SOCIALIST MARKET ECONOMY: ENERGY CHINESE PETROLEUM INDUSTRY SINOPEC CORP Sinopec Corp. China Petroleum & Chemical Corporation

SOCIALIST CHINA Chinese petroleum industry is controlled by 3 major players all of whom are state owned incl. CNOOC, CNPC (PetroChina), Sinopec; Over the years China has retained firm control of key & strategic industries in the country; These industries have been under absolute state control: power generation Mining i.e. Coal Oil & Petrochemicals Telecommunications etc.

COMPANY BACKGROUND (SINOPEC) One of the largest integrated energy and chemical company in China China Petroleum and Chemical Corporation (Sinopec Corp.) is the largest refiner and petrochemical producer in China. Public company listed in Hong Kong, New York, London and Shanghai Parent company is state-owned  China Petrochemical  (Sinopec Group), Government of China controls about 75% of the company through the Sinopec Group. Its businesses include: oil and gas exploration and production; crude oil processing; oil products trading, transportation, Distribution and marketing; petrochemicals manufacturing. owns more than 29,055 gas stations 643 franchises

GROSS PROFIT MARGIN BY PRINCIPAL OPERATIONS BY SEGMENT COMPANY PERFOMANCE Turnover GROSS PROFIT MARGIN BY PRINCIPAL OPERATIONS BY SEGMENT

PROFITS & RETURNS RETURNS PROFITS

COMPETITORS Exxon, BP and Royal Dutch/Shell However foreign companies have established strategic partnerships with Chinese companies Intra-competition among the SINOPEC Group of companies 20,000 private / Independent gas stations SPC has managed competition well because of the government's price controls and its proximity to large customer base

SUPPLIERS Coal Suppliers Other suppliers China Shenggui Valve Co.,Ltd Company Logo Supplier Name SDIC Xinji Co., Ltd Yangquan Coal Industry (Group) Co., Ltd WanBei Coal-Electricity Group Co., Ltd Pingdingshan Coal (Group) Co., Ltd. Jiangsu Xuzhou Mining (Group) Co., Ltd. Huainan Mining (Group) Co., Ltd. Shenhua Energy Co., Ltd. China Shenggui Valve Co.,Ltd Aquachem Industrial Limited SINOPEC Yizheng Chemical Fibre Co., Ltd. Sinopec International Guangzhou Taida Steel Tube Co. Ltd. Jiangsu Sunchem New Materials Co.,Ltd

CUSTOMERS Lube products used by Asphalt products aviation, spaceflight, nuclear industry, electronics, military weapons, shipping, automobile, mechanical processing, metallurgical, refining, chemical, and instrumentation areas Asphalt products motorways, urban public roads, airport runways, racing tracks and bridge pavements railway

Industry Key Success Factors Category Key Success Factors Integration Vertical integration is more successful Innovation Research and development Technological advancement Ability to advance in new areas Management structure Adaptable management structure Efficient management structure Marketing and Distribution related Proximity to the market Strategic partnerships and linkages are critical. A solid track record Experience of company personnel to undertake work Fast technical assistance and Customer satisfaction Skills and capability related Skilled workforce is a major KSF in the sector Communication with client Short delivery time capability and constant liaison with clients

SINOPEC KEY SUCCESS FACTORS integrated upstream, midstream and downstream operations strong oil & petrochemical core businesses complete marketing network established a standardized structure of corporate governance adopted a management system of centralized decision-making, delegated authorities at different levels and Business assets and principal markets are located in the east, south and middle part of China, where China's most developed and dynamic economy lies. business operations handled by specialized business units

CHINESE FEATURES / SOCIALIST STATE 1978 Deng Xiaopin Introduced a program of market socialist reform; China has since grown & became a regional & global economic force; China has recorded double digit real GDP growth since 1980’s; China is said to be contributing app. Half of the Asian GDP; Since the reform, GDP rose from 150 Billion USD to more than 1.6 trillion USD; Under this regime private sector share of GDP rose from less than 1% in 1978 to app. 70% in 2005.

2005 MARKET REFORM Privatisation was almost halted / partially reversed; All strategic industries were consolidated into SOE, the rational being to increase international competitive national industries; There are about 150 or more large SOE reporting to Govt. SOE’s contribute to increased state revenue. Private ownership is in the main restricted to secondary & service industries.

CHINESE FEATURES Exchange Rate: Macroeconomic policies and government regulations government is liberalizing the market entry regulations on petroleum and petrochemicals sector Sector is subject to entry regulations to a certain degree Including issuing of licences Setting maximum retail and distribution prices for diesel, gasoline & jet fuels Imposing of special levies, tax and fees Formulation of quotas for import and export Exchange Rate: China implements an administered floating exchange rate regime based on market supply and demand with reference to a basket of currencies in terms of the exchange rate of RMB. issuing crude oil and natural gas production license, issuing crude oil and refined oil products business license, setting maximum retail, distribution and wholesale prices for gasoline and diesel, and ex-refinery price for jet fuels, the imposing of the special oil income levy and other tax and fees, formulation of import and export quotas and procedures, formulation of safety, quality and environmental protection standards

Participation of Multi - Nationals Partnerships have been established with SHELL & BP in the main. SOE still dominant SA MULTI NATIONAL OIL COMPANIES OWN MORE THAN 80% MARKET SHARE, WHILE A SA ONLY COMPANY THAT IS VERTICALLY INTEGRATED SASOL OWNS ONLY 10% MARKET SHARE

OPPORTUNITIES China has largest automotive market 1,3 billion people; 2nd Largest oil consuming nation; China is concerned with energy security & has vested interest in cleaner & efficient fuels; Country is leading in key alternative fuels research & govt. is investing billions in R&D; Govt. intends to deregulate the sector to address chronic inefficiencies of current distribution. Opportunities exists for foreign oil companies to join forces with the 3 local oil companies on upstream & downstream.

CONCLUSIONS The petro-chemical industry is amongst the strategic industries controlled by he state; More especially the upstream activities Multi-nationals are allowed some in downstream activities Since China is not well endowed with crude oil resources, the govt favors meaningful partnerships with other govt & multinationals in oil rich countries; Technological investment Financial investment Opportunities for foreign companies exist in green technologies, JVs & partnerships

End! THANK YOU ALL!