UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 20-F
(Mark One)
|_| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-15138
___________________________________________
CHINA PETROLEUM & CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
_______________________
The People's Republic of China
(Jurisdiction of incorporation or organization)
_______________________
A6, Huixingdong Street
Chaoyang District, Beijing, 100029
The People's Republic of China
(Address of principal executive offices)
________________________
Securities registered or to be registered pursuant to Section 12 (b)
of the Act.
Name of Each Exchange
Title of Each Class On Which Registered
American Depositary Shares, each representing
100 H Shares of par value RMB1.00 per share .............New York Stock Exchange, Inc.
H Shares of par value RMB1.00 per share .................New York Stock Exchange, Inc.*
* Not for trading, but only in connection with the registration of
American Depository Shares.
Securities registered or to be registered pursuant to Section 12 (g) of
the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to
Section 15 (d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
State-owned domestic shares, par value RMB 1.00 per share ........... 67,121,951,000
H Shares, par value RMB 1.00 per share ............................ 16,780,488,000
A Shares, par value RMB 1.00 per share ............................ 2,800,000,000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) or the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant as required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No__
Indicate by check mark which financial statement item the Registrant has
elected to follow.
Item 17 ___ Item 18 _X_
______________
Table of Contents
Page
CERTAIN TERMS AND CONVENTIONS.................................................1
CURRENCIES AND EXCHANGE RATES.................................................2
FORWARD-LOOKING STATEMENTS....................................................3
Statements regarding competitive position.....................................3
PART I....................................................................4
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS.........4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.......................4
ITEM 3. KEY INFORMATION...............................................4
A. SELECTED FINANCIAL DATA..............................................4
B. CAPITALIZATION AND INDEBTEDNESS......................................6
C. REASONS FOR THE OFFER AND USE OF PROCEEDS............................6
D. RISK FACTORS.........................................................6
ITEM 4. INFORMATION ON THE COMPANY...................................14
A. HISTORY AND DEVELOPMENT.............................................14
B. BUSINESS OVERVIEW...................................................15
C. ORGANIZATIONAL STRUCTURE............................................31
D. PROPERTY, PLANT AND EQUIPMENT.......................................31
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.................33
A. GENERAL.............................................................33
B. CONSOLIDATED RESULTS OF OPERATIONS..................................35
C. DISCUSSIONS ON RESULTS OF SEGMENT OPERATIONS........................44
D. LIQUIDITY AND CAPITAL RESOURCES.....................................57
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...................63
A. DIRECTORS, supervisors AND SENIOR MANAGEMENT........................63
B. COMPENSATION........................................................70
C. BOARD PRACTICE......................................................71
D. EMPLOYEES...........................................................72
E. SHARE OWNERSHIP.....................................................73
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS............74
A. MAJOR SHAREHOLDERS..................................................74
B. INTERESTS OF EXPERTS AND COUNSEL....................................74
ITEM 8. FINANCIAL INFORMATION........................................75
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION.............75
B. SIGNIFICANT CHANGES.................................................75
ITEM 9. THE OFFER AND LISTING........................................76
ITEM 10. ADDITIONAL INFORMATION.......................................77
A. SHARE CAPITAL.......................................................77
B. MEMORANDUM AND ARTICLES OF ASSOCIATION..............................77
C. MATERIAL CONTRACTS..................................................83
D. EXCHANGE CONTROLS...................................................84
E. TAXATION............................................................84
F. DIVIDENDS AND PAYING AGENTS.........................................88
G. STATEMENT BY EXPERTS................................................88
H. DOCUMENTS ON DISPLAY................................................88
I. SUBSIDIARY INFORMATION..............................................88
ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK...88
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.......95
PART II..................................................................95
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELIN QUENCIES.............95
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS..........................................95
A. MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITIES HOLDERS..........95
B. USE OF PROCEEDS.....................................................95
ITEM 15. CONTROLS AND PROCEDURES......................................95
ITEM 16. .............................................................95
ITem 16A AUDIT COMMITTEE FINANCIAL EXPERT................................95
ITEM 16B CODE OF ETHICS..................................................95
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES..........................96
ITEM 16D AUDIT COMMITTEE EXEMPTION.......................................96
PART III.................................................................96
ITEM 17. FINANCIAL STATEMENTS.........................................96
ITEM 18. FINANCIAL STATEMENTS.........................................96
ITEM 19. EXHIBITS.....................................................96
CERTAIN TERMS AND CONVENTIONS
Definitions
Unless the context otherwise requires, references in this annual report
to:
o "Sinopec Corp.", "we", "our" and "us" are to China Petroleum &
Chemical Corporation, a PRC joint stock limited company, and its
subsidiaries;
o "Sinopec Group Company" are to our controlling shareholder, China
Petrochemical Corporation, a PRC limited liability company;
o "Sinopec Group" are to the Sinopec Group Company and its subsidiaries
other than Sinopec Corp. and its subsidiaries;
o "Old Sinopec" are to the ministerial level enterprise of China
Petrochemical Corporation and its affiliates before the industry
restructuring in March 1998;
o "China" or the "PRC" are to the People's Republic of China, excluding
for purposes of this annual report Hong Kong, Macau and Taiwan;
o "provinces" are to provinces and to provincial-level autonomous
regions and municipalities in China which are directly under the
supervision of the central PRC government;
o "RMB" are to renminbi, the currency of the PRC; and
o "US$" are to US dollars, the currency of the United States of
America.
Conversion Conventions
Conversions of crude oil from tonnes to barrels are made at a rate of
one tonne to 7.35 barrels for crude oil we purchase from external sources and
one tonne to 7.1 barrels for crude oil we produce, representing the typical
gravity of the respective source of crude oil. Conversions of natural gas from
cubic meters to cubic feet are made at a rate of one cubic meter to 35.31 cubic
feet.
Glossary of Technical Terms
Unless otherwise indicated in the context, references to:
o "billion" are to a thousand million.
o "BOE" are to barrels-of-oil equivalent; natural gas is converted at a
ratio of 6,000 cubic feet of natural gas to one BOE.
o "primary distillation capacity" are to the crude oil throughput
capacity of a refinery's basic distillation units, calculated by
estimating the number of days in a year that such basic distillation
units are expected to operate, including downtime for regular
maintenance, and multiplying that number by the amount equal to the
units' optimal daily crude oil throughput.
o "rated capacity" are to the output capacity of a given production
unit or, where appropriate, the throughput capacity, calculated by
estimating the number of days in a year that such production unit is
expected to operate, including downtime for regular maintenance, and
multiplying that number by an amount equal to the unit's optimal
daily output or throughput, as the case may be.
o "utilization rate" are to the amount of output or throughput by a
production unit per annum as a proportion of the capacity of that
unit per annum at the end of a year.
CURRENCIES AND EXCHANGE RATES
We publish our financial statements in renminbi. Unless otherwise
indicated, all translations from renminbi to US dollars have been made at a
rate of RMB 8.2767 to US$1.00, the noon buying rate as certified for customs
purposes by the Federal Reserve Bank of New York on December 31, 2003. We do
not represent that renminbi or US dollar amounts could be converted into US
dollars or renminbi, as the case may be, at any particular rate, the rates
below or at all.
The following table sets forth noon buying rate for US dollars in New York
City for cable transfers in renminbi as certified for customs purposes by the
Federal Reserve Bank of New York for the periods indicated:
Noon Buying Rate
____________________________________
Period End Average(1) High Low
------ --- ---------- -------- -----
(RMB per US$1.00)
1999............................................. 8.2795 8.2785 8.2800 8.2770
2000............................................. 8.2774 8.2784 8.2799 8.2768
2001............................................. 8.2766 8.2770 8.2786 8.2676
2002............................................. 8.2800 8.2772 8.2800 8.2759
2003............................................. 8.2767 8.2772 8.2800 8.2769
December 2003.................................... 8.2767 ____ 8.2772 8.2765
January 2004..................................... 8.2768 ____ 8.2772 8.2767
February 2004.................................... 8.2769 ____ 8.2773 8.2769
March 2004 ...................................... 8.2770 ____ 8.2774 8.2767
April 2004....................................... 8.2771 ____ 8.2772 8.2768
May 2004......................................... 8.2769 ____ 8.2773 8.2768
June 2004 (up to June 11, 2004).................. 8.2767 ____ 8.2768 8.2767
__________
(1) Determined by averaging the rates on the last business day of each month
during the relevant period.
FORWARD-LOOKING STATEMENTS
This annual report includes "forward-looking statements." All statements,
other than statements of historical facts, included in this annual report that
address activities, events or developments which we expect or anticipate will
or may occur in the future are forward-looking statements. The words believe,
intend, expect, anticipate, project, estimate, predict, plan and similar
expressions are also intended to identify forward-looking statements.
These forward-looking statements address, among others, such issues as:
o amount and nature of future exploration and development,
o future prices of and demand for our products,
o future earnings and cash flow,
o development projects and drilling prospects,
o future plans and capital expenditures,
o estimates of proved oil and gas reserves,
o exploration prospects and reserves potential,
o expansion and other development trends of the petroleum and
petrochemical industry,
o production forecasts of oil and gas,
o expected production or processing capacities, including expected
rated capacities and primary distillation capacities, of units or
facilities not yet in operation,
o expansion and growth of our business and operations, and
o our prospective operational and financial information.
These statements are based on assumptions and analyses made by us in
light of our experience and our perception of historical trends, current
conditions and expected future developments, as well as other factors we
believe are appropriate in particular circumstances. However, whether actual
results and developments will meet our expectations and predictions depends on
a number of risks and uncertainties which could cause actual results to differ
materially from our expectations, including the risks set forth in "Item 3 --
Key Information -- Risk Factors" and the following:
o fluctuations in prices of our products,
o failures or delays in achieving production from development projects,
o potential acquisitions and other business opportunities,
o general economic, market and business conditions, and
o other risks and factors beyond our control.
Consequently, all of the forward-looking statements made in this annual
report are qualified by these cautionary statements. We cannot assure you that
the actual results or developments anticipated by us will be realized or, even
if substantially realized, that they will have the expected effect on us or our
business or operations.
STATEMENTS REGARDING COMPETITIVE POSITION
Certain statements made in this annual report that refer to our market
share or competitive position are based on our belief, and in some cases rely
on a range of sources, including government surveys, investment analysts'
reports, independent market studies and our internal assessments of publicly
available information about the financial results and performance of other
market participants.
PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. SELECTED FINANCIAL DATA
The selected income statement data and cash flow data for the years ended
December 31, 2001, 2002 and 2003, and the selected balance sheet data as of
December 31, 2002 and 2003 have been derived from, and should be read in
conjunction with, the audited consolidated financial statements included
elsewhere in this annual report. The selected income statement and cash flow
data for the years ended December 31, 1999 and 2000 and the selected balance
sheet data as of December 31, 1999, 2000 and 2001 are derived from our audited
consolidated financial statements which are not included in this annual report.
This financial data reflect the reorganization and have been prepared as
if our current structure had been in existence throughout the relevant periods.
See "Item 4 - Information on the Company - A. History and Development." In
addition, the financial data prior to December 31, 1999 also include the
operations retained by Sinopec Group Company that were historically associated
with Sinopec Group Company's petroleum and petrochemical operations. The
results of operations, financial positions and cash flows associated with such
businesses are not reflected in our consolidated financial statements as of
December 31, 1999 or a later date, or for periods ended after December 31,
1999. Therefore, the following selected financial data for the year ended
December 31, 1999 are not necessarily comparable with selected financial data
for a later period. In addition, the financial data included herein may not
necessarily reflect what our results of operations and cash flows would have
been had we been a separate, stand-alone entity during the period presented.
Moreover, we acquired the equity interests of Sinopec National Star
Petroleum Company in 2001 and the operations of Sinopec Group Maoming
Petrochemical Company, Xi'an Petrochemical Main Factory and Tahe Oilfield
Petrochemical Factory from Sinopec Group Company in 2003. As we and these
companies are under the common control of Sinopec Group Company, our
acquisitions are considered as "combination of entities under common control"
which are accounted for in a manner similar to a pooling-of-interests.
Accordingly, the acquired assets and related liabilities have been accounted
for at historical cost and our financial statements for periods prior to the
combinations have been restated to include the accounts and the results of
operations of these companies on a combined basis.
Further, the selected financial data should be read in conjunction with
the consolidated financial statements together with accompanying notes and
"Item 5 - Operation and Financial Review and Prospects" included elsewhere in
this annual report. Unless otherwise indicated, the consolidated financial
statements are prepared and presented in accordance with International
Financial Reporting Standards, or IFRS. IFRS vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 33 to the consolidated financial statements.
Years Ended December 31,
--------------------------------
1999 2000 2001 2002 2003 2003
---- ---- ---- ---- ---- ----
RMB RMB RMB RMB RMB US$(6)
(in millions, except per share and per ADS data)
Income Statement Data(1)(2):
IFRS
Consolidated results
Operating revenues............................ 242,031 336,386 323,629 345,145 443,136 53,540
Purchased crude oil, products and operating
supplies and expenses....................... (161,398) (227,659) (222,462) (237,581) (312,488) (37,755)
Selling, general and administrative expenses.. (18,574) (19,939) (17,800) (21,461) (25,940) (3,134)
Depreciation, depletion and amortization...... (18,478) (21,722) (23,395) (25,286) (26,735) (3,230)
Exploration expenses, including dry holes..... (2,309) (3,030) (3,775) (4,363) (6,133) (741)
Personnel expenses............................ (12,724) (13,881) (13,655) (14,417) (16,182) (1,955)
Employee reduction expenses................... - - (2,546) (244) (1,014) (122)
Taxes other than income tax................... (9,564) (12,290) (11,977) (11,956) (13,491) (1,630)
Other operating expenses, net................. (3,261) 1,703 (350) (1,158) (3,886) (470)
-------- -------- -------- -------- -------- -------
Operating income.............................. 15,723 39,568 27,669 28,679 37,267 4,503
Interest expense, net of interest income and
net foreign exchange gains (losses)......... (10,295) (5,162) (3,293) (4,155) (3,803) (459)
Gains from issuance of shares by subsidiaries. 607 - - - 136 16
Other income ................................. 814 252 524 561 481 58
-------- -------- -------- -------- -------- -------
Income before income tax and minority
interests........................................ 6,849 34,658 24,900 25,085 34,081 4,118
Income tax.................................... (351) (9,644) (8,037) (7,650) (10,545) (1,274)
-------- -------- -------- -------- -------- -------
Income before minority interests.............. 6,498 25,014 16,863 17,435 23,536 2,844
Minority interests............................ (1,577) (1,817) (617) (1,120) (1,943) (235)
-------- -------- -------- -------- -------- -------
Net income.................................... 4,921 23,197 16,246 16,315 21,593 2,609
======== ======== ======== ======== ======== =======
Basic earnings per share(3)................... 0.07 0.32 0.19 0.19 0.25 0.03
Basic earnings per ADS(3)..................... 7.16 32.25 19.08 18.82 24.90 3.01
Cash dividends declared per share............. - 0.01 0.08 0.10 0.09 0.01
Segment results
Exploration and production.................. 4,251 25,411 23,185 14,787 19,160 2,315
Refining.................................... 6,076 1,414 2,141 5,996 6,006 726
Marketing and distribution.................. 2,550 6,358 2,443 8,401 11,943 1,443
Chemicals................................... 3,677 6,764 (225) 596 2,159 261
Corporate and others........................ (831) (379) 125 (1,101) (2,001) (242)
-------- -------- -------- -------- -------- -------
Operating income............................ 15,723 39,568 27,669 28,679 37,267 4,503
======== ======== ======== ======== ======== =======
US GAAP
Net income.................................... 5,424 23,186 17,536 19,750 25,577 3,090
Basic earnings per share (3).................. 0.08 0.32 0.21 0.23 0.30 0.04
Basic earnings per ADS (3).................... 7.89 32.23 20.59 22.78 29.50 3.56
Cash dividends declared per share............. - 0.01 0.08 0.10 0.09 0.01
As of December 31,
------------------
1999 2000 2001 2002 2003 2003
---- ---- ---- ---- ---- ----
RMB RMB RMB RMB RMB US$(6)
(in millions)
Balance Sheet Data(2):
IFRS
Cash and cash equivalents............................ 22,451 20,218 21,697 18,161 15,221 1,839
Total current assets................................. 92,629 138,476 112,070 103,982 99,328 12,001
Total non-current assets(4).......................... 201,649 231,187 268,675 285,361 301,490 36,426
Total assets(4)...................................... 294,278 369,663 380,745 389,343 400,818 48,427
Short-term debts and loans from Sinopec Group
Company and its affiliates (including current
portion of long-term debts)........................ 84,368 60,022 50,058 35,583 29,079 3,513
Long-term debts and loans from Sinopec Group Company
and its affiliates (excluding current portion of
long-term debts)................................... 46,457 73,824 69,059 77,182 79,221 9,572
Shareholders' equity(4).............................. 95,532 142,447 156,704 163,823 167,899 20,286
Capital employed(5).................................. 225,922 279,303 277,683 282,436 286,844 34,657
US GAAP
Total assets......................................... 257,962 335,302 350,662 362,112 375,995 45,428
Long-term debts and loans from Sinopec Group Company
and its affiliates (excluding current portion of
long-term debts)................................... 46,059 73,374 68,559 76,867 77,421 9,354
Shareholders' equity................................. 75,783 121,926 139,406 150,167 158,216 19,116
Years Ended December 31,
------------------------
1999 2000 2001 2002 2003 2003
---- ---- ---- ---- ---- ----
RMB RMB RMB RMB RMB US$(6)
(in millions)
Other Financial Data(1)(2):
IFRS
Net cash from operating activities............ 25,936 30,360 56,671 55,046 60,630 7,325
Net cash from/(used in) financing activities.. 4,329 32,046 (16,437) (15,813) (13,232) (1,599)
Net cash used in investing activities......... (35,731) (64,622) (38,748) (42,776) (50,343) (6,082)
Capital expenditures
Exploration and production.................. 10,531 14,813 20,276 20,228 20,628 2,492
Refining.................................... 6,978 5,793 9,121 6,660 9,729 1,175
Marketing and distribution.................. 3,176 16,080 17,256 6,982 6,826 825
Chemicals................................... 12,919 6,237 11,996 7,415 7,348 888
Corporate and others........................ 1,092 398 528 816 518 63
------- ------- ------- -------- ------- ------
Total....................................... 34,696 43,321 59,177 42,101 45,049 5,443
======= ======= ======= ======== ======= ======
Capital expenditures of jointly controlled
entities
Exploration and production.................. - - - - 1,200 145
Chemicals................................... - - - - 2,993 362
------- ------- ------- -------- ------- ------
Total....................................... - - - - 4,193 507
======= ======= ======= ======== ======= ======
__________
(1) Data for the year ended December 31, 1999 includes the results of
operations of certain petroleum and petrochemical operations that were
included in the consolidated financial statements but were retained by
Sinopec Group Company. These net assets were reflected as a distribution
to shareholder as of December 31, 1999.
(2) The acquisition of Sinopec National Star in 2001 and the acquisitions of
Sinopec Group Maoming Petrochemical Company, Xi'an Petrochemical Main
Factory and Tahe Oilfield Petrochemical Factory in 2003 are considered as
"combination of entities under common control" which are accounted in a
manner similar to a pooling-of-interests ("as-if pooling-of-interests
accounting"). Accordingly, the assets and liabilities of these acquired
companies have been accounted for at historical cost and the consolidated
financial statements for periods prior to the combinations have been
restated to include the accounts and results of operations of these
acquired companies on a combined basis. The considerations paid were
treated as an equity transaction.
(3) Basic earnings per share and per ADS have been computed by dividing net
income by the weighted average number of shares in issue.
(4) Includes the effect of the revaluation of property, plant and equipment as
of September 30, 1999. In addition, property, plant and equipment of
Sinopec National Star, Sinopec Group Maoming Petrochemical Company, Xi'an
Petrochemical Main Factory and Table Oilfield Petrochemical Factory were
revalued as of December 31, 2000, June 30, 2003, October 31, 2003 and
October 31, 2003, respectively, in connection with the acquisitions by
Sinopec Corp.
(5) Equals the sum of short-term debts, long-term debts, loans from Sinopec
Group Company and its affiliates, shareholders' equity and minority
interests less cash and cash equivalents.
(6) Translated solely for the convenience of the readers into US dollars at
the rate prevailing on December 31, 2003 of US$1.00 to RMB 8.2767.
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
Risks Relating to Sinopec Corp.
Our limited operating history as an integrated petroleum and petrochemical
company could affect our operating efficiency.
In 1983, the PRC government formed Old Sinopec to take primary
responsibility for the administration and development of the petrochemical
industry in China. Old Sinopec administered 38 production enterprises and was
the PRC's predominant force in petroleum refining and petrochemical production.
As a result of the restructuring of the petroleum and petrochemical industry in
China in March 1998, Sinopec Group Company acquired most of the businesses of
Old Sinopec, some of the exploration and production of crude oil business of
China National Petroleum Company, or CNPC, and a large number of businesses
which were engaged in retail and wholesale sales of refined petroleum products
in the PRC.
In anticipation of the October 2000 global offering of our H shares and
ADSs representing H shares, we were created in our present form on February 25,
2000 with Sinopec Group Company as the sole shareholder. Therefore, we have a
limited history as an integrated company and in operating our assets.
The integration of the exploration and production business with our
refining, petrochemical and marketing operations will present management
challenges. Our newly established management structure and management
information and financial systems may also need further adjustment and
development. Our future business will depend in part on our ability to
successfully manage our businesses and operations as an integrated petroleum
and petrochemical company and to successfully implement our vision and
strategy.
Our development plans have significant capital expenditure and financing
requirements, which are subject to a number of risks and uncertainties.
The petroleum and petrochemical business is a capital intensive business.
Our ability to maintain and increase our revenues, net income and cash flows
depends upon continued capital spending. Our current capital expenditures plan
contemplates approximately RMB 50.2 billion (US$6.1 billion) in 2004. Our
actual capital expenditures may vary significantly from these planned amounts
due to various factors, including, among others, our ability to generate
sufficient cash flows from operations to finance our capital expenditures,
general economic, market and business conditions and other factors that are
beyond our control. In addition, there can be no assurance as to whether, or at
what cost, our capital projects will be completed or the success of these
projects if completed.
In addition, our ability to obtain external financing in the future is
subject to a variety of uncertainties including:
o our future results of operations, financial condition and cash flows;
o the economic condition in China and the market environment for our
products;
o the cost of financing and the condition of financial markets; and
o the issuance of relevant government approvals and other project risks
associated with the development of infrastructure in China.
Our failure to obtain sufficient funding for our operations or development
plans could adversely affect our business, results of operations and financial
condition.
Competition from domestic as well as international petroleum and
petrochemical companies.
The industry in which we operate is highly competitive. Our principal
market in eastern, southern and central regions in China has enjoyed stronger
economic growth and a higher demand for refined products and petrochemicals
than other regions of China. As a result, we believe that our competitors will
try to expand their sales and build up their distribution networks in our
principal market.
Among our competitors are PetroChina and some of the world's major
integrated petroleum and petrochemical companies, many of which have recently
become more significant participants in the petroleum and petrochemicals
industry in China. We believe such trend will continue and probably accelerate.
Increased competition may have a material adverse effect on our financial
condition and results of operations.
We may not be able to pass on all increases in costs of our raw materials.
We currently consume large amounts of crude oil and other raw materials to
manufacture our refined products and petrochemical products. We have been
sourcing an increasing amount of crude oil from outside suppliers. In 2003,
approximately 76% of the crude oil required for our refinery business was
sourced from outside suppliers. While we try to match cost increases with
corresponding raw material price increases, our ability to pass on cost
increases to our customers is dependent on international and domestic market
conditions and government regulations. Consequently, there may be periods
during which increases in costs of raw materials due to either price increases
or increases in the amounts we source from third parties are not fully
recovered by us due to an inability to increase the sale prices of our
products. This may have a material adverse effect on our financial condition,
results of operations or cash flows.
Related party transactions; non-competition; conflicts of interest.
We have engaged from time to time and will continue to engage in a variety
of transactions with Sinopec Group Company, which provides to us a number of
services, including, but not limited to, ancillary supply, engineering,
maintenance, transport, educational and community services. The nature of our
transactions with Sinopec Group Company is governed by a number of service and
other contracts between Sinopec Group Company and us. In addition, Sinopec
Group Company has interests in businesses which compete or are likely to
compete, either directly or indirectly, with our businesses. We and Sinopec
Group Company have entered into a non-competition agreement whereby Sinopec
Group Company has agreed to refrain from operating businesses which compete or
could compete with us in any of our domestic or international markets; grant us
an option to purchase Sinopec Group Company's operations that compete or could
compete with our businesses; operate its sales enterprises and service stations
in a manner uniform to our sales and service operations; and appoint us as
sales agent for certain of its products which compete or could compete with our
products. Notwithstanding the foregoing contractual arrangements, because
Sinopec Group Company is our dominant shareholder and the interests of the
Sinopec Group Company may conflict with our own interests, Sinopec Group
Company may take actions that favor its interests over ours.
In addition, while we and Sinopec Group Company have entered into
agreements which generally provide that these services provided by Sinopec
Group Company will be priced on terms at least as favorable to us as ordinary
commercial terms, we have limited or no practical alternative source of supply
for some of these services, utilities, materials and equipment at reasonable
cost. As a result, in the future we may have limited ability to negotiate with
Sinopec Group Company over the terms of our agreements with respect to these
services, utilities, materials and equipment.
Our insurance coverage may not be sufficient to cover the risks related to
exploration, development and production and losses caused by natural
disasters.
Due to the nature of our business, we handle many highly flammable and
explosive materials and operate many facilities under high pressure and high
temperatures. We have experienced accidents that have caused property damage
and personal injuries, and we cannot assure that industry-related accidents
will not occur in the future.
We currently maintain insurance coverage with Sinopec Group Company on our
property, plant, equipment and inventory. The amount of coverage is determined
on the basis of the historical value of the covered fixed assets and, with
respect to inventory, twice each year on the basis of the average month-end
inventory value of the most recent six months. The amount of our insurance
coverage may be less than the replacement cost of the covered properties and
plants and may not be sufficient to cover all our financial losses.
We do not carry any business interruption insurance or third party
liability insurance to cover claims in respect of personal injury, property or
environmental damage arising from accidents on our property or relating to our
operations other than third party liability insurance with respect to certain
transportation vehicles. Losses incurred or payments required to be made by us,
which are not fully insured, may have a material adverse effect on our results
of operations.
The oil and natural gas reserves data in this annual report are only
estimates, and our actual production, revenues and expenditures with
respect to our reserves may differ materially from these estimates.
There are numerous uncertainties inherent in estimating quantities of
proved oil and natural gas reserves, and in the timing of development
expenditures and the projection of future rates of production. The reserve data
set forth in this annual report represent estimates only. Adverse changes in
economic conditions may render it uneconomical to develop certain reserves. Our
actual production, revenues, taxes and fees payable and development and
operating expenditures with respect to our reserves may likely vary from these
estimates.
The reliability of reserves estimates depends on:
o the quality and quantity of technical and economic data;
o the prevailing oil and gas prices applicable to our production;
o the production performance of the reservoirs;
o extensive engineering judgments; and
o consistency in the PRC government's oil policies.
In addition, new drilling, testing and production following the estimates
may cause substantial upward or downward revisions in the estimates.
Furthermore, the discounted future cash flow calculated by applying the 10%
discount rate, which was included in "Consolidated Financial
Statements-Supplemental Information on Oil and Gas Producing Activities
(Unaudited)" following Item 19, may not represent the actual net present value
of the relevant cash flow.
Our continued business success depends in part on our ability to replace
reserves and develop newly discovered reserves.
Our ability to achieve our growth objectives is dependent in part on our
level of success in discovering or acquiring additional oil and natural gas
reserves and further exploring our current reserve base. Our exploration and
development activities for additional reserves expose us to inherent risks
associated with drilling, including the risk that no economically productive
oil or natural gas reservoirs will be encountered. Without reserve additions
through further exploration and development or acquisition activities, our
reserves and production will decline over time as our reserves will be
depleted. Exploring for, developing and acquiring reserves is highly capital
intensive. If these activities are unsuccessful and we do not acquire
properties containing proved reserves, our total proved reserves will decline,
which may adversely affect our results of operations and financial condition.
Sinopec Group Company is currently being audited by the National Audit
Office, and we cannot predict the timing of completion or the outcome of
this audit.
The National Audit Office (the "NAO") of China periodically performs
audits on large PRC state-owned companies, such as Sinopec Group Company. We
have learned that Sinopec Group Company is currently being audited by the NAO,
and Sinopec Group Company has been cooperating with the NAO in its efforts. We
cannot predict the timing of completion or the outcome of this audit. If the
NAO determines that Sinopec Group Company has engaged in any material
wrongdoings which implicate us or our employees, we may be subject to fines and
other administrative penalties, and the market for our ADSs may be adversely
impacted.
Risks Relating to the Petroleum and Petrochemical Industry
Our business operations may be adversely affected by present or future
environmental regulations.
As an integrated petroleum and petrochemical company, we are subject to
extensive environmental protection laws and regulations in China. These laws
and regulations permit:
o the imposition of fees for the discharge of waste substances;
o the levy of fines and payments for damages for serious environmental
offenses; and
o the central government, at its discretion, to close any facility
which fails to comply with orders and require it to correct or stop
operations causing environmental damage.
Our production operations produce substantial amounts of waste water,
gas and solid waste materials. In addition, our production facilities require
operating permits that are subject to renewal, modification and revocation. We
have established a system to treat waste materials to prevent and reduce
pollution and believe that our operations substantially comply with all
applicable PRC environmental laws and regulations as they have been previously
interpreted and enforced. The PRC government, however, has moved, and may move
further, toward more rigorous enforcement of applicable laws, and toward the
adoption of more stringent environmental standards, which, in turn, would
require us to incur additional expenditures on environmental matters.
Our operations may be adversely affected by the cyclical nature of the
petroleum and petrochemical market and by the volatility of prices of
crude oil and refined petroleum products.
Most of our revenues are attributable to sales of crude oil, refined
petroleum products and petrochemical products which have historically been
cyclical and sensitive to the availability and prices of feedstock and general
economic conditions. Regional and global markets for many of our products are
sensitive to changes in industry capacity and output levels, cyclical changes
in regional and global economic conditions, prices and availability of
substitute products and changes in consumer demand, which from time to time
have had a significant impact on product prices in the regional and global
markets. Historically, the markets for these products have experienced
alternating periods of tight supply, causing prices and margins to increase,
followed by periods of capacity additions, possibly resulting in oversupply and
declining prices and margins. After its accession to the WTO, China further
reduced the tariffs and other import restrictions and further relaxed the
control of product allocation and pricing, and, as a result, the domestic
markets for many of our products have become increasingly subject to the
cyclicality of regional and global markets. Historically, international prices
of crude oil and refined products have fluctuated widely due to many factors
that are beyond our control, including global and regional economic and
political developments and global and regional supply of and demand for crude
oil and refined products. While our integrated upstream, midstream and
downstream operations to certain extent help us reduce the effects of industry
cycles, we cannot assure you that future growth in demand for these products
will be sufficient to alleviate any existing or future conditions of excess
industry capacity or that such condition will not be sustained or further
aggravated by anticipated or unanticipated capacity additions or other events.
In addition, we expect that the volatility and uncertainty of the prices of
crude oil and refined products will continue. Declines in prices of refined
products and petrochemical products may adversely affect our business and
results of operations and financial condition.
Our business faces natural disasters and operation risks that may cause
significant interruption of operations.
Exploring for, producing and transporting crude oil and natural gas and
producing and transporting refined and petrochemical products involve a number
of hazards. As with many other companies in the world which conduct similar
businesses, we have experienced accidents that have caused property damage and
personal injuries. Our safety and maintenance measures at our production
facilities and for our transportation facilities may not be sufficient, and
significant natural disasters may cause significant interruption of our
operations and property and environmental damage that could have a material
adverse impact on our financial condition.
Risks Relating to the PRC
Government regulations may limit our activities and adversely affect our
business operations.
The central and local PRC governments continue to exercise a certain
degree of control over the petroleum and petrochemical industry in China by,
among others:
o licensing the right to explore and produce crude oil and natural gas;
o publishing from time to time retail guidance prices for gasoline and
diesel based on formulas linked to relevant international market
prices;
o allocating and pricing of certain resources and services;
o assessing taxes and fees payable;
o setting import and export quotas and procedures; and
o setting safety, environmental and quality standards.
In addition, we may be required from time to time to make capital
expenditures to comply with PRC government policies regarding the development
of the domestic petroleum and petrochemical industry. As a result, we may face
significant constraints on our flexibility and ability to expand our business
operations or to maximize our profitability.
Our development plans require regulatory approval.
Many of our large construction and expansion projects are subject to
extensive governmental review and approval. Such projects include most
exploration and production projects and construction of significant refining
and petrochemical facilities, significant expansions or renovations to existing
facilities, as well as the construction of significant oil and natural gas
pipelines, refined product pipelines and storage facilities. The timing and
cost of completion of these projects will depend on numerous factors, including
approvals from relevant PRC government authorities and general economic
conditions in China.
While in general we attempt to obtain governmental approval as far in
advance as practicable, we may not be able to control the timing and outcome of
these governmental reviews and approvals. If any of our important projects
required for our future growth are not approved, or not approved on a timely
basis, our results of operations and financial condition could be adversely
impacted.
Entry by China into the World Trade Organization significantly increases
competition from foreign companies in our lines of business.
China became a member of the World Trade Organization ("WTO") in December
2001. In entering the WTO, China has agreed to significantly reduce the trade
barriers over time for imports that have historically existed and that
currently exist in China such as:
o granting foreign-owned companies the right to import into China crude
oil and refined products through companies authorized by the PRC
government;
o permitting foreign companies to distribute and market refined
petroleum products in both retail and wholesale markets in China;
o significantly reducing tariffs on refined products and petrochemical
products; and
o eliminating over time quotas and other non-tariff barriers for
imports and exports of crude oil and refined products.
As a result of China's entry to the WTO, we have faced, and will continue
to face, increasing competition from foreign producers of refined petroleum
products and petrochemical products. In addition, the trade agreements under
the WTO are periodically renegotiated, sometimes resulting in continuing
reductions in tariffs, elimination of non-tariff barriers such as import quota
and opening of markets to foreign competition. Any present or future increase
in foreign competition may have a material adverse effect on our results of
operations.
Government control of currency conversion and future movements in exchange
rates may adversely affect our operations and financial results.
We receive substantially all of our revenues in renminbi. A portion of
such revenues will need to be converted into other currencies to meet our
foreign currency obligations, including:
o import of crude oil and other materials;
o debt service on foreign currency denominated debt;
o purchases of imported equipment; and
o payment of any cash dividends declared in respect of the H shares.
The existing foreign exchange regulations have significantly reduced
government foreign exchange controls for transactions under the current
account, including trade and service related foreign exchange transactions and
payment of dividends. We may undertake current account foreign exchange
transactions without prior approval from the State Administration of Foreign
Exchange by producing commercial documents evidencing such transactions,
provided that they are processed through Chinese banks licensed to engage in
foreign exchange transactions. The PRC government has stated publicly that it
intends to make the renminbi freely convertible in the future. However, we
cannot predict whether the PRC government will continue its existing foreign
exchange policy and when the PRC government will allow free conversion of
renminbi to foreign currency.
Foreign exchange transactions under the capital account, including
principal payments in respect of foreign currency-denominated obligations,
continue to be subject to significant foreign exchange controls and require the
approval of the State Administration of Foreign Exchange. These limitations
could affect our ability to obtain foreign exchange through debt or equity
financing, or to obtain foreign exchange for capital expenditures.
Since 1994, the conversion of renminbi into Hong Kong dollars and United
States dollars has been based on rates set by the People's Bank of China, which
are set daily based on the previous day's PRC interbank foreign exchange market
rate and current exchange rates on the world financial markets. Although the
renminbi to US dollar exchange rate has been relatively stable since 1994, we
cannot predict nor give any assurance of its future stability. We do not hedge
exchange rate fluctuations between the renminbi and the US dollar or other
currencies and currently have no plans to do so. Fluctuations in exchange rates
may adversely affect the value, translated or converted into US dollars or Hong
Kong dollars, of our net assets, earnings and any declared dividends.
Enforcement of shareholder rights; mandatory arbitration.
Currently, the primary sources of shareholder rights are our articles of
association, the PRC Company Law and the Listing Rules of the Hong Kong Stock
Exchange, which, among other things, impose certain standards of conduct,
fairness and disclosure on us, our directors and our controlling shareholder.
In general, their provisions for protection of shareholder's rights and access
to information, are different from those applicable to companies incorporated
in the U.S., the U.K. and other Western countries. In addition, the mechanisms
for enforcement of rights under the corporate framework to which we are subject
may also be relatively undeveloped and untested. To our knowledge, there has
not been any published report of judicial enforcement in the PRC by H share
shareholders of their rights under constituent documents of joint stock limited
companies or the PRC Company Law or in the application or interpretation of the
PRC or Hong Kong regulatory provisions applicable to PRC joint stock limited
companies. We cannot assume that our shareholders will enjoy protections that
they may be entitled in other jurisdictions.
China does not have treaties providing for the reciprocal recognition and
enforcement of judgments of courts with the United States, the United Kingdom,
Japan or most other Western countries, and therefore recognition and
enforcement in China of judgments of a court in any of these jurisdictions in
relation to any matter not subject to a binding arbitration provision may not
be assured. Our articles of association as well as the Listing Rules of the
Hong Kong Stock Exchange provide that most disputes between holders of H shares
and us, our directors, supervisors, officers or holders of domestic shares,
arising out of the articles of association or the PRC Company Law concerning
the affairs of our company or with respect to the transfer of our shares are to
be resolved through arbitration by arbitration organizations in Hong Kong or
China, rather than through a court of law. On June 18, 1999, an arrangement was
made between Hong Kong and the PRC for the mutual enforcement of arbitral
awards. This new arrangement was approved by the Supreme People's Court of the
PRC and the Hong Kong Legislative Council, and became effective on February 1,
2000. So far as we are aware, no action has been brought in China by any
shareholder to enforce an arbitral award, and we are uncertain as to the
outcome of any action brought in China to enforce an arbitral award granted to
shareholders.
A possible recurrence of a severe acute respiratory syndrome may
materially and adversely affect our business and results of operations.
From March to July 2003, China, Hong Kong, Singapore, Taiwan and certain
other areas of the world experienced an outbreak of a new and contagious form
of atypical pneumonia now known as severe acute respiratory syndrome, or SARS.
According to the World Health Organization, more than 8,000 cases of SARS
resulting in more than 900 deaths had been reported in 29 countries from
November 2002 to August 2003. In the event of recurrent outbreak of SARS, we
may be required to quarantine the employees that have been suspected of
becoming infected, as well as any others that had come into contact with them.
We may also be required to disinfect the affected facilities and therefore
suffer a temporary suspension of production. Any quarantine or suspension of
production at any of our facilities will affect our overall operations and
results of operations. Furthermore, such an outbreak would likely restrict the
level of economic activity in affected areas, which would also adversely affect
our business and results of operations.
ITEM 4. INFORMATION ON THE COMPANY
A. HISTORY AND DEVELOPMENT
Our legal and commercial name is China Petroleum & Chemical Corporation.
Our head office is located at A6, Huixindong Street, Chaoyang District, Beijing
100029, the People's Republic of China and our telephone number is (8610)
6499-0060. We have appointed SINOPEC USA Co., Ltd., 150 E. 52nd St., 28th Fl.,
New York, NY 10022, USA (telephone number: (212) 759-5085) as our agent for
service of processes for actions brought under the U.S. securities laws.
Sinopec Group Company was reorganized in anticipation of the October 2000
global offering of our H shares and ADSs representing H shares, and as a
result, we were established as a joint stock limited company on February 25,
2000 under the Company Law of the PRC with Sinopec Group Company as the sole
shareholder. To effect the reorganization, we and Sinopec Group Company entered
into a reorganization agreement which had effect from December 31, 1999. As
part of the reorganization, certain of Sinopec Group Company's petroleum and
petrochemical operations, together with the related assets and liabilities that
were transferred to us, were segregated and separately managed by us beginning
December 31, 1999. Sinopec Group Company transferred to us most of its
petroleum and petrochemical operations, including most of their production
assets, and retained most of the social and ancillary service operations, as
well as certain production assets, including certain petrochemical facilities,
small capacity refineries and retail service stations. Sinopec Group Company's
operations transferred to us include:
o exploration for and development of crude oil and natural gas;
o refining of crude oil and marketing and distribution of refined
petroleum products, including transportation, storage, trading,
import and export of petroleum products; and
o production and sales of petrochemical products.
Sinopec Group Company's continuing activities consist, among other
things, of:
o operating certain petrochemical facilities, small capacity refineries
and retail service stations retained by Sinopec Group Company;
o providing well survey, logging and downhole operational services;
o manufacturing and maintaining production equipment;
o providing construction services;
o providing utilities, such as electricity and water; and
o providing social services, such as health care, education and
transportation services.
Sinopec Group Company transferred the businesses to us either by
transferring its equity holdings in subsidiaries or by transferring their
assets and liabilities. For its subsidiaries with publicly traded shares,
Sinopec Group Company transferred its entire equity interests to us. These
subsidiaries include companies whose shares or depositary receipts are listed
on various stock exchanges including the New York Stock Exchange, the Hong Kong
Stock Exchange, the Shanghai Stock Exchange and the Shenzhen Stock Exchange.
For the remaining subsidiaries, Sinopec Group Company transferred operating
assets and associated liabilities directly to us.
In consideration of the assets and operations transferred to us, we issued
and allocated 68.8 billion of our shares to Sinopec Group Company on February
25, 2000. These shares represented our entire issued share capital before our
October 2000 global offering of H shares and ADSs representing H shares.
In 2001, we acquired from Sinopec Group Company the entire equity interest
of Sinopec National Star, which engaged in oil and gas exploration and
production activities in China, for a consideration of RMB 6.45 billion.
In October 2003, we acquired from Sinopec Group Company the operations of
Sinopec Group Maoming Petrochemical Company's ethylene facility with a rated
capacity of 380,000 tonnes and its related downstream facilities for RMB 3.3
billion (US$0.4 billion) in cash. In December 2003, we acquired the operations
of Tahe Petrochemical and Xi'an Petrochemical, both of which are wholly-owned
by Sinopec Group Company, for RMB 220.8 million (US$26.7 million) and RMB 135.2
million (US$16.3 million), respectively, in cash. The purchase prices were
determined on the basis of independent valuation and appraisals of the acquired
assets and liabilities as required applicable laws and regulations in the PRC.
While our financial statements for periods prior to these acquisitions have
been restated to include the accounts and the results of operations of these
companies on a combined basis, the following discussion in this "Item 4 -
Information on the Company" on our businesses and operations does not include
data of any of these companies.
B. BUSINESS OVERVIEW
We are an integrated petroleum and petrochemical company with upstream,
midstream and downstream operations. Based on our operating revenues of RMB 443
billion (US$53.5 billion) in 2003, we are one of the largest petroleum and
petrochemical companies in China and in Asia.
We are the second largest crude oil and natural gas producer in China. Our
crude oil and natural gas productions are mostly internally consumed by our
refining and petrochemical operations.
As of December 31, 2003, we had proved developed and undeveloped reserves
of 3,738 million barrels-of-oil equivalent, including 3,257 million barrels of
crude oil and 2,888 billion cubic feet of natural gas. In 2003, we produced 271
million barrels of crude oil, which accounted for approximately 22.5% of the
total crude oil production in China. In addition, we produced 188 billion cubic
feet of natural gas, which accounted for approximately 15.5% of the total
natural gas production in China.
We are the largest refiner of petroleum in China based on crude oil
throughput. In 2003, we processed approximately 116.26 million tonnes of crude
oil, representing approximately 48.3% of the total crude oil throughput in
China. In 2003, we produced approximately 21.74 million tonnes of gasoline,
41.67 million tonnes of diesel and 5.31 million tonnes of kerosene including
jet fuel.
We are the largest distributor and seller of refined petroleum products in
China based on sales volume. In 2003, sales volume of gasoline, diesel and
kerosene including jet fuel through our Sinopec branded retail and wholesale
distribution networks accounted for approximately 57.6% of the total
consumption of these products in China and approximately 79.9% in our principal
market in the eastern and southern regions of China. Sales volume of gasoline
and diesel through our service stations in 2003 accounted for approximately 69%
of the total retail volume in our principal market.
We are also the largest producer and distributor of petrochemicals in
China based on sales volume. Our production of ethylene, a key petrochemical
building block, was over 3.17 million tonnes in 2003, representing
approximately 51.8% of the total ethylene production in China. We produce a
full range of petrochemical products including intermediate petrochemicals,
synthetic resins, synthetic fiber monomers and their polymers, synthetic
fibers, synthetic rubber and chemical fertilizers. We are the largest producer
in China of all of these product categories.
Exploration and Production
Summary
We currently explore for, develop and produce crude oil and natural gas in
a number of areas across China. As of December 31, 2003, we held 195 production
licenses with terms ranging from seven (7) to fifty-five (55) years, which were
equal to or longer than the maximum numbers of years of the estimated life of
the reserves as evaluated by us as of December 31, 2003. Our production
licenses are renewable upon our application 30 days prior to expiration. During
the term of our production license, we will pay an annual production right
usage fee of RMB 1,000 (US$120.8) per square kilometers. Among our oil and gas
fields, the Shengli field in Shandong province is the second largest oil field
in China and accounted for approximately two-thirds of our total production in
2003. In 2003, we produced an average of 828,000 barrels-of-oil equivalent per
day, of which approximately 90% was crude oil and 10% was natural gas.
As of December 31, 2003, we held 366 exploration licenses for various
blocks in which we engaged in exploration activities. The maximum term of our
exploration licenses is seven (7) years. Our exploration licenses may be
renewed twice upon our application 30 days prior to expiration of the original
term with each renewal for a two-year term. We are obligated to make a
progressive annual minimum exploration investment relating to the exploration
blocks in respect of which the exploration licenses are issued. In addition, we
are also obligated to pay an annual exploration license fee starting from RMB
100 (US$12.1) per square kilometer up to RMB 500 (US$60.4) per square
kilometer.
Properties
We currently operate 16 oil and gas producing fields, each of which
consists of many oil and gas producing blocks and all of which are located in
mainland China.
Shengli field is our most important producing oil field and the second
largest producing oil field in China. It consists of 68 oil producing blocks of
various sizes extending over an area of 61,000 square kilometers in northern
Shandong province. In 2003, Shengli field produced 189.3 million barrels of
crude oil and 28.6 billion cubic feet of natural gas, accounting for
approximately 64.2% of our total annual crude oil and natural gas production
for the year. As at December 31, 2003 Shengli field had estimated proved
developed and undeveloped reserves of 2,322 million barrels-of-oil equivalent,
including 2,271 million barrels of crude oil and 308.9 billion cubic feet of
natural gas.
Our other oil and gas producing fields are located in the border area of
Hebei, Shandong and Henan as well as in Xinjiang, Sichuan, Henan, Jiangsu,
Yunnan, Guizhou, Guangxi and the East China Sea areas.
Oil and Natural Gas Reserves
Oil and gas proved reserves cannot be measured precisely. Reserve
estimates are based on many factors related to reservoir performance which
require evaluation by engineers interpreting the available data, as well as
price and other economic factors. The reliability of these estimates at any
point in time depends on both the quality and quantity of the technical and
economic data, the production performance of the reservoirs as well as
extensive engineering judgment. Consequently, reserve estimates are subject to
revision as additional data become available during the producing life of a
reservoir. When a commercial reservoir is discovered, proved reserves are
initially determined based on limited data from the first well or wells.
Subsequent data may better define the extent of the reservoir and additional
production performance, well tests and engineering studies will often improve
the reliability of the reserve estimate.
The following table sets forth our estimated proved oil and gas reserves
and productions and the respective yearly changes for the years ended December
31, 2001, 2002 and 2003. Our estimated proved reserves do not include
additional quantities recoverable beyond the term of the relevant production
licenses, or that may result from extensions of currently proved areas, or from
application of improved recovery processes not yet tested and determined to be
economical. Our estimated proved reserves do not include any quantities that
are recoverable through application of tertiary recovery techniques. Proved
developed reserves are the quantities expected to be recovered through existing
wells with existing equipment and operating methods. Our estimated proved
reserves of crude oil and natural gas as at December 31, 2003 declined compared
with the amount as December 31, 2002 primarily because our interests in Xihu
area of the East China sea fields were diluted when additional parties joined
the development efforts. In addition, we revised certain previous estimates
relating to undeveloped reserves, which resulted in a reduction in our total
estimated proved developed and undeveloped reserves.
Years ended December 31,
------------------------------------
2001 2002 2003
Proved developed and undeveloped reserves (crude oil) (million
barrels)
Beginning of year.................................................... 3,168 3,215 3,320
Revisions of previous estimates...................................... (23) 119 (81)
Improved recovery.................................................... 125 126 143
Extensions and discoveries........................................... 214 130 146
Production........................................................... (269) (270) (271)
------- ------- -------
End of year.......................................................... 3,215 3,320 3,257
======= ======= =======
Proved developed reserves (crude oil) (million barrels)
Beginning of year.................................................... 2,490 2,444 2,732
======= ======= =======
End of year.......................................................... 2,444 2,732 2,786
======= ======= =======
Proved developed and undeveloped reserves (natural gas)
(billion cubic feet)
Beginning of year.................................................... 3,342 3,488 3,329
Revisions of previous estimates...................................... (429) (133) (649)
Extensions and discoveries........................................... 738 153 396
Production........................................................... (163) (179) (188)
------- ------- -------
End of year.......................................................... 3,488 3,329 2,888
======= ======= =======
Proved developed reserves (natural gas) (billion cubic feet)
Beginning of year.................................................... 1,164 1,183 1,056
======= ======= =======
End of year.......................................................... 1,183 1,056 1,249
======= ======= =======
Oil and Natural Gas Production
The following tables sets forth the average daily production of crude
oil and natural gas for the years ended December 31, 2001, 2002 and 2003.
For the Years Ended December 31,
----------------------------------------------------------
2001 2002 2003
---- ---- ----
(in thousand barrels)
Average Daily Crude Oil Production
Shengli.............................. 519 520 518
Zhongyuan............................ 74 74 70
Xibei................................ 49 48 59
Henan................................ 36 37 36
Jiangsu.............................. 31 31 31
Others............................... 28 29 28
-- -- --
Total Production..................... 737 739 742
=== === ===
For the Years Ended December 31,
----------------------------------------------------------
2001 2002 2003
---- ---- ----
(in million cubic feet)
Average Daily Natural Gas Production
Shengli.............................. 82 73 78
Zhongyuan............................ 145 157 165
Xibei................................ 35 53 44
Henan................................ 9 11 10
Jiangsu.............................. 2 2 9
Others............................... 173 194 208
--- --- ---
Total Production..................... 446 490 514
=== === ===
Lifting Cost Data
The following table sets forth our average lifting costs per
barrel-of-oil equivalent of crude oil and natural gas produced, average sales
prices per barrel of crude oil and average sales prices per thousand cubic
meters of natural gas for the years ended December 31, 2001, 2002 and 2003.
Total Shengli Others
----- ------- ------
(US$) (US$) (US$)
For the year ended December 31, 2003
Average petroleum lifting cost per BOE................. 6.47 6.46 6.48
Average realized sales price
Per barrel of crude oil............................. 27.56 27.87 26.83
Per thousand cubic meters of natural gas............ 71.95 70.64 72.06
For the year ended December 31, 2002
Average petroleum lifting cost per BOE................. 6.12 5.76 6.78
Average realized sales price
Per barrel of crude oil............................. 22.42 22.59 21.97
Per thousand cubic meters of natural gas............ 69.08 55.07 70.25
For the year ended December 31, 2001
Average petroleum lifting cost per BOE................. 6.15 6.01 6.42
Average realized sales price
Per barrel of crude oil............................. 23.36 23.57 22.79
Per thousand cubic meters of natural gas............ 67.76 50.95 69.71
Exploration and Development Activities
The following table sets forth the numbers of our exploratory and
development wells, including a breakdown of successful or productive ones and
dry ones, for the years ended December 31, 2001, 2002 and 2003. We have
increased our exploration and development activities in the western regions of
China, particularly in Tahe region, Tazhong region of Tarim Basin and the
eastern part of Junger Basin. Therefore, we separately set forth below the
relevant numbers of our exploratory and development wells in western China for
2003, which data were not available for 2001 and 2002.
Total Shengli West Others
----- ------- ---- ------
For the year ended December 31, 2003
Exploratory
-- Successful......................... 295 151 16 128
-- Dry................................ 265 88 21 156
Development
-- Productive......................... 1,880 909 99 872
-- Dry................................ 10 4 3 3
For the year ended December 31, 2002
Exploratory
-- Successful......................... 289 146 143
-- Dry................................ 217 80 137
Development
-- Productive......................... 2,186 1,026 1,160
-- Dry................................ 14 6 8
For the year ended December 31, 2001
Exploratory
-- Successful......................... 232 116 116
-- Dry................................ 284 144 140
Development
-- Productive......................... 2,119 990 1,129
-- Dry................................ 12 6 6
For additional information on our oil and gas exploration and production
activities, please see the Supplemental Information on Oil and Gas Producing
Activities (Unaudited) to our consolidated financial statements included
elsewhere in this annual report.
Refining and Marketing and Distribution of Refined Petroleum Products
Overview
Our refining and marketing and distribution segments consist of processing
crude oil into refined petroleum products, buying and selling refined petroleum
products, and transporting, marketing and distributing refined petroleum
products. We are the largest refiner in China, both in terms of total primary
distillation capacity per annum as of December 31, 2003 and total throughput in
2003. We processed approximately 116 million tonnes of crude oil in 2003,
representing approximately 48.3% of the national crude oil throughput. We also
have the largest refined petroleum products marketing and distribution
operations in China in terms of sales volume as well as the number of sales
outlets. We sold 75.92 million tonnes of gasoline, diesel and kerosene
including jet fuel in 2003 through our marketing and distribution network,
representing approximately 79.9% of the sales volume in our principal market.
We produce a full range of refined petroleum products. The following table
sets forth our production of our principal refined petroleum products for the
years ended December 31, 2001, 2002 and 2003.
Our Production for the Years Ended December 31,
-----------------------------------------------------
2001 2002 2003
---- ---- ----
(in million tonnes)
Gasoline....................................... 18.7 19.6 21.7
Diesel......................................... 37.9 37.7 41.7
Kerosene including jet fuel.................... 4.5 5.1 5.3
Chemical feedstock............................. 12.4 15.0 16.5
Lubricant...................................... 0.8 0.9 1.0
Liquefied petroleum gas........................ 4.8 5.1 6.2
Fuel oil....................................... 4.6 4.5 7.3
Gasoline and diesel are our largest revenue producing products, and are
sold mostly through our marketing and distribution segment through both
wholesale and retail channels. We use most of our production of petrochemical
feedstock as feedstock for our own petrochemical operations. Most of our
production of other refined products are sold domestically to a wide variety of
industrial and agricultural customers, and a small amount are exported.
Refining Facilities
We operate 26 refineries in China, all of which are located in our
principal market. As of December 31, 2003, our consolidated primary
distillation capacity of 142 million tonnes per annum was the largest in China,
representing approximately 50% of the total domestic capacity.
The following table sets forth our total primary distillation capacity per
annum, crude oil throughputs and crude oil distillation capacity utilization
rate as of and for the years ended December 31, 2001, 2002 and 2003.
As of and for the Years
-----------------------
Ended December 31,
------------------
2001 2002 2003
---- ---- ----
Primary distillation capacity (million tonnes per annum).... 130.3 132.4 142.3
Crude oil throughputs (million tonnes)...................... 101.4 105.0 116.26
Crude oil distillation capacity utilization rate............ 77.8% 79.3% 81.7%
In 2003, our light products yield was 73.80%, up by 0.58 percentage point
from that in 2002, and our refining yield was 92.63%, up by 0.13 percentage
point from that in 2002.
The following table sets forth the primary distillation capacity per
annum, crude oil throughput and utilization rate calculated based on primary
distillation capacity per annum at each year-end as of and for the years ended
December 31, 2001, 2002 and 2003 of each of our 13 largest refineries. These
refineries represent 71.0% of our total primary distillation capacity per annum
as of December 31, 2003.
2001 2002 2003
------------------------------ ------------------------------ --------------------------------
Primary Primary Primary
Distilla- Uriliza- Distilla- Utiliza- Distilla- Utiliza-
tion Crude Oil tion tion Crude Oil tion tion Crude Oil tion
Refinery Capacity Throughput Rate Capacity Throughput Rate Capacity Throughput Rate
-------- --------- ---------- -------- --------- ---------- -------- --------- ---------- --------
Maoming....... 13.5 10.6 78.8 13.5 10.4 77.4 13.50 11.0 82.1
Zhenhai....... 12.0 10.7 89.3 14.0 11.9 84.9 17.00 13.63 80.2
Qilu.......... 10.5 7.6 72.1 8.5 7.5 87.9 10.50 7.95 75.7
Yanshan....... 8.0 6.5 81.0 8.0 7.0 86.9 8.00 7.01 87.6
Guangzhou..... 7.7 6.3 81.6 7.7 6.7 87.5 7.70 6.85 89.0
Gaoqiao....... 7.3 6.5 89.5 7.3 6.5 89.1 10.8 8.42 78.0
Jinling....... 10.5 6.3 59.6 10.5 6.3 60.3 10.50 7.15 68.1
Tianjun....... 5.0 4.7 93.2 5.0 4.1 83.0 5.00 4.68 93.6
Yangzi........ 5.5 4.3 78.5 6.0 4.9 82.3 8.00 6.26 78.3
Shanghai...... 6.3 6.6 105.2 8.8 7.4 84.4 8.80 8.61 97.8
Changling..... 5.0 3.2 63.4 5.0 3.3 65.7 5.00 3.52 70.4
Luoyang....... 5.0 4.2 84.8 5.0 4.3 86.7 5.00 4.57 91.4
Jinmen........ 5.0 2.8 56.6 5.0 2.9 58.6 5.00 3.18 63.6
In 2003, we purchased 71.1 million tonnes of imported crude oil, an
increase of 14.5 million tonnes compared with that of 2002. We expect to import
more crude oil from the international market as demand for petroleum products
keeps on growing.
In 2003, we put on stream 6 sets of new or revamped refining units. As a
result, we increased our Zhenhai refinery's reforming capacity by 1 million
tonnes per annum, our Gaoqiao and Wuhan refineries, delayed coking capacity by
1.5 million tonnes per annum. In addition, we have put to use our imported
crude oil pipeline project connecting Ningbo, Shanghai and Nanjing.
Marketing, Sales and Distribution of Refined Petroleum Products
Overview
We operate the largest sales and distribution system for refined petroleum
products in China. Our principal market encompasses 19 provinces in eastern,
southern and central regions in China, which include many of the largest cities
and some of the fastest growing economic regions in China.
We estimate we have a market share of approximately 57.6% in China and
79.9% in our principal market based on our sales volume of gasoline, diesel and
kerosene including jet fuel in 2003.
In 2003, we distributed and sold in China approximately 75.92 million
tonnes of gasoline, diesel and kerosene including jet fuel, among which 38.85
million tonnes were sold through approximately 24,506 service stations that we
owned as at the end of 2003 and 15.33 million tonnes were sold through our
direct distribution network, and the remaining 21.74 million tonnes were sold
through our wholesale network.
In addition to our retail and wholesale sales within the PRC, we also
exported approximately 6.08 million tonnes of refined products to the overseas
market in 2003.
Most of the refined products sold by us are produced internally.
Specifically in 2003, approximately 87.6% of our gasoline sales volume and
approximately 89.2% of our diesel sales volumes were produced internally by us.
The following table sets forth our sales volume of gasoline, diesel,
kerosene including jet fuel through various distribution channels, our average
throughput per service station and, the number of service stations under the
Sinopec brand for the years ended or as of December 31, 2001, 2002 and 2003.
As of and for the Years
-----------------------
Ended December 31,
------------------
2001 2002 2003
---- ---- ----
Domestic sales volume of gasoline, diesel and kerosene
including jet fuel (in million tonnes)
Retail .................................................. 30.43 34.73 38.85
Direct distribution...................................... 11.64 12.63 15.33
Wholesale................................................ 25.67 22.73 21.74
------ ------ ------
Total.................................................... 67.74 70.09 75.92
====== ====== ======
Average throughput per service station per annum 1,473 1,560 1,686
(in tonnes)
Number of service stations under Sinopec brand
Sinopec Corp. owned...................................... 24,062 24,000 24,506
Franchised............................................... 4,184 4,127 5,736
------ ------ ------
Total.................................................... 28,246 28,127 30,242
====== ====== ======
Retail and Direct Distribution
All of our retail sales are made through a network of service stations and
petroleum shops which operate under the Sinopec brand. Through this unified
network we are more able to implement consistent pricing policies, maintain
both product and service quality standards and more efficiently manage retail
distribution in our principal market.
In 2003, we sold approximately 38.85 million tonnes of gasoline and diesel
through our retail network, representing approximately 54.4% of our total
gasoline and diesel sales volume. Our retail market share in 2003 was
approximately 69% in our principal market. Our retail network consists
principally of our wholly-owned and operated service stations. In addition, we
have franchised the Sinopec brand to 5,736 service stations that are operated
by third parties.
Most of our wholly-owned service stations are located in central
commercial districts or relatively high traffic areas. They typically have
relatively long operating histories compared with other service stations and,
therefore, often enjoy better brand name recognition and higher sales volume.
In 2003, we built 1,360 new service stations and renovated 981 existing
stations. We also closed 854 service stations due to urban construction, road
construction as well as our effort to shut down less efficient service
stations.
We also make direct distribution sales of gasoline, diesel and kerosene
including jet fuel to various corporate customers and other relatively large
end-users at prices higher than wholesale prices but lower than retail prices.
In 2003, we sold approximately 15.33 million tonnes of gasoline, diesel and
kerosene including jet fuel through direct distribution to these customers.
Wholesale
In 2003, we sold approximately 21.74 million tonnes of gasoline, diesel,
kerosene including jet fuel through wholesale channels, representing
approximately 28.6% of our total sales volume of gasoline, diesel, and kerosene
including jet fuel. Our wholesale sales include sales to large customers and
independent distributors as well as sales to certain special customers
designated by the central government.
Among our wholesale sales in 2003, we sold approximately 12.1 million
tonnes of gasoline, diesel and kerosene including jet fuel through wholesale
centers located in the 19 provinces in our principal market and our three
branch sales companies outside our principal market, representing 55.9% of our
total wholesale volume of the same products. Most sales by the wholesale
centers are made to large customers and independent distributors from various
industries such as public transportation, tourism and agricultural industries.
In addition, we sold approximately 9.6 million tonnes of gasoline, diesel
and kerosene including jet fuel to certain special customers designated by the
central government, representing approximately 44.1% of our aggregate wholesale
volume of these products in 2003. Among our sales to these special customer, we
sold approximately 848,000 tonnes of gasoline, 4.6 million tonnes of diesel,
4.1 million tonnes of kerosene including jet fuel, representing, respectively,
3.62%, 9.65% and 90.64% of our total sales volume of the respective products.
These special customers include the military, the railway, aeronautical, marine
and utility industries and these sales are made at prices and in volumes
directly or indirectly determined by the PRC government.
Through our wholesale centers, we operate 628 storage facilities with a
total capacity of approximately 1350 million cubic meters, substantially all of
which are wholly-owned by us. Our wholesale centers are connected to our
refineries by railway, waterway and, in some cases, by pipelines. We also own
some dedicated railways, oil wharfs, oil barges, rail tankers and oil trucks.
Chemicals
Overview
We are the largest petrochemical producer in China. In 2003, we produced
3.169 million tonnes of ethylene, a major feedstock for its derivative
products, representing approximately 51.8% of total ethylene production in
China. Because of strong domestic demand, most of our petrochemical products
are sold in the domestic market.
We produce the full range of petrochemical products including intermediate
petrochemicals, synthetic resins, synthetic fiber monomers and their polymers,
synthetic fibers, synthetic rubber and chemical fertilizers. Synthetic resins,
synthetic fibers, synthetic rubber, chemical fertilizers and some intermediate
petrochemicals comprise a significant majority of our external sales. Synthetic
fiber monomers and their polymers and intermediate petrochemicals, on the other
hand, are mostly internally consumed as feedstock for the production of other
products. Our petrochemical operations are integrated with our oil and gas
exploration and production and refining and marketing businesses. For example,
natural gas liquids and certain refined petroleum products, such as naphtha,
are primarily supplied from our exploration and production and refining
operations and are the feedstock we use in the extraction of olefins and
aromatics as well as production of chemical fertilizers.
Production of Major Chemical Products
The following table sets forth our production volumes of major chemical
products for the years ended December 31, 2001, 2002 and 2003.
Our Production of Major Chemicals
---------------------------------
2001 2002 2003
---- ---- ----
(in thousand tonnes)
Ethylene 2,153 2,716 3,169
Synthetic resins 3,204 4,005 4,691
Of which: performance compound resins 1,332 1,847 2,305
Synthetic rubbers 398 458 502
Monomers/polymers for synthetic fibers 3,598 3,834 4,418
Synthetic fibers 1,028 1,153 1,279
Of which: differential fibers 326 402 477
Urea 2,342 2,666 2,028
Major Petrochemical Facilities
We operate 17 petrochemical plants in China, all of which are located in
China's major petrochemical market. The following table sets forth our major
petrochemical plants and their major production facilities.
Plant Major Facilities
----- ------------------------------------------------------------
Yanhua Ethylene, polyethylene, polypropylene, synthetic rubber.
Shanghai Ethylene, polyethylene, polypropylene, PET, AN and synthetic fiber.
Qilu Octanol, synthetic rubber, urea, ethylene, PVC, PE.
Yangzi Ethylene, polyethylene, polypropylene, PTA.
Yizheng PTA, Polyester, synthetic fiber.
In 2003, we built or revamped a number of our petrochemical production
facilities. As a result, our Guangzhou plant has increased its ethylene
capacity by 70,000 tonnes per annum and its Polypropylene capacity by 30,000
tonnes per annum; our Yizheng Chemical Fiber plant increased its polyester
capacity by 90,000 tonnes per annum and purified terephthalic acid capacity by
450,000 tonnes per annum; our Shanghai Petrochemical plant increased its
acrylonitrile capacity by 70,000 tonnes per annum; our Zhenhai plant increased
its xylene capacity by 450,000 tonnes per annum; our Shijiazhuang plant
increased its caprolactam capacity by 15,000 tonnes per annum and our Yanhua
plant increased its phenol/acetone capacity by 80,000 tonnes per annum.
Products
Intermediate Petrochemicals
We are the largest producer of intermediate petrochemicals in China.
Intermediate petrochemicals produced by our facilities include olefins and
aromatics and organic petrochemicals. Our intermediate petrochemical production
is partly internally consumed for manufacture of synthetic resins, synthetic
rubber and synthetic fibers.
Olefins (including ethylene, propylene and butadiene) can be extracted
from natural gas liquids and refined petroleum products such as naphtha and
liquefied petroleum gas. They are the basic feedstock of most petrochemical
products. Ethylene is the primary olefin product and the most widely-used
chemical in the petrochemical industry. We are the largest ethylene producer in
China. Our rated ethylene capacity of 2.865 million tonnes per annum
represented 51.0% of the total domestic ethylene capacity as of December 31,
2003. In 2003, we produced 3.169 million tonnes of ethylene, representing
approximately 51.8% of the total domestic output, with a capacity utilization
rate of 111.3%. Nearly all of our olefins production is used as feedstock for
our petrochemical operations.
We produce aromatics mainly in the forms of benzene and xylene which are
used primarily as feedstock for purified terephthalic acid, or PTA, the
preferred raw material for polyester. We are the largest aromatics producer in
China. Our annual rated capacities for benzene and xylene were 1.009 million
tonnes and 0.552 million tonnes per annum, respectively, as of December 31,
2003. In 2003, we produced 1,102,500 tonnes of benzene and 303,200 tonnes of
xylene.
Organic chemicals extracted mainly from olefins and aromatics are also
intermediate petrochemicals and are essential raw materials for synthetic
resins, synthetic rubber and synthetic fibers. We are the largest producer of
butanol, styrene, paraxylene, vinyl acetate, phenol and acetone in China.
The following table sets forth our rated capacity per annum, capacity
utilization rate, production volume and major plants of production as of or for
the year ended December 31, 2003 for our principal intermediate petrochemical
products.
Our Rated Utilization Our
Capacity Rate Production Major Plants of Production
--------- ----------- ---------- --------------------------
(thousand
tonnes per (thousand
annum) (percent) tonnes)
Ethylene................. 2,865.0 111.29% 3,169.1 Yanhua, Shanghai, Yangzi, Qilu and
Guangzhou
Propylene................ 2,767.5 116.9 3,235.4 Yanhua, Shanghai, Yangzi, Qilu,
Guangzhou, Gaoqiao, Anqing, Jinan,
Jingmen and Wuhan
Benzene.................. 1,009.4 109.2 1,102.5 Yanhua, Shanghai, Yangzi, Qilu,
Guangzhou and Zhenhai
Xylene................... 551.5 54.98 303.2 Zhenhai, Jinling, Changling,
Guangzhou and Shijiazhuang
Acetic acid.............. 130 87.6 113.9 Shanghai and Yangzi
Styrene.................. 224 100.3 224.7 Yanhua, Qilu and Guangzhou
Para-xylene.............. 1,329 81.0 894.2 Shanghai, Yangzi, Qilu and Tianjin
Phenol................... 225.0 83.1 186.9 Yanhua and Gaoqiao
Synthetic Resins
Synthetic resins are a core downstream product group. Our principal
synthetic resin products are polyethylene, polypropylene, polyvinyl chloride,
or PVC, and polystyrene. We are the largest producer of polyethylene,
polypropylene and polystyrene in China. Synthetic resins are widely used in
various sectors including agriculture, construction, automobile and consumer
product industries. The following table sets forth our principal synthetic
resin products and their major applications.
Resins Major Applications
------ --------------------------------------------------------
Polyethylene films, boards, sheets, bottles, machinery parts, toys,
housewares, wire and cable insulation, industrial
packaging materials, pipes, ropes, fish nets, household
containers
Polypropylene films or sheets, ropes, housewares, toys and household
electric appliance and automobile parts, fibers
Polyvinyl chloride films, sheets, boards, wire and cable
insulation, pipes, construction materials, bottles,
toys, shoes, artificial leather
Polystyrene automobile parts, optical devices, boards, sheets,
telecommunications devices, electronic appliances,
housewares, toys, containers and packaging materials
The following table sets forth our rated capacity per annum, capacity
utilization rate, production volumes and major plants of production for each of
our principal synthetic resins as of or for the year ended December 31, 2003.
Our Rated Utilization Our Major Plants of
Capacity Rate Production Production
--------- ---- ---------- ---------------
(thousand
tonnes per (thousand
annum) (percent) tonnes)
Polyethylene.................... 1,953.0 114.4% 2,149.1 Yanhua, Shanghai,
Yangzi, Qilu and
Guangzhou
Polypropylene................... 1,960 110.56 2,167.0 Yanhua, Shanghai,
Yangzi, Guangzhou,
Wuhan, Jingmen, Qilu
and Fujian
Polyvinyl chloride.............. 230.0 106.4 244.8 Qilu
Polystyrene..................... 136.0 81.32 110.6 Yanhua, Qilu and
Guangzhou
Synthetic Fiber Monomers and Polymers
Our principal synthetic fiber monomers and polymers are purified
teraphthalic acid, ethylene glycol, acrylonitrile, caprolactam, dimethyl
terephthalate. Based on our 2003 production, we are the largest producer of all
of these synthetic fiber monomers and polymers except for acrylonitrile in
China. Most of our production of synthetic fiber monomers and polymers are used
as feedstock for synthetic fibers.
The following table sets forth our rated capacity per annum, capacity
utilization rate, our production volume and major plants of production as of or
for the year ended December 31, 2003 for each type of our principal synthetic
fiber monomers and polymers.
Our Rated Utilization Our
Capacity Rate Production Major Plants of Production
---------- ----------- ---------- --------------------------
(thousand
tonnes per (thousand
annum) (percent) tonnes)
Purified teraphthalic acid. 1,735.0 112.7% 1,755.9 Shanghai, Yangzi and Yizheng
Ethylene glycol............ 570.0 79.0 450.4 Yanhua, Shanghai and Yangzi
Acrylonitrile.............. 258.0 100.02 240.8 Shanghai, Gaoqiao, Anqing and
Qilu
Caprolactam................ 1,350.0 97.6 124.5 Shijiazhuang and Baling
Polyester chips............ 1,845.1 104.2 1,743.4 Yanhua, Shanghai, Yizheng and
Tianjin
Synthetic Fibers
We are the largest producer of polyester and acrylic fibers in China. Our
principal synthetic fiber products are polyester fiber, acrylic fiber, nylon,
vinylon fiber and polypropylene fiber. Synthetic fibers are widely used to make
apparel, carpets and industrial products such as canvas, sacking, nautical rope
and fishing nets in the textile industry.
The following table sets forth our rated capacity per annum, capacity
utilization rate, production volume and major plants of production for each
type of our principal synthetic fibers as of and for the year ended December
31, 2003.
Our Rated Utilization Our Major Plants
Capacity Rate Production of Production
--------- ---- ---------- --------------
(thousand
tonnes per (thousand
annum) (percent) tonnes)
Polyester fiber....................... 1,076.1 89.5% 89.55 Yizheng, Shanghai and
Tianjin
Acrylic fiber......................... 314.8 11.2 352.7 Shanghai, Anqing and Qilu
Nylon................................. 18.3 71.0 13.0 Baling
Polypropylene fiber................... 17 118.2 20.1 Shanghai
Synthetic Rubbers
Our principal synthetic rubbers are cis-polybutadiene rubber, styrene
butadiene rubber, or SBR, styrene butadiene-styrene thermoplastic elastomer and
isobutadiene isoprene rubber, or IIR. Synthetic rubbers are widely used in the
manufacture of tires, inner tubes for tires, housewares, shoes, toys and other
industries. Based on our 2003 production, we are the largest producer of SBR
rubber and cis-polybutadiene rubber and the only producer of IIR in China.
The following table sets forth our rated capacity per annum , capacity
utilization rate, production volume and major plants of production as of or for
the year ended December 31, 2003 for each of our principal synthetic rubbers.
Our Rated Utilization Our Major Plants of
Capacity Rate Production Production
--------- ------------ ---------- ---------------
(thousand tonnes (thousand
per annum) (percent) tonnes)
Cis-polybutadiene rubber............. 201.8 130.2% 262.8 Yanhua, Qilu and
Gaoqiao
Styrene butadiene rubber............. 163.4 91.5 149.5 Yanhua, Qilu and Gaoqiao
Styrene-butadiene-styrene
thermoplastic elastomers ............ 60.0 104.3 62.6 Yanhua
Isobulylene isoprene rubber.......... 30.0 90.0 27.0 Yanhua
Chemical Fertilizers
We produce synthetic ammonia and urea. Our synthetic ammonia is used to
manufacture urea, caprolactam and acrylic nitrile. Urea is used primarily as a
fertilizer.
The following table sets forth our rated capacity per annum, capacity
utilization rate, our production volume and major plants of production for
ammonia and urea as of or for the year ended December 31, 2003.
Our Rated Utilization Our Major Plants
Capacity Rate Production of Production
--------- ----------- ---------- -------------
(thousand thousand tonnes)
tonnes per
annum) (percent) (
Ammonia........................ 2,315 52.3% 1,210.2 Zhenhai, Jinling, Anqing,
Jiujiang, Qilu, Hubei
and Baling
Urea........................... 3,840 52.8 2,027.6 Zhenhai, Jinling, Anqing,
Jiujiang, Qilu, Hubei
and Baling
Marketing and Sales of Petrochemicals
Price and volume of petrochemical sales are market driven. The southern
and eastern regions in China, where most of our petrochemical plants are
located, constitute the major petrochemical markets in China. Our proximity to
the major petrochemical market gives us a competitive advantage over our
competitors.
Our principal sales and distribution channels consist of direct sales to
end-users, most of which are large and medium size manufacturing enterprises,
and sales to distributors in our national sales network. In 2003, we sold
approximately 60.5% of our petrochemical products directly to end-users and
39.5% to our distributors. We also provide after-sale services, including
technical support and technology assistance, to our customers.
In addition, we also initiate sales activities through our
business-to-business petrochemical e-commerce platform. In 2003, sales
initiated by our e-commerce platform amounted to RMB17.5 billion (US$2.11
billion), representing an increase of 16.25% from 15.0 billion for the year of
2002. Domain names for our e-commerce web sites are www.sinopec-ec.com and
www.sinopec-ec.com.cn.
Raw Materials
Crude Oil
Our most important raw material is crude oil. The following table sets
forth the sources of our crude oil supply and each source as a percentage of
our total crude oil supply for the years ended December 31, 2001, 2002 and
2003.
2001 2002 2003
---- ---- ----
Source of Supply (million tonnes) (million tonnes) (million tonnes)
Self-supply................. 29.41 28.90 28.20
PetroChina.................. 14.46 14.57 13.08
CNOOC....................... 6.18 6.22 5.57
Import...................... 49.18 56.68 71.14
Total.................... 106.37 117.99
Other Raw Materials
We produce most of the other raw materials used as feedstock for our
petrochemical operations from crude oil. When our demand exceeds our internal
supply of these other raw materials, we purchase the shortfall from domestic or
foreign sources.
Competition
We are a major competitor in every sector in which we compete. Most of our
revenues are derived from domestic sales. Our competition is mainly in the
domestic market. As the domestic market is more open for foreign participation,
more foreign companies have become our competitors.
Exploration and Production
The business of exploration and development of crude oil and natural gas
is highly competitive. We compete in the PRC market primarily for the
acquisition of desirable oil and gas prospects. We also compete in the
international and domestic capital markets to finance our operations, including
exploration, development and production activities. Our principal competitors
in the PRC market in the above areas are PetroChina and CNOOC. Because our
production of crude oil has only constituted approximately 24% of our crude oil
requirements, most of our crude oil production has been internally consumed,
and thus, we generally do not compete for crude oil customers.
Refining and Marketing of Refined Petroleum Products
The business of refining and marketing of refined products is highly
competitive. We are the market leader in the densely populated eastern, central
and southern coastal regions in China, which is what we call our principal
market. PetroChina controls most of the market for refined petroleum products
in the northeastern and western regions in China.
Market participants compete primarily on the basis of quality of products
and service, efficiency of operations including proximity to customers and
awareness of brand name. We believe that we have a competitive advantage in our
principal market over many of our competitors in these aspects arising from the
quality of our personnel, technology, assets and organizational management.
Petrochemicals
Our proximity to customers has given us significant competitive
advantages. Our petrochemical production facilities are located in the eastern
and southern regions in China, an area which has experienced higher economic
growth rates in China in the past two decades. Proximity of our production
facilities to our markets has given us an advantage over our competitors in
terms of easy access to our customers, resulting in reduced transportation
costs, more reliable delivery of products and better service to customers.
We expect competition in the petrochemicals market to increase
substantially as the PRC markets open up to foreign competitors. Such
competitors are likely to be large, reputable foreign companies producing high
quality products at competitive prices. There can be no assurance that such
foreign competition will not adversely affect our existing market position and
our results of operations in our petrochemicals business.
Competition and Opportunities after China's Accession to the WTO
China became a member of the WTO in December 2001. In line with the
general progress of its economic reform programs and as part of its WTO
commitments, China has reduced import tariffs on a wide range of products
including petrochemical products in 2002. In addition, China has agreed to
further lower tariff and eliminate quotas, grant foreign companies distribution
rights of refined petroleum products and eventually lift its restrictions that
limit competition by foreign companies in the PRC petroleum and petrochemicals
industry. To the extent these restrictions are relaxed, we are likely to face
more fierce competition in our businesses. In anticipation of the increased
competition, we have taken measures to improve our own competitiveness.
China's accession to WTO also benefits us in a number of aspects. We
derive direct benefits from China's elimination of import tariff on crude oil.
We also derive indirect benefits from the significant growth in China's
domestic automobile consumption and export of light industrial and textile
products, which in turn increases the demand for refined petroleum and
petrochemical products.
Patents and Trademarks
In 2003, we applied for 817 patents in China, of which 570 have been
granted patent rights. In addition, in 2003, we also applied for 113 patents
outside China, of which 44 have been granted patent rights. We also use
domestic and foreign patents owned by Sinopec Group Company under royalty-free
licenses from Sinopec Group Company. These patents expire from time to time and
cover many products, processes and product uses. Our patent licenses from
Sinopec Group Company are for a term of ten years commencing on February 25,
2000. We also have royalty-free licenses from Sinopec Group Company to use
certain Sinopec Group Company's trademarks and brands for our products and
services. Our trademark licenses from Sinopec Group Company are for a term of
ten years commencing February 25, 2000.
Regulatory Matters
Regulation of Exploration and Production
Exploration and Production Rights
The PRC Constitution provides that all mineral and oil resources belong to
the state. In 1988, the National People's Congress passed the Mineral Resources
Law which authorizes the Ministry of Land and Resources to exercise
administrative authority over the exploration and production of the mineral and
oil resources within the PRC, including its territorial waters. The Mineral
Resources Law and its supplementary regulations provide the basic legal
framework under which exploration licenses and production licenses are granted.
The Ministry of Land and Resources has the authority to grant exploration
licenses and production licenses on a competitive bidding or other basis it
considers appropriate. Applicants for these licenses must be companies approved
by the State Council to engage in oil and gas exploration and production
activities. Currently, only we, PetroChina and CNOOC have received such
approval.
Applicants for exploration licenses must first register with the Ministry
of Land and Resources blocks in which they intend to engage in exploration
activities. The holder of an exploration license is obligated to make a
progressive annual minimum exploration investment relating to the exploration
blocks in respect of which the license is issued. Investment ranges from RMB
2,000 per square kilometer for the initial year to RMB 10,000 per square
kilometer for the third and subsequent years. Additionally, the holder has to
pay an annual exploration license fee of RMB 100 per square kilometer for each
of the first three years and increases by an additional RMB 100 per square
kilometer per year for subsequent years up to a maximum of RMB 500 per square
kilometer. The maximum term of an exploration license is 7 years. The
exploration license may be renewed twice upon application by the holder 30 days
prior to expiration of the original term with each renewal for a two-year term.
