The recent oil prices hikes have a varied effect on China's processed oil companies. The bigger state-backed ones such as China Petroleum and Chemical Corporation (Sinopec), China National Petroleum Corporation (CNPC) and China National Offshore Oil Corporation (CNOOC), are reaping huge profits due to their secured oil supply and rising number of retail outlets across the country.

But private oil enterprises are facing some very hard times.

A new ruling on market entry requirements for the finished or processed oil sector, expected to be released by the Ministry of Commerce (MOFCOM) very soon, could drive some of these private companies out of business.

The rule, revised earlier this year, states that companies must own a minimum of 10 petrol or stations before they are allowed to compete in the market.

MOFCOM promulgated the Provisional Rule on Finished Oil Market Management on November 2, 2004. It was implemented on January 1, 2005, but not without strong reaction from privately run oil companies.

In June 2005, technical criteria concerning finished oil wholesaling enterprises were released, stipulating that private enterprise should own at least 30 petrol stations for market entry.

Although that threshold has been lowered to 10, few private companies can meet the requirement in a sector that is controlled by a semi-monopoly.

On June 12 this year, three local chambers of commerce for the petroleum industry and seven private oil enterprises made a joint appeal to MOFCOM, asking that the threshold be adjusted again for the oil and gas distribution sector, their last market opportunity.

The appeal was led by the Heilongjiang Provincial Chamber of Commerce for the Petroleum Industry.

Incomplete statistics show that there are over 10,000 private oil and gas enterprises with an asset value of 10 million yuan (US$1.25 million) or above nationwide. Privately run petrol stations accounts for 53 percent of the total in China. In Heilongjiang alone, private oil wholesalers' equipment investments are more than 1 billion yuan (US$125 million).

If the new measure takes effect, it will cause an estimated 15 billion yuan (US$1.876 billion) worth of losses nationwide, and thousands of people will lose their jobs, warned Zhao Youshan, head of the Heilongjiang chamber.

Further, the proposed entry threshold will only strengthen the existing monopoly of the state-backed companies, which betrays the country's efforts in breaking monopolies in general and encouraging market competition, Zhao said.

However, if the government insists on implementing the regulation, private companies ask that there be a period of transition, failing which they will allow themselves to be bought out by the government and thereafter quit the sector altogether.

MOFCOM has held at least five seminars; reportedly to solicit opinions on the rule from local government departments, and state-owned, private and foreign-funded oil enterprises.

In a phone interview with China Business Times, a ministry official said that MOFCOM has yet to comment on the appeal, neither has it made a final decision.

(China.org.cn by Tang Fuchun June 28, 2006)