An official from the Ministry of Land and Resources said the sales limitations for foreign companies is included in draft amendments of regulations on oil and gas co-operation with foreign companies, which have been submitted to the State Council for approval.

The draft amendments aim to trim current regulations that go against the WTO requirements.

"The draft amendments state that foreign companies can sell oil and gas they get from the PSC (Production Sharing Contract) either to domestic oil companies or transport them back home. They will not be allowed to directly sell to end users," said an official who declined to be identified.

Overseas companies can get as much as 49 per cent of oil and gas discoveries through co-operation with Chinese oil companies, PSC practices dictate.

The official said although the draft is still subject to the approval of the State Council, "all drafting panels, including domestic oil companies, have agreed on this concern, so there will be no problem for the amendments to be passed."

At present, most co-operation occurs between the China National Offshore Oil Corp (CNOOC) and overseas companies in China's waters. By the end of 2000, CNOOC had signed 146 PSCs with 70 foreign companies. Overseas companies have produced an estimated 40 million barrels of oil equivalent through PSCs annually, most of which has been sold to CNOOC.

The official said the draft also states that foreign companies can negotiate with domestic companies to launch sales "in other ways," although the official refused to be more specific.

But Huan Guoyu, a professor with the State Council Office of Restructuring the Economic System, said removing this prohibition is very important to encourage foreign partners to invest in oil and gas exploration and production in China.

"The lift of the sales ban is especially important for the development of China's embryonic natural gas industry that is hindered by the lack of market demands. If foreign companies have access to Chinese markets, they will also be willing to build downstream facilities such as gas-fired power plants to boost the gas consumption in China," Huan said.

But Wu Xiaonan from CNOOC said the ban is needed for her firm to maintain its monopoly over production and sales in China's waters.

"The monopoly is part of our promise to investors when CNOOC Ltd floated on overseas stock markets earlier this year, and the government has vowed not to break up the monopoly after China's accession to the WTO," Wu said.

CNOOC Ltd, a spin-off company of CNOOC, was listed in New York and Hong Kong stock markets, attracting many investors.

Wu said the monopoly in oil and gas sectors does not violate the WTO rules. WTO members such as Norway and Indonesia also have monopolies in their countries, she noted.

(China Daily 07/25/2001)