China Petroleum & Chemical Corp, also known as Sinopec, is expected to receive a state subsidy of about 13 billion yuan (US$1.79 billion) to compensate for its losses in refining and fuel imports last year, industry sources said.

State parents of Sinopec and rival PetroChina Co had together sought 25 billion yuan in compensation from the central government, one industry executive said.

"The government probably will allow a bailout that's about half of what they asked for," the source said. "And again, the entire handout will go to Sinopec. PetroChina won't get a subsidy."

Chinese refineries are losing money from surging crude oil prices, which rose above US$100 per barrel last week, as the central government controls gasoline and diesel prices in a bid to contain inflation.

Sinopec, Asia's largest refiner, has received a state subsidy of five billion yuan in 2006 and 9.4 billion yuan in 2005. PetroChina has not got any handout because its main cash cow, the upstream oil production business, had already made it the most profitable listed firm in Asia.

Sinopec reported a refining loss of 5.3 billion yuan in the third quarter, almost wiping out the 5.49-billion-yuan refining profit in the first half. The final quarter results haven't been released.

"Domestic refineries were able to roughly break even in the first 10 months," a Sinolink Securities analyst said. "But in November, they lost US$4.16 processing every barrel of crude, and the loss widened to US$10 in December."

The analyst estimated Sinopec lost more than 13 billion yuan in refining in the last two months last year.

Starting late last year, Sinopec and PetroChina were also told to import more refined oil products to alleviate a domestic supply shortage. Sources said this increased odds that Sinopec can get a subsidy because the firm is losing money by selling imported fuel at retail prices which are capped.

But some analysts have said they didn't expect a subsidy for Sinopec again because last year's refining loss should be less than the previous year's. Sinopec's refining loss totaled 23.9 billion yuan for 2006 and 7.84 billion yuan in 2005.

A National Development and Reform Commission official has also reportedly said the government may not subsidize refineries again because crude prices were lower in the first nine months than a year earlier.

(Shanghai Daily January 7, 2008)