Hey Pantera, I think you might get another chance on SNP. I was wondering where you were thinking of buying and in doing my search came across this Reuters piece posted on another board. I pasted just incase you haven't seen it.
So is SNP your one "China" play? I see our friend Joe Stocks is really getting into China stocks these days. I haven't made the leap yet myself.
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China eyes windfall oil tax cut to avoid price rise
Thu May 29, 2008 2:50am EDT
BEIJING (Reuters) - After nearly exhausting its oil policy toolkit, Beijing has one last gambit to help it bolster oil company profits and avoid a painful rise in fuel prices before the Olympics -- relaxing its windfall production profit tax.
For Beijing, which is equally anxious to put a lid on inflation as it is to maintain social harmony ahead of the August Olympics, the choice is clear, analysts say.
"It's a no-brainer for China. If they are smart, they should cut or remove the windfall tax, recapitalize the oil companies, instead of hiking prices and risking runaway inflation," said China oil analyst Gordon Kwan of CLSA.
Executives from top upstream producer PetroChina (PTR.N: Quote, Profile, Research) and leading refiner Sinopec (SNP.N: Quote, Profile, Research) have appealed to Beijing for relief on the tax, which could go part way to easing the burden of buying costly imported crude or fuels to sell at low local rates.
Petrochina Chairman Jiang Jiemin said last week that the government is now considering a proposal to reduce the tax, which was imposed two years ago to charge domestic crude oil producers 20-40 percent of revenues at oil prices above $40 a barrel.
He gave no details, but Sinopec executives said Beijing could raise the starting point to $60 a barrel, preserving an estimated up to $6 billion in revenue on China's 1.36 billion barrels of annual output. Executives hope a decision is imminent.
After ushering in half a dozen measures in the last 19 months -- mostly tax incentives aimed at boosting local supplies by making imports cheaper or exports more costly -- adjusting the windfall tax is one of the few levers it has left.
And some analysts say it's about time that PetroChina (0857.HK: Quote, Profile, Research), which produces nearly two-thirds of China's crude but has been left out of Beijing's past handouts, get a cut of the subsidies since it is also a big refiner and retailer.
China handed out a $1 billion rebate to Sinopec Corp (0386.HK: Quote, Profile, Research) in April, the company said on Tuesday, part of a deal to rebate much of the 17 percent tax on imported crude -- a measure that does little good for PetroChina.
"It will be wise for the government to box with both fists. It will be fair to both PetroChina and Sinopec," said Liu Bo, a Shanghai-based analyst with Guojin Securities.
SHORTAGE RISK
More than Beijing's finances and PetroChina's profits are at stake -- global oil prices fell from their peaks this week as traders braced for slower demand from the fast-growing Asian region after a host of small consumers like Indonesia, Taiwan and Sri Lanka sharply raise subsidized domestic fuel prices.
Those hoping China, the world's second-largest consumer, would follow suit soon could be in for disappointment.
Even with domestic fuel prices lagging far behind global rates -- China has raised domestic prices only twice in the past two years with a 10 percent rise last November -- Beijing has the financial wherewithal to hold out for a while, analysts say.
Beijing could of course opt to ignore its politically powerful oil duopoly -- but doing so risks worsening domestic fuel shortages that analysts say are often caused by firms holding back fuel from the market, causing a visible shortage in supply both to minimize losses and to step up pressure on Beijing.
Diesel fuel shortages last week began cropping up in provinces like Zhejiang, Hebei and downtown Beijing, local drivers say, causing long queues and rationing. But they have yet to reach the fever pitch of last October, when a nationwide crisis finally forced Beijing to raise prices.
The gap between the domestic and global markets has widened swiftly with crude up 39 percent since China last raised rates.
For a graphic showing China's retail prices versus crude: here
Guojin Securities's Liu estimated that Beijing would have to increase its retail diesel price by 50 percent and gasoline by 25 percent to match that of the top consumer the United States, where consumer fuel taxes are similarly low.
But analysts agree China is unlikely to risk fanning inflation now near a 12-year high, or risk riling its people after this month's devastating Sichuan earthquake, by taking any sudden or significant measures.
Other countries with more precarious government finances have been forced to reduce subsidies, however, with Indonesia raising fuel prices by nearly 30 percent at the weekend.
"The government has been really concerned as oil prices rose much faster than expected," a Sinopec executive told Reuters.
"You use subsidies when you don't have many other choices. Aligning fuel prices with market rates is the ultimate goal, but the government has to measure the pace, has to take into account the quake impact, the high CPI."
The crude tax rebate, by returning 75 percent of the 17 percent value-added tax on about 3.6 million barrels of China's daily crude imports, is equivalent to raising fuel prices by 12-13 percent, which is still not enough to prevent losses, according to one Sinopec executive.
And China is already refunding the full rate of 17 percent VAT on gasoline and diesel imports, an incentive started last December and later extended through June. Oil traders expect it to be extended to cover third-quarter imports.
Those policies plus a forced build-up in domestic inventories ahead of the Olympics also forced China to become a net importer of gasoline for the first time ever in April, and has driven up diesel imports, one factor behind oil's latest rally.
That's a stark contrast to a decade ago, when Beijing had to slap a ban on diesel imports to fight rampant smuggling as domestic diesel was much more costly than imports.
