China suspends approvals on new refining projects


BEIJING -- China's environmental watchdog on Thursday took the unusual step of halting new projects at the country's two largest refining companies after they missed pollution targets, a sign that Beijing is stepping up environmental scrutiny of state-owned enterprises amid growing public discontent over pollution.

The temporary ban on new construction at China National Petroleum Corp. and China Petrochemical Corp., known as Sinopec Group, is the most wide-ranging since 2009, when a similar ban was instituted by China's Ministry of Environmental Protection against two of China's largest state-owned electricity producers after they built a number of projects that didn't comply with environmental standards.

"It's good news and significant action," said Fuqiang Yang, a senior adviser at the National Resources Defense Council, an environmental group. "It's a sign that the MEP is getting more firm and tough on state-owned enterprises as environmental degradation continues."

A Sinopec spokesman said the company planned to boost investment in environmental protection to ensure compliance. The spokesman said while more than 120 of its facilities meet environmental requirements, it has made slow progress at subsidiaries in the cities of Luoyang, Anqing and Shanghai and in the southwestern province of Sichuan. Sinopec plans to spend a total of 22.9 billion yuan ($3.7 billion) on 803 environmental projects over the next three years, he said.

CNPC and its listed unit PetroChina didn't respond to a request for comment.

The environmental ministry said Thursday CNPC missed a target to reduce chemical oxygen demand, an indicator of water pollution. Sinopec missed a target last year to reduce nitrogen oxide emissions, a metric for air pollution. The targets refer to pollution generated by their refineries, which together account for more than three quarters of China's total refining capacity, it said.

The ministry is temporarily suspending approvals of environmental impact assessments for new refining projects and the renovation and expansion of existing refineries, it said. Those approvals are needed before a project can move forward. Projects aimed at reducing emissions and improving fuel standards will still be reviewed, the ministry said.

"The length of the temporary suspension will be based on the MEP's assessment of their corrective measures," said Tang Dagang, director of the Vehicle Emission Control Center, a policy research group also affiliated with the ministry.

Even if the ban lasts for six months, it won't have a major impact on China's immediate refinery expansion plans next year, said Li Li, head of research and analytics at consultancy ICIS C1 Energy. "New project approvals need at least a two-year head start, which would mean an impact only on projects in 2016."

Ms. Li said the MEP's latest move is a sign China wants to focus on the quality of its refineries, rather than on the speed of their expansion.

CNPC and Sinopec have resisted costly upgrades to reduce pollutants at refineries due to Beijing's tight control over fuel prices, which has made it difficult to pass on higher costs to consumers. However, the Chinese government unveiled major changes to the fuel-pricing system this year, which has improved bottom lines and made it easier for other reforms.

A number of episodes in recent months have added to growing public concern over the environment in China, including severe air pollution in January in Beijing and several other places, as well as the discovery of cadmium-tainted rice in supplies in southern China's Guangdong province.

Growing evidence suggests China's programs to cut emissions from coal-fired power plants -- traditionally a major source of its pollution problems -- have had some success. But that is being partly undermined by rapidly rising industrial output, such as coal-fueled steel production, and lagging fuel standards for China's ballooning numbers of cars and trucks.

While CNPC and Sinopec have sped up efforts to produce cleaner fuels, there hasn't been much attention paid to the pollutants generated from their facilities. Last year, Sinopec temporarily shut three subsidiaries and promised to conduct company-wide inspections only after a state television report accused the subsidiaries of posing environmental hazards.

Dow Jones Newswires

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