Selling to survive
Tan Wei

ZHAO Youshan, Director of the Petroleum Distribution Committee of the China General Chamber of Commerce (CGCC), runs the first private gas station and the first private oil depot in Heilongjiang Province. He used to take pride in the oil storage capacity of 20,000 cubic meters his depot holds, a capacity that supplies as many as 1,000 gas stations in the province. At present, how to fill all these empty tanks is his biggest headache.
“I sold the other five gas stations I owned after years of hard work,” said Zhao. “The only one I have now is what was the first private gas station in Heilongjiang, but I’m without a drop of oil.” Rising global oil prices and soaring sales of automobiles in China have marked the past few years. On average, nearly several million new cars-either gasoline- or diesel-fueled-hit the road every year. Even with the continued increase in customers, private gas stations and oil depots unable to turn a profit are faced with empty tanks and are under great pressure to survive.
Zhao’s problem is a typical one facing many private gas and oil station owners in China. “Without a sufficient oil supply, the oil distribution business will shrink quickly, as will private investments in the market,” said Zhou Tianyong, Deputy Director of the Research Office at the Party School of the Central Committee of the Communist Party of China.
Yet the predicament that private gas stations face offers foreign investors a good chance to enter the energy market in China. Recently, French oil giant Total Group, the world’s fourth largest oil and gas company, finished purchasing deals to buy 20 private gas stations in Liaoning Province. And at the same time, the French company has been running through related procedures for buying three private Chinese wholesale oil companies, revealed Zhao.
“Short on oil supply, local private stations have found it impossible to maintain their operations,” said Feng Wei, General Manager of Tianjin-based China Port Well Yield Logistics Co. Ltd. “That is the key to Total’s success in purchasing all these private gas stations.” Other than selling their packaged assets to foreign buyers, some private oil business owners have sought foreign investments in hopes of turning their stations into local flagship operations, said Feng.
A prime example of this is the cooperation between Shell and Shuorun Petrochemical Co. Ltd., a subsidiary of Doyen Holding in Chongqing. The joint venture has engaged in the gas station business in China under the brand of Shell since 2006. Business has gone smoothly, according to Shuorun’s Deputy Manager, Yong Shisheng. SK Energy, South Korea’s largest refiner, has also found a foothold in China’s market. It is planning to purchase oil refineries, oil depots, docks and gas stations in Shangdong Province in order to make it the beachhead for its business expansion in China’s oil distribution market.
A good bargain Private oil assets have attracted as much as $300 million in overseas capital up to this point and they should have sold their assets, according to Zhao, because they “have no alternative.” Many oil depots were run at a loss over the past decade due to the oil supply shortage. Because investing in a gas station can cost several hundred thousand to 1 million yuan ($133,000), and for an oil depot it costs nearly 100 million yuan, it has been difficult for these owners to make a profit and just as hard to quit the business while running at a loss. Private gas stations buy oil products either from private oil depots or from several oil majors like Sinopec and CNPC which also supply oil products for private depots. This comes from a 1999 stipulation that basically gives Sinopec and CNPC a monopoly over the domestic oil product wholesale business-all domestic oil refiners have to hand over their oil products to the wholesale companies subordinated to the two oil giants and are not allowed to sell their products themselves. As a result, the two giants control the supply as well as the pricing for oil products in China. They have been reluctant to sell gas and diesel to private companies because the monopoly fed the strong growth of their wholesale subsidiaries, leaving private oil businesses no chance to survive.
“All my money has been invested in the company,” said Zhang Shunjie, board chairman of a Liaoning-based petrochemical company. “But neither of the two giants has ever supplied us since 1999 and we can hardly make both ends meet by finding oil from other dealers.
