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Subsidy is unjustified
(China Daily)
Updated: 2006-12-28 07:26

Sinopec and its investors received a windfall of 5 billion yuan (US$640 million) from the government for the oil giant's refining losses this year.

It is the second time the State has subsidized Sinopec, which received a total of 10 billion yuan (US$1.28 billion) at the end of last year for the same reason.

While the monopoly oil company and its investors cheer, the public is left bewildered: Why has all this happened?

The company claimed that the compensation is fully justifiable as its refiners have been losing money as prices of domestic oil products were lower than international crude prices.

Admittedly, the government caps fuel prices, which has made refiners unable to pass on higher costs to customers, a measure aimed to curb inflation and costs for manufacturers and oil consumers.

Still, the large subsidy lacks solid justification.

Sinopec, which engages in crude production, petrochemical and oil marketing businesses, together with two other companies, monopolizes the domestic oil business. It benefits from its monopoly status and makes handsome profits from almost unrivalled oil exploitation and trade.

It is not unreasonable, therefore, for it to sacrifice some of its benefits to stabilize the domestic oil market, where price fluctuations may cause economic chaos and social problems.

In the first nine months of the year, it made losses of more than 10 billion yuan (US$1.28 billion) in oil refining, but at the same time, as a whole it earned a net profit of 93.97 billion yuan (US$12 billion).

The company has long complained about its losses in refining oil, but as a group corporation that engages in multiple areas of the sector, losses in one type of business should not become an excuse for excessive fiscal support from the government.

If it demands compensation for its losses as a result of price controls, the public deserves to ask for a share of its profits commensurate with the stake the State holds in the company.

Although the company has made huge profits every year, it has shared little of its dividends with the State, the largest shareholder of the company.

Moreover, although the State raised the rate of resource tax on oil companies from last July, the tax rate remains much lower than that of other countries. It is another de facto bonus for Sinopec.

There may be few businesses in the world that can fare as easily as Sinopec, which enjoys all the benefits while having its losses made up by the State.

If the Ministry of Finance set a bad precedent by subsidizing the company last year, it went further down that path this time.

If this practice continues, the oil producer may give up making efforts to improve its operational efficiency and offset price fluctuations on the international market, because no matter how it performs, the State is expected to lend a hand to bail it out.

(China Daily 12/28/2006 page4)

 
 
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