At the exploration stage, an applicant can also apply for a progressive
exploration and production license that allows the holder to test and develop
reserves not yet fully proved. The progressive exploration and production
license has a maximum term of 15 years. Upon the reserves becoming proved for a
block, the holder must apply for a full production license in order to
undertake production.
The Ministry of Land and Resources issues full production licenses to
applicants on the basis of the reserve reports approved by relevant
authorities. The maximum term of a full production license is 30 years unless a
special dispensation is given by the State Council. Due to a special
dispensation granted to us by the State Council, the maximum term of our full
production licenses is 55 years. The full production license is renewable upon
application by the holder 30 days prior to expiration. A holder of the full
production license has to pay an annual full production right usage fee of RMB
1,000 per square kilometer.
All companies approved by the State Council to engage in oil and gas
exploration and production activities may apply for exploration and production
licenses for onshore oil and natural gas resources (including areas of shallow
water less than 5 meters deep) without geographical restrictions. Currently, we
and CNOOC have the exploration and production license of offshore oil and
natural gas resources in China, while we and PetroChina have exploration and
production licenses of onshore (including areas of shallow water less than 5
meters deep) crude oil and natural gas in China.
Exploration and production licenses do not grant the holders the right to
enter upon any land for the purpose of exploration and production. Holders of
exploration and production licenses must separately obtain the right to use the
land covered by the licenses, and current owners of the rights to use such land
may transfer or lease the land to the license holder.
Volume and Price Controls on Crude Oil
Each of the major crude oil producers is required to submit each year
estimated production volumes for the following year. Based on these estimates
and other data, such as forecasted domestic consumption and international oil
prices, the National Development and Reform Commission sets annual production
targets for us and other major oil producers and determines permitted levels of
crude oil imports and exports nationwide. The Ministry of Commerce then
allocates the nationwide import and export quotas among us, PetroChina and
other licensed crude oil traders. The actual production levels are determined
by the producers themselves, which may vary from their estimates submitted to
the National Development and Reform Commission.
The PRC government no longer regulates crude oil prices and generally
allows crude oil producers and buyers to negotiate the prices. We, PetroChina
and CNOOC negotiate the price for crude oil supplied to each other based on
international market prices.
Volume and Price Controls on Natural Gas
Each year, the National Development and Reform Commission publishes the
production targets for natural gas producers based on consumption estimates
submitted by all natural gas producers. The National Development and Reform
Commission also formulates the annual natural gas guidance supply plan, which
requires natural gas producers to distribute specified amounts of natural gas
to specified fertilizer producers. The actual production level of natural gas,
except the amount supplied to the fertilizer producers, is determined by the
natural gas producers.
The price of natural gas has originally three components:
o wellhead price;
o pipeline transportation tariff; and
o purification fee.
Wellhead prices vary depending on whether or not the natural gas sold is
within the government-formulated natural gas supply plan. For natural gas sold
within the government-formulated supply plan, the National Development and
Reform Commission fixes wellhead prices at the wellhead according to the nature
of the customers.
For sales of natural gas which was produced in excess of the
government-formulated natural gas supply plan, the National Development and
Reform Commission publishes the wellhead guidance price and allows the producer
to set the price within +/-10% of this guidance price. Natural gas producers
also submit to the National Development and Reform Commission for examination
and approval proposed pipeline transmission tariffs based on the capital
investment made in the pipeline, the depreciation period for the pipeline, and
the ability of end users to pay. Producers set the purification fee based on
the cost of natural gas purification. The purification fee must also be
approved by the National Development and Reform Commission. Beginning on
January 1, 2002, the National Development and Reform Commission required that
the purification fee should be inclusively added to the wellhead price to
reflect a unified ex-factory price for domestic natural gas production.
Regulation of Refining and Marketing of Refined Petroleum Products
Volume and Price Controls on Gasoline and Diesel
Controls on retail and wholesale sales. Other than as described below for
sales to special customers, there are no state controls on volume allocations
of gasoline and diesel. The PRC government, to a limited extent, continues to
exercise control over gasoline and diesel prices.
Beginning on June 1, 2000, the National Development and Reform Commission
determined and published the retail guidance prices of gasoline and diesel
monthly based on Singapore market price. Beginning on October 17, 2001, the
National Development and Reform Commission has started determining the retail
guidance prices of gasoline and diesel based on the FOB prices on the
Singapore, Rotterdam and New York markets, instead of solely relying on the
Singapore market alone. In addition, instead of publishing the retail guidance
prices monthly, the National Development and Reform Commission would publish
the retail guidance prices whenever it determines that the prices in those
international markets have fluctuated over a certain extent. As a result, both
the retail guidance prices of gasoline and diesel in the PRC and the timing of
changes in such prices are expected to more closely reflect prevailing
international market prices.
We are permitted to set our own retail prices within 8% of the published
guidance prices. We are permitted to determine our wholesale prices of gasoline
and diesel subject to the requirement of the National Development and Reform
Commission that our wholesale prices are at least 5.5% below our retail prices.
There are no government restrictions on how we set prices for sales among our
segments and subsidiaries.
Controls on sales to special customers.
The National Development and Reform Commission allocates to us a quota of
minimum supplies of gasoline and diesel that must be made available to meet the
requirements of the military, national reserves, railways, airlines and other
similar special customers. Prices to these special customer are benchmarked
against the after-duty import prices for the relevant products. Except for
sales to the military and national reserve, we are permitted to charge up to a
8% premium on the special customer prices to these special customers.
Imports and Exports
Following China's entry into the WTO, China's quota system on crude oil
and refined products has been gradually liberalized. Other than filing with the
government, state-controlled enterprises, such as our company, are no longer
subject to the quota requirements. Import and export by non-state-controlled
enterprises continue to be subject to quota and licensing requirements. The
Ministry of Commerce is responsible for issuing import and export licenses. See
"Item 3-Key Information-D. Risk Factors-Risks Relating to the PRC-Entry by
China into the World Trade Organization significantly increases competition
from foreign companies in our lines of business."
Investment
Depending on the size and type of investment, construction and other
investment projects are subject to different government approvals. Approval
from the National Development and Reform Commission is required for capital
investments in any new projects as well as in any renovation and expansion
projects if the amount of capital involved exceeds RMB 50 million (approval
from the State Council may also be required for certain major projects). If the
investment is below RMB 50 million, no government approval is required. All
joint ventures with foreign participation require government approval.
Taxation, Fees and Royalty
Companies which operate petroleum and petrochemical businesses in China
are subject to a variety of taxes, fees and royalties. The table below sets
forth the various taxes, fees and royalties generally payable by us or by such
companies in China.
Tax Item Tax Base Tax Rate
-------- -------- ---------
Corporate income tax Taxable income 33%.
Value-added tax Revenue 13% for liquified petroleum gas, natural gas, low density
polyethylene for use as agricultural film and fertilizers
and 17% for other items. We generally charge value-added
tax to our customers at the time of settlement on top of
the selling prices of our products on behalf of the
taxation authority. We may directly claim refund from the
value-added tax collected from our customers of any
value-added tax that we paid for (i) purchasing
materials consumed during the production process; (ii)
charges paid for drilling and other engineering services;
and (iii) labor consumed during the production process.
Business tax Revenue from 3%.
transportation
services
Consumption tax Sales volume RMB 277.6 per tonne for gasoline and RMB 117.6 per tonne
for diesel, payable by producer.
Import tariff CIF China price 5% for gasoline and 6% for diesel.
Resource tax Aggregate volume sold RMB 8 to30 per tonne for crude oil. RMB 2 to 15 per
or self-consumed thousand cubic meter for natural gas. The actual
applicable rate for each oil
field may differ depending on
the volume of the exploration
and production activities and
costs required for the
production at the particular
oil field.
Compensatory fee for Revenue 1% for crude oil and natural gas.
mineral resources
Exploration license fee Area RMB 100 to 500 per square kilometer per annum.
Production license fee Area RMB 1,000 per square kilometer per annum.
Royalty fee(1) Production volume Progressive rate of 0-12.5% for crude oil and 0-3% for
natural gas.
City construction tax total amount of 1% to 7%.
value-added tax,
consumption tax
and business tax
Education Surcharge total amount of 3%.
value-added tax,
consumption tax
and business tax
__________
(1) Payable only by Sino-foreign oil and gas exploration and development
cooperative projects, and the project entity of those cooperative projects
is not subject to any other resource tax or fee.
C. ORGANIZATIONAL STRUCTURE
For a description of our relationship with Sinopec Group Company, see
"Item 4 -- Information on the Company -- History and Development" and "Item 7
-- Major Shareholders and Related Party Transactions." For a description of our
significant subsidiaries, see note 28 to our consolidated financial statements.
D. PROPERTY, PLANT AND EQUIPMENT
See "Item 4 -- Information on the Company -- Business Overview" for
description of our property, plant and equipment.
Environmental Matters
We are subject to various national environmental laws and regulations and
also environmental regulations promulgated by the local governments in whose
jurisdictions we have operations. For example, national regulations promulgated
by the central government set discharge standards for emissions into air and
water. They also set forth schedules of discharge fees for various waste
substances. These schedules usually provide for discharge fee increases for
each incremental increase of the amount of discharge up to a certain level.
Above a certain level, the central regulations permit the local government to
order any of our facilities to cure certain behavior causing environmental
damage and subject to the central government's approval, the local government
may also issue orders to close any of our facilities that fail to comply with
the existing regulations.
Each of our production subsidiaries has implemented a system to control
its pollutant emissions and to oversee compliance with the PRC environmental
regulations. We have a central safety and environmental compliance department
to set our internal environmental requirements and procedures, and to manage
and supervise the environmental protection programs at the various production
facilities. Each production subsidiary has an environmental compliance
department which is responsible for supervising environmental matters at the
subsidiary and implementing our environmental requirements and procedures.
These departments report both to the management of the subsidiary and to the
central environmental compliance department.
Our production facilities have their own facilities to treat waste water,
solid waste and waste gases on site. Waste water first goes through preliminary
treatment at our own waste water treatment facilities. Thereafter, the water is
sent to nearby waste water treatment centers operated either by us or by
Sinopec Group for further treatment. All solid waste materials generated by our
production facilities are buried at disposal sites or burned in furnaces either
operated by us or by Sinopec Group. Waste gases are generally treated and
burned in furnaces before dissipation and the ash is disposed in accordance
with our solid waste disposal procedures.
Environmental regulations also require companies to file an environmental
impact report to the environmental bureau for approval before undertaking any
construction of a new production facility or any major expansion or renovation
of an existing production facility. Such an undertaking will not be permitted
to operate until the environmental bureau has performed an inspection and is
satisfied that environmentally sound equipment has been installed for the
facility.
We believe our environmental protection systems and facilities are
adequate for us to comply with current applicable national and local
environmental protection regulations. The PRC government, however, may impose
stricter regulations which require additional expenditure on compliance with
environmental regulations.
We paid pollutant discharge fees of approximately RMB 221 million in 2001,
RMB 287 million in 2002, and RMB 245 million (US$29.60 million) in 2003.
Insurance
In respect of our refining, petrochemical production, and marketing and
sales operations, we currently maintain with Sinopec Group Company, under the
terms of its Safety Production Insurance Fund ("SPI Fund"), approximately RMB
221.9 billion (US$26.8 billion) of coverage on our property and plants and
approximately RMB 24.9 billion (US$3.0 billion) of coverage on our inventory.
In 2003, we paid an insurance premium of approximately RMB 953 million
(US$115.1 million) to Sinopec Group Company for such coverage. Transportation
vehicles and products in transit are not covered by Sinopec Group Company and
we maintain insurance policies for those assets with insurance companies in the
PRC.
The insurance coverage under SPI Fund applies to all enterprises
controlled by Sinopec Group Company under regulations published by the Ministry
of Finance. We believe that, in the event of major accident, we will be able to
recover most of our losses from insurance proceeds paid under the SPI Fund or
by insurance companies.
Pursuant to an approval of the Ministry of Finance, Sinopec Group Company
purchased from China People's Insurance Company a property and casualty policy
would also cover our assets. The policy provides for an annual maximum
cumulative claim amount of RMB 4.0 billion (US$0.5 billion) and a maximum of
RMB 2.36 billion (US$0.29 billion) per occurrence.
Consistent with what we believe to be customary practice among PRC
enterprises, we do not currently carry any third party liability insurance to
cover claims in respect of personal injury, environmental damage arising from
accidents on our property or relating to our operations other than on our
transportation vehicles. We have not had a third party liability claim filed
against us during the three years. We also do not carry business interruption
insurance, as such coverage is not customary in the PRC.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. GENERAL
The following discussion and analysis should be read in conjunction with
our audited financial statements and the accompanying notes. Part of the
financial information presented in this section is derived from our audited
financial statements that have been prepared in accordance with International
Financial Reporting Standards, or IFRS. IFRS vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 33 to the consolidated financial statements. Unless otherwise
indicated, all financial data, whether presented on a consolidated basis or by
segment, are presented net of inter-segment transactions (i.e., inter-segment
and other intercompany transactions have been eliminated).
Moreover, we acquired Sinopec National Star Petroleum Company in 2001 and
Sinopec Group Maoming Petrochemical Company, Xi'an Petrochemical Main Factory
and Tahe Oilfield Petrochemical Factory from Sinopec Group Company in 2003. As
we and these companies from which we acquired the assets are under the common
control of Sinopec Group Company, our acquisitions are considered as
"combination of entities under common control" which are accounted for in a
manner similar to a pooling-of-interests. Accordingly, the acquired assets and
related liabilities have been accounted for at historical cost and our
financial statements for periods prior to the combinations have been restated
to include the accounts and the results of operations of these companies on a
combined basis.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations contained elsewhere in this annual report are based on our
consolidated financial statements which have been prepared in accordance with
IFRS. Our reported financial condition and results of operations are sensitive
to accounting methods, assumptions and estimates that underlie the preparation
of our financial statements. We base our assumptions and estimates on
historical experience and on various other assumptions that we believe to be
reasonable and which form the basis for making judgments about matters that are
not readily apparent from other sources. On an on-going basis, our management
evaluates its estimates. Actual results may differ from those estimates as
facts, circumstances and conditions change.
The selection of critical accounting policies, the judgments and other
uncertainties affecting application of those policies and the sensitivity of
reported results to changes in conditions and assumptions are factors to be
considered when reviewing our financial statements. Our principal accounting
policies are set forth in Note 2 to our consolidated financial statements. We
believe the following critical accounting policies involve the most significant
judgments and estimates used in the preparation of our financial statements.
Oil and gas properties and reserves
The accounting for our upstream oil and gas activities is subject to
special accounting rules that are unique to the oil and gas business. There are
two methods to account for oil and gas business activities, the successful
efforts method and the full cost method. We have elected to use the successful
efforts method. A description of our policies for oil and gas properties,
impairment, maintenance and repair activities is set forth in note 2 to our
consolidated financial statements.
The successful efforts method reflects the volatility that is inherent in
exploring for mineral resources in that costs of unsuccessful exploratory
efforts are charged to expense as they are incurred. These costs primarily
include dry hole costs, seismic costs and other exploratory costs. Under the
full cost method, these costs are capitalized and written-off (depreciation)
over time.
Engineering estimates of our oil and gas reserves are inherently imprecise
and represent only approximate amounts because of the subjective judgments
involved in developing such information. There are authoritative guidelines
regarding the engineering criteria that have to be met before estimated oil and
gas reserves can be designated as "proved". Proved and proved developed reserve
estimates are updated at least annually and take into account recent production
and technical information about each field. In addition, as prices and cost
levels change from year to year, the estimate of proved and proved developed
reserves also changes. This change is considered a change in estimate for
accounting purposes and is reflected on a prospective basis in related
depreciation rates.
Despite the inherent imprecision in these engineering estimates, these
estimates are used in determining depreciation expense and impairment expense,
and in disclosing the supplemental standardized measure of discounted future
net cash flows relating to proved oil and gas properties. Depreciation rates
are determined based on estimated proved developed reserve quantities (the
denominator) and capitalized costs of producing properties (the numerator).
Producing properties' capitalized costs are amortized based on the units of oil
or gas produced. Therefore, assuming all other variables are held constant, an
increase in estimated proved developed reserves decreases our depreciation,
depletion and amortization expense. Also, estimated reserves are often used to
calculate future cash flows from our oil and gas operations, which serve as an
indicator of fair value in determining whether a property is impaired or not.
The larger the estimated reserves, the less likely the property is impaired.
Impairments
If circumstances indicate that the net book value of an asset or
investment, including oil and gas properties, may not be recoverable, this
asset may be considered "impaired", and an impairment loss may be recognized in
accordance with IAS 36 "Impairment of Assets". The carrying amounts of
long-lived assets are reviewed periodically in order to assess whether the
recoverable amounts have declined below the carrying amounts. These assets are
tested for impairment whenever events or changes in circumstances indicate that
their recorded carrying amounts may not be recoverable. When such a decline has
occurred, the carrying amount is reduced to recoverable amount. The amount of
impairment loss is the difference between the carrying amount of the asset and
its recoverable amount. The recoverable amount is the greater of the net
selling price and the value in use. It is difficult to precisely estimate
selling price because quoted market prices for our assets are not readily
available. In determining the value in use, expected cash flows generated by
the asset are discounted to their present value, which requires significant
judgement relating to level of sale volume, selling price and amount of
operating costs. We use all readily available information in determining an
amount that is a reasonable approximation of recoverable reserves, including
estimates based on reasonable and supportable assumptions and projections of
reserve quantities.
Depreciation
Property, plant and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets, after taking into account their
estimated residual value. We review the estimated useful lives of the assets
regularly in order to determine the amount of depreciation expense to be
recorded during any reporting period. The useful lives are based on our
historical experience with similar assets and taking into account anticipated
technological changes. The depreciation expense for future periods is adjusted
if there are significant changes from previous estimates.
Revaluation
As required by the relevant PRC rules and regulations, our property, plant
and equipment were revalued in connection with our reorganization. Subsequent
to that revaluation, property, plant and equipment are carried at the revalued
amount, being the fair value as at the date of the revaluation, less subsequent
accumulated depreciation and impairment losses. Revaluations are performed with
sufficient regularity to ensure that the carrying amount does not differ
materially from that which would be determined using fair value at the balance
sheet date. The results of subsequent revaluations may have an impact on our
future results to the extent the fair values of our property, plant and
equipment change significantly.
Provision for Doubtful Debts
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make the required payments. We
base our estimates on the aging of our accounts receivable balance, customer
credit-worthiness, and historical write-off experience. If the financial
condition of our customers were to deteriorate, actual write-offs would be
higher than estimated.
Overview of Our Operations
We are the largest integrated petroleum and petrochemical companies in
China and one of the largest in Asia in terms of operating revenues. We engage
in exploring for, developing and producing crude oil and natural gas, operating
refineries and petrochemical facilities and marketing crude oil, natural gas,
refined petroleum products and petrochemicals. We have reported our
consolidated financial results according to the following four principal
business segments and the corporate and others segment.
o exploration and production segment, which consists of our activities
related to exploring for and developing, producing and selling crude
oil and natural gas;
o refining segment, which consists of purchasing crude oil from our
exploration and production segment and from third parties, processing
of crude oil into refined products, selling refined products
principally to our marketing and distribution segment;
o marketing and distribution segment, which consists of purchasing
refined petroleum products from the refining segment and third
parties, and marketing, selling and distributing refined products by
wholesale to large customers and independent distributors and retail
through our retail network;
o chemicals segment, which consists of purchasing chemical feedstock
principally from the refining segment and producing, marketing,
selling and distributing chemical products; and
o corporate and others segment, which consists principally of trading
activities of the import and export subsidiaries and our research and
development activities.
B. CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth certain income and expense items from our
consolidated statements of income for the periods indicated.
Year Ended December 31,
-------------------------------------------------
2001 2002 2003 2003
-------- -------- -------- ---------
RMB RMB RMB US$
(in billions)
Operating revenues
Sales of goods.................................... 309.3 329.1 424.3 51.3
Other operating revenues......................... 14.3 16.0 18.8 2.2
-------- -------- -------- ---------
Total operating revenues...................... 323.6 345.1 443.1 53.5
Operating expenses Purchased crude oil, products and
operating supplies and expenses.................. (222.5) (237.6) (312.5) (37.8)
Selling, general and administrative expenses..... (17.8) (21.5) (25.9) (3.1)
Depreciation, depletion and amortization......... (23.4) (25.3) (26.7) (3.2)
Exploration expenses, including dry holes........ (3.8) (4.4) (6.1) (0.7)
Personnel expenses............................... (13.7) (14.4) (16.2) (2.0)
Employee reduction expenses...................... (2.5) (0.2) (1.0) (0.1)
Taxes other than income tax...................... (12.0) (11.9) (13.5) (1.6)
Other operating expenses, net.................... (0.3) (1.1) (3.9) (0.5)
-------- -------- -------- ---------
Total operating expenses...................... (296.0) (316.4) (405.8) (49.0)
-------- -------- -------- ---------
Operating income.................................... 27.6 28.7 37.3 4.5
-------- -------- -------- ---------
Net finance costs................................... (3.3) (4.2) (3.8) (0.5)
Gain from issuance of shares by a subsidiary........ - - 0.1 0.0
Other income and gains.............................. 0.5 0.6 0.5 0.1
Income before income tax and minority interests..... 24.9 25.1 34.1 4.1
Income tax.......................................... (8.1) (7.7) (10.6) (1.3)
-------- -------- -------- ---------
Income before minority interests.................... 16.8 17.4 23.5 2.8
Minority interests.................................. (0.6) (1.1) (1.9) (0.2)
-------- -------- -------- ---------
Net income.......................................... 16.2 16.3 21.6 2.6
======== ======== ======== =========
Year Ended December 31, 2003 Compared with Year Ended December 31, 2002
In 2003, our sales of goods and operating income were RMB 424.3 billion
(US$51.3 billion) and RMB 37.3 billion (US$4.5 billion) respectively,
representing an increase of 28.9% and 30.0%, respectively, from those in the
previous year. These changes are largely attributable to a number of factors.
First, we closely monitored the changes in market demands, and quickly
responded to such changes through adjustments of our operating strategy.
Second, to take advantage of the favorable opportunity of higher prices of
crude oil and chemical products in the global market and the rapid growth of
Chinese economy, we managed to overcome the negative impact caused by SARS and
further expanded our target market. In addition, we continued to strive for
better operating results through more strengthened management, further
corporate reforms, better asset structure and more efficient operation.
Operating Revenues
Overview
In 2003, our sales of goods and other operating revenues were RMB 443.1
billion (US$53.5 billion), representing an increase of 28.4% compared with
2002. Our sales of goods was RMB 424.3 billion (US$51.3 billion), or an
increase of 28.9% compared with 2002. The increase was primarily due to
increase of the prices of crude oil, petroleum products and chemical products
in the global market in 2003. In addition, to seize the market opportunity, we
increased our refining throughput and increased the sales volume of our refined
products, and increased our sales volume of main petrochemical products
significantly. Our "other operating revenues" increased to RMB 18.8 billion
(US$2.2 billion) in 2003, or an increase of 17.5% compared with 2002. Such
"other operating revenues" primarily consist of revenues generated from our
sale of raw and auxiliary materials to Sinopec Group and its subsidiaries as
well as third parties.
The following table sets forth external sales revenues and percentages of
sales of goods and other operating revenues by product category, as well as
percentage changes from 2002 to 2003.
As a Percentage of
Year Ended December 31, Rate of Sales of Goods
---------------------------- Change from and Other
2002 2003 2003 2002 to 2003 Operating Revenues
---- ---- ---- (%) (%)
(RMB) (RMB) (US$)
(in billion)
External Sales Revenues
Crude oil and natural gas............. 10.9 14.9 1.8 36.7% 3.4%
Refined petroleum products............ 230.5 295.9 35.8 28.4 66.8
Chemical products..................... 63.1 80.7 9.7 27.9% 18.2%
The following table sets forth the average external sales prices and sales
volumes by selected products, as well as the respective percentage changes from
2002 to 2003.
Rate of Rate of
Change from Change from
Average External Sales Price 2002 to 2003 Sales Volume 2002 to 2003
---------------------------- ------------ ------------ ------------
2002 2003 2003 (%) 2002 2003 (%)
---- ---- ---- ---- ----
(RMB) (RMB) (US$)
Crude Oil..................... 1,189(1) 1,493(1) 180.4(1) 25.6% 6.35(2) 7.22(2) 13.7%
Natural Gas................... 574(3) 591(3) 71.4(3) 3.0 3.2(4) 3.4(4) 6.3
Gasoline ..................... 2,806(1) 3,298(1) 398.5(1) 17.5 22.54(5) 23.36(5) 3.6
Diesel ....................... 2,408(1) 2,794(1) 337.6(1) 16.0 44.04(5) 47.29(5) 7.4
Selected Chemical Products
Synthetic Resin ........... 5,247(1) 6,042(1) 730.0(1) 15.2 3.83(5) 4.52(5) 18.0
Synthetic Fiber............ 8,435(1) 9,639(1) 1,164.6(1) 14.3 1.18(5) 1.33(5) 12.7
Synthetic Rubber........... 6,468(1) 8,513(1) 1,028.6(1) 31.6 0.51(5) 0.55(5) 7.8
Synthetic Fiber Monomer
and Polymer............. 5,362(1) 5,788(1) 699.3(1) 7.9% 1.80(5) 2.41(5) 33.9%
__________________
(1) per tonne
(2) tonnes
(3) per thousand cubic meter
(4) billion cubic meters
(5) million tonnes
Sales of crude oil and natural gas
Most of crude oil and a small portion of natural gas produced by us were
internally used by our refining and chemical production. The remaining was sold
to the refineries controlled by our controlling shareholder, Sinopec Group
Company and third party customers.
In 2003, sales revenues from crude oil and natural gas contributed to RMB
14.9 billion (US$1.8 billion), or 3.4% of our sales of goods and other
operating revenues, representing an increase of 36.7% compared with RMB 10.9
billion in 2002. Such increase was primarily attributable to the increase in
price and sales volume of crude oil. The external sales price of crude oil
increased to RMB 1,493 (US$180.4) per tonne from RMB 1,189 per tonne in 2002,
or an increase of 25.6% from 2002. The quantity of external sales increased
from 6.35 million tonnes in 2002 to 7.22 million tonnes in 2003, representing
an increase of 13.7%. The external sales price of natural gas rose from RMB 574
per thousand cubic meters in 2002, to RMB 591 (US$71.4) per thousand cubic
meters in 2003, and the external sales volume increased from 3.2 billion cubic
meters in 2002 to 3.4 billion cubic meters in 2003.
Sales of refined petroleum products
Both the refining and the marketing and distribution segments make sales
of refined petroleum products, which consist primarily of gasoline, diesel,
kerosene, jet fuel and other refined products to third parties.
In 2003, the external sales revenue of petroleum products recorded by
these two segments were RMB 295.9 billion (US$35.8 billion), accounting for
66.8% of our sales of goods and other operating revenues, representing an
increase of 28.4% from RMB 230.5 billion in 2002. The sales revenue of gasoline
and diesel was RMB 209.1 billion (US$25.3 billion), comprising 70.7% of the
total sales revenue of petroleum products, representing an increase of 23.5%
from RMB 169.3 billion in 2002. Among others, the sales revenue of gasoline in
2003 was RMB 77 billion (US$9.3 billion), representing an increase of 21.6%
compared with 2002. The sales revenue of diesel was RMB 132.1 billion (US$16.0
billion), or an increase of 24.6% compared with 2002. The increase of sales
revenue of gasoline and diesel was due to the rise of gasoline and diesel
prices and our active efforts in increasing the sales volume of its products.
In 2003, the average external sales price of gasoline was RMB 3,298 (US$398.5)
per tonne, representing an increase of 17.5% compared with 2002, and the
average external sales price of diesel was RMB 2,794 (US$337.6) per tonne, or
an increase of 16% compared with that in 2002. The sales volume of gasoline was
23.36 million tonnes, or an increase of 3.6% compared with that in 2002, and
the sales volume of diesel was 47.29 million tonnes, or an increase of 7.4%
compared with that in 2002. The combined sales volume of gasoline and diesel
was 6.1% higher than that of 2002.
Sales of chemical products
In 2003, our external sales revenue of chemical products was RMB 80.7
billion (US$9.7 billion), accounting for 18.2% of our sales of goods and other
operating revenues, or an increase of 27.9% compared with that of RMB 63.1
billion in 2002. The increase was mainly due to the significant increase in
both chemical products prices and sales volumes of major chemical products, as
a result of the strong domestic demand for chemical products. The strong
domestic demand corresponded to the gradual recovery of the global chemical
market. In order to increase production volume for our chemical products, we
revamped certain of our ethylene and other downstream facilities, which
increased our production capacity of certain chemical products. In 2003, the
external sales volumes of synthetic resin, synthetic fiber, synthetic rubber,
synthetic fiber monomer and polymer were respectively 4.52 million tonnes, 1.33
million tonnes, 550,000 tonnes, 2.41 million tonnes, representing increases of
18%, 12.7%, 7.8% and 33.9% respectively compared with 2002. The external sales
prices of such products were, respectively, RMB 6,042 (US$730.0) per tonne, RMB
9,639 (US$1,164.6) per tonne, RMB 8,513 (US$1,028.6) per tonne and RMB 5,788
(US$699.3) per tonne, representing increases of 15.2%, 14.3%, 31.6% and 7.9%
respectively, compared with 2002.
Operating expenses
In 2003, our operating expenses were RMB 405.8 billion (US$49.0 billion),
representing an increase of 28.3% compared with 2002. The increase in operating
expenses was primarily attributable to the increase in purchased crude oil,
products and operating supplies and expenses and selling, general and
administrative expenses.
Purchased crude oil, products, and operating supplies and expenses
Our purchased crude oil, products and operating supplies and expenses were
RMB 312.5 billion (US$37.8 billion), accounting for 77% of the operating
expenses, or an increase of RMB 74.9 billion (US$9.0 billion) compared with
2002, representing an increase of 31.5%. Among others,
o Purchased crude oil expenses were RMB 164.3 billion (US$19.9
billion), accounting for 40.5% of the total operating expenses, or an
increase of RMB 45 billion (US$5.4 billion) or 37.7% compared with
2002. To meet the increasing demands in the market associated with
the rapid growth of the Chinese economy, we increased our crude oil
throughput. In 2003, our crude oil throughput was 116.66 million
tonnes (excluding amounts processed for third parties), representing
an increase of 11.23 million tonnes, or 10.7%, compared with 2002. Of
our crude oil throughput, our exploration and production segment
supplied 28.08 million tonnes, representing a decrease of 1.46
million tonnes, or 4.9%, compared with 2002. We processed 88.58
million tonnes of crude oil purchased from third parties,
representing an increase of 12.69 million tonnes, or 16.7%, compared
with 2002. Since March 2003, crude oil price in the global market has
gradually increased. Our average cost for crude oil purchased from
third parties in 2003 was RMB 1,855 (US$224.1) per tonne,
representing an increase of RMB 283 (US$34.1) per tonne, or 18%,
compared with 2002.
o In 2003, our other purchased expenses were RMB 148.2 billion (US$17.9
billion), accounting for 36.5% of the total operating expenses,
representing an increase of RMB 29.9 billion (US$3.6 billion), or
25.3%, compared with 2002, . This increase was mainly due to the
increased costs of oil products and chemical feedstock caused by the
increase in crude oil price.
Selling, general and administrative expenses
In 2003, our selling, general and administrative expenses were RMB 25.9
billion (US$3.1 billion), representing an increase of RMB 4.4 billion (US$0.5
billion), or 20.5%, compared with 2002. The increase was largely due to:
o In 2003, provision for bad debts increased by RMB 1.15 billion
(US$0.1 billion) from 2002.
o In connection with the upgrade of production facilities and improved
technologies, we disposed of certain low efficiency production
equipment in 2003 causing an increase in the expense related to
disposal of relevant spare parts by RMB 500 million (US$60.4 million)
compared with 2002.
o Expenses in research and development increased by RMB 0.59 billion
(US$71.2 million) from 2002.
o Operating lease rentals increased by RMB 0.39 billion (US$47.1
million) from 2002, mainly because we leased certain additional
petrol stations in order to further expand our distribution channels
of oil products.
o After the expansion and revamping of some of our chemical facilities,
sales volume of chemical products increased. In addition, proportion
of retail over the total sales volume of refined oil products, and
total sales volume of refined oil products increased. Accordingly,
the selling expenses, such as transportation costs, increased by RMB
0.69 billion (US$83.3 million) from 2002.
Depreciation, depletion and amortization
In 2003, our depreciation, depletion and amortization amounted to RMB 26.7
billion (US$3.2 billion), representing an increase of 5.5% over 2002. This
increase was mainly due to the addition of property, plant and equipment as a
result of capital expenditure.
Exploration expenses
In 2003, our exploration expenses were RMB 6.1 billion (US$0.7 billion),
representing an increase of 38.6% from 2002. The increase was principally due
to our further increase of investment in the exploration activities, especially
in the major new blocks in the western and southern parts of China.
Personnel expenses
In 2003, our personnel expenses were RMB 16.2 billion (US$2.0 billion),
representing an increase of 12.5% over 2002. The increase was largely due to
our introduction of a market rate based compensation system reform. As a
result, wage, salary and welfare expenses increased by RMB 1.6 billion (US$0.1
billion).
Employee reduction expenses
As part of our voluntary staff reduction plan, we incurred approximately
RMB 1 billion (US$0.1 billion) as employee reduction expenses for approximately
21,000 employees who voluntarily terminated their employment with us in 2003.
Taxes other than income tax
In 2003, our taxes other than income tax were RMB 13.5 billion (US$1.6
billion), representing an increase of 13.4% over 2002. The increase was largely
due to the increase of consumption tax and surcharges as a result of the
increased sales volume of gasoline and diesel.
Other operating expenses, net
In 2003, our other operating expenses (net) were RMB 3.9 billion (US$0.5
billion), representing an increase of RMB 2.8 billion (US$0.3 billion) from
2002. The increase was largely due to a number of factors. Among others,
o To facilitate a long-term development strategy, we further improved
our asset structure and our overall asset quality. In 2003, we
incurred a net loss of RMB 2.22 billion (US$26.8 million), or an
increase of RMB 1.42 billion (US$17.2 million) over those in 2002, on
disposal of certain low efficiency assets, which included RMB 90
million (US$10.8 million) from the exploration and production
segment, RMB 0.74 billion (US$89.4 million) from the refining
segment, RMB 0.37 billion (US$44.7 million) from the marketing and
distribution segment, RMB 1.01 billion (US$12.2 million) from the
chemicals segment, and RMB 10 million (US$1.2 million) from others.
o In order to allocate its internal resources more efficiently, we
revised the production plans for certain less efficient facilities in
2003, and accordingly made a provision for impairment of long-lived
assets of RMB 0.88 billion (US$106.3 million), representing the
difference between the expected recoverable value and the net book
value of these assets.
Operating profit
In 2003, our operating profit was RMB 37.3 billion (US$4.5 billion),
representing an increase of 30% from 2002.
Net finance costs
In 2003, our net finance costs were RMB 3.8 billion (US$0.5 billion),
representing a decrease of RMB 0.4 billion (US$48.3 million), or 9.5%, from
2002. The decrease was primarily due to our further reduction of the aggregate
amount of our short-term loan and the adjustment of our financing structure to
include, among others, certain US-dollar denominated loans. The interest
expense was RMB 3.7 billion (US$0.4 billion) in 2003, representing a decrease
of RMB 0.4 billion (US$48.3 million) from 2002.
Profit from ordinary activities before taxation
In 2003, our profit from ordinary activities before taxation was RMB 34.1
billion (US$4.1 billion), representing an increase of 35.9% from 2002.
Income tax
In 2003, our income tax was RMB 10.6 billion (US$1.3 billion),
representing an increase of 37.7% over 2002.
Minority interests
In 2003, our minority interests were RMB 1.9 billion (US$0.2 billion),
representing an increase of 72.7% over 2002.
Profit attributable to shareholders
In 2003, our profit attributable to shareholders was RMB 21.6 billion
(US$2.6 billion), representing an increase of 32.5% compared with 2002.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
In 2002, our sales of goods and operating income were RMB 329.1 billion
and RMB 28.7 billion, respectively, representing increases of 6.4% and 3.7%,
respectively, from 2001. The increases in our sales of goods and operating
income were largely attributable to our flexible adjustment of operation in
response to the opportunities presented by the better prices and the more
orderly market since March 2002. In addition, we quickly turned around the poor
performance we went through in January and February 2002 by expanding our
market and implementing various measures to cut cost and improve efficiency.
Since March 2002, our operating results have improved significantly and
continued to maintain a fair growth momentum. In particular, the refining
segment and marketing and distribution segment have significantly increased
their operating income and the chemicals segment has turned operating loss into
operating income.
Operating Revenues
Overview
Sales of goods and other operating revenues increased by 6.6%, or RMB 21.5
billion, from RMB 323.6 billion in 2001 to RMB 345.1 billion in 2002. Sales of
goods increased by RMB 19.8 billion, or 6.4%, from RMB 309.3 billion in 2001 to
RMB 329.1 billion in 2002. The increase in sales of goods was primarily due to:
o The international market conditions of petroleum and petrochemical
products gradually improved after March 2002;
o A number of chemicals production facilities have been revamped to
increase capacity and production; and
o Sales volume of refined products and chemical products increased as a
result of management's efforts to expand domestic as well as
international market as the market condition improved.
Other operating revenues increased by 11.9%, or RMB 1.7 billion, from RMB
14.3 billion in 2001 to RMB 16.0 billion in 2002. Other operating revenues
primarily consist of revenues generated from sales of certain ancillary
products and raw materials as well as rendering various services to Sinopec
Group Company and third parties.
The following table sets forth external sales revenues and percentages of
sales of goods and other operating revenues by product category, as well as
percentage changes from 2001 to 2002.
As a Percentage of
Year Ended December 31, Rate of Change Sales of Goods and
------------------------- from Other
2001 2002 2001 to 2002 Operating Revenues
---- ---- ------------ ------------------
(RMB) (RMB) (%) (%)
(in billions)
External Sales Revenues
Crude oil & Natural gas............... 11.1 10.9 1.8% 3.2%
Refined Petroleum Products............ 228.5 230.5 0.9 66.8
Chemical products..................... 53.3 63.1 18.4% 18.3%
The following table sets forth the average external selling prices and
sales volumes of our selected products, as well as the respective percentage
changes from 2001 to 2002.
Average Realized Price Rate of Change Rate of Change
----------------------- from Sales Volume from
2001 2002 2001 to 2002 2001 2002 2001 to 2002
(RMB) (RMB) (%) (%)
Crude Oil...................... 1,256(1) 1,189(1) (5.3) 6.05(2) 6.35(2) 5.0
Natural Gas.................... 570(3) 574(3) 0.7 2.9(4) 3.2(4) 10.3
Gasoline ...................... 2,662(1) 2,806(1) 5.4 22.70(5) 22.54(5) (0.7)
Diesel ........................ 2,438(1) 2,408(1) (1.2) 42.70(5) 44.04(5) 3.1
Selected Chemical Products
Synthetic Resin ............ 5,532(1) 5,247(1) (5.2) 3.14(5) 3.83(5) 22.0
Synthetic Fiber............. 8,512(1) 8,435(1) (0.9) 1.08(5) 1.18(5) 9.3
Synthetic Rubber............ 6,239(1) 6,468(1) 3.7 0.47(5) 0.51(5) 8.5
Synthetic Fiber Monomer and
Polymer.................. 5,139(1) 5,362(1) 4.3 1.80(5) 1.80(5) 0.0
_____________________
(1) per tonne
(2) tonnes
(3) per thousand cubic meter
(4) billion cubic meters
(5) million tonnes
Sales of crude oil and natural gas
In 2002, sales revenues of crude oil and natural gas contributed RMB 10.9
billion, or 3.2%, of our operating revenues, representing a decrease of RMB 0.2
billion compared with those in 2001. This decrease was primarily due to a
decline of 5.3% in the average realized price of crude oil from RMB 1,256 per
tonne in 2001 to RMB 1,189 per tonne in 2002. However, the average realized
price of natural gas slightly increased by 0.7% from RMB 570 per thousand cubic
meter in 2001 to RMB 574 per thousand cubic meter in 2002. The external sales
volume of crude oil increased from 6.05 million tonnes in 2001 to 6.35 million
tonnes in 2002, and external sales volume of natural gas increased from 2.9
billion cubic meters in 2001 to 3.2 billion cubic meters in 2002. The increased
external sales volume of crude oil and natural gas partially offset the
negative impact of the price decline of crude oil on the sales revenues of
crude oil and natural gas.
Sales of refined petroleum products
Sales revenues of refined petroleum products from the refining and the
marketing and distribution segments in 2002 were RMB 230.5 billion,
contributing 66.8% of our total operating revenues, and representing an
increase of RMB 2 billion, or 0.9%, compared with RMB 228.5 billion in 2001.
The sales revenues of gasoline and diesel were RMB 169.3 billion, contributing
73.4% of the sales revenues of refined petroleum products, and representing an
increase of RMB 4.8 billion, or 2.9%, compared with RMB 164.5 billion in 2001.
The sales revenues of gasoline increased by 4.8%, or RMB 2.9 billion, from RMB
60.4 billion in 2001 to RMB 63.3 billion in 2002; the sales revenues of diesel
increased by 1.8%, or RMB 1.9 billion, from RMB 104.1 billion in 2001 to RMB
106.0 billion in 2002. The increases in sales revenues of gasoline and diesel
were mainly due to the increased realized gasoline price and the increased
sales volume of diesel, which increases were attributable to the gradual
recovery of refined products prices on the international market as well as our
efforts to increase the retail proportion of our sales and to further expand
our market. In 2002, the average external sales price of gasoline was RMB 2,806
per tonne, representing an increase of 5.4% over that in 2001, and the average
external sales price of diesel was RMB 2,408 per tonne, representing a decline
of 1.2% compared with that in 2001. The sales volume of gasoline was 22.54
million tonnes, representing a decrease of 0.7% compared with that in 2001 and
sales volume of diesel was 44.04 million tonnes, representing an increase of
3.1% compared with that in 2001. The aggregate sales volume of gasoline and
diesel rose by 1.8% compared with that in 2001.
Sales of chemicals
Sales revenues of chemical products were RMB 63.1 billion in 2002,
representing an increase of RMB 9.8 billion, or 18.4%, compared with RMB 53.3
billion in 2001. This increase was primarily due to the significant increase of
output and sales volume of the chemical products as we completed revamping a
number of chemicals production facilities to expand capacity, and the gradual
recovery of chemical products prices in 2002. The external sales volumes of
synthetic resin, synthetic rubber, synthetic fiber and monomers and polymers
for synthetic fiber in 2002 were 3.83 million tonnes, 0.51 million tonnes, 1.18
million tonnes and 1.80 million tonnes, respectively, representing an increase
of 22.0%, 8.5%, 9.3% and 0%, respectively, from those in 2001. The average
realized prices of these products were RMB 5,247 per tonne, RMB 6,468 per
tonne, RMB 8,435 per tonne and RMB 5,362 per tonne, respectively. Compared with
2001, the average realized prices of synthetic rubber and monomers and polymers
for synthetic fiber increased by 3.7% and 4.3% and those of synthetic resin and
synthetic fiber declined by 5.2% and 0.9%, respectively. As the prices of
various chemical products went up and others went down in 2002, the average
realized external sales prices of all six chemical product categories in 2002
were at a similar level to those in 2001.
Operating Expenses
Overview
Operating expenses in 2002 were RMB 316.4 billion, representing an
increase of RMB 20.4 billion, or 6.9%, from those in 2001. The increase in
operating expenses was primarily attributable to the increase in purchased
crude oil, products and operating supplies and expenses, selling, general and
administrative expenses and depreciation, depletion and amortization.
Purchased crude oil, products and operating supplies and expenses
In 2002, purchased crude oil, products and operating supplies and expenses
were RMB 237.6 billion, accounting for 75.1% of our total operating expenses,
and representing an increase of RMB 15.1 billion, or 6.8%, compared with RMB
222.5 billion in 2001.
o Purchased crude oil expenses were RMB 119.3 billion in 2002,
accounting for 37.7% of the total operating expenses, and
representing an increase of RMB 2.6 billion, or 2%, compared with RMB
116.6 billion in 2001. The increase was mainly due to our increased
crude oil throughput as a result of the strong market demand
associated with the fast growing Chinese economy.
o The volume of purchased crude oil increased partially due to the
decrease in the volume of crude oil supplied by our own production.
The throughput of crude oil in 2002 were 105.43 million tonnes
(excluding crude oil processed for third parties), representing an
increase of 3.52 million tonnes, or 3.5%, compared with 101.91
million tonnes in 2001. In 2002, we processed 29.54 million tonnes of
crude oil supplied by our own exploration and production segment,
representing a decrease of 2.13 million tonnes, or 6.7%, compared to
31.67 million tonnes in 2001. The throughput of internally produced
crude oil accounted for 28.0% of the total throughput of crude oil,
while the throughput of externally sourced crude oil were 75.90
million tonnes, accounting for 72.0% of the total throughput of crude
oil and representing an increase of 5.66 million tonnes, or 8.1%,
compared with 70.24 million tonnes in 2001. Although the
international crude oil prices gradually went up after March 2002,
our average purchase price of externally sourced crude oil in 2002
decreased by RMB 89 per tonne, or 5.4%, from RMB 1,661 per tonne in
2001 to RMB 1,572 per tonne in 2002.
o In 2002, other purchased products and operating supplies and expenses
accounted for RMB 118.3 billion, or 37.4% of the total operating
expenses, representing an increase of 11.7%, or RMB 12.4 billion,
compared with RMB 105.9 billion in 2001. This increase was primarily
due to the increased externally purchased chemical feedstock and the
increased purchase expense associated with the increased sales
revenues of our overseas trading subsidiaries as they increased their
trading activities of crude oil and refined products in 2002.
Selling, general and administrative expenses
Selling, general and administrative expenses were RMB 21.5 billion in
2002, representing an increase of 20.8% compared with RMB 17.8 billion in 2001.
This increase was primarily due to:
o An increase of RMB 0.85 billion in transportation and contracted
labor expenses as a result of the increases of the retail proportion
of the sales of gasoline and diesel and the total sales volume of
refined products;
o An increase of RMB 0.6 billion in the selling expenses associated
with the increased sales volume of chemical products as a result of
the expanded production capacity of certain chemical production
facilities after revamp;
o An increase of approximately RMB 0.5 billion in the selling, general
and administrative expenses in 2002 due to the increased sales volume
of refined products other than gasoline, diesel and kerosene
including jet fuel;
o An increase of RMB 0.2 billion for research and development;
o An increase of RMB 0.1 billion for the implementation of our
management information system; and
o We strengthened the administration of accounts receivable and
collected certain aged outstanding debts in 2001 in which specific
provisions were previously provided for and accordingly, reduced that
year's allowance for doubtful accounts.
Depreciation, depletion and amortization
Depreciation, depletion and amortization were RMB 25.3 billion in 2002,
representing an increase of RMB 1.9 billion, or 8.1%, from RMB 23.4 billion in
2001. This increase was primarily due to the commencement of operation of newly
developed or acquired properties, plants and equipment including oil and gas
properties as a result of our capital expenditure programs.
Exploration expenses
Exploration expenses were RMB 4.4 billion in 2002, representing an
increase of RMB 0.6 billion, or 15.8%, from RMB 3.8 billion in 2001. This
increase was primarily due to our implementation of our strategy of
continuously expanding resources, whereby we increased our exploration
expenditure in certain important areas in China's western region and southern
marine bed formation areas so as to lay a firm foundation for the potential
future expansion of our crude oil reserves and production.
Personnel expenses
In 2002, personnel expenses were RMB 14.4 billion, representing an
increase of RMB 0.7 billion, or 5.1%, from RMB 13.7 billion in 2001. The
increase was mainly because we reinforced our performance-based incentive
schemes, and in certain subsidiaries special salaries were awarded for certain
special positions, resulting in an increase of RMB 0.5 billion in wage and
salary expenses. In addition, expenses related to welfare, contribution to
retirement schemes and social security increased by RMB 0.2 billion in 2002.
Despite the increase, the personnel expenses in 2002 have been effectively
controlled as a whole.
Employee reduction expenses
Pursuant to the asset swap agreement between Sinopec Group Company and us,
we made payment of RMB 0.24 billion relating to 11,000 employees transferred to
Sinopec Group Company.
Taxes other than income tax
Taxes other than income tax were RMB 11.9 billion, which is similar to
that in 2001.
Other operating expenses
The net amount of other operating expenses were RMB 1.1 billion in 2002,
representing an increase of RMB 0.8 billion compared to RMB 0.3 billion in
2001. The increase was primarily attributable to the increased expenses
incurred for the disposal of certain obsolete and retired equipment after
various facilities' upgrade.
Operating income
Operating income in 2002 was RMB 28.7 billion, representing an increase of
RMB 1.1 billion, or 4.0%, from RMB 27.6 billion in 2001. This increase resulted
from a combination of various external and internal factors including the
recovery of crude oil and chemicals prices on the international market after
March 2002, and the operating strategy implemented by our management in
response to a more favorable market condition. Over the year, the operating
income improved and stabilized after the first quarter.
Net finance cost
Net finance cost was RMB 4.2 billion in 2002, representing an increase of
27.3% compared with RMB 3.3 billion in 2001. The increase was due to the
following factors:
o Adversely affected by the fluctuation of exchange rates, we had a net
foreign exchange loss of approximately RMB 0.3 billion, representing
an increased finance cost of RMB 0.8 billion compared with
approximately RMB 0.5 billion of net foreign exchange gain in 2001;
o Net interest income in 2002 decreased by RMB 0.85 billion from that
in 2001 as a result of the reduction of time deposits associated with
the use of the offering proceeds and the lower interest rate set by
People's Bank of China since February 2002; and
o Interest expense in 2002 decreased by RMB 0.81 billion from 2001 as a
result of the lower average interest rate in 2002 and our effort to
tighten our operational cash management and to improve our financing
structure, including reducing the amount of short-term loans.
Income before income tax and minority interests
Income before income tax and minority interest in 2002 was RMB 25.1
billion, representing a slight increase of 1.2% from RMB 24.8 billion in 2001.
Income tax
Income taxes in 2002 was RMB 7.7 billion, representing a decrease of 3.8%
compared with RMB 8.0 billion in 2001, which decrease was primarily due to the
decrease of non-deductible expenses.
Net income
Net income in 2002 was RMB 16.3 billion, representing a slight increase of
0.6% compared with RMB 16.2 billion in 2001. Basic earnings per share in 2002
was RMB 0.19, which was the same as that in 2001.
C. DISCUSSIONS ON RESULTS OF SEGMENT OPERATIONS
We divide our operations into four principal business segments, namely,
exploration and production segment, refining segment, marketing and
distribution segment, and chemicals segment, and a corporate and others
segment.
Unless otherwise specified, inter-segment transactions have not been
eliminated from the financial data discussed in this section. In addition, the
operating revenue data for each segment discussed in this section include, in
addition to the sales of goods, "other operating revenues" for such segment.
The following table shows the operating revenues by each segment, the
contribution of external sales and inter-segment sales as a percentage of
operating revenues before elimination of inter-segment sales, and the
contribution of external sales as a percentage of consolidated operating
revenues (i.e. after elimination of inter-segment sales) for 2002 and 2003.
As a Percentage of As a Percentage of
Consolidated Operating Consolidated
Revenues Before Operating Revenues
Elimination After Elimination of
Year Ended December 31, of Inter-segment Sales Inter-segment Sales
------------------------------- ---------------------- ---------------------
2001 2002 2003 2003 2002 2003 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
RMB RMB RMB US$ (%) (%) (%) (%)
(in billions)
Operating Revenues
Exploration & Production
External sales(1)........... 17.3 18.2 23.0 2.8 3.1% 3.1% 5.3% 5.2%
Inter-segment sales......... 43.3 39.4 47.3 5.7 6.8 6.4
----- ----- ----- ---- ---- -----
Total operating revenue... 60.6 57.6 70.3 8.5 9.9 9.5
==== ===== ===== ==== ==== =====
Refining
External sales(1)........... 50.6 49.2 62.2 7.5 8.5 8.4 14.2 14.0
Inter-segment sales......... 159.8 164.6 211.6 25.6 28.4 28.5
----- ----- ----- ---- ---- -----
Total operating revenue... 210.4 213.8 273.8 33.1 36.9 36.9
Marketing and distribution
External sales(1)........... 180.8 184.7 238.8 28.8 31.9 32.2 53.5 53.9
Inter-segment sales......... 2.5 2.3 2.6 0.3 0.4 0.4
----- ----- ----- ---- ---- -----
Total operating revenue... 183.3 187.0 241.4 29.1 32.3 32.6
==== ===== ===== ==== ==== =====
Chemicals
External sales(1)........... 57.8 67.2 84.9 10.3 11.6 11.4 19.5 19.2
Inter-segment sales......... 6.3 7.9 7.4 0.9 1.4 1.0
----- ----- ----- ---- ---- -----
Total operating revenue... 64.1 75.1 92.3 11.2 13.0 12.4
==== ===== ===== ==== ==== =====
Corporate and others
External sales(1)........... 17.1 25.8 34.2 4.1 4.5 4.6 7.5 7.7
Inter-segment sales......... 8.9 19.9 29.4 3.6 3.4 4.0
----- ----- ----- ---- ---- -----
Total operating revenue... 26.0 45.7 63.6 7.7 7.9 8.6
==== ===== ===== ==== ==== =====
Total operating revenue
before inter-segment
eliminations.......... 544.4 579.2 741.4 89.6 100% 100%
==== ===== ===== ==== ==== =====
Elimination of
inter-segment sales...... (220.8) (234.1) (298.3) (36.1)
------- ------- ------- ------
Consolidated operating
revenues.................. 323.6 345.1 443.1 53.5 100% 100%
==== ===== ===== ==== ===
_______________
(1) includes other operating revenues. See note 30 to the consolidated
financial statements for other operating revenues of each of our operating
segments.
The following table shows the operating revenues, operating expenses and
operating income by each segment before elimination of the inter-segment
transactions for the periods indicated, and the percentage change from 2002 to
2003.
Rate of
Years Ended December 31, Change from
2001 2002 2003 2003 2002 to 2003
---- ---- ---- ---- ------------
RMB RMB RMB US$ (%)
(in billions)
Exploration and Production
Total operating revenues.......................... 60.6 57.6 70.3 8.5 22.0%
Total operating expenses.......................... (37.4) (42.8) (51.1) (6.2) 19.4
------ ------ ------ ----- -----
Total operating income.......................... 23.2 14.8 19.2 2.3 29.7
====== ====== ====== ===== =====
Refining
Total operating revenues.......................... 210.4 213.8 273.8 33.1 28.1
Total operating expenses.......................... (208.3) (207.8) (267.8) (32.4) 28.9
------ ------ ------ ----- -----
Total operating income.......................... 2.1 6.0 6.0 0.7 0.0
====== ====== ====== ===== =====
Marketing and distribution
Total operating revenues.......................... 183.3 187.0 241.4 29.1 29.1
Total operating expenses.......................... (180.9) (178.6) (229.5) (27.7) 28.4
------ ------ ------ ----- -----
Total operating income.......................... 2.4 8.4 11.9 1.4 41.7
====== ====== ====== ===== =====
Chemicals
Total operating revenues.......................... 64.1 75.1 92.3 11.2 22.9
Total operating expenses.......................... (64.3) (74.5) (90.1) (10.9) 21.1
------ ------ ------ ----- -----
Total operating income/(loss)................... (0.2) 0.6 2.2 0.3 266.7
====== ====== ====== ===== =====
Corporate and others
Total operating revenues.......................... 26.0 45.7 63.6 7.7 39.2
Total operating expenses.......................... (25.9) (46.8) (65.6) (7.9) 40.2
------ ------ ------ ----- -----
Total operating (loss)/income................... 0.1 (1.1) (2.0) (0.2) 81.8%
====== ====== ====== ===== =====
Exploration and Production Segment
The business activities of the exploration and production segment consist
of exploration, development, production, and sale of crude oil and natural gas.
Year Ended December 31, 2003 compared with Year Ended December 31, 2002
Operating revenues from the exploration and production segment in 2003
were RMB 70.3 billion (US$8.5 billion), representing an increase of 22% from
RMB 57.6 billion in 2002. The increase in operating revenues was primarily due
to an increase in the average realized prices of crude oil. In addition, the
increase was also partially due to increase in the average realized prices and
sales volume of natural gas.
In 2003, average realized price of crude oil by this segment was RMB 1,620
(US$195.7) per tonne, representing an increase of 22.9% over 2002. Average
realized price of natural gas was RMB 596 (US$72.0) per thousand cubic meters,
representing an increase of 4.2% over 2002.
Sales volume of crude oil was 35.75 million tonnes, representing an
increase of 0.6% compared with 2002. Sales volume of natural gas was 3.5
billion cubic meters, representing an increase of 6.1% over that in 2002.
In 2003, the segment's operating expenses were RMB 51.1 billion (US$6.2
billion), or an increase of RMB 8.3 billion (US$1.0 billion), or 19.4%,
compared with 2002. The increase was primarily because:
o In 2003, the segment continued to implement its strategy featuring
"expansion of resources", and increased investment in exploration
activities in a number of new blocks in western and southern parts of
China. As a result, the exploration expenses (including the costs of
dry holes) increased by RMB 1.7 billion (US$205.4 million) compared
with 2002.
o Due to the increase of downhole operation activities and rise of fuel
and other costs as a result of the increase in crude oil price, the
lifting cost of crude oil and natural gas increased by RMB 1.04
billion (US$125.7 million) compared with 2002.
o Other expenses including supply of materials increased by RMB 0.8
billion (US$96.6 million) compared with 2002.
o In 2003, as a result of the employee compensation system reform,
wages, salaries and welfare expenses increased by approximately RMB
0.7 billion (US$84.5 million) compared with 2002.
o In 2003, depreciation, depletion and amortization were RMB 9.4
billion (US$1.1 billion), representing an increase of RMB 0.4 billion
(US$48.3 million) compared with 2002, due to the addition of fixed
assets resulted from the segment's capital investments.
o Provision for impairment losses of assets increased by RMB 310
million compared with 2002.
o Due to the increase of sales revenues the compensation fee for
mineral resources increased. In addition, land lease rentals
increased due to the increase in leased land area. The sum of these
two items increased by RMB 220 million (US$37.4 million) compared
with 2002.
o Disposal of spare parts increased by approximately RMB 100 million
(US$12.0 million) compared with 2002.
Compared with 2002, in light of the high crude oil price, this segment
increased its workload of certain downhole operation in order to maintain a
stable production of crude oil, and incurred additional expenses to resume the
production activities that were affected by stormy tide and flood. As a result,
the unit lifting cost of crude oil and natural gas increased from US$6.12 per
barrel in 2002 to US$6.47 per barrel in 2003, representing an increase of 5.7%.
In 2003, operating income of the exploration and production segment was
approximately RMB 19.2 billion (US$2.3 billion), which was 29.7% higher than in
2002.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
Operating revenues from the exploration and production segment in 2002
were RMB 57.6 billion, representing a decrease of RMB 3 billion, or 5%, from
RMB 60.6 billion in 2001. The decline in operating revenues was primarily due
to the decrease of the average realized prices and sales volume of crude oil.
Despite that crude oil prices on the international market have gradually
increased since March 2002, our average realized crude oil price in 2002 was
still lower than that of 2001, partly because the crude oil pricing mechanism
in China, though determined in accordance with the international market prices,
lags behind them for approximately one month.
In 2002, the segment's average realized price of crude oil was RMB
1,317.82 per tonne, representing a decrease of 4% compared with RMB 1,373.06
per tonne in 2001. Average realized price of natural gas was RMB 571.69 per
thousand cubic meter in 2002, representing an increase of 1.9% compared with
RMB 561.08 per thousand cubic meter in 2001.
In 2002, the exploration and production segment sold 35.53 million tonnes
of crude oil, representing a decrease of 0.48 million tonnes, or 1.3%, from
36.01 million tonnes in 2001. It also sold 3.3 billion cubic meters of natural
gas, representing an increase of 0.2 billion cubic meters, or 6.5%, from 3.1
billion cubic meters in 2001. While the crude oil production volume in 2002
remained at the similar level to that in 2001, crude oil sales volume declined
primarily because the segment sold 0.38 million tonnes more of inventory crude
oil stored in the pipelines in 2001 compared with 2002. The increase in natural
gas sales volume was primarily due to the increased production of natural gas
from Sinopec National Star and in China's western regions.
Operating expenses for the exploration and production segment were RMB
42.8 billion, representing an increase of RMB 5.4 billion, or 14.4%, from RMB
37.4 billion in 2001, which increase is primarily due to the following reasons:
o Depreciation, depletion and amortization increased by RMB 0.9 billion
from RMB 8.1 billion in 2001 to RMB 9 billion in 2002 as more fixed
assets commenced operation as a result of various capital expenditure
programs;
o We continued to implement in 2002 our strategy of expanding
resources, and increased our exploration expenditure in certain
important areas in western China and southern China's marine bed
formation areas so as to lay a firm foundation for the potential
future increase of crude oil reserve and production. Exploration
expenses (including dry holes expenses) increased by RMB 0.6 billion
from RMB 3.8 billion in 2001 to RMB 4.4 billion in 2002;
o We reduced approximately RMB 0.2 billion of the allowance for
doubtful debts in 2001, while in 2002, we made a provision for
allowance for doubtful accounts of approximately RMB 0.4 billion. The
related expenses in 2002 thus increased by approximately RMB 0.6
billion compared with 2001.
o As a result of the segment's reinforcement of its performance based
incentive schemes as well as the implementation of new incentive
schemes in certain subsidiaries such as special salaries for special
positions, expenses related to salaries, welfare and social security
increased approximately by RMB 0.3 billion in 2002 compared with
2001;
o The segment disposed of certain obsolete and retired equipment after
various facilities' upgrade, which resulted in an increase of the
related expenses by approximately RMB 0.3 billion in 2002; and
o Other operating expenses of the segment including supplies of
materials in 2002 increased by RMB 0.9 billion compared with 2001.
Operating income of the exploration and production segment was
approximately RMB 14.8 billion in 2002, representing a decrease of RMB 8.4
billion, or 36.2%, from RMB 23.2 billion in 2001. The decline was primarily due
to the decline of realized prices of crude oil as well as the increase of
depreciation, depletion and amortization expenses and exploration expenses.
Refining Segment
Our refining segment consists of our operations related to purchasing
crude oil from our exploration and production segment and from third parties,
processing of crude oil into refined petroleum products, selling gasoline,
diesel and kerosene including jet fuel our marketing and distribution segment,
and selling other refined petroleum products to domestic and overseas
customers.
Year Ended December 31, 2003 Compared with Year Ended December 31, 2002
In 2003, the refining segment's operating revenues were RMB 273.8 billion
(US$33.1 billion), or an increase of RMB 60 billion (US$7.2 billion), or 28.1%,
over 2002. The increase was mainly due to the increase in the selling prices
and sales volumes of various major refined petroleum products.
The table below sets forth sales revenue and the percentage of total
operating revenue for the segment by product category for 2002 and 2003, and as
well as the percentage changes in sales revenue from 2002 to 2003. Other
refined petroleum products mainly consist of kerosene, liquid purified gas, jet
fuel, fuel oil, lubricant and asphalt.
C
As a Percentage of
Refining Segment's
For the Year Ended December 31, Rate of Change Total Operating
---------------------------------- from Revenue
2002 2003 2003 2002 to 2003 2002 2003
---- ---- ---- ------------ ---- ----
(RMB) (RMB) (US$) (%) (%) (%)
(in billions)
Refining segments, operating
revenues
Gasoline....................... 44.1 55.8 6.8 26.5% 20.6% 20.4%
Diesel ........................ 79.8 99.7 12.0 24.9 37.3 36.4
Chemical feedstock ............ 38.9 49.9 6.0 28.3 18.2 18.2
Other refined petroleum
products.................... 47.9 63.9 7.7 3.4 22.3 23.3
Other operating revenues....... 3.1 4.5 0.6 45.2 1.4 1.7
----- ------ ---- ----- ----- -----
Total............................. 213.8 273.8 33.1 28.1% 100% 100%
In 2003, the sales revenues of gasoline realized by the segment was RMB
55.8 billion (US$6.8 billion), accounting for 20.4% (which was 0.2% lower than
that of 2002) of this segment's operating revenues, representing an increase of
26.5% from 2002.
In 2003, the sales revenues of diesel realized by the segment was RMB 99.7
billion (US$12.0 billion), accounting for 36.4% (which was 0.9% lower than that
of 2002) of this segment's operating revenues, representing an increase of
24.9% from 2002.
In 2003, the sales revenues of chemical feedstock realized by the segment
was RMB 49.9 billion (US$6.0 billion), accounting for 18.2% (which was similar
to that in 2002) of this segment's operating revenues, representing an increase
of 28.3% from 2002.
In 2003, the sales revenues of refined petroleum products other than
gasoline, diesel and chemical feedstock were RMB 63.9 billion (US$7.7 billion),
accounting for 23.3% (which was 0.9% higher that of 2002) of this segment's
operating revenues, representing an increase of 33.4% from 2002. The growth of
the sales revenues of these products was faster than that of gasoline and
diesel, mainly because the segment actively reinforced its efforts in marketing
these refined petroleum products, in response to the changes in the market
situation. To seize the opportunities, we further optimized our product-mix,
and produced a larger quantity of those refined petroleum products with higher
added values.
The table below sets forth sales volume and average realized prices by
product for 2002 and 2003, and as well as the percentage changes in sales
volume and average realized prices for the periods shown. Other refined
petroleum products mainly consist of kerosene, liquid purified gas, jet fuel,
fuel oil, lubricant and asphalt.
Rate of change Average Rate of change
Sales volume from realized prices from
2002 2003 2002 to 2003 2002 2003 2002 to 2003
---- ---- ------------ ---- ---- ------------
(million tonnes) (%) (RMB per tonne) (%)
Gasoline................................ 19.34 21.25 9.9% 2,281 2,624 15.0%
Diesel.................................. 37.53 41.46 10.5 2,127 2,404 13.0
Chemical feedstock ..................... 20.09 21.91 9.1 1,934 2,277 17.7
Other refined petroleum products........ 25.99 29.64 14.0% 1,843 2,157 17.0%
In 2003, the operating expenses of the segment were RMB 267.8 billion
(US$32.4 billion), representing an increase of 28.9% from 2002. This increase
was largely due to the rise of crude oil price, as well as our efforts in
increasing the throughput of crude oil.
In 2003, the average crude oil cost was RMB 1,824 (US$220.4 billion) per
tonne, representing an increase of RMB 295 (US$35.6) per tonne, or 19.3%, from
2002. Crude oil throughput was 116.66 million tonnes (excluding amounts
processed for third parties), representing and increase of 11.23 million
tonnes, or 10.65%, over 2002. In 2003, the total crude oil costs were RMB 212.8
billion (US$25.7 billion), accounting for 79.5% of the segment's operating
expenses, representing an increase of RMB 51.6 billion (US$6.2 billion ), or
32%, over 2002. In addition, the proportion accounted for by the total crude
oil costs in the refining segment's operating expenses in 2003 increased by
1.9% compared with 2002.
In 2003, refining margin was US$4.09 per barrel (defined as the sales
revenues less the crude oil costs and refining feedstock costs and taxes other
than income tax; divided by the throughput of crude oil and refining
feedstock), increased by US$0.13 per barrel compared with US$3.96 dollars per
barrel in 2002, thus representing an increase by 3.3%.
In 2003, the unit refining cash operating cost (defined as operating
expenses less the purchasing costs of crude oil and refining feedstock,
depreciation and amortization, taxes other than income tax, other business
expenses and adjustments; divided by the throughput of crude oil and refining
feedstock) was US$2.00 per barrel, decreased by US$0.02 per barrel compared
with US$2.02 per barrel in 2002, representing a decrease by 1%. This reflected
the segment's continued efforts in lowering its costs in 2003, while the
increased throughput has also diluted the expenses on a unit basis.
In 2003, operating profit of the refining segment was RMB 6 billion
(US$724.9 million), similar to that in 2002.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
Operating revenues of the refining segment in 2002 were RMB 213.8 billion,
representing an increase of 1.6% compared with RMB 210.4 billion in 2001. The
increase in operating revenues was primarily due to the significant increase in
revenues from the sales of chemical feedstock as well as certain refined
products other than gasoline and diesel.
In 2002, the refining segment sold 19.34 million tonnes of gasoline at an
average realized price of RMB 2,281 per tonne, and realized sales revenues of
RMB 44.1 billion, accounting for 20.6% in the total operating revenues of the
refining segment. In 2001, the refining segment sold 18.75 million tonnes of
gasoline at an average realized price of RMB 2,387 per tonne, and realized
sales revenues of RMB 44.8 billion, accounting for 21.3% in the total operating
revenues of the refining segment in 2001.
Compared with 2001, the sales volume of gasoline in 2002 increased by 0.59
million tonnes, or 3.1%; the realized gasoline price fell by RMB 106 per tonne,
or 4.4%; sales revenues of gasoline decreased by RMB 0.7 billion, and that as a
percentage of the refining segment's total operating revenues declined by 0.7%.
In 2002, the refining segment sold 37.53 million tonnes of diesel at an
average realized price of RMB 2,127 per tonne, and realized sales revenues of
RMB 79.8 billion, accounting for 37.3% of the total operating revenues of the
refining segment. In 2001, the refining segment sold 38.28 million tonnes of
diesel at an average realized price of RMB 2,200 per tonne, and realized sales
revenues of RMB 84.2 billion, accounting for 40.0% of the total operating
revenues of the refining segment in 2001.
Compared with 2001, the sales volume of diesel in 2002 decreased by 0.75
million tonnes, or 2.0%; the realized diesel price fell by RMB 73.14 per tonne,
or 3.3%; sales revenues of diesel decreased by RMB 4.4 billion, and that as a
percentage of the refining segment's total operating revenues declined by 2.7%.
In 2002, the refining segment sold 20.09 million tonnes of chemical
feedstock at an average realized price of RMB 1,934 per tonne, and realized
sales revenues of RMB 38.9 billion, accounting for 18.2% of the total operating
revenues of the refining segment. In 2001, the refining segment sold 17.17
million tonnes of chemical feedstock at an average realized price of RMB 1,991
per tonne, and realized sales revenues of RMB 34.2 billion, accounting for
16.3% of the total operating revenues of the refining segment in 2001.
Compared with 2001, the sales volume of chemical feedstock in 2002
increased by 2.92 million tonnes, or 17.0%; sales price fell by RMB 57 per
tonne, or 2.9%; sales revenues increased by RMB 4.7 billion, and that as a
percentage of the refining segment's total operating revenues increased by
1.9%. In 2002, as part of its optimization plan for resource allocations, the
refining segment adjusted its product mix in accordance with the increased
demand from our chemical segment and significantly increased its production as
well as sales volume of chemical feedstock.
In 2002, the refining segment sold 25.99 million tonnes of other refined
products than gasoline, diesel and chemical feedstock at an average realized
price of RMB 1,843 per tonne, and realized sales revenues of RMB 47.9 billion,
accounting for 22.4% of the total operating revenues of the refining segment.
In 2001, the refining segment sold 24 million tonnes of these other refined
products at an average realized price of RMB 1,853.54 per tonne, and realized
sales revenues of RMB 44.5 billion, accounting for 21.1% of the total operating
revenues of the refining segment in 2001.
Rate of Change As a Percentage of
from Refining Segment's
For the Year Ended 2001 to 2002 Total Operating
December 31, ------------ Revenue
2001 2002 2001 2002
---- ---- ---- ----
(RMB) (RMB) (%) (%) (%)
(in billions)
Refining segments total operating revenue
Gasoline................................... 44.8 44.1 (1.6%) 21.3% 20.6%
Diesel .................................... 84.2 79.8 (5.2) 40.0 37.3
Chemical feedstock ........................ 34.2 38.9 13.7 16.3 18.2
Other refined petroleum products........... 44.5 47.9 7.6 21.1 22.4
Other operating revenues................... 2.7 3.1 14.8 1.3 1.5
------ ------ ----- ------ ------
Total......................................... 210.4 213.8 1.6% 100.0% 100.0%
The table below sets forth sales volume and average realized prices by
product for 2001 and 2002, and as well as the percentage changes in sales
volume and average realized prices for the periods shown. Other refined
petroleum products consists of kerosene, liquid purified gas, jet fuel, fuel
oil, lubricant and asphalt.
Rate of Change Average Rate of Change
Sales Volume from Realized Prices from
2001 2002 2001 to 2002 2001 2002 2001 to 2002
---- ---- ------------ ---- ---- ------------
(million tonnes) (%) (RMB per tonne) (%)
Gasoline................................ 18.75 19.34 3.2% 2,387 2,281 (4.4%)
Diesel.................................. 38.28 37.53 (2.0) 2,200 2,127 (3.3)
Chemical feedstock ..................... 17.17 20.09 17.0 1,991 1,934 (2.9)
Other refined petroleum products........ 24.00 25.99 8.3 1,854 1,843 (0.6)
Compared with 2001, the sales volume of these other refined products
increased by 1.99 million tonnes, or 8.3%; average realized sales price fell by
RMB 11 per tonne, or 0.6%; sales revenues increased by RMB 3.4 billion, and
that as a percentage of the segment's total operating revenues increased by
1.3%. The increase in the sales volume of these other refined products outpaced
that of gasoline and diesel, as we intended to capture the favorable
opportunities presented in the changing market by strengthening the management
control of these other refined products and increasing the production of those
products with higher added value.
In 2002, operating expenses of the refining segment were RMB 207.8
billion, representing a decrease of RMB 0.5 billion, or 0.2%, from RMB 208.3
billion in 2001. The decrease was primarily due to the reduction of average
purchase cost of crude oil. In 2002, average cost of crude oil was RMB 1,529
per tonne, representing a decrease of RMB 85.85 per tonne, or 5.3%, from RMB
1,615 per tonne in 2001. In 2002, the segment processed 105.43 million tonnes
of crude oil (excluding crude oil processed for third parties), representing an
increase of 3.52 million tonnes from 101.91 million tonnes in 2001, which
increase was partially offset by the decline of the average purchase cost of
crude oil. In 2002, total purchase expenses of crude oil were RMB 161.2
billion, accounting for 77.6% of the total operating expenses of the refining
segment. In 2001, total purchase expenses of crude oil was RMB 164.6 billion,
accounting for 79% of the total operating expenses of the refining segment.
Compared with 2001, the total purchase expenses of crude oil for the segment in
2002 decreased by RMB 3.4 billion, and that as a percentage of the segment's
total operating expenses decreased by 2.1%.
In 2002, our refining margin (defined as the refining segment's sales
revenues less crude oil expenses, feedstock expenses and taxes other than
income tax; and divided by the volume of crude oil and feedstock processed) was
US$3.95 per barrel, which increased by US$0.38 per barrel, or 10.6%, from
US$3.57 per barrel in 2001.
In 2002, operating income of the refining segment was RMB 6.0 billion,
representing an increase of RMB 3.9 billion, or 185.7%, from RMB 2.1 billion in
2001. The increase was largely due to the increased refining margins as a
result of, among others, the increased crude oil throughput, the better
adjustment of product mix, the expansion of the market and the increased
production of refined products with higher added value.
Marketing and Distribution Segment
Our marketing and distribution segment consists of our operations related
to purchasing petroleum products from the refining segment and third parties,
and wholesale selling and distribution refined products domestic customers,
direct-selling refined products to certain special customers, and retail
selling refined products and provision of related services through our retail
network.
Year Ended December 31, 2003 Compared with Year Ended December 31, 2002
In 2003, the segment's operating revenues of our marketing and
distribution segment were RMB 241.4 billion (US$29.1 billion), or an increase
of 29.1% over 2002. The increase was primarily due to the increase in the total
sales volume and sales prices of petroleum products, and in particular the
higher percentage accounted for by the retail volume of gasoline, diesel and
high-grade gasoline in the total sales volume. In 2003, total sales volume of
petroleum products was 83.86 million tonnes, representing an increase of 10.25
million tonnes, or 13.9%.
The percentage of retail and the distribution sales in the total sales
volume of the segment increased further. The percentage of retail sales of
gasoline and diesel in the segment's operating revenue increased from 43.7% in
2002 to 45.8% in 2003. The percentage of distribution sales of gasoline and
diesel in the Segment's operating revenue increased from 8.5% in 2002 to 11.2%
in 2003. The percentage of the wholesale sales of gasoline and diesel in the
segment's operating revenue decreased from 31.9% in 2002 to 25.1% in 2003.
In 2003, the percentage of retail sales of gasoline and diesel in the
total sales volume of gasoline and diesel increased from 44.8% in 2002 to 48.9%
in 2003, or an increase of 4.1%. The percentage of distribution sales of
gasoline and diesel in the total sales volume increased from 9.9% in 2002 to
13.3% in 2003, or an increase of 3.4%. The percentage of wholesale sales of the
total sales volume of gasoline and diesel decreased from 38.1% in 2002 to 30.6%
in 2003, or a decrease of 7.5%. The increase in the retail percentage in the
total sales volume was due to a number of factors including, among others, our
continued efforts to build additional retail sales outlets, to further optimize
the locations of our existing petrol stations, to further improve the service
quality, and to further increase the throughput per petrol station.
The percentage of high-grade gasoline in the total sales volume of
gasoline further increased, from 27.1% in 2002 to 35.5% in 2003, or an increase
of 8.4%.
The sales revenues of four major product categories, namely gasoline,
diesel, kerosene (including jet fuel) and fuel oil, of the segment were RMB
232.6 billion (US$28.1 billion), constituting 96.4% of the segment's operating
revenue, representing an increase of 29.1% from 2002.
The following table shows the sales volumes, average realized prices,
respective percentages of change of four product categories in 2002 and 2003,
including the break-down information of different sales channels for gasoline
and diesel.
Average
Sales Volume Rate of Change Realized Prices Rate of Change
----------------- from --------------- from
2002 2003 2002 to 2003 2002 2003 2002 to 2003
---- ---- ------------ ---- ---- ------------
(million tonnes) (%) (RMB per tonne) (%)
Gasoline.................................... 21.36 23.53 10.2% 2,857 3,295 15.3%
Retail sale.............................. 12.34 14.68 19.0 3,062 3,450 12.7
Direct sale to customers................. 0.72 0.79 9.7 2,313 2,682 16.0
Distribution............................. 1.04 1.62 55.8 2,693 3,152 17.0
Wholesale................................ 7.26 6.44 (11.3) 2,585 3,051 18.0
Diesel ..................................... 44.50 47.92 7.7 2,405 2,789 16.0
Retail sale.............................. 17.16 20.29 18.2 2,562 2,954 15.3
Direct sale to customers................. 4.01 4.34 8.2 2,219 2,511 13.1
Distribution............................. 5.48 7.88 43.8 2,398 2,772 15.6
Wholesale................................ 17.85 15.41 (13.7) 2,297 2,659 15.8
Kerosene including jet fuel................. 4.34 4.57 5.3 2,112 2,350 11.3
Fuel Oil .................................. 2.11 6.37 201.9% 1,427 1,670 17.0%
In 2003, this segment's operating expenses were RMB 229.5 billion
(US$27.7 billion), representing an increase of 28.4% compared with 2002. Among
others, purchasing costs of gasoline and diesel were RMB 180.8 billion (US$21.8
billion), constituting 78.8% of the segment's operating expenses. Average
purchased prices of gasoline and diesel increased by 14.3% and 13.7%,
respectively, compared with 2002, to RMB 2,693 (US$325.4) per tonne and RMB
2,450 (US$296.0) per tonne respectively. The purchasing volume of gasoline and
diesel increased by 10.2% and 7.7% from 2002, to 23.53 million tonnes and 47.92
million tonnes respectively.
In 2003, the segment's cash operating cost per tonne of petroleum
products (defined as the operating expenses less the purchasing costs, taxes
other than income tax, depreciation and amortization, and divided by the sales
volume) was RMB 174.95 (US$21.1) per tonne, or an increase of 5.4% compared
with RMB 166 per tonne in 2002. This increase was primarily due to the
increased percentage of retail sales volume and distribution sales of petroleum
products in the total sales volume, which in turn increased transportation and
labor costs.
In 2003, the segment's operating income was RMB 11.9 billion (US$1.4
billion), or an increase of 41.7% compared with 2002. This increase was due to
a number of factors, including its continued efforts to focus on market
demands, to increase the percentage of retail and distribution sales volumes in
the total sales volume, to further optimize the deployment of resources, and to
increase the total sales volume of petroleum products. As a result, the segment
managed to achieve relatively good operating results over the full year.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
Operating revenues of the marketing and distribution segment in 2002
were RMB 187 billion, representing an increase of RMB 3.7 billion, or 2%, from
RMB 183.3 billion in 2001. The increase was mainly due to the increased sales
volume of the refined products. The total sales volume of the refined products
by the segment in 2002 was 73.61 million tonnes, representing an increase of
4.26 million tonnes, or 6.1%, from 69.35 million tonnes in 2001.
Retail sales as a percentage of the segment's total sales revenues
further increased in 2002. The retail sales revenue of gasoline and diesel
accounted for 43.7% of the segment's operating revenues in 2002, representing
an increase from 39.7% in 2001. Wholesale sales revenues of gasoline and diesel
accounted for 46.1% of the segment operating revenues in 2002, representing a
decline from approximately 53% in 2001.
Wholesale sales volume accounted for 55.2% of the total sales volume of
gasoline and diesel in 2002, representing a decrease of 2.4% from 57.6% in
2001. Retail sales volume accounted for 44.8% of the total sales volume of
gasoline and diesel in 2002, representing an increase of 2.4% from 42.4% in
2001.
The increase in retail sales revenue and retail sales volume was mainly
a result of the increased average throughput at each service station, which
increase was attributable to our continued effort to enhance our retail
distribution network, to further optimize the locations of our existing service
stations and to improve our quality of service.
The following table shows the sales volumes, average realized prices,
respective percentages of change of four product categories in 2001 and 2002,
including the break-down information of different sales channels for gasoline
and diesel.
