Court to decide on arbitration ruling on Hans-Sinopec dispute

Sinopec seeks to revoke arbitration decision over fuel storage agreement

PUBLISHED : Friday, 18 April, 2014, 1:17am
UPDATED : Friday, 18 April, 2014, 1:52am

A legal battle between privately-owned fuel storage facilities operator Hans Energy and state-backed giant China Petroleum & Chemical (Sinopec) is set to move to the court room in May.

The case, a rare David-versus-Goliath confrontation between a small private firm and a state- energy giant, will be closely watched by other mainland enterprises, especially those in the energy industry dominated by state firms.

This is because since late last year state leaders have ordered state-owned giants to invite private firms to participate or invest in their projects or assets to make state firms more profit-oriented.

The Guangzhou Intermediate People's Court has accepted Sinopec's application to revoke a ruling made early in March by the Guangzhou Arbitration Commission, which found Sinopec to have breached a facilities rental agreement and ordered it to pay Hans a default payment of 607 million yuan (HK$762 million). Sinopec has not paid.

The Guangzhou Intermediate People's Court has notified Hans that it has accepted Sinopec's application for revoking the arbitration ruling, Hong Kong-listed Hans said in a statement to the stock exchange yesterday.

Hans also received a summons issued by the court for a hearing of Sinopec's application, scheduled for May 20.

Hans and Sinopec Guangdong Oil Products signed a lease agreement for oil storage tanks in late 2004, under which Sinopec Guangdong agreed to rent 240,000 cubic metres of oil storage tanks in Panyu, Guangzhou, from Hans for 20 years.

In 2011, Sinopec Guangdong requested unilaterally to end the deal from July 1 that year, citing changes in its business operating conditions, Hans said in filings to the stock exchange.

Hans applied to the Guangzhou Arbitration Commission in mid-2012 for a ruling, seeking payment of outstanding rentals and penalty for late payment totalling 156 million yuan.

It also requested that the agreement be ended and sought a default payment of 607 million yuan. The court ruled in Hans' favour on the default payment but not the late payment penalty.

Hans booked an impairment loss of HK$109.5 million on rental income receivable in 2011 and stopped booking income from the agreement since July that year, causing it to post losses since then. The deal had been its main revenue source.