China oil hub urges refiners to make payments to government risk fund

The tax office in China’s Shandong province has urged refiners in the oil hub to make payments to a government risk reserve fund to cover periods when oil prices fell below $40 a barrel this year, in line with government policy.

Global oil prices held below that level for more than three months and the payments due are estimated to be in the billions of yuan.

Beijing set a policy in 2016 that required refiners to pay their profit margins to the central government fund whenever crude fell below $40 a barrel, which is the floor price for retail gasoline and diesel.

If the payments are made, analysts say they would likely cut into the already narrowing margins of the mostly independently run plants and curb their appetite for crude imports for the rest of the year.

“All companies that are registered in Shandong, but not including Qingdao city, and produce or process gasoline and diesel are obliged to make payment to the risk reserve fund,” the Shandong tax bureau said in a statement.

The central government has direct control of taxes in Qingdao.

Companies that choose to pay quarterly will have to submit payments for the first two quarters before the end of October and those that opt for annual payments will have to complete the process by the end of February next year, it said.

The fund aims to improve fuel quality, help firms to reduce emission and ensure the national oil supply, but analysts worry the payments will put a short-term burden on refineries.

“Refining margins have declined sharply since the third quarter due to tepid fuel demand. The fund collection is another pour of cold water,” said Wang Yanting, Shandong-based analyst at consultancy JLC.

State refiner PetroChina said in August it would have to pay nearly 13 billion yuan ($1.9 billion) to the government fund for the first half of 2020.

($1 = 6.8229 yuan)

Reporting by Muyu Xu in Beijing, Chen Aizhu and Shu Zhang in Singapore; Editing by Tom Hogue and Ana Nicolaci da Costa

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