Rong Guangdao, chairman of Sinopec Shanghai Petrochemical, urged the central government to increase subsidies for the bleeding oil refiners and asked the authorities to improve the transparency of the subsidy system.

Due to the soaring oil price and mismatched prices of domestically refined oil products, Sinopec Shanghai incurred a 433 million yuan loss through June.

In recent months, Rong said, domestic refiners are facing tough times amid skyrocketing oil price, which reached $147 per barrel in mid-July.

Although the refiner received a 1.6 billion-yuan subsidy, Rong said the amount is far from adequate to combat the soaring crude oil costs.

In the first half of the year, the company's total spending on crude oil shot up 60.50 percent year-on-year to 25.68 billion yuan, while the average cost of crude oil surged 42.88 percent to 5,608 yuan per ton.

"The worst moment lies in the third quarter," Rong said.

Although the central government is expected to continue to subsidize the refinery business in the second half, Rong said the policy hardly soothes his anxiety.

"We've not received any subsidy in July and August, the conventional peak season... and we don't know how much we will get in the second half."

Rong called on the government to enhance the transparency of the existing system in gauging the size of subsidy. "We hope the government can bring up a fairer and more transparent mechanism regarding the oil subsidy."

The company's CFO, Han Zhihao, said the company has reduced its full-year capital expenditure to 1.8 billion yuan from 2.5 billion yuan as a result of the oil price hike.

Han noted the cutback will cause delays in some petrochemical and refinery projects.

However, the company will not cut the number of such projects.

Commenting on the oil price trend, Rong expected the oil price to linger at around $110 per barrel by the end of the year, adding that the company's break-even point is about $100 per barrel.

Rong predicted the business environment will bottom out in the fourth quarter in anticipation of the central government launching policy to help small and medium-sized enterprises.

Regarding the price of domestic crude oil, he said it is hard to predict the extent of correction in the second half, adding it depends on the nation's economy and the international oil price trend.

(HK Edition 09/02/2008 page2)