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Investment in Sinopec's refining project rises


High labour and raw materials expenses drive up cost of Sino-foreign complex

Investment in the mainland's first Sino-foreign integrated refining and petrochemical joint venture has jumped to US$4.5 billion from the US$3.5 billion estimate in 2004, due to rising labour and raw material costs and the inclusion of an extra facility.

The final contract of the mega-project in Fujian province, signed on Sunday between China Petroleum and Chemical Corp (Sinopec), Exxon Mobil Corp and Saudi Aramco, involved an investment of about US$5.1 billion, an Exxon Mobil spokeswoman said. That included an estimated US$600 million petrol station joint venture.

It exceeds a US$4.3 billion petrochemical joint venture in Shenzhen between Royal Dutch/Shell and Sinopec, which came on stream in mid-2005, as the largest Sino-foreign investment in the refining and petrochemical sector.

'The main reason for the higher project cost of the complex is soaring labour and raw materials costs, although the addition of a 700,000 tonne-a-year paraxylene facility also played a lesser role,' the spokeswoman said.

Paraxylene is a base chemical used to produce man-made fabric fibres and bottles.

The three oil giants signed a preliminary agreement on the formation of a refining, petrochemical and retail venture in August 2004.

Under the final contract, Sinopec owns half of the refinery and petrochemical complex in the coastal port city of Quanzhou and 55 per cent of the retail venture while the two foreign partners split the remaining stakes.

The retail venture encompasses 750 petrol stations in Fujian, to be operated under the brand names of Sinopec, Exxon Mobil and Saudi Aramco.

When the preliminary agreement was signed, it was envisioned the production complex would come on stream in the first half of next year. Under the final contract, start-up is expected in early 2009.

A source said the delay was attributable mainly to Exxon Mobil's concerns that mainland price control on refined fuel prices would cut profits.

An Exxon Mobil spokeswoman said it took longer to iron out a fully integrated joint venture than non-integrated ones.

The Fujian project negotiations lasted a decade, compared with12 years for the Shenzhen project. Integrated and non-integrated proposals were explored in both sites.

Beijing, which has expressed its intention to gradually link domestic fuel prices to global levels, has made no commitment on the timeframe for the change as price and social stability remain priorities.

Mainland refiners suffered tens of billions of yuan of losses in the past two years as rises in product prices failed to match those of oil.

Exxon Mobil and Saudi Aramco are the first overseas companies to take a plunge into the mainland's refining business.

A Sinopec source said the National Development and Reform Commission was not keen on approving more foreign investment in big refining and petrochemical projects as mainland firms could build world-class projects on their own.

Saudi Basic Industries, the world's largest petrochemical company by market value, has been waiting for 18 months to get the go-ahead to build a US$5.2 billion refinery and petrochemical project in Dalian after submitting a proposal with Sinopec.