Rate of Average Rate of
Sales Volume Change from Realized Prices Change from
2001 2002 2001 to 2002 2001 2002 2001 to 2002
---- ---- ------------ ---- ---- ------------
(million tonnes) (%) (RMB per tonne) (%)
Gasoline.................................... 20.32 21.36 5.1% 2,749 2,857 3.9%
Retail sale.............................. 10.84 12.34 13.8 2,935 3,062 4.3
Direct sale to customers................. 0.86 0.72 (16.3) 2,457 2,313 (5.9)
Distribution............................. 0.68 1.04 52.9 2,642 2,693 1.9
Wholesale................................ 7.94 7.26 (8.6) 2,536 2,585 1.9
Diesel ..................................... 42.55 44.50 4.6 2,440 2,405 (1.4)
Retail sale.............................. 15.82 17.16 8.5 2,591 2,562 (1.1)
Direct sale to customers................. 4.66 4.01 (13.9) 2,269 2,219 (2.2)
Distribution............................. 3.1 5.48 76.8 2,439 2,398 (1.7)
Wholesale................................ 18.97 17.85 (5.9) 2,358 2,297 (2.6)
Kerosene including jet fuel................. 3.74 4.34 16.0% 2,757 2,112 (23.4)%
Sales revenues of gasoline were RMB 61 billion in 2002, representing an
increase of RMB 5.3 billion, or 9.5%, from RMB 55.7 billion in 2001. This
increase was primarily due to the increased sales volume as well as the
increased sales prices of gasoline. Gasoline sales price increased because of
the increased retail sales proportion as well as the increased sales volume of
higher grade gasoline. Sales volume of gasoline in 2002 was 21.36 million
tonnes, representing an increase of 1.09 million tonnes, or 5.4%, from 20.27
million tonnes in 2001. In addition, the sales volume of gasoline with octane
level #90 and higher as a percentage of the segment's total gasoline sales
volume was further enhanced, representing an increase of 31% from 4.41 million
tonnes in 2001 to 5.78 million tonnes in 2002.
Sales revenues of diesel were RMB 107 billion, representing an increase
of RMB 3.2 billion, or 3.1%, from RMB 103.8 billion in 2001. The increase was
primarily due to the increased sales volume of diesel.
Sales revenue of kerosene including jet fuel was RMB 9.2 billion in
2002, representing a decrease of RMB 1.1 billion, or 11.3%, from RMB 10.3
billion in 2001. The decrease was primarily due to the decline of the average
realized prices of kerosene including jet fuel.
o In 2002, the retail sales volume of gasoline increased to 12.34
million tonnes, representing an increase of 1.5 million tonnes,
or 13.8%, from 10.84 million tonnes in 2001; and the average
realized retail sales price of gasoline was RMB 3,061.82 per
tonne, representing an increase of 4.3% compared with RMB
2,934.55 per tonne in 2001;
o In 2002, the wholesale sales volume of gasoline (excluding direct
distribution sales volume and those directly sold to special
customers) was 7.26 million tonnes, representing a decrease of
0.68 million tonnes, or 8.6%, from 7.94 million tonnes in 2001;
and the average realized wholesale sales price of gasoline was
RMB 2,585.31 per tonne, representing an increase of 1.9% compared
with RMB 2,536.2 per tonne in 2001;
o In 2002, the direct distribution sales volume of gasoline was
1.04 million tonnes, representing an increase of 0.36 million
tonnes, or 52.9%, from 0.68 million tonnes in 2001; and the
average realized price for the direct distribution sales of
gasoline was RMB 2,693.28 per tonne, representing an increase of
1.9% compared with RMB 2,642.34 per tonne in 2001; and
o In 2002, the direct sales volume of gasoline to special customers
was 0.72 million tonnes, representing a decrease of 0.14 million
tonnes, or 16.3%, from 0.86 million tonnes in 2001; and the
average realized price of gasoline sold to special customers was
RMB 2,312.75 per tonne, representing a decrease of 5.9% compared
with RMB 2,457.12 per tonne in 2001.
In 2002, the sales revenues of diesel were RMB 107 billion, representing
an increase of RMB 3.2 billion, or 3.1%, from RMB 103.8 billion in 2001. The
increase was primarily due to the increased sales volume of diesel. In 2002,
the sales volume of diesel was 44.5 million tonnes, representing an increase of
1.95 million tonnes, or 4.6%, from 42.55 million tonnes in 2001; the average
realized sales price of diesel was RMB 2,404.85 per tonne, representing a
decrease of RMB 35.6 per tonne, or 1.5%, compared with RMB 2,440.45 per tonne
in 2001.
o In 2002, the retail sales volume of diesel increased to 17.16
million tonnes, representing an increase of 1.34 million tonnes,
or 8.5%, from 15.82 million tonnes in 2001; and the average
realized retail sales price of diesel was RMB 2,562.49 per tonne,
representing a decrease of 1.1% compared with RMB 2,590.59 per
tonne in 2001;
o In 2002, the wholesale sales volume of diesel (excluding the
direct distribution sales volume and those directly sold to
special customers) was 17.85 million tonnes, representing a
decrease of 1.12 million tonnes, or 5.9%, from 18.97 million
tonnes in 2001; and the average realized wholesale sales price of
diesel was RMB 2,297.06 per tonne, representing a decrease of
2.6% compared with RMB 2,357.51 per tonne in 2001;
o In 2002, the direct distribution sales volume of diesel was 5.48
million tonnes, representing an increase of 2.38 million tonnes,
or 76.8%, from 3.1 million tonnes in 2001; and the average
realized price for the direct distribution sales of diesel was
RMB 2,397.89 per tonne, representing a decrease of 1.7% compared
with RMB 2,438.83 per tonne in 2001;
o In 2002, the direct sales volume of diesel to special customers
was 4.01 million tonnes, representing a decrease of 0.65 million
tonnes, or 13.9%, from 4.66 million tonnes in 2001; and the
average realized price of diesel sold to special customers was
RMB 2,219.39 per tonne, representing a decrease of 2.2% compared
with RMB 2,269.32 per tonne in 2001.
Sales revenue of kerosene including jet fuel was RMB 9.2 billion in
2002, representing a decrease of RMB 1.1 billion, or 11.3%, from RMB 10.3
billion in 2001. The decrease was primarily due to the decline of the average
realized prices of kerosene including jet fuel. The average realized price of
kerosene including jet fuel was RMB 2,111.92 per tonne in 2002, representing a
decrease of 23.4% compared with RMB 2,757.0 per tonne in 2001.
Operating expenses of the marketing and distribution segment were RMB
178.6 billion in 2002, representing a decrease of RMB 2.3 billion, or 1.3%,
from RMB 180.9 billion in 2001. The purchase costs of gasoline and diesel in
2002 were RMB 146.2 billion, accounting for 81.9% of the total operating
expenses of this segment. The average purchase cost of gasoline and diesel
decreased from 2001 by 8.6% and 6.4%, respectively, to RMB 2,357.28 per tonne
and RMB 2,155.17 per tonne in 2002, respectively.
Operating income of the marketing and distribution segment was RMB 8.4
billion, representing an increase of RMB 6 billion, or 250%, from 2001. Such
increase was primarily because, as the general market conditions improved, the
total sales volume of refined products increased. The increase was also due to
the increased retail proportion in the total sales volume as well as the
increased sales volume of higher grade gasoline.
Over the year, operating income of the marketing and distribution
segment gradually improved from a sluggish start in January and February 2002,
at which time the refined products prices were at the lowest level for the
entire year. With the gradual recovery of prices of crude oil and refined
products on the international market after March 2002, we closely monitored the
market changes with a view to capturing the favorable opportunities presented
and further optimizing our deployment of the resources for refined products. In
response to the market demand, we adopted a number of effective initiatives
including tighter control of our crude oil throughput and the volume of refined
products we made available in the domestic market. As a result, the performance
of the marketing and distribution segment improved significantly over the year.
Chemicals Segment
Our chemicals segment consists of operations related to purchasing
chemical feedstock from our refining segment, producing, marketing and
distribution of petrochemical products and inorganic chemical products.
Year Ended December 31, 2003 Compared with Year Ended December 31, 2002
In 2003, the chemicals segment's operating revenue were RMB 92.3 billion
(US$11.2 billion), representing an increase of 22.9% compared with 2002. This
increase was mainly due to significant increases in sales volumes and sales
prices of all major categories of chemical products except chemical
fertilizers, as a result of the strong domestic demand for chemical products.
The strong domestic demand corresponded to the gradual recovery of the global
chemical market. In order to increase production volume for our chemical
products, we revamped certain of our ethylene and other downstream facilities,
which increased our production capacity of certain chemical products.
The sales revenues of the six major product categories of this segment,
namely basic organic chemicals, synthetic resin, synthetic rubber, synthetic
fiber, synthetic fiber monomer and polymer, and chemical fertilizer, were
approximately RMB 83.1 billion (US$10.0 billion), accounting for 90.0% of the
segment's operating revenues, representing an increase of 26.3% compared with
2002.
The following table sets forth the sales volume, average realized prices
and respective percentages changes of these six major categories of chemical
products of the segment in 2002 and 2003.
Rate of Change Average Rate of Change
Sales Volumes from 2002 to 2003 Realized Prices from 2002 to 2003
------------- ----------------- --------------- -----------------
2002 2003 2002 2003
---- ---- ---- ----
(million tonnes) (%) (RMB per tonne) (%)
Basic organic chemicals............... 7.23 7.80 7.9% 2,748 2,815 2.4%
Synthetic resins...................... 3.83 4.52 18.0 5,247 6,042 15.2
Synthetic rubber...................... 0.51 0.55 7.8 6,468 8,513 31.6
Synthetic fiber....................... 1.18 1.33 12.7 8,435 9,639 14.3
Synthetic fiber monomers
and polymers.................... 1.80 2.41 33.9 5,362 5,788 7.9
Chemical fertilizer................... 2.72 2.03 (25.4)% 1,084 1,165 7.5%
In 2003, the chemicals segment's operating expenses were RMB 90.1
billion (US$10.9 billion), representing an increase of RMB 15.6 billion (US$1.9
billion), or 21.1%, from 2002. Partly because the segment expanded and upgraded
certain ethylene and other downstream facilities, production significantly
increased. As a result, expenses on various feedstock and auxiliary materials,
other variable expenses and fixed costs all increased. Among others:
o Consumption of feedstock and auxiliary materials increased by 2.74
million tonnes, the average unit price increased by RMB 228
(US$27.5) per tonne. As a result, the purchased costs of feedstock,
operating supplies and related expenses increased by approximately
RMB 12.6 billion (US$1.5 billion) compared with 2002.
o The losses on disposal of low-efficiency assets increased by RMB
0.89 billion (US$107.5 million) as a result of the segment's
efforts to optimize its asset structure.
o Provision for the impairment losses on assets increased by RMB
0.45 billion (US$54.4 million).
o The losses on disposal of spare parts increased by RMB 0.27
billion (US$32.6 million).
o Selling expenses increased by RMB 0.18 billion (US$21.7 million),
due to the increases in the production and sales volumes.
o Depreciation and amortization were RMB 8.0 billion (US$1.0
billion), representing an increase of RMB 0.14 billion (US$16.9
million) over 2002.
In 2003, the segment's operating income was RMB 2.2 billion (US$260.9
million), representing an increase of approximately RMB 1.6 billion (US$193.3
million) from 2002. The increase was largely because the segment has completed
expansion and upgrading of certain of its facilities, which resulted in the
increase of production and sales volumes of major products. In addition, sales
prices of a number of major products also contributed to the increased
operating income.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
Operating revenues of the chemicals segment in 2002 were RMB 75.1
billion, representing an increase of RMB 11.0 billion, or 17.2%, from RMB 64.1
billion in 2001. The increase was largely due to a significant increase of
sales volume of various chemical products as their production capacities
increased after the relevant facilities completed their revamp in 2002. The
sales revenues of the segment's six major chemical product categories (namely,
basic organic chemicals, synthetic resins, synthetic rubbers, synthetic fiber,
synthetic fiber monomers and polymers and chemical fertilizers) were
approximately RMB 65.8 billion, accounting for 87.6% of the operating revenues
of the segment, and increased by RMB 11.4 billion, or 21.0%, from RMB 54.4
billion in 2001.
The following table sets forth sales volumes and average realized prices
by product category for 2001 and 2002, as well as the respective percentage
changes between 2001 and 2002.
Rate of Change Rate of Change
from Average from
Sales Volume 2001 to 2002 Realized Prices 2001 to 2002
-------------- ------------ --------------- ------------
2001 2002 2001 2002
---- ---- ---- ----
(million tonnes) (%) (RMB per tonne) (%)
Basic organic chemicals............... 5.29 7.23 36.7 2,428 2,748 13.2
Synthetic resins...................... 3.14 3.83 22.0 5,532 5,247 (5.2)
Synthetic rubbers..................... 0.47 0.51 8.5 6,239 6,468 3.7
Synthetic fibers...................... 1.08 1.18 9.3 8,512 8,435 (0.9)
Synthetic fiber monomers
and polymers.................... 1.80 1.80 0.0 5,139 5,362 4.3
Chemical fertilizers.................. 2.73 2.72 (0.4)% 996 1,084 8.8%
Operating expenses of the chemical segment in 2002 were RMB 74.5
billion, representing an increase of 15.9% compared with RMB 64.3 billion in
2001. The increase was largely because various expenses such as purchased
feedstock, fuels, utilities and ancillary materials increased as a result of
the increased production of various chemical products after the completion of
the revamping products for certain ethylene and downstream facilities. Among
the increased expenses,
o the consumption of feedstock increased by 0.93 million tonnes in
2002 compared with that in 2001, and their average unit price
increased by RMB 253 per tonne, the combination of which led to
an increase of approximately RMB 6.6 billion, or 18.6%, in the
purchased products and operating supplies and expenses;
o the increased consumption of fuels, utilities and ancillary
materials also led to an increase of approximately RMB 1.9
billion, or 21.8%, in such expenses;
o the significant increase in production and sales volume increased
the selling, general and administrative expenses in 2002 by
approximately RMB 0.5 billion, or 18.5% compared with that in
2001; and
o the depreciation and amortization amounted to RMB 7.1 billion in
2002, representing an increase of approximately RMB 0.4 billion,
or 6%, from 2001.
Operating income of the chemicals segment in 2002 was RMB 0.6 billion,
representing an increase of approximately RMB 0.8 billion compared with the
operating loss of approximately RMB 0.2 billion in 2001. The increase was
largely due to the increased production and sales volume of certain major
chemical products after the relevant production facilities were revamped for
increased production capacity.
Corporate and others
Our corporate and others mainly involves trading activities of our
import and export subsidiaries, and our research and development activities as
well as other activities at our corporate headquarters.
Year Ended December 31, 2003 compared with Year Ended December 31, 2002
In 2003, the operating revenues of corporate and others were
approximately RMB 63.6 billion (US$7.7 billion), representing an increase of
39.2% from 2002. Such operating revenues mainly consisted of the consolidated
operating revenues of Sinopec International Co., Ltd. and its subsidiaries. The
increase was largely because we increased our import and export trading volume
and other business transactions to capture the opportunities presented by the
high prices of crude oil and petroleum products.
In 2003, the operating expenses of corporate and others were
approximately RMB 65.6 billion (US$7.9 billion), representing an increase of
40.2% from 2002. The increase was largely because the purchasing costs of
Sinopec International Co., Ltd. and its subsidiaries increased concurrently
with its increased revenue.
In 2003, the operating losses of the corporate and others segment were
approximately RMB 2 billion (US$241.6 million), representing an increase of RMB
0.9 billion (US$108.7 million) over 2002. The increase was primarily due to the
incurrence of RMB 1.6 billion (US$193.3 million) in research development
expenses by our headquarters and research institutes in 2003, representing an
increase of approximately RMB 0.5 billion (US$60.4 million) compared with 2002.
In addition, expenses of RMB 0.12 billion (US$14.5 million) related to the
stock appreciation rights were recorded in 2003 under "corporate and others".
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
Operating revenues of corporate and others segment in 2002 were
approximately RMB 45.7 billion, representing an increase of RMB 19.7 billion,
or 75.7%, from 2001. The increase was primarily because some of our
subsidiaries consolidated under the corporate and others segment significantly
expanded their independent trading operations of crude oil and refined products
on the international market.
Operating expenses of corporate and others segment in 2002 were
approximately RMB 46.8 billion, representing an increase of RMB 20.9 billion,
or 80.7%, compared with that in 2001. The increase was largely due to the
increased purchase expenses associated with the increased trading activities of
these subsidiaries.
The corporate and others segment had an operating loss of approximately
RMB 1.1 billion in 2002, representing a decrease of approximately RMB 1.2
billion compared with the operating income of RMB 0.1 billion in 2001. The
decline was primarily due to the increased expenses in our corporate
headquarters as follows:
o the R&D expenses increased by RMB 0.22 billion in 2002 compared
with that in 2001;
o we recovered RMB 0.18 billion of aged receivables in 2001 that
were previously provided for resulting in a reduction of the
allowance for doubtful accounts, while no such item in 2002; and
o the expenses related to the management information system
increased by RMB 0.1 billion in 2002 from 2001.
D. LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funding have been cash provided by operating
activities and short and long-term borrowings and our primary uses of funds
have been for working capital, capital expenditures and repayment of short-term
and long-term borrowings.
As of December 31, 2003, our short-term debts (including short-term
loans from Sinopec Group Company and its affiliates) were RMB 29.1 billion
(US$3.5 billion) (including the current portion of long-term debts which was
RMB 8.2 billion (US$1.0 billion)) and accounted for 26.9% of our total
short-term and long-term debts (which long-term debts include interest free
subordinated loan from Sinopec Group Company in the amount of RMB 35.6 billion
due in 2020).
In March 2004, we issued 10-year domestic corporate bonds of RMB3.5
billion (US$422.9 million) at an interest rate of 4.61% per year. The issuance
of bonds can broaden our financing channel and reduce the financing costs. The
proceeds raised are used to fund our capital expenditures.
Our future debt level is dependent primarily on results of operations,
the capital expenditure plan and cash that may be generated from assets
dispositions. We believe that we have substantial borrowing capacity to meet
unanticipated cash requirements.
The following table sets forth a condensed summary of the statements of
cash flows for the periods indicated and selected balance sheet items at the
end of the periods indicated.
For the Years Ended
December 31,
------------
2001 2002 2003 2003
---- ---- ---- ----
RMB RMB RMB US$
(in billions)
Net cash from operating activities:
Net cash provided by operations(1).............................. 52.9 56.5 69.8 8.4
Changes in working capital and other
assets and liabilities(2)..................................... 14.0 10.2 4.5 0.6
Net interest and cash tax (paid)(3)............................. (10.2) (11.6) (13.7) (1.7)
------ ------ ------ -----
Total.................................................... 56.7 55.1 60.6 7.3
Cash flows from investing activities:
Capital expenditure including capital expenditure of jointly
controlled entities......................................... (56.2) (42.2) (48.1) (5.8)
Purchase of investments net of proceeds from disposal of
investments................................................... (3.1) (1.8) (1.4) (0.2)
Increase in time deposits less maturity of time deposits........ 20.0 0.8 (1.2) (0.1)
Net changes in other activities(4) ............................. 0.5 0.4 0.4 0.0
------ ------ ------ -----
Total.................................................... (38.8) (42.8) (50.3) (6.1)
Cash flows from financing activities:
Proceeds from public offering, net of issuing expenses.......... 11.6 --- --- ---
Proceeds from bank and other loans including those of jointly
controlled entities, net of repayments........................ (14.5) (6.9) (5.6) (0.7)
Contribution from minority interest, net of distributions to
minority interests............................................ (0.4) (0.2) 0.2 0.0
Cash and cash equivalents distributed to Sinopec Group
Company . (6.4) --- --- ---
Divended paid (6.7) (8.7) (7.8) (0.9)
------ ------ ------ -----
Total.................................................... (16.4) (15.8) (13.2) (1.6)
------ ------ ------ -----
Net increase/(decrease) in cash and cash equivalents............... 1.5 (3.5) (2.9) (0.4)
====== ====== ====== =====
Cash and cash equivalents at end of year........................... 21.7 18.2 15.2 1.8
____________
(1) Represents income/(loss) before income tax and minority interests as
adjusted for depreciation, depletion and amortization, dry hole cost,
income from associates, investment income, interest income, interest
expense, gain from issuance of shares by a subsidiary, unrealized
foreign exchange (gains)/losses, loss on disposal of property, plant and
equipment, and impairment losses on long-lived assets.
(2) Represents decreases/(increases) in current assets,
increases/(decreases) in current liabilities and increases in other
assets, net of other liabilities.
(3) Represents interest received, interest paid, investment income received,
and income tax paid.
(4) Represents proceeds from disposal of property, plant and equipment and
repayments of loans from associates and jointly controlled entities.
Net Cash from Operating Activities
Net cash provided by operations, which represents income/(loss) before
income tax and minority interests as adjusted for depreciation, depletion and
amortization, dry hole cost, income from associates, investment income,
interest income, interest expense, gain from issuance of shares by a
subsidiary, unrealized foreign exchange (gains)/losses, loss on disposal of
property, plant and equipment, and impairment losses on long-lived assets,
increased from RMB 56.5 billion in 2002 to RMB 69.8 billion (US$8.4 billion) in
2003. The increase was primarily due to the increased income before income tax
and minority interests reflecting our better operating results in 2003. Net
cash provided by working capital and other assets, which represents
decreases/(increases) in current assets, increases/(decreases) in current
liabilities and increases in other assets, net of other liabilities, was RMB
4.5 billion (US$0.6 billion) in 2003, which decreased from RMB 10.2 billion in
2002 due to our efforts to strengthen our control over working capital, collect
accounts receivable and reduce occupancy of funds by various current assets. We
believe our working capital is sufficient to meet our present working capital
requirement. Net cash provided by operations, working capital and other assets
was partially offset by the net interest and tax paid of RMB 13.7 billion
(US$1.7 billion). Net interest and tax paid in 2003 consisted primarily of RMB
4.6 billion (US$0.6 billion) of interest payments and RMB 9.5 billion (US$1.1
billion) of income tax paid.
Cash Flows from Investing Activities
Our cash outflows for capital expenditure projects amounted to RMB 56.2
billion, RMB 42.2 billion and RMB 44.0 billion (US$5.3 billion) in 2001, 2002
and 2003, respectively. In addition, we had RMB 4.1 billion (US$0.5 billion) in
capital expenditure on our jointly controlled entities.
We made investments of RMB 3.4 billion, RMB 2.2 billion and RMB 1.5
billion (US$0.2 billion) in 2001, 2002 and 2003, respectively, in a variety of
joint ventures and associates. We also realized RMB 0.7 billion, RMB 0.8
billion and RMB 0.5 billion (US$0.1 billion) in 2001, 2002 and 2003,
respectively, from the disposal of investments and property, plant and
equipment.
Cash flow from investing activities in 2003 also included RMB 1.2
billion (US$0.1 billion) in increase in time deposits less maturity of time
deposits.
Cash Flows from Financing Activities
Net cash used in financing activities was RMB (13.2) billion (US$(1.6)
billion) in 2003, primarily because our repayment of bank and other loans
exceeded proceeds from bank and other loans (including loans of jointly
controlled entities) by RMB 5.6 billion (US$0.7 billion). The net cash outflow
was also due to the dividend paid in 2003 of RMB 7.8 billion (US$0.9 billion).
Cash and cash equivalents as of December 31, 2003 were RMB 15.2 billion
(US$1.8 billion) as compared to RMB 18.2 billion as of December 31, 2002. As we
further strengthened our cash management in 2003, cash and cash equivalents
healthily reduced as funds were better used and overall efficiency was
improved.
Contractual Obligations and Commercial Commitments
The following table sets forth our obligations and commitments to make
future payments under contracts and under contingent commitments as of December
31, 2003.
As of December 31, 2003
-----------------------
Payment due by period
-----------------------
less than After 5
Total 1 year 1-3 years 4-5 years years
----- ------ --------- --------- -------
(RMB millions)
Contractual obligations(1)
Short-term debts......................... 20,904 20,904 - - -
Long-term debts.......................... 87,396 8,175 23,798 15,938 39,485
-------- ------- ------- ------- -------
Total contractual obligations............ 108,300 29,079 23,798 15,938 39,485
======== ======= ======= ======= =======
Other commercial commitments(2)
Operating lease commitment............... 115,661 3,276 6,429 6,337 99,619
Capital commitment....................... 55,030 51,439 3,591 - -
Exploration and production licenses...... 789 87 204 137 361
Guarantees(3)............................ 4,955 4,955 - - -
-------- ------- ------- ------- -------
Total commercial commitments............. 176,435 59,757 10,224 6,474 99,980
======== ======= ======= ======= =======
_________
(1) Contractual obligations represent on-balance sheet contractual liability
as of the balance sheet date.
(2) Other commercial commitments represent off-balance sheet contingent
liabilities, and other potential cash outflows (as of the balance sheet
date) which may result from contingent events.
(3) Guarantee is not limited by time, therefore specific payment due period is
not applicable. As of December 31, 2003, we have not entered into any
off-balance sheet arrangements other than guarantees given to banks in
respect of banking facilities granted to certain parties. As of December
31, 2003, the maximum amount of potential future payments under the
guarantees was RMB 4,955 million. We monitor the conditions that are
subject to the guarantees to identify whether a loss is probable, and will
recognize any such loss under guarantees when those losses are estimable.
As of December 31, 2003, it was not probable that we would be required to
make payments under these guarantees. See note 26 to the consolidated
financial statements for further information of the guarantees.
Historical and Planned Capital Expenditure
The following table sets forth our capital expenditure by segment for
each of the years ended December 31, 2001, 2002 and 2003 and the capital
expenditure in each segment as a percentage of our total capital expenditure
for such year.
2001 2002 2003 Total
RMB Percent RMB Percent RMB Percent RMB Percent
(in billions, except percentage data)
Exploration and production . 20.3 35% 20.2 48% 20.6 46% 61.1 42%
Refining..................... 9.1 15 6.7 16 9.7 22 25.5 18
Marketing and distribution... 17.3 29 7.0 17 6.8 15 31.1 21
Chemicals.................... 12.0 20 7.4 18 7.4 16 26.8 18
Corporate.................... 0.5 1 0.8 1 0.5 1 1.8 1
---- ---- ---- ---- ---- ---- ----- ----
Total................... 59.2 100% 42.1 100% 45.0 100% 146.3 100%
===== ==== ==== ==== ==== ==== ===== =====
In 2003, our capital expenditure was RMB 45.0 billion (US$5.4 billion).
Among which, the capital expenditure for our exploration and production segment
was RMB 20.6 billion (US$2.5 billion). We found new reserves and increased oil
and gas production, reinforced the foundation of our resources, and improved
our profile of the possible, probable and proved reserves. The capital
expenditure for our refining segment was RMB 9.7 billion (US$1.2 billion). With
the investment, a number of facilities were revamped to improve the product
quality and to increase refining capacity. Refining capacity increased by 5.5
million tonnes per annum in 2003. The Ningbo-Shanghai-Nanjing imported crude
oil pipeline was put into operation in May 2004, which would help optimize the
allocation of crude oil and reduce transportation costs. The capital
expenditure for our marketing and distribution segment was RMB 6.8 billion
(US$0.8 billion), which was mainly used to construct pipelines of refined oil
products, and to further optimize the marketing networks by building new gas
stations and upgrading existing gas stations. The investment also helped us
maintain our position in our principal market as well as raise brand awareness
and further enhance customer loyalty. The capital expenditure for our chemicals
segment was RMB 7.4 billion (US$0.9 billion). With the investment, the Qilu
ethylene revamping project was under construction and the chemical fertilizer
revamping projects had all started. In 2003, the ethylene capacity increased by
70,000 tonnes per annum, and capacity of monomers and polymers for synthetic
fibers increased by 770,000 tonnes per annum. The capital expenditure for
corporate and others was RMB 518 million (US$62.6 million), which was
principally used in the construction of information technology system.
In addition, we incurred RMB 4.2 billion (US$0.5 billion) in capital
expenditure in 2003 on our jointly controlled entities including our ethylene
joint venture with BP in Shanghai. In 2003, we plan to spend RMB 50.2 billion
(US$6.1 billion) in capital expenditure. Of our planned capital expenditure,
RMB 19.9 billion (US$2.4 billion) is planned for our exploration and production
segment, RMB 11.8 billion (US$1.4 billion) for our refining segment, RMB 9.5
billion (US$1.1 billion) for our chemicals segment, RMB 8.0 billion (US$1.0
billion) for our marketing and distribution segment and RMB 1.0 billion (US$0.1
billion) for construction of ERP system and other purposes. The focuses of our
capital expenditure in 2004 will be on the following area:
o Exploration and Production Segment While maintaining stable
production and ensuring a balance between newly added reserves
and production in eastern China, efforts are to be made to speed
up the exploration in those new blocks in southern China and in
western China, proactively adjust crude oil and natural gas
resource structure to enhance reserves and production, further
improve reserve series and reduce cost.
o Refining Segment In accordance with the regional demand of
refined products, we intend to speed up the revamping of costal
refineries such as Shanghai Petrochemical, Gaoqiao, Maoming and
Guangzhou refineries. The Ningbo-Shanghai-Nanjing crude oil
pipeline was put into operation in May 2004 to help the
optimization of crude oil resources.
Moreover, we intend to further develop our competitive advantage
for integration of oil refining and chemical production
facilities, further optimize product mix and increase chemical
feedstock production.
o Chemicals Segment We intend to speed up the adjustment on product
mix and technological innovation for chemical business, focus on
core business and increase total production. Emphasis will be
drawn on the second-round upgrading projects for Qilu and Maoming
ethylene facilities and the project of substituting oil by coal
as raw materials in some chemical fertilizer enterprises.
o Marketing and Distribution Segment We intend to complete the
construction of a refined oil products pipeline in southwest
China, and further optimize the marketing and distribution
network. Efforts are to be made to construct gas stations along
expressways and rivers and in rural areas, and to set up
distribution networks in major cities, to our position in the
market, and to improve the Company's profitability and market
share.
In addition, the two world-class ethylene joint ventures with BASF and
BP are at critical construction phase. We plan to, according to schedule
and scale of construction determined by the board of directors of the
two joint ventures and our percentage of shareholdings in the joint
ventures, inject investment in a timely manner. The investment to be
incurred will be included in our investment in associates and our
capital expenditure as appropriate.
We plan to fund the capital and related expenditures principally through
cash provided by operating activities and short- and long-term debts from
domestic as well as overseas sources. Our capital expenditure plans are subject
to a number of risks and uncertainties, and our actual capital expenditures may
vary significantly from these planned amounts due to various factors. See "Item
3 -- Key Information -- Risk Factors -- Our development plans have significant
capital expenditure and financing requirements, which are subject to a number
of risks and uncertainties".
Inflation
Inflation in the PRC has not had a significant impact on our results of
operations in recent years.
US GAAP Reconciliation
Our consolidated financial statements are prepared in accordance with
IFRS which differs in certain material respects from US GAAP. These
differences, as they apply to our consolidated financial statements, relate
primarily to:
o the US GAAP requirement that payments made by Sinopec Group
Company to employees that were transferred to and subsequently
terminated by Sinopec Group Company are charged to current
earnings, whereas under IFRS, such payments are not recorded;
o the US GAAP requirement that investments accounted for by the
equity method while the investee has activities in progress
necessary to commence its planned operations are considered as
qualifying assets for which interest is capitalized, whereas
under IFRS, such investments are not considered as qualifying
assets for which interest is capitalized;
o the US GAAP requirement that foreign exchange differences on
funds borrowed for property, plant and equipment be expensed,
rather than capitalized as is allowed under IFRS;
o the US GAAP requirement that property, plant and equipment be
carried at historical costs less accumulated depreciation
(depreciation expense is based on the historical costs), whereas
under IFRS revalued property, plant and equipment can be carried
in the consolidated financial statements at the revalued amount
less accumulated depreciation (depreciation expense is based on
the revalued amount); and
o the US GAAP requirement that an impairment loss be recognized on
an asset when the sum of the expected undiscounted future cash
flows resulting from the use of the asset and its eventual
disposition is less than the carrying amount of the asset and the
requirement that such impairment loss cannot be reversed, rather
than the IFRS standard which involves the asset's discounted
future expected cash flows and which permits, in some
circumstances, the reversal of amounts previously written down.
See note 33 to the consolidated financial statements for further
information.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. DIRECTORS, supervisors AND SENIOR MANAGEMENT
Directors
The table and discussion below set forth certain information concerning
our directors. Messrs. Li Yizhong, Wang Yi, Zhang Enzhao and Liu Guoguang and
Ms. Huang Min have served up their respective terms as our directors and were
no longer our directors after our extraordinary shareholders' meeting on April
22, 2003 (the "EGM"). Messrs. Chen Tonghai, Wang Jiming, Mou Shuling, Zhang
Jiaren, Cao Xianghong, Fan Yifei, Cao Yaofeng, Liu Kegu were elected as our
directors, and Messrs. Chen Qingtai, Shi Wanpeng, Zhang Youcai, Cao Yaofeng and
Charles Tsu Kwok Ho were elected as our independent directors at the EGM. Mr.
Gao Jian was elected as a director on April 29, 2004, replacing Mr. Liu Kegu
for the remaining of the term. The current term for all our directors is three
years, which will expire in April 2006.
Name Age Positions with the Company
---- --- --------------------------
Chen Tonghai 55 Chairman of the Board of Directors
Wang Jiming 61 Vice Chairman; President
Mou Shuling 59 Director; Senior Vice President
Zhang Jiaren 59 Director; Senior Vice President and Chief
Financial Officer
Cao Xianghong 58 Director; Senior Vice President
Liu Genyuan 58 Director
Liu Kegu 56 Director until April 29, 2004
Gao Jian 54 Director since April 30, 2004
Fan Yifei 40 Employee Representative; Director
Chen Qingtai 66 Independent Non-executive Director
Ho Tsu Kwok Charles 54 Independent Non-executive Director
Shi Wanpeng 66 Independent Non-executive Director
Zhang Youcai 62 Independent Non-executive Director
Cao Yaofeng 50 Employee Representative; Director
Chen Tonghai, 55, is Chairman of the board of directors of Sinopec Corp.
Mr. Chen is also President of Sinopec Group Company. Mr. Chen graduated from
Northeastern Petroleum Institute in 1976 specializing in exploration
engineering. Mr. Chen is a senior economist and a senior level administrator
with extensive management experience in petrochemical industry and
macro-economic control. From March 1983 to December 1986, Mr. Chen was Head of
Zhenhai Petroleum and Petrochemical Plant. From 1986 to 1994, Mr. Chen served
as a Deputy Mayor, Acting Mayor and Mayor of Ningbo City, Zhejiang Province.
From 1994 to 1998, Mr. Chen served as a Vice Minister of the State Development
and Planning Commission. Mr. Chen served as Vice President of Sinopec Group
Company from April 1998 to April 2003 and as Vice Chairman of Sinopec Corp.
from February 2000 to April 2003. Mr. Chen was elected as Director and Chairman
of the second session of the Board of Directors of Sinopec Corp. in April 2003.
Wang Jiming, 61, is Vice Chairman of the board of directors and
President of Sinopec Corp. Mr. Wang graduated from China Eastern Petrochemical
Institute in 1964 specializing in petroleum refining. Mr. Wang is a professor
level senior engineer with over 30 years' management experience in petroleum
and petrochemical industry. From 1984 to 1993, Mr. Wang served as a Vice
President, Acting President and President of Shanghai Petrochemical General
Plant. Mr. Wang served as Chairman and President of Shanghai Petrochemical
Company Limited from June 1993 and served as a Vice President of Old Sinopec
and Chairman of Shanghai Petrochemical Company from February 1994 to April
1998. Mr. Wang served as a Vice President of Sinopec Group Company from April
1998 to February 2000. Mr. Wang has also served as Chairman of Shanghai SECCO
Petrochemical Company Limited from December 2001 to July 2003. Mr. Wang served
as Director of the first session of the Board of Directors and President of
Sinopec Corp. from February 2000 to April 2003. In April 2003, Mr. Wang was
elected as Director and Vice Chairman of the second session of the Board of
Directors of Sinopec Corp. and was appointed as President of Sinopec Corp.
Mou Shuling, 59, is a director and Senior Vice President of Sinopec
Corp. Mr. Mou graduated from Beijing Petroleum Institute in 1968 specializing
in petroleum exploration engineering. Mr. Mou is a professor level senior
engineer and has over 30 years' management experience in China's petroleum
industry. From February 1992 to April 1997, Mr. Mou served as a Deputy Director
and Director of Petroleum Exploration Bureau of Jiangsu Province. From April
1997 to April 1998, Mr. Mou served as Director of Shengli Petroleum
Administration Bureau. Mr. Mou has been a Vice President of Sinopec Group
Company from April 1998 to February 2000. Mr. Mou has been a director of
Sinopec Corp since February 2002 and was a Vice President of Sinopec Corp. from
February 2000 to April 2003. In April 2003, Mr. Mou was elected as Director of
the second session of the Board of Directors of Sinopec Corp. and was appointed
as Senior Vice President of Sinopec Corp.
Zhang Jiaren, 59, is a director, Senior Vice President and Chief
Financial Officer of Sinopec Corp. Mr. Zhang graduated from Hefei Industrial
University in 1966 specializing in electrical engineering. Mr. Zhang is a
professor level senior economist with over 30 years' management experience in
petrochemical industry. From August 1987 to July 1994, Mr. Zhang served as a
Vice President and President of Zhenhai Petroleum and Petrochemical Plant, a
subsidiary of Old Sinopec. In July 1994, Mr. Zhang served as Chairman and
President of Zhenhai Refining and Petrochemical Company. Mr. Zhang served as a
Vice President of Sinopec Group Company from April 1998 to February 2000. Mr.
Zhang served as Director of the first session of the Board of Directors and
Vice President of Sinopec Corp. from February 2000 to April 2003. Mr. Zhang has
been Chief Financial Officer of Sinopec Corp. since March 2000. In April 2003,
Mr. Zhang was elected as Director of the second session of the Board of
Directors of Sinopec Corp. and was appointed as Senior Vice President and Chief
Financial Officer of Sinopec Corp.
Cao Xianghong, 58, is a director and Senior Vice President of Sinopec
Corp. Mr. Cao graduated from Nanjing Petrochemical Institute in 1967
specializing in high polymer chemistry. Mr. Cao is a professor level senior
engineer and an Academician of China Academy of Engineering. Mr. Cao has over
30 years' management experience in China's petrochemical industry. From July
1984 to August 1997, Mr. Cao served as a Vice President and Chief Engineer of
Beijing Yanshan Petrochemical Company, a subsidiary of Old Sinopec. From August
1997 to February 2000, Mr. Cao served as President, Vice Chairman and Chairman
of Beijing Yanshan Petrochemical Company Limited and Chairman of Beijing Yanhua
Petrochemical Company Limited. Mr. Cao has been a Director of Sinopec Corp.
since February 2000 and was a Vice President of Sinopec Corp. from February
2000 to April 2003. In April 2003, Mr. Cao was elected as Director of the
second session of the Board of Directors of Sinopec Corp. and was appointed as
Senior Vice President of Sinopec Corp.
Liu Genyuan, 58, is a director of Sinopec Corp. Mr. Liu is Managing Vice
President of Sinopec Group Company. Mr. Liu graduated from Shanghai Science and
Technology University in July 1968 specializing in radiation chemistry. He is a
professor level senior economist and has over 30 years' extensive management
experience in China's petroleum and petrochemical industry. From May 1995 to
July 2001, he served as President of Shanghai Gaoqiao Petrochemical Company.
Mr. Liu has been Managing Vice President of Sinopec Group Company since July
2001. Mr. Liu was elected as Director of the second session of the Board of
Directors of Sinopec Corp. in June 2003.
Liu Kegu, 56, is a director of Sinopec Corp. Mr. Liu is Vice President
of China Development Bank. Mr. Liu graduated from the Renmin University of
China in February 1982 specializing in politics and economics. He then obtained
a doctorate degree from Northeast Finance University in July 2000 specializing
in finance. Mr. Liu was engaged in economic management over a long period of
time, and has accumulated extensive experience in macro-economic management.
From September 1986 to March 1990, he was Vice President of Beijing Public
Transportation Company. From March 1990 to October 1996, he served as Vice
Chairman of Financial Structure and Tax System Reform Bureau, and then as
Chairman of Taxation Administration Bureau, of State Ministry of Finance. From
October 1996 to May 1999, he was the assistant to President of Liaoning
Province. From May 1999 to September 2002, he served as Vice President of
Liaoning Province. Mr. Liu has been Vice President of China Development Bank
since September 2002. Mr. Liu was elected as Director of the second session of
the Board of Directors of Sinopec Corp. in June, 2003.
Gao Jian, 54, is the Deputy Governor of the State Development Bank. In
September 1982, Mr Gao graduated from the Beijing Institute of Political
Science and Law as a postgraduate specialising in politics and economics. In
July 1992, he graduated from the Finance and Science Research Institute of the
Ministry of Finance of the State with a Ph.D degree specialising in finance.
From November 1997 to June 1998, he conducted postdoctoral researches at the
Faculty of Economics at Harvard University, USA and is a Senior Economist. Mr
Gao has been engaged in researches in economic theories and financial
management for a long period of time and has extensive experience in economics
and financial management. From January 1989 to April 1994, he had been the
Deputy Head of the Department of Treaty and Law of the Ministry of Finance and
the Deputy Head of the State Liabilities Management Department. From April 1994
to October 1998, he was the Head of the State Liabilities Department and the
Head of the Department of Treaty and Law of the Ministry of Finance. From
October 1998 to April 2001, he was the Chief Economist, the Head of the Funds
Bureau and, concurrently, the Chief Representative of the Hong Kong
Representative Office of the State Development Bank. From April 2001 to July
2003, he was the Assistant to the Head of the Funds Bureau and, concurrently,
the Chief Representative of the Hong Kong Representative Office of the State
Development Bank. Since July 2003, he is the Deputy Governor of the State
Development Bank. Mr. Gao has been our director since April 30, 2004.
Fan Yifei, 40, is a director of Sinopec Corp. Mr. Fan is Assistant to
the Governor of China Construction Bank. Mr. Fan graduated from Changzhou
Financial and Economic School in July 1982 specializing in infrastructure
finance and credit. He obtained a master's degree in finance from the Financial
Science Research Institute of the Ministry of Finance in September 1990. In
July 1993, he obtained a doctoral degree in finance from the Renmin University
of China. He is a senior accountant. He has long engaged in financial
management work, and has relatively extensive experience in financial
management. From February 1994 to September 1994, he was the Assistant to the
General Manager and Manager of the Finance Department of the Trust Investment
Company of China Construction Bank. From September 1994 to July 1996, he served
as a Deputy Director of the Capital Planning Department of China Construction
Bank. He was the General Manager of the Finance and Accounting Department of
China Construction Bank from July 1996 to January 1998. He was the General
Manager of the Planning and Finance Department of China Construction Bank from
January 1998 to February 2000. He has been the Assistant to the Governor of
China Construction Bank since February 2000. Mr. Fan was elected as Director of
the second session of the Board of Directors of Sinopec Corp. in April 2003.
Chen Qingtai, 66, is an independent non-executive director of Sinopec
Corp. Mr. Chen graduated from Tsinghua University in 1964 specializing in power
and dynamics engineering. Mr. Chen is a researcher and a economist in China.
From October 1982 to July 1992, Mr. Chen was Chief Engineer, President and
Chairman of China No. 2 Automobile Works. From July 1992 to April 1993, Mr.
Chen served as a Deputy Director of the State Council Economic and Trade
Office. From April 1993 to March 1998, Mr. Chen served as Deputy Director of
State Economic and Trade Commission. Since July 2000, he has been Director of
the Public Management College under Tsinghua University. Mr. Chen has been Vice
Minister of State Council Development and Research Center and a member of the
National Committee of the tenth session of Chinese People's Political
Consultative Conference since March, 2003. Mr. Chen served as Independent
Non-executive Director of the first session of the Board of Directors of
Sinopec Corp. from February 2000 to April 2003. In April 2003, Mr. Chen was
elected as Independent Non-executive Director of the second session of the
Board of Directors of Sinopec Corp.
Ho Tsu Kwok Charles, 54, is an independent non-executive director of
Sinopec Corp. Mr. Ho is President and a director of Hong Kong Tobacco Company
Limited, a cigarette manufacturer and distributor in the Asia Pacific. Mr. Ho
is also Chairman and a director of Global China Investments Limited, a
joint-venture with a Canadian provincial government pension fund, the Ontario
Municipal Employees Retirement System, and he is responsible for devising
investment and management strategies of Global China Investments Limited. Mr.
Ho is the Honorary Chairman and a non-executive director of Sing Tao Holdings
Limited, and a non-executive director of China National Aviation Company
Limited, each listed on the Hong Kong Stock Exchange. Mr. Ho is also a member
of the Chinese People's Political Consultative Conference and a member of
Economic Consultative Advisor to the Shandong Provincial Government. He is a
Trustee of the University of International Business and Economics of China and
an Honorary Trustee of Peking University and the Chinese University of Hong
Kong. Mr. Ho is also a member of the tenth session of the National Committee of
the Chinese People's Political Consultative Conference. Mr. Ho served as
Independent Non-executive Director of the first session of the Board of
Directors of Sinopec Corp. from June 2000 to April 2003. In April 2003, Mr. Ho
was elected as Independent Non-executive Director of the second session of the
Board of Directors of Sinopec Corp.
Shi Wanpeng, 66, is an independent non-executive director of Sinopec
Corp. Mr. Shi is a member of the Ninth Session of the National Committee of the
Chinese People's Political Consultative Conference. Mr. Shi graduated from
Northern Jiaotong University in August 1960 specializing in railway
transportation administration. He is a professor level senior engineer. He has
long engaged in economic management work, and has extensive experience in
macro-economic control. From January 1983 to January 1987, he served as a
Deputy Director of the Transport Bureau of the State Economic Commission. From
January 1987 to May 1988, he was the Director of the Economic and Technical
Co-operation Bureau of the State Economic Commission. From May 1988 to July
1991, he was the Director of the Production and Dispatch Bureau of the State
Planning Commission. From July 1991 to July 1992, he served as a Deputy
Secretary General of the Production Office of the State Council. From July 1992
to April 1993, he served as a Deputy Director of the Economic and Trade Office
of the State Council. From April 1993 to July 1997, he was a Vice Minister of
the State Economic and Trade Commission. From July 1997 to March 1998, he was
the Chairman (minister level) of the China Textiles Association. From March
1998 to February 2002, he served as a Vice Minister of the State Economic and
Trade Commission. He has been a member of the National Committee of the tenth
session of the Chinese People's Political Consultative Conference and Deputy
Director of its Economic Committee since March 2003. Mr. Shi was elected as
Independent Non-executive Director of the second session of the Board of
Directors of Sinopec Corp. in April 2003.
Zhang Youcai, 62, is an independent non-executive director of Sinopec
Corp. Mr. Zhang is Chairman of The Chinese Institute of Chief Accountants. Mr.
Zhang graduated from Nanjing Industrial University in August 1965 specializing
in inorganic chemistry. He is a professor. He has long engaged in business
administration, financial management and government work, and has extensive
experience in industrial, economic, financial and accounting management. From
January 1968 to August 1980, he served as a technician, Vice-president, Deputy
Secretary of the Party Committee and President, respectively, of Nantong
Chemical Fertilizer Plant. From August 1980 to January 1982, he was a Deputy
Director and a member of the Leading Party Group of the Industrial Bureau of
Nantong Region. From January 1982 to February 1983, he served as a Deputy
Director of the Planning Commission of Nantong Region. From February 1983 to
November 1989, he served as a Deputy Mayor, Deputy Secretary of the Party
Committee and Mayor, respectively, of Nantong City. He was a Vice Minister and
a member of the Leading Party Group of the Ministry of Finance from December
1989 to July 2002 (from May 1994 to March 1998 of this period, he served
concurrently as the Director of the State-owned Assets Administration Bureau).
He has been the Chairman of The Chinese Institute of Chief Accountants since
November 2002. He has also been the member of the standing committee of the
tenth session of the National People's Congress and Deputy Director of its
Financial and Economic Committee since March 2003. Mr. Zhang was elected as
Independent Non-executive Director of the second session of the Board of
Directors of Sinopec Corp. in April 2003.
Cao Yaofeng, 50, is a director of Sinopec Corp. Mr. Cao is Chairman of
the board of directors of Sinopec Shengli Oilfield Company Limited. Mr. Cao
graduated from the General Section of East China Petroleum Institute in
September 1977 specializing in mining machinery. He obtained a master's degree
in mechanical design and theories from the Petroleum University (East China) in
June 2001. He is a professor level senior engineer. From April 1997 to February
2002, he was a Deputy Director of Shengli Petroleum Administration Bureau under
China Petrochemical Group Company. He acted concurrently as a Vice-chairman of
the board of directors of Sinopec Shengli Oilfield Company Limited in May 2000.
From December 2001 to December 2002, he was a director and the General Manager
of Sinopec Shengli Oilfield Company Limited. He has also been the Chairman of
the board of directors of Sinopec Shengli Oilfield Company Limited since
December 2002. Mr. Cao was elected as Employee Representative Director of the
second session of the Board of Directors of Sinopec Corp. in April 2003.
Supervisors
The table and discussion below set forth certain information concerning
our supervisors. Messrs. Yu Qingbo, Hou Shaojian and Jiang Baoxing have served
up their respective terms as our supervisors and were no longer our supervisors
after our shareholders' extraordinary meeting on April 22, 2003 (the "EGM").
Mr. Wang Zuoran was re-elected as our supervisor at the EGM and was
subsequently elected as Chairman of our board of supervisors. Messrs. Zhang
Chongqing, Wang Peijun and Wang Xianwen were elected as our supervisors at the
EGM. Mr. Cui Jianmin was elected as our independent supervisor at the EGM.
Messrs. Zhang Baojian and Kang Xianzhang were elected as our supervisors, and
Mr. Li Yonggui was elected as our independent supervisor at the EGM. In
addition, our employees have elected Messrs. Su Wensheng, Cui Guoqi, Zhang
Xianglin and Zhang Haicao as our employee representative supervisors as of
April 22, 2003. The current term of our supervisors is three years, which will
expire in April 2006.
Name Age Position with the Company
------- --- ------------------------------------------
Wang Zuoran 53 Chairman of the Board of Supervisors
Zhang Chongqing 59 Supervisor
Wang Peijun 58 Supervisor
Wang Xianwen 59 Supervisor
Zhang Baojian 59 Supervisor
Kang Xianzhang 55 Supervisor
Cui Jianmin 71 Independent Supervisor
Li Yonggui 63 Independent Supervisor
Su Wensheng 47 Employee Representative Supervisor
Cui Guoqi 50 Employee Representative Supervisor
Zhang Xianglin 57 Employee Representative Supervisor
Zhang Haichao 46 Employee Representative Supervisor
Wang Zuoran, 53, is Chairman of the board of supervisors of Sinopec
Corp. Mr. Wang graduated from Shandong Economic Administration Institute in
1994 specializing in economic administration. From July 1994 to February 2000,
Mr. Wang served as a Deputy Director and chief officer of Shengli Petroleum
Administration Bureau. From February 2000 to July 2001, Mr. Wang was the
Assistant to President of China Petrochemical Corporation. Mr. Wang has been
Director of Disciplinary Supervision Committee of China Petrochemical
Corporation since July 2001. Mr. Wang served as Supervisor of the first session
of the Supervisory Committee of Sinopec Corp. from February 2000 to April 2003.
In April 2003, Mr. Wang was elected as Supervisor and Chairman of the second
session of the Supervisory Committee of Sinopec Corp.
Zhang Chongqing, 59, is a supervisor of Sinopec Corp. Mr. Zhang
graduated from China University of Science and Technology in 1967 specializing
in polymer chemistry. From April 1991 to February 1993, Mr. Zhang served as a
Deputy President of Planning Institute of Old Sinopec. From February 1993 to
December 1998, Mr. Zhang served as a Deputy Director and Director of General
Administrative Office of Old Sinopec. Mr. Zhang has been Director of General
Administrative Office of Sinopec Group Company since December 1998. Mr. Zhang
served as Supervisor of the first session of the Supervisory Committee of
Sinopec Corp. from February 2000 to April 2003. In April 2003, Mr. Zhang was
elected as Supervisor of the second session of the Supervisory Committee of
Sinopec Corp.
Wang Peijun, 58, is a supervisor of Sinopec Corp. Mr. Wang graduated
from Northeastern Petroleum Institute in 1970 specializing in oil and gas field
engineering. From June 1989 to August 1991, Mr. Wang was Head of Qilu Petroleum
and Petrochemical Company of Old Sinopec. From August 1990 to December 1998, he
served as a Deputy Director and Director of the Human Resource Department of
Old Sinopec. Since December 1998, Mr. Wang has been Director of the Human
Resource Department of Sinopec Group Company. Mr. Wang served as Supervisor of
the first session of the Supervisory Committee of Sinopec Corp. from February
2000 to April 2003. In April 2003, Mr. Wang was elected as Supervisor of the
second session of the Supervisory Committee of Sinopec Corp.
Wang Xianwen, 59, is a supervisor of Sinopec Corp. Mr. Wang graduated
from Jilin University in 1968 specializing in chemistry. From April 1984 to
March 1990, Mr. Wang served as a Deputy Manager of Jinzhou Petrochemical
Company of Old Sinopec. From March 1990, Mr. Wang served as Deputy Director and
Director of Old Sinopec's Auditing Bureau. Mr. Wang has been Director of
Sinopec Group Company's Auditing Bureau since December 1998. Mr. Wang has been
Director of Sinopec Corp.'s Auditing Bureau since February 2000. Mr. Wang
served as Supervisor of the first session of the Supervisory Committee of
Sinopec Corp. from February 2000 to April 2003. In April 2003, Mr. Wang was
elected as Supervisor of the second session of the Supervisory Committee of
Sinopec Corp.
Zhang Baojian, 59, is a supervisor of Sinopec Corp. Mr. Zhang is
Director of the Finance and Planning Department of China Petrochemical Group
Company and Vice-chairman of the Board of Directors of Sinopec Finance Company
Limited. Mr. Zhang graduated from Shandong Financial and Economic College in
July 1968 specializing in accounting. He is a professor level senior
accountant. From October 1985 to April 1989, he was the Chief Accountant of
Yueyang Petrochemical General Plant. From April 1989 to October 1995, he served
as the chief accountant and a Deputy Director of the Finance Department of the
former China Petrochemical Corporation. He acted concurrently as the
Vice-chairman of Sinopec Finance Company Limited since May 1993. From October
1995 to February 2000, he served as the Director of the Finance Department of
the former China Petrochemical Corporation (and later China Petrochemical Group
Company), and concurrently served as Chairman of Sinopec Finance Company
Limited. Mr. Zhang has been Director of the Finance & Planning Department of
China Petrochemical Group Company, and has been acting concurrently as a
Vice-chairman of the board of directors of Sinopec Finance Company Limited
since February 2000. Mr. Zhang has been Deputy Chief Accountant of China
Petrochemical Corporation since March 2003. Mr. Zhang was elected as Supervisor
of the second session of the Supervisory Committee of Sinopec Corp. in April
2003.
Kang Xianzhang, 55, is a supervisor of Sinopec Corp. Mr. Kang is
Director of the Supervisory Department of Sinopec Corp. He is also a Deputy
Head of the Discipline Inspection Group and the Director of the Supervisory
Bureau of China Petrochemical Group Company. Mr. Kang graduated from the
Correspondence Teaching Department of the Party School of the Beijing Municipal
Party Committee in March 1988 specializing in ideology politics. He also
graduated from the Correspondence Teaching College of the Party School of the
Central Committee of the Communist Party of China in December 1992 specializing
in party and political affairs management (undergraduate course). He is a
senior political worker. From June 1995 to April 1996, he was the Deputy
Director of the Organization Department of the Communist Party Committee of the
Tibet Autonomous Region. From April 1996 to May 1997, he was a senior
researcher of the deputy director level in the Cadre Allocation Bureau of the
Organization Department of the Central Committee of the Communist Party of
China. He acted as the Deputy Secretary of the Communist Party Committee of the
Coal Scientific Research Institute of the Ministry of Coal Industry from May
1997 to October 1998. From October 1998 to May 1999, he was a supervisor of the
deputy director level in the Discipline Inspection Group and the Supervisory
Bureau of China Petrochemical Group Company, and acted as a Deputy Director of
the Supervisory Bureau of the same company from May 1999 to March 2001. He was
the Deputy Director of the Supervisory Department of Sinopec Corp. from
February 2000 to March 2001. He has been a Deputy Head of the Discipline
Inspection Group of the Leading Party Group and Director of the Supervisory
Bureau of China Petrochemical Group Company, as well as Director of the
Supervisory Department of Sinopec Corp. since March 2001. Mr. Kang was elected
as Supervisor of the second session of the Supervisory Committee of Sinopec
Corp. in April 2003.
Cui Jianmin, 71, is an independent supervisor of Sinopec Corp. Mr. Cui
graduated from the People's University of China in 1962 specializing in
planning. Mr. Cui is a senior auditor and has extensive management experience
in audit and finance fields. From June 1983 to April 1985, Mr. Cui served as
Director of Industry and Transportation Bureau of State Audit Office. From
January 1985 to April 1995, Mr. Cui has served as a Deputy Auditor-General and
Managing Deputy Auditor-General of State Audit Office. Mr. Cui has been
Chairman of the Chinese Certified Public Accountants Association since December
1995. Mr. Cui served as Independent Supervisor in the first session of
Supervisory Committee of Sinopec Corp. from April 2000 to April 2003 and was
elected Independent Supervisor of the second session of Supervisory Committee
of Sinopec Corp. in April 2003.
Li Yonggui, 63, is an independent supervisor of Sinopec Corp. Mr. Li is
Chairman of the China Taxation Consulting Association. Mr. Li graduated from
Shandong Financial and Economic College in July 1965 specializing in finance.
He is a senior economist and a certified public accountant. He has long engaged
in tax management work and has extensive management experience in the field of
taxation. From February 1985 to December 1988, he was the Deputy Director of
the Taxation Bureau of the Ministry of Finance. He served as the Chief
Economist of the State Administration of Taxation from December 1988 to April
1991. From April 1991 to February 1995, he served as the Deputy Director of the
State Administration of Taxation. He was the Chief Economist of the State
Administration of Taxation of China From February 1995 to September 2001. Mr.
Li has been the Chairman of the China Taxation Consulting Association since May
2000. Mr. Li was elected as Independent Supervisor of the second session of the
Supervisory Committee of Sinopec Corp. in April 2003.
Su Wensheng, 47, is an employee representative supervisor of Sinopec
Corp. Mr. Su is Acting Deputy Secretary of the Party Working Committee of the
Headquarter responsible for Sinopec Corp.'s Western China E&P operation, and
Director of the Ideology & Politics Department and a Deputy Secretary of the
Affiliated Party Committee of China Petrochemical Group Company. Mr. Su
graduated from Tsinghua University in December 1980 specializing in
environmental engineering. He obtained a master's degree in management science
and engineering from Petroleum University (Beijing) in June 2000. He is a
senior engineer. From September 1986 to November 1996, he was a Deputy
Secretary of the Party Committee of the former Beijing Designing Institute, and
acted concurrently as the Secretary of the Disciplinary Committee of the same
Institute. From November 1996 to December 1998, he was the Secretary of the
Party Committee of Beijing Designing Institute of the former China
Petrochemical Corporation. Mr. Su has been the Director of the Ideology &
Politics Department and a Deputy Secretary of the Affiliated Party Committee of
China Petrochemical Group Company since October 1998. He has acted concurrently
as the Acting Deputy Secretary of the Party Working Committee of the Western
New Region Exploration Headquarter of Sinopec Corp. since December 2001. Mr. Su
was elected as Employee Representative Supervisor of the second session of the
Supervisory Committee of Sinopec Corp. in April 2003.
Cui Guoqi, 50, is an employee representative supervisor of Sinopec Corp.
Mr. Cui is Chairman of the Trade Union of Sinopec Beijing Yanhua Petrochemical
Company Limited, a member of the Executive Committee of the All China
Federation of Trade Unions, and a member of the Standing Committee of the
National Committee of the Chinese Energy Resources and Chemical Industry and
Engineering Society of China. Mr. Cui graduated from the Correspondence
Teaching College of People's University in December 1985 specializing in
industrial business management. In January 1997, he obtained a master's degree
in business management from the Business Management School of Renmin University
of China. He is a senior economist. Mr. Cui has served as Chairman of the Trade
Union of Sinopec Yanshan Company since February 2000. Mr. Cui has been a member
of the Executive Committee of the All China Federation of Trade Unions since
December 2000, and a member of the Standing Committee of the National Committee
of the Union of Chinese Energy and Chemical Industries since December 2001. Mr.
Zhang was elected Employee Representative Supervisor of the second session of
the Supervisory Committee of Sinopec Corp. in April 2003.
Zhang Xianglin, 57, is an employee representative supervisor of Sinopec
Corp. Mr. Zhang is director and Chairman of the Trade Union of Sinopec Yangzi
Petrochemical Company Limited. Mr. Zhang graduated from Beijing Machinary
College in July 1970 specializing in precision machine tool. He is a Senior
Party Affairs Educator. He has served as a director and Chairman of the Trade
Union of Sinopec Yangzi Petrochemical Company limited since January 2000. Mr.
Zhang was elected Employee Representative Supervisor of the second session of
the Supervisory Committee of Sinopec Corp. in April 2003.
Zhang Haichao, 46, is an employee representative supervisor of Sinopec
Corp. Mr. Zhang is Manager of Sinopec Zhejiang Petrochemical Company. Mr. Zhang
graduated from Zhoushan Petrochemical School in December 1979 specializing in
oil storage and transportation. He also graduated from Jilin Petrochemical
Institute in July 1985 specializing in oil storage and transportation. From
January 2001 to June 2002, he participated in the business administration
programme at Macau Science & Technology University. He is an economist. From
April 1990 to March 1998, he was a Deputy Manager and Manager, respectively, of
Ningbo Petroleum Branch Company. He served as a Deputy General Manager of
Zhejiang Petroleum Company and served concurrently as Manager of Ningbo
Petroleum Branch Company from March 1998 to September 1999. He has served as
the General Manager of Zhejiang Petroleum Company since September 1999, and has
served as the Manager of Sinopec Zhejiang Petroleum Company since February
2000. Mr. Zhang was elected Employee Representative Supervisor of the second
session of the Supervisory Committee of Sinopec Corp. in April 2003.
Other Executive Officers
Wang Tianpu, 41, is a Senior Vice President of Sinopec Corp. Mr. Wang
graduated from Qingdao Chemical Institute specializing in fundamental organic
chemistry in July 1985. He then graduated from Dalian Science and Technology
University in July 1996 and obtained a master's degree in business
administration. In August 2003, he graduated from Zhejiang University
specializing in Chemical Engineering and obtained a doctor's degree. He is a
professor level senior engineer, and has accumulated extensive experience in
production management in petrochemical industry. From March 1999 to February
2000, he was Vice President of Qilu Petroleum and Petrochemical Company under
Old Sinopec. From February 2000 to September 2000, he was Vice President of
Sinopec Corp.'s Qilu branch company. From September 2000 to August 2001, he was
President of Sinopec Corp.'s Qilu branch company. Mr. Wang served as Vice
President of Sinopec Corp. from August 2001 to April 2003 and was appointed as
Senior Vice President of Sinopec Corp. in April 2003.
Wang Zhigang, 47, is a Vice President of Sinopec Corp. Mr. Wang is Vice
Chairman of Shengli Petroleum Management Department of China Petrochemical
Corporation. Mr. Wang graduated from East China Petroleum Institute in January
1982 specializing in oil production, and then obtained a master degree from
University of Petroleum in June 2000 specializing in oil and gas development
engineering. He is a professor level senior engineer. From February 2000 he was
Vice-president of Shengli Oil Field Limited Company under Sinopec Corp. From
February to June in 2000, he was Vice-president of Shengli Oil Field Limited
Company under Sinopec Corp. From June 2000 to December 2001, Mr. Wang served as
Director and Managing President of Shengli Oil Field Limited Company under
Sinopec Corp. He was appointed as Non-executive Vice Chairman of the Committee
of Economics and Trade of Ningxia Hui Autonomous Region from November 2001 to
May 2003. From June 2003, he has acted as the Director of Exploration and
Production Department of Sinopec Corp. Mr. Wang was appointed Vice President of
Sinopec Corp. in April 2003.
Zhang Jianhua, 40, is a Vice President of Sinopec Corp. Mr. Zhang is
President of Shanghai Gaoqiao branch company under Sinopec Corp. Mr. Zhang
graduated from East China Chemistry and Engineering Institute in July 1986
specializing in petroleum refinery, and then obtained a master degree from East
China University of Science and Technology specializing in chemical
engineering. He is a professor level senior engineer. In April 1999 Mr. Zhang
was appointed Vice-president of Shanghai Gaoqiao Petrochemical Company under
China Petrochemical Corporation. From February to September in 2000, he was
Vice-president of Shanghai Gaoqiao branch company under Sinopec Corp. From
September 2000 to June 2003, he was the President of Sinopec Shanghai Gaogiao
Company. Mr. Zhang has been Director of Sinopec Operation and Management
Department since November 2003. Mr. Zhang was appointed Vice President of
Sinopec Corp. in April 2003.
Cai Xiyou, 42, is a Vice President of Sinopec Corp. Mr. Cai is Director
and Managing President of China International Petrochemical United Limited
Company. Mr. Cai graduated from Fushun Petroleum Institute in August 1982
specializing in petroleum refinery automation, and then obtained an MBA degree
from China Industry and Science Dalian Training Center. He is a senior
economist. From June 1995 to May 1996, Mr. Cai was Vice-president of Jinzhou
Petrochemical Company under China Petrochemical Corporation before the industry
reorganization. From May 1996 to December 1998, he was Managing Vice-president
of Dalian Western Pacific Petrochemical Limited Company. From December 1998 to
June 2001, he acted as Vice-president of Sales Company under Sinopec Corp.; and
from June to December in 2001, he acted as Managing Vice-president of Sales
Company under Sinopec Corp. He has been Director and President of China
International United Petroleum & Chemicals Company Limited since December 2001.
Mr. Cai was appointed as Vice President of Sinopec Corp. in April 2003.
Li Chunguang, 48, is a Vice President of Sinopec Corp. Mr. Li is
Director of petroleum sales of Sinopec Corp. Mr. Li graduated from Heilongjiang
Business Institute in January 1982 specializing in petroleum storage and
transportation. He is a senior engineer. Mr. Li acted as Vice-president of
Sales Company under Sinopec Corp. from October 1995 to June 2001. From June
2001 to December 2001, he was President of Sinopec Sales Company Limited, and
has been Director of Marketing and Distribution Department of Sinopec Corp.
since December 2001. Mr. Li was appointed as Vice President of Sinopec Corp. in
April 2003.
Zhang Honglin, 61, is General Counsel of Sinopec Corp. Mr. Zhang
graduated from Nanjing Petrochemical Institute in 1967 specializing in
petrochemical engineering. Mr. Zhang is a professor level senior economist.
From August 1986 to August 1988, Mr. Zhang served as Head of Research Institute
of Petroleum and Petrochemical Industrial Science of Old Sinopec. From August
1988 to May 1997, Mr. Zhang served as a Deputy Director of Enterprise
Management Department at Old Sinopec and President of Shanlong Economic
Development Company, a subsidiary of Old Sinopec. From May 1997 to November
1997, Mr. Zhang was Director of Old Sinopec's Assets Operation and Management
Department. From November 1997 to June 1998, he served as a director and Vice
President of China Eastern United Petrochemical Group Limited. Mr. Zhang has
been Director of Sinopec Group Company's Assets Operation and Management
Department and Enterprise Reforming Department since June 1998. Mr. Zhang
served as company secretary to the Board of Directors of Sinopec Corp. from
February 2000 to April 2003. Mr. Zhang was appointed as our general counsel in
February 2003.
Chen Ge, 42, is secretary to the board of directors of Sinopec Corp. Mr.
Chen is Director of Sinopec Corp.'s Secretariat to the board of directors. Mr.
Chen graduated from Daqing Petroleum Institute in July 1983 specializing in
petroleum refinery, and then obtained an MBA degree from Dalian University of
Science and Technology in July 1996. He is a senior economist. From July 1983
to February 2000, he worked in Beijing Yanshan Petrochemical Company. From
February 2000 to December 2001, he was a Deputy Director of Sinopec Corp.'s
Secretariat to the board of directors. Mr. Chen has been the Director of
Sinopec Corp.'s Secretariat to the board of directors since December 2001. Mr.
Chen was appointed as our secretary to the borad of directors since April 2003.
B. COMPENSATION
Salaries of Directors, Supervisors and Members of the Senior Management
We have established and are continuously enhancing a fair and
transparent reward and supervision system for directors, supervisors and other
senior management members. We have adopted initiative policies approved by the
first extraordinary shareholders' meeting on September 7, 2000 including the
performance evaluation and remunerations incentive scheme for the senior
management, the share appreciation rights scheme, and the conditions for the
implementation of the initial granting of share appreciation rights scheme.
Our directors and supervisors receive their remuneration in the form of
basic salary and performance rewards, including the amount retirement pension
plan. During 2003, no share appreciation right is exercised.
During 2003, directors in office (excluding directors and independent
non-executive directors who do not hold any working post with us), supervisors
(excluding independent supervisors) and other senior management officers were
paid RMB 4,190,745 in total as annual remuneration. The three highest paid
directors and senior management officers respectively received RMB 717,476 and
RMB 852,740 remuneration in total. The total annual fees for the independent
non-executive directors and independent supervisors were RMB 165,000. Directors
Mr. Liu Genyuan, Mr. Liu Kegu and Mr. Fan Yifei (and Mr. Gao Jian, who replaced
Mr. Liu Kegu as director as of April 30, 2004), do not hold any working post
with us, and accordingly are not paid any remuneration by us.
During 2003, amongst our 22 directors (excluding directors and
independent non-executive directors who do not hold any working post with us),
supervisors (excluding independent supervisors) and other senior management
officers who are in office, two of them received annual remuneration for an
amount above RMB 300,000, four of them received annual remuneration between RMB
200,000 and RMB 300,000, 15 of them received annual remuneration between RMB
150,000 and RMB 200,000, and one of them received annual remuneration between
RMB 100,000 and RMB 150,000.
We do not have any service contract with any director that provides for
benefits upon termination of service.
C. BOARD PRACTICE
In accordance with the Rules and Procedures for the Board of Directors'
Meeting that was adopted as an appendix to our articles of association at the
extraordinary shareholders' meeting on April 22, 2003, we have established
three special committees, namely, an audit committee, a strategy committee and
a remuneration and evaluation committee. The majority of the members of these
special committees are independent directors. In addition, the audit committee
shall have at least one independent director who is a financial expert.
The main responsibilities of the audit committee include:
o to propose the appointment or replacement of the external
auditor;
o to oversee the internal auditing system and its implementation;
o to coordinate the communication between the internal auditing
department and the external auditor;
o to examine and approve financial information and it disclosure;
and
o to examine the internal control system.
The main responsibilities of the strategy committee are to conduct
research and put forward proposals on the long-term development strategy and
significant investments.
The main responsibilities of the remuneration and evaluation committee
include:
o to research on evaluation criteria for directors and the
president, to conduct their evaluations and make necessary
suggestions; and
o to research on and review the policies and proposals in respect
of the remuneration of directors, supervisors, president,
vice-president, Chief Financial Officer and secretary of the
board of directors.
The members of audit committee are Chen Qingtai, Shi Wanpeng, Zhang
Youcai, Ho Tsu Kwok Charles and Cao Yaofeng.
The members of strategy committee are Wang Jiming, Shi Wanpeng, Ho Tsu
Kwok Charles, Mou Shuling, Zhang Jiaren, Liu Kegu (until April 29, 2004), Cao
Xianghong and Fan Yifei.
The members of remuneration and evaluation committee are Shi Wanpeng,
Chen Qingtai, Zhang Youcai, Mou Shuling and Liu Genyuan.
D. EMPLOYEES
As of December 31, 2001, 2002 and 2003, we had approximately 443,808,
418,871 and 400,513 employees. The following table sets forth the number of our
employees by our business segments, their scope of work and their education as
of December 31, 2003.
By Segment Number of Employees Percentage of Total Number of
---------- ------------------- Employees (%)
-----------------------------
Exploration and Production ........ 144,194 36.0
Refining .......................... 81,099 20.2
Marketing and Distribution ........ 77,944 19.5
Chemicals ......................... 92,654 23.1
Corporate and Others .............. 4,622 1.2
Total ........................... 400,513 100.0
By Employee's Scope of Work Number of Employees Percentage of Total Number of
--------------------------- ------------------- Employees (%)
-----------------------------
Production.............................. 185,907 46.4
Sales................................... 76,527 19.1
Technical............................... 46,096 11.5
Finance................................. 10,553 2.7
Administration.......................... 33,757 8.4
Others.................................. 47,673 11.9
Total ............................... 400,513 100
By Education Number of Employees Percentage of Total Number of
------------ ------------------- Employees (%)
-----------------------------
Master's degree and above............... 2,934 0.7
University ............................. 43,013 10.7
Tertiary education...................... 67,363 16.8
Technical/polytechnic school............ 48,534 12.1
Secondary, technical/polytechnic school 238,669 59.7
or below................................
Total ............................... 400,513 100
We have trade unions that protect employee rights, organize educational
programs, assist in the fulfillment of economic objectives, encourage employee
participation in management decisions, and assist in mediating disputes between
us and individual employees. We have not been subjected to any strikes or other
labor disturbances that have interfered with our operation, and we believe that
our relations with our employees are good.
The total remuneration of our employees includes salary, performance
bonuses and allowances. Employees also receive certain subsidies in housing,
health services, education and other miscellaneous items.
As at December 31, 2003, we had a total of 98,951 retired employees, and
all of them have participated in basic pension schemes administered by
provincial governments. Government-administered pension schemes are responsible
for the payments of basic pensions. Details of our employee's retirement scheme
of the Company are set out in note 29 to our consolidated financial statements
included elsewhere in this annual report.
We plan to reduce the number of employees by 100,000 persons by means of
retirement, voluntary resignation and/or redundancy within the period of 5
years from 2001 to 2005, so as to enhance its efficiency and operating profit.
As of the end of 2003, the net aggregate reduction in the past 3 years amounted
to 108,000 persons. In 2003, we recorded employee reduction expenses of
RMB1.014 billion for about 21,000 employees who voluntarily resigned.
E. SHARE OWNERSHIP
Our directors, supervisors and senior officers do not have share
ownership in us.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. MAJOR SHAREHOLDERS
The following table sets forth information regarding our major
shareholders as of June 15, 2004.
Number of
Shares Owned
Shareholder (in millions) Percentage
------------- ----------
Sinopec Group Company.............................. 47,743 55.06%
China Development Bank ............................ 8,776 10.12
China Xinda Asset Management Corporation........... 8,721 10.06
As at June 15, 2004, we had 67,121,951,000 state-owned shares,
16,780,488,000 H shares and 2,800,000,000 A shares outstanding. As at April 30,
2004, we had 12,793,748 ADRs outstanding, which represented underlying
ownership of 1,279,374,800 H shares and were beneficially owned by
approximately 4,400 record owners.
RELATED PARTY TRANSACTIONS
Sinopec Group Company owns 55.06% of our outstanding equity as of June
15, 2004. Sinopec Group Company will be able to exercise all the rights of a
controlling shareholder, including the election of directors and voting in
respect of amendments to our articles of association. Sinopec Group Company, as
our controlling shareholder, will be subject to certain minority shareholder
protection provisions under our articles of association.
We have engaged from time to time and will continue to engage in a
variety of transactions with Sinopec Group Company, which provide a number of
services to us, including ancillary supply, transport, educational and
community services. The nature of our transactions with Sinopec Group Company
are governed by a number of service and other contracts between Sinopec Group
Company and us. A discussion of these agreements and arrangements is set forth
under the heading "Item 7 - Major Shareholders and Related Party
Transactions-Related Party Transactions" in our annual report on Form 20-F
filed with the Securities and Exchange Commission on April 17, 2001.
In 2003, we acquired from Sinopec Group Company the operations of
Sinopec Group Maoming Petrochemical Company's ethylene facility with a rated
capacity of 380,000 tonnes and its related downstream facilities for RMB 3.3
billion (US$0.4 billion) in cash. In addition, we acquired the operations of
Tahe Petrochemical and Xi'an Petrochemical, both of which are wholly-owned by
Sinopec Group Company, for RMB 220.8 million (US$26.7 million) and RMB 135.2
million (US$16.3 million), respectively, in cash. The purchase prices were
determined on the basis of independent valuation and appraisals of the acquired
assets and liabilities under applicable laws and regulations in the PRC.
Please also see note 28 to our consolidated financial statements
included elsewhere in this annual report.
B. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
See F-pages following Item 19.
Legal Proceedings
We are involved in certain judicial and arbitral proceedings before
Chinese courts or arbitral bodies concerning matters arising in connection with
the conduct of our businesses. We believe, based on currently available
information, that the results of such proceedings, in the aggregate, will not
have a material adverse effect on our financial condition or results of
operations.
Dividend Distribution Policy
Our board of directors will determine the payment of dividends, if any,
with respect to our shares on a per share basis. Any final dividend for a
financial year shall be subject to shareholders' approval. The board may
declare interim and special dividends at any time under general authorization
by a shareholders' ordinary resolution. A decision to declare or to pay any
dividends in the future, and the amount of any dividends, will depend on our
results of operations, cash flows, financial condition, the payment by our
subsidiaries of cash dividends to us, future prospects and other factors which
our directors may determine are important.
For holders of our H shares, cash dividend payments, if any, shall be
declared by our board of directors in renminbi and paid in HK dollars. The
depositary will convert the HK dollar dividend payments and distribute them to
holders of ADSs in US dollars, less expenses of conversion.
In addition to cash, dividends may be distributed in the form of shares.
Any distribution of shares, however, must be approved by special resolution of
the shareholders. Dividends in the form of shares will be distributed to the
depositary and, except as otherwise described in the Deposit Agreement, will be
distributed by the depositary in the form of additional ADSs, to holders of
ADSs.
Dividends may be paid only out of our distributable profits (less
allocations to the statutory funds which generally range from 15% to 20% of our
net income determined in accordance with PRC GAAP) and may be subject to PRC
withholding tax. Our articles of association limit our distributable profits to
the lower of the amount determined in accordance with PRC GAAP and IFRS.
Subject to the above, we currently expect that we will distribute as dividends
up to 40% of our distributable profits.
Our shareholders' meeting has approved a final dividend of RMB 0.09 per
ordinary share for the year ended December 31, 2003, which is equivalent to RMB
9.0 (US$1.1) per ADS. After deducting the interim dividends distribution of RMB
0.03 per ordinary share, the year end dividend is RMB 0.06 per ordinary share,
which is equivalent to RMB 6.0 (US$ 0.72) per ADS.
B. SIGNIFICANT CHANGES
None.
ITEM 9. THE OFFER AND LISTING
Not applicable, except for Item 9A (4) and Item 9C.
Our H Shares have been listed on the stock Exchange of Hong Kong Stock
(Code: 0386), and our ADSs, each representing 100 H Shares, have been listed on
the New York Stock Exchange and the London Stock Exchange under the symbol
"SNP", since we completed our initial public offering on October 19, 2000.
Prior to that time, there was no public market for our H Shares. The Stock
Exchange of Hong Kong is the principal non-U.S. trading market for our H
Shares. Our publicly traded domestic shares, or A shares, are listed on the
Stock Exchange of Shanghai since August 8, 2001 (Code: 600028).
The following table sets forth, for the periods indicated, the high and
low closing prices per H Share, as reported on the Stock Exchange of Hong Kong,
per ADS, as reported on the New York Stock Exchange and per A share, as
reported on the Stock Exchange of Shanghai .
The Stock Exchange of The New York Stock The Shanghai Stock
Hong Kong Exchange Exchange
--------------------- ------------------ ------------------
Period High Low High Low High Low
Past 6 months (HK dollar per H share) (US dollar per ADS) (RMB per A share)
2004 May 2.925 2.475 37.71 32.08 5.34 4.84
April 3.125 2.65 40.15 34.18 5.55 5.01
March 3.35 2.75 42.80 36.05 5.77 4.98
February 3.40 3.00 44.01 38.10 5.43 4.82
January 3.85 3.025 49.90 38.99 5.69 5.05
2003 December 3.475 2.55 44.41 33.23 5.06 4.06
Quarterly Data
2004 First Quarter 3.85 2.75 49.90 36.05 5.77 4.82
2003 Fourth Quarter 3.475 2.15 44.41 27.87 5.06 3.44
Third Quarter 2.475 1.81 32.12 23.85 3.90 3.37
Second Quarter 1.88 1.45 24.50 18.34 4.04 3.48
First Quarter 1.56 1.36 19.42 17.30 3.60 2.94
2002 Fourth Quarter 1.38 1.17 17.49 14.60 3.40 3.01
Third Quarter 1.44 1.13 18.05 14.57 3.85 3.44
Second Quarter 1.42 1.25 18.33 15.85 3.90 3.10
First Quarter 1.30 1.05 16.68 13.50 3.40 3.01
2001 Fourth Quarter 1.21 1.02 15.55 12.83 3.96 3.29
Third Quarter 1.56 1.00 20.05 12.83 4.36 3.85
Second Quarter 1.65 1.14 21.00 14.50
First Quarter 1.32 1.06 16.80 14.00
Annual Data
2003 3.475 1.24 44.41 17.30 5.06 2.94
2002 1.44 1.05 18.33 13.50 3.90 3.01
2001 1.65 1.00 21.00 12.80 4.36 3.29
2000 (October 19 1.70 1.19 21.44 14.88
to December
31)
___________
Source: Bloomberg
ITEM 10. ADDITIONAL INFORMATION
A. SHARE CAPITAL
Not applicable.
B. MEMORANDUM AND ARTICLES OF ASSOCIATION
The following is a summary of certain provisions of our articles of
association, as amended, the Company Law of the PRC (1993) and certain other
applicable laws and regulations of the PRC. You and your advisors should refer
to the text of our articles of association, as amended, and to the texts of
applicable laws and regulations for further information.
