China's Beifang Asphalt Fuel cuts crude throughput amid supervision

China-based private refinery Beifang Asphalt Fuel has cut its crude throughput as teams of external officials were appointed by the local government to supervise its operation, a source closed to the company and analysts said on Aug. 19.

The refinery, based in Panjin city in China's northeastern Liaoning province, was found to be in arrears of tax payments during an investigation by the local tax authority in May, according to sources with knowledge of the matter.

Its tax issues were detected during a series of investigations by the central and local governments into the refining sector about operational compliance, which included proper usage of crude oil import quotas and tax payments. This has raised market concerns about whether it could weaken the refineries' crude appetites or if any of them could be shut down over violations, sources said.

Independent refineries in China have run into issues with tax payments in the past as they lack the economy of scale, infrastructure and sales outlets of state-owned peers, market sources said.

The investigation results and measures in Liaoning could set an example for other private refineries in Shandong province, the home of China's independent refineries. These refineries contribute about 20-25% of China's total crude oil imports.

The refinery supervision team included senior officers from state peers Norinco's Huajin Refinery, PetroChina's Liaohe Petrochemical and ChemChina's Shenyang Paraffin Chemical in the same region, sources said.

"Supervision by government-lead team means [the plant has to] meet compliance strictly, such as only cracking imported crude with the volume within their own quota and paying taxes properly, which hurts private refineries' profit and dampen their crude demand and throughput," a Beijing-based analyst said.

For instance, one of Beifang's state-owned peers, with around 8 million mt/year of refining capacity, made a monthly loss of around Yuan 200-300 million recently after all taxes and fees, according to a source with the state-owned refinery.

Access to feedstock

The narrowing access to imported feedstock has also limited Beifang Asphalt's throughput. "The plant adjusts throughput according to market situation, and crude throughput has been limited by [its] crude import quota availability," a source close to Beifang Asphalt said.

Beifang expanded its primary refining capacity by 10 million mt/year to 20.5 million mt/year in April. The refinery had agreed to non-expansion of capacity as one of the conditions to attain up to 7 million mt/year of crude import quota since late 2015.

So far in 2021, the refinery has been allocated 5.25 million mt of crude import quota, and 1.75 million mt of quota is yet to be issued for the year, S&P Global Platts data showed.

As a result, it cut throughput to about 520,000 mt/month recently from about 1 million mt/month in April when it startup the new 10 million mt/year CDU, an analyst with a local information provider said.