The value-added tax (VAT) rebate could ease refining losses at China Petroleum & Chemical Corporation (Sinopec), but will not fundamentally solve the problem, according to a Sinopec official, who chose to remain anonymous.

On its website yesterday, the Ministry of Finance said it would refund value-added taxes on gasoline and diesel fuel imported by the country's two largest oil companies in the second quarter. Sinopec will be refunded for its imports of 500,000 tons of gasoline and 1.5 million tons of diesel between April 1 and June 30 this year.

Sinopec lost 2,162 yuan per ton on gasoline refining and over 3,000 yuan on diesel in March, Sinopec Chairman Su Shulin said at a conference in Hong Kong. Meanwhile the company posted a 13.6 billion yuan loss on refining businesses in 2007, according to its 2007 annual report.

Gasoline and diesel prices are 7,035 yuan ($1,005) and 6,825 yuan per ton respectively in the international market. Duty-paid prices are about 8,300 yuan and 8,000 yuan respectively, after a 1 percent customs duty and a 17 percent VAT, according to the official. That means Sinopec was losing 2,000 to 3,000 yuan per ton on refined oil sales in the domestic market as prices of refined oil products are controlled by the government.

"Although the government will partially refund the VAT, the gap between refined oil cost and the selling price is still 1,000 to 1,500 yuan per ton, not including transportation fees," he said, "Sinopec is still losing."

Sinopec's loss reduction will be limited as refined oil imports accounted for little of the company's sales, said Wang Jing, analyst at Orient Securities Institution.

The government's control over refined oil's prices remains Sinopec's greatest challenge. Under such a background, the company may achieve a balanced budget only if the price of crude oil drops to $76 per barrel, according to Su.

(Chinadaily.com.cn April 17, 2008)