Objects and Purposes
We are a joint stock limited company established in accordance with the
Company Law and certain other laws and regulations of the PRC. We are
registered with the PRC State Administration of Industry and Commerce with
business license number 1000001003298. Article 12 of our articles of
association provides that our scope of businesses includes, among other things,
exploration, development and sales of petroleum and natural gas; pipeline
transportation of petroleum and natural gas; petroleum refining; production,
sales and storage of refined petroleum products, petrochemical products,
chemical fiber products and other chemical products; wholesale, retailing and
storage of refined petroleum products and other petroleum products; operation
of convenience stores; power generation; manufacturing and installation of
machinery; purchase and sales of raw materials, charcoal, and equipment; import
and export; and provision of technology services and labor services.
Directors
Our directors shall be elected at our shareholders' general meeting.
Cumulative voting shall be adopted for the election of directors if a
controlling shareholder controls 30% or more of our shares. Details of the
cumulative voting mechanism are set forth in Article 57 of the Rules and
Procedures for the Shareholders' General Meetings that is an appendix to, and
forms an integral part of, our articles of association. Our directors shall be
elected for a term of three years and may serve consecutive terms upon
re-election, except that independent directors may only serve a maximum of two
terms. Our directors are not required to hold any shares in us, and there is no
age limit requirement for the retirement or non-retirement of our directors.
Where a director is materially interested, directly or indirectly, in a
contract, transaction or arrangement (including any proposed contract,
transaction or arrangement) with us, he or she shall declare the nature and
extent of his or her interests to the board of directors at the earliest
opportunity, whether or not such contract, transaction or arrangement is
otherwise subject to the approval of the board. A director shall not vote, and
shall not be counted in the quorum of the meeting, on any resolution concerning
any contract, transaction or arrangement where the director owns material
rights or interests therein. A director is deemed to be interested in a
contract, transaction or arrangement in which his associate (as defined by the
Listing Rule of the Hong Kong Stock Exchange) is interested.
Unless the interested director discloses his interests to the board and
the contract, transaction or arrangement in which the director is materially
interested is approved by the board at a meeting in which the director neither
votes nor is not counted in the quorum, such contract, transaction or
arrangement shall be voidable by us except with respect to a bona fide party
thereto who does not have notice of the director's interests.
We are prohibited from making loans or providing guarantees to our
directors and their associates except where such loan or guarantee is to meet
expenditure requirement incurred or to be incurred by the director for the
purposes of the company or for the purpose of enabling the director to perform
his or her duties properly.
The board of directors shall examine and approve the amount of the
long-term loans for the current year in accordance with the annual investment
plan as approved by the shareholders' general meeting. The chairman of the
board may make adjustments of not more than 10% of the total amount of the
long-term loans for the current year as approved by the board of directors. The
board of directors shall also approve the total amount of the working capital
loans for the current year. Within the total amount of the long-term or working
capital loans as approved by the board of directors, the chairman of the board
is authorized to approve and sign on behalf of the company any such loan
contract with loan amount over RMB 1.0 billion, and the president of the
company is authorized to approve and sign on behalf of the company any such
loan contract with loan amount not exceeding RMB 1.0 billion.
Matters relating to the remuneration and liability insurance of our
directors shall be determined by the shareholders' general meeting.
Dividends
Our board of directors may propose dividend distributions at any time. Our
board of directors may declare interim and special dividends under general
authorization by a shareholders' ordinary resolution. A distribution of final
dividends for any financial year is subject to shareholders' approval.
Dividends may be distributed in the form of cash or shares. A distribution of
shares, however, must be approved by special resolution of the shareholders.
Dividends may only be distributed after allowance has been made for:
o recovery of losses, if any;
o allocations to the statutory common reserve fund;
o allocations to the statutory common welfare fund; and
o allocations to a discretionary common reserve fund if approved by
the shareholders.
The minimum and maximum aggregate allocations to the statutory funds are
15% and 20%, respectively, of our net income determined in accordance with PRC
accounting rules.
The articles of association require us to appoint on behalf of the holders
of H shares a receiving agent which is registered as a trust corporation under
the Trustee Ordinance of Hong Kong to receive dividends declared by us in
respect of the H shares on behalf of such shareholders. The articles of
association require that cash dividends in respect of H shares be declared in
renminbi and paid by us in HK dollars. The depositary of our ADSs will convert
such proceeds into U.S. dollars and will remit such converted proceeds to our
holders of ADSs. If we record no profit for the year, we may not normally
distribute dividends for the year.
Dividend payments may be subject to PRC withholding tax.
Voting Rights and Shareholders' Meetings
Our board of directors shall convene a shareholders' annual general
meeting once every year and within six months from the end of the preceding
financial year. Our board shall convene an extraordinary general meeting within
two months of the occurrence of any one of the following events:
o where the number of directors is less than the number stipulated in
the PRC Company Law or two-thirds of the number specified in our
articles of association;
o where our unrecovered losses reach one-third of the total amount of
our share capital;
o where shareholder(s) holding 10% or more of our issued and
outstanding voting shares request(s) in writing the convening of an
extraordinary general meeting; or
o whenever our board deems necessary or our board of supervisors so
requests;
Meetings of a special class of shareholders must be called in certain
enumerated situations when the rights of the holders of such class of shares
may be modified or adversely affected as discussed below. Resolutions proposed
by the board of supervisors or shareholder(s) holding 5% or more of the total
number of voting shares shall be included in the agenda for the relevant annual
general meeting if they are matters which fall within the scope of the
functions and powers of shareholders in general meeting.
All shareholders' meetings must be convened by our board by written notice
given to shareholders not less than 45 days before the meeting. Based on the
written replies received by us 20 days before a shareholders' meeting, we shall
calculate the number of voting shares represented by shareholders who have
indicated that they intend to attend the meeting. Where the number of voting
shares represented by those shareholders amount to more than one-half of our
total voting shares, we may convene the shareholders' general meeting
(regardless of the number of shareholders who actually attend). Otherwise, we
shall, within five days, inform the shareholders again of the motions to be
considered and the date and venue of the meeting by way of public announcement.
After the announcement is made, the shareholders' meeting may be convened. The
accidental omission by us to give notice of a meeting to, or the non-receipt of
notice of a meeting by, a shareholder will not invalidate the proceedings at
that shareholders' meeting.
Shareholders at meetings have the power, among other things, to approve or
reject our profit distribution plans, annual budget, financial statements,
increase or decrease in share capital, issuance of debentures, merger or
liquidation and any amendment to our articles of association. In addition, the
rights of a class of shareholders may not be modified or abrogated, unless
approved by a special resolution of all shareholders at a general shareholders'
meeting and by a special resolution of shareholders of that class of shares at
a separate meeting. Our articles of association enumerate, without limitation,
certain amendments which would be deemed to be a modification or abrogation of
the rights of a class of shareholders, including increasing or decreasing the
number of shares of a class disproportionate to increases or decreases of other
classes of shares, removing or reducing rights to receive dividends in a
particular currency or creating shares with voting or equity rights superior to
shares of such class.
Cumulative voting is adopted for the election of directors. For all other
matters, each H share is entitled to one vote on all such matters submitted to
a vote of our shareholders at all shareholders' meetings, except for meetings
of a special class of shareholders where only holders of shares of the affected
class are entitled to vote on the basis of one vote per share of the affected
class.
Shareholders are entitled to attend and vote at meetings either in person
or by proxy. Proxies must be in writing and deposited at our legal address, or
such other place as is specified in the meeting notice, not less than 24 hours
before the time for holding the meeting at which the proxy proposes to vote or
the time appointed for the passing of the relevant resolution(s). When the
instrument appointing a proxy is executed by the shareholder's
attorney-in-fact, such proxy when deposited must be accompanied by a notary
certified copy of the relevant power of attorney or other authority under which
the proxy was executed.
Except for those actions discussed below which require supermajority votes
("special resolutions"), resolutions of the shareholders are passed by a simple
majority of the voting shares held by shareholders who are present in person or
by proxy. Special resolutions must be passed by more than two-thirds of the
voting rights represented held by shareholders who are present in person or by
proxy.
The following decisions must be adopted by special resolution:
o an increase or reduction of our share capital or the issue of
shares, including stock distributions, of any class, warrants and
other similar securities;
o issuance of debentures;
o our division, merger, dissolution and liquidation; (Shareholders
who object to a proposed merger are entitled to demand that
either we or the shareholders who approved the merger purchase
their shares at a fair price.)
o repurchase of shares;
o amendments to our articles of association; and
o any other matters considered by the shareholders in a general
meeting and which they have resolved by way of an ordinary
resolution to be of a nature which may have a material impact on
us and should be adopted by special resolution.
All other actions taken by the shareholders, including the appointment and
removal of our directors and supervisors and the declaration of cash dividend
payments, will be decided by an ordinary resolution of the shareholders. The
listing agreement between us and the Hong Kong Stock Exchange (the "Listing
Agreement") provided that we may not permit amendments to certain sections of
the articles of association which have been mandated by the Hong Kong Stock
Exchange. These sections include provisions relating to:
o varying the rights of existing classes of shares;
o voting rights;
o our power to purchase our own shares;
o rights of minority shareholders; and
o procedure on liquidation.
In addition, certain amendments to the articles of association require the
approval and consent of the relevant PRC authorities.
Any shareholder resolution which is in violation of any laws or
regulations of the PRC or the articles of association will be null and void.
Liquidation Rights
In the event of our liquidation, the H shares will rank pari passu with
the domestic ordinary shares, and payment of debts out of our remaining assets
shall be made in the order of priority prescribed by applicable laws and
regulations or, if no such standards exist, in accordance with such procedure
as the liquidation committee which has been appointed either by us or the
People's Court of the PRC may consider to be fair and reasonable. After payment
of debts, we shall distribute the remaining property to shareholders according
to the class and proportion of their shareholders.
Further Capital Call
Shareholders are not liable to make any further contribution to the share
capital other than according to the terms, which were agreed by the subscriber
of the relevant shares at the time of subscription.
Increases in Share Capital and Preemptive Rights
The articles of association require the approval by a special resolution
of the shareholders and by special resolution of holders of domestic ordinary
shares and H shares at separate shareholder class meetings be obtained prior to
authorizing, allotting, issuing or granting shares, securities convertible into
shares or options, warrants or similar rights to subscribe for any shares or
such convertible securities. No such approval is required if, but only to the
extent that:
o we issue domestic ordinary shares and H shares, either separately
or concurrently, in numbers not exceeding 20% of the number of
domestic ordinary shares and H shares then in issue,
respectively, in any 12-month period, as approved by a special
resolution of the shareholders; or
o if our plans for issuing H shares upon its establishment are
implemented within fifteen months of the date of approval by the
China Securities Regulatory Commission.
New issues of shares must also be approved by the relevant PRC
authorities.
Reduction of Share Capital and Purchase by Us of Our Shares and General
Mandate to Repurchase Shares
We may reduce our registered share capital only upon obtaining the
approval of the shareholders by a special resolution and, in certain
circumstances, of relevant PRC authorities. The number of H shares, which may
be purchased is subject to the Hong Kong Takeovers and Share Repurchase Codes.
Restrictions on Large or Controlling Shareholders
Our articles of association provide that, in addition to any obligation
imposed by laws and administration regulations or required by the listing rules
of the stock exchanges on which our H shares are listed, a controlling
shareholder shall not exercise his voting rights in a manner prejudicial to the
interests of the shareholders generally or of some part of the shareholders:
o to relieve a director or supervisor from his or her duty to act
honestly in our best interests;
o to approve the expropriation by a director or supervisor (for his
or her own benefit or for the benefit of another person) of our
assets in any way, including, without limitation, opportunities
which may benefit us; or
o to approve the expropriation by a director or supervisor (for his
or her own benefit or for the benefit of another person) of the
individual rights of other shareholders, including, without
limitation, rights to distributions and voting rights (save
according to a restructuring of our company which has been
submitted for approval by the shareholders in a general meeting
in accordance with our articles of association).
A controlling shareholder, however, will not be precluded by our articles
of association or any laws and administrative regulations or the listing rules
of the stock exchanges on which our H shares are listed from voting on these
matters.
When a controlling shareholder intends to put forward a new motion on
profit distribution at an annual general meeting, the controlling shareholder
shall, at not less than ten days before the date of the annual general meeting,
submit the motion to the board of directors to enable it to make an
announcement, failing which the shareholder is not entitled to put forward the
motion at the annual general meeting.
A controlling shareholder is defined by our articles of association as any
person who acting alone or in concert with others:
o is in a position to elect more than one-half of the board of
directors;
o has the power to exercise, or to control the exercise of, 30% or
more of our voting rights;
o holds 30% or more of our issued and outstanding shares; or
o has de facto control of us in any other way.
As of the date of this annual report, Sinopec Group Company is and
will be our only controlling shareholder.
Disclosure
The Listing Agreement imposes a requirement on us to keep the Hong Kong
Stock Exchange, our shareholders and other holders of our listed securities
informed as soon as reasonably practicable of any information relating to us
and our subsidiaries, including information on any major new developments which
are not public knowledge, which:
o is necessary to enable them and the public to appraise the
position of us and our subsidiaries;
o is necessary to avoid the establishment of a false market in its
securities; and
o might be reasonably expected materially to affect market
activity in and the price of its securities.
There are also requirements under the Listing Rules for us to obtain prior
shareholders' approval and/or to disclose to shareholders details of certain
acquisitions or disposals of assets and other transactions (including
transactions with controlling shareholders).
Sources of Shareholders' Rights
The PRC's legal system is based on written statutes and is a system in
which decided legal cases have little precedent value. The PRC's legal system
is similar to civil law systems in this regard. In 1979, the PRC began the
process of developing its legal system by undertaking to promulgate a
comprehensive system of laws. In December 1993, the Standing Committee of the
8th National People's Congress adopted the PRC Company Law. Although the PRC
Company Law is expected to serve as the core of a body of regulatory measures,
which will impose a uniform standard of corporate behavior on companies and
their directors and shareholders, only a limited portion of this body of
regulatory measures has so far been promulgated.
Currently, the primary sources of shareholder rights are our articles of
association, as amended, the PRC Company Law and the Listing Rules of the Hong
Kong Stock Exchange, which, among other things, impose certain standards of
conduct, fairness and disclosure on us, our directors and our controlling
shareholder, i.e., Sinopec Group Company. To facilitate the offering and
listing of shares of PRC companies overseas, and to regulate the behavior of
companies whose shares are listed overseas, the State Council Securities
Committee and the State Commission for Restructuring the Economic System issued
on August 27, 1994 the Mandatory Provisions for articles of association of
Company Listing Overseas (the "Mandatory Provisions"). These Mandatory
Provisions become entrenched in that, once they are incorporated into the
articles of association of a PRC company, any amendment to those provisions
will only become effective after approval by the companies approval department
of local governments authorized by the State-owned Assets Supervision and
Administration Commission of the State Council and the China Securities
Regulatory Commission. The Listing Rules require a number of additional
provisions to the Mandatory Provisions to be included in the articles of
association of PRC companies listing H shares on the Hong Kong Stock Exchange
(the "Additional Provisions"). The Mandatory Provisions and the Additional
Provisions have been incorporated into our articles of association.
In addition, upon the listing of and for so long as the H shares are
listed on the Hong Kong Stock Exchange, we will be subject to those relevant
ordinances, rules and regulations applicable to companies listed on the Hong
Kong Stock Exchange, including the Listing Rules of the Hong Kong Stock
Exchange, the Securities (Disclosure of Interests) Ordinance (the "SDI
Ordinance"), the Securities (Insider Dealing) Ordinance and the Hong Kong Codes
on Takeovers and Mergers and Share Repurchases (the "Hong Kong Takeovers and
Repurchase Codes").
Unless otherwise specified, all rights, obligations and protections
discussed below derive from our articles of association and/or the PRC Company
Law.
Enforceability of Shareholders' Rights
There has not been any public disclosure in relation to the enforcement by
holders of H shares of their rights under constitutive documents of joint stock
limited companies or the PRC Company Law or in the application or
interpretation of the PRC or Hong Kong regulatory provisions applicable to PRC
joint stock limited companies.
In most states of the United States, shareholders may sue a corporation
"derivatively". A derivative suit involves the commencement by a shareholder of
a corporate cause of action against persons (including corporate officers,
directors or controlling shareholders) who have allegedly wronged the
corporation, where the corporation itself has failed to enforce such claim
against such persons directly. Such action is brought based upon a primary
right of the corporation, but is asserted by a shareholder on behalf of the
corporation. Because the right to sue derivatively is not available under PRC
law, our shareholders may have to rely on other means to enforce the rights of
shareholders, such as through administrative proceedings.
Our articles of association provide that all differences or claims:
o between a holder of H shares and us;
o between a holder of H shares and any of our directors, supervisors,
general managers, deputy general managers or other senior officers;
or
o between a holder of H shares and a holder of domestic ordinary
shares, arising from any provision of our articles of association,
any right or obligation conferred or imposed by the PRC Company Law
or any other relevant law or administrative regulation which concerns
our affairs
must, with certain exceptions, be referred to arbitration at either the China
International Economic and Trade Arbitration Commission in the PRC or the Hong
Kong International Arbitration Center. Our articles of association provide that
such arbitration will be final and conclusive. In June 1999, an arrangement was
made between the People's Courts of the PRC and the courts of Hong Kong to
mutually enforce arbitration rewards rendered in the PRC and Hong Kong
according to their respective laws. This new arrangement was approved by the
Supreme Court of the PRC and the Hong Kong Legislative Council and became
effective on February 1, 2000. We have provided an undertaking to the United
States Securities and Exchange Commission that, at such time, if any, as all
applicable laws and regulations of the PRC and (unless our H shares are no
longer listed on the Hong Kong Stock Exchange) all applicable regulations of
the Stock Exchange of Hong Kong Ltd. shall not prohibit, and to the extent
Section 14 under the United States Securities Act of 1933, as amended, so
requires, our board of directors shall propose an amendment to the articles of
association which would permit shareholders to adjudicate disputes arising
between our shareholders and us, our directors, supervisors or officers by
means of judicial proceedings.
The holders of H shares will not be able to bring actions on the basis of
violations of the Listing Rules and must rely on the Hong Kong Stock Exchange
to enforce its rules. The SDI Ordinance establishes certain obligations in
relation to disclosure of shareholder interests in Hong Kong listed companies,
the violation of which is subject to prosecution by the Securities and Futures
Commission of Hong Kong. The Hong Kong Takeovers and Repurchase Codes do not
have the force of law and are only standards of commercial conduct considered
acceptable for takeover and merger transactions and share repurchases in Hong
Kong as established by the Securities and Futures Commission and the securities
and futures industry in Hong Kong.
We have appointed our subsidiary in the U.S., SINOPEC-USA Co., Ltd., 150
E. 52nd Street, 28th Floor, New York, NY 10022, USA, as our agent to receive
service of process with respect to any action brought against us in certain
courts in New York under the United States federal and New York State's
securities laws. However, as the PRC does not have treaties providing for the
reciprocal recognition and enforcement of judgments of courts within the United
States, the United Kingdom, Japan or most other the Organization for Economic
Cooperation and Development countries, administrative actions brought by
regulatory authorities, such as the Commission, and other actions which result
in foreign court judgments, could (assuming such actions are not required by
PRC law and the articles of association to be arbitrated) only be enforced in
the PRC on a reciprocal basis or according to relevant international treaty to
which China is a party if such judgments or rulings do not violate the basic
principles of the law of the PRC or the sovereignty, security and public
interest of the society of the PRC, as determined by a People's Court of the
PRC which has the jurisdiction for recognition and enforcement of judgments. We
have been advised by our PRC counsel, Haiwen & Partners, that there is certain
doubt as to the enforceability in the PRC of actions to enforce judgments of
United States courts arising out of or based on the ownership of H shares or
ADSs, including judgments arising out of or based on the civil liability
provisions of United States federal or state securities laws.
Restrictions on Transferability and the Share Register
According to PRC Company Law, our domestic ordinary shares held by Sinopec
Group Company may not be transferred within three years of our establishment on
February 25, 2000, except as permitted under the March 23, 2000 debt to equity
swap agreement executed on March 23, 2000 between Sinopec Group Company and our
other shareholders, whereby Sinopec Group Company may transfer our domestic
ordinary shares to such other shareholders. H shares may be traded only among
investors who are not PRC persons, and may not be sold to PRC investors. There
are no restrictions on the ability of investors who are not PRC residents to
hold H shares.
As provided in the articles of associations we may refuse to register a
transfer of H shares unless:
o any relevant transfer fee is paid;
o the instrument of transfer is accompanied by the share certificates
to which it relates, or such other evidence is given as may be
reasonably necessary to show the right of the transferor to make the
transfer;
o the instrument of transfer is in respect of one class of shares only;
and
o the transfer is conducted in accordance with the laws and
administrative regulations of or required by the securities exchanges
on which the shares are listed.
We are required to keep a register of our shareholders which shall be
comprised of various parts, including one part which is to be maintained in
Hong Kong in relation to H shares to be listed on the Hong Kong Stock Exchange.
Shareholders have the right to inspect and, for a nominal charge, to copy the
share register. No transfers of ordinary shares shall be recorded in our share
register within 30 days prior to the date of a shareholders' general meeting or
within 5 days prior to the record date established for the purpose of
distributing a dividend.
We have appointed HKSCC Registrars Limited to act as the registrar of
our H shares. This registrar maintains our register of holders of H shares at
our offices in Hong Kong and enters transfers of shares in such register upon
the presentation of the documents described above.
C. MATERIAL CONTRACTS
In August 2003, we entered into an agreement on the joint exploration,
development and sales of the natural gas, petroleum and condensed oil resources
in East China Sea region with CNOOC, Shell and Unocal. The above agreement
included 5 contracts, the subject areas of which are all located at the Xihu
Trough in East China Sea, including 3 contracted exploration areas and 2
contracted development areas, covering a total area of approximately 22,000
square kilometers. We and CNOOC each has 30% interest and Shell and Unocal each
has 20% interest. CNOOC will serve as the operator in the above 5 contracted
areas. Under this framework, we will lead the Natural Gas Marketing Department
in East China Sea and be jointly responsible for the sales of natural gas
produced in this project. This marks the official commencement of the Natural
Gas Co-operative Development Project in Xihu Trough of East China Sea.
D. EXCHANGE CONTROLS
The existing foreign exchange regulations have significantly reduced
government foreign exchange controls for transactions under the current
account, including trade and service related foreign exchange transactions and
payment of dividends. We may undertake current account foreign exchange
transactions without prior approval from the State Administration of Foreign
Exchange by producing commercial documents evidencing such transactions,
provided that they are processed through Chinese banks licensed to engage in
foreign exchange transactions. The PRC government has stated publicly that it
intends to make the renminbi freely convertible in the future. However, we
cannot predict whether the PRC government will continue its existing foreign
exchange policy and when the PRC government will allow free conversion of
renminbi to foreign currency.
Foreign exchange transactions under the capital account, including
principal payments in respect of foreign currency-denominated obligations,
continue to be subject to significant foreign exchange controls and require the
approval of the State Administration of Foreign Exchange. These limitations
could affect our ability to obtain foreign exchange through debt or equity
financing, or to obtain foreign exchange for capital expenditures.
Since 1994, the conversion of renminbi into Hong Kong and United States
dollars has been based on rates set by the People's Bank of China, which are
set daily based on the previous day's PRC interbank foreign exchange market
rate and current exchange rates on the world financial markets. Although the
renminbi to US dollar exchange rate has been relatively stable since 1994, we
cannot predict nor give any assurance of its future stability. Fluctuations in
exchange rates may adversely affect the value, translated or converted into US
dollars or Hong Kong dollars, of our net assets, earnings and any declared
dividends. We cannot give any assurance that any future movements in the
exchange rate of the renminbi against the US dollar and other foreign
currencies will not adversely affect our results of operations and financial
condition. We do not currently hedge exchange rate fluctuations between the
renminbi and the US dollar or other currencies and currently have no plans to
do so. For further information on our foreign exchange risks, foreign exchange
rates, our hedging activities and our historical foreign currency requirements,
see "Currencies Exchange Rates" and "Item 11 -- Qualitative and Quantitative
Disclosure about Market Risk -- Foreign Exchange Rate Risk."
E. TAXATION
PRC Taxation
The following discussion addresses the principal PRC tax consequences of
investing in the H shares or ADSs.
Taxation of Dividends
Individual Investors
According to the current PRC tax regulations, dividends paid by PRC
companies are ordinarily subject to a PRC withholding tax levied at a flat rate
of 20%. However, such withholding tax is not applicable with respect to those
PRC companies which have their shares listed on an overseas stock exchange,
such as H shares and ADSs, because of an exemption issued first in 1993 and
then confirmed in 1994. The relevant tax authority has not collected
withholding tax on dividend payments on H shares or ADSs.
In the event that the exemption is no longer available or is withdrawn,
a 20% tax may be withheld on dividends in accordance with the PRC individual
income tax law. Such withholding tax may be reduced under an applicable treaty
on the avoidance of double taxation.
Enterprises
According to the current PRC tax regulations, dividends paid by PRC
companies to enterprises are ordinarily subject to a PRC withholding tax levied
at a flat rate of 20%. However, foreign enterprises with no permanent
establishment in China receiving dividends paid with respect to a PRC company's
H shares or ADSs have been temporarily exempted from the 20% withholding tax.
If such withholding tax becomes applicable in the future, the rate could be
reduced under an applicable treaty on the avoidance of double taxation.
Tax Treaties
Holders resident in countries which have entered into avoidance of
double taxation treaties with the PRC may be entitled to a reduction of the
withholding tax imposed on the payment of dividends. The PRC currently has
avoidance of double taxation treaties with a number of other countries, which
include Australia, Canada, France, Germany, Japan, Malaysia, the Netherlands,
Singapore, the United Kingdom and the United States.
Under a tax treaty between United States and China, China may tax
dividends paid by Sinopec Corp. to eligible US Holders up to a maximum of 10%
of the gross amount of such dividend. Under the tax treaty, an eligible US
Holder is a person who, by reason of domicile, residence, place of head office,
place of incorporation or any other criterion of similar nature is liable to
tax in the United States, subject to a detailed "treaty shopping" provision.
Taxation of Capital Gains
A PRC tax regulation provides that gains realized upon the sale of
overseas shares by foreign enterprises and individuals are not subject to tax
on capital gains. However, the Provision for Implementing of the Individual
Income Tax Law of the PRC (the "Detailed Implementing Rules"), promulgated on
January 28, 1994, imposes income tax of 20% on gains derived from the sale of
equity shares by an individual. A notice issued in 1998 by the Ministry of
Finance and State Administration of Tax states that no capital gains tax will
be imposed on gains from the sale of shares by individuals from 1997. If such
tax exemption relief is no longer available, individual holders of H shares or
ADSs may be subject to a 20% capital gains tax unless such tax is reduced or
eliminated by an applicable double taxation treaty. As the Amendments and the
Detailed Implementing Rules only relate to individual income tax, the tax
exemption for foreign enterprises under the PRC tax regulation should still be
valid.
PRC Stamp Tax Considerations
Under the current PRC tax regulation, the PRC stamp tax is not imposed
on the transfer of H shares and ADSs of PRC companies publicly listed outside
China.
United States Federal Income Tax Considerations
The following is a summary of United States federal income tax
considerations that are anticipated to be material for US Holders (as defined
below) who purchase H shares or ADSs. This summary is based upon existing
United States federal income tax law, which is subject to change, possibly with
retroactive effect. This summary does not discuss all aspects of United States
federal income taxation which may be important to particular investors in light
of their individual investment circumstances, such as investors subject to
special tax rules including: financial institutions, insurance companies,
broker-dealers, tax-exempt organizations, except as described below, non-US
Holders, investors who own (directly, indirectly, or constructively) 10% or
more of our voting stock, that will hold H shares or ADSs as part of a
straddle, hedge, conversion, constructive sale or other integrated transaction
for United States federal income tax purposes investors that have a functional
currency other than the United States dollar, all of whom may be subject to tax
rules that differ significantly from those summarized below. In addition, this
summary does not discuss any foreign, state, local or alternative minimum tax
considerations. This summary assumes that investors will hold their H shares or
ADSs as "capital assets" (generally, property held for investment) under the
United States Internal Revenue Code. Each prospective investor is urged to
consult its tax advisor regarding the United States federal, state, local, and
foreign income and other tax considerations of the purchase, ownership, and
disposition of H shares or ADSs.
For purposes of this summary, a US Holder is a beneficial owner of H
shares or ADSs that is for United States federal income tax purposes:
o an individual who is a citizen or resident of the United States;
o a corporation created in or organized under the laws of, the
United States or any State or political subdivision thereof;
o an estate the income of which is includible in gross income for
United States federal income tax purposes regardless of its
source;
o a trust the administration of which is subject to the primary
supervision of a United States court and which has one or more
United States persons who have the authority to control all
substantial decisions of the trust; or
o a trust that was in existence on August 20, 1996, was treated as
a United States person, for United States federal income tax
purposes, on the previous day and elected to continue to be so
treated.
If a partnership (including any entity treated as a partnership for
U.S. federal income tax purposes) holds H shares or ADSs, the tax treatment of
a partner in such partnership will depend upon the status of the partner and
the activities of the partnership. Partners in a partnership holding our H
shares or ADSs are urged to consult their tax advisors as to the particular
U.S. federal income tax consequences applicable to them.
A beneficial owner of the H shares or ADSs that is not a US Holder is
referred to herein as a "Non-US Holder."
A foreign corporation will be treated as a "passive foreign investment
company" (a "PFIC"), for United States federal income tax purposes, if 75% or
more of its gross income consists of certain types of "passive" income or 50%
or more of its assets are passive. Sinopec Corp. presently believes that it is
not a PFIC and does not anticipate becoming a PFIC. This is, however, a factual
determination made on an annual basis and is subject to change. The following
discussion assumes that Sinopec Corp. will not be subject to treatment as a
PFIC for United States federal income tax purposes.
US Holders
For United States federal income tax purposes, a US Holder of an ADS
will be treated as the owner of the proportionate interest of the H shares held
by the depositary that is represented by an ADS and evidenced by such ADS.
Accordingly, no gain or loss will be recognized upon the exchange of an ADS for
the holder's proportionate interest in the H shares. A US Holder's tax basis in
the withdrawn H shares will be the same as the tax basis in the ADS surrendered
therefor, and the holding period in the withdrawn H shares will include the
period during which the holder held the surrendered ADS.
Dividends
Any cash distributions paid by Sinopec Corp. out of earnings and
profits, as determined under United States federal income tax principles, will
be subject to tax as dividend income and will be includible in the gross income
of a US Holder upon receipt. A non-corporate recipient of dividend income will
generally be subject to tax on dividend income from a "qualified foreign
corporation" at a maximum U.S. federal tax rate of 15% rather than the marginal
tax rates generally applicable to ordinary income so long as certain holding
period requirements are met. A non-U.S. corporation (other than a foreign
personal holding company, foreign investment company, or passive foreign
investment company) generally will be considered to be a qualified foreign
corporation (i) if it is eligible for the benefits of a comprehensive tax
treaty with the United States which the Secretary of Treasury of the United
States determines is satisfactory for purposes of this provision and which
includes an exchange of information program or (ii) with respect to any
dividend it pays on stock which is readily tradable on an established
securities market in the United States. There is currently a tax treaty in
effect between the United States and the People's Republic of China which the
Secretary of Treasury of the United States determined is satisfactory for these
purposes. Additionally, our ADSs trade on the New York Stock Exchange, an
established securities market in the United States. Cash distributions paid by
Sinopec Corp. in excess of its earnings and profits will be treated as a
tax-free return of capital to the extent of the US Holder's adjusted tax basis
in its shares or ADSs, and after that as gain from the sale or exchange of a
capital asset. Dividends paid in Hong Kong dollar will be includible in income
in a United States dollar amount based on the United States dollar - Hong Kong
dollar exchange rate prevailing at the time of receipt of such dividends by the
depositary, in the case of ADSs, or by the US Holder, in the case of H shares
held directly by such US Holder. Gain or loss, if any, recognized on a
subsequent sale, conversion or other disposition of Hong Kong dollars generally
will be U.S. source income or loss. Dividends received on H shares or ADSs will
not be eligible for the dividends received deduction allowed to corporations.
Dividends received on H shares or ADSs will be treated, for United
States federal income tax purposes, as foreign source income. A US Holder may
be eligible, subject to a number of complex limitations, to claim a foreign tax
credit in respect of any foreign withholding taxes imposed on dividends
received on H shares or ADSs. US Holders who do not elect to claim a foreign
tax credit for foreign income tax withheld may instead claim a deduction, for
United States federal income tax purposes, in respect of such withholdings, but
only for a year in which the US Holder elects to do so for all creditable
foreign income taxes.
A distribution of additional shares of Sinopec Corp.'s stock to US
Holders with respect to their H shares or ADSs that is pro rata to all Sinopec
Corp.'s shareholders may not be subject to United States federal income tax.
The tax basis of such additional shares will be determined by allocating the US
Holders' adjusted tax basis in the H shares or ADSs between the H shares or
ADSs and the additional shares, based on their relative fair market values on
the date of distribution.
Sale or Other Disposition of H shares or ADSs
A US Holder will recognize capital gain or loss upon the sale or other
disposition of H shares or ADSs in an amount equal to the difference between
the amount realized upon the disposition and the US Holder's adjusted tax basis
in such H shares or ADSs, as each is determined in US dollars. Any capital gain
or loss will be long-term if the H shares or ADSs have been held for more than
one year and may be, under the income tax treaty between the People's Republic
of China and the United States, foreign source gain or loss. The claim of a
deduction in respect of a capital loss, for United States federal income tax
purposes, may be subject to limitations.
PFIC Considerations
If Sinopec Corp. were to be classified as a PFIC in any taxable year, a
U.S. Holder would be subject to special rules generally intended to reduce or
eliminate any benefits from the deferral of United States federal income tax
that a U.S. Holder could derive from investing in a foreign company that does
not distribute all of its earnings on a current basis. In such event, a U.S.
Holder of the H shares or ADSs may be subject to tax at ordinary income tax
rates on (i) any gain recognized on the sale of the H shares or ADSs and (ii)
any "excess distribution" paid on the H shares or ADSs (generally, a
distribution in excess of 125% of the average annual distributions paid by
Sinopec Corp. in the three preceding taxable years). In addition, a U.S. Holder
may be subject to an interest charge on such gain or excess distribution.
The above results may be eliminated if a "mark-to-market" election is
available and a US Holder validly makes such an election. If the election is
made, such holder generally will be required to take into account the
difference, if any, between the fair market value and its adjusted tax basis in
H shares or ADSs at the end of each taxable year as ordinary income or ordinary
loss (to the extent of any net mark-to-market gain previously included in
income). In addition, any gain from a sale or other disposition of H shares or
ADSs will be treated as ordinary income, and any loss will be treated as
ordinary loss (to the extent of any net mark-to-market gain previously included
in income).
Non-US Holders
An investment in H shares or ADSs by a Non-US Holder will not give rise
to any United States federal income tax consequences unless:
o the dividends received or gain recognized on the sale of H shares
or ADSs by such person is treated as effectively connected with
the conduct of a trade or business by such person in the United
States as determined under United States federal income tax law;
or
o in the case of gains recognized on a sale of H shares or ADSs by
an individual, such individual is present in the United States
for 183 days or more and certain other conditions are met.
In order to avoid back-up withholding on dividend payments made in the
United States, a Non-US Holder of the H shares or ADSs may be required to
complete, and provide the payor with, an Internal Revenue Service Form W-8BEN,
or other documentary evidence, certifying that such holder is an exempt foreign
person.
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
We filed with the Securities and Exchange Commission in Washington, D.C.
a Registration Statement on Form F-1 (Registration No. 333-12502) under the
Securities Act in connection with the ADSs offered in the global offering. The
Registration Statement contains exhibits and schedules. Any statement in this
annual report about any of our contracts or other documents is not necessarily
complete. If the contract or document is filed as an exhibit to the
Registration Statement, the contract or document is deemed to modify the
description contained in this annual report. You must review the exhibits
themselves for a complete description of the contract or documents.
You may inspect and copy our registration statements, including their
exhibits and schedules, and the reports and other information we file with the
Securities and Exchange Commission in accordance with the Exchange Act at the
public reference facilities maintained by the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street, Room 1024, N.W., Washington,
D.C. 20549 and at the regional offices of the Securities and Exchange
Commission located at 233 Broadway, New York, NY 10279 and at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also
inspect the registration statements, including their exhibits and schedules, at
the office of the New York Stock Exchange, Wall Street, New York, New York
10005. Copies of such material may also be obtained from the Public Reference
Section of the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. You may obtain information
regarding the Washington D.C. Public Reference Room by calling the Securities
and Exchange Commission at 1-800-SEC-0330 or by contacting the Securities and
Exchange Commission over the internet at its website at http://www.sec.gov.
I. SUBSIDIARY INFORMATION
Not applicable.
ITEM 11. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are to fluctuations in oil and gas
prices, exchange rates and interest rates.
Commodity Price Risk
We are exposed to fluctuations in prices of crude oil, refined products
and petrochemicals whose prices are volatile. We purchase substantial volumes
of crude oil from domestic and international suppliers and sell substantial
volumes of refined products and petrochemicals to domestic buyers. We do not
enter into commodity derivative instruments or futures to hedge the potential
price fluctuations of these products or for other purposes. Therefore,
fluctuations of prices of crude oil, refined products and petrochemicals have a
significant effect on our operating expenses and net profits.
Foreign Exchange Rate Risk
A portion of the our renminbi revenues are converted into other
currencies to meet foreign currency financial instrument obligations and to pay
for imported materials and equipment. Foreign currency payments for imported
equipment represented 6.9%, 9.6% and 5.6% of our total capital expenditure in
2001, 2002 and 2003, respectively. Foreign currency payments for other imports,
principally crude oil, represented 34.0%, 34.5% and 40.5% of our purchased
crude oil, products and operating supplies and expenses in 2001, 2002 and 2003,
respectively.
The renminbi is not a freely convertible currency. Actions taken by the
PRC government could cause future exchange rates to vary significantly from
current or historical exchange rates. Although the renminbi to US dollar
exchange rate has been relatively stable since 1994, we cannot predict nor give
any assurance of its future stability. Fluctuations in exchange rates may
adversely affect the value, translated or converted into US dollars or Hong
Kong dollars, of our net assets, earnings and any declared dividends. We cannot
give any assurance that any future movements in the exchange rate of the
renminbi against the US dollar and other foreign currencies will not adversely
affect our results of operations and financial condition. However, we believe
that significant depreciation in the renminbi against major foreign currencies
may have a material adverse impact on our capital expenditure program.
The following presents various market risk information regarding
market-sensitive financial instruments that we held or issued as of December
31, 2003 and 2002. We conduct our business primarily in renminbi, which is also
our functional and reporting currency.
The following tables provide information regarding instruments that are
sensitive to foreign exchange rates as of December 31, 2003 and 2002. For debt
obligations, the table presents cash flows and related weighted average rates
by expected maturity dates.
As of December 31, 2003:
Expected maturity
------------------------------------------------------------------
2004 2005 2006 2007 2008 thereafter Total Fair value
---- ---- ---- ---- ---- ---------- ----- ----------
(RMB equivalent in millions, except interest rates)
Assets
Cash and cash equivalents
In United States dollar 968 - - - - - 968 968
In Hong Kong dollar 38 - - - - - 38 38
In Japanese yen 16 - - - - - 16 16
Euro denominated 17 - - - - - 17 17
Time deposits with financial
institutions
In United States dollar 59 - - - - - 59 59
In Hong Kong dollar 37 - - - - - 37 37
Liabilities
Debts in United States dollar
Fixed rate 3,741 706 121 32 10 32 4,642 4,684
Average interest rate 2.7% 5.3% 4.8% 2.0% 0.3% 0.0%
Variable rate 6,456 513 1,550 410 333 851 10,113 10,113
Average interest rate (1) 1.8% 2.3% 2.3% 2.7% 2.6% 1.4%
Debts in Japanese yen
Fixed rate 292 248 240 160 80 1,154 2,174 2,610
Average interest rate 3.4% 3.2% 3.0% 2.8% 2.6% 2.6%
Variable rate 241 242 138 114 - - 735 735
Average interest rate (1) 1.2% 1.2% 1.6% 1.6% - -
Debts in Hong Kong dollar
Fixed rate 116 - - - - - 116 116
Average interest rate 0.7% - - - - -
Variable rate 4 2 1 - - - 7 7
Average interest rate (1) 5.3% 5.3% 5.3% - - -
Debts in Euro
Fixed rate - 3 1 1 1 15 21 21
Average interest rate - 2.8% 1.8% 1.8% 1.8% 1.8%
(1) The average interest rates for variable rate loans are calculated based on the rates reported as of December 31, 2003.
As of December 31, 2002:
Expected maturity
---------------------------------------------------------------------
2003 2004 2005 2006 2007 thereafter Total Fair value
---- ---- ---- ---- ---- ---------- ----- ----------
(RMB equivalent in millions, except interest rates)
---------------------------------------------------
Assets
Cash and cash equivalents
In United States dollar 1,269 - - - - - 1,269 1,269
In Hong Kong dollar 77 - - - - - 77 77
In Japanese yen 14 - - - - - 14 14
In Great British pound 3 - - - - - 3 3
In Euro 36 - - - - - 36 36
Time deposits with financial
institutions In
United States dollar 58 - - - - - 58 58
Liabilities
Debts in United States dollar
Fixed rate 688 537 562 249 93 39 2,168 2,219
Average interest rate 2.3% 5.0% 5.0% 4.7% 3.2% 0.1%
Variable rate 4,978 586 435 1,122 332 529 7,982 7,982
Average interest rate (1) 2.2% 2.5% 2.5% 2.4% 3.0% 1.8%
Debts in Japanese yen
Fixed rate 230 231 221 215 144 1,105 2,146 2,564
Average interest rate 3.7% 3.6% 3.4% 3.4% 3.1% 2.6%
Variable rate 251 241 215 124 101 - 932 932
Average interest rate (1) 0.2% 0.2% 0.2% 0.2% 0.2% -
Debts in Hong Kong dollar
Variable rate 139 3 2 2 - - 146 146
Average interest rate (1) 5.4% 5.4% 5.4% 5.4% - -
Debts in Euro
Fixed rate 50 42 44 34 - 8 178 207
Average interest rate 6.6% 6.5% 6.3% 6.9% - 8.1%
(1) The average interest rates for variable rate loans are calculated based on the rates reported as of December 31, 2002.
Interest Rate Risk
We are exposed to interest rate risk resulting from fluctuations in
interest rates on our short- and long-term debts. Upward fluctuations in
interest rates increase the cost of new debt and the interest cost of
outstanding floating rate borrowings.
Our debts consist of fixed and variable rate debt obligations with
original maturities ranging from 1 to 28 years. Fluctuations in interest rates
can lead to significant fluctuations in the fair values of our debt
obligations.
The following tables present principal cash flows and related weighted
average interest rates by expected maturity dates of our interest rate
sensitive financial instruments as of December 31, 2003 and 2002.
As of December 31, 2003:
Expected maturity
---------------------------------------------------------------------
2004 2005 2006 2007 2008 thereafter Total Fair value
---- ---- ---- ---- ---- ---------- ----- ----------
(RMB equivalent in millions, except interest rates)
---------------------------------------------------
Assets
Cash and cash equivalents
In Renminbi 14,182 - - - - - 14,182 14,182
In United States dollar 968 - - - - - 968 968
In Hong Kong dollar 38 - - - - - 38 38
In Japanese yen 16 - - - - - 16 16
Euro denominated 17 - - - - - 17 17
Time deposits with financial
institutions
In Renminbi 2,088 - - - - - 2,088 2,088
In United States dollar 59 - - - - - 59 59
In Hong Kong dollar 37 - - - - - 37 37
Liabilities
Debts in Renminbi
Fixed rate 16,240 9,130 6,981 9,213 5,458 36,755 83,777 83,397 (1)
Average interest rate 4.8% 5.0% 5.0% 5.1% 5.1% 5.6%
Variable rate 1,989 2,301 1,621 65 61 678 6,715 6,715
Average interest rate (2) 5.1% 5.1% 5.1% 4.9% 4.8% 4.8%
Debts in United States dollar
Fixed rate 3,741 706 121 32 10 32 4,642 4,684
Average interest rate 2.7% 5.3% 4.8% 2.0% 0.3% 0.0%
Variable rate 6,456 513 1,550 410 333 851 10,113 10,113
Average interest rate (2) 1.8% 2.3% 2.3% 2.7% 2.6% 1.4%
Debts in Japanese yen
Fixed rate 292 248 240 160 80 1,154 2,174 2,610
Average interest rate 3.4% 3.2% 3.0% 2.8% 2.6% 2.6%
Variable rate 241 242 138 114 - - 735 735
Average interest rate (2) 1.2% 1.2% 1.6% 1.6% - -
Debts in Hong Kong dollar
Fixed rate 116 - - - - - 116 116
Average interest rate 0.7% - - - - -
Variable rate 4 2 1 - - - 7 7
Average interest rate (2) 5.3% 5.3% 5.3% - - -
Debts in Euro
Fixed rate - 3 1 1 1 15 21 21
Average interest rate - 2.8% 1.8% 1.8% 1.8% 1.8%
(1) Carrying amounts are used for loans from Sinopec Group Company and its affiliates as it is not practicable to estimate
their fair values because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive.
(2) The average interest rates for variable rate loans are calculated based on the rates reported as of December 31, 2003.
As of December 31, 2002:
Expected maturity
---------------------------------------------------------------------
2003 2004 2005 2006 2007 thereafter Total Fair value
---- ---- ---- ---- ---- ---------- ----- ----------
(RMB equivalent in millions, except interest rates)
---------------------------------------------------
Assets
Cash and cash equivalents
In Renminbi 16,762 - - - - -
16,762 16,762
In United States dollar 1,269 - - - - -
1,269 1,269
In Hong Kong dollar 77 - - - - -
77 77
In Japanese yen 14 - - - - -
14 14
In Great British pound 3 - - - - -
3 3
In Euro 36 - - - - -
36 36
Time deposits with financial
institutions In Renminbi 955 - - - - 955 955
In United States dollar 58 - - - - - 58 58
Liabilities
Debts in Renminbi
Fixed rate 28,079 6,435 9,960 6,047 3,765 39,226 93,512 93,474(1)
Average interest rate 5.5% 6.3% 6.6% 5.5% 5.6% 0.2%
Variable rate 1,168 1,409 2,022 1,022 20 60 5,701 5,701
Average interest rate (2) 5.4% 5.5% 5.4% 5.7% 5.6% 3.2%
Debts in United States dollar
Fixed rate 688 537 562 249 93 39 2,168 2,219
Average interest rate 2.3% 5.0% 5.0% 4.7% 3.2% 0.1%
Variable rate 4,978 586 435 1,122 332 529 7,982 7,982
Average interest rate (2) 2.2% 2.5% 2.5% 2.4% 3.0% 1.8%
Debts in Japanese yen
Fixed rate 230 231 221 215 144 1,105 2,146 2,564
Average interest rate 3.7% 3.6% 3.4% 3.4% 3.1% 2.6%
Variable rate 251 241 215 124 101 - 932 932
Average interest rate (2) 0.2% 0.2% 0.2% 0.2% 0.2% -
Debts in Hong Kong dollar
Variable rate 139 3 2 2 - - 146 146
Average interest rate (2) 5.4% 5.4% 5.4% 5.4% - -
Debts in Euro
Fixed rate 50 42 44 34 - 8 178 207
Average interest rate 6.6% 6.5% 6.3% 6.9% - 8.1%
(1) Carrying amounts are used for loans from Sinopec Group Company and its affiliates as it is not practicable to estimate
their fair values because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive.
(2) The average interest rates for variable rate loans are calculated based on the rates reported as of December 31,
2002.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELIN QUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
OF PROCEEDS
A. MATERIAL MODIFICATIONS TO THE RIGHTS TO SECURITIES HOLDERS
None.
B. USE OF PROCEEDS
The following use of proceeds information relates to the registration
statement on Form F-1 (Registration No. 333-12502) filed by us in connection
with the global offering of American depositary shares underlying our H shares,
which went effective on October 11, 2000.
The aggregate net offering proceeds to us from the sale of our H shares
registered pursuant to the registration statement were approximately US$2,938.8
million. In 2003, we used approximately RMB3.273 billion (US$395.4 million)
from the net offering proceeds primarily to fund our capital expenditure
programs. By December 31, 2003, we have used up all the proceeds from the
issuance of our H Shares.
ITEM 15. CONTROLS AND PROCEDURES
(a) Our principal executive officer and principal financial officer have
evaluated the effectiveness of our disclosure controls and procedures
(as defined in the Exchange Act Rules 13a-15(e) or 15d-15(e), and
concluded that, based on their evaluation, our disclosure controls and
procedures are effective as of the end of the period covered by this
annual report to ensure that material information required to be
included in this annual report would be made known to them by others on
a timely basis.
(b) There has been no significant change in our internal controls or in
other factors that could significantly affect these controls subsequent
to the Evaluation Date.
ITEM 16. ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT
The board of directors has determined that Mr. Zhang Youcai qualifies as
an audit committee financial expert in accordance with the terms of Item 16.A
of Form 20-F. For Mr. Zhang's biographical information, see "Item 6 Directors,
Senior Management and Employees - A. Directors, members of the supervisory
committee and senior management."
ITEM 16B CODE OF ETHICS
As of the date of this annual report, we do not have, in form, a code of
ethics that applies to our principal executive officer, principal financial
officer and principal accounting officer. Our principal executive officers, Mr.
Chen Tonghai (Chairman) and Mr. Wang Jiming (President), and our principal
financial officer, Mr. Zhang Jiaren (CFO), currently also serve as our
directors and are thus subject to the director service contracts that they have
with us. Under the director service contracts, each of them agrees that he owes
a fiduciary and diligence obligation to our company and that he shall not
engage in any activities in competition with our business or carry any
activities detrimental to the interests of our company. Each of them also
agrees to perform his respective duties as a director and senior officer in
accordance with the Company Law of the PRC, relevant rules and regulations
promulgated by China Securities Regulatory Commission and the Mandatory
Provisions of Articles of Association of Overseas Listed Companies.
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate audit fees, audit-related
fees, tax fees of our principal accountants and all other fees billed for
products and services provided by our principal accountants other than the
audit fees, audit-related fees and tax fees for each of the fiscal years 2002
and 2003:
Audit Fees Audit-Related Fees Tax Fees Other Fees
---------- ------------------ -------- ----------
2002 RMB 79 million -- -- --
2003 RMB 79 million RMB 8 million -- --
Before our principal accountants were engaged by our company or our
subsidiaries to render audit or non-audit services, the engagement has been
approved by our audit committee.
ITEM 16D AUDIT COMMITTEE EXEMPTION
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
See F-pages following Item 19.
ITEM 19. EXHIBITS
1* Articles of Association of the Registrant, amended and adopted by the
shareholders' meeting on April 22, 2004 (English version).
4.1 Director Service Contracts, incorporated by reference to Exhibit 4.1 to
our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on June 18, 2003.
4.2 Supervisor Service Contracts , incorporated by reference to Exhibit 4.2
to our Annual Report on Form 20-F filed with the Securities and Exchange
Commission on June 18, 2003.
4.3 Reorganization Agreement between China Petrochemical Corporation and
China Petroleum & Chemical Corporation dated June 3, 2000 (including
English translation), incorporated by reference to Exhibit 10.1 to our
Registration Statement on Form F-1 filed with the Securities and
Exchange Commission on October 10, 2000 (File Number: 333-12502).
4.4 Agreement for Mutual Provision of Products and Ancillary Services
between China Petrochemical Corporation and China Petroleum & Chemical
Corporation dated June 3, 2000 (including English translation),
incorporated by reference to Exhibit 10.3 to our Registration Statement
on Form F-1 filed with the Securities and Exchange Commission on October
10, 2000 (File Number: 333-12502).
4.5 Agreement for Provision of Cultural, Educational, Hygiene and Community
Services between China Petrochemical Corporation and China Petroleum &
Chemical Corporation dated June 3, 2000 (including English translation),
incorporated by reference to Exhibit 10.4 to our Registration Statement
on Form F-1 filed with the Securities and Exchange Commission on October
10, 2000 (File Number: 333-12502).
4.6 Trademark License Agreement between China Petrochemical Corporation and
China Petroleum & Chemical Corporation dated June 3, 2000 (including
English translation), incorporated by reference to Exhibit 10.6 to our
Registration Statement on Form F-1 filed with the Securities and
Exchange Commission on October 10, 2000 (File Number: 333-12502).
4.7 Patents and Proprietary Technology License Contract between China
Petrochemical Corporation and China Petroleum & Chemical Corporation
dated June 3, 2000 (including English translation), incorporated by
reference to Exhibit 10.7 to our Registration Statement on Form F-1
filed with the Securities and Exchange Commission on October 10, 2000
(File Number: 333-12502).
4.8 Computer Software License Contract between China Petrochemical
Corporation and China Petroleum & Chemical Corporation dated June 3,
2000 (including English translation), incorporated by reference to
Exhibit 10.8 to our Registration Statement on Form F-1 filed with the
Securities and Exchange Commission on October 10, 2000 (File Number:
333-12502).
4.9 Land Use Rights Leasing Contract between China Petrochemical Corporation
and China Petroleum & Chemical Corporation dated June 3, 2000 (including
English translation), incorporated by reference to Exhibit 10.10 to our
Registration Statement on Form F-1 filed with the Securities and
Exchange Commission on October 10, 2000 (File Number: 333-12502).
4.10 Property Leasing Contract between China Petrochemical Corporation and
China Petroleum & Chemical Corporation dated June 3, 2000 (including
English translation), incorporated by reference to Exhibit 10.11 to our
Registration Statement on Form F-1 filed with the Securities and
Exchange Commission on October 10, 2000 (File Number: 333-12502).
8* A list of the Registrant's subsidiaries.
12.1* Certification of Chairman pursuant to Rule 13a-14(a).
12.2* Certification of President pursuant to Rule 13a-14(a).
12.3* Certification of CFO pursuant to Rule 13a-14(a).
13* Certification of CEO and CFO pursuant to 18 U.S.C.ss.1350, and Rule
13a-14(b).
* Filed as part of this annual report.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of independent registered public accounting firm ................................................... F-2
Consolidated statements of income for the years ended December 31, 2001, 2002 and 2003 .................... F-3
Consolidated balance sheets as of December 31, 2002 and 2003 .............................................. F-4
Consolidated statements of cash flows for the years ended December 31, 2001, 2002 and 2003................. F-5
Consolidated statements of shareholders' equity for the years ended December 31, 2001, 2002 and 2003....... F-7
Notes to consolidated financial statements................................................................. F-9
Supplemental information on oil and gas producing activities (unaudited)................................... F-57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
China Petroleum & Chemical Corporation:
We have audited the accompanying consolidated balance sheets of China
Petroleum & Chemical Corporation and subsidiaries (the "Group") as of December
31, 2002 and 2003, and the related consolidated statements of income, cash
flows and shareholders' equity for each of the years in the three-year period
ended December 31, 2003, all expressed in Renminbi. These consolidated
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of China
Petroleum & Chemical Corporation and subsidiaries as of December 31, 2002 and
2003, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2003, in conformity with
International Financial Reporting Standards promulgated by the International
Accounting Standards Board.
International Financial Reporting Standards vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 33 to the consolidated financial statements.
The accompanying consolidated financial statements as of and for the year
ended December 31, 2003 have been translated into United States dollars solely
for the convenience of the reader. We have audited the translation and in our
opinion, the consolidated financial statements expressed in Renminbi have been
translated into United States dollars on the basis set forth in Note 1 to the
consolidated financial statements.
KPMG
Hong Kong, China
March 26, 2004
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Amounts in millions, except per share data)
Years ended December 31,
---------------------------------------------
Note 2001 2002 2003 2003
---- ---- ---- ----
RMB RMB RMB US$
Operating revenues
Sales of goods....................................... 309,379 329,116 424,318 51,266
Other operating revenues............................. 3 14,250 16,029 18,818 2,274
-------- --------- --------- --------
323,629 345,145 443,136 53,540
Operating expenses
Purchased crude oil, products and operating supplies
and expenses...................................... (222,462) (237,581) (37,755) (312,488)
Selling, general and administrative expenses......... (17,800) (21,461) (25,940) (3,134)
Depreciation, depletion and amortization............. (23,395) (25,286) (26,735) (3,230)
Exploration expenses, including dry holes............ (3,775) (4,363) (6,133) (741)
Personnel expenses................................... 4 (13,655) (14,417) (16,182) (1,955)
Employee reduction expenses.......................... 5 (2,546) (244) (1,014) (122)
Taxes other than income tax.......................... 6 (11,977) (11,956) (13,491) (1,630)
Other operating expenses, net........................ 7 (350) (1,158) (3,886) (470)
-------- --------- --------- --------
Total operating expenses........................ (295,960) (316,466) (405,869) (49,037)
-------- --------- --------- --------
Operating income.......................................... 27,669 28,679 37,267 4,503
Finance costs
Interest expense..................................... 8 (4,983) (4,176) (3,728) (450)
Interest income...................................... 1,191 345 308 37
Foreign exchange losses.............................. (261) (384) (413) (50)
4
Foreign exchange gains............................... 760 60 30
-------- --------- --------- --------
Net finance costs............................... (3,293) (4,155) (3,803) (459)
Gain from issuance of shares by a subsidiary.............. 9 __ __ 136 16
Investment income......................................... 190 229 75 9
Income from associates.................................... 334 332 406 49
-------- --------- --------- --------
Income before income tax and minority interests .......... 24,900 25,085 34,081 4,118
Income tax................................................ 10 (8,037) (7,650) (10,545) (1,274)
-------- --------- --------- --------
Income before minority interests.......................... 16,863 17,435 23,536 2,844
Minority interests........................................ (617) (1,120) (1,943) (235)
-------- --------- --------- --------
Net income 16,246 16,315 21,593 2,609
======== ========= ========= ========
Basic earnings per share.................................. 11 0.19 0.19 0.25 0.03
======== ========= ========= ========
Weighted average number of shares......................... 11 85,168 86,702 86,702 86,702
======== ========= ========= ========
See accompanying notes to consolidated financial statements.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2002 AND 2003
(Amounts in millions)
December 31,
-------------------------------------
Note 2002 2003 2003
---- ---- -----
RMB RMB US$
ASSETS
Current assets
Cash and cash equivalents................................. 18,161 15,221 1,839
Time deposits with financial institutions................. 1,013 2,184 264
Trade accounts receivable, net............................ 12 10,800 9,284 1,122
Bills receivable.......................................... 5,053 5,953 719
Inventories............................................... 13 47,074 46,112 5,571
Prepaid expenses and other current assets................. 14 21,881 20,574 2,486
-------- -------- --------
Total current assets................................. 103,982 99,328 12,001
Non-current assets
Property, plant and equipment, net........................ 15 249,589 256,748 31,021
Construction in progress.................................. 16 21,692 28,973 3,501
Investments............................................... 17 2,697 2,582 312
Interests in associates................................... 18 8,049 8,081 976
Deferred tax assets....................................... 20 732 2,144 259
Lease prepayments......................................... 829 810 98
Other assets.............................................. 1,773 2,152 259
-------- -------- --------
Total non-current assets............................. 285,361 301,490 36,426
-------- -------- --------
Total assets......................................... 389,343 400,818 48,427
-------- -------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debts.......................................... 21 31,909 25,158 3,040
Loans from Sinopec Group Company and its affiliates....... 21 3,674 3,921 473
Trade accounts payable.................................... 22 19,477 22,704 2,743
Bills payable............................................. 30,239 23,958 2,895
Accrued expenses and other payables....................... 23 31,361 42,187 5,097
Income tax payable........................................ 2,780 4,077 493
-------- -------- --------
Total current liabilities............................ 119,440 122,005 14,741
Non-current liabilities
Long-term debts........................................... 21 39,479 41,450 5,008
Loans from Sinopec Group Company and its affiliates....... 21 37,703 37,771 4,564
Deferred tax liabilities.................................. 20 3,599 4,599 556
Other liabilities......................................... 1,290 1,228 147
-------- -------- --------
Total non-current liabilities........................ 82,071 85,048 10,275
-------- -------- --------
Total liabilities.................................... 201,511 207,053 25,016
Minority interests............................................. 24,009 25,866 3,125
Shareholders' equity
Share capital............................................. 24 86,702 86,702 10,475
Reserves.................................................. 25 77,121 81,197 9,811
-------- -------- --------
163,823 167,899 20,286
-------- -------- --------
Total liabilities and shareholders' equity........... 389,343 400,818 48,427
======== ======== ========
See accompanying notes to consolidated financial statements.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Amounts in millions)
Years ended December 31,
---------------------------------------
Note 2001 2002 2003 2003
---- ---- ---- ----
RMB RMB RMB US$
Net cash from operating activities................................ (a) 56,671 55,046 60,630 7,325
-------- -------- -------- --------
Cash flows from investing activities
Capital expenditure.......................................... (56,224) (42,208) (44,057) (5,323)
Capital expenditure of jointly controlled entities........... -- -- (4,107) (496)
Purchase of investments and investments in associates........ (3,375) (2,174) (1,511) (182)
Proceeds from disposal of investments and investments in
associates................................................ 323 337 123 15
Proceeds from disposal of property, plant and equipment...... 382 451 380 46
Repayments of loans from associates.......................... 117 -- -- --
Increase in time deposits with financial institutions........ (18,698) (1,342) (2,871) (347)
Maturity of time deposits with financial institutions........ 38,727 2,160 1,700 205
-------- -------- -------- --------
Net cash used in investing activities................... (38,748) (42,776) (50,343) (6,082)
-------- -------- -------- --------
Cash flows from financing activities
Proceeds from public offering, net of issuing expenses....... 11,648 -- -- --
Proceeds from bank and other loans........................... 259,065 252,356 230,262 27,820
Proceeds from bank and other loans of jointly controlled
entities.................................................. -- -- 1,450 175
Repayments of bank and other loans........................... (273,597) (259,274) (237,361) (28,678)
Distributions to minority interests.......................... (682) (455) (360) (43)
Contributions from minority interests........................ 287 230 580 70
Dividend paid............................................... (6,712) (8,670) (7,803) (943)
Cash and cash equivalents distributed to Sinopec Group
Company................................................... (6,446) -- -- --
-------- -------- -------- --------
Net cash used in financing activities................... (16,437) (15,813) (13,232) (1,599)
-------- -------- -------- --------
Net increase/(decrease) in cash and cash equivalents.............. 1,486 (3,543) (2,945) (356)
Effect of foreign exchange rate................................... (7) 7 5 1
Cash and cash equivalents at beginning of year.................... 20,218 21,697 18,161 2,194
-------- -------- -------- --------
Cash and cash equivalents at end of year.......................... 21,697 18,161 15,221 1,839
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(Amounts in millions)
(a) Reconciliation of income before income tax and minority interests to net
cash from operating activities
The reconciliation of income before income tax and minority interests to
net cash from operating activities is as follows:
Years ended December 31,
----------------------------------------
2001 2002 2003 2003
---- ---- ---- ----
RMB RMB RMB US$
Income before income tax and minority interests.......................... 24,890 25,085 34,081 4,118
Adjustment for:
Depreciation, depletion and amortization............................ 23,395 25,286 26,735 3,230
Dry hole cost....................................................... 1,770 1,771 2,789 337
Income from associates.............................................. (320) (332) (406) (49)
Investment income................................................... (189) (229) (75) (9)
Interest income..................................................... (1,191) (345) (308) (37)
Interest expense.................................................... 4,983 4,176 3,728 450
Gain from issuance of shares by a subsidiary........................ -- -- (136) (16)
Unrealized foreign exchange (gain)/loss............................. (542) 303 289 35
Loss on disposal of property, plant and equipment................... 77 797 2,221 268
Impairment losses on long-lived assets.............................. -- -- 877 106
Decrease in trade accounts receivable............................... 1,872 449 1,449 175
Increase in bills receivable........................................ (579) (1,224) (1,019) (123)
Decrease/(increase) in inventories.................................. 4,201 (123) 712 86
Decrease in prepaid expenses and other current assets............... 572 4,060 1,129 136
Decrease/(increase) in lease prepayments............................ 50 (11) 19 2
Decrease/(increase) in other assets................................. 54 (612) (823) (99)
(Decrease)/increase in trade accounts payable....................... (2,510) 2,428 3,329 402
Increase/(decrease) in bills payable............................... 14,830 4,241 (6,251) (755)
(Decrease)/increase in accrued expenses and other payables.......... (4,863) 349 5,965 721
Increase /(decrease) in other liabilities........................... 361 622 (13) (2)
------- ------- ------- -------
Cash flow generated from operations ..................................... 66,861 66,691 74,292 8,976
Interest received................................................... 1,245 360 303 36
Interest paid....................................................... (5,334) (5,745) (4,914) (594)
Investment and dividend income received............................. 293 343 445 54
Income tax paid..................................................... (6,394) (6,603) (9,496) (1,147)
------- ------- ------- -------
Net cash from operating activities....................................... 56,671 55,046 60,630 7,325
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in millions)
Total
Share Capital Share Revaluation Other Retained shareholders'
capital reserve premium reserve reserves earnings equity
-----------------------------------------------------------------------------
RMB RMB RMB RMB RMB RMB RMB
--- --- --- --- --- --- ---
Shareholders' equity at January 1, 2001, as
previously reported......................... 83,902 (14,579) 9,224 33,257 5,377 15,973 133,154
Adjusted for acquisition of the Acquired Group... -- -- -- -- 9,293 -- 9,293
------- ------- ------- -------- -------- ------- --------
Shareholders' equity at January 1, 2001, as
adjusted.................................... 83,902 (14,579) 9,224 33,257 14,670 15,973 142,447
Final dividend for 2000.......................... -- -- -- -- -- (6,712) (6,712)
Issue of shares, net of issuing expenses of RMB
168.............................................. 2,800 -- 8,848 -- -- -- 11,648
Net income....................................... -- -- -- -- -- 16,246 16,246
Appropriations (Note 25)......................... -- -- -- -- 2,804 (2,804) --
Consideration for Acquisition of Sinopec
National Star (Note 1)...................... -- -- -- -- (6,446) -- (6,446)
Transfer from other reserves to capital reserve. -- (4,299) -- -- 4,299 -- --
Revaluation surplus realized..................... -- -- -- (232) -- 232 --
Transfer from retained earnings to other reserves -- -- -- -- 221 (221) --
Net assets distributed to Sinopec Group Company
(Note iii).................................. -- -- -- -- (479) -- (479)
Shareholders' equity at December 31, 2001........ 86,702 (18,878) 18,072 33,025 15,069 22,714 156,704
------- ------- ------- -------- -------- ------- --------
Final dividend for 2001 ......................... -- -- -- -- -- (6,936) (6,936)
Interim dividend for 2002........................ -- -- -- -- -- (1,734) (1,734)
Net income....................................... -- -- -- -- -- 16,315 16,315
Appropriations (Note 25)......................... -- -- -- -- 9,824 (9,824) --
Revaluation surplus realized..................... -- -- -- (544) -- 544 --
Elimination of surplus on land use rights (Note
ii).............................................. -- -- -- (840) 246 -- (594)
Realization of deferred tax on land use rights
(Note ii).................................... -- -- -- -- (5) 5 --
Transfer from retained earnings to other reserves -- -- -- 235 (235) --
Net assets contributed from Sinopec Group
Company (Note iii).......................... -- -- -- -- 68 -- 68
Shareholders' equity at December 31, 2002........ 86,702 (18,878) 18,072 31,641 25,437 20,849 163,823
------- ------- ------- -------- -------- ------- --------
Final dividend for 2002 ......................... -- -- -- -- -- (5,202) (5,202)
Interim dividend for 2003........................ -- -- -- -- -- (2,601) (2,601)
Net income....................................... -- -- -- -- -- 21,593 21,593
Appropriations (Note 25)......................... -- -- -- -- 3,802 (3,802) --
Revaluation surplus realized..................... -- -- -- (1,316) -- 1,316 --
Revaluation surplus of Refining Assets........... -- (82) -- 16 82 -- 16
Deferred tax effect of surplus on land use
rights (Note ii).......................... -- -- -- -- 16 -- 16
Realization of deferred tax on land use rights
(Note ii).................................... -- -- -- -- (5) 5 --
Transfer from retained earnings to other reserves -- -- -- -- 326 (326) --
Net assets distributed to Sinopec Group Company
(Note iii).................................. -- -- -- -- (6,094) -- (6,094)
Consideration for Acquisitions of Ethylene
Assets and Refining Assets (Note 1)........ -- -- -- -- (3,652) -- (3,652)
Shareholders' equity at December 31, 2003........ 86,702 (18,960) 18,072 30,341 19,912 31,832 167,899
======= ======= ======= ======== ======== ======= ========
US Dollars equivalent............................ 10,475 (2,291) 2,184 3,666 2,406 3,846 20,286
======= ======= ======= ======== ======== ======= ========
Note:
(i) Net gains and losses not recognized in the combined statements of income
represent revaluation surplus after adjusting for the amount attributable
to minority interests. Net gains and losses not recognized in the
combined statements of income was nil for the years ended December 31,
2001 and 2002 and amounted to RMB 16 for the year ended December 31,
2003. The recognized gains of the Group, which represents the aggregate
of the net income and the revaluation surplus was RMB 16,246, RMB 16,315
and RMB 21,609 for the years ended December 31, 2001, 2002 and 2003,
respectively.
(ii) Effective January 1, 2002, land use rights which are included in lease
prepayments are carried at historical cost. Accordingly, the surplus on
the revaluation of land use rights credited to revaluation reserve
previously, net of minority interests, was eliminated during the year.
The effect of this change did not have a material impact on the Group's
financial condition and results of operations in the years prior to the
change. As a result of the tax deductibility of the revaluation surplus,
a deferred tax asset, net of minority interests, is created with a
corresponding increase in other reserves.
(iii) These represent net assets contributed from and distributed to Sinopec
Group Company for no monetary consideration. The net assets distributed
to Sinopec Group Company during the year ended December 31, 2003
primarily represent certain assets retained by Sinopec Group Company in
connection with the acquisition of the Acquired Group. The transaction
was recorded at historical cost and was reflected as a change in other
reserves in the year the transaction occurred.
See accompanying notes to consolidated financial statements.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in millions of Renminbi, except per share data)
1 PRINCIPAL ACTIVITIES, ORGANIZATION AND BASIS OF PRESENTATION
Principal activities
China Petroleum & Chemical Corporation (the "Company") is an energy and
chemical company that, through its subsidiaries (hereinafter collectively
referred to as the "Group"), engages in fully integrated oil and gas and
chemical operations in the People's Republic of China (the "PRC"). Oil and gas
operations consist of exploring for, developing and producing crude oil and
natural gas; transporting crude oil, natural gas and products by pipelines;
refining crude oil into finished petroleum products; and marketing crude oil,
natural gas and refined petroleum products. Chemical operations include the
manufacture and marketing of a wide range of chemicals for industrial uses.
Organization
The Company was established in the PRC on February 25, 2000 as a joint
stock limited company as part of the reorganization (the "Reorganization") of
China Petrochemical Corporation ("Sinopec Group Company"), the ultimate holding
company of the Group and a ministry-level enterprise under the direct
supervision of the State Council of the PRC. Prior to the incorporation of the
Company, the oil and gas and chemical operations of the Group were carried on
by oil administration bureaux, petrochemical and refining production
enterprises and sales and marketing companies of Sinopec Group Company.
As part of the Reorganization, certain of Sinopec Group Company's core oil
and gas and chemical operations and businesses together with the related assets
and liabilities that were to be transferred to the Company were segregated such
that the operations and businesses were separately managed beginning December
31, 1999. On February 25, 2000, in consideration for Sinopec Group Company
transferring such oil and gas and chemical operations and businesses and the
related assets and liabilities to the Company, the Company issued 68.8 billion
domestic state-owned ordinary shares with a par value of RMB 1.00 each to
Sinopec Group Company. The shares issued to Sinopec Group Company on February
25, 2000 represented the entire registered and issued share capital of the
Company at that date. The oil and gas and chemical operations and businesses
transferred to the Company related to (i) the exploration, development and
production of crude oil and natural gas, (ii) the refining, transportation,
storage and marketing of crude oil and petroleum products, and (iii) the
production and sale of chemicals (collectively the "Predecessor Operations").
Basis of presentation
Pursuant to the resolution passed at the Extraordinary General Meeting
held on August 24, 2001, the Company acquired the entire equity interest of
Sinopec National Star Petroleum Company ("Sinopec National Star") from Sinopec
Group Company for a consideration of RMB 6.45 billion (hereinafter referred to
as the "Acquisition of Sinopec National Star").
Pursuant to the resolution passed at the Directors' meeting on October
28, 2003, the Group acquired the equity interest of Sinopec Group Maoming
Petrochemical Company ("Sinopec Maoming") from Sinopec Group Company, for a
consideration of RMB 3.3 billion (hereinafter referred to as the "Acquisition
of Ethylene Assets").
Pursuant to the resolution passed at the Directors' meeting on December
29, 2003, the Group acquired the equity interest of Xi'an Petrochemical Main
Factory ("Xi'an Petrochemical") and Tahe Oilfield Petrochemical Factory ("Tahe
Petrochemical") from Sinopec Group Company, for considerations of RMB 221 and
RMB 135, respectively (hereinafter referred to as the "Acquisition of Refining
Assets").
As the Group, Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical
and Tahe Petrochemical are under the common control of Sinopec Group Company,
the Acquisition of Sinopec National Star, Acquisition of Ethylene Assets and
Acquisition of Refining Assets are considered as "combination of entities under
common control" which are accounted in a manner similar to a
pooling-of-interests ("as-if pooling-of-interests accounting"). Accordingly,
the assets and liabilities acquired from Sinopec National Star, Sinopec
Maoming, Xi'an Petrochemical and Tahe Petrochemical have been accounted for at
historical cost and the financial statements of the Group for periods prior to
the combination have been restated to include the accounts and the results of
operations of Sinopec National Star, Sinopec Maoming, Xi'an Petrochemical and
Tahe Petrochemical on a combined basis. In connection with these acquisitions,
certain assets, primarily property, plant and equipment and construction in
progress, were retained by Sinpec Group Company. The assets retained by Sinopec
Group Company were reflected as a distribution in the shareholders' equity. The
considerations for these acquisitions were treated as an equity transaction.
The results of operations and the financial condition previously reported
by the Group and Sinopec Maoming, Xi'an Petrochemical and Tahe Petrochemical
(collectively the "Acquired Group") and the combined amounts as of December 31,
2002 and for the years ended December 31, 2001 and 2002 presented in the
accompanying consolidated financial statements are summarized below.
The Group
without
the Acquired Group The Acquired Group Combined
------------------ ------------------ --------
RMB RMB RMB
2001
Results of operation:
Operating revenue..................... 318,471 5,158 323,629
Net income............................ 16,025 221 16,246
Basic earnings per share.............. 0.19 -- 0.19
2002
Results of operation:
Operating revenue..................... 340,042 5,103 345,145
Net income............................ 16,080 235 16,315
Basic earnings per share.............. 0.19 -- 0.19
Financial condition:
Current assets........................ 101,884 2,098 103,982
Total assets.......................... 375,881 13,462 389,343
Current liabilities................... 117,434 2,006 119,440
Total liabilities..................... 197,476 4,035 201,511
Shareholders' equity................. 154,485 9,338 163,823
For the years presented, all significant balances and transactions between
the Group and the Acquired Group prior to the acquisitions have been eliminated.
The accompanying consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards ("IFRS") promulgated
by the International Accounting Standards Board. IFRS includes International
Accounting Standards ("IAS") and related interpretations. Information relating
to the nature and effect of the significant differences between IFRS and
accounting principles generally accepted in the United States of America ("US
GAAP") are set forth in Note 33.
The accompanying consolidated financial statements are prepared on the
historical cost basis as modified by the revaluation of certain property, plant
and equipment (Note 15). The accounting policies described in Note 2 have been
consistently applied by the Group. As described in note (ii) to the consolidated
statement of shareholders' equity, land use rights are carried at cost effective
January 2002. The effect of this change resulted in a decrease in the
revaluation reserve and an increase in other reserves relating to the
recognition of the deferred tax asset as of January 1, 2002. The effect of this
change did not have a material impact on the Group's financial condition and
results of operations in prior years.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the year. Actual results could differ from those estimates.
The accompanying consolidated financial statements are expressed in
Renminbi ("RMB"), the national currency of the PRC. Solely for the convenience
of the reader, the December 31, 2003 consolidated financial statements have
been translated into United States dollars at the noon buying rate in New York
City on December 31, 2003 for cable transfers in Renminbi as certified for
customs purposes by the Federal Reserve Bank of New York of US$ 1.00 = RMB
8.2767. No representation is made that the Renminbi could have been, or could
be, converted into United States dollars at that rate or at any other certain
rate on December 31, 2003, or at any other certain date.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of consolidation
The consolidated financial statements include the financial statements of
the Company and its subsidiaries. Subsidiaries are those entities controlled by
the Company. Control exists when the Company has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as
to obtain benefits from its activities.
The results of subsidiaries are included in the consolidated statements of
income from the date that control effectively commences until the date that
control effectively ceases, and the share attributable to minority interests is
deducted from or added to income before minority interests. All significant
inter-company balances and transactions and any unrealized gains arising from
inter-company transactions, are eliminated on consolidation.
The particulars of the Group's principal subsidiaries are set out in Note
31.
(b) Translation of foreign currencies
The functional and reporting currency of the Group is Renminbi. Foreign
currency transactions during the year are translated into Renminbi at the
applicable rates of exchange quoted by the People's Bank of China ("PBOC
rates") prevailing on the transaction dates. Foreign currency monetary assets
and liabilities are translated into Renminbi at the applicable PBOC rates at
the balance sheet date.
Exchange differences, other than those capitalized as construction in
progress, are recognized as income or expenses in the consolidated statements
of income. There were no exchange differences capitalized for the years ended
December 31, 2001, 2002 and 2003.
(c) Cash and cash equivalents
Cash equivalents consist of time deposits with financial institutions with
an initial term of less than three months when purchased. Cash equivalents are
stated at cost, which approximates fair value.
(d) Trade accounts receivable
Trade accounts receivable are stated at cost less allowance for doubtful
accounts. An allowance for doubtful accounts is provided based upon the
evaluation of the recoverability of these accounts at the balance sheet date.
(e) Inventories
Inventories, other than spare parts and consumables, are stated at the
lower of cost and net realizable value. Cost includes the cost of purchase
computed using the weighted average method and, in the case of work in progress
and finished goods, direct labor and an appropriate proportion of production
overheads. Net realizable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the estimated
costs necessary to make the sale.
Spare parts and consumables are stated at cost less any provision for
obsolescence.
(f) Property, plant and equipment
An item of property, plant and equipment is initially recorded at cost,
less accumulated depreciation and impairment losses. The cost of an asset
comprises its purchase price and any directly attributable costs of bringing
the asset to working condition and location for its intended use. Subsequent to
the revaluation (Note 15), which was based on depreciated replacement costs,
property, plant and equipment are carried at revalued amount, being the fair
value at the date of the revaluation less any subsequent accumulated
depreciation and impairment losses. Revaluations are performed periodically to
ensure that the carrying amount does not differ materially from that which
would be determined using fair value at the balance sheet date. Expenditure
incurred after the asset has been put into operation is capitalized only when
it increases the future economic benefits embodied in the item of property,
plant and equipment. All other expenditure is charged to the consolidated
statements of income in the period in which it is incurred.
Gains or losses arising from the retirement or disposal of property, plant
and equipment, other than oil and gas properties, are determined as the
difference between the net disposal proceeds and the carrying amount of the
asset and are recognized as income or expense in the consolidated statements of
income on the date of retirement or disposal. On disposal of a revalued asset,
the related revaluation surplus is transferred from the revaluation reserve to
retained earnings.
Depreciation is provided to write off the cost/revalued amount of each
asset, other than oil and gas properties, over its estimated useful life on a
straight-line basis, after taking into account its estimated residual value, as
follows:
Buildings 15 to 45 years
Plant, machinery, equipment and others 4 to 18 years
Service stations 25 years
(g) Oil and gas properties
The Group uses the successful efforts method of accounting for its oil and
gas producing activities. Under this method, costs of development wells and the
related support equipment are capitalized. The cost of exploratory wells is
initially capitalized as construction in progress pending determination of
whether the well has found proved reserves. The impairment of exploratory well
costs occurs upon the determination that the well has not found proved
reserves. Exploratory wells that find oil and gas reserves in any area
requiring major capital expenditure are expensed unless the well has found a
sufficient quantity of reserves to justify its completion as a producing well
if the required capital expenditure is made, and drilling of the additional
exploratory wells is under way or firmly planned for the near future. However,
in the absence of a determination of the discovery of proved reserves,
exploratory well costs are not carried as an asset for more than one year
following completion of drilling. If, after one year has passed, a
determination of the discovery of proved reserves cannot be made, the
exploratory well costs are impaired and charged to expense. All other
exploration costs, including geological and geophysical costs, other dry hole
costs and annual lease rentals, are expensed as incurred. Capitalized costs
relating to proved properties are amortized at the field level on a
unit-of-production method. The amortization rates are determined based on oil
and gas reserves estimated to be recoverable from existing facilities over the
shorter of the economic lives of crude oil and natural gas reservoirs and the
terms of the relevant production licenses.
Gains and losses on the disposal of proved oil and gas properties are not
recognized unless the disposal encompasses an entire property. The proceeds on
such disposals are credited to the carrying amounts of oil and gas properties.
(h) Lease prepayments
Lease prepayments represent land use rights paid to the PRC's land bureau.
Land use rights are carried at cost and amortized on a straight-line basis over
the respective periods of the rights.
(i) Construction in progress
Construction in progress represents buildings, oil and gas properties,
various plant and equipment under construction and pending installation, and is
stated at cost less impairment losses. Cost comprises direct costs of
construction as well as interest charges, and foreign exchange differences on
related borrowed funds to the extent that they are regarded as an adjustment to
interest charges, during the periods of construction.
Construction in progress is transferred to property, plant and equipment
when the asset is substantially ready for its intended use.
No depreciation is provided in respect of construction in progress.
(j) Investments
Investments in unlisted equity securities are stated at cost less
provision for impairment losses. A provision is made where, in the opinion of
management, the carrying amount of the investments exceeds its recoverable
amount.
(k) Interests in associates
An associate is a company, not being a subsidiary, in which the Group
exercises significant influence over its management. Significant influence is
the power to participate in the financial and operating policy decisions of the
investee but is not control over those policies.
The consolidated statements of income include the Group's share of the
results of its associates for the period. In the consolidated balance sheets,
interests in associates are stated at the Group's attributable share of net
assets.
