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Whenever oil companies receive financial subsidies, they will be subject to all sorts of criticisms. Financial subsidies do have certain drawbacks, but this is almost our only choice as international oil prices continue to climb.
First of all, compared with the possible drawbacks of fiscal subsidies for oil companies, the continuation of production and operation of oil companies is even more important, because even if oil shortages appear only partially, they can easily cause huge losses in economic development. Now, oil companies, especially oil refineries, have reached a very difficult point. The rise in oil prices has increased the losses of Chinese oil refining companies. Last year, the global average oil price was approximately US$72.65/barrel, Sinopec’s refining business suffered a loss of 13.6 billion yuan, and the average price of crude oil in the first quarter of this year reached US$98/barrel. During the same period, Sinopec’s operating loss was as high as 10.45 billion yuan. 80% of the annual loss. According to the processing volume of 160 million tons of crude oil processed by Sinopec every year, for every US$10 increase in its refining costs, Sinopec will lose 80 billion yuan.
According to estimates by experts, if the price of oil rises to between US$140 and US$160, according to current production, the subsidies for petrochemical oil companies will exceed RMB150 billion. This amount is within the fiscal reach of our country. According to statistics, in 2007 China's total fiscal revenue totaled 513.403 billion yuan, an increase of 12.5433 trillion yuan over the same period of the previous year, an increase of 32.4%. 150 billion yuan is equivalent to 2.9% of fiscal revenue.
Refined oil is an important means of production. Ensuring that the supply of oil is sufficient is a matter of economic security in our country. Financial subsidies are necessary. From another point of view, inflation actually means that the government’s coinage tax (also known as inflation tax) on social income is the flow of wealth from society to government finances. Under such circumstances, the government gives financial companies considerable subsidies. To dissolve this flow is beneficial to the whole society.
Under the pressure of inflation, financial subsidies are almost the only option. From January to April this year, China's CPI rose by 7.1%, 8.7%, 8.3% and 8.5% year-on-year, and remained at a high level. The refined oil is an upstream resource product. According to the law of price operation, changes in the prices of upstream energy and raw materials will be transmitted to downstream processing industries and living materials. The increase in the price of production materials will drive up the consumer price, the rise in raw material prices and the promotion of industrial costs will lead to an overall rise in prices. If the adjustment of refined oil prices, will directly promote the monthly consumer price index rise. Under the circumstances of high CPI, excessive liquidity, and increasing balance of payments imbalances, China's current macroeconomic environment is difficult to withstand the increase in oil prices.
Moreover, financial subsidies help to eliminate people’s expectations of an increase in oil prices and help curb the illegal activities of hoarding oil. Every new high international oil price is the driving force for domestic oil managers to hoard oil. The faster the international oil price rises, the stronger the momentum for hoarding oil, because the gap between international oil prices and domestic oil prices will inevitably need to be bridged. According to the current tools, there are only two kinds. One is to increase oil prices, and the other is financial subsidies. The more financial subsidies, the less likely it is that the price of oil will increase. Therefore, after Sinopec received a financial subsidies of RMB 12.3 billion, some oil miners immediately released hoarded oil to the market, which is conducive to alleviating the tight supply of refined oil products.
Of course, in the long run, this choice can only be considered as a special period of choice, not an optimal choice. The price fluctuation of refined oil cannot be determined by the market. The key is that the price of crude oil is not in line with the international market, and the domestic refined oil price has not been straightened out. As a result, whenever international oil prices rise, domestic oil companies should have expanded their oil refining. However, due to the lack of prices, the more the refinery companies will be “stopped overhauling and repairing†due to their inability to absorb high costs themselves. Increase the tight supply of refined oil products.
Fiscal subsidies are the best choice for changing time. China’s CPI for July of last year was 5.6%. In August, CPI rose 6.5% year-on-year. After July and August of this year, the year-on-year increase in CPI will decline. Under the condition of weakened CPI inflation pressure, if international oil prices remain high, There are more regulatory tools that China can use. For example, if oil prices are raised properly, some pressure will be relieved; fiscal subsidies will be subsidized and some pressure will be relieved. Even if the CPI is decelerating rapidly, it is possible to decompose all the cost pressures faced by the oil companies through price adjustments to ensure that the refinery's production runs normally.
Financial subsidies for oil companies help curb speculation
On May 25, Sinopec announced that due to the sharp rise in international oil prices, domestic refined oil prices have been tightly controlled, resulting in a large loss in the refining business. It has again received a subsidy of RMB 12.3 billion, of which RMB 7.4 billion is included in the company's first-quarter subsidy income. This is the third consecutive year that Sinopec has received government subsidies and is the largest one in three years. In 2005 and 2006, Sinopec received subsidies of 10 billion yuan and 5 billion yuan respectively.