Break up of State oil monopoly?

Oligopolies prevent fair and reasonable competition inindustries

Industry experts suggested that China should establish a separate and independent company to operate the oil wholesale business and manage the supply to retailers, to break up the de facto monopoly of the three State-owned large oil companies, especially the two onshore oil giants.

A major portion of China's oil stations are run by Sinopec Ltd and PetroChina Co Ltd, and although oil stations owned by foreign companies and private investors do exist, they have a marginal significance in terms of market share.

As part of the efforts to dismantle the SOE's monopoly in the petroleum sector, China should separate the oil wholesale business away from the three major State-owned industrial enterprises, experts suggested. Song Qiong / Xinhua

"As a good way to form fair market competition in the petroleum sector, we should make some adjustments in the oil retailing field by stripping away the oil station business from three main State-owned oil enterprises and set up another SOE specialized in the operation of oil stations," said Xu Baoli, director of the research center of the State-owned Assets Supervision and Administration Commission.

As China's new leadership has pledged a series of economic reform plans to invigorate the economy this year, dismantling the SOEs' monopoly in industries including petroleum, telecommunications and finance have become major targets.

During the World Economic Forum in Dalian, Liaoning province, earlier this month, Chinese Premier Li Keqiang said China is now at a crucial time and the country won't achieve sustainable economic growth without structural upgrading and transformation.

"We need to classify SOEs into competitive and non-competitive areas to deal with the so-called monopoly problem of SOEs," said Shao Ning, SASAC's vice-chairman.

In the service industries, which are considered a competitive area and include telecommunications and finance, a series of measures will be taken by the government to promote market access and competition.

In the domestic oil market, three main State-owned petroleum giants — China National Petroleum Corp, China Petroleum and Chemical Corp and China National Offshore Oil Corp — have dominated main business areas, including oil exploration, refining and retailing, for the past decades.

Xu said he believes that the oil station business should be made independent from CNPC, Sinopec and CNOOC and more encouragement should be given to foreign and private investors to create more competition in terms of price, quality and services.

Although it was opened to foreign investors in 2004, the domestic petrol station market is still dominated by Sinopec and CNPC, both of which own more than 80 percent of the country's petroleum retail market.

By the end of 2011, Sinopec had more than 30,000 petrol stations. By the first half of 2012, PetroChina had more than 19,000 petrol stations, accounting for about 40 percent of the market share.

Private and foreign companies planning to enter the oil station sector still face some market restrictions. Petrol station operators are required to have stable oil supplier.