(l) Interests in jointly controlled entities
A jointly controlled entity is an entity over which the Group can exercise
joint control with other ventures. Joint control is the contractually agreed
sharing of control over an economic activity.
The Group's interests in jointly controlled entities are accounted for on
a proportionate consolidation basis. Under this method, the Group combines its
proportionate share of the jointly controlled entity's operating revenues and
expenses with each major operating revenues and expenses caption of the Group's
statements of income and combines its proportionate share of the jointly
controlled entity's assets and liabilities with each major asset and liability
caption of the Group's balance sheet.
(m) Provisions
A provision is recognized in the consolidated balance sheets when the
Group has a legal or constructive obligation as a result of a past event, and
it is probable that an outflow of economic benefits will be required to settle
the obligation.
(n) Revenue recognition
Revenues associated with the sale of crude oil, natural gas, petroleum and
chemical products and all other items are recorded when the customer accepts
the goods and the significant risks and rewards of ownership and title have
been transferred to the buyer. Revenue from the rendering of services is
recognized in the consolidated statements of income upon performance of the
services. No revenue is recognized if there are significant uncertainties
regarding recovery of the consideration due, the possible return of goods, or
when the amount of revenue and the costs incurred or to be incurred in respect
of the transaction cannot be measured reliably.
Interest income is recognized on a time apportioned basis that takes into
account the effective yield on the asset.
Gains arising from the issuance of shares by subsidiaries are recognized
in the consolidated statements of income. Further information is set out in
Note 9.
(o) Borrowing costs
Borrowing costs are expensed in the consolidated statements of income in
the period in which they are incurred, except to the extent that they are
capitalized as being attributable to the construction of an asset which
necessarily takes a period of time to get ready for its intended use.
(p) Repairs and maintenance expenditure
Repairs and maintenance expenditure, including cost of major overhaul, is
expensed as incurred.
(q) Environmental expenditures
Environmental expenditures that relate to current ongoing operations or to
conditions caused by past operations are expensed as incurred.
Liabilities related to future remediation costs are recorded when
environmental assessments and/or cleanups are probable and the costs can be
reasonably estimated. As facts concerning environmental contingencies become
known to the Group, the Group reassesses its position both with respect to
accrued liabilities and other potential exposures.
(r) Research and development costs
Research and development costs are recognized as expenses in the period in
which they are incurred. Research and development costs amounted to RMB 1,304,
RMB 1,520 and RMB 2,111 for the years ended December 31, 2001, 2002 and 2003,
respectively.
(s) Operating leases
Operating lease payments are charged to the consolidated statements of
income on a straight-line basis over the period of the respective leases.
Operating lease charges amounted to RMB 2,834, RMB 3,195 and RMB 3,586 for the
years ended December 31, 2001, 2002 and 2003, respectively.
(t) Retirement benefits
The contributions payable under the Group's retirement plans are charged
to the consolidated statements of income according to the contribution
determined by the plans. Further information is set out in Note 29.
(u) Impairment loss
The carrying amounts of long-lived assets are reviewed periodically in
order to assess whether the recoverable amounts have declined below the
carrying amounts. These assets are tested for impairment whenever events or
changes in circumstances indicate that their recorded carrying amounts may not
be recoverable. When such a decline has occurred, the carrying amount is
reduced to the recoverable amount. The recoverable amount is the greater of the
net selling price and the value in use. In determining the value in use,
expected future cash flows generated by the asset are discounted to their
present value. The amount of the reduction is recognized as an expense in the
consolidated statements of income unless the asset is carried at revalued
amount for which an impairment loss is recognized directly against any related
revaluation reserve to the extent that the impairment loss does not exceed the
amount held in the revaluation reserve for that same asset.
The Group assesses at each balance sheet date whether there is any
indication that an impairment loss recognized for an asset in prior years may
no longer exist. An impairment loss is reversed if there has been a favorable
change in the estimates used to determine the recoverable amount. A subsequent
increase in the recoverable amount of an asset, when the circumstances and
events that led to the write-down or write-off cease to exist, is recognized as
income unless the asset is carried at revalued amount. Reversal of an
impairment loss on a revalued asset is credited to the revaluation reserve
except for impairment loss which was previously recognized as an expense in the
consolidated statements of income; a reversal of such impairment loss is
recognized as income. The reversal is reduced by the amount that would have
been recognized as depreciation had the write-down or write-off not occurred.
(v) Income tax
Income tax comprises current and deferred tax. Current tax is calculated
on taxable income by applying the applicable tax rates. Deferred tax is
provided using the balance sheet liability method on all temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is calculated
on the basis of the enacted tax rates that are expected to apply in the period
when the asset is realized or the liability is settled. The effect on deferred
tax of any changes in tax rates is charged or credited to the consolidated
statements of income.
The tax value of losses expected to be available for utilization against
future taxable income is set off against the deferred tax liability within the
same legal tax unit and jurisdiction to the extent appropriate, and is not
available for set-off against the taxable profit of another legal tax unit.
Deferred tax assets are reduced to the extent that it is no longer probable
that the related tax benefit will be realized.
(w) Dividends
Dividends are recognized as a liability in the period in which they are
declared.
(x) Segmental reporting
A business segment is a distinguishable component of the Group that is
engaged in providing products or services and is subject to risks and rewards
that are different from those of other segments.
3. OTHER OPERATING REVENUES
Other operating revenues represent:
Years ended December 31,
-----------------------------
2001 2002 2003
-----------------------------
RMB RMB RMB
Sale of materials, service and others........................... 14,074 15,683 18,420
Rental income................................................... 176 346 398
------ ------ ------
14,250 16,029 18,818
4. PERSONNEL EXPENSES
Personnel expenses represent:
Years ended December 31,
-------------------------------
2001 2002 2003
-------------------------------
RMB RMB RMB
Wages and salaries.............................................. 9,846 10,360 11,860
Staff welfare................................................... 1,373 1,434 1,543
Contribution to retirement schemes.............................. 1,472 1,656 1,791
Social security contributions................................... 964 967 988
------ ------ ------
13,655 14,417 16,182
5. EMPLOYEE REDUCTION EXPENSES
In accordance with the Group's voluntary employee reduction plan, the
Group recorded employee reduction expenses of RMB 2,546 during the year ended
December 31, 2001 in respect of the voluntary termination and the transfer to
Sinopec Group Company totalling approximately 68,000 employees. The RMB 2,546
expense included approximately RMB 1,245 paid to employees that accepted offers
to transfer to Sinopec Group Company. As of December 31, 2001, all payments to
these employees have been made by the Group. For employees that were
transferred to Sinopec Group Company, the employees were entitled to receive
termination benefits from Sinopec Group Company to the extent that their
employment was subsequently terminated.
During the year ended December 31, 2002, in connection with the assets
swap agreement between the Company and Sinopec Group Company (Note 28), the
Company made payments of RMB 244 relating to approximately 11,000 employees
that were transferred to Sinopec Group Company.
In accordance with the Group's voluntary employee reduction plan, the
Group recorded employee reduction expenses of RMB 1,014 during the year ended
December 31, 2003 in respect of the voluntary termination totaling
approximately 21,000 employees.
6. TAXES OTHER THAN INCOME TAX
Taxes other than income tax represent:
Years ended December 31,
-------------------------------
2001 2002 2003
-------------------------------
RMB RMB RMB
Consumption tax....................................................... 9,053 8,851 9,898
City construction tax................................................. 1,638 1,662 2,027
Education surcharge................................................... 717 793 972
Resources tax......................................................... 406 499 434
Business tax.......................................................... 139 151 160
Others................................................................ 24 -- --
------ ------ ------
11,977 11,956 13,491
Consumption tax is levied on producers of gasoline and diesel based on a
tariff rate applied to the volume of sales. City construction tax is levied on
an entity based on its total amount of value-added tax, consumption tax and
business tax.
7. OTHER OPERATING EXPENSES, NET
Other operating expenses, net represent:
Years ended December 31,
---------------------------------
2001 2002 2003
---------------------------------
RMB RMB RMB
Fines, penalties and compensations.................................... 84 74 140
Donations............................................................. 62 68 134
Loss on disposal of property, plant and equipment, net................ 137 797 2,221
Impairment losses on long-lived assets................................ -- -- 877
Others................................................................ 67 219 514
----- ------ ------
350 1,158 3,886
Asset impairment
In accordance with IAS 36, the carrying amounts of impaired oil and gas
properties and long-lived assets are written down to a recoverable value.
There were no impairment losses and reversal of impairment losses
recognized on long-lived assets for the years ended December 31, 2001 and 2002.
The factors resulting in the exploration and production ("E&P") segment
impairment losses of RMB 310 for the year ended December 31, 2003, were
unsuccessful development drilling and high operating and development costs for
certain oil fields. The carrying values of these E&P properties, were written
down to a recoverable value which was determined based on the present values of
the expected future cash flows of the assets. The oil and gas pricing was a
factor used in the determination of the present values of the expected future
cash flows of the assets and had an impact on the recognition of the asset
impairment.
Impairment losses recognized on long-lived assets of the refining and
chemicals segments of RMB 114 and RMB 453 for the year ended December 31, 2003,
primarily relate to write-downs of certain refining and chemicals production
facilities that are held for use. The carrying values of these facilities were
written down to their recoverable values which were based on the asset held for
use model using the present value of estimated future cash flows.
8. INTEREST EXPENSE
Interest expense represents:
Years ended December 31,
------------------------------------------
2001 2002 2003
------------------------------------------
RMB RMB RMB
Interest expense incurred....................................... 5,969 5,109 4,675
Less: Interest expense capitalized*............................. (986) (933) (947)
Interest expense................................................ 4,983 4,176 3,728
-------- --------- --------
* Interest rates per annum at which borrowing costs were
capitalized for construction in progress..................... 3.4% to 8.0% 3.1% to 6.2% 3.1% to 6.1%
============ =========== ===========
9. GAIN FROM ISSUANCE OF SHARES BY A SUBSIDIARY
The gain for the year ended December 31, 2003 represents the increase in
the Company's share of net assets of a subsidiary after the sale of additional
shares by the subsidiary.
Percentage of
ownership
No. of Price Amount -------------------
Principal Type of shares per of gross before after
Nature of company activities transactions issued share proceeds issuance issuance Gains
--------------------- ---------------- ------------- ------------ -------- ----------- ---------- --------- ----------
RMB RMB RMB
Exploration
and
Sinopec Zhongyuan production of
Petroleum Company crude oil and Placement
Limited natural gas of A shares 58,650,000 9.10 534 75.00% 70.85% 136
10. INCOME TAX
Income tax in the consolidated statements of income represents:
Years ended December 31,
----------------------------------
2001 2002 2003
--------- ------------ -----------
RMB RMB RMB
Provision for PRC income tax
- the Group......................................................... 6,418 6,574 10,793
- associates........................................................ 27 50 148
Deferred taxation (Note 20).............................................. 1,592 1,026 (396)
-------- -------- --------
8,037 7,650 10,545
======== ======== ========
A reconciliation of the expected tax with the actual tax expense is as
follows:
Years ended December 31,
-----------------------------
2001 2002 2003
-----------------------------
RMB RMB RMB
Income before income tax and minority interests.......................... 24,900 25,085 34,081
------ ------ ------
Expected PRC income tax expense at a statutory tax rate of 33%........... 8,218 8,278 11,247
Non-deductible expenses.................................................. 398 212 708
Non-taxable income....................................................... (493) (594) (432)
Differential tax rate on subsidiaries' income (Note)..................... (394) (496) (1,226)
Tax losses not recognized for deferred tax............................... 308 250 248
------ ------ ------
Income tax............................................................... 8,037 7,650 10,545
====== ====== ======
Note: The provision for PRC current income tax is based on a statutory rate
of 33% of the assessable income of the Group as determined in
accordance with the relevant income tax rules and regulations of the
PRC, except for certain subsidiaries of the Company, which are taxed
at a preferential rate of 15%.
11. BASIC EARNINGS PER SHARE
The calculation of basic earnings per share is based on the net income of
RMB 16,246, RMB 16,315 and RMB 21,593 and the weighted average number of shares
in issue during the year of 85,168,192,425, 86,702,439,000 and 86,702,439,000,
for the years ended December 31, 2001, 2002 and 2003, respectively. The weighted
average number of shares for the year ended December 31, 2001 reflects the
issuance of 2,800,000,000 shares in July 2001 in connection with the Company's
public offering of domestically listed ordinary shares in the Shanghai Stock
Exchange (Note 24).
The amount of diluted earnings per share is not presented as there were no
dilutive potential ordinary shares in existence for each of the years in the
three-year period ended December 31, 2003.
12. TRADE ACCOUNTS RECEIVABLE, NET
Trade accounts receivable are analyzed as follows:
December 31,
----------------------
2002 2003
----------------------
RMB RMB
Third parties...................................................................... 10,987 9,344
Sinopec Group Company and its affiliates........................................... 2,575 3,044
Associates......................................................................... 65 81
------- -------
13,627 12,469
Less: Allowance for doubtful accounts.............................................. (2,827) (3,185)
------- -------
10,800 9,284
======= =======
The allowance for doubtful accounts is analyzed as follows:
Years ended December 31,
-------------------------------
2001 2002 2003
-------------------------------
RMB RMB RMB
At beginning of year................................................... 3,026 2,642 2,827
Provision for the year................................................. 391 556 910
Written-off/back....................................................... (775) (371) (375)
Less: Amount distributed to Sinopec Group Company in connection with
the Acquisition of Ethylene Assets............................. -- -- (177)
------ ------ ------
At end of year......................................................... 2,642 2,827 3,185
====== ====== =======
Sales are generally on a cash term. Credit is generally only available for
major customers with well-established trading records. Amounts due from Sinopec
Group Company and its affiliates are repayable under the same terms.
13. INVENTORIES
Inventories represent:
December 31,
---------------------
2002 2003
---------------------
RMB RMB
---------------------
Crude oil and other raw materials.................................................. 21,443 23,541
Work in progress................................................................... 6,321 6,805
Finished goods..................................................................... 15,315 12,268
Spare parts and consumables........................................................ 4,481 4,017
------ ------
47,560 46,631
Less: Allowance for diminution in value of inventories............................. (486) (519)
------ ------
47,074 46,112
====== ======
The allowance for diminution in value of inventories is analyzed as
follows:
Years ended December 31,
--------------------------------
2001 2002 2003
--------------------------------
RMB RMB RMB
At beginning of year................................................... 849 602 486
Provision for the year................................................. 106 172 196
Written-off............................................................ (353) (288) (163)
----- ----- ----
At end of year......................................................... 602 486 519
The carrying amount of inventories carried at net realizable value
amounted to RMB 1,624 and RMB 1,551 as of December 31, 2002 and 2003,
respectively.
The cost of inventories recognized as an expense in the consolidated
statements of income amounted to RMB 159,492, RMB 262,273 and RMB 338,440 for
the years ended December 31, 2001, 2002 and 2003, respectively.
14. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets represent:
December 31,
-------------------
2002 2003
------ ------
RMB RMB
Advances to third parties.......................................................... 3,500 2,726
Amounts due from Sinopec Group Company and its affiliates.......................... 11,743 9,357
Other receivables.................................................................. 1,742 1,679
Purchase deposits.................................................................. 1,773 2,451
Prepayments in connection with construction work and equipment purchases........... 1,233 2,675
Prepaid value-added tax and customs duty........................................... 1,545 1,355
Amounts due from associates........................................................ 345 331
------ ------
21,881 20,574
====== ======
15. PROPERTY, PLANT AND EQUIPMENT, NET
By segment:
Exploration Marketing Corporate
and and and
production Refining distribution Chemicals others Total
---------- -------- ------------ --------- ------ -----
RMB RMB RMB RMB RMB RMB
Cost/valuation:
Balance at January 1, 2003........................... 157,929 99,341 49,478 134,505 7,655 448,908
Additions............................................ 1,360 897 1,094 1,311 96 4,758
Transferred from construction in progress............ 19,459 6,326 5,219 5,702 390 37,096
Revaluations......................................... -- 16 -- (86) -- (70)
Disposals............................................ (786) (2,285) (1,309) (4,980) (163) (9,523)
Less: Amount distributed to Sinopec Group Company in
connection with the Acquisition of Ethylene --
Assets......................................... -- -- (2,977) (5,470) (8,447)
------- ------- ------- ------- ------- -------
Balance at December 31, 2003......................... 177,962 104,295 54,482 133,475 2,508 472,722
------- ------- ------- ------- ------- -------
Accumulated depreciation:
Balance at January 1, 2003........................... 75,546 45,443 8,476 66,769 3,085 199,319
Depreciation charge for the year..................... 9,393 6,399 2,322 7,745 451 26,310
Impairment losses for the year....................... 310 114 -- 453 -- 877
Written back on disposals............................ (645) (1,517) (784) (3,845) (134) (6,925)
Less: Amount distributed to Sinopec Group Company in
connection with the Acquisition of Ethylene
Assets......................................... -- -- -- (778) (2,829) (3,607)
------- ------- ------- ------- ------- -------
Balance at December 31, 2003......................... 84,604 50,439 10,014 70,344 573 215,974
------- ------- ------- ------- ------- -------
Net book value:
At December 31, 2003................................. 93,358 53,856 44,468 63,131 1,935 256,748
======= ======= ======= ======= ======= =======
At December 31, 2002................................. 82,383 53,898 41,002 67,736 4,570 249,589
======= ======= ======= ======= ======= =======
By asset class:
Oil depots, Plant,
storage tanks machinery,
Oil and gas and service equipment
Buildings properties stations and others Total
RMB RMB RMB RMB RMB
Cost/valuation:
Balance at January 1, 2003.......................... 40,434 140,932 36,927 230,615 448,908
Additions........................................... 583 202 664 3,309 4,758
Transferred from construction in progress........... 1,465 17,912 5,830 11,889 37,096
Reclassification.................................... 1,420 -- 3,722 (5,142) --
Revaluations........................................ (203) -- -- 133 (70)
Disposals........................................... (933) (412) (806) (7,372) (9,523)
Less: Amount distributed to Sinopec Group Company in
connection with the Acquisition of Ethylene
Assets........................................ (3,374) -- -- (5,073) (8,447)
------- ------- ------- ------- -------
Balance at December 31, 2003........................ 39,392 158,634 46,337 228,359 472,722
------- ------- ------- ------- -------
Accumulated depreciation:
Balance at January 1, 2003.......................... 16,097 69,633 6,382 107,207 199,319
Depreciation charge for the year.................... 1,649 7,961 1,693 15,007 26,310
Impairment losses for the year...................... 8 310 -- 559 877
Reclassification.................................... 512 -- 1,080 (1,592) --
Written back on disposals........................... (448) (322) (370) (5,785) (6,925)
Less: Amount distributed to Sinopec Group Company in
connection with the Acquisition of Ethylene
Assets........................................ (941) -- -- (2,666) (3,607)
Balance at December 31, 2003........................ 16,877 77,582 8,785 112,730 215,974
------- ------- ------- ------- -------
Net book value:
At December 31, 2003................................ 22,515 81,052 37,552 115,629 256,748
======= ======= ======= ======= =======
At December 31, 2002................................ 24,337 71,299 30,545 123,408 249,589
======= ======= ======= ======= =======
As required by the relevant PRC regulations with respect to the
Reorganization, the property, plant and equipment of the Group as of September
30, 1999 were valued for each asset class by China United Assets Appraisal
Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets Appraisal
Corporation and Zhong Fa International Properties Valuation Corporation,
independent valuers registered in the PRC, on a depreciated replacement cost
basis. The value of property, plant and equipment has been determined at RMB
159,788. The surplus on revaluation of RMB 32,320, net of amounts allocated to
minority interests, has been incorporated in the financial statements of the
Group at December 31, 1999.
In connection with the Acquisition of Sinopec National Star, the property,
plant and equipment of Sinopec National Star were revalued at December 31, 2000,
by a firm of independent valuers and approved by the Ministry of Finance. The
value of property, plant and equipment of Sinopec National Star pursuant to the
valuation, based on a depreciated replacement cost basis, was determined at RMB
4,373, resulting in a surplus on revaluation of RMB 1,136, net of amounts
allocated to minority interest.
In connection with the Acquisition of Ethylene Assets, the property, plant
and equipment of Sinopec Maoming were revalued at June 30, 2003, by a firm of
independent valuers in accordance with the relevant rules and regulations. The
value of property, plant and equipment of Sinopec Maoming pursuant to the
valuation, based on a depreciated replacement cost basis, was determined at RMB
5,100, which approximated the net historical carrying value of the assets.
In connection with the Acquisition of Refining Assets, the property, plant
and equipment of the Refining Assets were revalued at October 31, 2003, by a
firm of independent valuers in accordance with the relevant rules and
regulations. The value of property, plant and equipment of the Refining Assets
pursuant to the valuation, based on a depreciated replacement cost basis, was
determined at RMB 461, which approximated the net historical carrying value of
the assets.
16. CONSTRUCTION IN PROGRESS
Exploration Marketing Corporate
and and and
production Refining distribution Chemicals others Total
---------- -------- ------------ --------- ------ -----
RMB RMB RMB RMB RMB RMB
Balance at January 1, 2003..................... 4,526 5,953 7,428 3,318 467 21,692
Additions...................................... 22,057 8,832 5,732 6,037 422 43,080
Additions of jointly controlled entities....... 1,200 -- -- 2,993 -- 4,193
Less: Amount distributed to Sinopec Group
Company in connection with the Acquisition
of Ethylene Assets....................... -- -- -- (9) (98) (107)
Dry hole costs written off..................... (2,789) -- -- -- -- (2,789)
Transferred to property, plant and equipment... (19,459) (6,326) (5,219) (5,702) (390) (37,096)
------- ------- ------- ------- ------- --------
Balance at December 31, 2003................... 5,535 8,459 7,941 6,637 401 28,973
======= ======= ======= ======= ======= ========
17. INVESTMENTS
December 31,
--------------------
2002 2003
---- ----
RMB RMB
Unlisted investments, at cost...................................................... 3,171 2,853
Less: Provision for impairment losses.............................................. (474) (271)
----- -----
2,697 2,582
===== =====
Provision for impairment losses is analyzed as follows:
Years ended December 31,
--------------------------------
2001 2002 2003
----- ------ ------
RMB RMB RMB
At beginning of year................................................... 476 466 474
Provision for the year................................................. 37 13 131
Written-off............................................................ (47) (5) (44)
Less: Amount distributed to CPC in connection with the Acquisition
of Ethylene Assets................................................. -- -- (290)
----- ----- -----
At end of year ........................................................ 466 474 271
===== ===== =====
Unlisted investments represent the Group's interests in PRC domiciled
enterprises which are mainly engaged in non-oil and gas activities and
operations. The Group has no investments in marketable securities.
18. INTERESTS IN ASSOCIATES
December 31,
---------------------
2002 2003
----- ------
RMB RMB
Share of net assets 8,049 8,081
===== =====
The Group's investments in associates are with companies primarily engaged
in the oil and gas and chemical operations in the PRC. These investments are
individually and in the aggregate not material to the Group's financial
condition or results of operations for all periods presented. The principal
investments in associates, all of which are incorporated in the PRC, are as
follows:
Details of the Group's principle subsidiaries are as follows:
Percentage of
Percentage equity held
Form of of equity by the
business Particulars of issued held by the Company's
Name of company Structure and paid if capital Company Subsidiary
------------------------------------ ------------ --------------------- -------------------- -----------------------------
% %
Shengli Oil Field Dynamic Company Incorporated 364,027,608 ordinary 26.33 ___ Exploration of crude oil and
Limited ("Dynamic")* shares of RMB 1.00 distribution of petrochemical
each products
Sinopec Shandong Taishan Petroleum Incorporated 480,793,320 ordinary 38.68 ___ Trading of petroleum products
Company Limited ("Taishan")* shares of RMB 1.00 and decoration of service gas
each stations
Sinopec Finance Company Limited Incorporated Registered capital 32.00 8.22 Provision of non-banking
RMB 2,500,000,000 financial services
Shanghai Petroleum National Gas Incorporated Registered capital 30.00 ___ Exploration and production of
Corporation RMB 900,000,000 crude oil and natural gas
BASF-YPC Company Limited Incorporated Registered capital 30.00 10.00 Manufacturing and
RMB 8,793,000,000 distribution of petrochemical
products
Shanghai Chemical Industry Park Incorporated Registered capital ___ 38.26 Planning, development and
Development Company Limited RMB 2,372,439,000 operation of the Chemical
Industry Park in Shanghai,
the PRC
China Shipping & Sinopec Suppliers Incorporated Registered capital ___ 50.00 Transportation of petroleum
Company Limited RMB 876,660,000 products
* Shares of Dynamic and Taishan are listed on the Shenzhen Stock Exchange.
Shares held by the Company are domestic state-owned A shares which are not
admitted for trading in any stock exchange in the PRC. The market value of the
investments in Dynamic based on the quoted market price are RMB 625 and RMB 783
as of December 31, 2002 and 2003. The market value of the investments in
Taishan based on the quoted market price are RMB 1,764 and RMB 1,971 as of
December 31, 2002 and 2003.
19. INTERESTS IN JOINTLY CONTROLLED ENTITIES
December 31,
---------------------
2002 2003
------- --------
RMB RMB
Share of net assets..................................................................... 375 1,043
=== =====
The Group's principal interests in jointly controlled entities are as
follows:
Percentage of
Percentage equity held
Form of of equity by the
business Particulars of issued held by the Company's
Name of company Structure and paid if capital Company Subsidiary
------------------------------------ ------------ --------------------- -------------------- -----------------------------
% %
% %
Shanghai Secco Petrochemical Incorporated Registered capital 30.00 20.00 Manufacturing and distribution
Company Limited USD 901,440,964 of petrochemical products
Yueyang Sinopec and Shell Coal Incorporated Registered capital 50.00 -- Manufacturing and distribution
Gasification Company Limited USD 45,588,700 of industrial gas
Block A Oil Field in the Western Unincorporated -- -- 43.00 Exploration and production of
Area Chengda in Bohai Bay crude oil and natural gas
The Group's proportionate share of the jointly controlled entities'
current and non-current assets, current and non-current liabilities, and
operating revenues and expenses is not material to the Group's financial
condition or results of operations for all years presented.
20. DEFERRED TAX ASSETS AND LIABILITIES
Deferred tax assets and deferred tax liabilities are attributable to the
items detailed in the table below:
Assets Liabilities Net balance
------ ----------- -----------
December 31, December 31, December 31,
--------------- ---------------- --------------
2002 2003 2002 2003 2002 2003
---- ---- ---- ---- ---- ----
RMB RMB RMB RMB RMB RMB
Current
Provisions, primarily for receivables and inventories 275 1,446 -- -- 275 1,446
Non-current
Property, plant and equipment........................ 47 272 (627) (981) (580) (709)
Accelerated depreciation............................. -- -- (2,958) (3,618) (2,958) (3,618)
Tax value of losses carried forward, net of
valuation allowance.............................. 30 -- -- -- 30 --
Lease prepayment (Note) ............................. 364 373 -- -- 364 373
Others............................................... 16 53 (14) -- 2 53
----- ----- ------ ------ ------ ------
Deferred tax assets/(liabilities) ................... 732 2,144 (3,599) (4,599) (2,867) (2,455)
===== ===== ====== ====== ====== ======
A valuation allowance on deferred tax assets is recorded if it is more
likely than not that some portion or all of the deferred tax assets will not be
realized through the recovery of taxes previously paid and/or future taxable
income. The allowance is subject to ongoing adjustments based on changes in
circumstances that affect the Group's assessment of the realizability of the
deferred tax assets. The Group has reviewed its deferred tax assets as of
December 31, 2001, 2002 and 2003. Based on this review, valuation allowances of
RMB 224, RMB 250 and RMB 248 were provided for the years ended December 31,
2001, 2002 and 2003, respectively. The Group determined the valuation allowance
based on management's assessment of the probability that taxable profits will
be available over the period which the deferred tax assets can be realized or
utilized. In assessing the probability, both positive and negative evidence was
considered, including whether it is more likely than not that the operations
will have future taxable profits over the periods which the deferred tax assets
are deductible or utilized and whether the tax losses result from identifiable
causes which are unlikely to recur. Based on this assessment, a valuation
allowance was provided to reduce the deferred tax asset to the amount that is
more likely than not to be realized.
The valuation allowance is analyzed as follows:
Years ended December 31,
-------------------------------------
2001 2002 2003
----- ----- -----
RMB RMB RMB
At beginning of year................................................... 469 693 943
Allowance during the year.............................................. 224 250 248
Less: Amount distributed to Sinopec Group Company in connection with
the Acquisition of Ethylene Assets.............................. -- -- (550)
----- ----- ------
At end of year ........................................................ 693 943 641
===== ===== ======
Movements in temporary differences between calculations of certain items
for accounting and for taxation purposes can be specified as follows:
Recognized in
Balance at consolidated Balance at
January 1, statements of December 31,
2001 income 2001
---- ------ ----
RMB RMB RMB
Current
Provisions, primarily for receivables and inventories............. 1,023 (591) 432
Non-current
Property, plant and equipment..................................... (346) (407) (753)
Accelerated depreciation.......................................... (1,329) (856) (2,185)
Tax value of losses carried forward, net of valuation allowance... 18 155 173
Others............................................................ 14 107 121
------ ------ ------
Net deferred tax liabilities ..................................... (620) (1,592) (2,212)
====== ====== ======
(Note 10)
Recognized in
Recognized in consolidated
Balance at consolidated statements of Balance at
January 1, statements of shareholders' December 31,
2002 income equity 2002
---- ------ ------ ----
RMB RMB RMB RMB
Current
Provisions, primarily for receivables and inventories. 432 (157) ___ 275
Non-current
Property, plant and equipment.......................... (753) 173 ___ (580)
Accelerated depreciation............................... (2,185) (773) ___ (2,958)
Tax value of losses carried forward, net of valuation
allowance.......................................... 173 (143) ___ 30
Lease prepayments (Note)............................... ___ (7) 371 364
Others................................................. 121 (119) ___ 2
------- ------- ------- ------
Net deferred tax (liabilities)/assets.................. (2,212) (1,026) 371 (2,867)
======= ======= ======= ======
(Note 10)
Recognized in
Recognized in consolidated
Balance at consolidated statements of Balance at
January 1, statements of shareholders' December 31,
2003 income equity 2003
---- ------ ------ ----
RMB RMB RMB RMB
Current
Provisions, primarily for receivables and inventories. 275 1,171 ___ 1,446
Non-current
Property, plant and equipment.......................... (580) (129) ___ (709)
Accelerated depreciation............................... (2,958) (660) ___ (3,618)
Tax value of losses carried forward, net of valuation
allowance.......................................... 30 (30) ___ ___
Lease prepayments (Note)............................... 364 (7) 16 373
Others................................................. 2 51 ___ 53
------ ------ ------- ------
Net deferred tax (liabilities)/assets.................. (2,867) 396 16 (2,455)
====== ====== ======= ======
(Note 10)
Note: As described in note (ii) to the consolidated statements of
shareholder's equity, land use rights are carried at cost effective
January 1, 2002. The effect of this change resulted in a decrease in
the revaluation reserve and an increase in other reserves relating
to the recognition of the deferred tax asset of RMB 371 as of
January 1, 2002. During the year ended December 31, 2003, in
connection with the acquisition of the Acquired Group, the land use
rights of the Acquired Group were revalued resulting in a surplus of
RMB 66 as required by the relevant PRC rules and regulations but
were not revalued for financial reporting purposes and, accordingly,
deferred tax assets of RMB 16 were created with corresponding
increase in other reserves.
21. SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND ITS
AFFILIATES
Short-term debts represent:
December 31,
------------------
2002 2003
---- ----
RMB RMB
Third parties' debts
Short-term bank loans............................................................. 22,954 16,979
Short-term other loans............................................................ 19 29
------- -------
22,973 17,008
------- -------
Current portion of long-term bank loans........................................... 8,636 6,523
Current portion of long-term other loans.......................................... 300 127
Current portion of convertible bonds -- 1,500
------- -------
8,936 8,150
------- -------
31,909 25,158
------- -------
Loans from Sinopec Group Company and its affiliates
Short-term loans.................................................................. 3,521 3,896
------- -------
Current portion of long-term loans................................................ 153 25
3,674 3,921
35,583 29,079
======= =======
The Group's weighted average interest rate on short-term loans were 4.3%
and 3.2% as of December 31, 2002 and 2003 respectively.
As of December 31, 2003, the Company had standby credit facilities with
several PRC financial institutions which allowed the Company to borrow up to
RMB 103,500 on an unsecured basis, at rates ranging from 1.65% to 5.31%. As of
December 31, 2003, the Company's outstanding borrowings under these facilities
totalled RMB 11,970 which are included in short-term bank loans. These
facilities expire at various dates in 2004 and contain no financial covenants.
Long-term debts comprise:
Interest rate and final maturity December 31,
---------------------------------------------- ---------------------------
2002 2003
---- ----
RMB RMB
Third parties' debts
Long-term bank loans
Renminbi denominated Interest rates ranging from interest free to 37,084 38,863
6.2% per annum as of December 31, 2003 with
maturities through 2013
Japanese Yen denominated Interest rates ranging from 1.0% to 8.1% per 3,078 2,909
annum as of December 31, 2003 with maturities
through 2024
US Dollar denominated Interest rates ranging from interest free to 5,850 4,340
7.4% per annum as of December 31, 2003 with
maturities through 2031
Hong Kong Dollar denominated Floating rate at Hong Kong Prime Rate plus 10 7
0.3% per annum as of December 31, 2003 with
maturities through 2006
Euro denominated Interest rates ranging from 6.0% to 7.9% per 162 --
annum as of December 31, 2002 with maturities ------- -------
through 2006. Paid off as of December 31, 2003
46,184 46,119
======= =======
Long-term other loans
Renminbi denominated Interest rates ranging from interest free to 277 359
5.0% per annum as of December 31, 2003 with
maturities through 2008
US Dollar denominated Interest rates ranging from interest free to 438 151
3.2% per annum as of December 31, 2003 with
maturities through 2015
Euro denominated Interest rates ranging from 1.8% to 8.1% per 16 21
annum as of December 31, 2003 with maturities ------- -------
through 2025
731 531
======= =======
Convertible bonds
Renminbi denominated Interest rate at 2.5% per annum as of December 1,500 1,500
31, 2003 (a) ======= =======
Total long-term banks and other loans carried forward 48,415 48,150
Interest rate and final maturity December 31,
----------------------------------------------- ----------------------------
2002 2003
---- ----
RMB RMB
Total long-term banks and other loans carried forward 48,415 48,150
Long-term bank loans of jointly controlled entities
Renminbi denominated Floating rate at 90% of PBOC's base lending rate -- 705
per annum as of December 31, 2003 with maturities
through 2021
US Dollar denominated Floating rate at London Interbank Offer Rate plus -- 745
0.7% per annum as of December 31, 2003 with -------- --------
maturities through 2013
-- 1,450
======== ========
Total third parties' long-term debts 48,415 49,600
Less: Current portion (8,936) (8,150)
======== ========
39,479 41,450
======== ========
Long-term loans from Sinopec Group Company and its affiliates
Renminbi denominated Interest free with maturity in 2020 35,561 35,561
Renminbi denominated Interest rate at 5.0% per annum as of December 31, 2,272 2,223
2003 with maturities through 2005
US Dollar denominated Interest rates ranging from London Interbank Offer 23 12
Rate plus 1.4% per annum as of December 31, 2003 -------- --------
with maturities through 2005
37,856 37,796
Less: Current portion (153) (25)
======== ========
37,703 37,771
======== ========
77,182 79,221
======== ========
(a) Convertible bonds amounting to RMB 1,500 were issued by a subsidiary on
July 28, 1999. The bonds are convertible upon an initial public offering
into ordinary shares of the subsidiary at the option of the holders during
the period from July 28, 2000 to July 27, 2004. Pursuant to the
subsidiary's shareholders' approval at the Annual General Meeting held on
March 23, 2004, the subsidiary decided not to undergo an initial public
offering.
Third parties' loans of RMB 85 and RMB 103 as of December 31, 2002 and
2003 respectively were secured by certain of the Group's property, plant and
equipment. The net book value of property, plant and equipment of the Group
pledged as security amounted to RMB 146 and RMB 519 as of December 31, 2002 and
2003, respectively.
The aggregate maturities of long-term debts and loans from Sinopec Group
Company and its affiliates subsequent to December 31, 2003 are as follows:
RMB
2004............................................................................................ 8,175
2005............................................................................................ 13,145
2006............................................................................................ 10,653
2007............................................................................................ 9,995
2008............................................................................................ 5,943
Thereafter...................................................................................... 39,485
------
87,396
======
22. TRADE ACCOUNTS PAYABLE
Trade accounts payable are analyzed as follows:
December 31,
-----------------
2002 2003
---- ----
RMB RMB
Third parties...................................................................... 17,395 21,676
Sinopec Group Company and its affiliates........................................... 2,082 984
Associates......................................................................... -- 44
------ ------
19,477 22,704
====== ======
Amounts due to Sinopec Group Company and its affiliates are repayable in
accordance with normal commercial terms.
23. ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables represent:
December 31,
-----------------
2002 2002
---- ----
RMB RMB
Amounts due to Sinopec Group Company and its affiliates.......................... 10,239 15,054
Accrued expenditure.............................................................. 9,475 12,204
Taxes other than income tax...................................................... 2,219 4,122
Receipts in advance.............................................................. 3,665 5,369
Advances from third parties...................................................... 1,441 979
Others........................................................................... 4,322 4,459
------ ------
31,361 42,187
====== ======
24. SHARE CAPITAL
December 31,
------------
2002 2003
---- ----
RMB RMB
Registered, issued and fully paid
67,121,951,000 domestic state-owned A shares of RMB 1.00 each 67,122 67,122
16,780,488,000 overseas listed H shares of RMB 1.00 each 16,780 16,780
2,800,000,000 domestic listed A shares of RMB 1.00 each 2,800 2,800
------------- ---- ------ ------
86,702 86,702
====== ======
The Company was established on February 25, 2000 with a registered
capital of 68.8 billion domestic state-owned shares with a par value of RMB
1.00 each. Such shares were issued to Sinopec Group Company in consideration
for the assets and liabilities related to the Predecessor Operations
transferred to the Company (Note 1).
Pursuant to the resolutions passed at an Extraordinary General Meeting
held on July 25, 2000 and approvals from relevant government authorities, the
Company is authorized to increase its share capital to a maximum of 88.3
billion shares with a par value of RMB 1.00 each and offer not more than 19.5
billion shares with a par value of RMB 1.00 each to investors outside the PRC.
Sinopec Group Company is authorized to offer not more than 3.5 billion shares
of its shareholdings in the Company to investors outside the PRC. The shares
sold by Sinopec Group Company to investors outside the PRC would be converted
into H shares.
In October 2000, the Company issued 15,102,439,000 H shares with a par
value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750
American Depositary Shares ("ADSs", each representing 100 H shares), at prices
of HK$ 1.59 per H share and US$ 20.645 per ADS, respectively, by way of a
global initial public offering to Hong Kong and overseas investors. As part of
the global initial public offering, 1,678,049,000 domestic state-owned ordinary
shares of RMB 1.00 each owned by Sinopec Group Company were converted into H
shares and sold to Hong Kong and overseas investors.
In July 2001, the Company issued 2.8 billion domestic listed A shares
with a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to
natural persons and institutional investors in the PRC.
All A shares and H shares rank pari passu in all material respects.
25. RESERVES
December 31
--------------------
2002 2003
---- ----
RMB RMB
Revaluation reserve
At January 1..................................................................... 33,025 31,641
Revaluation surplus realized..................................................... (544) (1,316)
Elimination of surplus on land use rights (Note (f))............................. (840) --
Revaluation surplus of Refining Assets........................................... -- 16
--------- --------
At December 31................................................................... 31,641 30,341
--------- --------
Capital reserve (Note (a))
At January 1..................................................................... (18,878) (18,878)
Transfer from other reserves..................................................... -- (82)
--------- --------
December 31...................................................................... (18,878) (18,960)
--------- --------
Share premium (Note (b))
At January 1 and December 31..................................................... 18,072 18,072
--------- --------
Statutory surplus reserve (Note (c))
At January 1..................................................................... 3,017 4,429
Appropriation of net income...................................................... 1,412 1,901
--------- --------
At December 31................................................................... 4,429 6,330
--------- --------
Statutory public welfare fund (Note (d))
At January 1..................................................................... 3,017 4,429
Appropriation of net income...................................................... 1,412 1,901
--------- --------
At December 31................................................................... 4,429 6,330
--------- --------
Discretionary surplus reserve (Note (e))
At January 1..................................................................... -- 7,000
Appropriation of net income...................................................... 7,000 --
--------- --------
At December 31................................................................... 7,000 7,000
--------- --------
Other reserves
At January 1..................................................................... 9,035 9,579
Deferred tax effect of surplus on land use rights (Note (f) and Note 20)......... 246 16
Realization of deferred tax on land use rights (Note (f))........................ (5) (5)
Transfer from retained earnings.................................................. 235 326
Revaluation surplus of Refining Assets........................................... -- 82
Consideration for Acquisitions of Ethylene Assets and Refining Assets (Note 1)... -- (3,652)
Net assets contributed from/(distributed to) Sinopec Group Company (Note (g)).... 68 (6,094)
--------- --------
At December 31................................................................... 9,579 252
--------- --------
Retained earnings (Note (h))
At January 1..................................................................... 22,714 20,849
Final dividend in respect of the previous financial years, approved and paid
during the year (Note (i)).................................................... (6,936) (5,202)
Interim dividend (Note (j))...................................................... (1,734) (2,601)
Net income....................................................................... 16,315 21,593
Transfer to statutory surplus reserve............................................ (1,412) (1,901)
Proposed transfer to statutory public welfare fund............................... (1,412) (1,901)
Proposed transfer to discretionary surplus reserve............................... (7,000) --
Revaluation surplus realized..................................................... 544 1,316
Realization of deferred tax on land use rights................................... 5 5
Transfer to other reserves....................................................... (235) (326)
--------- --------
At December 31................................................................... 20,849 31,832
--------- --------
77,121 81,197
========= ========
Notes:
(a) The capital reserve represents (i) the difference between the total
amount of the par value of shares issued and the amount of the net
assets transferred from Sinopec Group Company in connection with the
Reorganization and (ii) the difference between the considerations
paid over the amount of the net assets acquired from Sinopec National
Star, Sinopec Maoming, Xi'an Petrochemical and Tahe Petrochemical.
(b) The application of the share premium account is governed by Sections
178 and 179 of the PRC Company Law.
(c) According to the Company's Articles of Association, the Company is
required to transfer 10% of its net income, as determined in
accordance with the PRC Accounting Rules and Regulations, to
statutory surplus reserve until the reserve balance reaches 50% of
the registered capital. The transfer to this reserve must be made
before distribution of a dividend to shareholders.
Statutory surplus reserve can be used to make good previous years'
losses, if any, and may be converted into share capital by the issue
of new shares to shareholders in proportion to their existing
shareholdings or by increasing the par value of the shares currently
held by them, provided that the balance after such issue is not less
than 25% of the registered capital. During the years ended December
31, 2002 and 2003, the Company transferred RMB 1,412 and RMB 1,901,
respectively, being 10% of the current year's net income determined
in accordance with the PRC Accounting Rules and Regulations, to this
reserve.
(d) According to the Company's Articles of Association, the Company is
required to transfer 5% to 10% of its net income, as determined in
accordance with the PRC Accounting Rules and Regulations, to the
statutory public welfare fund. This fund can only be utilized on
capital items for the collective benefits of the Company's employees
such as the construction of dormitories, canteen and other staff
welfare facilities. This fund is non-distributable other than on
liquidation. The transfer to this fund must be made before
distribution of a dividend to shareholders.
Pursuant to the shareholders' approval at the Annual General Meeting
on June 10, 2003, the Board of Directors was authorized to determine
the amount of the transfer for the six-month period ended June 30,
2003. The directors authorized the transfer of RMB 977, being 10% of
the net income for the six-month period ended June 30, 2003 as
determined in accordance with the PRC Accounting Rules and
Regulations, to this fund.
The directors authorized the transfer of RMB 924, subject to
shareholders' approval, being 10% of the net income for the six-month
period ended December 31, 2003 determined in accordance with the PRC
Accounting Rules and Regulations, to this fund. The transfer to this
fund for the years ended December 31, 2002 and 2003 were RMB 1,412
and RMB 1,901, respectively.
(e) The directors authorized the transfer of RMB 7,000, which was
approved by the shareholders at the Annual General Meeting on June
10, 2003, to the discretionary surplus reserve for the year ended
December 31, 2002. The usage of the discretionary surplus reserve is
similar to that of statutory surplus reserve.
(f) Effective January 1, 2002, land use rights which are included in
lease prepayments are carried at historical cost. Accordingly, the
surplus on the revaluation of land use rights credited to revaluation
reserve previously, net of minority interests, was eliminated during
the year. The effect of this change did not have a material impact on
the Group's financial condition and results of operations in the
periods prior to the change. As a result of the tax deductibility of
the revaluation surplus, a deferred tax asset, net of minority
interests, is created with a corresponding increase in other
reserves.
(g) These represent net assets contributed from and distributed to
Sinopec Group Company for no monetary consideration. The net assets
distributed to Sinopec Group Company during the year ended December
31, 2003 primarily represent certain assets retained by Sinopec Group
Company in connection with the acquisition of the Acquired Group. The
transaction was recorded at historical cost and was reflected as a
change in other reserves in the year the transaction occurred.
(h) According to the Company's Articles of Association, the amount of
retained earnings available for distribution to shareholders of the
Company is the lower of the amount determined in accordance with the
PRC Accounting Rules and Regulations and the amount determined in
accordance with IFRS. As of December 31, 2002 and 2003, the amounts
of retained earnings available for distribution were RMB 12,569 and
RMB 19,732, respectively, being the amount determined in accordance
with the PRC Accounting Rules and Regulations.
Subject to the relevant provisions of the PRC Company Law and the
Company's Articles of Association, Sinopec Group Company may seek to
influence the Company's determination of dividends with a view to
satisfying Sinopec Group Company's cash flow requirements.
(i) Pursuant to the shareholders' approval at the Annual General Meeting
on June 13, 2002, a final dividend of RMB 0.08 per share totaling RMB
6,936 in respect of the year ended December 31, 2001 was declared and
paid on August 8, 2002.
Pursuant to the shareholders' approval at the Annual General Meeting
on June 10, 2003, a final dividend of RMB 0.06 per share totaling RMB
5,202 in respect of the year ended December 31, 2002 was declared and
paid on June 30, 2003.
(j) Pursuant to the shareholders' approval at the Annual General Meeting
on June 13, 2002, the Board of Directors was authorised to declare
the interim dividends for the year ended December 31, 2002. According
to the resolution passed at the Directors' meeting on August 16,
2002, an interim dividend of RMB 0.02 per share totaling RMB 1,734
was declared.
Pursuant to the shareholders' approval at the Annual General Meeting
on June 10, 2003, the Board of Directors was authorised to declare
the interim dividends for the year ended December 31, 2003. According
to the resolution passed at the Directors' meeting on August 22,
2003, an interim dividend of RMB 0.03 per share totaling RMB 2,601
was declared.
26. COMMITMENTS AND CONTINGENT LIABILITIES
Operating lease commitments
The Group leases service stations and other equipment through
non-cancellable operating leases. These operating leases do not contain
provisions for contingent lease rentals. None of the rental agreements contain
escalation provisions that may require higher future rental payments.
As of December 31, 2003, the future minimum lease payments under
operating leases are as follows:
RMB
2004............................................ 3,276
2005............................................ 3,229
2006............................................ 3,200
2007............................................ 3,175
2008............................................ 3,162
Thereafter...................................... 99,619
-------
Total minimum lease payments.................... 115,661
=======
The Group's leasing arrangement impose no restrictions on dividends,
additional debt and/or further leasing.
Capital commitments
As of December 31, 2003, the Group had capital commitments as
follows:
RMB
The Group
Authorized and contracted for................... 48,107
Authorized but not contracted for............... 47,716
------
95,823
======
Jointly controlled entities
Authorized and contracted for................... 6,923
Authorized but not contracted for............... 3,432
------
10,355
======
These capital commitments relate to oil and gas exploration and
development, refining and petrochemical production capacity expansion
projects, the construction of service stations and oil depots, and capital
contributions to the Group's investments and interests in associates.
Exploration and production licenses
Exploration licenses for exploration activities are registered with
the Ministry of Land and Resources. The maximum term of the Group's
exploration licenses is 7 years, and may be renewed twice within 30 days prior
to expiration of the original term with each renewal being for a two-year
term. The Group is obligated to make progressive annual minimum exploration
investment relating to the exploration blocks in respect of which the license
is issued. The Ministry of Land and Resources also issues production licenses
to the Group on the basis of the reserve reports approved by relevant
authorities. The maximum term of a full production license is 30 years unless
a special dispensation was given by the State Council. The maximum term of
production licenses issued to the Group is 55 years as a special dispensation
was given to the Group by the State Council. The Group's production license is
renewable upon application by the Group 30 days prior to expiration.
The Group is required to make payments of exploration license fees and
production right usage fees to the Ministry of Land and Resources annually
which are expensed as incurred. Payments incurred were approximately RMB 29,
RMB 65 and RMB 97 for the years ended December 31, 2001, 2002 and 2003,
respectively.
Estimated future annual payments as of December 31, 2003 are as follows:
RMB
2004........................................... 87
2005........................................... 117
2006........................................... 87
2007........................................... 72
2008........................................... 65
Thereafter..................................... 361
Total payments................................. 789
Contingent liabilities
(a) The Company has been advised by its PRC lawyers that, except for
liabilities constituting or arising out of or relating to the business assumed
by the Company in the Reorganization, no other liabilities were assumed by the
Company, and the Company is not jointly and severally liable for other debts
and obligations incurred by Sinopec Group Company prior to the Reorganization.
(b) As of December 31, 2003, guarantees given to banks in respect of
banking facilities granted to the parties below were as follows:
RMB
Associates...................................... 4,955
The Company monitors the conditions that are subject to the guarantees to
identify whether it is probable that a loss has occurred, and recognize any
such losses under guarantees when those losses are estimable.
As of December 31, 2003, the Company's guarantees were primarily provided
to BASF-YPC Company Limited ("BASF-YPC"), an associate. BASF-YPC signed
domestic and foreign currencies denominated loan agreements equivalent to RMB
11,700 in March 2003. To enhance the credit standing of BASF-YPC, the Company
guarantees the interest payments as well as the repayment of the loans to an
amount of RMB 4,680. Payments are due if the Company is notified that BASF-YPC
is not able to fulfill its obligations at the maturity date. No collateral
secures BASF-YPC's obligation or the Company's guarantee. As of December 31,
2003, it is not probable that the Company will be required to make payments
under the guarantee. Thus no liability has been accrued for a loss related to
the Company's obligation under this guarantee arrangement.
Environmental contingencies
To date, the Group has not incurred any significant expenditures for
environmental remediation, is currently not involved in any environmental
remediation, and has not accrued any amounts for environmental remediation
relating to its operations. Under existing legislation, management believes
that there are no probable liabilities that will have a material adverse effect
on the financial position or operating results of the Group. The PRC
government, however, has moved, and may move further towards more rigorous
enforcement of applicable laws, and towards the adoption of more stringent
environmental standards. Environmental liabilities are subject to considerable
uncertainties which affect the Group's ability to estimate the ultimate cost of
remediation efforts. These uncertainties include i) the exact nature and extent
of the contamination at various sites including, but not limited to refineries,
oil fields, service stations, terminals and land development areas, whether
operating, closed or sold, ii) the extent of required cleanup efforts, iii)
varying costs of alternative remediation strategies, iv) changes in
environmental remediation requirements, and v) the identification of new
remediation sites. The amount of such future cost is indeterminable due to such
factors as the unknown magnitude of possible contamination and the unknown
timing and extent of the corrective actions that may be required. Accordingly,
the outcome of environmental liabilities under proposed or future environmental
legislation cannot reasonably be estimated at present, and could be material.
The Group paid normal routine pollutant discharge fees of approximately RMB
221, RMB 287 and RMB 245 for the years ended December 31, 2001, 2002 and 2003,
respectively.
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in
other proceedings arising in the ordinary course of business. While the
outcomes of such contingencies, lawsuits or other proceedings cannot be
determined at present, management believes that any resulting liabilities will
not have a material adverse effect on the financial position or operating
results of the Group.
27. CONCENTRATION OF RISKS
Credit risk
The carrying amounts of cash and cash equivalents, time deposits with
financial institutions, trade accounts and bills receivables, and other current
assets, except for prepayments and deposits, represent the Group's maximum
exposure to credit risk in relation to financial assets.
The majority of the Group's trade accounts receivable relate to sales of
petroleum and chemical products to related parties and third parties operating
in the petroleum and chemical industries. The Group performs ongoing credit
evaluations of its customers' financial condition and generally does not
require collateral on trade accounts receivable. The Group maintains an
allowance for doubtful accounts and actual losses have been within management's
expectations. No single customer accounted for greater than 10% of total
revenues during the years ended December 31, 2001, 2002 and 2003.
No other financial assets carry a significant exposure to credit risk.
Concentration of economic risk
The Group's operations may be adversely affected by significant political,
economic, and social uncertainties in the PRC. In addition, the ability to
negotiate and implement specific projects in a timely and favorable manner may
be impacted by political considerations unrelated to or beyond the control of
the Group. Although the PRC government has been pursuing economic reform
policies for the past two decades, no assurance can be given that the PRC
government will continue to pursue such policies or that such policies may not
be significantly altered. There is also no guarantee that the PRC government's
pursuit of economic reforms will be consistent or effective and as a result,
changes in the rate or method of taxation, reduction in tariff protection and
other import restrictions, and changes in state policies affecting the
industries to which the Group sells its products, may have a negative effect on
its operating results and financial conditions.
Currency risk
Substantially all of the revenue-generating operations of the Group are
transacted in Renminbi, which is not fully convertible into foreign currencies.
On January 1, 1994, the PRC government abolished the dual rate system and
introduced a single rate of exchange as quoted by the People's Bank of China.
However, the unification of the exchange rate does not imply convertibility of
Renminbi into United States dollars or other foreign currencies. All foreign
exchange transactions continue to take place either through the People's Bank
of China or other banks authorized to buy and sell foreign currencies at the
exchange rates quoted by the People's Bank of China. Approval of foreign
currency payments by the People's Bank of China or other institutions requires
submitting a payment application form together with suppliers' invoices,
shipping documents and signed contracts.
Business risk
The Group conducts its principal operations in China and accordingly is
subject to special considerations and significant risks not typically
associated with investments in equity securities of the United States and
Western European companies. These include risks associated with, among others,
the political, economic and legal environment, influence of the State Council
over substantially all aspects of its operations and competition in the oil and
gas industry.
Interest rate risk
The interest rates and terms of repayment of short-term and long-term
debts of the Group are disclosed in Note 21.
Supply risk
The Group's largest domestic supplier of crude oil is PetroChina Company
Limited. Negotiating another contract with a key supplier at similar terms and
costs could have a severe and significant impact on the Group's results of
operations.
28. RELATED PARTY TRANSACTIONS
Companies are considered to be related if one company has the ability,
directly or indirectly, to control the other company or exercise significant
influence over the other company in making financial and operating decisions.
Companies are also considered to be related if they are subject to common
control or common significant influence.
The Group is part of a larger group of companies under Sinopec Group
Company and has significant transactions and relationships with members of the
Sinopec Group. Because of these relationships, it is possible that the terms of
these transactions are not the same as those that would result from
transactions among wholly unrelated parties. Sinopec Group Company itself is
owned by the PRC government. There are also many other enterprises directly or
indirectly owned or controlled by the PRC government ("state-owned
enterprises"). Under IFRS, state-owned enterprises, other than Sinopec Group
Company and its affiliates, are not considered related parties. Related parties
refer to enterprises over which Sinopec Group Company is able to exercise
significant influence.
The Group conducts business with state-owned enterprises. Furthermore, the
PRC government itself represents a significant customer of the Group both
directly through its numerous authorities and indirectly through its numerous
affiliates and other organizations. Sales of certain products to PRC government
authorities and affiliates and other state-owned enterprises may be at
regulated prices, which differ from market prices. The Group considers that
these sales are activities in the ordinary course of business in the PRC and
has not disclosed such sales as related party transactions.
The principal related party transactions with Sinopec Group Company, which
were carried out in the ordinary course of business, are as follows:
Years ended December 31,
Note 2001 2002 2003
RMB RMB RMB
Sales of goods........................................................... (i) 34,286 32,635 38,291
Purchases................................................................ (ii) 19,029 26,073 34,359
Transportation and storage............................................... (iii) 1,732 1,265 1,568
Exploration and development services..................................... (iv) 10,250 10,310 13,699
Production related services.............................................. (v) 6,258 7,104 8,532
Ancillary and social services............................................ (vi) 2,049 1,902 1,821
Operating lease charges.................................................. (vii) 2,489 2,588 2,986
Agency commission income................................................. (viii) 7 37 41
Intellectual property licence fee paid................................... (ix) 10 10 10
Interest received........................................................ (x) 153 117 111
Interest paid............................................................ (xi) 534 636 583
Net deposits withdrawn from related parties.............................. (xii) 780 1,757 1,541
Net loans (repaid to)/obtained from related parties...................... (xiii) (5,034) 1,390 315
The amounts set out in the table above in respect of each of the years in
the three-year period ended December 31, 2003 represent the relevant costs to
the Group as determined by the corresponding contracts with the related
parties.
There were no guarantees given to banks by the Group in respect of banking
facilities to Sinopec Group Company and its affiliates as of December 31, 2002
and 2003.
The directors of the Company are of the opinion that the above
transactions with related parties were conducted in the ordinary course of
business and on normal commercial terms or in accordance with the agreements
governing such transactions, and this has been confirmed by the independent
non-executive directors.
Notes:
(i) Sales of goods represent the sale of crude oil, intermediate
petrochemical products, petroleum products and ancillary materials.
(ii) Purchases represent the purchase of material and utility supplies
directly related to the Group's operations such as the procurement of
raw and ancillary materials and related services, supply of water,
electricity and gas.
(iii) Transportation and storage represent the cost for the use of railway,
road and marine transportation services, pipelines, loading, unloading
and storage facilities.
(iv) Exploration and development services comprise direct costs incurred in
the exploration and development such as geophysical, drilling, well
testing and well measurement services.
(v) Production related services represent ancillary services rendered in
relation to the Group's operations such as equipment repair and general
maintenance, insurance premium, technical research, communications, fire
fighting, security, product quality testing and analysis, information
technology, design and engineering, construction which includes the
construction of oilfield ground facilities, refineries and chemical
plants, manufacture of replacement parts and machinery, installation,
project management and environmental protection.
(vi) Ancillary and social services represent expenditures for social welfare
and support services such as educational facilities, media communication
services, sanitation, accommodation, canteens, property maintenance and
management services.
(vii) Operating lease charges represent the rental paid to Sinopec Group
Company for operating leases in respect of land, buildings and service
stations.
(viii) Agency commission income represents commission earned for acting as an
agent in respect of sales of products of certain entities owned by
Sinopec Group Company.
(ix) Intellectual property license fee represents reimbursement paid to
Sinopec Group Company for fees required to maintain the validity of
certain licenses, trademarks, patents, technology and computer software.
(x) Interest received represents interest received from deposits placed with
Sinopec Finance Company Limited, a finance company controlled by Sinopec
Group Company. The applicable interest rate is determined in accordance
with the prevailing saving deposit rate. The balance of deposits as of
December 31, 2002 and 2003 were RMB 5,805 and RMB 4,264, respectively.
(xi) Interest paid represents interest charges on the loans and advances
obtained from Sinopec Group Company and Sinopec Finance Company Limited.
(xii) Deposits were withdrawn from Sinopec Finance Company Limited.
(xiii) The Group obtained/repaid loans from/to Sinopec Group Company and
Sinopec Finance Company Limited.
In connection with the Reorganization, the Company and Sinopec Group
Company entered into a number of agreements under which 1) Sinopec Group
Company will provide goods and products and a range of ancillary, social and
supporting services to the Group and 2) the Group will sell certain goods to
Sinopec Group Company. The terms of these agreements are summarized as follows:
(a) The Company has entered into a non-exclusive Agreement for Mutual
Provision of Products and Ancillary Services ("Mutual Provision
Agreement") with Sinopec Group Company effective from January 1, 2000 in
which Sinopec Group Company has agreed to provide the Group with certain
ancillary production services, construction services, information
advisory services, supply services and other services and products. While
each of Sinopec Group Company and the Company is permitted to terminate
the Mutual Provision Agreement upon at least six months notice, Sinopec
Group Company has agreed not to terminate the agreement if the Group is
unable to obtain comparable services from a third party. The pricing
policy for these services and products provided by Sinopec Group Company
to the Group is as follows:
o the government-prescribed price;
o where there is no government-prescribed price,
the government-guidance price;
o where there is neither a government-prescribed
price nor a government-guidance price, the
market price; or
o where none of the above is applicable, the price to be agreed between
the parties, which shall be based on a reasonable cost incurred in
providing such services plus a profit margin not exceeding 6%.
(b) The Company has entered into a non-exclusive Agreement for Provision of
Cultural and Educational, Health Care and Community Services with Sinopec
Group Company effective from January 1, 2000 in which Sinopec Group
Company has agreed to provide the Group with certain cultural,
educational, health care and community services on the same pricing terms
and termination conditions as agreed to in the above Mutual Provision
Agreement.
(c) The Company has entered into lease agreements with Sinopec Group Company
effective from January 1, 2000 to lease certain land and buildings at a
rental of approximately RMB 2,007 and RMB 482, respectively, per annum.
The Company and Sinopec Group Company can renegotiate the rental amount
every three years for land and every year for buildings, such amount not
to exceed the market price as determined by an independent third party.
The Group has the option to terminate these leases upon six months notice
to Sinopec Group Company.
In August 2003, the Company has entered into additional lease agreements
with Sinopec Group Company effective from January 1, 2003 to lease
additional land at a rental of approximately RMB 273 per annum.
(d) The Company has entered into agreements with Sinopec Group Company
effective from January 1, 2000 under which the Group has been granted the
right to use certain trademarks, patents, technology and computer
software developed by Sinopec Group Company. The Group will reimburse
Sinopec Group Company for fees required to maintain the validity of these
licenses.
(e) The Company has entered into agency agreements effective from January 1,
2000 with certain entities owned by Sinopec Group Company under which the
Group acts as a sole agent in respect of the sale of all the products of
these entities. In exchange for the Group's sales agency services,
Sinopec Group Company has agreed to pay the Group a commission of between
0.2% and 1.0% of actual sales receipts depending on the products and to
reimburse the Group for reasonable costs incurred in the capacity as its
sales agent.
(f) The Company has entered into a service stations franchise agreement with
Sinopec Group Company effective from January 1, 2000 under which its
service stations and retail stores would exclusively sell the refined
products supplied by the Group.
On December 19, 2002, the Company and Sinopec Group Company entered into
an asset swap agreement whereby the Company transferred to Sinopec Group
Company certain individual assets and liabilities, consisting principally of,
water plants, inspection, maintenance, geology and geophysical assets and
related liabilities. The carrying amount of the net assets transferred to
Sinopec Group Company approximated the net appraised amount of RMB 1,021. In
return, Sinopec Group Company transferred to the Company certain gas stations
and oil depot assets. The carrying and appraised amounts of such assets
transferred to the Company were RMB 462 and RMB 1,040, respectively. The
difference between the appraised amounts of the assets exchanged of RMB 19 was
paid in cash by the Company.
As discussed in Note 1, the Group acquired the equity interest of Sinopec
Maoming from Sinopec Group Company for a consideration of RMB 3,300. As of the
valuation date, the carrying amount of the net asset acquired approximated the
net appraised amount of RMB 3,300.
As discussed in Note 1, the Group acquired the equity interest of Tahe
Petrochemical and Xi'an Petrochemical from Sinopec Group Company for a
consideration of RMB 356. As of the valuation date, the carrying amount of the
net asset acquired approximated the net appraised amount of RMB 356.
In December 2003, Sinopec Group Company repaid a bank loan of RMB 962 on
behalf of a subsidiary of the Group in exchange for a receivable from that
subsidiary.
29. EMPLOYEE BENEFITS PLAN
As stipulated by the regulations of the PRC, the Group participates in
various defined contribution retirement plans organized by municipal and
provincial governments for its staff. The Group is required to make
contributions to the retirement plans at rates ranging from 17.0% to 30.0% of
the salaries, bonuses and certain allowances of its staff. A member of the plan
is entitled to a pension equal to a fixed proportion of the salary prevailing
at his or her retirement date. The Group has no other material obligation for
the payment of pension benefits associated with these plans beyond the annual
contributions described above. The Group's contributions for the years ended
December 31, 2001, 2002 and 2003 were RMB 1,472, RMB 1,656 and RMB 1,791,
respectively.
The Company implemented a plan of share appreciation rights for members
of its senior management in order to provide further incentives to these
employees. Under this plan, share appreciation rights were granted in units
with each unit representing one H share. No shares will be issued under the
share appreciation rights plan.
Under the plan, all share appreciation rights have an exercise period of
five years. A recipient of share appreciation rights may not exercise the
rights in the first 3 years after the date of grant. As of each of the third,
fourth and fifth anniversary of the date of grant, the total number of share
appreciation rights exercisable may not in aggregate exceed 30%, 70% and 100%,
respectively, of the total share appreciation rights granted to such person.
During 2003, the Company granted 258.6 million share appreciation right
units to eligible employees accordingly.
The exercise price of share appreciation rights initially granted is the
initial public offering price of the Company's H shares. Upon exercise of the
share appreciation rights, a recipient will receive, subject to any applicable
withholding tax, a cash payment in RMB, translated from the Hong Kong dollar
amount equal to the product of the number of share appreciation rights
exercised and the difference between the exercise price and average market
price of the Company's H shares for the exercise period based on the applicable
exchange rate between RMB and Hong Kong dollar at the date of the exercise.
The Company recognizes compensation expense of the share appreciation
rights over the applicable vesting period. For the year ended December 31,
2003, compensation expense recognized was RMB 120.
30. SEGMENTAL REPORTING
The Group has five operating segments as follows:
(i) Exploration and production, which explores and develops oil fields,
produces crude oil and natural gas and sells such products to the
Refining Segment of the Group and external customers.
(ii) Refining, which processes and purifies crude oil, which is sourced
from the Exploration and Production Segment of the Group and external
suppliers, and manufactures and sells petroleum products to the
Chemicals and Marketing and Distribution Segments of the Group and
external customers.
(iii)Marketing and distribution, which owns and operates oil depots and
service stations in the PRC, and distributes and sells refined
petroleum products (mainly gasoline and diesel) in the PRC through
wholesale and retail sales networks.
(iv) Chemicals, which manufactures and sells petrochemical products,
derivative petrochemical products and other chemical products mainly
to external customers.
(v) Corporate and others, which largely comprise the trading activities
of the import and export companies of the Group and research and
development undertaken by other subsidiaries.
The segments were determined primarily because the Group manages its
exploration and production; refining; marketing and distribution; chemicals;
and corporate and others businesses separately. The reportable segments are
each managed separately because they manufacture and/or distribute distinct
products with different production processes and due to their distinct
operating and gross margin characteristics. In view of the fact that the
Company and its subsidiaries operate mainly in the PRC, no geographical segment
information is presented.
The Group evaluates the performance and allocates resources to its
operating segments on an operating income basis, without considering the
effects of finance costs or investment income. The accounting policies of the
Group's segments are the same as those described in the principal accounting
policies (see Note 2). Corporate administrative costs and assets are not
allocated to the operating segments; instead, operating segments are billed for
direct corporate services. Inter-segment transfer pricing is based on cost plus
an appropriate margin, as specified by the Group's policy.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in millions of Renminbi, except per share data)
Reportable information on the Group's business segments is as follows:
Years ended December 31,
----------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Sales of goods
Exploration and production
External sales.................................................... 11,095 10,920 14,936
Inter-segment sales............................................... 43,332 39,407 47,287
-------- -------- --------
54,427 50,327 62,223
Refining
External sales.................................................... 47,880 46,165 57,701
Inter-segment sales............................................... 159,757 164,560 211,558
-------- -------- --------
207,637 210,725 269,259
Marketing and distribution
External sales.................................................... 180,610 184,378 238,210
Inter-segment sales............................................... 2,460 2,329 2,602
-------- -------- --------
183,070 186,707 240,812
Chemicals
External sales.................................................... 53,301 63,071 80,682
Inter-segment sales............................................... 6,291 7,878 7,415
-------- -------- --------
59,592 70,949 88,097
Corporate and others
External sales.................................................... 16,493 24,582 32,789
Inter-segment sales............................................... 8,916 19,884 29,361
-------- -------- --------
25,409 44,466 62,150
Elimination of inter-segment sales..................................... (220,756) (234,058) (298,223)
-------- -------- --------
Total sales of goods................................................... 309,379 329,116 424,318
-------- -------- --------
Other operating revenues
Exploration and production............................................. 6,168 7,305 8,039
Refining............................................................... 2,775 3,074 4,571
Marketing and distribution............................................. 201 342 548
Chemicals.............................................................. 4,458 4,117 4,236
Corporate and others................................................... 648 1,191 1,424
-------- -------- --------
Total other operating revenues......................................... 14,250 16,029 18,818
-------- -------- --------
Total operating revenues............................................... 323,629 345,145 443,136
======== ======== ========
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in millions of Renminbi, except per share data)
Result Years ended December 31,
----------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Operating income by segment
- Exploration and production........................................ 23,185 14,787 19,160
- Refining.......................................................... 2,141 5,996 6,006
- Marketing and distribution........................................ 2,443 8,401 11,943
- Chemicals......................................................... (225) 596 2,159
- Corporate and others.............................................. 125 (1,101) (2,001)
-------- -------- --------
Total operating income................................................. 27,669 28,679 37,267
-------- -------- --------
Income/(loss) from associates
- Exploration and production........................................ 258 152 293
- Refining.......................................................... 10 1 (1)
- Marketing and distribution........................................ 71 63 43
- Chemicals......................................................... (12) 32 (31)
- Corporate and others.............................................. 7 84 102
-------- -------- --------
Aggregate income from associates ...................................... 334 332 406
-------- -------- --------
Finance costs
Interest expense.................................................. (4,983) (4,176) (3,728)
Interest income................................................... 1,191 345 308
Foreign exchange losses........................................... (261) (384) (413)
Foreign exchange gains............................................ 760 60 30
-------- -------- --------
Net finance costs...................................................... (3,293) (4,155) (3,803)
'Investment income....................................................... 190 229 75
Gain from issuance of shares by a subsidiary........................... -- -- 136
-------- -------- --------
Income before income tax and minority interests........................ 24,900 25,085 34,081
Income tax............................................................. (8,037) (7,650) (10,545)
-------- -------- --------
Income before minority interests....................................... 16,863 17,435 23,536
Minority interests..................................................... (617) (1,120) (1,943)
-------- -------- --------
Net income............................................................. 16,246 16,315 21,593
======== ======== ========
Assets and liabilities dedicated to a particular segment's operations are
included in that segment's total assets and liabilities. Assets which benefit
more than one segment or are considered to be corporate assets are not
allocated. "Unallocated assets" consists primarily of cash and cash
equivalents, time deposits with financial institutions, investments and
deferred tax assets. "Unallocated liabilities" consists primarily of short-term
and long-term debts, loans from Sinopec Group Company and its affiliates,
income tax payable, deferred tax liabilities and other liabilities.
Interests in and income from associates are included in the segments in
which the associates operate. Information on associates is included in Note 18.
Additions to long-lived assets by operating segment are included in Notes 15
and 16.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in millions of Renminbi, except per share data)
December 31,
----------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Assets
Segment assets
- Exploration and production....................................... 80,063 90,983 101,303
- Refining......................................................... 89,160 90,581 96,460
- Marketing and distribution....................................... 72,014 71,516 73,942
- Chemicals........................................................ 87,326 86,587 85,740
- Corporate and others............................................. 17,014 18,227 12,980
-------- -------- --------
Total segment assets.................................................. 345,577 357,894 370,425
-------- -------- --------
Interests in associates
- Exploration and production....................................... 1,032 1,583 1,233
- Refining......................................................... 120 147 136
- Marketing and distribution....................................... 1,168 1,435 1,815
- Chemicals........................................................ 1,796 3,609 3,477
- Corporate and others............................................. 1,189 1,275 1,420
-------- -------- --------
Aggregate interests in associates..................................... 5,305 8,049 8,081
-------- -------- --------
Unallocated assets.................................................... 29,863 23,400 22,312
-------- -------- --------
Total assets.......................................................... 380,745 389,343 400,818
======== ======== ========
Liabilities
Segment liabilities
- Exploration and production....................................... 13,419 16,126 15,773
- Refining......................................................... 24,341 22,228 25,743
- Marketing and distribution....................................... 18,700 19,472 21,091
- Chemicals........................................................ 9,997 13,885 16,857
- Corporate and others............................................. 8,123 8,768 9,384
-------- -------- --------
Total segment liabilities............................................. 74,580 80,479 88,848
-------- -------- --------
Unallocated liabilities............................................... 125,902 121,032 118,205
-------- -------- --------
Total liabilities..................................................... 200,482 201,511 207,053
======== ======== ========
Segment capital expenditure is the total cost incurred during the period
to acquire segment assets that are expected to be used for more than one
period.
Years ended December 31,
----------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Capital expenditure
Exploration and production............................................ 20,276 20,228 20,628
Refining.............................................................. 9,121 6,660 9,729
Marketing and distribution............................................ 17,256 6,982 6,826
Chemicals............................................................. 11,996 7,415 7,348
Corporate and others.................................................. 528 816 518
-------- -------- --------
59,177 42,101 45,049
======== ======== ========
Capital expenditure of jointly controlled entities
Exploration and production............................................ -- -- 1,200
Chemicals............................................................. -- -- 2,993
-------- -------- --------
-- -- 4,193
======== ======== ========
Depreciation, depletion and amortization
Exploration and production............................................ 8,081 9,033 9,413
Refining.............................................................. 5,948 6,086 6,409
Marketing and distribution............................................ 1,661 1,968 2,431
Chemicals............................................................. 7,443 7,877 8,016
Corporate and others.................................................. 262 322 466
-------- -------- --------
23,395 25,286 26,735
======== ======== ========
Impairment losses on long-lived assets
Exploration and production............................................ -- -- 310
Refining.............................................................. -- -- 114
Chemicals............................................................. -- -- 453
-------- -------- --------
-- -- 877
======== ======== ========
31. PRINCIPAL SUBSIDIARIES
Details of the Group's principle subsidiaries are as follows:
Particulars
of issued Percentage of equity
capital and Type of held by held by
Name of company debt securities legal entity the Company Subsidiary Principal activities
------------------------------------ --------------- ------------ ----------- ---------- ---------------------------
% %
China Petrochemical International RMB1,400 Limited 100.00 __ Trading of crude oil and
Company Limited company petrochemical products
Sinopec Beijing Yanhua Petrochemical RMB 3,374 Limited 70.01 __ Manufacturing of chemical products
Company Limited company
Sinopec Sales Company Limited RMB 1,700 Limited 100.00 __ Marketing and distribution of refined
company petroleum products
Sinopec Shengli Oilfield Company RMB 30,028 Limited 100.00 __ Exploration and production of crude
Limited company oil and natural gas
Sinopec Fujian Petrochemical RMB 2,253 Limited 50.00 __ Manufacturing of plastics,
Company Limited (i) company intermediate petrochemical products
and petroleum products
Sinopec Maoming Refining and RMB 1,064 and Limited 99.81 __ Manufacturing of intermediate
Chemical Company Limited RMB 1,500 company petrochemical products and petroleum
convertible products
bonds
Sinopec Qilu Petrochemical Company RMB 1,950 Limited 82.05 __ Manufacturing of intermediate
Limited company petrochemical products and petroleum
products
Sinopec Shanghai Petrochemical RMB 7,200 Limited 55.56 __ Manufacturing of synthetic fibers,
Company Limited company resin and plastics, intermediate
petrochemical products and petroleum
products
Sinopec Shijiazhuang Refining- RMB 1,154 Limited 79.73 __ Manufacturing of intermediate
Chemical Company Limited company petrochemical products and petroleum
products
Sinopec Kantonnes Holdings Limited HK$ 104 Limited __ 72.40 Trading of crude oil and petroleum
company products
Sinopec Wuhan Petroleum Group RMB 147 Limited 46.25 __ Marketing and distribution of refined
Company Limited (i) company petroleum products
Sinopec Wuhan Phoenix Company RMB 519 Limited 40.72 __ Manufacturing of petrochemical
Limited (i) company products and petroleum products
Sinopec Yangzi Petrochemical Company RMB 2,330 Limited 84.98 __ Manufacturing of intermediate
Limited company petrochemical products and petroleum
products
Sinopec Yizheng Chemical Fiber RMB 4,000 Limited 42.00 __ Production and sale of polyester
Company Limited (i) company chips and polyester fibers
Sinopec Zhenhai Refining and RMB 2,524 Limited 71.32 __ Manufacturing of intermediate
Chemical Company Limited company petrochemical products and petroleum
products
Sinopec Zhongyuan Petroleum Company RMB 875 Limited 70.85 __ Exploration and production of crude
Limited company oil and natural gas
Except for Sinopec Kantonnes Holdings Limited, which is incorporated in Bermuda, all of the above principal
subsidiaries are incorporated in the PRC.
(i) The Group consolidated the results of the entity because the Group controlled the board of this entity and had the
power to govern its financial and operating policies.
32. FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial assets of the Group include cash and cash equivalents, time
deposits, investments, trade accounts receivable, bills receivable, amounts due
from Sinopec Group Company and its affiliates, advances to third parties,
amounts due from associates, and other receivables. Financial liabilities of
the Group include bank and other loans, loans from Sinopec Group Company and
its affiliates, trade accounts payable, bills payable, amounts due to Sinopec
Group Company and its affiliates, receipts in advance, and advances from third
parties. The Group has no derivative instruments that are designated and
qualified as hedging instruments as of December 31, 2002 and 2003.
The disclosures of the fair value estimates, methods and assumptions, set
forth below for the Group's financial instruments, are made to comply with the
requirements of IAS 32 and IAS 39 and should be read in conjunction with the
Group's consolidated financial statements and related notes. The estimated fair
value amounts have been determined by the Group using market information and
valuation methodologies considered appropriate. However, considerable judgment
is required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Group could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The Group has not developed an internal valuation model necessary to make
the estimate of the fair value of loans from Sinopec Group Company and its
affiliates as it is not considered practicable to estimate their fair value
because the cost of obtaining discount and borrowing rates for comparable
borrowings would be excessive based on the Reorganization of the Group, its
existing capital structure, and the terms of the borrowings.
The following table presents the carrying amount and fair value of the
Group's long-term indebtedness other than loans from Sinopec Group Company and
its affiliates as of December 31, 2002 and 2003:
December 31,
---------------------
2002 2003
-------- --------
RMB RMB
Carrying amount.................................. 48,415 49,600
Fair value....................................... 48,875 49,698
The fair value of long-term indebtedness is estimated by discounting
future cash flows thereon using current market interest rates offered to the
Group for debt with substantially the same characteristics and maturities.
Investments are unquoted equity interests and there are no quoted market
prices for such interests in the PRC. Accordingly, a reasonable estimate of
fair value could not be made without incurring excessive costs.
The fair values of all other financial instruments approximate their
carrying amounts due to the nature or short-term maturity of these instruments.
33. SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP
The Group's accounting policies conform with IFRS which differ in certain
significant respects from US GAAP. Information relating to the nature and
effect of such differences are set out below.
(a) Foreign exchange gains and losses
In accordance with IFRS, foreign exchange differences on funds borrowed
for construction are capitalized as property, plant and equipment to the extent
that they are regarded as an adjustment to interest costs during the
construction period. Under US GAAP, all foreign exchange gains and losses on
foreign currency debts are included in current earnings.
(b) Capitalization of property, plant and equipment
In the years prior to those presented herein, certain adjustments arose
between IFRS and US GAAP with regard to the capitalization of interest and
pre-production results under IFRS that were reversed and expensed under US
GAAP. For the years presented herein, there were no adjustments related to the
capitalization of interest and pre-production results. Accordingly, the US GAAP
adjustments represent the amortization effect of such originating adjustments
described above.
(c) Revaluation of property, plant and equipment
As required by the relevant PRC regulations with respect to the
Reorganization, the property, plant and equipment of the Group were revalued as
of September 30, 1999. In addition, the property, plant and equipment of
Sinopec National Star, Sinopec Maoming and Refining Assets were revalued as of
December 31, 2000, June 30, 2003 and October 31, 2003, respectively in
connection with the Acquisitions. Under IFRS, such revaluations result in an
increase in shareholders' equity with respect to the increase in carrying
amount of certain property, plant and equipment above their historical cost
bases and a charge to income with respect to the reduction in carrying amount
of certain property, plant and equipment below their historical cost bases.
Under US GAAP, property, plant and equipment, including land use rights,
are stated at their historical cost less accumulated depreciation. However, as
a result of the tax deductibility of the net revaluation surplus, a deferred
tax asset related to the reversal of the revaluation surplus is created under
US GAAP with a corresponding increase in shareholders' equity.
Under IFRS, effective January 1, 2002, land use rights, which were
previously carried at revalued amount, are carried at cost under IFRS. The
effect of this change resulted in a decrease to revaluation reserve net of
minority interests of RMB 840 as of January 1, 2002. This revaluation reserve
was previously included as part of the revaluation reserve of property, plant
and equipment. This change under IFRS eliminated the US GAAP difference
relating to the revaluation of land use rights. However, as a result of the tax
deductibility of the revalued land use rights, the reversal of the revaluation
reserve resulted in a deferred tax asset.
In addition, under IFRS, on disposal of a revalued asset, the related
revaluation surplus is transferred from the revaluation reserve to retained
earnings. Under US GAAP, the gain and loss on disposal of an asset is
determined with reference to the asset's historical carrying amount and
included in current earnings.
(d) Exchange of assets
As described in Note 28, the Company and Sinopec Group Company entered
into an asset swap transaction on December 19, 2002. Under IFRS, the cost of
property, plant and equipment acquired in an exchange for a dissimilar item of
property, plant and equipment is measured at fair value. Under US GAAP, as the
exchange of assets was between entities under common control, the assets
received from Sinopec Group Company are measured at historical cost. The
difference between the historical cost of the net assets transferred and the
net assets received is accounted for as an equity transaction.