“I’ve been trapped for almost 10 years,” said Zhang. “I want a good bargain as foreign buyers are scrambling for the precious resources. It’s imaginable that based on these resources foreign oil investors will soon be able to compete with domestic giants for the market. Aren’t we aware of the value of what’s in our hands? We have been struggling for life under the duopoly of state oil giants for years and are left with no choice but to sell.” A recent survey by the CGCC’s Petroleum Distribution Committee indicates that the number of private oil wholesalers has plummeted from 3,340 at its peak in 1998 to the current number of 300. The number of private gas stations shrank from 56,300 in 1998 to 45,000 at present.
Ready to acquire
China has allowed foreign companies to operate retail businesses since November 11, 2004, and oil wholesale businesses as of November 11, 2006, according to its WTO commitments. Since then, foreign companies have been allowed to build oil depots, docks and distribution networks to sell their products. As a result, overseas oil giants gradually gained a foothold in China’s oil market by investing solely or establishing joint ventures with local oil companies. By the end of 2006, China had registered 2,607 foreign-funded gas stations and the number is still growing fast.
Total Group was among the first group of foreign oil companies to take action. It signed an agreement with CNPC in September 2005 to fund a joint venture with an overall investment worth nearly $100 million, of which CNPC holds a controlling stake of 51 percent. The prime task for the joint venture is to establish a distribution network for oil products in east China. Currently, Total Group has penetrated from the second-layer cities into China’s largest economic metropolitan of Shanghai. Two Total-labeled gas stations in Shanghai are under development. A company spokesman said that it plans to build and operate a distribution network for oil products consisting of 300 gas stations in Shanghai, and Jiangsu and Zhejiang provinces.
How foreign oil companies have been able to take to the market in China like a duck to water when private Chinese oil companies are sinking has left many of these owners scratching their heads. “Despite the fact that foreign companies also face the problem of oil supply, their accesses to oil supply has been guaranteed due to their cooperation with the large domestic oil majors,” said Dong Xiucheng, Vice Dean of the Business Management School under the China University of Petroleum. “Furthermore, foreign companies are capable of building oil depots to transfer oil and import oil products from overseas to sell.”
Ren Yuling, a counselor to the State Council, cautioned that private oil retailers selling their “packaged assets” to foreign buyers could threaten the nation’s petroleum security. Zhao, however, didn’t think such worries were necessary and believed it was quite “normal” and in line with the nature of a market economy and wouldn’t be a threat to the national petroleum security, saying “it is similar to arguments justifying the opening of the finance sector to foreign investment.” “It’s good in general, “ said senior oil analyst Hang Xuegong, arguing that the sell-off of the private stations is conducive to improving the efficiency of domestic gas stations, optimizing oil distribution and encouraging healthy competition. Currently, domestic gas stations are inferior to their peers overseas in terms of operation efficiency and distribution.
Supports and solutions
Li Pumin, Spokesman of the National Development and Reform Commission (NDRC), said the government encourages the development of private companies with favorable policies and private oil companies could secure a stable stake of the market if they don’t give up and manage to grow and profit. The NDRC is working on a plan to directly supply oil products to private oil retailers, with the first batch of oil being around 5 million tons. Zhang Jiuda, a researcher with the NDRC, disclosed that the body is considering providing support to private oil retailers short of oil products.
“We are thinking about sparing a portion of oil products for private distributors,” said Zhang. “But how much should we give them? How to subsidize them and at what prices? We have to consider the details and the feasibility. “ Yet, Qi Fang, Director of the Hebei Oil Chamber, thought that 5 million tons of oil products would be insufficient to bail private oil retailers out of trouble. He said that oil consumption last year in China totaled 320 million tons, and based on this, the supply of 5 million tons is far from being enough to meet the demand of private oil retailers. Supposing private oil retailers operate about half of the distribution network nationwide, then the 5 million tons can only supply a minimal portion of their total demand.
