By Wang Ying
Feb. 19 (Bloomberg) -- China, the world’s second-biggest energy consumer, is likely to approve a stimulus package for the oil refining and petrochemicals industries today to help spur the slowing economy, the country’s energy chief said.
The State Council, or Cabinet, will discuss the stimulus today, Zhang Guobao, head of the National Energy Administration, said on the sidelines of an industry conference in Beijing. “I feel there should be no problem,” Zhang said.
China’s economy, the world’s third largest, grew at the slowest pace in seven years in the last quarter, cutting demand for fuels and petrochemicals. The stimulus plan submitted by China Petroleum and Chemical Industry Association recommends adjusting a windfall tax to help oil producers including PetroChina Co., its deputy head of industry development said.
“There are also macro policies proposed to aid the nation’s refiners and chemical makers,” the association’s Wang Xiaofeng said by telephone in Beijing today.
The proposal was put together by the association, which submitted the plan to the National Development and Reform Commission, the country’s top economic planner. A final version of the proposal was then presented to the Cabinet. The association proposed raising the trigger level for the windfall tax levied on oil producers to $60 a barrel from $40, Wang said.
PetroChina, the nation’s biggest oil explorer, paid 47.8 billion yuan ($7 billion) in windfall taxes in the first six months of last year, the company said in August. Net income was 53.6 billion yuan for the period.
Stimulus Spending
The refining stimulus plan will add to the 4 trillion yuan of spending the government announced in November to support the economy amid the global recession. There is no separate stimulus package for the overall energy industry, Zhang said today.
China’s new loans rose by a record in January and money supply expanded at the fastest pace in more than a year as the government pressured banks to support stimulus plans, the People’s Bank of China, the central bank, said on Feb. 12.
The government will build six energy projects this year under the 4 trillion-yuan spending plan, the National Development and Reform Commission said on Nov. 12. The projects include 10 nuclear power reactors with a capacity of 1,000 megawatts each. PetroChina will start building a 10 million metric-ton-a-year refinery in Sichuan province.
Shares of China Petroleum and Chemical Corp., the nation’s biggest refiner, rose 1.7 percent to close HK$4.30 in Hong Kong. Rival PetroChina remained unchanged at HK$5.92. The Hang Seng Index gained 0.1 percent.
Energy Prices
When asked if China will lower fuel prices, Zhang said, “A mechanism is already in place, and we should follow it.”
The government cut fuel prices last month and in December to reflect declining global oil prices and reduce costs for factories as the economy slows. A guidance band for retail fuel prices was replaced last year with a market-based ceiling that takes into account the cost of crude oil.
Consumption of electricity has also waned as the global economic slump curbs Chinese exports. Amid slowing power demand, annual supply talks between generators and coal companies have been in a deadlock after the five biggest state power producers rejected in December a 10 percent price increase.
Domestic contract prices for coal used in power stations should be “market-based,” Zhang said.
The request to increase prices by 50 yuan ($7.30) a ton this year is “reasonable” as coal producers will be paying higher taxes, the Beijing Times said on Feb. 6, quoting Zhang.
“The newspaper misunderstood me,” Zhang said today. While it’s reasonable for coal prices to rise by such an extent, it also makes sense for power companies to ask for lower prices as power companies are making losses, Zhang said. “The report just didn’t get the full picture,” he said.
To contact the reporter on this story: Ying Wang in Beijing at ywang30@bloomberg.net
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