Petrochina Co Ltd, China's largest oil group, inked a deal with Dazhong Transportation (Group) Co Ltd to be the sole refined oil provider to the transport giant in Shanghai after one year of negotiations.

After the deal, PetroChina would supply about 90 percent of refined oil to the city's public transport system. It would strengthen the oil firm's position in the city's refined oil market, industry insiders noted.

Around 18,000 vehicles under Dazhong, including taxis, buses and delivery trucks, would use fuel -namely diesel and gasoline - from PetroChina. Nearly 6,000 buses under Dazhong would be the first batch of users.

It is estimated that up to 40,000 tons of refined oil would be supplied to Dazhong annually under the deal at prices lower than street prices, said an official with PetroChina.

"Today's teaming up with PetroChina signals a big issue for us and is just a start," said Yang Guoping, chief executive officer of Dazhong Transportation (Group). "Our parties would also expand the cooperation to East China as Dazhong has also set footholds in surrounding cities such as Ningbo, Hangzhou, Wuxi and Nantong."

Before fostering the alliance with PetroChina, more than half of refined oil consumed by Dazhong in Shanghai was provided by China Petroleum and Chemical Corp, also known as Sinopec, the country's largest oil refiner.

Dazhong owns more than 10 gas stations - most located in suburban areas such as Songjiang, Jiading and Nanhui districts - that would now be operated by PetroChina.

PetroChina has more than 150 gas stations around the city and about 18 percent of market share in the retail refined oil market. Its rival Sinopec dominates the retail market with more than 500 gas stations in Shanghai.

Dazhong is also seeking the opportunity to use liquefied natural gas from PetroChina. Lin Aiguo, general manager of PetroChina's Refining and Marketing Co, also expressed interest and said there is an opportunity for further cooperation.

Hou Jixiong, an analyst with Guotai Jun'an Securities Co Ltd, said PetroChina's deal with Dazhong was a good fit.

"An alliance with the big fish downstream is an efficient way to expand market share and its cost could be lower than establishing new gas stations," Hou said.

Besides, PetroChina also plans to sign contract with Jinjiang International Holdings Co Ltd to provide fuel to China's largest tourist group today.

(Shanghai Daily March 12, 2004)