Sinopec suffers a 73 percent drop in net profits to 9.33 billion yuan in the first half. The company said the third and fourth quarter of this year will be the most difficult time for the company. AFP

Asia's largest oil refiner Sinopec (China Petroleum & Chemical Corporation) expects that the central government will cut back subsidies for its loss-making refinery business in the third quarter.

The central government forked out 33.4 billion yuan through June to subsidize Sinopec amid the surging global oil price.

The company chairman, Su Shulin, told reporters yesterday the central government is expected to continue to offer subsidy in the third quarter, but the amount will be less than that of the second quarter due to the falling oil price.

"The size of the subsidy depends on factors such as the trend of international oil and domestic crude oil prices," he said.

The refiner suffered a 73 percent drop in net profits to 9.33 billion yuan in the first half mainly because of its bleeding refinery business.

However, he stressed that the most difficult time hasn't been over yet, adding the third and fourth quarter will be the most difficult period for the company.

He also noted that the possibility of the refinery business turning to black is very slim in the third quarter unless the international oil prices make a nosedive.

Sinopec has been imposing strict cost-control measures to tide over the problem, Su said.

As a result, the company spared 1.7 billion yuan in overall expenses in the first half. Su expected the company could save up to 3.4 billion yuan for the whole year.

Regarding its capital expenditure, the company's deputy CFO, Liu Yun, said Sinopec has slashed its full-year capital expenditure by 8.5 billion yuan, to 121.8 billion yuan.

"We might further adjust the size of capital expenditure if our cash flow does not improve significantly in the second half," Liu said.

Su also added that the country's demand for crude oil is declining after the authorities enforced stringent measures on the transport system in Beijing during the Olympics. Besides, the peak construction time in summer is over.

"Given our refinery sale is running at a loss, the less the demand the better for the company," Su added.

He said that the company has not received any statement from regulator with respect to the price lift of crude oil price in the third quarter.

Speaking about overseas expansion, Su said the parent group is in talks regarding a couple of overseas acquisitions. He said the company will purchase overseas projects from its parent group, though he didn't give any timeframe.

Su appreciated shareholder's tolerance toward the company's tepid performance. He expressed confidence that the company could get over the current difficulties.

Shares of Sinopec yesterday closed at HK$7.86, up 0.51 percent.

(HK Edition 08/27/2008 page2)