China's National Development and Reform Commission (NDRC) has devised a 3-step reform plan for the country's oil distribution system that will open the prized market to domestic firms before 2007, a commission spokesman told a symposium on July 9.

The symposium, held from July 8 to 10 in Harbin, northeast China's Heilongjiang Province, was organized by a local oil association. Over 100 representatives from private oil firms attended the symposium.

According to its World Trade Organization (WTO) commitments, China has to fully open the sector by 2007.

Cao Yushu, an NDRC spokesman, explained that the three-step reform includes: improving pricing mechanisms; breaking monopolies on wholesale transactions; and loosening the government's control over oil resources.

On pricing mechanisms, Cao explained that China's existing method of pricing means that fluctuations lag behind real-time international market prices, and are therefore not always reflective of demand and supply.

Cao added that the monopoly that the two oil giants -- PetroChina and Sinopec -- have over wholesale transactions will be broken and the market opened.

Further, Cao said that the government's control over oil resources would be gradually loosened, allowing all companies to compete fully in the imports business.

At present, private companies only have the right to import refined petroleum products and run petrol stations.

In order of priority, Cao said, the immediate tasks are to establish a fair market entry standard, ensure the equal treatment to all investors, and straighten out ties between the two oil giants and private firms.

A relevant supervision system will also be put in place after the government becomes less involved in the sector.

In view of the fact that policies, which aim to solve market entry issues, regulate oil imports and resources, are now being drafted, Cao encourages private investors to apply for oil import quotas, pledging to protect their oil refineries.

Deng Yusong is a researcher from the State Council Development Research Center and one of those drafting the reform plan.

In an interview with China Business News, Deng said: "NDRC should remain to determine retail prices, but market prices should be real-time; second, let the market determine price when competition and related laws and regulations are perfected."

Government bodies should keep their eyes on macro-supervision instead of pricing, Deng added.

As for alternative oil sources, Deng suggested that the government allow oil refining firms to independently import crude oil and moderately increase the import of gasoline and diesel oil.

Official statistics show that the country now has at least 80,000 private oil firms doing business in a variety of areas including refined petroleum products importing, oil exploration and drilling, transportation, and managing petrol stations.

The China Chamber of Commerce for the Petroleum Industry (CCPI), with over 150 members, was officially launched on December 11, 2004 in Beijing.

(China.org.cn by Tang Fuchun July 18, 2005)