Local government seeks eco-compensation from oil producer

XI'AN - A long-running spat between Changqing oil field and Yulin government in northwest China's Shaanxi Province has moved a step closer to being resolved after 21 of the oil and gas producer's 22 bank accounts were unfrozen. A Yulin government official confirmed the decision to Xinhua earlier this week.

Yuyang district court of Yulin City froze the oil field's 22 bank accounts in October because it refused to pay compensation for water and soil losses worth 850 million yuan (139.7 million US dollars), including an overdue fine of 110 million yuan.

The losses were caused by Changqing's exploitation of oil and gas in Yulin between July 2009 and March 2012, according to the court.

Changqing oil field, a subsidiary of China's top oil and gas producer PetroChina, has operations in five provinces and autonomous regions, including Gansu, Shaanxi, Ningxia, Inner Mongolia and Shanxi.

Last month, PetroChina negotiated with Shaanxi Province to tackle the eco-compensation issue.

Yulin unfroze 21 of Changqing's accounts in late November, with one still blocked until the issue is fully resolved, the official, surnamed Gao said. LEGAL BATTLE

The nine-month-long legal battle began with Changqing lodging a lawsuit against Yulin's decision to seek compensation for water and soil losses from it.

The Yuyang district court verdict said that Changqing claimed Shaanxi provincial regulations were illegal and its compensation assessment unreasonable.

According to Shaanxi provincial regulations on water and soil conservation, if companies engage in resource development and cause water and soil losses, they should compensate, the court verdict said.

"China does not have a single standard on eco-compensation. Since local regulations were approved by Shaanxi Provincial People's Congress, a local legislative body, they are legally binding," said He Yuhui, a lawyer at Beijing Deheng law firm.

Besides, in accordance with local compensation regulations on water and soil losses, how much a company pays is based on its output, specifically, 30 yuan per tonne of crude oil and 0.008 yuan per cubic meter of natural gas.

If state-owned enterprises doubted the assessment methods, they could suggest relevant departments revise them rather than hinder its implementation, He said.

So the court ruled against Changqing oil field, but the latter still refused to pay the compensation.

Changqing set up in Yulin in the 1970s. After decades of development, it has seven production units in Yulin to exploit crude oil and natural gas, said Qiu Jianguo, an official from the local energy bureau.

Yulin started to seek compensation in January 2009. "State-owned, provincial and private enterprises in Yulin have all paid compensation for water and soil losses on time. Changqing is an exception," Qiu said. INTERESTS CONFLICT

Resource development uses huge amounts of water and impacts the environment, so it is reasonable for local governments to ask for compensation, said oil industry expert Han Xiaoping.

"Insiders all know that behind the legal battle are conflicts of interests between local governments and state-owned companies," he said,  adding that if not tackled properly, the case will cause more problems.

Employees of Changqing oil field never expected a city like Yulin would dare freeze their bank accounts, a worker surnamed Fan from Changqing said.

"There have been tensions between Yulin and us," he said. "One underlying reason is that we exploit resources here, but pay taxes to central rather than local government."

In 2012, the Changqing oil field produced 8.3 million tonnes of crude oil, accounting for 71 percent of Yulin's total output, while its natural gas output amounted to 11 billion cubic meters, 86 percent of the city's overall production.

Qiu Jianguo said local companies contributed more than 500 yuan to Yulin when exploiting one tonne of crude oil, but Changqing only devoted about 30 yuan.

"It holds a monopoly of the market, but contributes less locally," Qiu said. "Besides, growing tensions are also owing to some lagging national policies."

Changqing transmits natural gas from Yulin to its registered place Beijing, where taxes are levied. "It is unfair to the resource exporting regions," Qiu added.

To ease tensions between local governments and state-owned enterprises, China should work out the ownership and management of natural resources, said Zhou Daidi, a researcher with Energy Research Institute of the National Development and Reform Commission.

"Resource tax should reflect local interests," he added.

In Yulin, coal mining companies are committed to livelihood projects, such as immigrant relocation, poverty relief and employment.

We hope state-owned enterprises could take more responsibility for the local people, said Liu Xiaohui, assistant researcher with Shaanxi Provincial Academy of Social Sciences.

"Their relationships with local governments should be built on cooperation rather than contradiction," Liu said. ECO-COMPENSATION FUND

Located in the Loess Plateau, Yulin City is ecologically vulnerable. Oil and gas exploitation would further weaken the local environment, environmental experts said.

"Its influence is not obvious right now, but damage to the earth's surface as well as vegetation will lead to water loss and soil erosion," said Zhang Jiping, an expert from Shaanxi institute of sand control.

China assesses the performance of local authorities not only through economic indices like gross domestic product, but also through their efforts in protecting the environment.

People must pay to use natural resources and those resulting in environmental damage must compensate, according to a decision approved by the Third Plenary Session of the 18th CPC Central Committee last month.

So the legal battle between Changqing oil field and Yulin government highlights the urgency of making known unified laws and regulations on eco-compensation in China, said Zhang Yan, a sociology researcher with Shaanxi Provincial Academy of Social Sciences.

"But it requires scientific and systematic assessment methods, involving the evaluation of enterprises' profits and degrees of pollution," she said.

Zhang added that Chinese local governments are changing development mode. But the first step is to treat pollution. "Government finance is not enough. It is time for enterprises to pay back."

"Building an eco-compensation fund may be a good idea but fees should not be used to build houses or buy vehicles," said Zhou Dadi.

Further discussion is needed as to which parties manage and monitor the fund, Zhou added.

According to the consensus reached between Changqing oil field and Yulin government, Changqing promised to increase oil refining in Yulin and provide enough resources for local liquefied natural gas enterprises.

In return, Yulin agreed to unfreeze its bank accounts. But how to deal with the eco-compensation issue is yet to be decided.

"We hope eco-compensation will not serve as a counterweight when both sides scramble for their own interests," Liu Xiaohui said.