Firefighters try to extinguish a fire in Zhangzhou, Fujian Province, after an explosion hit part of an oil storage facility owned by Dragon Aromatics, in this April 7, 2015 photo. (Photo : Reuters)
State-owned energy giant Sinopec Corp. is in advanced talks to acquire a controlling stake in independent petrochemical firm Dragon Aromatics, the operator of one of China’s biggest chemical plants, insider sources privy to the deal told Reuters on Tuesday.
The talks come after Dragon Aromatics, which is owned by Taiwan-based Xianglu Group, suffered its second major fire in less than two years at its $3 billion plant in Fujian, with sources saying local authorities are urging Sinopec to participate before the plant is allowed to reopen.
The tough line indicates Beijing's willingness to put pressure on provinces to ensure better industrial safety standards and environmental protection, the report said.
Dragon Aromatics was forced to shutter the Fujian plant, which produced up to 1.6 million metric tons per year of paraxylene, a chemical used in making plastics, after an explosion and the resulting fire hit part of its oil storage facility on April 7.
"This is what the local government has insisted: Without Sinopec's participation the plant won't be allowed to resume operations," said one of sources, who declined to be named due to the sensitivity of the discussions.
Sinopec has yet to comment on the deal as of press time.
According to insider sources, Sinopec could take up to 80 percent of the stake.
A senior Dragon Aromatics official told Reuters under the condition of anonymity that the company is "trying every means to resume the plant's production as soon as possible."
The plant is located in the Gulei Peninsula, a site in China's southeast where state-controlled firms including Sinopec and China National Offshore Oil Corp. (CNOOC) had previously attempted to build petrochemical plants.
Calls to the management committee of the Gulei economic zone and the Zhangzhou municipal government, which has jurisdiction over the peninsula, were not returned.
Industrial safety has come under a harsh spotlight in China following a deadly series of explosions at a chemical warehouse in Tianjin that killed 160 people.
Sinopec, China's largest oil refiner and petrochemical producer, has been trying to construct paraxylene plants in recent years, although two of its latest investments have been rebuffed due to opposition from residents worried about the pollution the facilities may produce.
"It would not be a bad deal for Sinopec, as it would save it all the trouble of going through the lengthy regulatory and environmental approvals," an insider source told Reuters, with another source noting that the company may need to retool the plant to improve safety standards.
Local Fujian officials including a vice mayor have been prosecuted over the explosions, which was blamed on lax quality control and safety management, according to a Xinhua report in August.
The purchase could also allow Sinopec to increase its purchases of Iranian oil under relaxed sanctions.
To supply its paraxylene plant, Dragon Aromatics runs a condensate splitter and hydrocracker that process 100,000 barrels and 3.2 million tonnes per year, respectively.
The company has been one of the leading buyers of Iranian condensate, a very light crude oil, and the plant shutdown has forced Iran to store more of its oil.
