Chinese Petroleum official takes the fall over UAE deal

The China Post staff

A ranking official at the state-run Chinese Petroleum Corp. yesterday offered to shoulder full responsibility for a misjudged investment in the United Arab Emirates. Pan Wen-yan, president of Chinese Petroleum Corp., was pressured by company chairman Regis Chen to bear the responsibility, according to the United Evening News.

But Pan denied there was any relation between his decision and Chen. The paper said Pan could be demoted under the company’s regulations.

The investment, arranged by Pan, could have incurred losses exceeding NT$2 billion.

In 1997, Chinese Petroleum acquired a 40 percent stake in Buttes Gas & Oil Co. from the latter’s parent company Crescent Petroleum.

BGOI then owned an area 500 kilometers off the coast of Sharjah in the United Arab Emirates.

The acquisition was based on the belief – which later proved groundless – that the area could produce up to 130 million barrels of crude oil and 180 billion cubic meters of natural gas.

In 1999 Chen brought the alleged scam to the Taipei Prosecutors Office but prosecutors at that time found no evidence supporting Chen, and thus decided to drop the case.

The Ministry of Economic Affairs has become increasingly unhappy with Chinese Petroleum, the United Evening News said.

Lin Hsin-yi, the minister, has once again openly expressed worries about the company’s incompetence. Chinese Petroleum’s monopoly in the oil market has ended after a petroleum company formed by the Formosa Group joined the market.

Apart from pricing strategy, Chinese Petroleum is also weaker than its competitor in the marketing front, said Lin. To give one example, the quality of tissue paper Chinese Petroleum’s gas stations give away to customers is not as good as that of Formosa Petroleum’s gas stations, Lin said. But the minister yesterday kept silent when asked to comment about Pan’s case.

Lin Wen-yuan, head of the ministry’s Commission of National Corporations, said it’s up to Chinese Petroleum to decide whether to fire Pan.

According to the Economic Daily News, Chinese Petroleum could report an unprecedented loss this year, which would make it the second originally profitable state-run company to report a loss. In May, Taiwan Power Co. also reported a loss.

According to the paper, Chinese Petroleum is expected to raise gasoline prices by NT$25-NT$30 per liter next year in order to better reflect oil prices. The company made the estimates when asked by the Directorate General of Budget, Accounting and Statistics to budget a profit of NT$4 billion for 2002, double what Chinese Petroleum had budgeted, the paper said. In addition to competition from Formosa Petroleum, higher operating costs following depreciation of the New Taiwan dollar was another factor behind the possible losses this year, the company said.

According to Chinese Petroleum, its operating cost will increase NT$14 billion for every NT$2 fall against the U.S. dollar.