Xu Dingming, Deputy Director of the Office of the National Energy Leading Group, proposed that the government adopt prompt measures and sell 10 million-20 million tons of oil products to private retailers at reasonable prices every year, arguing that the suggested amount accounts for less than 10 percent of China’s annual oil output and will not affect the major oil giants. Xu also advised the government to allow private oil retailers to avail themselves of international oil resources and sell imported gasoline in order to secure more opportunities for their survival and development. Dong Xiucheng, a professor with the China University of Petroleum, however, thought the government is sometimes reserved with its support for private oil retailers as some of them went bankruptcy not only because of supply shortage but also due to an overstretched capital chain, the small scale of their operations, as well as bad branding. They find it difficult to finance because they fail to match some large state-owned enterprises in terms of credit and scale. “Private oil retailers have to sharpen their edges while looking for sufficient oil supply,” said Dong.

(The Daily Mail-Beijing Review Articles Exchange Item)

Hillary, don’t push Button if phone rings at 3 am
Jonathan Power

SO what if the phone rings in the new American president’s bedroom at 3 a.m.! It can only be because the radar has picked up a flock of geese. The chances of Russia attacking the US with its missiles is as close to zero as one can get without falling off the graph paper. Ditto China, Israel, Pakistan, India and North Korea. As for the putative Iranian bomb, at best within 10 years it could reach Europe in some primitive rocket but by then the White House will have changed ownership again.
Mrs. Hillary Clinton’s jibe, suggesting that Barack Obama wouldn’t have the experience to deal with a night time emergency, is so wide of the mark and so anachronistic that it should be relegated to the basement of the Imperial War Museum. If anyone tries to make a nuclear explosion in an American city it will be some terrorist group using a so-called dirty bomb, explosive materials wrapped with nuclear waste. For full effect it will be exploded in daylight whilst people are on the streets. It will kill at most far less than those who perished at the World Trade Center on 9/11.
Before the Hillary-Obama campaign gets stuck in the dirt (although let us be clear it is at present of a single origin) let’s get some facts clear. Who will be in the bedroom at 3 a.m. in Mrs. Clinton’s scenario? Assuming the marital relationship is still working we can assume it will be husband Bill. Knowing what we do about Bill’s character can we assume he will remain silent at this crucial moment?
And can we assume that in the five minutes presidents are supposed to have when warning of a missile attack has been given that in that tension filled bedroom there will be unanimity? Will that be the best atmosphere to make a cool and level-headed decision? It is just the kind of crisis that could be the catalyst for bringing to the surface all the hidden and buried resentments the one has for the other.
Wouldn’t it be better to have the cool-headed Obama as president? He is more likely say to those on the other end of the phone: “Wait a moment. I believe we have been there before. No one is to do anything, launch anything, until we have the full facts.”
A good friend of Zbigniew Brezinski told me a story that is half funny and half frightening from the time when he was President Jimmy Carter’s national security advisor. The phone did ring in the middle of the night when Brzezinski was asleep in bed with his wife beside him. He was told that the Pentagon warning system had reported that a single rocket had been launched from the Soviet Union and was on its way to Washington. Brzezinski told them to check it out and call him back in a minute. The call came. This time he was told that it wasn’t a single rocket, it was at least twenty. Brzezinski, aware he had to wake the president well before the 5 minutes was up, again told them to recheck the information. A minute later the Pentagon called and told him it was a false alarm. It was geese or atmospheric interference. The friend asked Brzezinski if he woke his wife in the middle of all this? Brzezinski replied with an ironic smile, “If we were all going to die in the next few minutes it was better to let her sleep through it!”
Mikhail Gorbachev, when he was president of the Soviet Union, had a very sensible way of looking at his responsibilities. In an interview conducted by Jonathan Schell of the Nation magazine he said:
“I recall that when I was trained in the use of the nuclear button I would be told of an attack from one direction, and then, while I am thinking over what to do about that, new information comes in — that another nuclear offensive is coming from another direction. And I am supposed to make decisions!” Gorbachev laughed. “Nevertheless, I never actually pushed the button. Even during training, even though the briefcase was always there with my codes, I never touched the button.
