China's independent fuel dealers have won back the right to market a share of state refineries' output, a sign that Beijing is ready to allow competition in the key sector, the independents' representative said on Saturday.
Zhao Youshan, head of Petroleum Flow Committee that represents the independent fuel distributors, told Reuters the approval from leaders, such as Premier Wen Jiabao, threw a lifeline to many firms that were at the verge of collapse.
"The governmen4t has decided to grant us some fuel supply from the majors to help the private firms survive," Zhao said on the sidelines of a committee meeting. "Many of them face closure or layoffs, which is detrimental to social stability."
Zhao said Beijing granted last month hundreds of private oil dealers - marginalised for the last decade in a market dominated powerful state refiner Sinopec Corp and PetroChina - right to market 10 to 20 million tonnes of refined fuels a year, or 3-6 percent of China's consumption.
These companies, in the number of over 900, employ 1.1 million people working at thousands of petrol kiosks and many small-scale oil storage facilities across the country, he said.
A distribution cut for the private dealers may mean less revenue for New York and Hong Kong-listed state refiners. But analysts argue a more level playing field would benefit the world's second-largest oil consumer in the long run with broadened supply channels and competitive pricing as China is set to liberalise its fuel market.
The government has yet to hammer out with Sinopec and PetroChina a detailed pact to supply the private dealers, Zhao said, and such an official deal would help weed out numerous illicit dealings between private firms and individuals well-connected with state giants.
The independents, once a major marketing force that distributed more than half of China's fuel use in most of the 1990s', were pushed to the corner since 1998 when Beijing launched a massive industry reshuffle to create two powerful state-run oil companies Sinopec and PetroChina.
Before their partial privatisation in 2000 and 2001, the two giants consolidated marketing by acquiring all the local-government-run fuel distribution companies, which used to work closely with independents.
The majors then aggressively expanded retail networks to build an integrated supply chain from refineries to petrol stations, while cutting off fuel supply to independents, forcing them to scramble to secure fuel through under-the-table deals.
"You have to have connections to survive. We buy from people with relatives working at big refineries. We offer them kickbacks." said Zhao. Zhao expected the anticipated government-brokered supply agreement to also guarantee a profit margin for private dealers, as Chinese domestic retail fuel prices remain set by the government at rates often lower than international markets.
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