(e) Impairment of long-lived assets
Under IFRS, impairment charges are recognized when a long-lived asset's
carrying amount exceeds the higher of an asset's net selling price and value in
use, which incorporates discounting the asset's estimated future cash flows.
Under US GAAP, determination of the recoverability of a long-lived asset
is based on an estimate of undiscounted future cash flows resulting from the
use of the asset and its eventual disposition. If the sum of the expected
future cash flows is less than the carrying amount of the asset, an impairment
loss is recognized. Measurement of an impairment loss for a long-lived asset is
based on the fair value of the asset.
In addition, under IFRS, a subsequent increase in the recoverable amount
of an asset is reversed to the consolidated statements of income to the extent
that an impairment loss on the same asset was previously recognized as an
expense when the circumstances and events that led to the write-down or
write-off cease to exist. The reversal is reduced by the amount that would have
been recognized as depreciation had the write-off not occurred. Under US GAAP,
an impairment loss establishes a new cost basis for the impaired asset and the
new cost basis should not be adjusted subsequently other than for further
impairment losses.
The US GAAP adjustment represents the effect of reversing the recovery of
previous impairment charges recorded under IFRS.
(f) Employee reduction expenses
As described in Note 5, certain employees of the Group were
transferred to Sinopec Group Company. During the year ended December 31, 2001,
Sinopec Group Company paid RMB 2,885 to employees that were transferred to
Sinopec Group Company and were subsequently terminated. Under IFRS, the payment
made to these employees by Sinopec Group Company is not recorded in current
earnings. Under US GAAP, with reference to Interpretation No. 1 to Accounting
Principles Board Opinion ("APB") No. 25, such payment made by Sinopec Group
Company is charged to current earnings with a corresponding increase in
shareholders' equity.
(g) Capitalized interest on investment in associates
Under IFRS, investment accounted for by the equity method is not
considered a qualifying asset for which interest is capitalized. Under US GAAP,
an investment accounted for by the equity method while the investee has
activities in progress necessary to commence its planned principal operations,
provided that the investee's activities include the use of funds to acquire
qualifying assets for its operations, is a qualifying asset for which interest
is capitalized.
(h) Goodwill amortization
Under IFRS, goodwill and negative goodwill are amortized on a systematic
basis over their useful lives.
Under US GAAP, with reference to Statement of Financial Accounting
Standards No.142, "Goodwill and Other Intangible Assets" ("SFAS No.142"),
goodwill is no longer amortized beginning January 1, 2002, the date that SFAS
No. 142 was adopted. Instead, goodwill is reviewed for impairment upon adoption
of SFAS No.142 and annually thereafter. In connection with SFAS No.142's
transitional goodwill impairment evaluation, the Group determined that no
goodwill impairment existed as of the date of adoption. In addition, under US
GAAP, negative goodwill of RMB 11, net of minority interests, that existed at
the date of adoption of SFAS No.142 was written off as a cumulative effect of a
change in accounting principle.
(i) Companies included in consolidation
Under IFRS, the Group consolidates less than majority owned entities in
which the Group has the power, directly or indirectly, to govern the financial
and operating policies of an entity so as to obtain benefits from its
activities, and proportionately consolidates jointly controlled entities in
which the Group has joint control with other venturers. However, US GAAP
requires that any entity of which the Group owns 20% to 50% of total
outstanding voting stock not be consolidated nor proportionately consolidated,
but rather be accounted for under the equity method. Accordingly, certain of
the Group's subsidiaries, of which the Group owns between 40.72% to 50% of the
outstanding voting stock, and the Group's jointly controlled entities are not
consolidated nor proportionately consolidated under US GAAP and instead
accounted for under the equity method. This exclusion does not affect the net
income or shareholders' equity reconciliations between IFRS and US GAAP.
Presented below is summarized financial information of such subsidiaries
ad jointly controlled entities.
Years ended December 31,
------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Revenues................................ 15,809 16,719 21,735
Income before income tax................ 531 666 1,329
Net income.............................. 329 468 1,090
Years ended December 31,
------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Current assets.......................... 4,556 5,169 4,986
Total assets............................ 15,564 17,463 27,607
Current liabilities..................... 3,267 4,612 5,902
Total liabilities....................... 3,823 4,992 9,238
Total equity............................ 11,741 12,471 18,369
(j) Related party transactions
Under IFRS, transactions of state-controlled enterprises with other
state-controlled enterprises are not required to be disclosed as related party
transactions. Furthermore, government departments and agencies are deemed not
to be related parties to the extent that such dealings are in the normal course
of business. Therefore, related party transactions as disclosed in Note 28 only
refers to transactions with enterprises over which Sinopec Group Company is
able to exercise significant influence.
Under US GAAP, there are no similar exemptions. Although the majority of
the Group's activities are with PRC government authorities and affiliates and
other PRC state-owned enterprises, the Group believes that it has provided
meaningful disclosure of related party transactions in Note 28.
(k) Recently issued accounting standards
SFAS No. 150
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
SFAS No.150 establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. It also includes required disclosures for financial instruments within
its scope. For the Group, SFAS No.150 was effective for instruments entered
into or modified after May 31, 2003 and otherwise will be effective at the
beginning of the first financial year beginning after June 15, 2003. FASB Staff
Provision No. FAS150-3 deferred certain provisions of SFAS No.150 for certain
mandatorily redeemable non-controlling interests. The Group currently does not
have any financial instruments that are within the scope of SFAS No.150.
FIN No.46R
In December 2003, the FASB issued Interpretation No. 46 (revised December
2003), "Consolidation of Variable Interest Entities" (FIN 46R), which addresses
how a business enterprise should evaluate whether it has a controlling
financial interest in an entity through means other than voting rights and
accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation
No. 46, "Consolidation of Variable Interest Entities", which was issued in
January 2003. The Group will be required to apply FIN 46R to variable interests
in Variable Interest Entities ("VIEs") created after December 31, 2003. For
variable interests in VIEs created before January 1, 2004, the Interpretation
will be applied beginning on January 1, 2005. For any VIEs that must be
consolidated under FIN 46R that were created before January 1, 2004, the
assets, liabilities and non-controlling interests of the VIE initially would be
measured at their carrying amounts with any difference between the net amount
added to the balance sheet and any previously recognized interest being
recognized as the cumulative effect of an accounting change. If determining the
carrying amounts is not practicable, fair value at the date FIN 46R first
applies may be used to measure the assets, liabilities and non-controlling
interest of the VIE. The Group does not expect the application of this
Interpretation will have a material impact on its consolidated financial
statements.
Reconciliation to US GAAP
The effect on net income of significant differences between IFRS and US
GAAP for the years ended December 31, 2001, 2002 and 2003 is as follows:
Reference Years ended December 31,
in Note ------------------------------
above 2001 2002 2003 2003
---- ---- ---- ----
RMB RMB RMB US$
Net income under IFRS........................................... 16,246 16,315 21,593 2,609
US GAAP adjustments:
Foreign exchange gains and losses.......................... (a) 76 76 76 9
Capitalization of property, plant and equipment............ (b) 12 12 12 1
Reversal of deficit on revaluation of property, plant and
equipment................................................ (c) -- -- 86 10
Depreciation on revalued property, plant and equipment..... (c) 4,196 4,126 3,998 483
Disposal of property, plant and equipment.................. (c) 232 544 1,316 159
Exchange of assets......................................... (d) -- -- 23 3
Reversal of impairment of long-lived assets,
net of depreciation effect.............................. (e) 59 59 47 6
Employee reduction expenses................................ (f) (2,885) -- -- --
Capitalized interest on investment in associates........... (g) 70 110 141 17
Goodwill amortization for the year......................... (h) -- 6 -- --
Cumulative effect of adopting SFAS No.142.................. (h)
-- 11 -- --
Deferred tax effect of US GAAP adjustments................. (470) (1,509) (1,715) (207)
------ ------ ------ ------
Net income under US GAAP........................................ 17,536 19,750 25,577 3,090
====== ====== ====== ======
Basic earnings per share under US GAAP.......................... 0.21 0.23 0.30 0.04
====== ====== ====== ======
Basic earnings per ADS under US GAAP*........................... 20.59 22.78 29.50 3.56
====== ====== ====== ======
In accordance with SFAS No.142's disclosure requirements, a reconciliation
of reported net income under US GAAP to adjusted net income under US GAAP is
presented below.
Years ended December 31,
------------------------------------
2001 2002 2003 2003
---- ---- ---- ----
RMB RMB RMB US$
Net income under US GAAP............................................... 17,536 19,750 25,491 3,080
Add: Goodwill amortization............................................. 8 -- -- --
Less: Amortization of negative goodwill.............................. (2) -- -- --
Adjusted net income under US GAAP...................................... 17,542 19,750 25,491 3,080
Basic earnings per share under US GAAP................................. 0.21 0.23 0.29 0.04
Basic earnings per ADS under US GAAP*.................................. 20.60 22.78 29.40 3.55
* Basic net income per ADS is calculated on the basis that one ADS is equivalent to 100 shares.
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Amounts in millions of Renminbi, except per share data)
The effect on shareholders' equity of significant differences between IFRS
and US GAAP as of December 31, 2002 and 2003 is as follows:
Reference December 31,
in Note -------------------------
above 2002 2003 2003
---- ---- ----
RMB RMB RMB
Shareholders' equity under IFRS........................................ 163,823 167,899 20,286
US GAAP adjustments:
Foreign exchange gains and losses................................. (a) (428) (352) (43)
Capitalization of property, plant and equipment................... (b) (24) (12) (1)
Revaluation of property, plant and equipment...................... (c) (18,327) (12,943) (1,564)
Deferred tax adjustments on revaluation........................... (c) 5,628 4,004 484
Exchange of assets................................................ (d) (578) (555) (67)
Reversal of impairment of long-lived assets....................... (e) (608) (561) (68)
Capitalized interest on investment in associates.................. (g) 180 321 39
Goodwill.......................................................... (h) 17 17 2
Deferred tax effect of US GAAP adjustments........................ 484 398 48
Shareholders' equity under US GAAP..................................... 150,167 158,216 19,116
CHINA PETROLEUM & CHEMICAL CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION ON OIL AND GAS
PRODUCING ACTIVITIES (UNAUDITED) - (Continued)
(All currency amounts in millions of Renminbi)
In accordance with the United States Statement of Financial Accounting
Standards No. 69, "Disclosures about Oil and Gas Producing Activities" ("SFAS
No. 69"), this section provides supplemental information on oil and gas
exploration and producing activities of the Group as of December 31, 2001, 2002
and 2003, and for each of the years in the three-year period ended December 31,
2003 in the following six separate tables. Tables I through III provide
historical cost information under US GAAP pertaining to capitalized costs
related to oil and gas producing activities; costs incurred in exploration and
development; and results of operations related to oil and gas producing
activities. Tables IV through VI present information on the Group's estimated
net proved reserve quantities; standardized measure of discounted future net
cash flows; and changes in the standardized measure of discounted future net
cash flows.
Table I: Capitalized costs related to oil and gas producing activities
Years ended December 31,
--------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Property cost -- -- --
Wells and related equipment and facilities........................... 109,977 125,790 143,492
Supporting equipment and facilities.................................. 11,047 10,809 13,140
Uncompleted wells, equipment and facilities.......................... 3,163 4,526 5,535
------- ------- -------
Total capitalized costs.............................................. 124,187 141,125 162,167
Accumulated depreciation, depletion, amortization and impairment
allowances........................................................ (56,069) (62,397) (70,726)
------- ------- -------
Net capitalized costs................................................ 68,118 78,728 91,441
======= ======= =======
Table II: Cost incurred in exploration and development
Years ended December 31,
--------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Exploration.......................................................... 5,666 5,798 8,109
Development.......................................................... 18,385 18,793 19,852
------- ------- -------
Total cost incurred.................................................. 24,051 24,591 27,961
======= ======= =======
Table III: Results of operations for oil and gas producing activities
Years ended December 31,
--------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Revenues
Sales........................................................... 8,780 8,687 11,850
Transfers....................................................... 43,269 39,407 47,287
------- ------- -------
52,049 48,094 59,137
Production costs excluding taxes..................................... (15,084) (15,174) (16,187)
Exploration expenses................................................. (3,775) (4,363) (6,133)
Depreciation, depletion, amortization and impairment provisions....... (7,126) (8,133) (8,684)
Taxes other than income tax.......................................... (875) (860) (970)
------- ------- -------
Income before income tax............................................. 25,189 19,564 27,163
Income tax expense................................................... (8,312) (6,456) (8,964)
------- ------- -------
Results of operations from producing activities...................... 16,877 13,108 18,199
======= ======= =======
The results of operations for producing activities for the years ended
December 31, 2001, 2002 and 2003 are shown above. Revenues include sales to
unaffiliated parties and transfers (essentially at third-party sales prices) to
other segments of the Group. All revenues reported in this table do not include
royalties to others as there were none. In accordance with SFAS No. 69, income
taxes are based on statutory tax rates, reflecting allowable deductions and tax
credits. General corporate overhead and interest income and expense are
excluded from the results of operations.
Table IV: Reserve quantities information
The Group's estimated net proved underground oil and gas reserves and
changes thereto for the years ended December 31, 2001, 2002 and 2003 are shown
in the following table.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e., prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not
on escalations based upon future conditions. Due to the inherent uncertainties
and the limited nature of reservoir data, estimates of underground reserves are
subject to change as additional information becomes available.
Proved reserves do not include additional quantities recoverable beyond
the term of the relevant production licenses, or that may result from
extensions of currently proved areas, or from application of improved recovery
processes not yet tested and determined to be economical. The Group's estimated
proved reserves do not include any quantities that are recoverable through
application of tertiary recovery techniques.
Proved developed reserves are the quantities expected to be recovered
through existing wells with existing equipment and operating methods.
"Net" reserves exclude royalties and interests owned by others and reflect
contractual arrangements in effect at the time of the estimate.
Years ended December 31,
--------------------------------
2001 2002 2003
---- ---- ----
Proved developed and undeveloped reserves (oil) (million barrels)
Beginning of year.................................................... 3,168 3,215 3,320
Revisions of previous estimates...................................... (23) 119 (81)
Improved recovery.................................................... 125 126 143
Extensions and discoveries........................................... 214 130 146
Production........................................................... (269) (270) (271)
----- ----- -----
End of year.......................................................... 3,215 3,320 3,257
===== ===== =====
Proved developed reserves
Beginning of year.................................................... 2,490 2,444 2,732
===== ===== =====
End of year.......................................................... 2,444 2,732 2,786
===== ===== =====
Proved developed and undeveloped reserves (gas)
(billion cubic feet)
Beginning of year.................................................... 3,342 3,488 3,329
Revisions of previous estimates...................................... (429) (133) (649)
Extensions and discoveries........................................... 738 153 396
Production........................................................... (163) (179) (188)
----- ----- -----
End of year.......................................................... 3,488 3,329 2,888
===== ===== =====
Proved developed reserves
Beginning of year.................................................... 1,164 1,183 1,056
===== ===== =====
End of year.......................................................... 1,183 1,056 1,249
===== ===== =====
Table V: Standardized measure of discounted future net cash flows
The standardized measure of discounted future net cash flows, related to
the above proved oil and gas reserves, is calculated in accordance with the
requirements of SFAS No. 69. Estimated future cash inflows from production are
computed by applying year-end prices for oil and gas to year-end quantities of
estimated net proved reserves. Future price changes are limited to those
provided by contractual arrangements in existence at the end of each reporting
year. Future development and production costs are those estimated future
expenditures necessary to develop and produce year-end estimated proved
reserves based on year-end cost indices, assuming continuation of year-end
economic conditions. Estimated future income taxes are calculated by applying
appropriate year-end statutory tax rates to estimated future pre-tax net cash
flows, less the tax basis of related assets. Discounted future net cash flows
are calculated using 10% midperiod discount factors. This discounting requires
a year-by-year estimate of when the future expenditure will be incurred and
when the reserves will be produced.
The information provided does not represent management's estimate of the
Group's expected future cash flows or value of proved oil and gas reserves.
Estimates of proved reserve quantities are imprecise and change over time as
new information becomes available. Moreover, probable and possible reserves,
which may become proved in the future, are excluded from the calculations. The
arbitrary valuation prescribed under SFAS No. 69 requires assumptions as to the
timing and amount of future development and production costs. The calculations
are made for the years ended December 31, 2001, 2002 and 2003 and should not be
relied upon as an indication of the Group's future cash flows or value of its
oil and gas reserves.
Years ended December 31,
---------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Future cash flows.................................................... 534,433 760,468 799,658
Future production costs.............................................. (224,487) (287,887) (311,568)
Future development costs............................................. (25,221) (26,852) (23,838)
Future income tax expenses........................................... (74,698) (126,440) (130,224)
Undiscounted future net cash flows................................... 210,027 319,289 334,028
10% annual discount for estimated timing of cash flows............... (91,274) (142,450) (146,726)
Standardized measure of discounted future net cash flows............. 118,753 176,839 187,302
Table VI: Changes in the standardized measure of discounted future net cash flows
Years ended December 31,
---------------------------------
2001 2002 2003
---- ---- ----
RMB RMB RMB
Sales and transfers of oil and gas produced, net of production costs. (52,294) (26,740) (41,802)
Net changes in prices and production costs........................... (162,554) 63,625 11,923
Net change due to extensions, discoveries and improved recoveries.... 22,859 23,319 27,721
Revisions of previous quantity estimates............................. (3,729) 8,253 (5,951)
Previously estimated development costs incurred during the year...... 7,349 6,935 6,865
Accretion of discount................................................ 19,259 10,323 15,242
Net change in income taxes........................................... 56,131 (27,793) (2,992)
Others............................................................... 2,535 164 (543)
Net change for the year.............................................. (110,444) 58,086 10,463
SIGNATURE
The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
China Petroleum & Chemical Corporation
By /s/ Chen Ge
-------------------
Name: Chen Ge
Title: Secretary to the Board of Directors
Date: June 18, 2004
Exhibit 1
Articles of Association
of
China Petroleum & Chemical Corporation
Approved at the First Extraordinary General Meeting of 2003 on 22 April 2003
Amended at the Annual General Meeting for the Year 2003 on 18 May 2004
CHAPTER 1 GENERAL PROVISIONS
Article 1 These Articles of Association are drawn up in accordance with
the "Company Law of the People's Republic of China" (the
"Company Law"), "Special regulations of the State Council
regarding the issue of shares overseas and the listing of
shares overseas by companies limited by share" (the "Special
Regulations"), "Mandatory provisions for the Articles of
Association of the Company to be Listed Overseas" ("Mandatory
Provisions"), "Guidelines for Articles of Association of Listed
Companies", "Standards for the Governance of Listed Companies"
and other relevant laws and regulations to maintain the
legitimate interests of China Petroleum & Chemical Corporation
(the "Company") and its shareholders and creditors, and to
regulate the organization and conducts of the Company.
Article 2 These Articles of Association of the Company are effective on
the date of incorporation of the Company. Any amendment to
these Articles of Association involving the Mandatory
Provisions shall be effective upon being passed by the
shareholders in a general meeting and examined and approved by
the company authorized by the State Council.
From the date on which the Company's Articles of Association
come into effect, the Company's Articles of Association shall
constitute a legally binding document regulating the Company's
organization and activities, and the rights and obligations
between the Company and its shareholders and among the
shareholders inter se.
Article 3 These Articles of Association are binding on the Company, its
shareholders and directors, supervisors, president,
vice-president, Chief Financial Officer and secretary of the
board of directors; all of whom are entitled, according to
these Articles of Association, to make claims concerning the
affairs of the Company.
A shareholder may take action against the Company and the
Company may take action against a shareholder or a director, a
supervisor, the president, the vice-president, the Chief
Financial Officer or the secretary of the board of directors
pursuant to these Articles of Association. A shareholder may
also take action against another shareholder or directors,
supervisors, president, vice-president, Chief Financial Officer
and the secretary of the board of directors of the Company
pursuant to these Articles of Association.
The actions referred to in the preceding paragraph include court
proceedings and arbitration proceedings.
Article 4 The Company is a joint stock limited company established in
accordance with the Company Law, the Special Regulations and
other relevant laws and administrative regulations of the
State.
The Company was established by way of promotion with the
approval of the State Economic and Trade Commission of the
People's Republic of China ("PRC"), as evidenced by approval
document Guo Jing Mao Qi Gai [2000] No. 154. It is registered
with and has obtained a business licence from China's State
Administration Bureau of Industry and Commerce on 25 February
2000.
The Company's business licence number is: 1000001003298. The
promoter of the Company is: China Petrochemical Corporation.
Article 5 The registered name of the Company:
In Chinese: [Chineses omitted]
Abbreviation: [Chineses omitted]
In English: China Petroleum
& Chemical Corporation
Abbreviation: SINOPEC Corp.
Article 6 The address of the Company: A6, Huixindong Street,
Chaoyang District,
Beijing, China.
Zip: 100029
Tel: (010) 64999295
Fax: (010) 64999294
Website: www.sinopec.com.cn
Article 7 The Company's legal representative is the Chairman of the board
of directors of the Company.
Article 8 The Company is a joint stock limited company which has
perpetual existence.
The capital of the Company is divided into shares of equal
value. The rights and responsibilities of the Company's
shareholders shall only be limited to the proportion of the
shares as held by them; the Company shall be responsible for the
Company's debts by all of its assets.
The Company is an independent legal person, subject to the
jurisdiction and under the protection of the laws and
administrative rules of the PRC.
Article 9 The Company may set up wholly-owned or holding branch
organizations such as subsidiaries, branches, representative
offices and offices according to its business development
needs. The wholly-owned or holding subsidiary may be named with
China Petroleum & Chemical Corporation's abbreviation
"SINOPEC". The branches, representative offices and offices are
non-legal person branch organizations and shall be named with
the full name of China Petroleum & Chemical Corporation.
The Company may set up branch organizations (whether or not
wholly-owned) outside the PRC and in the Hong Kong SAR, Macau
SAR and Taiwan according to its business development needs and
upon the approval of the relevant government body.
Article 10 The Company may invest in other limited liability companies or
joint stock limited companies. The Company's liabilities to an
invested company shall be limited to the amount of its capital
contribution to the invested company.
The Company shall not become the unlimited liability shareholder
of other profit-making organizations.
Upon approval of the companies approving department authorized
by the State Council, the Company may, according to its
operating and management needs, operate as a holding company as
prescribed in Article 12(2) of the Company Law.
CHAPTER 2 THE COMPANY'S OBJECTIVES AND SCOPE OF BUSINESS
Article 11 The operation objectives of the Company are: maximization of
the Company's profits, maximization of shareholders' return.
Article 12 The Company's scope of business shall be consistent with and
subject to the scope of business approved by the authority
responsible for the registration of the Company.
The Company's scope of business includes: the exploration,
exploitation and sales of oil and natural gas; pipeline
transportation of oil and natural gas; oil refining; the
production, sales and storage of oil, petrochemical products,
chemical fiber products and other chemical products;
wholesaling, retailing and storage of oil and other oil
products; operation of 24-hour stores; power generation;
manufacturing and installation of machinery; purchase and sales
of raw materials, charcoal, equipment and parts; supervision of
manufacturing of equipment; research, development and
application of technology and information; import and export;
and provision of technology and labour.
CHAPTER 3 SHARES AND REGISTERED CAPITAL
Article 13 There must, at all times, be ordinary shares in the Company,
which include the "domestic-invested shares" and the
"foreign-invested shares". Subject to the approval of the
companies approving department authorized by the State Council,
the Company may, according to its requirements, create different
classes of shares.
Article14 The shares issued by the Company shall each have a par value of
Renminbi one yuan. "Renminbi" as mentioned above means the
legal currency of the PRC.
Article 15 Shares of the Company are in the form of share certificates.
Subject to the approval of the securities authority of the
State Council, the Company may issue shares to Domestic
Investors and Foreign Investors. The issue of shares by the
Company shall adhere to the principle of openness and fairness.
"Foreign Investors" means those investors who subscribe for the
Company's shares and who are located in foreign countries and
in the regions of Hong Kong, Macau and Taiwan. "Domestic
Investors" means those investors who subscribe for the
Company's shares and who are located within the territory of
the PRC (except the areas referred to above).
Article 16 Shares which the Company issues to domestic investors for
subscription in Renminbi are called "Domestic-Invested Shares".
Domestic-invested shares listed domestically are called
"Domestic-Listed Domestic-Invested shares" whilst other kinds
of domestic-invested shares are called "Non-Listed
Domestic-Invested Shares".
Shares which the Company issues to foreign investors for
subscription in foreign currencies are called "Foreign-Invested
Shares". Foreign-invested shares which are listed overseas are
called "Overseas-Listed Foreign-Invested Shares".
"Foreign currencies" means the legal currencies of countries or
districts outside the PRC which are recognized by the foreign
exchange authority of the State and which can be used to pay the
share price to the Company.
The shareholders of "Domestic-Invested Shares" and the
shareholders of "Overseas-Listed Foreign-Invested Shares" shall
be shareholders of ordinary shares, possessing the same rights
and undertaking the same obligations.
Article 17 Foreign-Invested Shares issued by the Company and which are
listed in Hong Kong shall be referred to as "H Shares". "H
Shares" means the shares which have been admitted for listing
on The Stock Exchange of Hong Kong Limited (the "Stock
Exchange"), the par value of which is denominated in Renminbi
and which are subscribed for and traded in Hong Kong dollars.
Article 18 The Company's domestic-invested shares are held on trust by the
Shanghai branch of the China Securities Registration and
Clearing Company Limited. The Company's H shares are mainly
held by the Hong Kong Securities Clearing Company Limited.
Article 19 The Company has at the time of its establishment issued to the
promoter, China Petrochemical Corporation, 6,880,000 ordinary
shares, representing 100% of the issued ordinary shares of the
Company at that time.
Article 20 After the establishment of the Company and upon the approval of
the companies approving department authorized by the State
Council, the promoter, China Petrochemical Corporation,
transferred 19,379,390,000 domestic-invested shares to holders
of other non-listed domestic-invested shares; the Company
issued 16,780,488,000 H shares (out of these, 15,102,439,000
shares are new issue shares of the Company and 1,678,049,000
shares are stock shares sold by the promoter, China
Petrochemical Corporation). Upon completion of the H share
issuance, the Company issued 2,800,000,000 domestic-listed
domestic-invested shares.
The existing structure of the Company's share capital is as
follows: the total number of issued ordinary shares of the
Company is 86,702,439,000 shares, out of these, 47,742,561,000
shares representing 55.07% of the total number of issued
ordinary shares of the Company are held by the promoter, China
Petrochemical Corporation; 19,379,390,000 shares representing
22.35% are held by other non-listed domestic-invested
shareholders; 2,800,000,000 shares representing 3.23% are held
by domestic-listed domestic-invested shareholders; and
16,780,488,000 shares representing 19.35% are held by
foreign-listed foreign-invested shareholders.
Article 21 The Company's board of directors may take all necessary action
for the respective issuance of the Overseas-Listed
Foreign-Invested Shares and Domestic-Invested Shares after the
proposals for issuance of the same have been approved by the
securities authority of the State Council.
The Company may implement its proposal to issue Overseas-Listed
Foreign-Invested Shares and Domestic-Invested Shares pursuant to
the preceding paragraph within fifteen (15) months from the date
of approval by the securities regulatory organ of the State
Council.
Article 22 Where the total number of shares stated in the proposal for
the issuance of shares include Overseas-Listed Foreign-Invested
Shares and Domestic-Invested Shares, such shares should be
fully subscribed for at their respective offerings. If the
shares cannot be fully subscribed for all at once due to
special circumstances, the shares may, subject to the approval
of the securities regulatory organ of the State Council, be
issued on separate occasions.
Article 23 The registered capital of the Company is RMB86,702,439,000.
Article 24 The Company may, based on its operating and development needs,
authorize the increase of its capital pursuant to the Company's
Articles of Association.
The Company may increase its capital in the following ways:
(1) by offering new shares for subscription by unspecified
investors;
(2) by placing new shares to its existing shareholders;
(3) by allotting bonus shares to its existing
shareholders;
(4) to increase the share capital with common reserve
fund;
(5) by any other means which is permitted by the laws,
administrative regulations and the competent
department under the securities authority of the State
Council.
After the Company's increase of share capital by means of the
issuance of new shares has been approved in accordance with the
provisions of the Company's Articles of Association, the
issuance thereof should be made in accordance with the
procedures set out in the relevant laws and administrative
regulations of the State.
Article 25 Unless otherwise stipulated in the relevant laws or
administrative regulations, shares in the Company shall be
freely transferable and are not subject to any lien.
CHAPTER 4 REDUCTION OF CAPITAL AND REPURCHASE OF SHARES
Article 26 According to the provisions of the Company's Articles of
Association, the Company may reduce its registered capital. In
so doing, it shall act according to the Company Law, other
relevant provisions and these Articles of Association.
Article 27 The Company must prepare a balance sheet and an inventory of
assets when it reduces its registered capital.
The Company shall notify its creditors within ten (10) days of
the date of the Company's resolution for reduction of capital
and shall publish an announcement in a newspaper at least three
(3) times within thirty (30) days of the date of such
resolution. A creditor has the right within thirty (30) days of
receipt of the notice from the Company or, in the case of a
creditor who does not receive such notice, within ninety (90)
days of the date of the first public announcement, to require
the Company to repay its debts or to provide a corresponding
guarantee for such debt.
The Company's registered capital may not, after the reduction in
capital, be less than the minimum amount prescribed by law.
Article 28 The Company may, in accordance with the procedures set out in
the Company's Articles of Association and with the approval of
the relevant governing authority of the State, repurchase its
outstanding shares under the following circumstances:
(1) cancellation of shares for the purposes of reducing
its capital;
(2) merging with another company that holds shares in the
Company;
(3) other circumstances permitted by laws and
administrative regulations.
The Company shall repurchase its outstanding shares in
accordance with the stipulations of Article 29 to Article 32.
Article 29 The Company may repurchase shares in one of the following ways,
with the approval of the relevant governing authority of the
State:
(1) by making an offer for the repurchase of shares to all
its shareholders on a pro rata basis;
(2) by repurchasing shares through public dealing on a
stock exchange;
(3) by repurchasing shares outside of the stock exchange
by means of an off-market agreement;
(4) by any other means which is permitted by the laws,
administrative regulations and the securities regulatory
organ of the State Council.
Article 30 The Company must obtain the prior approval of the shareholders
in a general meeting in the manner stipulated in the Company's
Articles of Association before it can repurchase shares outside
the stock exchange by means of an off-market agreement. The
Company may, by obtaining the prior approval of the
shareholders in a general meeting (in the same manner), rescind
or vary any contract which has been so entered into or waive
any right thereof.
A contract for the repurchase of shares referred to in the
preceding paragraph includes (without limitation) an agreement
to become liable to repurchase shares or an agreement to have
the right to repurchase shares.
The Company may not assign any contract for the repurchase of
its shares or any right contained in such contract.
Article 31 Shares which have been legally repurchased by the Company shall
be cancelled within 10 days of completion of the repurchase (or
such other shorter period as required by law or administrative
regulations), and the Company shall apply to the original
companies registration authority for registration of the change
in its registered capital.
The aggregate par value of the cancelled shares shall be
deducted from the Company's registered share capital.
Article 32 Unless the Company is in the course of liquidation, it must
comply with the following provisions in relation to repurchase
of its outstanding shares:
(1) where the Company repurchases shares at par value,
payment shall be made out of book surplus
distributable profits of the Company or out of
proceeds of a new issue of shares made for that
purpose;
(2) where the Company repurchases shares of the Company at
a premium to its par value, payment up to the par
value may be made out of the book surplus of
distributable profits of the Company or out of the
proceeds of a new issue of shares made for that
purpose. Payment of the portion in excess of the par
value shall be effected as follows:
1. if the shares being repurchased were issued at
par value, payment shall be made out of the book
surplus of distributable profits of the Company;
2. if the shares being repurchased were issued at a
premium to its par value, payment shall be made
out of the book surplus of distributable profits
of the Company or out of the proceeds of a new
issue of shares made for that purpose, provided
that the amount paid out of the proceeds of the
new issue shall not exceed the aggregate amount
of premiums received by the Company on the issue
of the shares repurchased nor shall it exceed
the book value of the Company's capital common
reserve fund account (including the premiums on
the new issue) at the time of the repurchase;
(3) the Company shall make the following payments out of
the Company's distributable profits:
1. payment for the acquisition of the right to
repurchase its own shares;
2. payment for variation of any contract for the
repurchase of its shares;
3. payment for the release of its obligation(s)
under any contract for the repurchase of shares;
(4) after the Company's registered capital has been
reduced by the aggregate par value of the cancelled
shares in accordance with the relevant provisions, the
amount deducted from the distributable profits of the
Company for payment of the par value of shares which
have been repurchased shall be transferred to the
Company's capital common reserve fund account.
CHAPTER 5 FINANCIAL ASSISTANCE FOR ACQUISITION OF SHARES
Article 33 The Company and its subsidiaries shall not, at any time,
provide any form of financial assistance to a person who is
acquiring or is proposing to acquire shares in the Company.
This includes any person who directly or indirectly incurs any
obligations as a result of the acquisition of shares in the
Company.
The Company and its subsidiaries shall not, at any time,
provide any form of financial assistance to the Obligor for the
purposes of reducing or discharging the obligations assumed by
such person.
This Article shall not apply to the circumstances specified in
Article 35 of this Chapter.
Article 34 For the purposes of this Chapter, "financial assistance"
includes (without limitation) the following:
(1) gift;
(2) guarantee (including the assumption of liability by
the guarantor or the provision of assets by the
guarantor to secure the performance of obligations by
the Obligor), compensation (other than compensation in
respect of the Company's own default) or release or
waiver of any rights;
(3) provision of loan or the making of any other agreement
under which the obligations of the Company are to be
fulfilled before the obligations of another party, or
the change in parties to, or the assignment of rights
under, such loan or contract;
(4) any other form of financial assistance given by the
Company when the Company is insolvent or has no net
assets or when its net assets would thereby be reduced
to a material extent.
For the purposes of this Chapter, "assumption of obligations"
includes the assumption of obligations by way of contract or by
way of arrangement (irrespective of whether such contract or
arrangement is enforceable or not and irrespective of whether
such obligation is to be borne solely by the Obligor or jointly
with other persons) or by any other means which results in a
change in his financial position.
Article 35 The following acts shall not be deemed to be acts prohibited by
Article 33 of this Chapter:
(1) the provision of financial assistance by the Company
where the financial assistance is given in good faith
in the interests of the Company, and the principal
purpose of which is not for the acquisition of shares
in the Company, or the giving of the financial
assistance is an incidental part of a master plan of
the Company;
(2) the lawful distribution of the Company's assets as
dividend;
(3) the distribution of dividends in the form of shares;
(4) a reduction of registered capital, a repurchase of
shares of the Company or a reorganization of the share
holding structure of the Company effected in
accordance with the Company's Articles of Association;
(5) the provision of loans by the Company within its scope
of business and in the ordinary course of its
business, where the provision of loans falls within
part of the scope of business of the Company (provided
that the net assets of the Company are not thereby
reduced or that, to the extent that the assets are
thereby reduced, the financial assistance is provided
out of distributable profits);
(6) contributions made by the Company to the employee
share ownership schemes (provided that the net assets
of the Company are not thereby reduced or that, to the
extent that the assets are thereby reduced, the
financial assistance is provided out of distributable
profits).
CHAPTER 6 SHARE CERTIFICATES AND REGISTER OF SHAREHOLDERS
Article 36 Share certificates of the Company shall be in registered form.
The shares of the Company shall bear the following main items:
(1) Name of the Company;
(2) Date of registration and establishment of the Company;
(3) Type of shares, par value and the number of shares it
represents;
(4) Code of share certificates;
(5) Other matters as required by the Company Law, Special
Regulations and the stock exchange on which the shares
of the Company are listed.
Article 37 The shares of the Company may be transferred, donated,
inherited and pledged in accordance with the relevant laws,
administrative rules, regulations of the competent
department(s) as well as these Articles of Association.
The transfer of shares shall be registered with the share
registration organisation appointed by the Company.
Article 38 The Company does not accept the pledging of its shares.
Article 39 The directors, supervisors, president, vice-president, Chief
Financial Officer and secretary of the board of directors of
the Company shall, during their term of office, declare to the
Company regularly the Company's shares held by them. During
their term of office and within 6 months of their leaving, they
may not transfer the Company's shares held by them.
Article 40 If a shareholder who holds 5% or above of voting shares sells
his shares in the Company within 6 months of his purchase or
purchases again within 6 months of the sale, the profits thus
made shall belong to the Company.
The preceding provision shall apply to senior officers
prescribed in the articles of association of a legal person
shareholder holding 5% or above of the voting shares in the
Company, including but without limitation to its directors,
supervisors and the president.
Article 41 Share certificates of H-shares of the Company shall be signed
by the Chairman of the Company's board of directors. Where the
stock exchange(s) on which the Company's shares are listed
require other directors and/or supervisors, president,
vice-president, Chief Financial Officer and the secretary of
the board of directors of the Company to sign on the share
certificates, the share certificates shall also be signed by
such officer(s). The share certificates shall take effect after
being sealed or imprinted with the seal of the Company (or the
Company chop for securities). The share certificate shall only
be sealed with the Company's seal or securities chop under the
authorization of the board of directors. The signatures of the
Chairman of the board of directors or other officer(s) of the
Company may be printed in printed form.
Article 42 The Company shall keep a register of shareholders which shall
contain the following particulars:
(1) the name (title) and address (residence), the
occupation or nature of each shareholder;
(2) the class and quantity of shares held by each
shareholder;
(3) the amount paid-up on or agreed to be paid-up on the
shares held by each shareholder;
(4) the share certificate number(s) of the shares held by
each shareholder;
(5) the date on which each person was registered as a
shareholder;
(6) the date on which any shareholder ceased to be a
shareholder.
Unless there is evidence to the contrary, the register of
shareholders shall be sufficient evidence of the shareholders'
shareholdings in the Company.
Article 43 The Company may, in accordance with the mutual understanding
and agreements made between the securities regulatory organ of
the State Council and overseas securities regulatory
organizations, maintain the register of shareholders of
Overseas-Listed Foreign-Invested Shares overseas and appoint
overseas agent(s) to manage such register of shareholders. The
original register of shareholders for holders of H Shares shall
be maintained in Hong Kong.
A duplicate register of shareholders for the holders of
Overseas-Listed Foreign-Invested Shares shall be maintained at
the Company's residence. The appointed overseas agent(s) shall
ensure consistency between the original and the duplicate
register of shareholders at all times.
If there is any inconsistency between the original and the
duplicate register of shareholders for the holders of
Overseas-Listed Foreign-Invested Shares, the original register
of shareholders shall prevail.
Article 44 The Company shall have a complete register of shareholders
which shall comprise the following parts:
(1) the register of shareholders which is maintained at
the Company's residence (other than those share
registers which are described in sub-paragraphs (2)
and (3) of this Article);
(2) the register of shareholders in respect of the holders
of Overseas-Listed Foreign-Invested Shares of the
Company which is maintained in the same place as the
overseas stock exchange on which the shares are
listed; and
(3) the register of shareholders which is maintained in
such other place as the board of directors may
consider necessary for the purposes of the listing of
the Company's shares.
Article 45 Different parts of the register of shareholders shall not
overlap. No transfer of any shares registered in any part of
the register shall, during the continuance of that
registration, be registered in any other part of the register.
All Overseas-Listed Foreign-Invested Shares listed in Hong Kong
which have been fully paid-up may be freely transferred in
accordance with the Company's Articles of Association. However,
unless such transfer complies with the following requirements,
the board of directors may refuse to recognize any instrument
of transfer and would not need to provide any reason therefor:
(1) a fee of HK$2.50 per instrument of transfer or such
higher amount agreed by the Stock Exchange has been
paid to the Company for registration of the instrument
of transfer and other documents relating to or which
will affect the right of ownership of the shares;
(2) the instrument of transfer only relates to
Overseas-Listed Foreign-Invested Shares listed in Hong
Kong;
(3) the stamp duty which is chargeable on the instrument
of transfer has already been paid;
(4) the relevant share certificate(s) and any other
evidence which the board of directors may reasonably
require to show that the transferor has the right to
transfer the shares have been provided;
(5) if it is intended that the shares be transferred to
joint owners, the maximum number of joint owners shall
not be more than four (4); and
(6) the Company does not have any lien on the relevant
shares.
All Overseas-Listed Foreign-Invested Shares listed in Hong Kong
shall be transferred by an instrument in writing in any usual
or common form or any other form which the directors may
approve. The instrument of transfer of any share may only be
executed by hand without seal, or if the assignor or the
assignee is the recognized clearing house or its nominee, the
share transfer form may be executed by hand or in
mechanically-printed form. All instruments of transfer must be
placed at the legal address of the Company or in other places
as the Board of Directors may be specified at any time.
Amendments or rectification of the register of shareholders
shall be made in accordance with the laws of the place where
the register of shareholders is maintained.
Article 46 No change may be made in the register of shareholders as a
result of a transfer of shares within thirty (30) days prior to
the date of a shareholders' general meeting or within five (5)
days before the determination date for the Company's
distribution of dividends.
Article 47 When the Company needs to convene a shareholders' meeting for
the purposes of determination, dividend distribution, for
liquidation or for any other purpose which need to determine
shareholdings, the board of directors shall determine a record
date for the determination of shareholdings. The shareholders
of the Company shall be such persons who appear in the register
of shareholders at the close of such record date.
Article 48 Any person who disputes the register of shareholders and asks
for inclusion of his name in or removal of his name from the
register of shareholders may apply to a court of competent
jurisdiction for rectification of the register.
Article 49 For any person who is a registered shareholder or who claims to
be entitled to have his name (title) entered in the register of
shareholders in respect of shares in the Company may, if his
share certificate (the "original certificate") relating to the
shares is lost, he may apply to the Company for a replacement
share certificate in respect of such shares (the "Relevant
Shares").
Application by a holder of Domestic-Invested Shares, who has
lost his share certificate, for a replacement share certificate
shall be dealt with in accordance with Article 150 of the
Company Law.
Application by a holder of Overseas-Listed Foreign-Invested
Shares, who has lost his share certificate, for a replacement
share certificate may be dealt with in accordance with the law
of the place where the original register of shareholders of
holders of Overseas-Listed Foreign-Invested Shares is
maintained, the rules of the stock exchange or other relevant
regulations.
The issue of a replacement share certificate to a holder of H
Shares, who has lost his share certificate, shall comply with
the following requirements:
(1) The applicant shall submit an application to the
Company in a prescribed form accompanied by a notarial
certificate or a statutory declaration, of which the
contents shall include the grounds upon which the
application is made and the circumstances and evidence
of the loss, and the declaration showing that no other
person is entitled to have his name entered in the
register of shareholders in respect of the Relevant
Shares.
(2) The Company has not received any declaration made by
any person other than the applicant declaring that his
name shall be entered in the register of shareholders
in respect of such shares before it decides to issue a
replacement share certificate to the applicant.
(3) The Company shall, if it intends to issue a
replacement share certificate, publish a notice of its
intention to do so at least once every thirty (30)
days within a period of ninety (90) consecutive days
in such newspapers as may be prescribed by the board
of directors.
(4) The Company shall, prior to publication of its
intention to issue a replacement share certificate,
deliver to the stock exchange on which its shares are
listed, a copy of the notice to be published and may
publish the notice upon receipt of confirmation from
such stock exchange that the notice has been exhibited
in the premises of the stock exchange. Such notice
shall be exhibited in the premises of the stock
exchange for a period of ninety (90) days. In the case
of an application which is made without the consent of
the registered holder of the Relevant Shares, the
Company shall deliver by mail to such registered
shareholder a copy of the notice to be published.
(5) If, by the expiration of the 90-day period referred to
in paragraphs (3) and (4) of this Article, the Company
has not received any objection from any person in
respect of the issuance of the replacement share
certificate, it may issue a replacement share
certificate to the applicant pursuant to his
application.
(6) Where the Company issues a replacement share
certificate pursuant to this Article, it shall
forthwith cancel the original share certificate and
document the cancellation of the original share
certificate and issuance of a replacement share
certificate in the register of shareholders
accordingly.
(7) All expenses relating to the cancellation of an
original share certificate and the issuance of a
replacement share certificate shall be borne by the
applicant and the Company is entitled to refuse to
take any action until reasonable guarantee is provided
by the applicant therefor.
Article 50 Where the Company issues a replacement share certificate
pursuant to the Company's Articles of Association, as for a
bona fide purchaser obtaining new share certificates referred
to above or a shareholder registered as a owner of the shares
(in case of a bona fide purchaser), his name (title) shall not
be removed from the register of shareholders.
Article 51 The Company shall not be liable for any damages sustained by
any person by reason of the cancellation of the original share
certificate or the issuance of the replacement share
certificate unless the claimant is able to prove that the
Company has acted in a deceitful manner.
CHAPTER 7 SHAREHOLDERS' RIGHTS AND OBLIGATIONS
Article 52 A shareholder of the Company is a person who lawfully holds
shares in the Company and whose name (title) is entered in the
register of shareholders.
A shareholder shall enjoy rights and assume obligations
according to the class and amount of shares held by him;
shareholders who hold shares of the same class shall enjoy the
same rights and assume the same obligations.
For the joint shareholders, if one of the joint shareholders has
passed away, the surviving shareholder shall be deemed by the
Company to have the ownership of the related shares, but the
Board of Directors is entitled to ask for the provision of the
suitable death certificate for the purpose of revision of the
shareholders' register. For the joint shareholders, only the
first named shareholder in the shareholders' register has the
right to receive the share certificates of the related shares,
receive the notice of the Company, attend the shareholders'
general meeting and exercise his voting right; while, any notice
delivered to the said shareholder shall be deemed as if the
notice has been delivered to all of the joint shareholder of the
related shares.
Article 53 The shareholders of ordinary shares of the Company shall enjoy
the following rights:
(1) the right to receive dividends and other distributions
in proportion to their shareholdings;
(2) the right to attend or appoint a proxy to attend
shareholders' general meetings and to vote thereat
according to their shareholdings;
(3) the right to supervise the Company's business
operations, the right to present proposals or to raise
queries;
(4) the right to transfer, donate and pledge shares in
accordance with laws, administrative regulations and
provisions of the Company's Articles of Association;
(5) subject to production of the relevant proofs of the
type and quantity of shares that they are holding to
the Company and verification of their identities of
shareholders by the Company, the right to obtain
relevant information in accordance with laws,
administrative regulations and provisions of these
Articles of Association, which information includes:
i. the right to obtain a copy of the Company's
Articles of Association, subject to payment of
costs;
ii. the right to inspect and copy, subject to
payment of a reasonable fee:
(i) all parts of the register of shareholders;
(ii) personal particulars of each of the
Company's directors, supervisors,
president, vice-president, Chief Financial
Officer and secretary of the board of
directors, including:
(a) present and former name and
alias;
(b) principal address (place of
residence);
(c) nationality;
(d) primary and all other part-time
occupations and duties;
(e) identification documents and the
numbers thereof;
(iii) report on the state of the Company's share
capital;
(iv) reports showing the aggregate par value,
quantity, highest and lowest price paid in
respect of each class of shares
repurchased by the Company since the last
accounting year and the aggregate amount
paid by the Company for this purpose;
(v) minutes of shareholders' general meetings;
(vi) regular reports and interim reports of the
Company.
(6) in the event of the termination or liquidation of the
Company, the right to participate in the distribution
of remaining assets of the Company in accordance with
the number of shares held;
(7) in the event that the resolution of a shareholders'
general meeting or board meeting is against the law or
administrative rules and has infringed the legitimate
interest of a shareholder, the shareholder shall have
the right to commence legal proceedings to stop the
illegal or infringing act and to ask the Company to
bring a claim for compensation;
(8) other rights conferred by laws, administrative
regulations and these Articles of Association.
Article 54 The shareholders of ordinary shares of the Company shall assume
the following obligations:
(1) to comply with these Articles of Association;
(2) to pay subscription money according to the number of
shares subscribed and the method of subscription;
(3) not to retire from being a shareholder unless required
by law or administrative regulations;
(4) other obligations imposed by laws, administrative
regulations and these Articles of Association.
Shareholders are not liable to make any further contribution to
the share capital other than according to the terms which were
agreed by the subscriber of the relevant shares at the time of
subscription.
Article 55 In addition to the obligations imposed by laws and
administrative regulations or required by the listing rules of
the stock exchange on which the Company's shares are listed, a
controlling shareholder shall not exercise his voting rights in
respect of the following matters in a manner prejudicial to the
interests of all or part of the shareholders of the Company:
(1) act honestly in the best interests of the Company in
removing a director or supervisor;
(2) to approve the expropriation by a director or
supervisor (for his own benefit or for the benefit of
another person) of the Company's assets in any way,
including (without limitation to) opportunities which
are beneficial to the Company;
(3) to approve the expropriation by a director or
supervisor (for his own benefit or for the benefit of
another person) of the individual interest of other
shareholders, including (but without limitation to)
rights to distributions and voting rights (excluding a
restructuring which has been submitted for approval by
the shareholders in a general meeting in accordance
with the Company's Articles of Association).
Article 56 For the purpose of the foregoing Article, a "controlling
shareholder" means a person who satisfies any one of the
following conditions:
(1) a person who, acting alone or in concert with others,
has the power to elect more than half of the board of
directors;
(2) a person who, acting alone or in concert with others,
has the power to exercise 30% or more or has power to
control the exercise of 30% or more of the voting
rights in the Company;
(3) a person who, acting alone or in concert with others,
holds 30% or more of the issued and outstanding shares
of the Company;
(4) a person who, acting alone or in concert with others,
has de facto control of the Company in any other way.
"Acting in concert" referred to above means the acting of two or
more persons by agreement (whether verbal or in writing) so as
to gain or strengthen the control of the Company through the
acquisition of voting rights in the Company by either of them.
CHAPTER 8 SHAREHOLDERS' GENERAL MEETINGS
Article 57 The shareholders' general meeting is the organ of authority
of the Company and shall exercise its functions and powers in
accordance with law.
The Company shall draw up "Rules and Procedures for the
Shareholders' General Meetings" for implementation after being
approved by the shareholders in a general meeting. The Rules and
Procedures for the Shareholders' General Meetings shall include
the followings:
(1) functions and powers of the shareholders general
meetings;
(2) authorities given by the shareholders' general
meetings to the board of directors;
(3) procedures for the convening of a shareholders'
general meeting, which include the putting forward,
collection and approval of motions and notices of
meetings and any change thereto, registration of the
meeting, convening of, voting and resolutions made in
the meeting, adjournments, past-session matters and
announcements, etc.;
(4) other matters deemed necessary by the shareholders'
general meeting.
The Rules and Procedures for the Shareholders' General Meetings
is an integral part of and has the same legal effect as these
Articles of Association.
Article 58 The shareholders' general meeting shall have the following
functions and powers:
(1) to decide on the Company's operational policies and
investment plans;
(2) to elect and replace directors and to decide on
matters relating to the remuneration and liability
insurance of directors;
(3) to elect and replace supervisors who are shareholder
representatives and to decide on matters relating to
the remuneration and liability insurance of
supervisors;
(4) to examine and approve the board of directors'
reports;
(5) to examine and approve the supervisory committee's
reports;
(6) to examine and approve the Company's profit
distribution plans and loss recovery plans;
(7) to examine and approve the Company's proposed annual
preliminary and final financial budgets;
(8) to pass resolutions on the increase or reduction of
the Company's registered capital;
(9) to pass resolutions on matters such as merger,
division, dissolution and liquidation of the Company;
(10) to pass resolutions on the issue of debentures by the
Company;
(11) to pass resolutions on the appointment, dismissal and
non-reappointment of the accountants of the Company;
(12) to amend the Company's Articles of Association and its
appendices (including the Rules and Procedures for the
Shareholders' General Meetings, Rules and Procedures
for the Board of Directors' Meetings and Rules and
Procedures for the Supervisors' Meetings);
(13) to consider motions raised by the supervisory
committee or shareholders who represent 5% or more of
the total number of voting shares of the Company at
annual general meetings;
(14) to decide on other matters which, according to laws,
administrative regulations, regulations of the
competent department(s) or these Articles of
Association, need to be approved by shareholders in
general meetings;
Article 59 Matters which shall be determined by the shareholders in a
general meeting according to the laws, administrative
regulations, regulations of the competent departments or these
Articles of Association must be discussed by the shareholders
in a general meeting in order to protect the shareholders'
right of decision on those matters. Where necessary and
reasonable, the board of directors or its secretary may be
appointed in a shareholders' general meeting to determine (if
so authorized in the general meeting) specific matters which
are related to the matters to be resolved and are not possible
or not necessary to be determined in that general meeting.
Please see the Rules and Procedures for the Shareholders'
General Meetings for the form of authorization by shareholders
to the board of directors in a shareholders' general meeting to
determine major matters of the Company.
If the shareholders authorize the board of directors or its
secretary in a general meeting to determine matters which shall
be determined by ordinary resolutions, the matter should be
resolved by more than one-half of the attending shareholders
(including their proxy) who have voting rights; if the
authorization relates to matters which shall be determined by
special resolutions, the matter should be resolved by more than
two-thirds of the attending shareholders (including their
proxy) who have voting rights. The authorization should be
clear and specific.
Article 60 Unless prior approval of shareholders in the form of a special
resolution is obtained in a general meeting, the Company shall
not enter into any contract with any person other than the
directors, supervisors, president, vice-president, Chief
Financial Officer and secretary of the board of directors of
the Company pursuant to which such person shall be responsible
for the management and administration of the whole or any
substantial part of the Company's business.
Article 61 Shareholders' general meetings are divided into annual general
meetings ("AGM") and extraordinary general meetings ("EGM").
Unless otherwise provided in these Articles of Association and
the Rules and Procedures for the Shareholders' General
Meetings, shareholders' general meetings shall be convened by
the board of directors.
Article 62 AGMs are held once every year and within six (6) months from
the end of the preceding accounting year. At least the
following matters should be resolved in an AGM:
(1) examination of the board of directors' annual report;
(2) examination of the supervisory committee's annual
report;
(3) examination of the Company's profit distribution
proposal;
(4) examination of the Company's audited final budgets for
the preceding year;
(5) engagement, removal or non-renewal of the appointment
of the accounting firm by the Company and
determination of the remuneration of the accounting
firm so engaged.
Matters to be considered in an AGM including but without
limitation to the above matters, and any matter that could be
considered in a general meeting may be considered in an AGM.
In an AGM, the supervisory committee and shareholders who
individually or jointly hold 5% or more of the Company's voting
shares shall have the right to put forward provisional motions.
Article 63 The board of directors shall convene an EGM within two (2)
months after the occurrence of any one of the following events:
(1) where the number of directors is less than the number
stipulated in the Company Law or two-thirds of the
number specified in the Company's Articles of
Association;
(2) where the unrecovered losses of the Company amount to
one-third of the total amount of its share capital;
(3) where shareholder(s) who individually or jointly hold
10% or more of the Company's issued and outstanding
voting shares (not including voting by proxy)
request(s) in writing for the convening of an EGM;
(4) whenever the board of directors deems necessary or the
supervisory committee so requests;
(5) other circumstances provided by these Articles of
Association. The shareholdings referred to in item (3)
above shall be calculated as at the date of written
request of the shareholders.
Article 64 Any request for the board of directors to hold an AGM or
class meeting made by the supervisory committee or shareholders
who individually or jointly hold 10% of the Company's voting
shares entitling them to vote in that proposed meeting shall be
dealt with according to the provisions of the Rules and
Procedures for the Shareholders' General Meetings.
If a meeting is convened by the shareholders themselves where
the board of directors has not given the required consent under
the Rules and Procedures for the Shareholders' General Meetings
to the same, the reasonable expenses thus incurred shall be
borne by the Company and paid out of the money payable by the
Company to the negligent director(s).
Article 65 If the number of members of the board of directors falls
short of the number prescribed by the Company Law or is less
than two-thirds of the number prescribed in these Articles of
Association, or if the Company's non-recovered loss has amounted
to one third of the share capital and the board of directors has
failed to call for an EGM in the prescribed time, shareholders
may call for an EGM on their own according to the prescribed
procedures of the Rules and Procedures for the Shareholders'
General Meetings.
Article 66 Any shareholders who individually or jointly hold 10% or more
of the voting shares entitling them to vote in the proposed
meeting have any dispute as to the board of directors'
non-inclusion of their motion into the agenda may, according to
the prescribed procedures of the Rules and Procedures for the
Shareholders' General Meetings, ask for the convening of an EGM.
Article 67 A motion of a shareholders' general meeting is a discussion
paper of a matter which should be discussed in a general meeting
and shareholders should resolve on the specific motion in a
general meeting. The contents, form and issuing procedures of a
motion shall comply with the requirements of the Rules and
Procedures for the Shareholders' General Meetings.
Article 68 When the Company convenes a shareholders' general meeting,
written notice of the meeting shall be given forty-five (45)
days (including the date of the meeting) before the date of the
meeting to notify all of the shareholders whose names appear in
the share register of the matters to be considered and the date
and place of the meeting. The contents, form and issuing
procedures of the notice shall comply with the requirements of
the Rules and Procedures for the Shareholders' General Meetings.
Article 69 Any shareholder who is entitled to attend and vote at a
general meeting of the Company shall be entitled to appoint one
(1) or more persons (whether such person is a shareholder or
not) as his proxy or proxies to attend and vote on his behalf,
and a proxy so appointed shall be entitled to exercise the
following rights pursuant to the authorization from that
shareholder:
(1) the shareholders' right to speak at the meeting;
(2) the right to demand or join in demanding a poll;
(3) the right to vote by hand or on a poll, but a proxy of
a shareholder who has appointed more than one (1)
proxy may only vote on a poll.
If the said shareholder is a recognized clearing house as
defined by Securities and Futures (Clearing House) Ordinance
(Chapter 420 of Hong Kong Law) or the Securities and Futures
Ordinance, the shareholder may authorize one or more suitable
person to act as its representative at any shareholders' general
meeting or any kinds of shareholders' general meeting; however,
if more than one person are authorized, the power of attorney
shall clearly indicate the number and types of the stocks
involved by way of the said authorization. The persons after
such authorization may represent the recognized clearing house
(or its "proxy") to exercise the rights, as if they were the
individual shareholders of the Company.
Article 70 The instrument appointing a proxy to attend the general meeting
shall be in writing clearly indicating the number of shares of
the appointor represented by the proxy and shall be under the
hand of the appointor or his attorney duly authorized in
writing, or if the appointor is a legal person, either under
seal or under the hand of a director or a duly authorized
attorney. If several proxies are appointed, such written
instrument shall clearly indicate the number of shares of the
appointor represented by each proxy. The remaining contents and
form of the instrument shall comply with the requirements of
the Rules and Procedures for the Shareholders' General
Meetings.
Article 71 Any form given to a shareholder by the directors for use by
such shareholder for the appointment of a proxy to attend and
vote at meetings of the Company shall be such as to enable the
shareholder to freely instruct the proxy to vote in favour of or
against the motions, such instructions being given in respect of
each individual matter to be voted on at the meeting. Such a
form shall contain a statement that, in the absence of specific
instructions from the shareholder, the proxy may vote as he
thinks fit.
Article 72 A vote made in accordance with the terms of a proxy shall be
valid notwithstanding the death or loss of capacity of the
appointor or revocation of the proxy or the authority under
which the proxy was executed, or the transfer of the shares in
respect of which the proxy is given, provided that the Company
did not receive any written notice in respect of such matters
before the commencement of the relevant meeting.
Article 73 Apart from the independent directors, the Company's board of
directors and shareholders who meet the relevant requirements
may also collect from other shareholders of the Company the
rights to vote in a shareholders' general meeting. The
collection of voting rights shall be without consideration with
sufficient disclosure of information to the shareholders from
whom voting rights are being collected.
Article 74 When a connected transaction is discussed in a shareholders'
general meeting, the connected shareholders shall not take part
in the voting and the number of voting shares represented by him
will not be counted in. Announcements of resolutions made in the
shareholders in a general meeting shall make full disclosure of
the votes cast by non-connected shareholders.
If any shareholder are required to abstain from voting or may
only vote for or against a matter according to the Rules
Governing the Listing of Securities of the Hong Kong Stock
Exchange Limited, any vote by such shareholder or his proxy in
violation of the relevant rules or restrictions referred to
above shall not be counted in the voting results.
Article 75 A shareholder (including a proxy), when voting at a
shareholders' general meeting, may exercise such voting rights
as are attached to the number of voting shares which he
represents except when the accumulated voting system under
Article 103 hereof regarding election of directors is adopted in
which case one (1) vote is attached to each share. Please refer
to the Rules and Procedures for the Shareholders' General
Meetings for the implementation of the accumulated voting
system.
Article 76 At any shareholders' general meeting, a resolution shall be
decided on a show of hands unless a poll is demanded or
otherwise required by the listing rules of the stock exchanges
on which the Company's shares are listed:
(1) by the chairman of the meeting;
(2) by at least two (2) shareholders present in person or
by proxy entitled to vote thereat;
(3) by one (1) or more shareholders present in person or
by proxy and representing 10 % or more of all shares
carrying the right to vote at the meeting singly or in
aggregate, before or after a vote is carried out by a
show of hands.
Unless a poll is demanded, a declaration by the chairman that a
resolution has been passed on a show of hands and the record of
such in the minutes of the meeting shall be conclusive evidence
of the fact that such resolution has been passed. There is no
need to provide evidence of the number or proportion of votes
in favour of or against such resolution.
The demand for a poll may be withdrawn by the person who
demands the same.
Article 77 A poll demanded on the election of the chairman of the
meeting, or on a question of adjournment of the meeting, shall
be taken forthwith. A poll demanded on any other question shall
be taken at such time as the chairman of the meeting directs,
and any business other than that upon which a poll has been
demanded may be proceeded with, pending the taking of the poll.
The result of the poll shall be deemed to be a resolution of the
meeting at which the poll was demanded.
Article 78 On a poll taken at a meeting, a shareholder (including a proxy)
entitled to two (2) or more votes need not cast all his votes
in the same way.
Article 79 In the case of an equality of votes, whether on a show of hands
or on a poll, the chairman of the meeting at which the show of
hands takes place or at which the poll is demanded shall have a
casting vote.
Article 80 Resolutions of shareholders' general meetings shall be divided
into ordinary resolutions and special resolutions.
An ordinary resolution must be passed by votes representing
more than one-half of the voting rights represented by the
shareholders (including their proxy) present at the meeting.
A special resolution must be passed by votes representing more
than two-thirds of the voting rights represented by the
shareholders (including their proxy) present at the meeting.
The shareholders (including their proxy) attending the meeting
shall clearly show approval or objection to every matter to be
voted on. As for the unpolled vote or abstention, the Company
will not treat it as the vote with voting right when
calculating the voting result of this matter.
Article 81 The following matters shall be resolved by an ordinary
resolution at a shareholders' general meeting:
(1) work reports of the board of directors and the
supervisory committee;
(2) profit distribution plans and loss recovery plans
formulated by the board of directors;
(3) removal of members of the board of directors and
members of the supervisory committee who are
shareholders' representatives, their remuneration and
manner of payment and their liability insurance;
(4) annual preliminary and final budgets, balance sheets
and profit and loss accounts and other financial
statements of the Company;
(5) matters other than those which are required by the
laws and administrative regulations or by the
Company's Articles of Association to be adopted by
special resolution.
Article 82 The following matters shall be resolved by a special
resolution at a shareholders' general meeting:
(1) the increase or reduction in share capital and the
issue of shares of any class, warrants and other
similar securities;
(2) the issue of debentures of the Company;
(3) the division, merger, dissolution and liquidation of
the Company;
(4) amendment of the Company's Articles of Association;
(5) repurchase of the Company's shares;
(6) any other matters considered by the shareholders in
general meeting, and resolved by way of an ordinary
resolution, to be of a nature which may have a
material impact on the Company and should be adopted
by special resolutions.
Article 83 The chairman of the meeting shall be responsible for
determining whether a resolution has been passed. His decision,
which shall be final and conclusive, shall be announced at the
meeting and recorded in the minutes.
Article 84 If the chairman of the meeting has any doubt as to the result
of a resolution which has been put to vote at a shareholders'
meeting, he may have the votes counted. If the chairman of the
meeting has not counted the votes, any shareholder who is
present in person or by proxy and who objects to the result
announced by the chairman of the meeting may, immediately after
the declaration of the result, demand that the votes be counted
and the chairman of the meeting shall have the votes counted
immediately.
Article 85 If votes are counted at a shareholders' general meeting, the
result of the count shall be recorded in the minutes.
Article 86 Records of Meetings shall be prepared for shareholders'
general meetings and signed by attending directors and the
recording person. If there is no director attending in the
general meeting, the records of meeting shall be signed by the
shareholder or proxy of shareholder chairing the meeting and the
recording person. The contents and form of the records of
meeting shall comply with the requirements of the Rules and
Procedures for the Shareholders' General Meetings.
The minutes of meeting shall be prepared for all resolutions
adopted at shareholders' general meetings. The records and
minutes of the meeting shall be made in Chinese. The minutes,
together with the shareholders' attendance lists and proxy forms
shall be treated as a Company file and kept by the secretary of
the board of directors at the Company's place of residence.
Article 87 Copies of the minutes of proceedings of any shareholders'
meeting shall, during business hours of the Company, be open for
inspection by any shareholder without charge. If a shareholder
requests for a copy of such minutes from the Company, the
Company shall send a copy of such minutes to him within seven
(7) days after receipt of reasonable fees therefor.
CHAPTER 9 SPECIAL PROCEDURES FOR VOTING BY A CLASS OF SHAREHOLDERS
Article 88 Those shareholders who hold different classes of shares are
class shareholders.
Class shareholders shall enjoy rights and assume obligations in
accordance with laws, administrative regulations and the
Company's Articles of Association.
Article 89 Rights conferred on any class of shareholders ("class rights")
may not be varied or abrogated save with the approval of a
special resolution of shareholders in a general meeting and by
holders of shares of that class at a separate meeting conducted
in accordance with Articles 91 to 95 hereof.
Article 90 The following circumstances shall be deemed to be variation or
abrogation of the rights attaching to a particular class of
shares:
(1) to increase or decrease the number of shares of that
class, or to increase or decrease the number of shares
of a class having voting or equity rights or
privileges distribution or superior to those of shares
of that class;
(2) to exchange all or part of the shares of that class
for shares of another class or to exchange or to
create a right to exchange all or part of the shares
of another class for shares of that class;
(3) to remove or reduce rights to accrued dividends or
rights to cumulative dividends attached to shares of
that class;
(4) to reduce or remove preferential rights attached to
shares of that class to receive dividends or to the
distribution of assets in the event that the Company
is liquidated;
(5) to add, remove or reduce conversion privileges,
options, voting rights, transfer or pre-emptive
rights, or rights to acquire securities of the Company
attached to shares of that class;
(6) to remove or reduce rights to receive payment payable
by the Company in specific currencies attached to
shares of that class;
(7) to create a new class of shares having voting or
distribution rights or privileges equal or superior to
those of the shares of that class;
(8) to restrict the transfer or ownership of shares of
that class or to increase the types of restrictions
attaching thereto;
(9) to issue rights to subscribe for, or to convert the
existing shares into, shares in the Company of that
class or another class;
(10) to increase the rights or privileges of shares of
another class;
(11) to restructure the Company in such a way so as to
result in the disproportionate distribution of
obligations between the various classes of
shareholders;
(12) to vary or abrogate the provisions of this Chapter.
Article 91 Affected class shareholders, whether or not otherwise having
the right to vote at shareholders' general meetings, have the
right to vote at class meetings in respect of matters concerning
sub-paragraphs (2) to (8), (11) and (12) of Article 90 hereof,
but interested shareholder(s) shall not be entitled to vote at
such class meetings.
"(An) interested shareholder(s)", as such term is used in the
preceding paragraph, means:
(1) in the case of a repurchase of shares by way of a
general offer to all shareholders of the Company or by
way of public dealing on a stock exchange pursuant to
Article 29 hereof, an interested shareholder is a
"controlling shareholder" within the meaning of
Article 56 hereof;
(2) in the case of a repurchase of shares by an off-market
agreement pursuant to Article 29 hereof, a holder of
the shares to which the proposed agreement relates;
(3) in the case of a restructuring of the Company, a
shareholder who assumes a relatively lower proportion
of obligation than the obligations imposed on
shareholders of that class under the proposed
restructuring or who has an interest in the proposed
restructuring different from the general interests of
the shareholders of that class.
Article 92 Resolutions of a class of shareholders shall be passed by
votes representing more than two-thirds of the voting rights of
shareholders of that class represented at the relevant meeting
who, according to Article 91, are entitled to vote thereat.
Article 93 A written notice of a class meeting shall be given to all
shareholders who are registered as holders of that class in the
register of shareholders forty-five (45) days before the date of
the class meeting (not including the date of meeting). Such
notice shall give such shareholders notice of the matters to be
considered at such meeting, the date and the place of the class
meeting. A shareholder who intends to attend the class meeting
shall deliver his written reply in respect thereof to the
Company twenty (20) days before the date of the class meeting.
If the shareholders who intend to attend such class meeting
represent more than half of the total number of shares of that
class which have the right to vote at such meeting, the Company
may hold the class meeting; if not, the Company shall within
five (5) days give the shareholders further notice of the
matters to be considered, the date and the place of the class
meeting by way of public announcement. The Company may then hold
the class meeting after such public announcement has been made.
Article 94 Notice of class meetings need only be served on shareholders
entitled to vote thereat.
Class meetings shall be conducted in a manner which is as
similar as possible to that of shareholders' general meetings.
The provisions of the Company's Articles of Association relating
to the manner for the conduct of shareholders' general meetings
are also applicable to class meetings.
Article 95 Apart from the holders of other classes of shares, the
holders of the Domestic-Invested Shares and holders of
Overseas-Listed Foreign-Invested Shares shall be deemed to be
holders of different classes of shares. The special procedures
for approval by a class of shareholders shall not apply in the
following circumstances:
(1) where the Company issues, upon the approval by special
resolution of its shareholders in a general meeting,
either separately or concurrently once every twelve
(12) months, not more than 20% of each of its existing
issued Domestic-Invested Shares and Overseas-Listed
Foreign-Invested Shares; or
(2) where the Company's plan to issue Domestic-Invested
Shares and Overseas-Listed Foreign-Invested Shares at
the time of its establishment is carried out within
fifteen (15) months from the date of approval of the
securities regulatory organ of the State Council.
CHAPTER 10 BOARD OF DIRECTORS
Article 96 The Company shall have a board of directors which is accountable
to shareholders.
The Company shall draw up Rules and Procedures for the Board of
Directors' Meetings for implementation after being approved by
the shareholders in a general meeting. The Rules and Procedures
for the Board of Directors' Meetings shall include the
following items:
(1) functions and powers and authorizations of the board
of directors;
(2) establishment of the board of directors and its
subordinated offices;
(3) secretary of the board of directors;
(4) discussion system of a board meeting;
(5) discussion procedures of a board meeting;
(6) disclosure of information of a board meeting;
(7) implementation and feedback of resolutions of a board
meeting;
(8) other matters deemed necessary by the shareholders'
general meeting.
The Rules and Procedures for the Board of Directors' Meetings
is an integral part of and shall have the same legal effect as
these Articles of Association.
Article 97 The board of directors shall consist of thirteen (13) directors
and there shall be one (1) Chairman and one (1) Vice-chairman.
Article 98 Directors of the Company shall be natural persons and they are
not required to hold any shares in the Company.
Directors shall be elected at the shareholders' general meeting
each for a term of three (3) years. The term of office of a
director shall be calculated from the date of the passing of
the resolution approving the appointment of such director at
the shareholders' general meeting until the expiry of the term
of the present session of the board of directors. At the expiry
of the term of office of a director, the term is renewable upon
re-election. A director may not be removed by the shareholders
in a general meeting without any reason before his term of
office expires. The term of office of any independent director
may not be renewed for more than 6 years.
Article 99 The list of candidates for directors shall be submitted to the
shareholders' general meeting in the form of motion for
approval.
Candidates other than those for independent directors shall be
nominated by the board of directors, the supervisory committee
or shareholders who individually or jointly hold 5% or more of
the Company's voting shares and be elected by the shareholders
in a general meeting.
Candidates for independent directors of the Company shall be
nominated by the Company's board of directors, the supervisory
committee or shareholders who individually or jointly hold 1%
or more of the Company's voting shares and be elected by the
shareholders in a general meeting.
Article 100 Independent directors shall be elected in the following manner:
(1) the nominator of a candidate for independent director
shall seek the consent of the nominee, find out the
occupation, academic qualification, rank and detailed
working experience including all part-time jobs of the
nominee and provide written proofs of the same to the
Company before making the nomination. The candidate
shall give a written undertaking to the Company
agreeing to be nominated, undertaking the truthfulness
and completeness of his particulars disclosed and
guaranteeing the performance of a director's duties
after being elected.
(2) the nominator of an independent director shall give
opinion on the qualification and independence of the
nominee to act as an independent director. The nominee
shall make an open announcement as to the absence of
any relation between the Company and him which would
affect his independent and objective judgment.
(3) if the nomination of candidates for independent
directors is made before the Company's convening of a
board meeting, the written proofs of the nominee
referred to in sub-paragraphs (1) and (2) above shall
be disclosed together with the board resolution.
(4) if the shareholders who individually or jointly hold
5% or more of the Company's voting shares or the
supervisory committee puts forward a provisional
motion in a general meeting of the Company according
to law for election of independent directors, a
written notice stating their intention to nominate a
candidate for directors and the nominee's consent to
be nominated together with the written proofs and
undertaking of the nominee referred to in
sub-paragraphs (1) and (2) above shall be delivered to
the Company not less than seven (7) days before the
general meeting, and the period granted by the Company
for lodging the above notice and documents by the
relevant nominator (such period shall commence from
the date after the issue of the notice of the general
meeting) shall not be less than seven (7) days
(5) before the shareholders' general meeting for election
of independent directors is convened, the Company
shall submit the relevant information of all nominees
to the securities regulatory authority of the State
Council, the organ appointed by the securities
regulatory authority of the State Council in the place
of residence of the Company and the stock exchange on
which the Company's shares are listed. The written
opinions of the board of directors shall also be
submitted in case the Company's board has any dispute
as to the particulars of the nominee. If the
securities regulatory authority of the State Council
opposes to the nomination of any nominee, this nominee
may not be included as a candidate for independent
directors. In convening a general meeting to elect
independent directors, the Company's board shall
specify if the securities regulatory authority of the
State Council has any dispute as to the candidates for
independent directors.
Article 101 Non-independent directors shall be elected in the following
manner:
(1) the nominator of a candidate for non-independent
director shall seek the consent of the nominee, find
out the occupation, academic qualification, rank and
detailed working experience including all part-time
jobs of the nominee and provide written proofs of the
same to the Company before making the nomination. The
candidate shall give a written undertaking to the
Company agreeing to be nominated, undertaking the
truthfulness and completeness of his particulars
disclosed and guaranteeing the performance of a
director's duties after being elected.
(2) if the nomination of candidates for non-independent
directors is made before the Company's convening of a
board meeting, the written proofs of the nominee
referred to in sub-paragraph (1) above shall be
disclosed together with the board resolution.
(3) if the shareholders who individually or jointly hold
5% or more of the Company's voting shares or the
supervisory committee puts forward a provisional
motion in a general meeting of the Company according
to law for election of non-independent directors, a
written notice stating their intention to nominate a
candidate for directors and the nominee's consent to
be nominated together with the written proofs and
undertaking of the nominee referred to in
sub-paragraph (1) above shall be delivered to the
Company not less than seven (7) days before the
general meeting, and the period granted by the Company
for lodging the above notice and documents by the
relevant nominator (such period shall commence from
the date after the issue of the notice of the general
meeting) shall not be less than seven (7) days".
Article 102 The following basic requirements shall be met in order to be an
independent director:
(1) qualified to be a director of a listed company under
the laws, administrative regulations and other
relevant provisions;
(2) has the independence required by these Articles of
Association;
(3) has basic knowledge of the operation of a listed
company, familiar with the relevant laws,
administrative rules, regulations and rules;
(4) has 5 years or more of legal or financial experience
or other experience in performing the duties of an
independent director;
(5) other requirements stipulated in these Articles of
Association.
Article 103 If the controlling shareholders of the Company control 30% or
more of the Company's shares, the accumulative voting system
shall be adopted when voting on the election of directors in a
shareholders' general meeting, that is, in electing two or more
directors in a shareholders' general meeting, the number of
votes attached to each share held by a participating
shareholder shall be equal to the number of candidates, in
which case the shareholder may cast his votes for one candidate
or for several candidates. Please refer to the Rules and
Procedures for the Shareholders' General Meetings for details
of implementation of the accumulative voting system.
Article 104 Provided that the relevant laws and administrative rules are
observed, a director whose term of office has not yet been
expired may be removed in a general meeting by way of ordinary
resolution (but the right to lodge a claim under a contract is
not affected).
If a director has failed to attend a board meeting personally
nor appoint a proxy to attend on his behalf on two consecutive
occasions, it shall be treated as a failure to discharge his
duties. The board of directors shall propose in a shareholders'
general meeting to remove and replace this director.
If an independent director has failed to attend a board meeting
personally on three consecutive occasions, the board of
directors shall propose in a shareholders' general meeting to
remove and replace this director. Unless in the above
circumstances and in circumstances as provided in the Company
Law where a person is prohibited from acting as a director, no
independent director may be removed before his term of office
expires. In case of early removal, the Company shall disclose
it by way of special disclosure. If the removed independent
director considers that he is removed by the Company
improperly, he may make an open declaration.
Article 105 A director may resign before his term of office expires. In
resigning his duties, a director shall tender a resignation to
the board in writing and in the case of an independent
director, he shall also specify any matter which is related to
his resignation or which he considers necessary to bring to the
attention of the Company's shareholders and creditors.
Article 106 If the resignation of a director causes the board members of
the Company to fall below the minimum number of members to form
a quorum, the resignation of this director shall be effective
only after the succeeding director has filled his vacancy. The
board shall call an EGM as soon as possible to elect a director
to fill the vacancy caused by his resignation. Before a
resolution is made in a shareholders' general meeting in
relation to the election of directors, the functions and powers
of this resigning director and other remaining directors shall
be subject to reasonable restrictions.
If the resignation of an independent director causes the
proportion of independent directors in the board of the Company
to fall below the minimum requirements of the relevant
regulatory authorities, the resignation of this independent
director shall be effective only after the succeeding
independent director has filled his vacancy.
Article 107 The board of directors shall exercise the following functions
and powers:
(1) to be responsible for the convening of the
shareholders' general meeting and to report on its
work to the shareholders in general meetings;
(2) to implement the resolutions passed by the
shareholders in general meetings;
(3) to determine the Company's business plans and
investment proposals;
(4) to formulate the Company's annual preliminary and
final financial budgets;
(5) to formulate the Company's profit distribution
proposal and loss recovery proposal;
(6) to formulate proposals for the credit and financial
policies of the Company, the increase or reduction of
the Company's registered capital and for the issue of
any kind of securities of the Company's (including but
without limitation to the Company's debentures) and
proposals for listing and repurchase of the Company's
shares;
(7) to draw up plans for significant acquisition or
disposal proposals, the merger, division or
dissolution of the Company;
(8) to determine the risks investments of the Company
according to the authority given in the shareholders'
general meeting;
(9) to determine external guarantees (including pledging
of assets) of the Company according to the authority
given in the shareholder's general meeting
(10) to decide on the Company's internal management
structure;
(11) to appoint or remove the Company's president and to
appoint or remove the vice-president and Chief
Financial Officer of the Company according to the
recommendations of the president; to appoint or remove
the secretary of the board of directors and to decide
on their remuneration;
(12) to appoint or replace the members of the board of
directors and the supervisory committee of its
wholly-owned subsidiary, appoint, replace or recommend
the shareholders' proxies, directors (candidates) and
supervisors (candidates) of its subsidiary(ies) which
are controlled or invested by the Company.
(13) to determine the establishment of Company's branch
offices;
(14) to formulate proposals for any amendment of the
Company's Articles of Association and its appendices;
(15) to formulate the Company's basic management system;
(16) to manage the disclosure of information of the
Company;
(17) to propose in a shareholders' general meeting to
engage or replace the accounting firm which undertakes
auditing work of the Company;
(18) to listen to the president's work report and check the
president's work;
(19) to determine important matters and administrative
matters of the Company other than those which should
be determined by resolution of a shareholders' general
meeting of the Company except for the matters as
specified by law, administrative rules, regulations of
the competent department(s) and these Articles of
Association, and to sign other important agreements;
(20) to exercise any other powers stipulated by laws,
administrative rules, regulations of the competent
department(s) or these Articles of Association and
conferred by the shareholders in a general meeting.
Other than the board of directors' resolutions in respect of
the matters specified in sub-paragraphs (6), (7), (9) and (14)
of this Article which shall be passed by the affirmative vote
of more than two-thirds of all the directors, the board of
directors' resolutions in respect of all other matters may be
passed by the affirmative vote of a simple majority of the
directors.
Article 108 The above functions and powers of board meetings may be
authorized to one or more directors upon the agreement of all
directors, but matters concerning material interests of the
Company shall be determined by the board collectively. The
authorization of the board shall be clear and specific.
Article 109 An independent director shall have the following special
functions and powers in addition to those conferred by the
Company Law, other relevant laws, administrative rules and
these Articles of Association:
(1) material connected transactions (determined according
to the standards issued from time to time by the
relevant regulatory authorities in the place where the
Company's shares are listed) which should be approved
by the board of directors or the shareholders' general
meeting according to law shall, upon the recognition
of independent directors, be submitted to the board of
directors for discussion. Any resolution made by the
board of directors regarding the Company's connected
transactions must only be effective after it has been
signed by the independent directors. The independent
directors may, before making a judgment, engage an
intermediary to issue an independent financial report
for them to rely upon in making the judgment;
(2) to propose to the board of directors to engage or
remove an accounting firm;
(3) two or more than one-half of the independent directors
may propose to the board of directors to convene an
EGM;
(4) to propose the calling of a board meeting;
(5) to engage an external auditing or advisory organ
independently;
(6) to collect voting rights from shareholders prior to
the convening of a shareholders' general meeting;
(7) to report directly to the shareholders' general
meetings, securities regulatory organ under the State
Council and other relevant departments.
