SOCIALIST MARKET ECONOMY: ENERGY

1. SOCIALIST MARKET ECONOMY: ENERGY CHINESE PETROLEUM INDUSTRY SINOPEC CORP Sinopec Corp. China Petroleum & Chemical Corporation

2. SOCIALIST CHINA • Chinese petroleum industry is controlled by 3 major players all of whom are state owned incl. CNOOC, CNPC (PetroChina), Sinopec; • Over the years China has retained firm control of key & strategic industries in the country; • These industries have been under absolute state control: • power generation • Mining i.e. Coal • Oil & Petrochemicals • Telecommunications etc.

3. COMPANY BACKGROUND (SINOPEC) • One of the largest integrated energy and chemical company in China • China Petroleum and Chemical Corporation (Sinopec Corp.) is the largest refiner and petrochemical producer in China. • Public company listed in Hong Kong, New York, London and Shanghai • Parent company is state-owned  China Petrochemical  (Sinopec Group), • Government of China controls about 75% of the company through the Sinopec Group. • Its businesses include: • oil and gas exploration and production; • crude oil processing; • oil products trading, • transportation, • Distribution and marketing; • petrochemicals manufacturing. • owns more than 29,055 gas stations 643 franchises

4. COMPANY PERFOMANCE Turnover GROSS PROFIT MARGIN BY PRINCIPAL OPERATIONS BY SEGMENT

5. PROFITS & RETURNS RETURNS PROFITS

6. COMPETITORS Exxon, BP and Royal Dutch/Shell However foreign companies have established strategic partnerships with Chinese companies Intra-competition among the SINOPEC Group of companies 20,000 private / Independent gas stations SPC has managed competition well because of the government's price controls and its proximity to large customer base

7. SUPPLIERS Coal Suppliers Other suppliers • China Shenggui Valve Co.,Ltd • Aquachem Industrial Limited • SINOPEC Yizheng Chemical Fibre Co., Ltd. • Sinopec International • Guangzhou Taida Steel Tube Co. Ltd. • Jiangsu Sunchem New Materials Co.,Ltd

8. CUSTOMERS • Lube products used by • aviation, • spaceflight, • nuclear industry, • electronics, • military weapons, shipping, • automobile, • mechanical processing, • metallurgical, • refining, chemical, and instrumentation areas • Asphalt products • motorways, urban public roads, airport runways, racing tracks and bridge pavements • railway

9. Industry Key Success Factors

10. SINOPEC KEY SUCCESS FACTORS • integrated upstream, midstream and downstream operations • strong oil & petrochemical core businesses • complete marketing network • established a standardized structure of corporate governance • adopted a management system of centralized decision-making, • delegated authorities at different levels and • Business assets and principal markets are located in the east, south and middle part of China, where China's most developed and dynamic economy lies. • business operations handled by specialized business units

11. CHINESE FEATURES / SOCIALIST STATE 1978 Deng Xiaopin • Introduced a program of market socialist reform; • China has since grown & became a regional & global economic force; • China has recorded double digit real GDP growth since 1980’s; • China is said to be contributing app. Half of the Asian GDP; • Since the reform, GDP rose from 150 Billion USD to more than 1.6 trillion USD; • Under this regime private sector share of GDP rose from less than 1% in 1978 to app. 70% in 2005.

12. 2005 MARKET REFORM Privatisation was almost halted / partially reversed; All strategic industries were consolidated into SOE, the rational being to increase international competitive national industries; There are about 150 or more large SOE reporting to Govt. SOE’s contribute to increased state revenue. Private ownership is in the main restricted to secondary & service industries.

13. CHINESE FEATURES • Macroeconomic policies and government regulations • government is liberalizing the market entry regulations on petroleum and petrochemicals sector • Sector is subject to entry regulations to a certain degree • Including issuing of licences • Setting maximum retail and distribution prices for diesel, gasoline & jet fuels • Imposing of special levies, tax and fees • Formulation of quotas for import and export • Exchange Rate: • China implements an administered floating exchange rate regime based on market supply and demand with reference to a basket of currencies in terms of the exchange rate of RMB.

14. Participation of Multi - Nationals • Partnerships have been established with SHELL & BP in the main. SOE still dominant

15. OPPORTUNITIES China has largest automotive market 1,3 billion people; 2nd Largest oil consuming nation; China is concerned with energy security & has vested interest in cleaner & efficient fuels; Country is leading in key alternative fuels research & govt. is investing billions in R&D; Govt. intends to deregulate the sector to address chronic inefficiencies of current distribution. Opportunities exists for foreign oil companies to join forces with the 3 local oil companies on upstream & downstream.

16. CONCLUSIONS • The petro-chemical industry is amongst the strategic industries controlled by he state; • More especially the upstream activities • Multi-nationals are allowed some in downstream activities • Since China is not well endowed with crude oil resources, the govt favors meaningful partnerships with other govt & multinationals in oil rich countries; • Technological investment • Financial investment • Opportunities for foreign companies exist in green technologies, JVs & partnerships

17. End! THANK YOU ALL!