C H I N E S E P E T R O L E U M I N D U S T RY

S I N O P E C C O R P S I N O P E C C O R P. C H I N A P E T R O L E U M & C H E M I C A L

C O R P O R AT I O N

SOCIALIST MARKET ECONOMY: ENERGY

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.

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

TurnoverGROSS PROFIT MARGIN BY

PRINCIPAL OPERATIONS BY SEGMENT

2005 2006 2007 2008 2009

Turnover

824005 1061588 1205860 1495148 1345052

100,000

300,000

500,000

700,000

900,000

1,100,000

1,300,000

1,500,000

Ex

plo

rati

on

& P

r...

Re

fin

ing

Ch

em

ica

ls

Ma

rke

tin

g &

dis

tr...

Oth

ers

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

GROSS PROFIT MARGIN

COMPANY PERFOMANCE

RETURNS PROFITS

2005 2006 2007 2008 2009

Return on Capital Employed

0.125 0.1258 0.1166 0.0515 0.1113

Return on Net Assets

0.1931 0.203 0.1816 0.087 0.1633

2.50%

7.50%

12.50%

17.50%

22.50%

Percen

tag

e

2005 2006 2007 2008 2009

Operating Profit

71517 81250 85496 26336 84431

Profit

43743 53773 55914 28525 61760

5,000

15,000

25,000

35,000

45,000

55,000

65,000

75,000

85,000

PROFITS & RETURNS

COMPETITORS

Exxon, BP and Royal Dutch/Shell However foreign companies have established

strategic partnerships with Chinese companiesIntra-competition among the SINOPEC Group

of companies20,000 private / Independent gas stationsSPC has managed competition well because of

the government's price controls and its proximity to large customer base

Coal Suppliers Other suppliers

Company Logo Supplier Name

SDIC Xinji Co., Ltd

Yangquan Coal Industry (Group) Co., Ltd

WanBei Coal-Electricity Group Co., Ltd

Pingdingshan Coal (Group) Co., Ltd.

Jiangsu Xuzhou Mining (Group) Co., Ltd.

Huainan Mining (Group) Co., Ltd.

Shenhua Energy Co., Ltd.

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

SUPPLIERS

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

Industry Key Success Factors Category Key Success Factors

Integration •Vertical integration is more successful

Innovation •Research and development

•Technological advancement

•Ability to advance in new areas

Management

structure

•Adaptable management structure

•Efficient management structure

Marketing and

Distribution

related

•Proximity to the market

•Strategic partnerships and linkages are critical.

•A solid track record

•Experience of company personnel to undertake work

•Fast technical assistance and Customer satisfaction

Skills and

capability related

•Skilled workforce is a major KSF in the sector

•Communication with client

•Short delivery time capability and constant liaison with clients

SINOPEC KEY SUCCESS FACTORS

integrated upstream, midstream and downstream operations

strong oil & petrochemical core businessescomplete marketing networkestablished 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

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.

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.

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.

43%

27%

13%

8% 7%2%

Market Share of the petroleum industry

State owned 44%Sinopec 28.2%PetroChina 12.9%CNCP 7.7%Joint Venture 7.3%Multi-National 0.2%

Participation of Multi - Nationals

•Partnerships have been established with SHELL & BP in the main. SOE still dominant

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.

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

End!

THANK YOU ALL!