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Oil Industry Mixed Ownership Still Far Off

05-06 00:00 《财经》杂志 《财经》杂志

  By staff reporters Li Yi and Shi Zhiliang

  The state-capital-intensive oil industry has been placed at the forefront of mixed ownership reform, an idea that has been revisited by China’s senior leadership since last November. But despite a series of positive indicators, Caijing found that the reform still has a long way to go.

  The “vigorous development of a mixed ownership economy” was proposed as early as 2003 during the Third Plenary Session of the 16th CPC Central Committee.

  The government has in recent years introduced measures to widen the scope of private capital investment to include basic industries and infrastructure, public utilities, the financial sector, and even defense technology. But in reality, these policies have not been effectively implemented due to a variety of subjective and objective factors, the most of important of which is that top-level policy design has not been completed.

  To promote mixed ownership reform of state-owned oil enterprises, the priority should be to break the industry monopoly to make it possible for market players besides China’s three major oil giants to survive independently. Competition can only exist if there is a market; and only with competition can there be an impetus to improve efficiency.

  The private oil enterprises experienced a booming development since the early 1990s. Around the time of Deng Xiaoping’s Southern Tour Speech in 1992, China shifted from being a net exporter of oil to a net importer. Production at main oil fields such as Daqing began to decline, and producers began to develop low-grade oil in surrounding areas. State producers at some oil fields were also willing to give up small sections of their territories, allowing private enterprises to lead the development charge. In addition, China stepped up oil and gas exploration and development efforts in the west in order to find replacement areas for strategic resources.

  This provided a lot of opportunities for private oil enterprises. From 1992 to 2000, a “golden age” for upstream private oil enterprises took shape. Some of today’s representative upstream private oil enterprises such as Xinjiang Guanghui Industry Investment Group Co. Ltd., MI Energy Corporation, and Bright Oceans Corporation benefited greatly from that era.

  But the reality is that up to now, the reform has been mostly thunder and little rain. National oil companies have a monopoly on all upstream and downstream segments in the industry chain; and neither a diversification of market players nor a competitive oil market have been able to form. Under such circumstances, the enterprise platform is much more important than professional competence in obtaining contracts, and private companies can only struggle to survive in the cracks.

  Mixed ownership reform is also an internal need of state-owned enterprise (SOE) reform. The role of private capital is not only to inject a blood transfusion and wait for dividends, it should also bring about improvement in the corporate governance structure of SOEs, help to establish a modern enterprise system, enable the board of directors to become the hub of corporate governance, guide the company's operations with internationally-recognized market principles, and increase SOEs’ awareness of the market and efficiency.

  Currently, actual decision-making power at SOEs is in the hands of a party group or party committee. Shareholders cannot participate, and there is a lack of procedural safeguards on shareholders' investment returns and investment security. After equity diversification, if an SOE’s governance structure operating mechanism only undergoes superficial change, and even if it can attract private capital in the beginning, eventually the investment will be divested, and kept aloof from calls to join SOE reform.

  This requires an environment for institutional innovation. Prior to the implementation of this reform, decision-makers should clarify the source proposition: in the end, are large state entities like the three major state oil giants that have monopoly control of resources and reflect national strategy political organizations or economic organizations ?

    Full article in Chinese:http://magazine.caijing.com.cn/2014-05-04/114150401.html


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