China's National Pipeline Corporate: One More Thing
China’s National Pipeline Corporate (NPC)’s establishment has shown its headline-grabbing capacity. Rumors said it would be in early 2019, then October 18, then the end of October. As a matter of fact, after March 19th, 2019’s Party Central Committee 7th Comprehensively Deepening Reform Council, the legal logic and principle of NPC had been forged, and the establishment of NPC is only a matter of timing. However, the sophistication of the NPC administration structure and asset management is still historic and legendary, and challenges and consequences will blow out intensively straight afterward. Hereby SCI gathers and reviews several key points regarding NPC:
NPC is aiming to achieve four purposes under the principle of natural gas industry reform “hold the midstream and open-up the upstream and downstream”: to promote competition so to increase supply, to ensure a fair and open market so to increase efficiency, to attract investment to accelerate infrastructure, and to hold midstream in hand while open up upstream and downstream so to push the marketization reform forward.
NPC is set at the same level as the three NOCs, which legally means it would be one of the top 50 centrally-administered state-owned enterprises (SOEs). NPC’s administration would be vice-ministerial level, and its top management would be nominated by the Organizing Department of Central Committee of the Communist Party of China (CCCPC). Below those 50, there’re also 47 centrally-controlled SOEs, which are bureau level only and managements nominated by State-owned Assets Supervision and Administration Commission (SASAC). Accordingly, NPC is naturally an immediate family member of SOE in the top circle.
It is understood that SASAC will take over 50% of NPC’s shares for the majority shareholding, and the rest part will be divided into SOEs and investments. Currently, CNPC, Sinopec and CNOOC will be the major part of the rest shares, and the three oil giants’ share proportion will be 7:2:1 according to their hand-over assets of pipelines, storage facilities, port facilities, terminals, etc. The other shares open to other SOEs and investments for future developments in infrastructure construction, pipeline grid expansion, etc.
Based on the value of hand-over assets from NOCs, the asset value is estimated at 500 billion CNY, including all trans-provincial natural gas pipelines, part of provincial natural gas pipelines, part of oil pipelines, part of underground storage facilities, seven LNG receiving terminals and several oil ports and matched facilities, which belong to CNPC, Sinopec and CNOOC. According to NBS’s 2017 statistics, China’s trans-provincial long-distance pipelines reached 133,100 kilometers, including 77,200 kilometers of natural gas pipeline, 28,700 kilometers of crude oil pipeline and 27,200 kilometers of refined product pipeline. Most of those assets belong to CNPC and Sinopec, and CNOOC’s offshore pipelines will not be included in NPC’s blueprint. However, as for the terminals, it is reported there will be seven terminals related in the take-over, and five of them belong to CNOOC (allegedly CNOOC’s Tianjin, Ningbo, Zhuhai, Diefu and Beihai, CNPC’s Dalian, and Sinopec’s Tianjin).
It is considered the take-over procedure will start from the establishment of NPC, and the three oil giants have already started the clearing of involved assets for preliminary preparation. After the accomplishment of forging NPC’s mainframe, provincial energy companies will have opportunities to join NPC with their own provincial pipelines and pipeline networks, and NPC’s asset coverage is expected to further expand in the future.
By far, a list of NPC preparatory group was revealed, which is considered as the top management of NPC after the establishment. The head of the group is alleged to be Mr. Zhang Wei, the current CNPC Group General Manager and previous Sinochem Group General Manager, and the members of the group are reported by three from CNPC, two from Sinopec and two from CNOOC, namely PetroChina President Mr. Hou Qijun, PetroChina Pipeline Company General Manager Mr. Jiang Changliang, Sinopec Group Vice General Manager Mr. Liu Zhongyun, Sinopec CFO Mr. Wang Dehua, CNOOC Group Vice General Manager Mr. Li Hui, CNOOC Refining Company President Mr. He Zhongwen.
Along with the hand-over of pipeline assets, CNPC is expected to lose at least 25 billion CNY profits from its midstream business, and as a consequence, from the beginning of 2019, CNPC endeavored to expand its downstream business in return. The Hong Kong listed gas company Kunlun Energy, CNPC’s natural gas arm, recently showed the results of its ambitious maneuvers: On October 18, Kunlun Energy officially acquired Jinhong Holding’s 17 city gas companies at 1.66 billion CNY, which widely located in Hebei, Shandong and Hunan provinces. Beside this, Kunlun is allegedly building trusteeship on Ningxia Hanas Gas, which is another major city gas company in Western China. According to Kunlun Energy’s 2019 mid-year report, by the end of June 2019, Kunlun Energy expanded its city gas coverage by 26 to 340 city gas companies or projects by acquisitions and newly establishments.
On the other hand, private city gas companies are facing fiercer competitions, rising costs and liquidity pressure, and financial crises had broken out frequently in 2019. The above-mentioned Jinhong Holding sold its 17 city gas companies to deal with its huge debt defaults and operating loss, whilst Sinoenergy’s financial crisis forced the company to cede its two 90% constructed terminals to Sam Group and Beijing Gas Blue Sky Holdings. Also, the above-mentioned Hanas Gas is also facing a severe liquidity crisis, resulting in Kunlun’s trusteeship. After years of aggressively expanding, China’s city gas companies are facing great challenges amid the natural gas industrial structure reform and NPC take-over chaos.
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