The independent directors shall seek the consent of more than
half of the independent directors in exercising their functions
and powers other than sub-paragraphs (1) and (3) above.
If the above proposal is not accepted or the above functions
and powers are not exercised properly, the Company shall
disclose the same.
Article 110 When the board of directors make the decisions in respect of
market development, mergers and acquisitions and the investment
in new areas etc., in case the investment amount or the asset
value thus merged and acquired exceeds more than 10 (ten)
percent of total assets of the Company, the board of directors
shall invite the consulting organizations for their
professional opinions, these opinions shall serve as the
important basis for decision-making by the board of directors.
The board of directors shall lay down strict procedures to
inspect and decide on risks investments. For major investment
projects in excess of the approval limit of the board of
directors, the board of directors shall organize the relevant
experts and professional officers to conduct assessment for
approval of the shareholders in a general meeting. Matters
regarding risks investments have been provided explicitly in
the Rules and Procedures for the Board of Directors' Meetings.
Article 111 The Chairman and the Vice-Chairman shall be directors of the
Company and be appointed and removed by affirmative vote of a
simple majority of all directors. The term of office of the
Chairman or the Vice-Chairman shall be three (3) years which
term is renewable upon re-election.
Article 112 The Chairman of the board of directors shall exercise the
following functions and powers:
(1) to preside over shareholders' general meetings and to
convene and preside over meetings of the board of
directors;
(2) to co-ordinate and perform the responsibilities of the
board of directors and review on the implementation of
resolutions passed by the board of directors at
directors' meetings;
(3) to sign the certificates of shares, debentures and
other valuable securities issued by the Company;
(4) to sign important documents of the board and other
documents which should be signed by the Company's
legal representative;
(5) to exercise the functions and powers of a legal
representative;
(6) where it is lawful and in the interest of the Company,
to exercise the special right to deal with the
Company's affairs during emergency such as the
occurrence of natural disasters, and to report to the
Company's board of directors and general meetings
thereafter;
(7) to exercise other powers conferred by the board of
directors.
Whenever the Chairman is unable to exercise his powers, such
powers shall be exercised by the Vice-Chairman or other
directors who have been designated by the Chairman to exercise
such powers on his behalf.
Article 113 Board meetings shall be convened regularly at least four times
a year. An EGM shall be called for on occurrence of any of the
events set out in the Rules and Procedures for the Board of
Directors' Meetings.
In convening a regular board meeting or an EGM, a notice shall
be given to all directors 10 days before the meeting. The
calling for a board meeting, and the contents and form of a
notice of meeting shall comply with the requirements of the
Rules and Procedures for the Board of Directors' Meetings.
Article 114 Meetings of the board of directors shall be held only if more
than half of the directors (including any alternate director
appointed) are present. Each director shall have one (1) vote.
Where there is an equality of votes cast both for and against a
resolution, the Chairman of the board of directors shall have
an additional vote.
Article 115 Directors shall attend the meetings of the board of directors
in person. Where a director is unable to attend a meeting for
any reason, he may by a written power of attorney appoint
another director to attend the meeting on his behalf. The power
of attorney shall set out the scope of authorization.
A director appointed as a representative of another director to
attend the meeting shall exercise the rights of a director
within the scope of authority conferred by the appointing
director. Where a director is unable to attend a meeting of the
board of directors and has not appointed a representative to
attend the meeting on his behalf, he shall be deemed to have
waived his right to vote at the meeting.
All expenses incurred by the directors for attending the board
meeting shall be borne by the Company, including the traffic
expense from the place where the director is located to the
place where the meeting is convened, as well as the board and
lodging expenses during the term of meeting. The miscellaneous
expenses such as the rental of meeting room and the local
traffic expenses etc. shall also be borne by the Company.
Article 116 The board of directors may accept the preparation of a written
resolution instead of convening a board meeting provided that
the contents and form of the written resolution are in
compliance with the Rules and Procedures for the Board of
Directors' Meetings.
Article 117 Matters determined in a board meeting shall be recorded in
Chinese in the form of Records of Meeting. The contents and
form of Records of Board Meetings shall comply with the Rules
and Procedures for the Board of Directors' Meetings.
Article 118 If a written motion of a board meeting is not prepared in
accordance with the stipulated procedures, it will not have the
effect of a board resolution even if each director has
expressed his view thereto. Directors shall be liable for board
resolutions. If a board resolution is against the law,
administrative rules or these Articles of Association and thus
causes the Company to suffer any loss, the directors who cast
an affirmative vote for the motion shall assume direct
liability (including the liability to compensate); directors
who are proved to have cast a dissenting vote against the
motion during the voting as recorded in the records of meeting
shall be exempted from liability; directors who abstained from
voting or failed to attend nor appoint a proxy to attend the
board meeting shall not be exempted from liability; and
directors who opposed to the motion but did not cast a
dissenting vote against it in the voting shall not be exempted
from liability either.
CHAPTER 11 SECRETARY OF THE BOARD OF DIRECTORS
Article 119 The Company shall have one (1) secretary of the board of
directors. The secretary shall be a senior officer of the
Company accountable to the Company. The Company shall formulate
regulations in relation to the work of the Secretary of the
Board to promote the management of the Company and make
provisions for disclosure of information and investor
relations.
The board of directors may establish its secretarial department
when necessary.
Article 120 A director or the president, vice-president, Chief Financial
Officer of the Company may concurrently act as the secretary of
the Company's board of directors. No accountant of the
accounting firm or solicitor of the solicitors' firm engaged by
the Company may concurrently act as the secretary of the
Company's board of directors.
The secretary of the Company's board of directors shall be a
natural person who has the requisite professional knowledge and
experience, and shall be nominated by the Chairman of the Board
and appointed or removed by the board of directors. In the case
of a director acting concurrently as the secretary of the
board, if an act has to be performed by a director and the
secretary of the board respectively, this director acting
concurrently as the secretary of the board may not act in both
identities.
Article 121 The main duties of the secretary of the board of directors
include:
(1) to assist directors to deal with the daily matters of
the board of directors, continuously provide, remind
and ensure directors and the president, etc. to be
well informed of the laws, regulations, policies and
requirements of both domestic and overseas regulatory
organizations concerning the operation of the Company,
and assist directors and managers to practically
implement the domestic and foreign laws, regulations,
Company's Articles of Association and other
regulations when performing their duties and powers;
(2) to be responsible for the organization and preparation
of the documents of the board of directors and
shareholders' general meeting, well prepare the
meeting record work, ensure the meeting policies in
conformity with the legal procedures, and to keep
abreast of the execution of the resolutions of the
board of directors;
(3) to be responsible for the organization and
coordination of information disclosure, to ensure of a
timely, accurate, lawful, true and complete disclosure
of information, coordination of the relationship with
the investors, and enhancement of the transparency of
the Company;
(4) to participate in and organize the financing in
capital market;
(5) to deal with the relationships with the intermediary
organs, regulatory authorities and the media, and
maintain a good public relationship.
Article 122 The secretary of the board of directors shall discharge his
duties diligently according to these Articles of Association.
The secretary of the board of directors shall assist the
Company to comply with the relevant PRC law and regulations of
the securities regulatory organ of the place where the
Company's shares are listed.
CHAPTER 12 PRESIDENT
Article 123 The Company shall have a president who is accountable to the
board of directors. The president shall be nominated by the
Chairman of the board of directors and appointed or removed by
the board of directors.
The Company shall have several vice-presidents, and one Chief
Financial Officer who shall assist the president in work. The
vice-presidents and the Chief Financial Officer shall be
nominated by the president and appointed or removed by the
board of directors.
A director may also be engaged to act concurrently as the
president, vice-president, Chief Financial Officer or secretary
of the board of directors, but the number of directors acting
concurrently as the president, vice-president, Chief Financial
Officer or secretary of the board of directors may not exceed
one-half of the total number of directors of the Company.
Article 124 The president shall exercise the following duties and powers:
(1) to be in charge of the Company's production, operation
and management, to co-ordinate the implementation of
the resolutions of the board of directors and to
report his work to the board of directors;
(2) to organize the implementation of the Company's annual
business plan and investment proposal;
(3) to draft plans for the establishment of the Company's
internal management structure;
(4) to draft plans for the establishment of the branch
company of the Company;
(5) to draft the Company's basic management system;
(6) to formulate specific rules and regulations for the
Company;
(7) to propose the appointment or dismissal of the
Company's vice-president(s) and Chief Financial
Officer;
(8) to appoint or dismiss management personnel other than
those required to be appointed or dismissed by the
board of directors;
(9) to determine the wages, fringe benefits, rewards and
punishments of the Company's staff, to determine the
appointment and dismissal of the Company's staff;
(10) to propose the convening of extraordinary meetings of
directors;
(11) other powers conferred by the Company's Articles of
Association and the board of directors.
Article 125 The president or vice-president who is not a director shall
have the right to attend board meetings and to receive notices
of meetings and other relevant documents but does not have any
voting rights at board meetings.
Article 126 The president shall at the request of the board of directors or
the supervisory committee make report of the signing and
performance of major contracts, use of funds and profit and
loss of the Company. The president must ensure the truthfulness
of the report.
Article 127 The president shall seek the opinions of the staff members in
determining matters which are closely related to staff members
such as the wages, fringe benefits, safe production and work,
labour insurance, dismissal (or discharge) of staff members of
the Company.
Article 128 The president shall draw up "Work Regulations for the
President" for implementation upon the approval of the board of
directors.
The Work Regulations for the President shall include:
(1) requirements and procedures for the convening of a
presidents' meeting and the officers attending;
(2) the president, vice-presidents and Chief Financial
Officer shall divide their duties among themselves and
perform their own duties;
(3) use of the Company's funds and assets, authority to
sign major contracts and the system to report to the
board of directors and to the supervisory committee at
the request of the supervisory committee;
(4) other matters as the board of directors may consider
necessary.
Article 129 In performing their functions and powers, the president,
vice-presidents and the Chief Financial Officer shall act
honestly and diligently and in accordance with laws,
administrative regulations and these Articles of Association.
They may not alter the resolutions of a shareholders' general
meeting or of a board meeting nor act ultra vires.
Article 130 In retiring from their office, the president, vice-president or
Chief Financial Officer shall, as required by the relevant
labour contract between the above personnel and the Company,
give prior notice to the Company and shall adhere to the
relevant procedures and methods of resignation provided in the
labour contract.
CHAPTER 13 SUPERVISORY COMMITTEE
Article 131 The Company shall have a supervisory committee which is
accountable to the shareholders' general meetings.
The Company shall draw up "Rules and Procedures for the
Supervisors' Meetings" for implementation upon being approved
by the shareholders in a general meeting. The Rules and
Procedures for the Supervisors' Meetings shall include the
followings:
(1) the formation and business system of the supervisory
committee;
(2) the functions and powers of the supervisory committee;
(3) the system of discussion of the supervisors' meetings;
(4) the procedures of discussion of the supervisory
committee;
(5) the disclosure of information of the supervisors'
meetings;
(6) implementation and feedback of resolutions of the
supervisory committee;
(7) other matters as the shareholders' general meetings
may consider necessary.
The Rules and Procedures for the Supervisors' Meetings shall be
an integral part of and have the same legal effect as these
Articles of Association.
Article 132 The supervisory committee shall compose of twelve (12)
supervisors. Of which, eight (8) of them shall be shareholder
representatives (including those who are eligible to be
external supervisors); four (4) of them shall be
representatives of workers and staff of the Company.
Each supervisor shall serve for a term of three (3) years,
which term is renewable upon re-election and re-appointment.
The supervisory committee shall have one (1) Chairman who shall
be a supervisor. The election or removal of the Chairman of the
supervisory committee shall be determined by two-thirds or more
of the members of the supervisory committee.
The Chairman of the supervisory committee shall co-ordinate and
exercise the duties and powers of the supervisory committee.
Article 133 If necessary, the supervisory committee may establish its
offices responsible for daily affairs of the supervisory
committee.
Article 134 A director, president, vice-president or Chief Financial
Officer may not act concurrently as a supervisor.
Article 135 The list of candidates for the supervisors who are shareholder
representatives shall be submitted to the shareholders' general
meeting in the form of motion for approval.
Amongst the candidates for supervisors who are shareholder
representatives, candidates other than those for independent
supervisors shall be nominated by the Company's board of
directors, the supervisory committee or shareholders who
individually or jointly hold 5% or more of the Company's voting
shares and be elected by the shareholders in a general meeting.
Amongst the candidates for supervisors who are shareholder
representative, candidates for independent supervisors shall be
nominated by the Company's board of directors, the supervisory
committee or shareholders who individually or jointly hold 1%
or more of the Company's voting shares and be elected by the
shareholders in a general meeting.
Article 136 Independent directors shall be elected in the following manner:
(1) the nominator of a candidate for supervisor who is a
shareholder representative shall seek the consent of
the nominee, find out the occupation, academic
qualification, rank and detailed working experience
including all part-time jobs of the nominee and
provide written proofs of the same to the Company
before making the nomination. The candidate shall give
a written undertaking to the Company agreeing to be
nominated, undertaking the truthfulness and
completeness of his particulars disclosed and
guaranteeing the performance of a director's duties
after being elected.
(2) If the nomination of a candidate for supervisor who is
a shareholder representative is made before the
Company's convening of a board meeting, the written
proofs of the nominee referred to in sub-paragraphs
(1) above shall be disclosed together with the board
resolution.
(3) If the shareholders who individually or jointly hold
5% or more of the Company's voting shares or the
supervisory committee puts forward a provisional
motion in an AGM of the Company for election of a
supervisor who is a shareholder representative, a
written notice stating their intention to nominate a
candidate for a supervisor and the nominee's consent
to be nominated together with the written proofs and
undertaking of the nominee referred to in
sub-paragraph (1) above shall be delivered to the
Company seven (7) days before the AGM.
Article 137 Any supervisor who fails to attend a supervisors' meeting
personally on two consecutive occasions shall be treated as a
failure to discharge his duties. In that case he shall be
removed and replaced in a shareholders' general meeting or
staff representatives' meeting.
A supervisor may resign before his term expires and Chapter 10
hereof regarding resignation of directors shall also be
applicable to supervisors.
Article 138 Supervisors' meetings shall be convened regularly at least four
times a year. An extraordinary supervisors' meeting shall be
convened on occurrence of any of the events specified in the
Rules and Procedures for the Supervisors' Meetings.
A 10 days' prior notice shall be given to all supervisors for
the convening of a regular or extraordinary supervisors'
meeting. The convening of a supervisors' meeting and the
contents and form of the notice of meeting shall comply with
the Rules and Procedures for the Supervisors' Meetings.
Article 139 The supervisory committee shall exercise the following
functions and powers in accordance with law:
(1) to review the Company's financial position; to appoint
another accounting firm in the name of the Company to
review the Company's financial condition
independently;
(2) to supervise the directors, president,
vice-presidents, Chief Financial Officer and secretary
of the board to ensure that they do not act in
contravention of any law, regulation or these Articles
of Association;
(3) to demand the directors, president, vice-presidents,
Chief Financial Officer or secretary of the board to
rectify their error or even to report it in a
shareholders' general meeting or to the competent
State organ if they have acted in a harmful manner to
the Company's interest;
(4) to check and inspect the financial information such as
the financial report, business report and plans for
distribution of profits to be submitted by the board
of directors to the shareholders' general meetings and
to authorize, in the Company's name, publicly
certified and practicing accountants to assist in the
review on such information should any doubt arise in
respect thereof;
(5) to make recommendations of accounting firms for
engagement by the Company;
(6) to make provisional motions in an AGM;
(7) to propose to convene an EGM;
(8) to propose to convene an extraordinary board meeting;
(9) to represent the Company in negotiations with or in
bringing actions against a director;
(10) other duties and powers as may be specified by law,
administrative rules, regulations of the competent
department and these Articles of Association and
conferred by the general meeting.
Supervisors shall attend meetings of the board of directors.
Article 140 The supervisory committee may require the directors, president,
vice-president, Chief Financial Officer, secretary of the board
of directors of the Company, internal and external auditors to
attend supervisors' meetings and answer any question that the
supervisory committee may have regarding matter it cares about.
Article 141 Resolutions of the supervisory committee shall be passed by the
affirmative vote of more than two-thirds of all of its members.
Article 142 Records shall be made for all supervisors' meetings and be
signed by all attending supervisors and the recording person.
Supervisors shall have the right to ask for the making of a
descriptive record of what he speaks in the meeting. Records of
supervisors' meetings shall be treated as the Company's files
and kept permanently in the business system of the supervisory
committee.
Article 143 All reasonable fees incurred in respect of the employment of
professionals (such as, lawyers, certified public accountants
or practicing auditors) which are required by the supervisory
committee in the exercise of its functions and powers shall be
borne by the Company.
Article 144 A supervisor shall carry out his duties faithfully and bona
fide in accordance with laws, administrative regulations and
the Company's Articles of Association.
CHAPTER 14 QUALIFICATIONS AND OBLIGATIONS OF THE DIRECTORS,
SUPERVISORS, PRESIDENT, VICE-PRESIDENT, CHIEF
FINANCIAL OFFICER AND SECRETARY OF THE BOARD OF
DIRECTORS OF THE COMPANY
Article 145 A person may not serve as a director, supervisor, president,
vice-president, Chief Financial Officer and secretary of the
board of directors of the Company if any of the following
circumstances apply:
(1) a person who does not have or who has limited capacity
for civil conduct;
(2) a person who has been found guilty of for corruption,
bribery, infringement of property or misappropriation
of property or other crimes which destroy the social
economic order, and the sentence is enforced for less
than five (5) years or a person who has been deprived
of his political rights and not more than five (5)
years have lapsed since the sentence was served;
(3) a person who is a former director, factory manager or
president of a company or enterprise which has been
dissolved or put into liquidation as a result of
mismanagement and who was personally liable for the
winding up of such company or enterprise, where less
than three (3) years have elapsed since the date of
completion of the insolvent liquidation of the company
or enterprise;
(4) a person who is a former legal representative of a
company or enterprise the business licence of which
was revoked due to violation of law and who are
personally liable therefor, where less than three (3)
years have elapsed since the date of the cancellation
of the business licence;
(5) a person who has a relatively large amount of debts
which have become due and outstanding;
(6) a government servant of the country;
(7) a person who is currently under investigation by the
judicial authorities for violation of criminal law;
(8) a person who, according to laws and administrative
regulations, cannot act as a leader of an enterprise;
(9) a person other than a natural person;
(10) a person who has been adjudged by the competent
authority for violation of relevant securities
regulations and such conviction involves a finding
that such person has acted fraudulently or
dishonestly, where not more than five (5) years have
lapsed from the date of such conviction;
(11) a person who has been prohibited by the securities
regulatory authority of the State Council to
participate in market activities and the prohibition
has still not been uplifted.
Article 146 The chairman, vice-chairman and directors of the Company's
controlling shareholder acting concurrently as the chairman,
vice-chairman or director of the Company may not exceed two in
number. Managers of the Company's controlling shareholder may
not act concurrently as the Company's president,
vice-president, Chief Financial Officer, sales supervisor or
secretary of the board.
Article 147 The following people may not act as an independent director of
the Company:
(1) persons employed by the Company or its subsidiaries
and their immediate family members and major social
connections (immediate family members shall mean
spouse, parents and issues, etc. and major social
connections shall mean siblings, parents-in-law,
sons/daughters-in-law, spouse of siblings, siblings of
spouse, etc.);
(2) natural person shareholders who directly or indirectly
hold 1% or more of the Company's issued shares or who
are top ten shareholders and their immediate family
members;
(3) persons employed by the shareholder company which
directly or indirectly holds 1% or more of the
Company's issued shares or by the top five shareholder
companies of the Company and their immediate family
members;
(4) persons who once belonged to categories (1) to (3)
above in the past 3 years;
(5) persons who provide financial or legal advice to the
Company or its subsidiaries;
(6) any independent director who is already the director
of five listed companies;
(7) other persons determined by the securities regulatory
authority of the State Counsel.
Article 148 The validity of an act carried out by a director, a supervisor,
the president, vice-president, Chief Financial Officer or
secretary of the board of directors of the Company on its
behalf shall, as against a bona fide third party, not be
affected by any irregularity in his office, election or any
defect in his qualification.
Article 149 Without the lawful authorization of these Articles of
Association or the board of directors, a director of the
Company may not act personally on behalf of the Company or the
board of directors. If he acts personally, he shall declare his
own position and identity in advance where the acting would
cause a third party to believe reasonably that he is acting on
behalf of the Company or the board of directors.
Article 150 In addition to the obligations imposed by laws, administrative
regulations or the listing rules of the stock exchange on which
shares of the Company are listed, each of the Company's
directors, supervisors, president, vice-president, Chief
Financial Officer and secretary of the board of directors owes
a duty to each shareholder, in the exercise of the duties and
powers of the Company entrusted to him:
(1) not to procure the Company to do anything ultra vires
to the scope of business as stipulated in its business
licence;
(2) to act honestly and in the best interests of the
Company;
(3) not to expropriate the Company's property in any way,
including (without limitation to) usurpation of
opportunities which may benefit the Company;
(4) not to deprive of the individual interest of
shareholders, including (without limitation to) rights
to distribution and voting rights, save and except
pursuant to a restructuring of the Company which has
been submitted to the shareholders in general meeting
for approval in accordance with the Company's Articles
of Association.
Article 151 Each of the Company's directors, supervisors, president,
vice-president, Chief Financial Officer and secretary of the
board of directors owes a duty, in the exercise of his powers
and in the discharge of his duties, to exercise the care,
diligence and skill that a reasonably prudent person would
exercise in comparable circumstances.
Article 152 Each of the Company's directors, supervisors, president,
vice-president, Chief Financial Officer and secretary of the
board of directors shall exercise his powers or perform his
duties in accordance with the fiduciary principle, and shall
not put himself in a position where his duty and his interest
may conflict. This principle includes (without limitation to)
discharging of the following obligations:
(1) to act bona fide in the best interests of the Company;
(2) to act within the scope of his powers and not to
exceed such powers;
(3) to exercise the discretion vested in him personally
and not to allow himself to act under the control of
another and, unless and to the extent permitted by
laws, administrative regulations or with the informed
consent of shareholders given in a general meeting,
not to transfer the exercise of his discretion;
(4) to treat shareholders of the same class equally and to
treat shareholders of different classes fairly;
(5) unless otherwise provided for in the Company's
Articles of Association or except with the informed
consent of the shareholders given in a general
meeting, not to enter into any contract, transaction
or arrangement with the Company;
(6) not to use the Company's property for his own benefit,
without the informed consent of the shareholders given
in a general meeting;
(7) not to abuse his position to accept bribes or other
illegal income or expropriate the Company's property
in any way, including (without limitation to)
opportunities which benefit the Company;
(8) not to accept commissions in connection with the
Company's transactions, without the informed consent
of the shareholders given in a general meeting;
(9) to comply with the Company's Articles of Association,
to perform his official duties faithfully, to protect
the Company's interests and not to exploit his
position and power in the Company to advance his own
interests;
(10) not to compete with the Company in any way, save with
the informed consent of the shareholders given in a
general meeting;
(11) not to misappropriate the Company's funds or to lend
such funds to any other person, not to use the
Company's assets to set up deposit accounts in his own
name or in the any other name or to use such assets to
guarantee the debts of a shareholder of the Company or
any other personal liabilities;
(12) not to divulge any confidential information which he
has obtained during his term of office, without the
informed consent of the shareholders in a general
meeting; nor shall he use such information otherwise
than for the Company's benefit, unless disclosure of
such information to the court or other governmental
authorities is made in the following circumstances:
1. disclosure is required by law;
2. public interests so warrants;
3. the interests of the relevant director,
supervisor, president, vice-president, Chief
Financial Officer and secretary of the board of
directors so requires.
Article 153 Each director, supervisor, president, vice-president, Chief
Financial Officer and secretary of the board of directors of
the Company shall not direct the following persons or
institutions ("associates") to act in a manner which he is
prohibited from so acting:
(1) the spouse or minor children of the director,
supervisor, president, vice-president, Chief Financial
Officer or secretary of the board of directors;
(2) the trustee of the director, supervisor, president,
vice-president, Chief Financial Officer or secretary
of the board of directors or of any person described
in sub-paragraph (1) above;
(3) partners of directors, supervisors, president,
vice-president, Chief Financial Officer or secretary
of the board of directors of the Company or any person
referred to in sub-paragraphs (1) and (2) of this
Article;
(4) a company in which a director, supervisor, the
president, vice-president, Chief Financial Officer or
secretary of the board of directors, whether alone or
jointly with one (1) or more of the persons referred
to in sub-paragraphs (l), (2) and (3) of this Article
and other directors, supervisors, president,
vice-president, Chief Financial Officer and secretary
of the board of directors, has de facto controlling
interest;
(5) the senior officers of a company which is being
controlled in the manner set out in sub-paragraph (4)
above, including but without limitation to directors,
supervisors and president.
Article 154 On submission of a resignation or termination of the tenure of
a director, supervisor, the president, vice-president, Chief
Financial Officer or secretary of the board of directors of the
Company, the fiduciary duties owed by this senior officer to
the Company and its shareholders do not necessarily cease when
his resignation has not yet been effective or within a
reasonable period of the resignation and within a reasonable
period of the termination of tenure. His duty of
confidentiality in respect of trade secrets of the Company
survives the termination of his tenure until the same has
become open information. Other duties may continue for such
period as the principle of fairness may require depending on
the length of time which has lapsed between the termination and
the act concerned and on the circumstances and the terms under
which the relationship between the relevant director,
supervisor, manager and the senior officer on the on hand and
the Company on the other hand was terminated.
Article 155 Any serving director, supervisor, the president,
vice-president, Chief Financial Officer or secretary of the
board of directors of the Company who leaves his post without
permission thereby causing loss to the Company shall be liable
for compensation.
Article 156 A director, supervisor, the president, vice-president, Chief
Financial Officer or secretary of the board of directors of the
Company may be relieved of liability for specific breaches of
his duty with the informed consent of the shareholders given at
a general meeting, save under the circumstances of Article 55
hereof.
Article 157 Where a director, supervisor, the president, vice-president,
Chief Financial Officer or secretary of the board of directors
of the Company is in any way, directly or indirectly,
materially interested in a contract, transaction or arrangement
or proposed contract, transaction or arrangement with the
Company, (other than his contract of service with the Company),
he shall declare the nature and extent of his interests to the
board of directors at the earliest opportunity, whether or not
the contract, transaction or arrangement or proposal therefor
is otherwise subject to the approval of the board of directors.
If a director or his associate (as defined in the Rules
Governing the Listing of Securities of the Hong Kong Stock
Exchange Limited) have a material interest in any contract,
transaction, arrangement or other matters that requires the
approval of the board of directors, the relevant director shall
not vote for the relevant matter at the meeting of the board of
directors, and shall not be listed in the quorum of the
meeting.
Unless the interested director, supervisor, the president,
vice-president, Chief Financial Officer or secretary of the
board of directors discloses his interests in accordance with
the preceding sub-paragraph of this Article and the contract,
transaction or arrangement is approved by the board of
directors at a meeting in which the director, supervisor, the
president, vice-president, Chief Financial Officer or secretary
of the board of directors is not counted as part of the quorum
and refrains from voting, or from entering into a contract,
transaction or arrangement in which that senior officer is
materially interested is voidable at the instance of the
Company except as against a bona fide party thereto who does
not have notice of the breach of duty by the interested senior
officer.
For the purposes of this Article, a director, supervisor, the
president, vice-president, Chief Financial Officer or secretary
of the board of directors of the Company is deemed to be
interested in a contract, transaction or arrangement in which
his associate is interested.
Article 158 Where a director, supervisor, the president, vice-president,
Chief Financial Officer or secretary of the board of directors
of the Company gives to the board of directors a notice in
writing stating that, by reason of the facts specified in the
notice, he is interested in contracts, transactions or
arrangements which may subsequently be made by the Company,
that notice shall be deemed for the purposes of the preceding
Article to be a sufficient disclosure of his interests, so far
as the content stated in such notice is concerned, provided
that such notice shall have been given before the date on which
the question of entering into the relevant contract,
transaction or arrangement is first taken into consideration by
the Company.
Article 159 The Company shall not pay taxes for or on behalf of a director,
supervisor, the president, vice-president, Chief Financial
Officer or secretary of the board of directors in any manner.
Article 160 The Company shall not directly or indirectly make a loan to or
provide any guarantee in connection with the making of a loan
to a director, supervisor, the president, vice-president, Chief
Financial Officer or secretary of the board of directors of the
Company or a senior officer (including but without limitation
to a director, supervisor and the president) of the holding
company of the Company or any of their respective associates.
The foregoing prohibition shall not apply to the following
circumstances:
(1) provision of a loan or guarantee for a loan by the
Company to its subsidiary;
(2) the provision by the Company of a loan or a guarantee
in connection with the making of a loan or any other
funds available to its directors, supervisors,
president, vice-president, Chief Financial Officer or
the secretary of the board of directors to meet
expenditure incurred or to be incurred by him for the
purposes of the Company or for the purpose of enabling
him to perform his duties properly, in accordance with
the terms of a service contract approved by the
shareholders in a general meeting;
(3) if the ordinary course of business of the Company
includes the lending of money or the giving of
guarantees, the Company may make a loan to or provide
a guarantee in connection with the making of a loan to
a director, supervisor, the president, vice-president,
Chief Financial Officer or secretary of the board of
directors or his associates in the ordinary course of
its business on normal commercial terms.
Article 161 Any person who receives funds from a loan which has been made
by the Company acting in breach of the preceding Article shall,
irrespective of the terms of the loan, forthwith repay such
funds.
Article 162 A guarantee for the repayment of a loan which has been provided
by the Company acting in breach of Article 158(1) shall not be
enforceable against the Company, save in respect of the
following circumstances:
(1) the guarantee was provided in connection with a loan
which was made to an associate of a director,
supervisor, the president, vice-president, Chief
Financial Officer or secretary of the board of
directors of the Company or a senior officer
(including but without limitation to a director,
supervisor and the president) of the Company's holding
company and the lender of such funds did not know of
the relevant circumstances at the time of the making
of the loan; or
(2) the collateral which has been provided by the Company
has already been lawfully disposed of by the lender to
a bona fide purchaser.
Article 163 For the purposes of the foregoing provisions of this Chapter, a
"guarantee" includes an undertaking or property provided to
secure the obligor's performance of his obligations.
Article 164 In addition to any rights and remedies provided by the laws and
administrative regulations, where a director, supervisor, the
president, vice-president, Chief Financial Officer or secretary
of the board of directors of the Company breaches the duties
which he owes to the Company, the Company has a right:
(1) to demand such a director, supervisor, the president,
vice-president, Chief Financial Officer or secretary
of the board of directors to compensate it for losses
sustained by the Company as a result of such breach;
(2) to rescind any contract or transaction which has been
entered into between the Company and such a director,
supervisor, the president, vice-president, Chief
Financial Officer or secretary of the board of
directors or between the Company and a third party
(where such third party knows or should have known
that such a director, supervisor, the president,
vice-president, Chief Financial Officer or secretary
of the board of directors representing the Company has
breached his duties owed to the Company);
(3) to demand such a director, supervisor, the president,
vice-president, Chief Financial Officer or secretary
of the board of directors to surrender the gains made
as result of the breach of his obligations;
(4) to recover any monies which should have been received
by the Company and which were received by such a
director, supervisor, the president, vice-president,
Chief Financial Officer or secretary of the board of
directors instead, including (without limitation to)
commissions; and
(5) to demand repayment of interest earned or which may
have been earned by a director, supervisor, the
president, vice-president, Chief Financial Officer or
secretary of the board of directors officer on money
that should have been paid to the Company.
Article 165 If a director, supervisor, the president, vice-president, Chief
Financial Officer or secretary of the board of directors has
violated the law, administrative rules or these Articles of
Association in discharging his duties thereby causing damage to
the Company, he shall be liable for compensation. Shareholders
shall have the right to ask the Company to commence legal or
arbitration proceedings to claim for compensation according to
law.
Article 166 The Company shall make written contract with a director or
supervisor in relation to the rights and duties of the Company
and the director/supervisor, emoluments and term of office of
the director/supervisor, liability of the director/supervisor
for breach of law, regulations and these Articles of
Association and compensation for early termination of the
contract, etc. The emoluments shall be approved in advance by
the shareholders in a general meeting. The aforesaid emoluments
include:
(1) emoluments in respect of his service as director,
supervisor, president, vice-president, Chief Financial
Officer or secretary of the board of directors of the
Company;
(2) emoluments in respect of his acting as a senior
officer (including but without limitation to a
director, supervisor and the president) of any
subsidiary of the Company;
(3) emoluments in respect of the provision of other
services in connection with the management of the
affairs of the Company and any of its subsidiaries;
(4) payment by way of compensation for loss of office, or
as consideration for or in connection with his
retirement from office.
No proceedings may be brought by a director or supervisor
against the Company for anything due to him in respect of the
matters mentioned in this Article except pursuant to the
contract mentioned above.
Article 167 The contract concerning the emoluments between the Company and
its directors or supervisors should provide that in the event
that the Company is acquired, the Company's directors and
supervisors shall, subject to the prior approval of
shareholders in a general meeting, have the right to receive
compensation or other payment in respect of his loss of office
or retirement. For the purposes of this paragraph, the
acquisition of the Company includes any of the following:
(1) an offer made by any person to the general body of
shareholders;
(2) an offer made by any person with a view to the offeror
becoming a "controlling shareholder" within the
meaning of Article 56 hereof.
If the relevant director or supervisor does not comply with
this Article, any sum so received by him shall belong to those
persons who have sold their shares as a result of such offer.
The expenses incurred in distributing such sum on a pro rata
basis amongst such persons shall be borne by the relevant
director or supervisor and shall not be paid out of such sum.
CHAPTER 15 FINANCIAL AND ACCOUNTING SYSTEMS, PROFIT
DISTRIBUTION AND AUDITING
Article 168 The Company shall establish its financial and accounting
systems in accordance with laws, administrative regulations and
PRC accounting standards formulated by the finance regulatory
department of the State Council.
Article 169 The accounting year of the Company shall adopt the calendar
year, i.e. starting from the 1 January of every calendar year
and to 31 December of every calendar year.
The Company shall adopt Renminbi as its denominated currency
for booking and accounting purposes , the account books shall
be recorded in Chinese.
At the end of each fiscal year, the Company shall prepare a
financial report which shall be examined and verified in a
manner prescribed by law.
Article 170 The board of directors of the Company shall place before the
shareholders at every annual general meeting such financial
reports which the relevant laws, administrative regulations and
directives promulgated by competent regional and central
governmental authorities require the Company to prepare. These
reports shall be verified.
Article 171 The Company's financial reports shall be made available for
shareholders' inspection at the Company twenty (20) days before
the date of every shareholders' annual general meeting. Each
shareholder shall be entitled to have a copy of the financial
reports referred to in this Chapter.
The Company shall deliver or send to each shareholder of
Overseas-Listed Foreign-Invested Shares by prepaid mail at the
address registered in the register of shareholders the said
reports not later than twenty-one (21) days prior to the date
of every annual general meeting of the shareholders.
Article 172 The financial statements of the Company shall, in addition to
being prepared in accordance with PRC accounting standards and
regulations, be prepared in accordance with either
international accounting standards, or that of the place
outside the PRC where the Company's shares are listed. If there
is any material difference between the financial statements
prepared respectively in accordance with the two accounting
standards, such difference shall be stated in the financial
statements. In distributing its profits after tax, the lower of
the two amounts shown in the financial statements shall be
adopted.
Article 173 Any interim results or financial information published or
disclosed by the Company must also be prepared and presented in
accordance with PRC accounting standards and regulations, and
also in accordance with either international accounting
standards or that of the place overseas where the Company's
shares are listed.
Article 174 The Company shall publish its financial reports four times in
each fiscal year, that is, the report for the first quarter
shall be published within thirty (30) days after the expiration
of the first three (3) months of each fiscal year; the biannual
financial report shall be published within sixty (60) days
after the expiration of the first six (6) months of each fiscal
year; the report for the third quarter shall be published
within thirty (30) days after the expiration of the first nine
(9) months of each fiscal year; and the annual financial report
shall be published within one hundred and twenty (120) days
after the expiration of each fiscal year. Annual financial
reports shall be checked and verified as required by law.
Article 175 Annual financial reports and biannual financial reports which
deal with biannual profit distribution shall include the
followings:
(1) balance sheet;
(2) statement of profit;
(3) statement of profit distribution;
(4) cash flow statement;
(5) explanatory notes to accounting statements.
If the Company does not make biannual profit distribution, the
biannual financial report shall include the above accounting
statements and explanatory notes save sub-paragraph (3).
Article 176 The Company shall not keep accounts other than those required
by law. Assets of the Company will not be deposited into any
account opened in the name of an individual.
Article 177 When allocating the after-tax profits of the current year, the
Company shall allocate (10) ten percent of its profit to the
statutory common reserve fund, and allocate (5) five percent to
(10) ten percent of its profit to the statutory public welfare
fund. In the event that the accumulated statutory common
reserve fund of the Company has reached more than (50) fifty
percent of the registered capital of the Company, no allocation
is needed.
In the event that the statutory common reserve fund of the
Company is insufficient to make up the losses of the Company on
the previous year, before allocating the statutory common
reserve fund and the statutory public welfare fund in
accordance with the stipulations of the previous paragraph, the
Company shall first make up the losses by using the profits of
the current year.
After allocating the statutory common reserve fund and public
welfare fund from the after-tax profits of the Company, the
Company can allocate the arbitrary common reserve fund
according to the resolution of shareholders' general meeting.
The remaining profits after making-up the losses, allocating
the common reserve funds and the statutory public welfare fund
shall be distributed in accordance with the proportion of
shares held by the shareholders.
Article 178 Before making-up the losses, allocating the surplus common
reserve funds and the statutory public welfare fund, the
Company shall not allocate the dividends or carry out other
allocations by way of bonus.
Article 179 Capital common reserve fund includes the following items:
(1) premium on shares issued at a premium price;
(2) any other income designated for the capital common
reserve fund by the regulations of the finance
regulatory department of the State Council.
Article 180 The common reserve fund of the Company shall be applied for
compensating the losses or converting the common reserve fund
into the capital of the Company.
When such conversion takes place upon the approval of
shareholders in a general meeting, the Company shall distribute
new shares in proportion to the existing shareholders' number
of shares, provided, however, that when the statutory common
reserve fund is converted to capital nature, the balance of the
statutory common reserve fund may not fall below 25% of the
registered capital.
Article 181 The Company's statutory public welfare fund is used for the
collective welfare of the Company's employees.
Article 182 After the Company's shareholders have approved in a general
meeting the proposal for profit distribution or for conversion
of the common reserve fund into capital of the Company, the
Company's board of directors shall complete the distribution or
conversion of dividends (or shares) within two (2) months of
the general meeting.
Article 183 The Company may distribute dividends in the form of:
(1) cash;
(2) shares.
Article 184 The Company shall calculate, declare and pay dividends and
other amounts which are payable to holders of Domestic-Invested
Shares in Renminbi. The Company shall calculate and declare
dividends and other payments which are payable to holders of
Overseas-Listed Foreign-Invested Shares in Renminbi, and shall
pay such amounts in Hong Kong Dollars. As for the foreign
currency needed by the Company for payment of cash dividends
and other funds which are payable to the holders of the
Overseas-Listed Foreign-Invested Shares, it shall be handled in
accordance with any related national regulations on foreign
exchange control.
Article 185 Unless otherwise provided by the relevant laws and
administrative regulations, as regards dividends and other
amounts payable in Hong Kong dollars, the applicable exchange
rate shall be the average benchmark rate for the relevant
foreign currency determined by the Peoples' Bank of China and
announced by the State Administration of Foreign Exchange
during the week prior to the announcement of payment of
dividend and other amounts.
Article 186 Unless the shareholders have approved otherwise in a general
meeting, the board of directors may determine to make
half-yearly dividends distribution. Unless otherwise provided
by the relevant laws and administrative regulations, the amount
of the half-yearly dividends distribution shall not exceed 50%
of the profits shown in the biannual statement of profit of the
Company.
Article 187 In the event of allocating the dividends to shareholders of the
Company, the payable taxes on the dividend incomes of the
shareholders shall be withdrawn in accordance with the
requirements of Taxation Law of China and in consideration of
the allocated sum.
Article 188 The Company shall appoint receiving agents for holders of the
Overseas-Listed Foreign-Invested Shares. Such receiving agents
shall receive dividends which have been declared by the Company
and all other amounts which the Company should pay to holders
of Overseas-Listed Foreign-Invested Shares on such
shareholders' behalf.
The receiving agents appointed by the Company shall meet the
relevant requirements of the laws of the place at which the
stock exchange on which the Company's shares are listed or the
relevant regulations of such stock exchange.
The receiving agents appointed for holders of Overseas-Listed
Foreign-Invested Shares listed in Hong Kong shall each be a
company registered as a trust company under the Trustee
Ordinance of Hong Kong.
Article 189 The Company adopts the system of internal auditing and hires
professional auditors to undertake internal auditing of the
Company's financial income and expenditure and economic
activities.
Article 190 The Company's internal auditing system and duties of the
auditors shall be implemented after they have been approved by
the board of directors.
CHAPTER 16 APPOINTMENT OF ACCOUNTING FIRMS
Article 191 The Company shall appoint an independent firm of accountants
which is qualified under the relevant regulations of the State
to audit the Company's annual financial report and review other
financial reports, to conduct verification of net asset value
and other relevant consulting service business.
Engagement of the firm of accountants shall be determined in a
shareholders' general meeting.
Article 192 The auditors appointed by the Company shall hold office from
the conclusion of the annual general meeting of shareholders at
which they were appointed until the conclusion of the next
annual general meeting of shareholders.
Article 193 The auditors appointed by the Company shall enjoy the following
rights:
(1) a right to review to the books, records and vouchers
of the Company at any time, the right to require the
directors, supervisors, president, vice-president,
Chief Financial Officer and secretary of the board of
directors of the Company to supply relevant
information and explanations;
(2) a right to require the Company to take all reasonable
steps to obtain from its subsidiaries such information
and explanation as are necessary for the discharge of
its duties;
(3) a right to attend shareholders' general meetings and
to receive all notices of, and other communications
relating to, any shareholders' general meeting which
any shareholder is entitled to receive, and to speak
at any shareholders' general meeting in relation to
matters concerning its role as the Company's
accounting firm.
Article 194 If there is a vacancy in the position of the accounting firm,
the board of directors may appoint an accounting firm to fill
such vacancy before the convening of the shareholders' general
meeting. Any other accounting firm which has been appointed by
the Company may continue to act during the period during which
a vacancy arises.
Article 195 The shareholders in a general meeting may by ordinary
resolution remove the accounting firm before the expiration of
its term of office, irrespective of the provisions in the
contract between the Company and the accounting firm. However,
the right of the accounting firm in claiming for damages which
arise from its removal shall not be affected thereby.
Article 196 The remuneration of an accounting firm or the manner in which
such firm is to be remunerated shall be determined by the
shareholders in a general meeting. The remuneration of an
accounting firm appointed by the board of directors which is to
fill the vacancy shall be determined by the board of directors
and approved by the shareholders' general meeting.
Article 197 The Company's appointment, removal or non-reappointment of an
accounting firm shall be resolved by the shareholders in a
general meeting and disclosed in the relevant newspapers and
publications stating the reasons for removal, if necessary.
Such resolution shall be filed with the securities authority of
the State Council and The Chinese Institute of Certified Public
Accountants.
Where a resolution at a general meeting of shareholders is
passed to appoint an accounting firm other than an incumbent
accounting firm, to fill a casual vacancy in the office of the
accounting firm, to reappoint an accounting firm who was
appointed by the board of directors to fill a casual vacancy or
to remove an accounting firm before expiry of its term of
office, the following provisions shall apply:
(1) A copy of the appointment or removal proposal shall be
sent (before issue of the notice of meeting) to the
firm proposed to be appointed or proposing to leave
its post or the firm which has left its post in the
relevant fiscal year. Reference as leaving herein
includes leaving by removal, resignation and
retirement.
(2) If the accounting firm leaving its post makes
representations in writing and requests the Company to
give the shareholders notice of such representations,
the Company shall (unless the representations have
been received too late) take the following measures:
(i) in any notice of the resolution given to
shareholders, state the fact of the
representations having been made by the
accounting firm leaving its post; and
(ii) attach a copy of the representations to the
notice and deliver it to the shareholders in the
manner stipulated in the Company's Articles of
Association.
(3) If the Company fails to circulate the accounting
firm's representations in the manner set out in
sub-paragraph (2) above, such accounting firm may (in
addition to its right to be heard) require that the
representations be read out at the meeting.
(4) An auditor which is retired from its office shall be
entitled to attend the following shareholders' general
meetings:
(i) the general meeting at which its term of office
would otherwise have expired;
(ii) the general meeting at which it is proposed to
fill the vacancy caused by its removal; and
(iii) the general meeting which convened as a result
of its voluntary resignation:
The leaving accounting firm has the right to receive
all notices of, and other communications relating to,
any such meeting, and to speak at any such meeting
which it attends on any part of the business of the
meeting which concerns it as the former accounting
firm of the Company.
Article 198 Prior notice should be given to the accounting firm 30 days in
advance if the Company decides to remove such accounting firm
or not to renew the appointment thereof. Such accounting firm
shall be entitled to make representations at the shareholders'
general meeting. Where the accounting firm considers that there
is no proper reason for the removal or the non-renewal of
appointment, it may appeal to the securities regulatory
authority of the State Council and The Chinese Institute of
Certified Public Accountants. Where the accounting firm resigns
from its position as the Company's auditors, it shall make
clear to the shareholders in a general meeting whether there
has been any impropriety on the part of the Company.
An accounting firm may resign its office by depositing at the
Company's domicile a resignation notice which shall become
effective on the date of such deposit or on such later date as
may be stipulated in such notice. Such notice shall contain the
following statements:
(1) a statement to the effect that there are no
circumstances connected with its resignation which it
considers should be brought to the notice of the
shareholders or creditors of the Company; or
(2) a statement of any such circumstances.
Where a notice is deposited under the preceding sub-paragraph,
the Company shall within fourteen (14) days send a copy of the
notice to the relevant governing authority. If the notice
contains a statement under the preceding sub-paragraph (2), a
copy of such statement shall be placed at the Company for
shareholders' inspection. The Company should also send a copy
of such statement by prepaid mail to every shareholder of
Overseas-Listed Foreign Shares at the address registered in the
register of shareholders.
Where the accounting firm's notice of resignation contains a
statement in respect of the above, it may require the board of
directors to convene a shareholders' extraordinary general
meeting for the purpose of receiving an explanation of the
circumstances connected with its resignation.
CHAPTER 17 MERGER AND DIVISION OF THE COMPANY
Article 199 The Company may carry out mergers or division in accordance
with law. In the event of merger or division of the Company,
the following procedures shall be adopted:
(1) a proposal for merger or division be drawn up in a
board meeting;
(2) a resolution be made in a shareholders' general
meeting in accordance with these Articles of
Association;
(3) a contract for merger or division be made by the
relevant parties;
(4) the relevant procedures for approval be gone through
according to law;
(5) disposal of credit rights and liabilities in the
merger or division;
(6) registration of dissolution or modification.
In the case of merger or division of the Company, the board of
directors of the Company shall take necessary measures to
protect the legitimate interests of the shareholders who object
to the plan of merger or division. A shareholder who objects to
the plan of merger or division shall have the right to demand
the Company or the shareholders who consent to the plan of
merger or division to acquire such dissenting shareholders'
shareholding at a fair price.
The contents of the resolution of merger or division of the
Company shall constitute special documents which shall be
available for inspection by the shareholders of the Company.
Such special documents shall be sent by mail to holders of
Overseas-Listed Foreign-Invested Shares.
Article 200 The merger of the Company may take the form of either merger by
absorption or merger by the establishment of a new company.
In the event of a merger, the merging parties shall execute a
merger agreement and prepare a balance sheet and an inventory
of assets. The Company shall notify its creditors within ten
(10) days from the date of the Company's merger resolution
which is passed at a shareholders' general meeting and shall
publish a public notice in a newspaper at least three (3) times
within thirty (30) days of the date of the Company's merger
resolution.
Article 201 Where there is a division of the Company, its assets shall be
divided up accordingly.
In the event of division of the Company, the parties to such
division shall execute a division agreement and prepare a
balance sheet and an inventory of assets. The Company shall
notify its creditors within ten (10) days from the date of the
Company's division resolution which is passed at a
shareholders' general meeting and shall publish a public notice
in a newspaper at least three (3) times within thirty (30) days
of the date of the Company's division resolution.
Article 202 A creditor shall have the right either within 30 days of
receipt of the notice if he has received a notice or within 90
days of the first announcement if he has not received a notice
to require the Company to settle indebtedness or provide the
relevant security. If the Company fails to settle the
indebtedness or provide the relevant security, the merger or
division shall not be proceeded with.
Article 203 Disposal of the assets, credit rights and liabilities of the
parties to the merger or division shall be provided explicitly
in a contract.
After the merger, the rights against debtors and the
indebtedness of each of the parties to the merger shall be
inherited by the company which survives the merger or the newly
established company.
Debts of the Company prior to division shall be assumed by the
companies which exist after the division in accordance with the
agreement of the parties.
Article 204 The Company shall, in accordance with law, apply for change in
its registration with the companies registration authority
where a change in any item in its registration arises as a
result of any merger or division. Where the Company is
dissolved, the Company shall apply for cancellation of its
registration in accordance with law. Where a new company is
established, the Company shall apply for registration thereof
in accordance with law.
CHAPTER 18 DISSOLUTION AND LIQUIDATION
Article 205 The Company shall be dissolved and liquidated upon the
occurrence of any of the following events:
(1) a resolution regarding the dissolution is passed by
shareholders at a general meeting;
(2) dissolution is necessary due to a merger or division
of the Company;
(3) the Company is legally declared insolvent due to its
failure to repay debts as they become due; and
(4) the Company is ordered to close down because of its
violation of laws and administrative regulations.
Article 206 Where the Company is dissolved under sub-paragraph (1) of the
preceding paragraph, a liquidation committee shall be set up
within fifteen (15) days thereafter, and the composition of the
liquidation committee of the Company shall be determined by an
ordinary resolution of shareholders in a general meeting. Where
a liquidation committee is not established according to
schedule, the creditor may apply to the People's Court to
organize the relevant personnel to establish a liquidation
committee to proceed the liquidation.
Where the Company is dissolved under sub-paragraph (2) of the
preceding Article, the liquidation shall be conducted by the
parties to the merger or division in accordance with the
contract or agreement made at the time of merger or division.
Where the Company is dissolved under sub-paragraph (3) of the
preceding Article, the People's Court shall in accordance with
the provisions of relevant laws organize the shareholders,
relevant organizations and relevant professional personnel to
establish a liquidation committee to proceed the liquidation.
Where the Company is dissolved under sub-paragraph (4) of the
preceding Article, the relevant governing authorities shall
organize the shareholders, relevant organizations and
professional personnel to establish a liquidation committee to
proceed with the liquidation.
Article 207 Where the board of directors proposes to liquidate the Company
for any reason other than the Company's declaration of its own
insolvency, the board shall include a statement in its notice
convening a shareholders' general meeting to consider the
proposal to the effect that, after making full inquiry into the
affairs of the Company, the board of directors is of the
opinion that the Company will be able to pay its debts in full
within twelve (12) months from the commencement of the
liquidation.
Upon the passing of the resolution by the shareholders in a
general meeting in relation to the liquidation of the Company,
all duties and powers of the board of directors and the
president shall cease.
The liquidation committee shall act in accordance with the
instructions of the shareholders' general meeting to make a
report at least once every year to the shareholders' general
meeting on the committee's income and expenses, the business of
the Company and the progress of the liquidation; and to present
a final report to the shareholders' general meeting on
completion of the liquidation.
Article 208 The liquidation committee shall, within ten (10) days of its
establishment, send notices to creditors and shall, within
sixty (60) days of its establishment, publish a public
announcement at least three (3) times in a newspaper published
by the securities regulatory authority of the State Council.
The liquidation committee shall register the creditors' rights.
Article 209 During the liquidation period, the liquidation committee shall
exercise the following functions and powers:
(1) to categorise the Company's assets and prepare a
balance sheet and an inventory of assets respectively;
(2) to notify the creditors or to publish public
announcements;
(3) to dispose of and liquidate any unfinished businesses
of the Company;
(4) to pay all outstanding taxes;
(5) to settle claims and debts;
(6) to deal with the surplus assets remaining after
repayment by the Company of its debts;
(7) to represent the Company in any civil proceedings.
Article 210 After it has categories the Company's assets and after it has
prepared the balance sheet and an inventory of assets, the
liquidation committee shall formulate a liquidation plan and
present it to a shareholders' general meeting or to the
relevant governing authority for confirmation.
After the initial payment of the settlement expense, the assets
of the Company shall be liquidated in the following order:
(i) salary and labor insurance expenses of the staff
members of the Company;
(ii) outstanding taxes;
(iii) bank loans, debentures and debts to other companies.
Any surplus assets of the Company remaining after its debts
have been repaid in accordance with the provisions of the
preceding paragraph shall be distributed to its shareholders
according to the class of shares and the proportion of shares
held:
(1) In case of the preferred shares, the allocation shall
be first given to the holders of the preferred shares
in accordance with the face value of the preferred
shares; if it is insufficient to repay the preferred
shares, the allocation shall be carried out in
accordance with the proportions of the preferred
shares held by them respectively;
(2) The allocation shall be carried out in accordance with
proportions of shares held by the holders of ordinary
shares.
During the liquidation period, the Company shall not commence
any new business activities.
Article 211 Upon completion of the categorisation of the Company's assets
and preparation a balance sheet and an inventory of assets in
connection with the liquidation of the Company, the liquidation
committee discovers that the Company's assets are insufficient
to repay the Company's debts in full, the liquidation committee
shall immediately apply to the People's Court for a declaration
of insolvency.
After a Company is declared insolvent by a ruling of the
People's Court, the liquidation committee shall transfer all
matters arising from the liquidation to the People's Court.
Article 212 Following the completion of the liquidation, the liquidation
committee shall prepare a liquidation report, a statement of
income and expenses received and made during the liquidation
period and a financial report, which shall be verified by a
Chinese registered accountant and submitted to the
shareholders' general meeting or the relevant governing
authority for confirmation.
The liquidation committee shall, within thirty (30) days after
the confirmation of the liquidation report, submit the
documents referred to in the preceding paragraph to the
companies registration authority and apply for cancellation of
registration of the Company, and publish a public announcement
relating to the termination of the Company.
CHAPTER 19 PROCEDURES FOR AMENDMENT OF THE
COMPANY'S ARTICLES OF ASSOCIATION
Article 213 The Company may amend its Articles of Association in accordance
with the requirements of laws, administrative regulations and
the Company's Articles of Association.
Article 214 The Company shall amend these Articles of Association on the
occurrence of any of the following events:
(1) the Company Law or the relevant laws or administrative
regulations are amended and these Articles of
Association are in conflict with the amended laws or
administrative regulations;
(2) there is change to the Company which makes it not
consistent with these Articles of Association;
(3) it has been approved by the shareholders in a general
meeting to amend these Articles of Association.
Article 215 Any amendment of these Articles of Association shall be made in
the following manner:
(1) The Board of Directors shall pass a resolution to draw
up a proposal for amendment of the Company's Article
of Association in accordance with these Articles of
Association;
(2) The foregoing proposal shall be furnished to the
shareholders in writing and a shareholders' meeting
shall be convened;
(3) The amendments shall be approved by a special
resolution in a shareholders' general meeting.
The board of directors shall amend these Articles of
Association pursuant to the resolution of shareholders in a
general meeting for amendment of these Articles of Association
and the approval opinions of the competent authority.
Amendment of these Articles of Association involving the
contents of the Mandatory Provisions shall become effective
upon receipt of approvals from the companies approving
department authorized by the State Council.
Article 216 If there is any change relating to the registered particulars
of the Company, application shall be made for change in
registration in accordance with law. If the amendment to the
Articles of Association is a matter which is required by the
relevant laws and regulations to be disclosed, an announcement
shall be made in accordance with the provisions of those laws
and regulations.
CHAPTER 20 NOTICE
Article 217 Notices of the Company shall be issued in the following manner:
(1) by hand; (2) by post; (3) by public announcement; (4) any
other manner as provided in these Articles of Association.
If a notice of the Company is issued by public announcement, it
shall be deemed received by the relevant officers once
announced.
Unless otherwise provided in these Articles of Association,
notices, information or written statement issued by the Company
to holders of Overseas-Listed Foreign-Invested Shares shall be
personally delivered to the registered address of each of such
shareholders, or sent by pre-paid mail to each of such
shareholders.
Article 218 If a notice of the Company is issued by hand, the date when the
recipient signed or stamped to acknowledge receipt of the same
shall be regarded as the date of service of the notice.
If a notice of the Company is issued by public announcement,
the date of the first publication of the announcement shall be
regarded as the date of service of the announcement.
All notices which are to be sent by mail shall be clearly
addressed, postage pre-paid, and shall be put into envelopes
before being posted by mail. Such letters of notice shall be
deemed to have been received by shareholders on the third
working day since it is left with the post office.
Article 219 If a notice of meeting is accidentally omitted to be sent to
any person who is entitled to receive the same or that person
has not received such a notice of meeting, it will not cause
the meeting and any resolution made therein to be void.
CHAPTER 21 RESOLUTION OF DISPUTES
Article 220 The Company shall abide by the following principles for dispute
resolution:
(1) Whenever any disputes or claims arise between: holders
of the Overseas-Listed Foreign-Invested Shares and the
Company; holders of the Overseas-Listed
Foreign-Invested Shares and the Company's, directors,
supervisors, president, vice-presidents, Chief
Financial Officer or the secretary of the board of
directors; or holders of the Overseas-Listed
Foreign-Invested Shares and holders of
Domestic-Invested Shares, in respect of any disputes
or claims in relation to the affairs of the Company
arising as a result of any rights or obligations
arising from these Articles of Association, the
Company Law or other relevant laws and administrative
regulations, such disputes or claims shall be referred
by the relevant parties to arbitration.
Where a dispute or claim of rights referred to in the
preceding paragraph is referred to arbitration, the
entire claim or dispute must be referred to
arbitration, and all persons who have a cause of
action based on the same facts giving rise to the
dispute or claim or whose participation is necessary
for the resolution of such dispute or claim, shall,
where such person is the Company or the Company's
shareholders, directors, supervisors, president,
vice-presidents, Chief Financial Officer or the
secretary of the board of directors, comply with the
decisions made in the arbitration. Disputes in respect
of the definition of shareholders and disputes in
relation to the register of shareholders need not be
resolved by arbitration.
(2) A claimant may elect for arbitration to be carried out
at either the China International Economic and Trade
Arbitration Commission in accordance with its Rules or
the Hong Kong International Arbitration Center in
accordance with its Securities Arbitration Rules. Once
a claimant refers a dispute or claim to arbitration,
the other party must submit to the arbitral body
elected by the claimant.
If a claimant elects for arbitration to be carried out
at Hong Kong International Arbitration Center, any
party to the dispute or claim may apply for a hearing
to take place in Shenzhen in accordance with the
Securities Arbitration Rules of the Hong Kong
International Arbitration Center.
(3) If any disputes or claims of rights are settled by way
of arbitration in accordance with sub-paragraph (1) of
this Article, the laws of the PRC shall apply, save as
otherwise provided in the laws and administrative
regulations.
(4) The judgement of an arbitral body shall be final and
conclusive and binding on all parties.
CHAPTER 22 SUPPLEMENTARY
Article 221 These Articles of Association are written in Chinese and
English. If there is any conflict between the two versions, the
Chinese version shall prevail.
Article 222 The expressions of "above", "within" and "below" shall include
the figures mentioned whilst the expressions of "short of" and
"less than" shall not include the figures mentioned.
Article 223 The right to interpret these Articles of Association vests with
the board of directors of the Company, and the right to revise
these Articles of Association vests with shareholders' general
meeting.
Article 224 If these Articles of Association are in conflict with the laws,
administrative regulations or provisions of other regulatory
documents promulgated from time to time, the laws,
administrative regulations and provisions of other regulatory
documents shall prevail.
Article 225 In these Articles of Association, references to "accounting
firm" shall have the same meaning as "auditors".
In these Articles of Association, references to "president"
shall have the same meaning as "manager".
Rules and Procedures
for
The Shareholders' General Meetings
of
China Petroleum & Chemical Corporation
Approved at the First Extraordinary General
Meeting of 2003 on 22 April 2003 Amended at the
Annual General Meeting for the Year 2003 on 18 May 2004
DIRECTORY
CHAPTER 1 GENERAL PROVISIONS...............................................2
CHAPTER 2 FUNCTIONS AND POWERS OF THE SHAREHOLDERS' GENERAL MEETING........3
CHAPTER 3 AUTHORITY OF THE SHAREHOLDERS' GENERAL MEETINGS..................3
CHAPTER 4 PROCEDURES FOR CONVENING A SHAREHOLDERS' GENERAL MEETING
SECTION 1 PUTTING FORWARD, COLLECTING AND EXAMINING MOTIONS..............5
SECTION 2 NOTICE OF MEETING AND ITS ALTERATIONS..........................7
SECTION 3 REGISTRATION OF A MEETING......................................9
SECTION 4 CONVENING A MEETING...........................................10
SECTION 5 VOTING AND RESOLUTION.........................................11
SECTION 6 ADJOURNMENT OF A MEETING......................................15
CHAPTER 5 SUPPLEMENTARY ARTICLES..........................................16
CHAPTER 1 GENERAL PROVISIONS
Article 1 In order to safeguard the legitimate interests of China
Petroleum & Chemical Corporation (the "Company") and its
shareholders, to specify the duties, responsibilities and
authority of the shareholders' general meetings, to ensure the
proper, efficient and smooth operation of the shareholders'
general meeting and to ensure the shareholders' general meeting
exercises its functions and powers according to law, these
Rules are formulated according to the "Company Law of the
People's Republic of China" (the "Company Law"), "Mandatory
Provisions for the Articles of Association of Companies to be
Listed Overseas", "Guidelines for the Articles of Association
of Listed Companies", "Standards for the Governance of Listed
Companies" and "Regulatory Opinions Regarding General Meetings
of Listed Companies" and other relevant laws and regulations
regulating listed companies inside and outside the PRC and the
Articles of Association of China Petroleum & Chemical
Corporation ("Articles of Association").
Article 2 These Rules apply to the shareholders' general meetings of the
Company and shall be binding on the Company, all shareholders,
authorised proxies of the shareholders, directors, supervisors,
president, vice-president, Chief Financial Officer, secretary
of the board of directors and other relevant personnel present
at the meeting.
Article 3 Shareholders' general meetings are divided into annual general
meetings (hereinafter referred to as "AGM"), extraordinary
general meetings; or all shareholders' general meetings or
class shareholders' general meetings.
Article 4 AGMs are held once every year within six months from the end of
the previous accounting year.
Article 5 For the shareholders' general meetings convened each year, all
of them are extraordinary general meetings except the AGM. The
extraordinary general meetings shall be arranged in the order
of the year in which they are convened.
Article 6 Holders of different classes of shares are class shareholders.
Except other class shareholders, holders of domestic shares and
holders of H shares are deemed to be shareholders of different
classes. If the Company intends to alter or annul the rights of
class shareholders, it shall have such alteration or annulment
approved by a special resolution at the shareholders' general
meeting and shall convene a class shareholders' meeting in
accordance with the provisions of the Articles of Association.
Only class shareholders are entitled to attend class
shareholders' meetings.
Article 7 The board of directors of the Company shall strictly comply
with the provisions of the Company Law and other laws and
regulations regarding the convening of shareholders' general
meetings, and shall properly organise the shareholders' general
meeting in a conscientious manner and on schedule. All
directors of the Company are under a bona fide duty to ensure
that the shareholders' general meeting is convened in order,
and shall not obstruct the exercise of powers by the
shareholders' general meeting according to law.
The directors present at the meeting shall perform their duties
in good faith, and shall ensure that the contents of the
resolutions passed at the meeting are true, accurate and
complete and shall not use any words and expressions that may
easily cause ambiguity.
Article 8 Any shareholder who holds the shares of the Company legally and
validly are entitled to attend or authorise a proxy to attend
the shareholders' general meeting, and shall have the right to
know the Company's affairs, the right to speak, the right to
raise questions and the right to vote pursuant to law and these
Rules.
Shareholders and their proxies attending the shareholders'
general meeting shall comply with the provisions of the
relevant laws and regulations, Articles of Association and
these Rules, and shall take the initiative to maintain the
order of the meeting and shall not infringe the legitimate
rights and interests of other shareholders.
Article 9 The Secretary to the board of directors of the Company shall
be responsible for implementing the preparatory and organisation
work for convening a shareholders' general meeting.
Article 10 In convening a shareholders' general meeting, the principle of
cost-saving and simplicity shall be adhered to. No extra benefits
shall be given to the shareholders (or their proxies) present
at the meeting.
CHAPTER 2 FUNCTIONS AND POWERS OF THE SHAREHOLDERS'
GENERAL MEETING
Article 11 The shareholders' general meeting is the authority organ of the
Company and shall exercise the following functions and powers
according to law:
(1) to decide on the Company's operational policies and
investment plans;
(2) to elect and replace directors and to decide on
matters relating to the remuneration and liability
insurance of directors;
(3) to elect and replace supervisors who are shareholder
representatives and to decide on matters relating to
the remuneration and liability insurance of
supervisors;
(4) to examine and approve the board of directors'
reports;
(5) to examine and approve the supervisory committee's
reports;
(6) to examine and approve the Company's profit
distribution plans and loss recovery plans;
(7) to examine and approve the Company's proposed annual
preliminary and final financial budgets;
(8) to pass resolutions on the increase or reduction of
the Company's registered capital;
(9) to pass resolutions on matters such as merger,
division, dissolution and liquidation of the Company;
(10) to pass resolutions on the issue of debentures by the
Company;
(11) to pass resolutions on the appointment, dismissal and
non-reappointment of the accounting firm by the
Company;
(12) to amend the Articles of Association and its
appendices (including the Rules and Procedures for the
Shareholders' General Meetings, Rules and Procedures
for the Board of Directors' Meetings and Rules and
Procedures for the Supervisors' Meetings);
(13) to consider motions raised by the supervisory
committee or shareholders who represent 5% or more of
the total number of voting shares of the Company at
the annual general meetings;
(14) to decide on other matters which, according to laws,
administrative regulations, rules of the competent
authorities and the Articles of Association, shall be
approved by the shareholders' general meetings.
The shareholders' general meetings shall exercise its powers
within the scope stipulated by the Company Law and shall not
interfere with the decision of shareholders regarding their own
rights.
CHAPTER 3 AUTHORITY OF THE SHAREHOLDERS' GENERAL MEETINGS
Article 12 Matters which, in accordance with laws, administrative
regulations, rules of the relevant government authorities and
provisions of the Articles of Association, fall within the
scope of the authority of the shareholders' general meeting
must be examined at such meeting so as to protect the
decision-making power of the shareholders of the Company on
such matters.
Article 13 In order to ensure and increase the stability and efficiency of
the daily operations of the Company, the shareholders' general
meeting authorises the board of directors of the Company, on a
partial basis, to exercise the following powers on investment
plans, asset disposals and external guarantees:
(1) Investment:
(i) The shareholders' general meetings shall
examine and approve medium and long-term
investment plans and annual investment plans
of the Company. The board of directors is
authorised to make adjustments of not more
than 15% of the amount of the capital
expenditure for the current year as approved
at the shareholders' general meeting.
(ii) Individual project investments (including but
not limited to exploration and development,
fixed assets, external shareholdings) shall be
approved by the shareholders' general meeting
if the investment amounts are more than 5% of
the latest audited net asset value of the
Company. The board of directors is authorised
to examine and approve projects if the
investment amount is not more than 5% of the
latest audited net asset value of the Company.
(iii) Where the Company uses its own assets to make
risky investment in areas not related to the
business of the Company (including but not
limited to debentures, futures, shares), risky
investments shall be approved by the
shareholders' general meeting if the amount of
investment is more than 1% of the latest
audited net asset value of the Company. The
board of directors is authorised to examine
and approve projects if the investment amount
is not more than 1% of the latest audited net
asset value of the Company.
(2) Asset disposal:
(i) When the Company acquires or sells assets, it
has to take into account of the following 4
testing indices: (1) total asset ratio: the
total amount of the assets to be acquired or
sold (according to the latest audited
financial report, valuation report or capital
verification report) divided by the latest
audited total asset value of the Company; (2)
net profit (loss) ratio of the acquisition:
the absolute value of the net profit or loss
relating to the assets to be acquired
(according to the audited financial report of
the preceding year) divided by the absolute
value of the audited net profit or loss of the
Company for the preceding year; (3) net profit
(loss) ratio of the sale: the absolute value
of the net profit or loss relating to the
assets to be sold (according to the audited
financial report of the preceding year) or the
absolute value of the profit or loss arising
from such transaction divided by the absolute
value of the audited net profit or loss of the
Company for the preceding year; (4)
transaction amount ratio: the transaction
amount (taking into account of the assumed
liabilities and costs, etc) of the acquired
assets divided by the total amount of the
latest audited net asset value of the Company.
The shareholders' general meeting shall
examine and approve any of the above projects
with a ratio of not less than 50%. The board
of directors is authorised to examine and
approve any of the above projects with a ratio
of less than 50%.
(ii) In disposing of fixed assets, where the total
value of the expected value of the fixed
assets to be disposed of and the value of the
fixed assets which have been disposed of in
the four months prior to such proposed
disposal exceeds 33% of the value of the fixed
assets as shown in the latest balance sheet
considered by the shareholders' general
meeting, the shareholders' general meeting
shall examine and approve such disposal, and
the board of directors is authorised to
examine and approve those fixed asset
disposals of less than 33%.
The disposal of fixed assets referred to in
this Article includes the transfer of certain
asset interests but excludes the provision of
guarantee by way of fixed assets.
The validity of the transactions for disposal
of fixed assets by the Company shall not be
affected by any breach of paragraph (2)(i) of
this Article.
(iii) Regarding others (including but not limited to
the entering into, varying and termination of
important contracts relating to entrustment of
operation, entrusted operation, entrusted
financial management, contracting and
leasing), the relevant amount or the amount
accumulated in 12 months shall be calculated
according to one of four testing indices
referred to in paragraph (2)(i) of this
Article.
Any of the above projects with a ratio of more
than 5% shall be examined and approved by the
shareholders' general meeting. The board of
directors is authorised to examine and approve
any of the above projects with a ratio of not
more than 5%.
(3) External guarantees
The Company shall not provide guarantees for its
shareholders, controlling subsidiaries of its
shareholders, subsidiary enterprises of shareholders
or personal liability and shall not directly or
indirectly provide liability guarantee for debtors
with an asset to liability ratio exceeding 70%. If the
Company provides guarantees to others, the guaranteed
person shall provide counter-guarantee to the Company
or take other necessary risk preventive measures. The
total amount of external guarantees of the Company
shall not exceed 50% of the net assets stated in the
consolidating accounting statements of the latest
accounting year of the Company."
If the guarantee amount exceeds 5% of the latest
audited net asset value of the Company, such
guarantees shall be examined and approved by the
shareholders' general meeting. The board of directors
is authorised to examine and approve guarantees of not
more than 5% of the latest audited net asset value of
the Company.
(4) If, when applying the relevant standards as set out
above, the approving offices of any investment, asset
disposal and external guarantee matters as referred to
above include both shareholders' general meeting and
the board of directors, such matters shall be
submitted to the shareholders' general meeting for
approval.
(5) If the above investment, asset disposal and external
guarantee matters constitute connected transactions
according to the regulatory stipulations of the places
where the Company is listed, the relevant matters
shall be dealt with according to the relevant
stipulations.
Article 14 Under necessary and reasonable circumstances, as regards
specific matters related to the matters to be resolved and
those which cannot or are not required to be decided at the
shareholders' general meeting, the shareholders' general
meeting may authorise the board of directors or the secretary
to the board of directors to decide within the scope of
authority authorised by the shareholders' general meeting.
CHAPTER 4 PROCEDURES FOR CONVENING A SHAREHOLDERS'
GENERAL MEETING
Section 1 Putting Forward, Collecting and Examining Motions
Article 15 Motions put forward in a shareholders' general meeting shall be
specific and shall relate to the matters which shall be
discussed at a shareholders' general meeting.
Article 16 Motions at the shareholders' general meeting are usually put
forward by the board of directors.
Article 17 Where two or more than half of the independent directors
request the board of directors to convene an extraordinary
general meeting, they shall be responsible for putting forward
the motions to be examined at the meeting. If the board of
directors disagrees with the convening of an extraordinary
general meeting, it shall disclose the relevant details.
Article 18 Where the Company convenes an AGM, the supervisory committee or
shareholders individually or jointly holding more than 5% of
the total voting shares of the Company are entitled to put
forward provisional motions. If the proposing shareholders have
any objection to the decision of the board of directors of not
including their motions in the agenda, they may request the
convening of an extraordinary general meeting according to the
provisions of these Rules.
Article 19 Where the supervisory committee proposes to convene a
shareholders' general meeting, it shall be responsible for
putting forward motions.
Article 20 Where shareholders individually or jointly holding more than
10% of the Company's voting shares propose to convene a
shareholders' general meeting, the proposing shareholders shall
be responsible for putting forward the motions, whether or not
the meeting is convened by the board of directors.
Article 21 Before the Chairman of the board of directors issues a notice
of the board meeting relating to the convening of a
shareholders' general meeting, the secretary to the board of
directors may collect motions from shareholders individually
holding more than 5% of the Company's voting shares (at the
time of proposing to convene an AGM) or shareholders
individually holding more than 10% of the Company's voting
shares (at the time of proposing to convene an extraordinary
general meeting), supervisors and independent directors and
submit the same to the board of directors for examination and
approval and subsequently submit the same as motions to the
shareholders' general meeting for examination.
Article 22 The following motions shall be put forward at the AGM for
consideration:
(1) to examine the board of directors' annual reports,
including the investment plans and operation strategy
for the following year;
(2) to examine the supervisory committee's annual reports;
(3) to examine the Company's audited final budget proposal
for the preceding year;
(4) to examine and approve the Company's profit
distribution plans and loss recovery plans for the
preceding year;
(5) to appoint, dismiss or not to reappoint the accounting
firm.
Article 23 Shareholders individually or jointly holding more than 5% of
the Company's voting shares are entitled to put forward
provisional motions at an AGM. The board of directors shall
examine and approve such shareholders' motions according to the
following principles:
(1) Relevance. The board of directors shall conduct
preliminary examination of a motion, that is, the
motion should be submitted or delivered to the board
of directors or chairman of the meeting in a written
form, and the contents of the motion shall comply with
laws, administrative regulations and the Articles of
Association, shall fall within the scope of business
of the Company and the duties of the shareholders'
general meeting, and shall cover a specific subject
for discussion with concrete matters to be resolved.
If the motion complies with the above requirements, it
shall be submitted to the AGM for discussion.
Otherwise no such submission shall be effected. If the
board of directors decides not to submit the
shareholders' motion to the AGM for voting, it shall
give an explanation and statement at the AGM.
(2) Procedures. The board of directors may decide on the
procedural issues relating to the motion. Where a
motion needs to be divided into different motions or
merged with other motions to be voted on, consent of
the person putting forward the original motion is
required. If the person putting forward the original
motion does not agree with any change, the chairman of
the meeting may request the AGM to decide on the
procedural issues and conduct discussion according to
the procedures decided by the AGM.
Article 24 Where the supervisory committee or shareholders individually or
jointly holding more than 10% of the Company's voting shares
propose to convene an extraordinary general meeting or class
shareholders' general meeting, they may sign one or more
written request(s) of identical form and contents stating the
topics for discussion at the meeting, and at the same time
submit motions complying with the above requirements of these
Rules to the board of directors.
Article 25 Motions involving the following circumstances shall be deemed
to lead to a change or abrogation of the rights of a class
shareholder and the board of directors shall submit them to a
class shareholders' general meeting for examination:
(1) to increase or decrease the number of shares of such
class, or to increase or decrease the number of shares
of a class having voting rights, distribution rights
or other privileges equal or superior to those of the
shares of such class;
(2) to change all or part of the shares of such class into
shares of another class or to change all or part of
the shares of another class into shares of that class
or to grant such conversion right;
(3) to cancel or reduce rights to accrued dividends or
cumulative dividends attached to shares of such class;
(4) to reduce or remove preferential rights attached to
shares of such class to receive dividends or to the
distribution of assets in the event that the Company
is liquidated;
(5) to add, cancel or reduce share conversion rights,
options, voting rights, transfer rights, pre-emptive
placing rights, or rights to acquire securities of the
Company attached to shares of such class;
(6) to cancel or reduce rights to receive payment payable
by the Company in a particular currency attached to
shares of such class;
(7) to create a new class of shares with voting rights,
distribution rights or other privileges equal or
superior to those of the shares of such class;
(8) to restrict the transfer or ownership of shares of
such class or to impose additional restrictions;
(9) To issue rights to subscribe for, or to convert into,
shares of such class or another class;
(10) To increase the rights or privileges of shares of
another class;
(11) to restructure the Company in such a way so as to
cause the shareholders of different classes to bear
liability to different extents during the
restructuring;
(12) to amend or abrogate the provisions of Chapter 9 of
the Articles of Association "Special Procedures for
Voting by a Class of Shareholders".
Section 2 Notice of Meeting and its Alterations
Article 26 The notice of a shareholders' general meeting shall be issued
by the convenors of the meeting. Convenors of the meeting
include the board of directors or shareholders individually or
jointly holding more than 10% of the Company's voting shares.
Article 27 A written notice shall be issued 45 days (excluding the date of
the meeting) prior to the meeting, informing all shareholders
of the matters to be considered at the meeting, and the date
and place of the meeting.
The notice of a shareholders' general meeting shall be
delivered to the shareholders (whether or not such shareholders
are entitled to vote at the meeting) by hand or by pre-paid
mail to the addresses of the shareholders as shown in the
register of shareholders of the Company. For the holders of
domestic shares, the notice of the meeting may also be given by
way of public announcement.
The public announcement referred to in the preceding paragraph
shall be published in one or more newspapers designated by the
securities regulatory authority of the State Council during the
period between forty-five to fifty days before the date of the
meeting. Once the announcement is made, the holders of domestic
shares shall be deemed to have received the notice of the
relevant shareholders' general meeting.
Where the Company fails to issue a notice of meeting according
to schedule thus resulting in the failure of the Company to
convene an AGM within six months from the end of the preceding
accounting year, it shall report the same immediately to the
stock exchanges on which its shares are listed stating the
reasons and shall make an announcement accordingly.
Article 28 The notice of a class shareholders' general meeting shall be
delivered only to the shareholders who are entitled to vote at
such meeting.
Article 29 The notice of a shareholders' general meeting shall satisfy the
following requirements:
(1) in writing;
(2) specify the place, date and time of the meeting;
(3) set out the matters to be discussed at the meeting and
fully disclose the contents of the motions. If it is
required to alter matters involved in the resolutions
of the previous shareholders' general meeting, the
contents of the motion shall be complete and not only
the contents of the changes are stated. Items included
under "any other businesses" without specific contents
shall not be deemed as a motion and the same shall not
be voted at a shareholders' general meeting;
(4) provide the shareholders with such information and
explanation as necessary to enable the shareholders to
make an informed decision on the proposals put before
them. Such principle includes (but not limited to)
where a proposal is made to amalgamate the Company
with another, to repurchase shares of the Company, to
reorganize its share capital, or to restructure the
Company in any other way, the terms of the proposed
transaction must be provided in detail together with
contracts (if any) and the cause and effect of such
proposal must be properly explained;
(5) contain a disclosure of the nature and extent of the
material interests of any director, supervisor,
president, vice-president, Chief Financial Officer and
secretary of the board of directors in the proposed
transaction and the effect which the proposed
transaction will have on them in their capacity as
shareholders in so far as it is different from the
effect on the interests of shareholders of the same
class;
(6) contain the full text of any special resolution to be
proposed at the meeting;
(7) contain a clear statement that a shareholder entitled
to attend and vote at such meeting is entitled to
appoint one or more proxies to attend and vote at such
meeting on his behalf and that such proxy needs not be
a shareholder;
(8) specify the shareholding registration date for the
shareholders who are entitled to attend the
shareholders' general meeting;
(9) specify the time and place for lodging proxy forms for
the meeting;
(10) state names and telephone numbers of the contact
persons for the meeting.
Article 30 The board of directors shall issue a notice to convene the
shareholders' general meeting within fifteen days upon receipt
of a written request for convening a shareholders' general
meeting from the supervisory committee which is in compliance
with the relevant requirements.
Article 31 After the board of directors has received a written request for
convening an extraordinary general meeting in compliance with
the relevant requirements from shareholders individually or
jointly holding more than 10% of the Company's voting shares,
it shall issue a notice to convene a shareholders' general
meeting as soon as possible. Any alterations to the original
motion shall have the consent of the proposing shareholders.
After the issue of the notice, the board of directors shall not
propose any new motions or change or defer the time for holding
the shareholders' general meeting without the consent of the
proposing shareholders.
Article 32 If the board of directors fails to issue a notice to convene a
meeting within thirty days upon receipt of a written request
from shareholders individually or jointly holding more than 10%
of the Company's voting shares, the proposing shareholders may
convene a shareholders' extraordinary general meeting
themselves within four months after the board of directors has
received such request. Where the proposing shareholders decide
to convene such a meeting themselves, it shall notify the board
of directors in writing, and shall issue a notice to convene
the meeting after reporting to the branch of the securities
regulatory authority of the State Council of the locality of
the Company and the stock exchanges on which the Company's
shares are listed. The notice of the meeting shall comply with
the general requirements for notices of meetings and shall also
satisfy the following requirements:
(1) new contents shall not be added to a motion, otherwise
the proposing shareholders shall resubmit a request to
convene a shareholders' general meeting to the board
of directors;
(2) the meeting shall be held at the offices of the
Company.
Article 33 After the issue of the notice of a meeting, the convenors of
the meeting shall not put forward any new motion which is not
set out in the notice.
