The Ministry of Commerce yesterday announced qualifications for companies to apply for licenses to run retail and wholesale businesses dealing in oil products or oil storage.

 

The regulation virtually lifts a three-year ban forbidding companies other than Sinopec and China National Petroleum Corp (CNPC), China's two largest oil companies, to build new filling stations.

 

China is now set to allow foreign investors to sell oil from this Saturday in line with World Trade Organization requirements.

 

According to yesterday's announcement, applicants for retail businesses should have oil supply contracts with legal wholesalers and must fit with development plans of local governments.

 

For wholesale and storage businesses, additional requirements are needed, including storage facilities with capacity of no less than 4,000 cubic meters, and other infrastructure such as transportation pipelines, railways and wharves.

 

Industry insiders yesterday said many companies can meet the qualifications, which are not as strict as they had imagined.

 

The regulation also allows new domestic companies other than Sinopec and CNPC to build new service stations.

 

Since 2001, only Sinopec and CNPC have been allowed to build new stations, the aim being to help them consolidate their market share and fend off competition when the market opens up.

 

The government also revoked thousands of wholesale licenses, and excluded companies other than affiliates of the ‘Big Two’ from wholesale licenses.

 

"Despite a strong desire to invest in the market, many companies have been shut out by the restrictions," said Di Jiankai, director of the Ministry of Commerce’s Department of Commercial Reform and Development.

 

With government help and massive acquisitions in recent years, the two companies now control 56 per cent of the retail market, compared with 40 per cent three years ago. They also make up 90 percent of the wholesale market.

 

Analysts said the new regulation will not loosen control over the wholesale market, which is due to open up in two years.

 

"They only set standards for wholesale business. This does not mean new players can move in right now," said a Sinopec official. "Wholesale restrictions are still effective."

 

According to yesterday's regulation, provincial governments can approve applications for retail and storage business, while the ministry has the final say on applicants for wholesale business.

 

(China Daily December 9, 2004)