The government's proposed fuel tax will not significantly affect domestic oil companies, but a market-based energy pricing system would relieve some of the pressure the companies face, said analysts.

"The proposed new tax on fuel will not greatly affect the business performance of China's two leading oil companies, PetroChina and Sinopec," said Liu Gu, an analyst with Guotai Jun'an Securities, adding their profit mainly comes from upstream business - oil and gas exploration.

Han Xiaoping, senior vice-president of Beijing Falcon Pioneer Technology Co Ltd agreed.

"For China National Offshore Oil Corp (CNOOC), the impact is even smaller as the company has a very small oil retailing system in the country," he said.

The State Council will seek public feedback on reforms of refined oil prices and its proposed fuel tax, it said yesterday.

Liu and Han agreed that "how the government will reform oil prices will be more important for domestic oil companies".

Crude oil prices in China are determined by the international market, however refined oil prices are still controlled by the government. The gap creates considerable headaches for the country's oil companies.

Soaring global crude oil prices in the first half of this year pushed Chinese oil companies into the red, as State-controlled refined oil prices kept them from passing the burden on to consumers.

Statistics showed that in the first three quarters the profit of China's petroleum and chemical industry was 418.7 billion yuan, an increase of 3.4 percent year-on-year, but the growth rate has seen rapid slowdown since September.

(China Daily November 28, 2008)