Dow Today – China’s Tax Investigation Embroils Biggest State-Run Oil Company
(Bloomberg) — China is nearing the end of a two-year investigation into the oil industry that’s reverberated across the sector as it embroiled the biggest state-run company down to a host of smaller independent refiners.
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The fuel oil unit of China National Petroleum Corp., the No. 1 oil company, was found to have irregularly sold 179.5 million tons, or 1.32 billion barrels, of imported crude to 115 private refiners, the official Xinhua News Agency reported late on Wednesday, citing unnamed government sources.
The violations started as early as 2006, when 400,000 tons of imported crude was sold to a Shandong-based processor as blended fuel oil, Xinhua said. Under China’s quota system, companies that import crude aren’t allowed to re-sell it to other domestic refiners. CNPC has already been punished with profits from these sales confiscated, the news agency said, without providing details.
A spokesperson at PetroChina declined to provide any further comment or information on the matter when contacted by Bloomberg.
Beijing’s probe has focused on the illegal re-selling of imported crude, tax evasion and the flouting of environmental rules. It’s part of an effort to consolidate the sector to favor larger, more sophisticated plants over smaller, dirtier facilities, and has resulted in a cut in the volume of import quota awarded to the so-called teapot refineries.
The reselling of imported crude has encouraged the unplanned development of outdated and illegal refiners and has indirectly caused the loss of national fiscal and tax revenue, Xinhua said in the report.
The volume of the crude illegally resold by CNPC indicates that it could have evaded billions of dollars in tax, according to Bloomberg estimates based on oil prices in past years and China’s value-added tax rate.
Bloomberg reported in June that PetroChina had suspended several officials amid the probe after the fuel oil unit halted selling imported crude to the independent processors in April.
Shares of PetroChina Co., the listed arm of CNPC, Shanghai dropped as much as 4.6% Thursday in Shanghai and were down as much as 3.2% in Hong Kong.
The company said on filings to the Shanghai and Hong Kong stock exchanges that it has always actively cooperated with the investigation, carefully checking its internal control systems, improving its relevant policies for crude oil trading and conducting the rectification of relevant issues. Its production and other operation haven’t been affected, it said.
The investigation is unlikely to have a material impact on PetroChina’s output and operations, Leo Ho, an analyst at Daiwa Capital Markets, said in a note on Thursday. Investors will focus on the amount of earnings to be confiscated as well as the fines to be paid which haven’t yet been revealed, he said.
Arrests in Liaoning
China has allowed the teapots — which account for around a quarter of the nation’s refining capacity — to process imported oil since 2015 under the quota system. PetroChina’s fuel oil unit, which produces and trades fuel oil and bitumen as its principal business, has been selling crude to them for more than a decade under a legacy scheme that apparently sits outside the quota system.
In a separate development, authorities in China’s northeastern province of Liaoning said three independent oil refiners in Panjin city have evaded a huge amount of tax by allegedly using fraudulent invoices, the State Taxation Administration said in statement on Wednesday.
Panjin North Asphalt Fuel Co., Liaoning Bora Enterprise Group and Panjin Haoye Chemical Co. falsely issued fake VAT invoices to evade taxes by changing the name of taxable refined oil to non-taxable chemical sales, the administration said the statement. The owners of the companies have arrested and the names of some government officials related to the case were published, it said.
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