Sinochem Group is considering retaining three bankrupt oil refineries in eastern China after auctions to sell them attracted little interest, reported Reuters, citing sources.
This situation highlights the challenges facing China's refining sector as the world's largest oil importer grapples with declining fuel demand and increased regulatory scrutiny. Sinochem's refineries, known as teapots, are particularly affected.
The refineries, Changyi Petrochemical, Huaxing Petrochemical Group and Zhenghe Group, have a combined crude processing capacity of 380,000 barrels per day (bpd), equivalent to 3% of China's national output.
They were put up for auction in October through the Shandong Property Right Exchange Centre, but failed to attract buyers. The lack of crude oil import quotas has further deterred potential buyers.
According to the report, sources familiar with Sinochem's strategy indicate that the company may retain the refineries by writing down debts and renegotiating taxes.
By mid-2024, the refineries had accumulated unpaid consumption taxes of approximately 13.2bn yuan ($1.82bn).
Sinochem inherited these refineries in a merger with state-owned ChemChina in 2021. The auctions followed court orders declaring the companies bankrupt after reorganisation efforts failed.
The refineries' inability to import crude oil forces reliance on costlier imported fuel oil, impacting competitiveness.
The report also stated that the plants have not utilised discounted crude from Russia, Iran and Venezuela due to Western sanctions.
Dismantling the plants could lead to significant job losses, a concern for local authorities focused on social stability. Sinochem halted operations at Zhenghe and Changyi in mid-2024, and Huaxing Petrochemical closed recently.
In late 2021, the Shandong Government ordered the refineries to rectify irregular fuel tax practices as part of a national clampdown on independent refiners. Sinochem's decision to retain the refineries underscores the broader challenges facing China's refining sector amid economic pressures.
