C1 Energy (Shanghai) – Mar 10, 2010 －－－A motion was submitted to the Chinese People's Political Consultative Conference held in Beijing recently, proposing to heighten threshold for special petroleum proceeds, or windfall tax.
The current US$40/bbl of threshold has failed to reflect rises in production costs and higher break-even points of domestic oilfields, as well as depreciation of US dollars, said Niu Yuesheng, a member of the CPPCC and Chairman of the Supervisory Board for Key Large State-Owned Enterprises.
After China implemented new oil product pricing mechanism in 2009, state-owned refineries' interest has been well guaranteed; however, unchanged threshold for crude windfall tax and relatively soft international crude prices in the year dampened oilfields, C1's record shows.
China's crude apparent consumption grew 6.2% year-on-year in 2009, but its crude output declined 0.4% while imports up 13.9%, according to data released by the National Bureau of Statistics. China's dependence on foreign crude surged 3.5 percentage points to record high of 52.5% in the year.
In addition, "a higher threshold is conducive to the balance of interest of state-owned oil giants," an industry source remarked. Sinopec's ESP (earning per share) surged 225% year-on-year to Yuan 0.19 in the third quarter of 2009, while its rival PetroChina posted 23% decline to Yuan 0.17, according to quarterly reports of the two majors. Sinopec, which focuses more on oil refining business, reaped much better profit.
However, some market players denoted that raising the threshold will not help to boost China's crude output much. "The bottleneck for rise in domestic crude output does not lie in low threshold, but the serious aging of existent oilfields and insufficient new ones," an industry source remarked.
China started to levy crude windfall tax on Mar 26, 2006, in a bid to promote reform of petroleum pricing mechanism. The special oil gain levy was initially used to subsidize refineries which suffered from refining losses; however, oilfields still had to pay the tax even if refining margins turned fine.
