2011 ANNUAL REPORT
an inter-market trading seat, member of National Inter-Bank Bond Market and member of China Foreign Exchange Trade System. CPF has been ranked first among its peers in the PRC for nine years consecutively.
CPF has put in place an adequate internal control and risk management system. Since its establishment, CPF has not incurred any non-performing asset or loan and is one of the most creditable and strongest finance companies in the PRC. In particular, (1) CPF has put in place a multi-layered risk management system covering the risk management committee of its board of directors, the loan appraisal group and the investment appraisal group, management supervision department, as well as its business department and all positions under its business department; (2) CPF has completed a handbook for its internal control system, whereby all businesses are conducted in an orderly manner in line with the prescribed multi-layered authorisation & approval system as well as the risk management measures; (3) CPF has devised specific risk management measures against four major risks, namely liquidity risk, credit risk, market risk and operation risk; (4) CPF has accepted the regulatory control by China Banking Regulatory Commission, either on and off site, and has satisfied or even exceeded major regulatory targets over the years. In 2011, CPF successfully issued US dollar and Renminbi bonds in Hong Kong, for which CPF received a relatively high international credit ratings comparing to other domestic commercial or financial institutions. The most updated credit ratings from Moody’s, Standard and Poor’s and Fitch for the such bonds are A1, A+ and AA-, respectively.
The services rendered by CPF to the Company are all characterised by excellent quality which laid a solid basis to support the development of the Company. Interest for deposits is offered at the national statutory rate. Loans in Renminbi are provided at favorable interest rate on the basis of the benchmark rate set by the People’s Bank of China minus a maximum of 20%. Lower than market rates will be offered to loans in other currencies to the extent with reference to the financing cost and the borrower’s credit. No service fee is charged for any kind of settlement services, while entrusted loans are chargeable at a rate lower than
market comparables. In respect of loan approval procedures and settlement efficiencies, CPF offers streamlined, speedy and secure services.
3. Acquisitions, Disposals and Mergers during the reporting period
On July 1, 2011, PetroChina International (London) Company Limited (“PCI”), a wholly-owned subsidiary of the Group, completed its transaction with INEOS Group Holdings plc, for the establishment of joint ventures in Europe engaging in trading and refining activities. PCI has paid US$1,015 million (approximately RMB6,569 million) in cash to acquire shares in the joint ventures.
The above transaction did not affect the continuity of the Group’s business and the stability of its management.
It is beneficial for the future financial position and operating results of the Group on a continuing basis.
4. Significant connected transactions during the reporting period
Please refer to the section “Connected Transactions” in this annual report. During the reporting period, no substantial shareholder of the Company has utilised the funds of the Company for non-operating purposes.
5. Material contracts and the performance thereof
(1) During the reporting period, there were no trusteeship, sub-contracting and leasing of properties of other companies by the Company which would contribute profit to the Company of 10% or more of its total profits for the year.
(2) The Company has no material guarantee during the current reporting period.
(3) The Company did not entrust any other person on wealth management during the current reporting period.
(4) The Company has no material external entrustment loans during the current reporting period.
(5) Save as disclosed in this annual report, during the reporting period, the Company did not enter into any material contract which requires disclosure.
6. Performance of Commitments
Specific undertakings made by CNPC, the controlling shareholder of the Company, and performance of the undertakings as at December 31, 2011:
Name of
Shareholder Undertaking Performance of Undertaking
CNPC
According to the Restructuring Agreement entered into between CNPC and the Company on March 10, 2000, CNPC has undertaken to indemnify the Company against any claims or damages arising or resulting from certain matters in the Restructuring Agreement.
As at December 31, 2011, CNPC had obtained formal land use right certificates in relation to 28,065 out of 28,649 parcels of land and some building ownership certificates for the buildings pursuant to the undertaking in the Restructuring Agreement, but has not completed all of the necessary governmental procedures for the service stations located on collectively-owned land.
The use of and the conduct of relevant activities at the above-mentioned parcels of land, gasoline stations and buildings are not affected by the fact that the relevant land use right certificates or individual building ownership certificates have not been obtained or the fact that the relevant governmental procedures have not been completed.
According to the Non-Competition Agreement entered into between CNPC and the Company on March 10, 2000, CNPC has undertaken to the Company that CNPC will not, and will procure its subsidiaries not to, develop, operate, assist in operating nor participate in any businesses by itself or jointly with another company within or outside the PRC that will compete with the core businesses of the Group. According to the Agreement, CNPC has also granted to the Company pre-emptive rights to transaction with regards to part of its assets.
Currently, CNPC owns the following businesses which are identical or similar to the core businesses of the Group:
CNPC has overseas operations in relation to exploration and production of crude oil and natural gas as well as production, storage and transportation of petroleum, chemical and related petroleum products. CNPC has oil and gas exploration and development operations in many overseas countries and regions.
As the laws of the country where ADS are listed prohibit its citizens from directly or indirectly financing or investing in the oil and gas projects in certain countries, CNPC did not inject the overseas oil and gas projects in certain countries to the Company.
