industry.

The Norwegian government got all the profits of the State-owned oil companies, and staff members of the companies earned the same salaries as government civil servants.

But in China, the average yearly salary for staff members at China National Offshore Oil Corp in 2010 was 340,000 yuan, 10 times the average salary across all sectors, according to the report.