The state-own Asset Supervision and Administration Commission
(SASAC) took aim at the beleaguered China Aviation Oil (Singapore)
Corp on Friday for violating regulations on trading oil index
futures.
It is the first time the government has commented on the
financial scandal in which CAO lost US$550 million in derivatives
trading.
The oil futures trading of CAO "severely encroach the normal
procedure of decision making and made wrong business decisions that
caused huge losses," said Du Yuanquan, spokesman of the SASAC,
which oversees state enterprises.
Du warned during Friday's press conference that the incident
should serve as a reminder to state enterprises.
He called for stronger supervision and risk management
mechanisms to avoid similar problems in the future.
China has allowed dozens of state companies to trade futures in
selected overseas futures exchanges. But they are strictly barred
from speculative trading.
CAO, which dominated China's jet fuel imports, racked up huge
losses in speculative trading, after it made a wrong bet on the
movement of oil prices.
The company, which has applied for court protection from
creditors, is seeking strategic investors for restructuring.
On Friday, China Aviation Oil Holding Company (CAOHC), CAO's
parent company, accused CAO of covering up the information for more
than a year.
CAOHC said the slack risk supervision and management led to the
violation.
Despite the incident, CAOHC said China's domestic jet fuel
supply remains unaffected.
CAOHC supplied 7.08 million tons of jet fuel from January to the
end of November, up 38 percent from a year earlier.
Meanwhile, CAOHC is preparing to establish a new trading arm to
take over CAO's jet fuel import business.
(China Daily December 11, 2004)