Chinese mainland State energy giant Sinopec Corp is in advanced talks on taking a controlling stake in petrochemical firm Dragon Aromatics, which operates one of China's biggest chemical plants, three sources with knowledge of the matter said.
The discussions come after the independent petrochemical firm suffered a second major fire in less than two years at the $3 billion plant in East China's Fujian Province and sources said local authorities want Sinopec to participate before allowing the plant to reopen.
The tough line shows how the central government is putting pressure on provinces to ensure better industrial safety standards and protect the environment after a series of accidents has stirred protests from residents opposed to plants in their backyard.
Dragon Aromatics, owned by Taiwan's Xianglu Group, was forced to shut the plant with a capacity to produce 1.6 million tons a year of paraxylene (PX), a chemical used to make polyester fiber and plastics, after the fire in April.
"This is what the local government has insisted: without Sinopec's participation the plant won't be allowed to resume operations," said one of the sources, who declined to be named due to the sensitivity of the discussions.
Sinopec could take up to 80 percent of the stake, the source added.
A senior Dragon Aromatics official said that he was not in a position to comment on the communications at the board level but told Reuters the firm was "trying every means to resume the plant's production as soon as possible."
The PX plant is located on a peninsula called Gulei, part of Zhangzhou city and a site where State firms including Sinopec and China National Offshore Oil Corp (CNOOC) had previously tried to build petrochemical plants.
Industrial safety has come under heightened scrutiny in the Chinese mainland since a devastating explosion in August at a chemical warehouse in the Tianjin port.
Two huge explosions tore through a warehouse in North China's Tianjin that stored dangerous chemicals on August 12, killing a total of 98 firefighters, 11 policemen and 55 civilians. Hundreds remained in hospital, the Xinhua News Agency reported in September.
Sinopec wants to build more PX facilities but at least two of its investments have been blocked over the last few years due to opposition from residents worried about pollution.
"It would not be a bad deal for Sinopec, as it would save it all the trouble of going through the lengthy regulatory and environmental approvals," said a second source with a firm that has a supply agreement with Dragon Aromatics.
In Fujian, local officials including a vice mayor have been punished over April's accident, which was blamed on lax quality control and safety management, Xinhua said.
Sinopec, regarded as a seasoned petrochemicals operator, may need to retool the plant to improve safety standards, the sources said.
The purchase could also allow Sinopec to increase its purchases of Iranian oil as sanctions are relaxed.
To supply the PX plant, Dragon Aromatics also runs a 100,000 barrels per day condensate splitter and a 3.2 million tons per year hydrocracker at the site.
Dragon Aromatics has been one of the biggest buyers of Iranian condensate, a very light crude oil, and the plant shutdown has forced the Middle Eastern producer to store more of its oil.