And when Schell pressed him, “Would you have given the order to use nuclear weapons in retaliation for a nuclear attack?”, he replied, “Well, let me tell you right off that this did not concern me, not because I lacked the will or the power, but because I was quite sure that the people in the White House were not idiots.” Mrs. Clinton, please think about what Gorbachev said. It couldn’t be clearer.—Arab News





Requiem for the India, US nuclear deal?
Praful Bidwai

JUST days after the United Progressive Alliance launched what looked like a determined last-ditch effort to ram through the United States-India nuclear deal, the agreement seems ready to go into cold storage, if not oblivion.
It’s almost certain to miss the US political timetable, which requires that the deal be sent to the Senate by May for ratification. After that, it would be near-impossible to pass it before the presidential election. This is a major victory for India’s Left parties and the peace movement. It’s a morale-booster for all those who questioned any special collaborative arrangement with the US. And it’s a slap in the face of Prime Minister Manmohan Singh. This is likely to alter Congress party power equations.
Irrespective of what happens in the UPA-Left joint committee, the deal cannot be resuscitated without a showdown with the Left. Withdrawal of the Left’s support will reduce the UPA to a minority. As Foreign Minister Pranab Mukherjee explicitly told Outlook, “a minority government cannot, need not, and should not, sign a major agreement.”
For the UPA, the government’s survival takes priority over the deal. Apart from this rationale, there are powerful arguments against the deal. It militates against peace and nuclear disarmament. It will further distort the skewed global nuclear order and encourage other countries to cross the nuclear threshold. Yet, the government was preparing for a showdown with the Left after extending the tenure of Ambassador Ronen Sen in Washington. President Pratibha Patil’s mention of the deal in her parliament address, and the “populist” railway and general budgets, strengthened that impression. As did Singh’s undignified plea to “Bhishma Pitamah” (grand patriarch) Atal Behari Vajpayee to support it.
Above all, there was hectic lobbying by US officials, Senators and businessmen, who hectoringly reminded the UPA that “time is of the essence”: “it’s now (the next few weeks), or never.” Defence Secretary Robert Gates, and Assistant Secretary of State Richard Boucher also did some hard-selling. They carried another message: Bush has done his best for deal. India should expect no more. Also, the first contracts from the deal should go to US companies.
Finance minister P Chidambaram, commerce minister Kamal Nath, and science and technology minister Kapil Sibal, all planted stories about how the present moment gives India a unique chance to have the post-1974 sanctions against nuclear trade neutralised. To counter this lobby, Mukherjee gave two interviews clarifying that the government doesn’t want a confrontation with the Left, nor an early election. Mukherjee wouldn’t have done this without Sonia Gandhi’s nod. She has since said the election would be held next year. She’s loath to sever ties with the Left, not least because she may need the Left’s support after the elections.
In the event the Congress’s more sober leaders prevailed over its pro-American enthusiasts, who thought that the budget, with its Rs 60,000-crore write-off of farmers’ loans, would tilt the scales decisively in its favour and against the Left. They were aided by Boucher who tried to allay fears about the 2006 Hyde Act, passed in the US, which enables the deal although India, a nuclear weapons-state, hasn’t signed the Non-Proliferation Treaty. The Act mandates the US to cease nuclear cooperation if India conducts a nuclear test. Secretary of State Condoleezza Rice recently said the government would work within the Act’s four corners.
New Delhi maintains it’s not bound by the Hyde Act, only by the bilateral “123 agreement” with the US. The two, it claims, run in “parallel” and don’t impinge on each other. Boucher also said the same thing. True, some sections of the Act are non-binding. But when it comes to the crunch, that is, if India conducts a nuclear blast, the Act will prevail. The US will have to suspend nuclear cooperation with India — albeit after “consultations” on the test’s rationale. But the US won’t be bound by such consultations.