China's Sinochem International Co. said Tuesday the State Council had approved in principle for the company to go ahead with the acquisition of South Korea's Inchon Oil Refinery Ltd.

Sinochem will pay US$560 million for the acquisition of Inchon Oil, according to a notice published on Sinochem's Web site.

The approval by the State Council is the last hurdle required for the takeover of the bankrupt Inchon Oil Refinery, which is South Korea's fifth-largest refinery.

Sinochem signed a memorandum of understanding to acquire Inchon Oil Refinery, with a nameplate capacity of 275,000 barrels of oil a day, in May this year.

The companies signed a final contract for the takeover in late September after a South Korean district court approved the deal, leaving the final approval from China's Central Government as the last step needed for the acquisition.

The takeover marks the first foray by a Chinese company into the South Korean oil market.

Sinochem is likely to use Inchon Oil Refinery as a processing center for its term crude supplies from the Middle East, and to ship refined oil products to China and the Asia Pacific region.

South Korea's proximity to China makes it a logical supply source for Sinochem, allowing the company to ship Inchon Oil Refinery's refined products, especially fuel oil and diesel, to its own outlets in China.

Inchon Oil Refinery has been running at around 30 percent of its refining capacity since it went bankrupt in 2002, and the refinery's capacity will likely be raised after Sinochem assumes ownership.

(Shenzhen Daily November 17, 2004)