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Financial Times: Sinopec in fresh talks over $5bn refinery

By Richard McGregor in Beijing
Published: August 12 2007 17:52 | Last updated: August 12 2007 17:52

Sinopec, China’s largest energy company by revenue, has revived negotiations with a number of foreign partners to build a $5bn-plus refinery in southern Guangdong, near Hong Kong.

Wang Tianpu, Sinopec’s president, told local and foreign journalists in Beijing on Friday that talks to build the refinery and petrochemical plant with overseas partners were “right on track”.

The foreign companies are Royal Dutch Shell, Kuwait Petroleum Corp and Dow Chemical , Chinese officials said. The foreign companies could not be contacted for comment.

The plant had been held up by, among other issues, what one industry executive described as “very difficult negotiations” with the Kuwaitis.

The Chinese had been wary about relying solely on the Kuwaitis as a monopoly supplier of oil for the plant.

Final approval would deliver a windfall to Kuwait, giving the Arab state annual oil sales to China of about 10 per cent of China’s currency imports.

The project would also rank as one of China’s largest joint venture investment projects, as large as the refinery planned for Fujian province involving Exxon Mobil and Saudi Aramco.

Such ventures in the past have taken many years to negotiate and go through the complete approval process, which in China is becoming stricter with more stringent environmental controls.

Sinopec’s refining business has also lost money in recent years because government-set retail prices for petrol have failed to keep pace with global prices.

The Ministry of Finance paid Sinopec Rmb5bn ($660m) last December to help cover losses from its refining operations. An even greater amount was paid in 2005, the year that global prices started to rise rapidly.

It is not clear why the Guangdong project has been suddenly revived and given such prominence by Sinopec.

Industry executives said that Sinopec’s newly appointed chairman, Su Shulin, may want to illustrate to his bosses his ability to kick-start more large projects in what is a strategic sector for China.

At 45, Mr Su is relatively young to run a leading Chinese state company. The Sinopec group, also known as China Petroleum & Chemical Corp, has listed companies in China and overseas.

Chen Tonghai, Mr Su’s predecessor, resigned in June. He officially left for “personal reasons”, but local media reports have since said he left under suspicion of corruption.

Mr Su previously worked for PetroChina, Sinopec’s largest domestic rival. His experience in the upstream oil business at PetroChina has led some analysts to suggest that he will try to move Sinopec more into that sector.

Copyright The Financial Times Limited 2007

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