CNPC Reduces Investments    

CNPC (China National Petroleum Corporation) announced on June 3rd that it will highlight the development of core businesses and conduct suspension, postponement or investment reduction to 49 projects under construction or planned. The planned investment will be reduced by RMB20.72 billion.
    "It is a big decision and also a readjustment in the operating strategy of CNPC," said experts. "CNPC has retaken its oil/gas strategy as the core." The large-scale shift will likely induce business shrinkage in more upstream and downstream enterprises attached to the giant.
    These affected projects are mostly non-oil projects in enterprises that directly under CNPC. The main business in listed company PetroChina Co., Ltd. has made no change. For a considerable period of time in future, CNPC will concentrate efforts and funds in its core business of oil/gas exploration, development, refining and sales.
    According to experts, the project reduction this time is mainly intended to ease the capital pressure of the company.
    The price of oil products in China is still restricted by the government. It is expected that because of the restriction on the price of oil products CNPC will suffer a loss of around US$20 billion (equivalent to around RMB140 billion) in 2008. The profit gained in upstream crude oil production sectors of the company is mostly used to compensate for the loss in downstream refining sectors.
    Besides, the government will collect a special revenue duty for the portion of the crude oil price beyond US$40 per barrel. The operating tax and surtax handed by PetroChina Co., Ltd. was as high as RMB28.878 billion in the first quarter of 2008, an increase of 148.7% over the same period of 2007. The main reason was the increase of the special revenue duty.
    China has issued favorable policies concerning the value added tax in the import of oil products and the import of crude oil for processing. According to analysts, however, when the crude oil price in the international market is more than US$120 per barrel, the policy of exempting from the value added tax for imported crude oil has already lost its effect.
    The net profit gained by PetroChina Co., Ltd. in the first quarter of 2008 was RMB28.885 billion, a drop of 31.5% from the same period of 2007.
    Besides, the capacity of existing oil/gas resources in CNPC is going down and the prospecting and development of low-grade oil/gas resources need huge capital.
    One quarter of the total conventional oil reserves in China was proved and the proven ratio of conventional gas reserves was one tenth. Non-conventional varieties such as coalbed methane, shale oil, oil sand and oil shale oil have a great potential.
    The investment reduction made by CNPC this time is a follow-up step of the budget contraction for 2008. It is also a response to the requirements made by the State-Owned Assets Supervision and Administration Commission of the State Council on containing blind investments.
    On May 24th Li Rongrong, Director of the State-Owned Assets Supervision and Administration Commission, emphasized at a meeting that enterprises under the central government should cut down non-productive expenditures. "The total budget reduction in enterprises under the central government is expected to be RMB3.0-5.0 billion this year," said an auditor. CNOOC has announced that it will cut down its budget by 10% this year. CNOOC President Fu Chengyu took an economic class on business trips.