With a revamp plan for its retail oil arm, China Petroleum & Chemical Corp. (Sinopec, 00386.HK) has signaled its readiness to shed the monopolistic status it enjoys in the downstream business and support Beijing’s call for a bigger private-sector role in the economy.
The energy giant, the world’s second largest refined oil supplier in terms of the number of gas stations, announced that it will sell up to 30 percent of its retail business to private investors, a move seen by some observers as the first bang in China’s grand state-owned enterprise (SOE) reform.
Praised as a move that will unlock the value of the group’s retail arm, shares of the refining giant soared over 10 percent at one point Thursday in Hong Kong, before ending the day 9 percent higher.
Some observers have gone as far as to suggest that Sinopec could serve as the role model for other state firms to open up to outside investors. At a Communist Party plenum last November, top leaders had unveiled several reform goals, which included encouraging more private investment in state-controlled industries.
Fuel-retailing is one of the four core businesses of Sinopec. The segment recorded an operating profit of 42.7 billion yuan (US$7 billion) in 2012, making it the second largest business after its oil and gas exploration segment. By the end of 2013, Sinopec had over 30,000 fuel stations.
The group’s oil retail business enjoys high profitability, and investment return is expected to improve further if private capital is brought in to help expand the distribution network and fully exploit the domestic market potential.
In the longer term, Chinese authorities may give oil & gas import rights to private enterprises, as well as allow them into energy exploration, AJ Securities noted.
But will there be any real change on the ground? Skeptics have many doubts, as they point out that monopoly practice lies at the core of SOE operations and that the enterprises won’t give up their power easily. Thus, much of the current excitement about Sinopec’s move may be unwarranted.
Liu Ming, an oil products retailer, belongs to the camp of pessimists. He told Tencent Finance that as long as Sinopec remains the largest shareholder, nothing fundamental will change. “Can private investors really have a say?” he wondered.
There have been some warning signs. Offering one example, critics point to Sinopec’s move to halt oil supply to private gas stations in some areas in the recent past, forcing many stations into closure. The oil giant has been accused of deliberately creating shortages in order to boost its profits. Trusting an entity that had resorted to bullying tactics will definitely take time.
Private investors will, in the end, want Sinopec to back up its words with real and concrete action.
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