By Chen Aizhu
SINGAPORE (Reuters) – China’s Shandong province, the country’s main independent oil refining hub, has turned to a deep-pocketed state-run coal miner to help fund a petrochemical complex it sees as key to the region’s industrial future, sources and local state media said.
Shandong Energy Group, a provincial government-backed coal producer and utility operator, is set to take a 46.1% stake in the $20 billion Yulong Petrochemical plant, becoming the second-largest stakeholder in the project led by privately run aluminium smelter Nanshan Group, three sources said.
Shandong, China’s No.3 economy by province, sees Yulong Petrochemical as a cornerstone project that will upscale its fragmented refining sector – made up of some 60 small oil processors – in line with Beijing’s broader push to close inefficient plants and build large, competitive manufacturers.
However, the project, which began construction last October on a man-made island in the port city of Yantai, has faced funding challenges, given its size is similar to Nanshan Group’s total assets of 137 billion yuan ($21.5 billion) as at-end 2020, the sources said.
“The biggest concern for Yulong has been the financing bottleneck. By bringing in a top state-run entity, it demonstrates Shandong’s determination to advance the Yulong project as well as to upgrade its refining sector,” said Harry Liu, consultant with IHS Markit.
Under the latest shareholder structure finalised in late November, Nanshan will hold 51% of the venture, local state-run media dzwww.com reported. That compares with an 86% stake it held earlier in November according to qcc.com, a Chinese business registration portal.
Private chemicals group Wanhua and state-run Hualu Holdings share the remaining 2.9% stake, said two of the sources, who spoke on condition of anonymity because they’re not authorized to speak to media.
The sizeable stake taken by Shandong Energy – a conglomerate specializing in coal mining and power generation with assets worth 693 billion yuan ($108.92 billion) – reflected the Shandong provincial government’s strong backing and would support bank lending to the project, the sources said.
“It’s rare to have a state-run firm hold such a sizeable share in a private-led investment, which just shows the provincial government genuinely wants to make Yulong happen,” said one senior source.
A Yulong Petrochemical representative declined comment and referred all queries to the provincial government. Shandong government and Shandong Energy did not immediately reply to request for comment.
Yulong, comprising a 400,000 barrels-per-day crude oil refinery and 3 million tonnes-per-year ethylene plants that are expected to start operating in late 2023, could be one of China’s last greenfield refiners as Beijing restricts the country’s total refining capacity ahead of capping carbon emissions by 2030, said IHS’ Liu.
Shandong, meanwhile, is expected to proceed with a plan set several years ago to shutter refineries under 60,000 bpd by 2025, the sources said, building on a drive started last year under which 10 plants will close a combined half a million bpd of refining capacity by end-2022.
($1 = 6.3624 Chinese yuan renminbi)
(Reporting by Chen Aizhu; additional reporting by Beijing newsroom; editing by Richard Pullin)
