Anti-graft drive to clean up oil industry

The anti-corruption drive, which has brought down many senior executives at the State-owned oil giants, has combined with plunging crude prices to darken the outlook for China's petroleum industry.

But the result could be a more efficient industry with a disciplined and transparent system, analysts said.

At least 45 middle- and high-ranking executives from China National Petroleum Corp, the nation's top oil and gas producer, and its subsidiaries are being investigated for corruption allegations.

Liao Yongyuan, CNPC's general manager, was the latest to be sacked and face a corruption investigation.

CNPC's domestic rivals - China Petroleum & Chemical Corp (better known as Sinopec) and China National Offshore Oil Corp - are not immune to the anti-corruption campaign, because the country's graft investigators are digging deeper into the oil industry.

Some foreign observers said that the "surgical removal" of officials from the oil companies might disrupt development strategies.

Others said that the industry may be restructured at the upstream end, which includes such activities as exploration and production. These segments are prone to corruption because they are among the most monopolistic and profitable areas for oil companies.

Zhang Jinghua, an energy analyst at Bohai Securities Co, said the bright side of the corruption scandals is an acceleration in the reform of oil companies, which are streamlining their business operations under mounting cost pressures.

The government has moved to end the dominance of the State-owned oil giants through mixed ownership reform. CNPC will sell a 49 percent stake in its oilfields in the resource-rich Xinjiang Uygur autonomous region to other investors, including private companies.

The company is scheduled to report its 2014 results next Thursday, and analysts have forecast a substantial earnings decline due to the oil price slump.

Han Xiaoping, chief information officer of China Energy Net Consulting Co Ltd, said that the reshuffling of senior executives as a result of the corruption probe could offer regulators an opportunity to initiate substantial reform, which might otherwise face strong internal resistance.

Sinopec has stepped up internal inspections by bringing in 28 Party discipline inspectors.

But Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, said that it is an exaggeration to claim that the corruption uncovered by the graft investigators will accelerate reforms.

"Given the massive scale of corruption, the problem is no longer a series of isolated cases. The entire system is broken, and it is up to the regulator to drive reforms from the very top," he said.