Decision taken at NPC structure of pricing policy.
- NPC very wide ranging – not so much on price oil
In 2008 pricing structure for downstream operations:
- Gate price set by NDRC + max pump price set by NDRC
- Gate price dislocated from international price refiners huge awards of money
- RXD refund VAT on crude import
Reasons are complex:
- There is dislocation of oil prices, but maybe you bought at $140 and sell now.
- Also economic crisis has brought negative impact.
- One of the opportunities is that gate price has re-adjusted.
- Refining gate margin to pump was there. Wholesalers took margin and retailers end up getting nothing.
- We now welcome policy of NDRC on pricing. 10/08
- Price changed but pricing policy formula did not.
- We can use this opportunity to change the formula.
- Yes, the market is working but pricing formula has not changed
- Q. Is there fixed price at gate?
A. Refiners have control on gate price but NOT the government. Nobody has the power to control price.
Oil is a strategic tool.
Government intervention is mainly fixed by government
By maximum price of gasoline can fixed/capped
Govt. can only be more and more open
Govt. only caps retail price, doesn’t fix gate price, which is generally adjusted to the market conditions.
- However, all strategic assets will not always be completely open.
- Since the economic crisis broke out, China is not such a fan of US economic management. EU fiscal and trade balance US concentrates on attracted investment and trade.
- There are also issues of social stability: we need to strike a balance between oil price structure and affordable oil products for the masses.
The new oil products law comes into force on 1st of January 2009 (NDRC).
Q. Will government concentrate on the implementation of the law and if so when?
A. This is difficult to say but it won’t be too long; as soon as an economy improves, app for reform will be missed so there is the need to improve
- At the moment the market is functioning well, but if prices start rising, we cannot be clear as to how pricing will be decided.
NDRC want be making decisions on pricing.
However, new oil products law has proviso? On “controls” with regards to oil company production costs? What price will these controls “pick in”?
1. It is impossible to say what price the controls hide in.
2. There are many different kinds of oil products, it is impossible to say how these prices will be influenced by rising prices.
3. There will always be occasions when the govt. has to intervene, for example when war breaks out in the Gulf, or it threatens social stability.
However, in general the govt. does not wish to control prices.
- Nobody lines widely fluctuating prices. W. companies would prefer slightly higher prices, but they all welcome price stability.
- Widely fluctuating prices causes problems of demand and supply, and also speculation.
- W-companies feel prices will recover somewhat, but with $100/barrel, prices are a long way off.
Q. Will the government allow more wholesale licenses to be awarded?
A. I think so, both to local and international companies.
Retail steps are probably faster than wholesale.
Q. Is there anything to prevent the govt. completely freeing prices with proviso that it steps in when prices are very high to ensure social stability?
A. It is for bureaucratic reasons that the oil price hasn’t been completely opened and is still at a research stage.
Q. Russia is proposing international today for gas: incl. Iran, Algeria. What do you know about it?
A. The organisation is well known, but not as effective as OPEC. Even OPEC has little control over all prices as many producers are outside it. So it is difficult to see if gas producers will unite over this issue.
Stimulus package
What is the feeling in govt., should we help SOEs or the economy? Will govt help certain sectors more?
- Private companies will also be recipients of stimulus package funds.
- We need to break with the past and build the future
- There are two kinds of stimulus packages. One is breaking with the past and the other is opening up to and for the future.
- Some European companies are re-nationalising industries. So now we might be standing on the edge of a new society where weak companies are re-nationalised.
- Stimulus funds will be played into new energy projects.
Q. Will pushing decision-making down to the provincial level make it more difficult for foreign companies?
A. Only about RMB 1 trillion of the stimulus package will be allocated to projects, funded by the central govt. This money will be used as a lead for projects in the provinces.
- Provinces always had opportunity to fund/approve their own infrastructure projects.