Where a shareholder who has the largest shareholding of the
Company intends to put forward a new motion on profit
distribution at an AGM, such shareholder shall, not less than
ten days before the date of the AGM, submit the motion to the
board of directors to enable it to make an announcement,
failing which the shareholder is not entitled to put forward
the motion at the AGM.
Article 34 Shareholders and authorised proxies intending to attend a
shareholders' general meeting shall deliver to the Company
their written replies concerning their attendance at such
meeting twenty days before the date of the meeting.
The Company shall, based on the written replies which it
receives from the shareholders twenty days before the date of
the shareholders' general meeting, calculate the number of
voting shares represented by the shareholders and the
authorised proxies who intend to attend the meeting. If the
number of voting shares represented by the shareholders who
intend to attend the meeting amount to more than one-half of
the Company's total voting shares, the Company may hold the
shareholders' general meeting; if not, then the Company shall,
within five days, notify the shareholders again by way of
public announcement the matters to be considered at, and the
place and date for, the meeting. The Company may then hold the
shareholders' general meeting after publication of such
announcement.
Article 35 After the convenors of a meeting have issued the notice of the
shareholders' general meeting, the shareholders' general
meeting shall not be convened at an earlier date, nor shall it
be postponed without reasons. Where a shareholders' general
meeting has to be postponed for special reasons, the convenors
of the meeting shall publish a postponement notice at least
five working days before the original date of the shareholders'
general meeting. The convenors of the meeting shall state the
relevant reasons and the date for convening the meeting after
the postponement in the postponement notice.
Article 36 Where the Company postpones the shareholders' general meeting,
it shall not change the shareholding registration date for the
shareholders who are entitled to attend the shareholders'
general meeting according to the original notice.
Article 37 The Company shall post all information relating to the
shareholders' general meeting on the website of the Shanghai
Stock Exchange at least five working days before the date of
the meeting according to the requirements of the Shanghai Stock
Exchange.
Section 3 Registration of a Meeting
Article 38 A shareholder may attend the shareholders' general meeting in
person or appoint a proxy to attend and vote on his behalf.
Directors, supervisors, secretary to the board of directors and
the PRC lawyer(s) engaged by the Company shall attend the
meeting. The president, vice-president, Chief Financial Officer
of the Company and persons invited by the board of directors
may also attend the meeting.
In order to ensure the solemnity and proper order of the
shareholders' general meeting, the Company shall have the right
to refuse persons other than those stated above to enter into
the venue.
Article 39 The Company shall be responsible for preparing an attendance
register, which will be signed by the personnel attending the
meeting. The attendance register shall set out the names of
persons present at the meeting (and/or names of units),
identification document numbers, information confirming the
identities of the shareholders (such as shareholder account
numbers), the number of voting shares held or represented,
names of the proxies (or names of the units) and so on.
Article 40 The contents of registration for the shareholders or proxies
attending the shareholders' general meeting shall include:
(1) confirmation of the identity as a shareholder or
proxy;
(2) request to speak and contents of the text (if any);
(3) collecting the voting slips according to the number of
shares held/represented by the shareholders or
proxies;
(4) registering new motions (if any).
Article 41 The instrument appointing a proxy of a shareholder shall be in
writing. Such written instrument shall state the following:
(1) the name of the authorised proxy of the shareholder;
(2) the number of shares of the principal represented by
the authorised proxy;
(3) whether or not the proxy has any voting right;
(4) an indication to vote for or against each and every
matter included in the agenda;
(5) whether or not the proxy has voting rights in respect
of the provisional motion which may be included in the
agenda of the AGM; and, if this is the case, specific
instructions as to the type of voting rights to be
exercised;
(6) the date of issue and validity period of the proxy
form;
(7) the signature (or seal) of the principal or its agent
appointed in writing; if the principal is a legal
person shareholder, the proxy form shall bear the seal
of the legal person unit, or signed by its director or
an agent duly appointed by it.
The proxy form shall state clearly that the proxy shall be
entitled to vote at his discretion in the absence of specific
instructions from the shareholder.
Article 42 The proxy form shall be lodged with the Company's premises or
such other place as specified in the notice convening the
meeting at least twenty-four hours prior to the relevant
meeting for which the proxy is appointed to vote or twenty-four
hours prior to the scheduled voting time. Where the proxy form
is signed by a person authorised by the principal, the power of
attorney or other authorisation documents shall be notarised.
The notarised power of attorney and other authorisation
documents, together with the proxy form, shall be lodged with
the Company's premises or such other place as specified in the
notice convening the meeting.
Article 43 Shareholders attending a shareholders' general meeting shall
fulfil registration procedures. Shareholders shall produce the
following documents for registration purposes:
(1) Natural person shareholders: an individual shareholder
shall produce his identification documents and provide
information enabling the Company to confirm his
identity as a shareholder. Where a proxy is appointed
to attend the meeting, the proxy shall produce his own
identification documents and the proxy form, and
provide the Company with information enabling the
Company to confirm the identity of his principal as a
shareholder.
(2) Legal person shareholders: if a legal representative
is appointed to attend the meeting, the legal
representative shall produce his identification
documents and proof of his qualification as a legal
representative, and he shall provide the Company with
the information enabling the Company to confirm the
identity of the legal person shareholder. Where a
proxy is appointed to attend the meeting, the proxy
shall produce his own identification documents, the
proxy form issued by the legal representative of the
legal person shareholder pursuant to law, or a
notarised copy of a resolution on authorisation
adopted by the board of directors of the legal person
shareholder or other decision-making organs, and shall
provide information enabling the Company to confirm
the identity of the principal as a legal person
shareholder.
Article 44 Where a shareholder or a proxy requests to speak at the
shareholders' general meeting, he shall register with the
Company prior to the meeting. The number of speakers shall be
limited to ten. If there are more than ten speakers, the first
ten shareholders who have the largest shareholdings shall have
the right to speak in an order according to their
shareholdings.
Article 45 Where an AGM is convened, the supervisory committee and
shareholders individually or jointly holding more than 5% of
the Company's voting shares shall be entitled to propose new
motions to the Company for registration. For the new motions
put forward by the shareholders, it is for the chairman of the
meeting to decide according to Article 23 of these Rules
whether or not to include the same in the agenda.
Where an extraordinary general meeting is convened, no new
motions are allowed to be registered with the Company, and the
chairman shall not add such new motions to the agenda of the
meeting.
Section 4 Convening a Meeting
Article 46 A shareholders' general meeting shall be chaired by the
Chairman of the board of directors, who shall act as the
chairman of the meeting. If the Chairman is unable to attend
the meeting, the Vice Chairman shall act as the chairman of the
meeting.
If both the Chairman and Vice Chairman are unable to attend the
meeting and the Chairman has not appointed another director to
act as the chairman of the meeting, the board of directors may
appoint a director of the Company to take the chair. If the
board of directors fails to do so, the shareholders present at
the meeting may choose a person to act as the chairman. If, for
any reason, the shareholders cannot elect a chairman, the
shareholder (including a proxy) holding the largest number of
voting shares shall be the chairman of the meeting.
Article 47 Where shareholders individually or jointly holding more than
10% of the Company's voting shares of their own motion decide
to convene an extraordinary general meeting, the board of
directors and secretary to the board of directors shall
earnestly perform their duties. Directors and supervisors shall
attend the meeting, and the secretary to the board of directors
must attend the meeting to ensure the meeting is held in proper
order. The meeting shall be presided over by the Chairman, who
shall also act as the chairman of the meeting. If the Chairman
is unable to attend the meeting for any reason, the Vice
Chairman shall act as the chairman of the meeting. If both the
Chairman and Vice Chairman are unable to attend the meeting and
the Chairman has not designated a person to act as chairman of
the meeting, the board of directors may designate a director of
the Company to so act. If the board of directors is unable to
designate a director to chair the shareholders' general
meeting, the proposing shareholder shall take the chair after
filing a report with the branch of the securities regulatory
authority of the State Council of the locality of the Company.
Article 48 The chairman shall declare that the meeting commences at the
scheduled time after he has been informed that the participants
are in compliance with legal requirements and new motions and
speakers are registered. In any of the following circumstances,
the meeting may be declared to commence later than the time
scheduled:
(1) when any equipment of the venue is out of order so
that the meeting cannot proceed as usual;
(2) when any matters of material importance take place
affecting the proceeding of the meeting.
Article 49 After the chairman of the meeting has declared the official
commencement of the meeting, he shall firstly announce that the
number of shareholders attending the meeting and the number of
shares represented by such shareholders are in compliance with
the legal requirements. Subsequently he shall read out the
agenda as stated in the notice of the meeting, and shall
inquire whether any person present at the meeting has any
objection to the voting order of the motions. If an AGM is
convened, the chairman of the meeting shall also inquire
whether the supervisory committee or the shareholders
individually or jointly holding more than 5% of the Company's
voting shares need to put forward new motions. Where a new
motion is put forward by a shareholder, the chairman of the
meeting shall decide whether to accept the motion according to
Article 23 of these Rules.
Where the board of directors or chairman of the meeting decides
not to include the motion of the supervisory committee or
shareholders into the agenda of the AGM, explanations and
statements shall be given at such AGM.
At an extraordinary general meeting, no person shall be allowed
to request for discussion of new motions not set out in the
notice of the shareholders' general meeting.
Article 50 After the chairman of the meeting has made inquires regarding
the agenda, he shall read out the motions or appoint another
person to read out the motions, and shall explain the motions
according to the following requirements if necessary:
(1) Where the motion is put forward by the board of
directors, the motion shall be explained by the
Chairman or other persons designated by the Chairman;
(2) Where the motion is put forward by the supervisory
committee or shareholders individually or jointly
holding more than 5% of the Company's voting shares,
the motion shall be explained by the person putting
forward the motion or its legal representative or
lawful and valid proxy.
Article 51 Motions included in the agenda shall be examined before voting.
Reasonable time shall be given at the shareholders' general
meeting for each motion to be discussed, and the chairman of
the meeting shall orally ask the shareholders attending the
meeting whether they have completed the examination procedures.
Examination procedures shall be regarded as completed if there
are no objections by shareholders attending the meeting.
Article 52 No shareholder shall speak for more than twice at the meeting
without the consent of the chairman. A shareholder is allowed
to speak for no more than five minutes for the first time, and
no more than three minutes for the second time.
When a shareholder requests to speak, he shall only do so if he
does not interrupt report which is being made by the meeting
reporter or speeches which are being made by other
shareholders.
Article 53 Shareholders may query the Company at the shareholders' general
meeting. The chairman of the meeting shall direct the directors
or supervisors to answer such queries unless they relates to
the Company's business secret and shall not be disclosed at the
meeting.
Section 5 Voting and Resolution
Article 54 Shareholders' general meeting shall resolve on any specific
motions.
Article 55 Matters not included in the notice convening the shareholders'
extraordinary general meeting shall not be resolved on at such
a meeting. In approving the motions included in the notice of
an extraordinary general meeting, no alteration shall be made
to the relevant motions in respect of the following matters:
(1) increase or reduction of the registered capital of the
Company;
(2) issuance of bonds of the Company;
(3) division, merger, dissolution and liquidation of the
Company;
(4) amendment to the Articles of Association;
(5) profits distribution plans and loss recovery plans of
the Company;
(6) appointment and removal of a member of the board of
directors and the supervisory committee;
(7) changing the use of proceeds from a share offer;
(8) the entering into of a connected transaction which
requires the approval of the shareholders in general
meetings;
(9) acquisition or sale of assets which requires the
approval of the shareholders in general meetings;
(10) changing the accounting firm engaged.
Any alteration in respect of the contents of the above motions
shall be deemed to be a new motion and shall not be voted on at
that shareholders' general meeting.
Shareholders' general meetings shall resolve on all motions
included in the agenda one by one, and shall not for any reason
cause delay in considering, or fail to consider, such motions.
Where different motions are put forward at the annual general
meeting for the same matter, such motions shall be resolved on
in the order of time in which they are put forward.
Article 56 The chairman of the meeting is obliged to request the
shareholders to approve the motions by open ballot at the
general meeting.
Each shareholder or proxy shall exercise his voting rights in
accordance with the number of voting shares represented by him.
Except for the circumstances where cumulative voting system is
applicable to the election of directors in accordance with the
Articles of Association, each share shall carry one voting
right.
Article 57 Resolutions in respect of the election of directors shall be
passed by a way of cumulative voting at shareholders' general
meeting in accordance with the Articles of Association. The
details of the cumulative voting system are as follows:
(1) Where the number of directors to be elected is more
than two, the cumulative voting system must be
adopted.
(2) Where cumulative voting system is adopted, each of the
shares held by a shareholder shall carry the same
number of votes as the number of directors to be
elected.
(3) The notice of a shareholders' general meeting shall
notify the shareholders that a cumulative voting
system will be adopted for the election of directors.
The convenors of the shareholders' general meeting
shall prepare ballots suitable for cumulative voting,
and shall give explanations in writing regarding the
cumulative voting system, the completion of the
ballots and the methods of counting the votes.
(4) In casting his votes for the director candidates at a
shareholders' general meeting, a shareholder may
exercise his voting rights by spreading his votes
evenly and cast for each of the candidates the number
of votes corresponding to the number of shares he
holds; or he may focus his votes on one candidate and
cast for a particular candidate the total number of
votes carried by all of his shares while the number of
voting rights carried by each of his shares is the
same as the number of directors to be elected; or he
may spread his votes over several candidates and cast
for each of them part of the total number of votes
carried by the shares he holds while the number of
voting rights carried by each of his shares is the
same as the number of directors to be elected.
(5) Upon the exercise of his voting rights by focusing his
votes on one or several of the candidates while the
number of voting rights carried by each of his shares
is the same as the number of directors to be elected,
a shareholder shall not have any right to vote for any
other candidates.
(6) Where the total number of votes cast by a shareholder
for one or several of the candidates is in excess of
the number of votes carried by the total number of
shares held by him, the votes cast by the shareholder
shall be invalid, and the shareholder shall be deemed
to have waived his voting rights. Where the total
number of votes cast for one or several candidates by
a shareholder is less than the number of votes carried
by the total number of shares held by such a
shareholder, the votes cast by the shareholder shall
be valid, and the voting rights attached to the
shortfall between the votes actually cast and the
votes which the shareholder is entitled to cast shall
be deemed to have been waived by the shareholder.
(7) Where the number of approval votes won by a director
candidate exceeds one-half of the total voting rights
(to be calculated according to the total number of
shares if the cumulative voting is not adopted)
represented by the shareholders present at the
shareholders' general meeting and the approval votes
exceeds the objection votes, the candidate shall be
the elected director candidate. If the number of the
elected director candidates exceeds the total number
of directors to be elected, those candidates who win
the largest number of approval votes shall be elected
as directors (however, if the elected director
candidates whose approval votes are comparatively
fewer win the same number of approval votes, and the
election of such candidates as directors will give
rise to the number of directors elected exceeding the
number of directors to be elected, such candidates
shall be deemed as having not been elected); if the
number of directors elected at a shareholders' general
meeting is less than the number of directors to be
elected, a new round of voting shall be carried out
for the purpose of filling such directorship
vacancies, until all the directors to be elected are
validly elected.
(8) Where a new round of voting is carried out according
to the provisions of paragraph (7) of this Article at
the shareholders' general meeting, the number of votes
casted by the shareholders in the cumulative voting
shall be re-counted according to the number of
directors to be elected in the new round of voting.
Article 58 In examining the motions on the election of directors and
supervisors at a shareholders' general meeting, shareholders
shall vote on the candidates for the office of directors or
supervisors one by one.
Article 59 Resolutions of a shareholders' general meeting shall be divided
into ordinary resolutions and special resolutions.
(1) Ordinary resolutions
(i) Ordinary resolutions shall be passed by votes
representing more than one-half of the voting
rights represented by the shareholders
(including proxies) present at the meeting.
(ii) The following matters shall be approved by
ordinary resolutions at shareholders' general
meetings:
(a) work reports of the board of directors and
the supervisory committee;
(b) profit distribution plans and loss
recovery plans formulated by the board of
directors;
(c) appointment and removal of members of the
board of directors and members of the
supervisory committee, their remuneration
and manner of payment and their liability
insurance;
(d) annual preliminary and final budgets,
balance sheets and profit and loss
accounts and other financial statements of
the Company;
(e) annual reports of the Company;
(f) matters other than those which are
required by laws and regulations or by the
Articles of Association to be passed by
special resolutions.
(2) Special resolutions
(i) Special resolutions shall be passed by votes
representing more than two-thirds of the voting
rights represented by the shareholders
(including proxies) present at the meeting.
(ii) The following matters shall be approved by
special resolutions at a shareholders' general
meetings:
(a) increase or reduction in share capital and
the issue of shares of any class, warrants
and other similar securities;
(b) issue of bonds of the Company;
(c) division, merger, dissolution and
liquidation of the Company;
(d) repurchase of shares of the Company;
(e) amendment to the Articles of Association,
the Rules and Procedures for the
Shareholders' General Meetings, the Rules
and Procedures for the Board of Directors'
Meetings and the Rules and Procedures for
the Supervisors' Meetings;
(f) any other matters approved by an ordinary
resolution by the shareholders at a
general meeting which may have material
impacts on the Company and accordingly
should be passed by special resolutions.
Article 60 As far as any matter relating to sub-paragraphs (2) to (8),
(11) to (12) of Article 25 of these Rules, the affected class
shareholders, whether or not such shareholders originally have
the right to vote at shareholders' general meetings, shall have
the right to vote at the class meetings. However, interested
shareholder(s) shall not be entitled to vote at such class
meetings.
"(An) interested shareholder(s)", as such term is used in the
preceding paragraph, means:
(1) in the case of a repurchase of shares by way of a
general offer to all shareholders of the Company or by
way of public dealing on a stock exchange pursuant to
Article 29 of the Articles of Association, an
interested shareholder is a controlling shareholder
within the meaning of Article 55 of the Articles of
Association;
(2) in the case of a repurchase of shares by an off-market
agreement pursuant to Article 29 of the Articles of
Association, a holder of the shares to which the
proposed agreement relates;
(3) in the case of a restructuring of the Company, a
shareholder who assumes a relatively lower proportion
of obligation than the obligations imposed on
shareholders of that class under the proposed
restructuring or who has an interest in the proposed
restructuring which is different from the general
interests of the shareholders of that class.
Article 61 Resolutions of a class of shareholders shall be passed by votes
representing more than two-thirds of the voting rights of
shareholders of that class represented at the relevant meeting
who, according to Article 62, are entitled to vote at the
meeting.
The special procedures for approval by a class of shareholders
shall not apply in the following circumstance: where the
Company issues, upon the approval by special resolution of its
shareholders in a general meeting, either separately or
concurrently once every twelve months, not more than 20% of
each of its existing issued Domestic-Invested Shares and
Overseas-Listed Foreign-Invested Shares.
Article 62 Where a connected transaction is being considered at a
shareholders' general meeting, the connected shareholders shall
abstain from voting, and the voting rights represented by the
shares held by them shall not be counted towards the total
number of valid votes. The voting result of the non-connected
shareholders shall be fully disclosed in the announcement in
relation to the resolutions passed at the shareholders' general
meeting.
If any shareholder are required to abstain from voting or may
only vote for or against a matter according to the Rules
Governing the Listing of Securities of the Hong Kong Stock
Exchange Limited, any vote by such shareholder or his proxy in
violation of the relevant rules or restrictions referred to
above shall not be counted in the voting results.
Article 63 Shareholders (and proxies) shall complete their ballot papers
carefully as instructed and put the ballot papers into the
ballot box. Any ballot paper containing uncompleted parts,
false information, illegible writing and any uncast paper shall
be deemed to be an abstention of voting by the shareholder, and
such ballot papers shall not be regarded as valid votes.
Article 64 Prior to voting, the shareholders present at a shareholders'
general meeting shall nominate at least one supervisor and two
shareholders to act as counting officers. Such counting
officers shall count all the votes cast on site and sign the
counting statistical sheet.
If the votes for and against a resolution are equal, the
chairman of the meeting shall be entitled to cast one more
vote.
Article 65 The chairman of the meeting shall be responsible for deciding
whether or not a resolution is duly passed according to the
results of the votes counting. The chairman's decision, which
shall be final and conclusive, shall be announced at the
meeting and recorded in the minutes of the meeting.
Article 66 A shareholders' general meeting shall be recorded by the
minutes of the meeting, which shall be signed by the directors
present at the meeting and the minutes-taking officer. If no
director is present at the meeting, the shareholder or the
shareholder's proxy chairing the meeting together with the
minutes-taking officer shall sign the minutes. The minutes of
the meeting shall record the following matters:
(1) the number of voting shares represented by the
shareholders present at the meeting, and the
percentage of such shares out of the total number of
shares of the Company;
(2) the date and place of the meeting;
(3) the name of the person chairing the meeting and the
agenda of the meeting;
(4) the main points regarding the matters made by each
person who speaks at the meeting;
(5) the voting result of each matter considered;
(6) the inquiries and suggestions of the shareholders and
the answers to these inquiries or statement made by
the directors and supervisors;
(7) other matters which according to the opinions of the
shareholders' general meeting and the provisions of
the Articles of Association shall be recorded in the
minutes of the meeting.
Article 67 The board of directors of the Company shall retain (a) PRC
lawyer(s) to attend the shareholders' general meeting in
accordance with law to enable him(them) to give legal opinions
on the following matters, and shall publish these legal
opinions together with the resolutions of the shareholders'
general meeting:
(1) whether the procedures for convening and holding the
shareholders' general meeting comply with the relevant
laws and regulations as well as the Articles of
Association;
(2) verification of the legality and validity of the
eligibility of the participants of the meeting;
(3) verification of the eligibility of the shareholders
who put forward new motions at the shareholders'
annual general meeting;
(4) whether the voting procedures of the shareholders'
general meeting are lawful and valid;
(5) the issue of any legal advice on any other matters
requested by the Company.
Where the shareholders' extraordinary general meeting is
chaired by the shareholders proposing the holding of such a
meeting, the proposing shareholders shall, in accordance with
law, retain (a) lawyer(s) to give witness legal opinions
according to the provisions as set out above, and the
procedures for convening such a meeting shall also comply with
relevant laws, regulations and this Article.
Section 6 Adjournment of a Meeting
Article 68 The board of directors of the Company shall ensure that a
shareholders' general meeting is held continuously within
reasonable office hours, until the resolutions are finally
voted on.
Article 69 If, in the course of the meeting, disputes arising out of the
identity of any shareholder or the results of the calculation
of the votes and so on cannot be resolved on site in such a way
that the order of the meeting is affected and the meeting
cannot proceed as usual, the chairman shall declare an
adjournment of the meeting.
If the foregoing circumstances cease to exist, the chairman of
the meeting shall notify the shareholders of the resumption of
the meeting as soon as possible.
Article 70 Where a shareholders' general meeting is adjourned for more
than one working day due to force majeure or any other
extraordinary reasons, and the meeting cannot be convened
properly or no resolution is passed, the board of directors of
the Company shall give explanations to the stock exchanges on
which the Company's shares are listed and make a proper
announcement. The board of directors of the Company is obliged
to take all necessary measures to resume the shareholders'
general meeting as soon as possible.
Section 7 Post-meeting Affairs and Announcement
Article 71 The secretary to the board of directors shall be responsible
for submitting the minutes of the meeting and the resolutions
passed at the meeting and other relevant documentation to the
relevant regulatory authorities in accordance with laws,
regulations, the requirements of the securities regulatory
authority of the State Council and the stock exchanges on which
the Company's shares are listed after the meeting. He shall
also be responsible for handling the announcement to be
published in the designated media.
Article 72 The announcement of the resolutions of the shareholders'
general meeting shall state the number of the shareholders (or
the proxies) present at the meeting, the number of shares held
by them (or nominees) and the percentage of such shares out of
the total voting shares of the Company, the method of voting
and the voting result of each motion. The resolutions on the
motions shall state the names of the proposing shareholders,
the percentage of shares held and the details of the motions.
Where a shareholder's motion is not included in the agenda of
an AGM, the details of the motion and the statement made by the
board of directors or the chairman at the AGM shall be
published together with the resolutions of the AGM.
Where the board of directors or the chairman of the meeting
decides not to include the motions put forward by the
supervisory committee or the shareholders in the agenda of the
AGM, explanations and statements shall be given at such a
meeting. Such statements and details of the motions shall,
together with the resolutions of the AGM, be published after
the conclusion of the AGM.
Where a resolution of the meeting is not adopted, or a
resolution passed at the previous shareholders' general meeting
is changed at the current shareholders' general meeting, the
board of directors shall give an explanation in relation to the
resolutions of the current shareholders' general meeting.
The announcement of resolutions passed at shareholders' general
meetings shall be published in designated newspapers and on the
Company's website.
Article 73 The secretary to the board of directors shall be responsible
for keeping written information such as the register of
attendees, power of attorney, voting statistical sheet, minutes
of the meeting, legal opinions endorsed by lawyer(s) and
announcements of resolutions.
CHAPTER 5 SUPPLEMENTARY ARTICLES
Article 74 These Rules shall come into effect upon the adoption by the
shareholders' general meeting by a special resolution and the
approval by the relevant authorities in accordance with law.
Article 75 Any amendment to these Rules shall be proposed by the board of
directors in the form of an amendment proposal, and shall be
submitted to the shareholders' general meeting for approval by
a special resolution.
Article 76 The right to interpret these Rules shall rest with the board of
directors.
Article 77 Where any relevant matters are not covered in these Rules or
where these Rules fail to comply with the relevant laws,
administrative rules and other relevant regulatory documents as
promulgated from time to time, those laws, administrative rules
and other relevant regulatory documents shall prevail.
Rules and Procedures
for
The Board of Directors' Meetings
of
China Petroleum & Chemical Corporation
Approved at the First Extraordinary General
Meeting of 2003 on 22 April 2003 Amended at the
Annual General Meeting for the Year 2003 on 18 May 2004
DIRECTORY
CHAPTER 1 GENERAL PROVISIONS................................................2
CHAPTER 2 FUNCTIONS, POWERS AND AUTHORITY OF THE BOARD OF DIRECTORS.........2
CHAPTER 3 COMPOSITION OF THE BOARD OF DIRECTORS AND ITS SUBORDINATED
OFFICES...........................................................5
CHAPTER 4 SECRETARY OF THE BOARD OF DIRECTORS...............................6
CHAPTER 5 RULES OF THE BOARD OF DIRECTORS' MEETING..........................7
CHAPTER 6 PROCEEDINGS OF THE BOARD OF DIRECTORS' MEETING....................8
CHAPTER 7 DISCLOSURE OF INFORMATION RELATING TO THE BOARD OF DIRECTORS'
MEETING..........................................................12
CHAPTER 8 IMPLEMENTATION OF THE RESOLUTIONS OF THE BOARD OF DIRECTORS'
MEETING AND FEEDBACKS............................................12
CHAPTER 9 SUPPLEMENTAL ARTICLES............................................13
CHAPTER 1 GENERAL PROVISIONS
Article 1 In order to ensure that the board of directors of China
Petroleum & Chemical Corporation (the "Company") fulfils the
duties and responsibilities conferred by all shareholders of
the Company, conducts discussions efficiently, makes
scientific, immediate and prudent decisions and standardizes
the operation of the board of directors, these Rules are
formulated according to the "Company Law of the People's
Republic of China" (the "Company Law"), "Mandatory Provisions
for the Articles of Association of Companies to be Listed
Overseas", "Guidelines for the Articles of Association of
Listed Companies", "Standards for the Governance of Listed
Companies" and other governing regulations of the places of the
Company's listings inside and outside the PRC and the Articles
of Association of China Petroleum & Chemical Corporation
("Articles of Association").
CHAPTER 2 FUNCTIONS, POWERS AND AUTHORITY OF THE BOARD OF DIRECTORS
Article 2 The board of directors is accountable to the shareholders'
general meetings and shall exercise the following functions and
powers:
(1) to be responsible for convening shareholders' general
meetings and to report on its work to the
shareholders' general meetings;
(2) to implement the resolutions passed at shareholders'
in general meetings;
(3) to determine the Company's business plans and
investment proposals;
(4) to formulate the Company's annual preliminary and
final financial budgets;
(5) to formulate the Company's profit distribution
proposals and loss recovery proposals;
(6) to formulate proposals for the credit and financial
policies of the Company, the increase or reduction of
the registered capital of the Company and for the
issue of debentures and securities of any kinds
(including but without limitation to the debentures of
the Company) and the listing or repurchase of the
shares of the Company;
(7) to draw up plans for significant acquisition or
disposal proposals, the merger, division or
dissolution of the Company;
(8) to determine the risks investment of the Company
according to the authority given in the shareholders'
general meeting;
(9) to determine matters relating to external guarantees
(including pledging of assets) of the Company
according to the authority given in the shareholder's
general meeting;
(10) to decide on the Company's internal management
structure;
(11) to appoint or remove the Company's president and to
appoint or remove the vice-president and Chief
Financial Officer of the Company according to the
recommendations of the president; to appoint or remove
the secretary of the board of directors and to decide
on their remuneration;
(12) to appoint or replace the members of the board of
directors and the supervisory committee of its
wholly-owned subsidiaries; to appoint, replace or
recommend the shareholders' proxies, directors
(candidates) and supervisors (candidates) of its
subsidiaries which are controlled or invested by the
Company;
(13) to determine the establishment of the Company's branch
offices;
(14) to formulate proposals for any amendment of the
Company's Articles of Association and its appendices;
(15) to formulate the Company's basic management system;
(16) to manage the disclosure of information of the
Company;
(17) to propose in a shareholders' general meeting to
engage or replace the accounting firm which undertakes
auditing work of the Company;
(18) to listen to the president's work report and check the
president's work;
(19) to determine important matters and administrative
matters of the Company other than those which should
be determined by resolution of a shareholders' general
meeting of the Company except for matters as specified
by law, administrative rules, regulations of the
competent government department(s) and the Articles of
Association, and to sign other important agreements;
(20) to exercise any other powers stipulated by laws,
administrative rules, regulations of the competent
government department(s) or the Articles of
Association, and any other functions and powers
conferred by the shareholders' in general meetings.
The necessary conditions for the board of directors to perform
its duties shall include the following:
Article 3 The president shall provide the directors with necessary
information and data, enabling the board of directors to make
scientific, immediate and prudent decisions.
A director may require the president or, through the president,
require the relevant departments of the Company to provide
information and explanations which are necessary for him to
make scientific, immediate and prudent decisions.
Where the independent directors think necessary, they may
engage (an) independent institution(s) to provide independent
opinions to be relied upon by them in making decisions. The
fees incurred in the engagement of such (an) independent
institution(s) shall be borne by the Company.
Article 4 The board of directors shall examine and resolve on the matters
which the board of directors is required by laws,
administrative rules, regulations of the competent government
department(s) and the Articles of Association to submit to the
shareholders in general meetings for determination (including
matters proposed by two or more than half of the independent
directors).
The board of directors shall examine the provisional motions
put forward by the shareholders individually or jointly holding
more than 5% of the Company's voting shares at the
shareholders' annual general meeting (the "AGM") according to
the standard of "relevance" as set out in the Rules and
Procedures for the Shareholders' General Meetings, and to
decide whether to submit the provisional motions to the AGM for
examination.
Article 5 In order to ensure and increase the stability and efficiency of
the daily operation of the Company, the board of directors
shall explicitly authorise, on a partial basis, the chairman,
other one or more directors or the president to exercise its
functions and powers on investment plans, assets disposals,
external guarantees, the credit and financial policies and the
internal management structure of the Company according to the
provisions of the Articles of Association and the authorisation
of the shareholders' general meeting.
Article 6 The powers and authority of the board of directors on
investments shall include the following:
(1) The board of directors shall be responsible for
conducting preliminary examination of the medium and
long-term investment plans proposed by the president,
and shall submit them to the shareholders' general
meetings for approval.
(2) The board of directors shall be responsible for
conducting preliminary examination of the annual
investment plans proposed by the president, and shall
submit them to the shareholders' general meetings for
approval. The board of directors may make adjustments
of not more than 15% of the amount of the capital
expenditure for the current year as approved at the
shareholders' general meeting. The chairman of the
board of directors is authorised to make adjustments
of not more than of not more than 8% of the amount of
the capital expenditure for the current year as
approved at the shareholders' general meeting.
(3) Individual project investments (including but not
limited to exploration and development, fixed assets,
external shareholdings) shall be approved by the board
of directors if the investment amounts are not more
than 5% of the latest audited net asset value of the
Company. The Chairman of the board of directors is
authorised to examine and approve projects if the
investment amount is not more than 3% of the latest
audited net asset value of the Company.
(4) Where the Company uses its own assets to make risky
investment in areas not related to the business of the
Company (including but not limited to debentures,
futures, shares), risky investments shall be approved
by the board of directors if the amount of the
individual investment is not more than 1% of the
latest audited net asset value of the Company. The
chairman of the board of directors is authorised to
examine and approve projects if the investment amount
is not more than 0.5% of the latest audited net asset
value of the Company.
Article 7 The powers and authority of the board of directors on asset
disposals shall include the following:
(1) When the Company acquires or sells assets, it has to
take into account of the following four testing
indices: (i) total asset ratio: the total amount of
the assets to be acquired or sold (according to the
latest audited financial report, valuation report or
capital verification report) divided by the latest
audited total asset value of the Company; (ii) net
profit (loss) ratio of the acquisition: the absolute
value of the net profit or loss relating to the assets
to be acquired (according to the audited financial
report of the preceding year) divided by the absolute
value of the audited net profit or loss of the Company
for the preceding year; (iii) net profit (loss) ratio
of the sale: the absolute value of the net profit or
loss relating to the assets to be sold (according to
the audited financial report of the preceding year) or
the absolute value of the profit or loss arising from
such transaction divided by the absolute value of the
audited net profit or loss of the Company for the
preceding year; (iv) transaction amount ratio: the
transaction amount (taking into account of the assumed
liabilities and costs, etc) of the acquired assets
divided by the total amount of the latest audited net
asset value of the Company.
The board of directors shall examine and approve
projects with a ratio of less than 50% according to
all the above four testing indices. The chairman of
the board of directors is authorised to examine and
approve projects with a ratio of less than 10%
according to all the above four testing indices.
(2) In disposing of fixed assets, where the total value of
the expected value of the fixed assets to be disposed
of and the value of the fixed assets which have been
disposed of in the four months prior to such proposed
disposal does not exceed 33% of the value of the fixed
assets as shown in the latest balance sheet considered
by the shareholders' general meeting, the board of
directors shall examine and approve such disposal, and
the Chairman of the beard of directors is authorised
to examine and approve those fixed asset disposals of
less than 10%.
(3) As regards others (including but not limited to the
entering into, varying and termination of important
contracts relating to entrustment of operation,
entrusted operation, entrusted financial management,
contracting and leasing), the relevant amount or the
amount accumulate in twelve months shall be calculated
according to one of four testing indices referred to
in paragraph (1) of this Article.
Projects with a ratio of not more than 5% according to all the
above four testing indices shall be examined and approved by
the board of directors. The chairman of the board of directors
is authorised to examine and approve projects with a ratio of
not more than 1% according to all the above four testing
indices.
Article 8 The powers and authority of the board of directors on debt
liabilities shall include the following:
(1) The board of directors shall examine and approve the
amount of the long-term loans for the current year
according to the annual investment plan as approved by
the shareholders' general meeting. The chairman of the
board of directors is authorised to make adjustments
of not more than 10% of the total amount of the
long-term loans for the current year as approved by
the board of directors. Within the total amount of the
long-term loans as approved by the board of directors,
the chairman of the board of directors is authorised
to approve and sign the contract for every single
long-term loan for the amount exceeding RMB1 billion,
and the president is authorised to approve and sign
the contract for every single long-term loan for the
amount not exceeding RMB1 billion.
(2) Within the total amount of the working capital loans
for the current year as approved by the board of
directors, the Chairman of the board of directors is
authorised to sign the overall short-term loan
facility contracts for raising working capitals
required by the operation and management of the
Company according to the demand of the Company. Within
the amount limit as fixed by these loan facility
contracts, the chairman of the board of directors is
authorised to approve and sign the working capital
short-term loan contracts where the amount of one
single loan exceeds RMB1 billion, and the president is
authorised to approve and sign the working capital
short-term loan contracts where the amount of one
single loan does not exceed RMB1 billion.
(3) The Company shall not provide any guarantees for its
shareholders, controlling subsidiaries of its
shareholders, subsidiary enterprises of shareholders
or personal liability. If the Company provides
guarantees to others, the guaranteed person shall
provide counter-guarantee to the Company or take other
necessary risk preventive measures.
If the guarantee amount does not exceed 5% of the
latest audited net asset value of the Company, such
guarantees shall be examined and approved by the board
of directors. The chairman of the board of directors
is authorised to approve and sign the external
guarantee contracts the guaranteed amount of which
does not exceed 1% of the latest audited net asset
value of the Company but more than RMB100 million. The
president is authorised to approve and sign the
external guarantee contracts the guaranteed amount of
which does not exceed RMB100 million.
Article 9 If, when applying the relevant standards as set out above, the
approving offices of any investment, asset disposal and
external guarantee matters as referred to above include the
board of directors, chairman of the board of directors and/or
president, such matters shall be submitted to the approving
offices of the highest level for approval.
If the above investment, asset disposal and loan matters
constitute connected transactions according to the regulatory
stipulations of the places where the Company is listed, the
relevant matters shall be dealt with according to the relevant
stipulations.
Article 10 The board of directors authorises the chairman to determine the
following matters: (1) internal management structure of the
Company; (2) the establishment of branch offices by the
Company; (3) to appoint or replace the members of the board of
directors and the members of the supervisory committee of the
wholly-owned subsidiaries of the Company; and (4) to appoint,
replace or recommend the shareholders' representatives,
director (candidates) and supervisors (candidates) of the
subsidiaries which are controlled or invested by the Company.
CHAPTER 3 COMPOSITION OF THE BOARD OF DIRECTORS
AND ITS SUBORDINATED OFFICES
Article 11 The board of directors shall consist of thirteen directors. The
board of directors shall have one chairman and one
vice-chairman.
Article 12 The board of directors shall establish strategic
decision-making sub-committee, auditing sub-committee,
remuneration and evaluation sub-committee and other special
committees. These special committees shall conduct research on
specific matters and provide opinions and suggestions on these
matters to the board of directors for the reference.
Members of the special committees shall be directors of the
Company. The majority of the membership of the auditing
sub-committee, and remuneration and evaluation sub-committee
shall consist of the independent directors, who shall also act
as convenors. The auditing sub-committee shall have at least
one independent director who is also an accounting
professional.
Article 13 The major responsibilities of the strategic decision-making
sub-committee shall be to conduct research and put forward
proposals on the long-term development strategy and significant
investment decisions of the Company.
Article 14 The major responsibilities of the auditing sub-committee shall
include the following:
(1) to propose the appointment or replacement of the
external auditor of the Company;
(2) to oversee the Company's internal auditing system and
its implementation;
(3) to be responsible for the communication between the
internal auditing department of the Company and the
external auditor;
(4) to examine and approve the Company's financial
information and it disclosure;
(5) to examine the internal control system of the Company.
Article 15 The major responsibilities of the remuneration and evaluation
sub-committee shall include the following:
(1) to research on the criteria for the evaluation of
directors and the president, to conduct evaluation of
them and make necessary suggestions;
(2) to research on and review the policies and proposals
in respect of the remuneration of directors,
supervisors, president, vice-president, Chief
Financial Officer and secretary of the board of
directors.
Article 16 The special committees of the board of directors shall
formulate detailed working rules, which shall come into effect
upon the submission to, and the approval of, the board of
directors.
CHAPTER 4 SECRETARY OF THE BOARD OF DIRECTORS
Article 17 The Company shall have one secretary of the board of directors.
The main duty of the secretary of the board of directors is to
promote and improve the Company's corporate governance
standards and properly deal with the matters regarding
disclosure of information.
Article 18 The main duties of the secretary of the board of directors
include:
(1) to organize and arrange for board meetings and
shareholders' general meetings, prepare the meeting
materials, handle the meeting related affairs, to be
responsible for record of meetings, ensure the
accuracy and completeness of records, keep the meeting
documents and records and take initiative to keep
abreast of the execution of the related resolutions;
and submit reports to the board of directors and put
forward the proposals for importance issues arising
during the implementation;
(2) to ensure that the material issues concerning the
resolutions of the board of directors can be strictly
implemented in accordance with the specified
procedures; to participate and organize the
consultation and analysis on the decision-making
matters of the board in accordance with its
requirements, and put forward the related opinions and
suggestions; to deal with the daily matters of the
board of directors and its related committees if
authorised;
(3) to be the contact person of the Company with the
securities regulatory authorities, be responsible for
organisation, preparation and timely submission of
related documents as required by the regulatory
authorities, and be responsible for related tasks
assigned by the regulatory authorities and to organise
and complete these tasks, and to ensure that the
Company prepares and submits the reports and other
documents as required by the regulatory authorities in
accordance with law;
(4) to be responsible for the co-ordination and
organization of the matters on disclosure of
information of the Company, establish and perfect the
system concerning information disclosure, participate
in all related meetings of the Company concerning
information disclosure, and keep abreast of the
important business policies and related information of
the Company in a timely manner;
(5) to be responsible for keeping confidential of the
sensitive materials concerning the share price of the
Company, and formulate effective and enforceable
secrecy systems and measures. For the divulgence of
the sensitive materials concerning the share price of
the Company due to various reasons, he shall take
necessary remedial measures, make timely explanation
and clarification, and notify the regulatory
organizations in the places where the shares of the
Company are listed as well as the securities
regulatory authority of the State Council;
(6) to be responsible for the co-ordination and
organization of market promotion, coordinate the visit
and interview, deal with the relationship with
investors, maintain the relationship with investors,
intermediary organs and news agencies, be responsible
for the co-ordination and explanation of the inquiries
of the public, and ensure the investors to obtain the
information as disclosed by the Company in a timely
manner, organize and arrange the promotion and
advertising activities of the Company inside and
outside the PRC, prepare and work out the summary
report on market promotion and other important
visiting activities, and report the related matters to
the securities regulatory authorities of the State
Council; to establish effective communication channels
between the Company and its shareholders, including
designating a staff and/or establishing (a) special
office(s) to keep sufficient and necessary contacts
with the shareholders, and to relay, in a timely
manner, all the feedbacks including opinions and
suggestions of the shareholders to the board of
directors or the management team of the Company;
(7) to ensure the proper preparation of the register of
shareholders, to be responsible for the management and
proper maintenance of the materials concerning
register of shareholders, directors' register,
quantity of shares held by majority shareholders and
record of shares held by directors, as well as the
name list of the beneficiaries of the outstanding
debentures of the Company;
(8) to assist directors and the president to practically
implement the domestic and foreign laws, regulations,
the Company's Articles of Association and other
provisions in discharge of their duties and exercise
of their powers; be liable to remind directors and the
president timely on becoming aware that the Company
passes or may pass resolutions which may breach the
relevant regulations, and be entitled to report the
related matters to securities regulatory authorities
of the State Council and other regulatory authorities
according to the facts;
(9) to provide the related information necessary for the
supervisory committee of the Company and other
approving authorities to discharge their duties and to
exercise their powers, assist the investigation on the
Chief Financial Officer, directors and the president
of the Company concerning the performance of their
fiduciary duties;
(10) to ensure the complete organizational documents and
records of the Company are kept properly, and the
persons who have the rights of access to the relevant
documents and records of the Company obtain those
documents and records in a timely manner; and
(11) to discharge other duties and to exercise other powers
as conferred by the board of directors, as well as
other duties and powers as required by the listing
rules of the stock exchanges on which the Company's
shares are listed.
Article 19 The board of directors of the Company shall have a
secretarial office, which shall be a daily working body
assisting the secretary of the board of directors in performing
his duties.
Article 20 The Company shall formulate regulations in relation to the
work of the secretary of the board, and perform the work for
disclosure of information and investor relations. The relevant
system shall be effective after reporting to the board of
directors for approval.
CHAPTER 5 RULES OF THE BOARD OF DIRECTORS' MEETING
Article 21 The board of directors' meetings shall be divided into regular
meetings and provisional meetings according to the regularity
of such meetings.
Article 22 The regular meetings shall include the following:
(1) The board meetings approving financial reports of the
Company:
(i) The annual results meetings
The annual results meetings shall be convened
within 120 days from the end of the accounting
year of the Company. The directors shall
approve the Company's annual reports and deal
with other relevant matters at such meetings.
The timing of such meetings shall ensure that
the annual reports of the Company will be
despatched to the shareholders within the time
limit specified by the relevant regulations
and the Articles of Association, and shall
ensure that the preliminary annual financial
results of the Company will be announced
within the time limit specified by the
relevant regulations of the Company, and shall
ensure that the AGM will be convened within
180 days from the end of the accounting year
of the Company.
(ii) The interim results meetings
The interim results meetings shall be convened
within 60 days from the end of the first six
months of the accounting year of the Company.
The directors shall approve the Company's
interim reports and deal with other relevant
matters at such meetings.
(iii) The quarterly results meetings
The quarterly results meetings shall be held
in the first month of each of the second and
fourth quarter of the Gregorian calendar year.
The directors shall approve the Company's
quarterly reports for the preceding quarters
at such meetings.
(2) The year-end review meetings
The year-end review meetings shall be convened in
December of each year. The directors shall listen to
and approve the president's report in respect of the
expected performance of the Company in the year and
the work arrangements for the following year at such
meetings.
Article 23 The chairman of the board of directors shall approve the issue
of a notice convening the provisional board of directors'
meeting within seven days in any one of the following events:
(1) where the chairman of the board of directors considers
necessary;
(2) where more than one-third of the directors propose in
their joint names;
(3) where more than one-half of the independent directors
propose in their joint names;
(4) where the supervisory committee proposes;
(5) where the president proposes.
Article 24 The board of directors' meetings shall be divided into meetings
at which all directors must be physically present and meetings
which the directors may authorise other directors to attend on
their behalf, according to whether the directors are physically
present at the meetings.
The meetings which all directors must be physically present
shall be held at least once every six months, and such meetings
shall not be held by way of written resolutions or
video-telephone meetings.
Article 25 The board of directors' meetings shall be divided into on-site
meetings, video-telephone meetings and meetings by way of
written resolutions.
All the meetings of the board of directors may be held by the
way of on-site meetings.
The board of directors' meetings may be held by the way of
video-telephone meetings, provided that the attending directors
are able to hear clearly the director who speaks at the meeting
and communicate amongst themselves. The meetings convened by
this way shall be recorded and videotaped. In the event that
the attending directors are unable to sign for the resolutions
on site, they shall express their opinions orally during the
meeting and shall complete the signing procedures as soon as
practicable. The verbal voting by a director shall have the
same effect as signing in the voting sheet, provided that there
is no discrepancy between the opinions expressed by such
director in completing signing procedure and the opinions
orally expressed by him during the meeting.
In the case of urgency (limiting to cases where an on-site
meeting or a video-telephone meeting is impractical), and the
matters to be examined are comparatively procedural and unique
so that the a discussion of the motions proves to be
unnecessary, the board of directors' meeting may be held by
written resolutions, in which case the motions shall be passed
by way of circulating the motions for directors' review. Unless
otherwise expressed by the directors, signing on the written
resolutions by the directors shall be sufficient evidence that
they have agreed to the resolutions.
CHAPTER 6 PROCEEDINGS OF THE BOARD OF DIRECTORS' MEETING
Article 26 Putting forward Motions
The motions of the board of directors' meetings shall be put
forward in the following circumstances:
(1) matters proposed by the directors;
(2) matters proposed by the supervisory committee;
(3) motions from the special committees of the board of
directors;
(4) matters proposed by the president;
(5) matters to be considered by the shareholders of the
subsidiaries controlled or invested by the Company in
their shareholders' meetings (shareholders' general
meetings).
Article 27 Collecting Motions
The secretary of the board of directors shall be responsible for
collecting the draft motions in respect of the matters to be
considered at the meeting. Each person who puts forward the
relevant motion(s) shall submit the motions and relevant
explanatory materials before the date of the meeting. Motions
concerning material connected transactions (which are determined
according to the standards promulgated by the relevant
regulatory authorities from time to time) shall first be
approved by the independent directors. The relevant materials
shall be submitted to the chairman of the board of directors
after scrutinized by the secretary of the board of directors,
who shall also set out the time, place and agenda of the meeting
in the materials submitted.
Article 28 Convening the Meetings
A board of directors' meeting shall be convened by the chairman
of the board of directors, who shall also approve the issue of
the notice convening the meeting. If the chairman of the board
of directors is unable to convene the meeting due to special
reasons, he shall designate the vice-chairman or other
director(s) to convene the meeting. Where the chairman fails to
convene a meeting with no reason or designate specific personnel
to act on his behalf, a director chosen by the vice-chairman and
one-half of the directors jointly shall convene the meeting. The
convenors of the meeting shall be responsible for approving the
issue of the notice of the meeting.
Article 29 Notice of the Meetings
(1) The notice of a board of directors' meeting shall be
delivered to all directors, supervisors and other
personnel attending the meeting before the date of the
meeting. The notice of the meeting shall generally set
out the following:
i. the time and place of the meeting;
ii. the duration of the meeting;
iii. the agenda, reasons, subject matters and other
relevant particulars of the meeting;
iv. the date of the issue of the notice.
(2) The board of directors' meetings shall be noticed
according to the following requirements and form:
i. the notice of the meeting may be served on the
directors by courier, facsimile, electronic
means, telegraph or mail;
ii. the notice of the board of directors' meeting
shall be delivered to the directors ten days
before the date of the meeting;
iii. the notice shall be written in Chinese, if
necessary, the English version can be attached.
Any director may waive the right to receive the notice of board
meeting.
Notice of a meeting shall be deemed to have been given to any
director who attends the meeting without protesting against,
before or at its commencement, any lack of notice.
Article 30 Communication before the Meetings
After the issue of the notice of a meeting and before the date
of the meeting, the secretary of the board of the directors
shall be responsible for, and shall communicate and liaise with
all supervisors, to seek their opinions or suggestions in
respect of the motions of the meeting, and shall pass on these
opinions or suggestions to the persons put forward the motions,
so as to enable necessary amendments to be made to them. The
secretary of the board of directors shall also, in a timely
manner, arrange for the provision of the supplemental materials
which are required for the directors to make decisions on the
motions of the meeting, including the background information
relating to the subject of the meeting and other information
which will assist the directors in making scientific, immediate
and prudent decisions.
Where more than one-fourth of the directors or two external
directors are of the opinion that the materials provided are
insufficient or unclear, they may make a proposal jointly
concerning the postponement of holding of the board meeting or
the postponement of discussions on the part of the issues put
forward by the board of directors, and the board of directors
shall adopt such a proposal. Unless such a proposal is put
forward during the meeting, the secretary of the board of
directors shall serve a notice on the directors, supervisors and
other personnel attending the meeting upon receiving a written
request concerning the postponement of holding of the meeting or
the postponement of discussions on part of the issues put
forward by the board of directors.
Article 31 Attendance of the Meetings
Meetings of the board shall be held only if more than half of
the directors are present.
Directors shall attend the meetings of the board of directors
in person. Where a director is unable to attend a meeting for
any reason, he may by a written power of attorney appoint
another director to attend the meeting on his behalf (where an
independent director is unable to attend in person, he shall
appoint another independent director to attend on his behalf).
The power of attorney shall set out the name of the attorney,
the particulars and the scope of authorisation, duration of the
validity of such authorisation, and shall be signed or sealed
by the principal.
In the event that an independent director does not attend the
board of directors' meeting for three consecutive meetings, the
board of directors may propose to the shareholders' general
meeting to have such independent directors dismissed.
The board of directors' meeting shall be chaired by the
chairman of the board of directors. Where circumstances
preclude the Chairman, he may designate the vice-chairman or
other directors to act on his behalf. Where the chairman of the
board fails to chair the meeting without reason or designate
specific personnel to act on his behalf, a director chosen by
the vice-chairman or more than half of the directors shall
chair the meeting. Upon the expiry of the term of office of the
directors and the re-election of the new directors at the
shareholders' general meeting, the directors who obtains the
largest number of votes at such re-election (if more than one,
one shall be chosen amongst them) shall chair such meeting, at
which the chairman of the new board of directors shall be
elected.
Article 32 Examining the Motions
The chairman of the meeting shall declare the commencement of
the meeting as scheduled. The directors in presence shall reach
an agreement on the agenda of the meeting thereafter. Where
more than one-fourth of the directors or more than two external
directors are of the opinion that the materials of the meeting
are insufficient or unclear, they may make a proposal jointly
concerning the postponement of holding of the board meeting or
the postponement of discussions on the part of the issues put
forward by the board of directors, and the board of directors
shall adopt such a proposal.
When an agreement is reached in respect of the agenda of the
meeting by the directors present at the meeting, the chairman
of the meeting shall direct the motions to be examined one by
one. Persons who put forward the motions or their attorneys
shall first report to the board of directors their work or make
statements in respect of the motions.
In reviewing the relevant proposals, motions and reports, in
order to understand the main points and the background
information of the motions in detail, the board of directors'
meeting may require the heads of the departments which are
responsible for handling the motions to attend the meeting to
listen to and make inquiries of the relevant statements made at
the meeting, so that proper decisions can be made at the
meeting. If, in the course of the meeting, any motions examined
are found to be unclear or infeasible, the board of directors
shall require the departments which are responsible for
handling the motions to give a statement at the meeting, and
the motions can be returned to such departments for re-handling
and their examination and approval shall be postponed.
The independent directors shall give their independent opinions
to the board of directors on the following matters:
(1) the nomination, appointment and removal of the
directors;
(2) the appointment and dismissal of the president,
vice-president, Chief Financial Officer and secretary
of the board of directors;
(3) the remuneration of the directors, the president,
vice-president, Chief Financial Officer and secretary
of the board of directors of the Company;
(4) the loans made by the Company to its shareholders, the
person in actual control of the Company or the
associated enterprises of the Company or other money
transfer between them, the amounts of which are
equivalent to or exceed the relevant thresholds of the
Company's material connected transactions (which shall
be determined in accordance with the standards
promulgated from time to time by the relevant
regulatory authorities) which must be examined by the
board of directors or shareholders' general meeting
according to law, and whether the Company has taken
effective measures to recover such debts;
(5) any matters which the independent shareholders
consider to be detrimental to the interests of
minority shareholders.
An independent director shall give his opinion on the
above-mentioned matters in the following manner:
(1) consent;
(2) opinion reserved and reasons;
(3) opposition and its reasons;
(4) no opinion can be expressed and the obstacles.
Article 33 Voting on the Motions
In reviewing the motions at the board of directors' meeting,
all attending directors shall deliver their opinions in respect
of approval or objection to such motions or abstention from
voting.
The directors who are acting as proxies of others shall
exercise the rights of voting within the authorisation.
Where a director is not present at a board of directors'
meeting and fails to appoint a proxy to act on his behalf, such
director shall be deemed to have waived his rights to vote at
the meeting.
In reaching resolutions by the board of directors, except the
following matters the resolutions of which shall be passed by
the consent of more than two-thirds of the directors, the other
matters shall be passed by the consent of more than one-half of
the directors:
(1) to formulate proposals for the credit and financial
policies of the Company, the increase or reduction of
the registered capital of the Company and the issuance
of debentures and securities of any kind (including
but without limitation to the debentures of the
Company) and the listing or repurchase of the shares
of the Company;
(2) to draw up plans for significant acquisition or
disposal proposals, the merger, division or
dissolution of the Company;
(3) to determine to provide external guarantees;
(4) to formulate proposals for any amendment to the
Articles of Association and its schedules.
The resolutions of the board of directors may be decide on a
poll or show of hands. Each director shall have one vote. Where
the votes for an against a resolution are equal, the chairman
of the board of directors is entitled to cast one more vote.
If a director or his associate (as defined in the Rules
Governing the Listing of Securities of the Hong Kong Stock
Exchange Limited) have a material interest in any contract,
transaction, arrangement or other matters that requires the
approval of the board of directors, the relevant director shall
not vote for the relevant matter at the meeting of the board of
directors, and shall not be listed in the quorum of the
meeting. Where resolutions cannot be reached due to the
abstention from voting of the connected directors, the relevant
motions shall be submitted directly to the shareholders'
general meeting for examination.
Article 34 Liability of Directors in respect of Resolutions of the Board
of Directors' Meetings
A written resolution of the board of directors shall not take
effect as a resolution of the board of directors if it has not
been formulated in accordance with the stipulated procedures,
notwithstanding all the directors have already expressed their
opinions in different ways. The directors shall be responsible
for the resolutions passed at the meetings of the board of
directors. Any director who votes for a resolution which
contravenes the laws, administrative regulations or the
Articles of Association thus causing serious damages to the
Company shall be directly liable (including the compensation of
damages) for all the loss incurred by the Company as a result.
A director who votes against the resolution, and who has been
proved as having expressed dissenting opinions on the
resolution and such opinions are recorded in the minutes of the
meeting can be exempt from liability. A director who waives his
right of voting, or who fails to attend the meeting and fails
to appoint a proxy to act on his behalf, cannot escape
liability. A director who explicitly express his objection in
the course of discussion but fails to cast an objection vote in
the voting cannot escape liability.
Article 35 Resolutions of the Meeting
In principle, the board of directors' meeting shall resolve on
all the matters examined at the meeting.
A resolution on the Company's connected transaction shall not
be valid until it is signed by all directors.
The independent directors' opinions shall be set out in the
resolutions of the board of directors meetings.
Article 36 Minutes of the Meetings
Minutes of the board of directors' meeting are proof of the
resolutions on the matters examined at the meeting. Detailed
minutes in respect of the matters examined at the meeting shall
be recorded. The minutes of the board of directors' meeting
shall state the following:
(1) the date, place, names of the convenors and chairman
of the meeting;
(2) the names of the attending directors and the names of
the present, the names of appointing directors and
their attorneys;
(3) the agenda of the meeting;
(4) the essential points of the directors' presentations
(for the written resolution meeting, the version
containing the directors' feedbacks in writing shall
prevail);
(5) the voting methods and outcome for each proposal (the
outcome of the voting shall set out the respective
number of assenting or dissenting votes or votes that
were waived);
(6) the directors' signature.
The secretary of the board of directors shall take initiative
to arrange for the matters examined at the meeting to be
recorded. The minutes of each meeting shall be provided to the
directors for review without delay. Those directors who wish to
make supplementary revision on the minutes shall report their
opinions on the revision to the chairman of the board of
directors in written form within one week after the receipts of
the minutes of the board meeting. After the minutes of board
meeting are finally determined, the attending directors, the
secretary of the board of directors and the minute-taking
officer shall sign the minutes of the board meeting. The
secretary of the board of directors shall deliver the complete
duplicate of the minutes to all directors. The minutes of the
board meeting, being an important document, shall be properly
kept at the business address of the Company.
CHAPTER 7 DISCLOSURE OF INFORMATION RELATING TO THE
BOARD OF DIRECTORS' MEETING
Article 37 The board of directors of the Company shall strictly comply
with the requirements of the regulatory authorities and the
stock exchanges on which the Company's shares are listed in
relation to the disclosure of information. It shall ensure that
matters examined or resolutions passed at the board of
directors' meeting which are discloseable are disclosed
accurately and in a timely manner. Information relating to
significant matters of the Company must be reported to the stock
exchanges on which the Company's shares are listed at the
earliest opportunity, and shall be submitted to relevant
regulatory authorities for filing.
Article 38 Where a matter which requires the independent opinions of the
independent directors is discloseable, the Company shall
disclose such opinions in the relevant announcement. If the
independent directors are of divergent views and cannot reach
any consensus, the board of directors shall disclose the
respective opinions of each of the independent directors.
Article 39 Regarding confidential information, the attendees of the
meeting must keep such information confidential. Punishment
shall be imposed on those who are in breach of this duty.
CHAPTER 8 IMPLEMENTATION OF THE RESOLUTIONS OF THE
BOARD OF DIRECTORS' MEETING AND FEEDBACKS
Article 40 The following matters shall not be implemented until they are
examined and preliminarily approved by the board of directors
and submitted to the shareholders' general meeting for approval
thereafter:
(1) the formulation of the Company's annual preliminary
and final financial budgets;
(2) the formulation of Company's profit distribution
proposals and loss recovery proposals;
(3) the increase or reduction of the registered capital of
the Company and the issue of debentures or other
securities, as well as the listing or repurchase of
the shares of the Company;
(4) the formulation of plans for merger, division or
dissolution of the Company;
(5) the formulation of proposals for any amendment to the
Articles of Associations; and
(6) proposal to be submitted to the shareholders in
general meeting for the appointment or replacement of
the accounting firm auditing the accounts of the
Company.
Article 41 After resolutions are passed at a board of directors' meeting,
the president shall implement the resolutions which fall within
the scope of the authority of the president, or which the board
of directors authorises the president to handle, and shall
report the status of implementation to the board of directors.
Article 42 The chairman of the board shall have the power to, or authorize
the vice-chairman or the directors to, urge, examine and
supervise the implementation of the resolutions of the meeting.
Article 43 At each board of directors' meeting, the president shall
deliver a written report to the meeting in relation to the
status of implementation of the matters which, according to the
resolutions of the previous meeting, must be implemented.
Article 44 Under the direction of the board of directors and the chairman,
the secretary of the board of directors shall take initiative
to obtain information in respect of the progress on the
implementation of the resolutions, and shall, in a timely
manner, report to and submit proposals to the board of
directors and the chairman in relation to the important issues
to be implemented.
CHAPTER 9 SUPPLEMENTAL ARTICLES
Article 45 Where these Rules fail to comply with relevant laws,
regulations and other regulatory documents as promulgated from
time to time, these laws, regulations and other regulatory
documents shall prevail.
Article 46 Upon the unanimous consensus of all directors of the Company,
the formulation of and the amendment to these Rules shall come
into effect if they are adopted by the shareholders' general
meeting by a special resolution and approved by the relevant
authorities.
Article 47 The right to interpret these Rules shall vest with the board of
directors.
Rules and Procedures
for
The Supervisory Committee's Meeting
of
China Petroleum & Chemical Corporation
Approved at the First Extraordinary General Meeting of 2003 on 22 April 2003
DIRECTORY
CHAPTER 1 GENERAL PROVISIONS................................................2
CHAPTER 2 COMPOSITION OF THE SUPERVISORY COMMITTEE AND ITS ADMINISTRATIVE
OFFICE............................................................2
CHAPTER 3 FUNCTIONS AND POWERS OF THE SUPERVISORY COMMITTEE.................4
CHAPTER 4 RULES OF THE SUPERVISORS' MEETINGS................................4
CHAPTER 5 PROCEEDINGS OF THE SUPERVISORS' MEETING...........................5
CHAPTER 6 DISCLOSURE OF INFORMATION RELATING TO THE SUPERVISORS' MEETING....6
CHAPTER 7 IMPLEMENTATION OF THE RESOLUTIONS OF THE SUPERVISORS' MEETING
AND FEEDBACKS.....................................................6
CHAPTER 8 SUPPLEMENTARY ARTICLES............................................6
CHAPTER 1 GENERAL PROVISIONS
Article 1 In order to standardize the operation of the supervisory
committee of China Petroleum & Chemical Corporation (the
"Company"), to ensure the supervisory committee implementing
the duties and responsibilities conferred by all shareholders
of the Company, these Rules are formulated according to the
"Company Law of the People's Republic of China" (the "Company
law"), "Mandatory Provisions for the Articles of Association of
Companies to be Listed Overseas", "Guidelines for the Articles
of Association of Listed Companies", "Standards for the
Governance of Listed Companies" and other relevant laws and
regulations regulating listed companies inside and outside the
PRC and the Articles of Association of China Petroleum &
Chemical Corporation ("Articles of Association").
Article 2 The supervisory committee is accountable to the shareholders'
general meetings. It shall be responsible for supervising the
financial affairs of the Company and the lawfulness of the
performance of their duties by the directors, president,
vice-president, Chief Financial Officer and secretary of the
board of directors of the Company so as to safeguard the
legitimate interests of the Company and its shareholders.
Article 3 The Company shall take measures to ensure the supervisors'
rights to know the Company's affairs, and provide them with
necessary information and materials, so as to enable the
supervisory committee to conduct effective supervision,
inspection and evaluation of the financial status and management
situation of the Company.
The president shall report to the supervisory committee the
entering into of, and the enforcement of, material contracts by
the Company, the use of capitals and the profitability of the
Company upon the request of the supervisory committee. The
president shall ensure the truthfulness of such report.
CHAPTER 2 COMPOSITION OF THE SUPERVISORY COMMITTEE AND
ITS ADMINISTRATIVE OFFICE
Article 4 The supervisory committee shall compose of twelve supervisors.
Of which, eight of them shall be shareholder representatives
(including those who are eligible to be external supervisors);
four of them shall be representatives of workers and staff of
the Company.
The election and removal of the chairman of the supervisory
committee shall be determined by two-thirds or more of the
members of the supervisory committee.
Article 5 The term of the office of a supervisor shall be three years.
The supervisors representing the shareholders shall be elected
and removed by the shareholders' general meeting. The
supervisors representing the workers and staff of the Company
shall be elected and removed democratically by those workers and
staff of the Company. The term of a supervisor is renewable upon
re-election and re-appointment.
Article 6 Except for complying with the eligibility requirements as set
out in the Company Law and the Articles of Association, the
supervisors shall possess professional knowledge and work
experience in the field of law or accounting.
Article 7 A supervisor may resign before the expiry of his term of office
by submitting a written resignation letter to the supervisory
committee.
Provisions in respect of the resignation of directors as set
out in the Articles of Association shall be applicable to the
resignation of supervisors, including (but without limitation
to) where a supervisor's resignation will result in the number
of supervisors of the Company falling below the quorum as
provided by law, the resignation letter of such supervisor
shall not be effective until the vacancy created by his
resignation has been filled.
Article 8 The supervisory committee shall have an administrative office
responsible for handling daily affairs of the supervisory
committee.
CHAPTER 3 FUNCTIONS AND POWERS OF THE SUPERVISORY COMMITTEE
Article 9 The supervisory committee shall exercise the following
functions and powers in accordance with law:
(i) to review the Company's financial position. Where
necessary, the supervisory committee may appoint
another accounting firm on behalf of the Company to
carry out independent audit;
(ii) to supervise the directors, president, vice-president,
Chief Financial Officer and secretary of the board of
directors of the Company in order to ensure that they
do not act in contravention of any law, regulation or
the Articles of Association in performing their
duties;
(iii) to demand the directors, president, vice-president,
Chief Financial Officer and secretary of the board of
directors of the Company who acts in a manner which is
harmful to the Company's interest to rectify such
acts, and report to the shareholders' general meeting
and relevant authorities of the State when necessary;
(iv) to check and inspect the financial information such as
the financial report, business report and plans for
distribution of profits to be submitted by the board
of directors to the shareholders' general meetings and
to authorize, in the Company's name, publicly
certified and practicing accountants to assist in
reviewing such information should any doubt arise in
respect thereof;
(v) to give opinions on the appointment of an accounting
firm of the Company;
(vi) to propose to convene an extraordinary general
meeting, and may put forward provisional motions at
the shareholders' annual general meeting;
(vii) to propose to convene provisional board meetings;
(viii) to represent the Company in negotiations with or in
bringing actions against a director;
(ix) other duties and powers provided for in the Articles
of Association.The supervisors shall attend meetings
of the board of directors.
Article 10 The supervisory committee shall declare the Company's
supervisory report for the preceding year at the AGM. Such
report shall include the following matters:
(i) the review of the Company's financial position;
(ii) the implementation of relevant laws, regulations,
Articles of Association and the resolutions of the
shareholders' general meetings by the directors,
president, vice-president, Chief Financial Officer and
secretary of the board of directors of the Company;
(iii) the evaluation of the performance of the directors,
president, vice-president, Chief Financial Officer and
secretary of the board of directors of the Company by
the supervisory committee, in particular the specific
opinions of the external supervisors;
(iv) other significant events which in the opinion of the
supervisory committee shall be reported to the
shareholders' general meeting.
Where the supervisory committee thinks necessary, it may express
its opinions on the motions examined at the shareholders'
general meetings, and may submit an independent report to the
shareholders' general meetings.
Article 11 All reasonable fees incurred in respect of the employment of
professionals such as lawyers, certified public accountants or
practicing auditors which are required by the supervisory
committee in the exercise of its functions and powers shall be
borne by the Company.
The expenses incurred by the supervisors in attending the
supervisors' meeting shall be borne by the Company. These
expenses shall include the transport fares incurred by the
supervisors in travelling from their own addresses to the
places of the meetings, and fees for the accommodation and
meals during the meeting.
Article 12 The chairman of the supervisory committee shall exercise the
following functions and powers:
(i) to convene and chair the meetings of the supervisory
committee;
(ii) to organise and carry out the duties of the
supervisory committee;
(iii) to review and approve, and signing the reports of the
supervisory committee and other important documents;
(iv) to represent the supervisory committee to report to
the shareholders' general meetings;
(v) other duties that shall be performed by him in
accordance with law or the Articles of Association.
Where special circumstances preclude the chairman from
exercising his functions and powers, these functions and powers
shall be exercised by a supervisor designated by him.
Article 13 In performing its duties, the supervisory committee may
report to the board of directors and the shareholders general
meetings the breach of laws and rules relating to the Company's
financial affairs and the acts of the directors, president,
vice-president, Chief Financial Officer and secretary of the
board of directors of the Company which are in violation of
laws, regulations or the Articles of Association. It may also
directly report the same to the securities regulatory
authorities of the State Council and other relevant authorities.
Article 14 A supervisor shall abide by the laws, regulations and the
Articles of Association, and shall perform his duties faithfully
and diligently.
CHAPTER 4 RULES OF THE SUPERVISORS' MEETINGS
Article 15 The supervisors' meetings shall be divided into regular
meetings and provisional meetings according to the regularity
of such meetings.
Article 16 The regular meetings shall be convened at least four times each
year, including the interim results meeting, the annual results
meeting, the year-end review and the arrangement meetings for
supervisors financial management meetings.
The interim results meetings shall be convened within sixty
days from the end of the first six months of the accounting
year of the Company. The supervisors shall listen to and
approve the Company's interim reports and deal with other
relevant matters at such meetings.
The annual results meetings shall be convened within 120 days
from the end of the accounting year of the Company. The
supervisors shall listen to and approve the Company's annual
reports and deal with other relevant matters at such meetings.
The year-end review and arrangement meetings shall be convened
in December of each year. The supervisors shall listen to and
approve the president's report in respect of the expected
performance of the Company in the year and the work
arrangements for the following year at such meetings.
The financial management meetings shall be convened within 30
days from the end of the annual financial work meeting of the
Company. The supervisors shall listen to and approve the report
of the Company's financial department in respect of conducting
the overall budget management and strengthening financial
control by the Company.
Article 17 A provisional supervisors' meeting shall be convened in any one
of the following events:
(i) here the chairman of the supervisory committee considers
necessary;
(ii) where more than two-thirds of the supervisors propose in
their joint names;
(iii) where the Company has suffered or is suffering loss of
substantial assets causing the shareholders' interests to
be damaged;
(iv) where the directors, president, vice-president, Chief
Financial Officer and secretary of the board of directors
of the Company act in a way which is in contravention of
laws, regulations or the Articles of Association causing
the Company's interests to be seriously damaged.
Article 18 The supervisors' meetings shall be divided into on-site
meetings, video-telephone meetings and meetings by way of
written resolutions.
All the meetings of the supervisory committee may be held by
the way of on-site meeting.
The meetings of the supervisory committee may be held by the
way of video-telephone meetings, provided that the attending
supervisors are able to hear clearly the supervisor who speaks
at the meeting and communicate amongst themselves. In the event
that the attending supervisors are unable to sign for the
resolutions on site, they shall express their opinions orally
during the meeting and shall complete the signing procedures as
soon as practicable.
Where an on-site meeting or a video-telephone meeting is
impractical, the supervisors' meeting may be held by way of
written resolutions, in which case details of the motions to be
discussed and examined at the meeting, which are in the written
form, shall be despatched to the supervisors for decision.
Unless otherwise expressed by the supervisors, signing on the
written resolutions by the supervisors shall be sufficient
evidence that they have agreed to the resolutions.
Article 19 A supervisors' meeting shall be validly convened by the
presence of not less than two-thirds of the supervisors.
The supervisors shall be physically present at the supervisors'
meetings. If for any reason a supervisor is unable to attend
the meeting, he shall by written authorisation appoint another
supervisor to act as his proxy to attend the meeting and
exercise his functions and powers. The written authorisation
shall state the name of the proxy, the scope of the
authorisation, the authority of the proxy and the period of
validity. It shall also be signed by the proxy or affix the
seal of the proxy.
In the event that a supervisor does not attend the supervisors'
meeting in person for two consecutive meetings, he shall be
deemed to be unable to perform his duties, and the
shareholders' general meeting or the staff representative
meeting shall dismiss such supervisor.
CHAPTER 5 PROCEEDINGS OF THE SUPERVISORS' MEETING
Article 20 The supervisory committee shall put forward motions according
to the matters to be examined by the board of directors and
matters proposed by the supervisors.
Article 21 The administrative office of the supervisory committee shall be
responsible for gathering the matters to be examined by the
board of directors and the matters proposed by the supervisors,
and shall submit these matters to the chairman of the
supervisory committee in time. The chairman of the supervisory
committee shall determine whether to submit these matters to
the supervisory committee for review according to the
importance and urgency of these matters.
Article 22 The chairman of the supervisory committee shall be responsible
for convening the supervisors' meeting, and shall sign the
notice of the meeting. Such notice shall state the date, place,
duration, agenda, reasons and subject matters of the meeting
and other relevant information, as well as the date of the
issuance of such notice.
The notice of a supervisors' meeting shall be delivered to the
supervisors ten days before the date of the meeting. Any
supervisor may waive his right to demand the notice of the
meeting.
The notice of the meeting may be served on the supervisors by
courier, facsimile, telegraph or mail.
Article 23 After the issue of the notice of a meeting and before the date
of the meeting, the administrative office of the supervisory
committee shall be responsible for, and shall communicate and
liaise with all supervisors, to seek their opinions or
suggestions in respect of the motions of the meeting, so as to
enable necessary amendments to be made to them.
Where more than one-fourth of the members of the supervisors or
two external supervisors are of the opinion that the
information in respect of a specific motion is insufficient to
allow judgment to be made, or the motion is not convincing,
they may in their joint name propose to postpone the
examination of such a motion, and the supervisory committee
shall adopt such a proposal.
Article 24 The supervisors' meeting shall be chaired by the chairman of
the committee. Where circumstances preclude the chairman to
chair the meeting, he may designate a supervisor to chair the
meeting. Upon the expiry of the term of office of the
supervisory committee and the re-election of the new
supervisors by the shareholders' general meeting, the
supervisor who obtains the largest number of approval votes at
such re-election (if more than one, one shall be chosen amongst
them) shall chair such meeting, at which the chairman of the
new supervisory committee shall be elected.
Article 25 The chairman of the meeting shall declare the commencement of
the meeting as scheduled. The supervisors in presence shall
reach an agreement on the agenda of the meeting thereafter.
Where more than one-fourth of the supervisors or two external
supervisors are of the opinion that the information in respect
of one specific motion is insufficient to allow judgment to be
made, or the motion is not convincing, they may in their joint
name propose to postpone the examination of such a motion, and
the chairman of the meeting shall adopt their proposal.
Where an agreement is reached in respect of the agenda of the
meeting by the supervisors present at the meeting, the chairman
of the meeting shall direct the motions to be examined one by
one.
Article 26 In reviewing the relevant motions and reports, the
supervisors' meeting may require the directors, president,
vice-president, Chief Financial Officer, secretary of the board
of directors and the internal and external auditors of the
Company to attend the meeting to give necessary explanations to
the relevant matters, and to answer the questions which the
supervisory committee is concerned with.
Article 27 In reviewing the motions at supervisors' meetings, all
attending supervisors shall deliver their opinions in respect of
approval or objection to such motions or abstention from voting.
The supervisors who are acting as proxies of others shall
exercise the rights of voting within the authorization.
Where a supervisor is not present at a supervisors' meeting and
fails to appoint a proxy to act on his behalf, such supervisor
shall be deemed to have waived his rights to vote at the
meeting.
Article 28 In principle, resolutions shall be made on the matters examined
at the supervisors' meeting. Such resolutions shall be decided
on a poll or show of hands. No resolution shall be effective
unless approved by more than two-thirds of all the supervisors.
Article 29 Detailed minutes of a supervisors' meeting shall be recorded as
proof of the resolutions on the matters examined at the
meeting.
The minutes of the meeting shall state the date and place of
the meeting, name of the chairman of the meeting, names of the
attending supervisors and names of the principals and proxies
who have fulfilled the necessary procedures for attending the
meeting, agenda of the meeting, main points of each
supervisor's speech, the methods of voting for each matter to
be resolved on and the voting result (the result shall state
the number of votes for approval or objection to the motion or
abstention).
The administrative office of the supervisory committee shall
designate staff to arrange for the matters examined at the
meeting to be recorded. The minutes of each meeting shall be
provided to the attending supervisors for review without delay.
Supervisors present at the meeting and the minutes-taking
officer shall sign the minutes of that meeting. A supervisor
shall have the right to request an explanatory note be made for
his speech at the meeting.
Article 30 Minutes of a supervisors' meeting and the resolutions passed at
such meeting, being important documents, shall be properly kept
by the administrative office of the supervisory committee at
the Company's place of business.
CHAPTER 6 DISCLOSURE OF INFORMATION RELATING TO THE
SUPERVISORS' MEETING
Article 31 The supervisory committee shall strictly comply with the
requirements of the regulatory authorities and the stock
exchanges on which the Company's shares are listed in relation
to the disclosure of information. It shall ensure that matters
examined or resolutions passed at supervisors' meetings which
are discloseable are disclosed accurately and in a timely
manner.
Article 32 Regarding confidential information, the attendees of the
meeting must keep such information confidential. Punishment
shall be imposed on those who are in breach of this duty.
CHAPTER 7 IMPLEMENTATION OF THE RESOLUTIONS OF THE
SUPERVISORS' MEETING AND FEEDBACKS
Article 33 The supervisory committee may pass resolutions and make
proposals to the board of directors and the shareholders'
general meetings. These resolutions and proposals shall be
implemented by the relevant departments of the Company under
the direction of the board of directors.
Article 34 The administrative office of the supervisory committee shall,
under the direction of the committee and its chairman, take
initiative to obtain the information in respect of the
implementation of the relevant resolutions, and shall report
and make proposals to the supervisory committee and the
chairman of the committee.
Article 35 Where resolutions concerning the proposals to convene a
provisional board meeting or shareholders' extraordinary
general meeting, or the submission of provisional motions to
the AGM are passed by the supervisory committee, the
supervisory committee shall, within a specified period, submit
to the board of directors the subjects of such meetings and the
detailed motions in writing, and shall ensure that the contents
of the motions comply with relevant laws, regulations and the
Articles of Association.
CHAPTER 8 SUPPLEMENTARY ARTICLES
Article 36 The right to interpret these Rules shall vest with the
supervisory committee.
Article 37 Where these Rules fail to comply with relevant laws,
regulations and other regulatory documents as promulgated from
time to time, these laws, regulations and other regulatory
documents shall prevail.
Exhibit 8
List of Subsidiaries
A list of China Petroleum & Chemical Corporation's principal
subsidiaries is provide in Note 31 to the consolidated financial statements
included in this annual report following Item 19.
Exhibit 12.1
CERTIFICATIONS
I, Chen Tonghai, certify that:
1. I have reviewed this annual report on Form 20-F of China Petroleum &
Chemical Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this annual report;
4. The company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the company's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure procedures, as of the end of the period
covered by the report based on such evaluation; and
(c) Disclosed in this report any change in the company's internal
control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting;
and
5. The company's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of company's board of directors (or
persons performing the equivalent function):
(a) All significant deficiencies and material weakness in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the company's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the company's internal control
over financial reporting.
Date: June 18, 2004
By: /s/ Chen Tonghai
Chen Tonghai, Chairman
Exhibit 12.2
I, Wang Jiming, certify that:
1. I have reviewed this annual report on Form 20-F of China Petroleum &
Chemical Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this annual report;
4. The company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the company's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure procedures, as of the end of the period
covered by the report based on such evaluation; and
(c) Disclosed in this report any change in the company's internal
control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting;
and
5. The company's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of company's board of directors (or
persons performing the equivalent function):
(a) All significant deficiencies and material weakness in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the company's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the company's internal control
over financial reporting.
Date: June 18, 2004
By: /s/ Wang Jiming
Wang Jiming, President
Exhibit 12.3
I, Zhang Jiaren, certify that:
1. I have reviewed this annual report on Form 20-F of China Petroleum &
Chemical Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
company as of, and for, the periods presented in this annual report;
4. The company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is being
prepared;
(b) Evaluated the effectiveness of the company's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure procedures, as of the end of the period
covered by the report based on such evaluation; and
(c) Disclosed in this report any change in the company's internal
control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to
materially affect, the company's internal control over financial reporting;
and
5. The company's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of company's board of directors (or
persons performing the equivalent function):
(a) All significant deficiencies and material weakness in the design
or operation of internal control over financial reporting which are reasonably
likely to adversely affect the company's ability to record, process, summarize
and report financial information; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the company's internal control
over financial reporting.
Date: June 18, 2004
By: /s/ Zhang Jiaren
Zhang Jiaren,
Senior Vice President and
Chief Financial Officer
Exhibit 13
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
and Pursuant to Rule 13a-14(b)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
In connection with the Annual Report on Form 20-F of China Petroleum
& Chemical Corporation (the "Company") for the year ended December 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Chen Tonghai, as Chairman of the Company, Wang Jiming, as President
of the Company, and Zhang Jiaren, as Senior Vice President and Chief Financial
Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. ss. 1350
and Rule 13a-14(b) under the Exchange Act, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d), as applicable, of the Exchange Act; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company.
By: /s/ Chen Tonghai
Name: Chen Tonghai
Title: Chairman
Date: June 18, 2004
By: /s/ Wang Jiming
Name: Wang Jiming
Title: President
Date: June 18, 2004
By: /s/ Zhang Jiaren
Name: Zhang Jiaren
Title: Senior Vice President and Chief Financial Officer
Date: June 18, 2004
This certification accompanies the Report pursuant to Rule 13a-14(b)
under the Exchange Act and 18 U.S.C. Section 1350 and shall not be deemed
"filed" by the Company for purposes of ss.18 of the Exchange Act, or otherwise
subject to the liability of that section.