Chinese refiners want tax cuts before making marine transportation cleaner – sources

SINGAPORE (Reuters) – Chinese oil refiners want changes in the tax laws on the consumption and sale of fuel oil to produce low-sulfur marine fuel when the new global clean fuel rules come into effect in 2020 , said this week four leaders of Chinese oil companies.

China's central government needs to abolish a consumption tax of 1,218 yuan (141 pounds) per tonne and offer 13% value-added tax cuts currently levied on fuel oil to allow refiners in the country to produce more fuel. Sulfur-fuel oil must comply with the rules, said officials at China Chemical and Petroleum Corp., PetroChina and China National Offshore Oil Co.

The companies lobbied Beijing for the tax changes to bring VLSFO to the so-called underwater fuel market. The new rules of the International Maritime Organization will ban ships from using fuels containing more than 0.5% sulfur from 2020, up from the current 3.5%, unless they are equipped with exhaust scrubbers.

The Jinling Petrochemical Refinery Manager of Sinopec asked the Chinese central government in March to benefit from value-added tax cuts and the abandonment of the consumption tax at National People's Congress meetings.

"The tax is a major obstacle to the release of domestic production and the development of the bunker fuel market in China," said Harry Liu, executive director of downstream consulting at IHS Markit.

China Petroleum and Chemical, known as Sinopec (0386.HK) and PetroChina (0857.HK) announced their capacity to produce 14 million tonnes of SAWLS per year in 2020.

This would be equivalent to about 6% of the world's high sulfur marine fuel oil consumed in 2018, and would exceed the current Chinese bunker market of 12 million tonnes per year.

But officials said it would not be profitable to produce the VLSFO without the tax changes.

"We are waiting for the announcement. This is the first priority, "said one of the four sources, a Sinopec Marine Fuel executive, who declined to be named because he is not allowed to speak to the press.

According to the current tax regime, Chinese supplies would cost $ 150 per ton more expensive than Singapore's, said a leader of a fuel transportation company based in Zhoushan, on the east coast of China.

The Chinese Ministry of Finance, the State Tax Administration and the National Development and Reform Commission, decision makers in the policy, did not respond to requests for comment.

Sinopec and PetroChina did not respond to requests for comments.

The Sinopec official said 10 of its coastal plants, such as Jinling Petrochemical, the Hainan Refinery and Zhenhai Refining and Chemical Corp, were ready to produce VLSFO.

Most of these plants have more than one atmospheric residue desulphurization unit that reduces the sulfur content in the residues produced by the crude distillation units, which allows the company to produce the VLSFO.

PetroChina will likely use refineries in Jinzhou, Jinxi, Dalian and Guangxi, located in northeastern China, to produce VSFOs, two PetroChina refinery sources said.