On May 25, 2011, CNPC increased his
shareholdings in the Company through purchase(s) via the trading system of Shanghai Stock
Exchange. CNPC intended to increase, through market purchases, its holdings of the shares of the Company within the next 12 months (from May 25, 2011), whether in its own name or through any parties acting in concert with it, to a cumulative total of not exceeding 2% of the issued shares of the Company. CNPC undertook not to reduce its holdings during the above period and the statutory period.
CNPC has not violated the relevant undertaking during the reporting period.
Significant Events
2011 ANNUAL REPORT
7. Engagement and disengagement of firm of accountants
The Company has not changed its firm of accountants during the reporting period.
During the reporting period, the Company has continued engaging PricewaterhouseCoopers Zhong Tian CPAs Company Limited as the domestic auditors and has continued engaging PricewaterhouseCoopers as the overseas auditors. Remuneration in respect of the audit work amounts to RMB70 million, mainly for the purpose of providing auditing services for the Company’s domestic and international needs.
Up to the end of the reporting period, PricewaterhouseCoopers Zhong Tian CPAs Company Limited and PricewaterhouseCoopers have provided auditing services to the Company for a consecutive 13-year period.
8. Penalties on the Company and its Directors, Supervisors, senior management, controlling shareholders and de facto controller and remedies thereto
During the reporting period, none of the Directors, Supervisors, senior management, controlling shareholders or de facto controllers were subject to any investigation or administrative penalty by the China Securities Regulatory Commission, nor any denial of participation in the securities market or deemed unsuitability to act as directors thereby by other administrative authorities or any public criticisms made by a stock exchange.
9. Other Significant Events
(1) Pursuant to the Circular jointly issued by the Ministry of Finance of the PRC, the General Administration of Customs of the PRC and the State Administration of Taxation of the PRC on Issues Concerning a Proportionate Refund of VAT
on Imported Natural Gas between 2011 and 2020 as well as Natural Gas Imported from Central Asia before the end of 2010 (Cai Guan Shui [2011] No.39) (《關於2011-2020年期間進口天然氣及2010年底 前“中亞氣”項目進口天然氣按比例返還進口環節 增值稅有關問題的通知》(財關稅 [2011] 39號)), if the price of imported natural gas under any state-sanctioned natural gas import program is higher than the selling price fixed by the State, the VAT as paid by the Group on imported natural gas (including LNG) under the above program will be refunded on a pro-rata basis by reference to the extent of the threshold of the crude oil special gain levy shall be increased to US$55, with effect from November 1, 2011. Notwithstanding such adjustment, the crude oil special gain levy will continue to have 5 levels and will be calculated and charged according to the progressive and valorem rates on the excess amounts.
(3) Pursuant to Order 605 of the State Council in respect of its Decision on the Amendments of the Provisional Regulations Governing Resource Tax of the PRC (國務院令第605號文《關于修改<中華人 民共和國資源稅暫行條例>的决定》), resource tax on crude oil and natural gas payable by entities or individuals who extract crude oil and natural gas in the territory and waters over which the PRC has jurisdiction shall be imposed on ad valorem basis at 5% to 10% with effect from November 1, 2011.
Pursuant to Order 66 jointly issued by the Ministry of Finance of the PRC and State Administration of Taxation of the PRC in respect of the Implementation
Rules under the Provisional Regulations Governing Resource Tax of the PRC (財政部、國家稅務總局令第66號文《中 華人民共和國資源稅暫行條例實施細則》), the tax rate applicable to crude oil and natural gas shall be 5%.
(4) Pursuant to Notice from the National Development and Reform Commission of the PRC on Price Reform Pilot Scheme for Natural Gas in Guangdong Province and Guangxi Zhuang Autonomous Region (Fa Gai Jia Ge [2011]
No. 3033) (發改價格[2011] 3033號文《關于在廣東省、廣西 自治區開展天然氣價格形成機制改革試點的通知》), a price reform pilot scheme for natural gas shall be implemented in Guangdong Province and Guangxi Zhuang Autonomous Region with effect from December 26, 2011. The overall plan of the pilot scheme is that: (i) the current cost-plus pricing method has been changed to “netback market value” pricing method. Pricing benchmarks and alternative energy resources will be selected to establish an inter-link mechanism between the price of natural gas and the price of alternative energy resources; (ii) the price of natural gas at city gate station in each province, region or city shall be based on the pricing benchmark and shall take into account the principal flow of
natural gas market resources and pipe transportation costs;
(iii) a dynamic adjustment mechanism for the price of natural gas at city gate station shall be implemented. Prices shall be adjusted each year in accordance with the price change of alternative energy resources. Over time, adjustments shall be made every six months or quarterly; and (iv) the ex-factory prices for unconventional natural gas including shale gas, coal seam gas, coal gas shall be adjusted in accordance with market.
(5) On December 23, 2011, the Company completed the disposal to Kunlun Energy（a subsidiary of the Group listed in Hong Kong), of a 60% interest in PetroChina Beijing Gas Pipeline Co., Ltd. Pursuant to the related transfer agreement, the consideration is approximately RMB18,871 million, to be satisfied by way of the issue of consideration shares of Kunlun Energy.
The above transaction did not affect the continuity of the Group’s business and the stability of its management. It is beneficial to the future financial position and operating results of the Group on a continuing basis.