Jan 27, 2015 06:12 PM

Lanzhou Shames CNPC Unit for Pollution Crises

(Beijing) – State-run companies are such mighty pillars of support for regional economies across China that they rarely draw direct criticism from local government officials, even when something goes terribly wrong.

So it was highly unusual to hear officials in the northwestern city of Lanzhou censure a subsidiary of the oil behemoth China National Petroleum Corp. (CNPC) recently over environmental incidents that fouled the community's air, river and drinking water for 3.6 million people.

A Lanzhou division of CNPC, whose listed subsidiary is PetroChina, was verbally targeted by city officials at a January 9 press conference called by the city's environmental protection bureau.

No fines have been imposed, nor have any civil or criminal charges been filed in connection with the four serious incidents linked to Lanzhou Petrochemical Co. since spring 2014, although the company's deputy general manager, Wang Shihongin, was reportedly reprimanded by a central government-led group of investigators shortly after a severe benzene leak in the provincial capital of Gansu in April.

At the press conference, city officials took the unprecedented step of publicly shaming the company for the incidents, the first of which was the benzene leak that contaminated the city's water supply.

Lanzhou Petrochemical Co. has repeatedly violated the environmental protection law in the course of just a few months," the city environmental agency said in a written briefing to the media that was followed by a question begging an answer: "As a central government-run enterprise, what social responsibility do you bear?"

Lanzhou Petrochemical officials responded a day later with a brief statement: "We are earnestly heeding criticism from the government, and we are abiding by the law by improving our efforts to protect the environment." So far, there have been no comments from Beijing-based CNPC.

Local officials went a step further by posting a formal notice in the Communist Party's Gansu Daily newspaper that described in detail how an equipment malfunction at a refinery of Lanzhou Petrochemical Co. had triggered a fire on January 8 that filled the air in some northern parts of the city with toxic smoke.

A city official who asked not to be named said Lanzhou Petrochemical may eventually make amends, although no one knows what form or fashion that action might take.

A related – and economically pressing – question is whether the city and Lanzhou Petrochemical will move forward with a previously discussed plan to move the refinery to an industrial park outside the city.

Cash Cow

Lanzhou Petrochemical is a major employer and taxpayer not only for the city but for Gansu Province. It's also "helped spawn many downstream businesses" that rely on the company's products for their manufacturing operations, said a former Lanzhou Petrochemical executive.

The 30-year-old company's refinery plants can process up to 10.5 million tons of crude oil a year and produce 700,000 tons of ethylene, which is important in the petrochemical industry and also used to ripen fruit. It's also been the province's top taxpayer for the past five years, forking over more than 10 billion annually, or about 15 percent of Gansu's tax revenues.

Until now, city and provincial authorities have supported Lanzhou Petrochemical not only due to its status as a cash cow, but also because the its parent, CNPC, is directly controlled by the State Council, which is the country's cabinet, and the State-owned Assets Supervision and Administration, the regulator of state-owned holdings.

The new attitude was reflected in statements issued by the Lanzhou environmental bureau's deputy director, Bai Yongping, who said Lanzhou Petrochemical has been expanding without local government supervision at the expense of the environment.

Central government officials have cited Lanzhou Petrochemical for environmental problems since at least 2007, the year a Ministry of Environmental Protection inspection turned up serious safety threats.

The following year, a publication called the Journal of Water & Wastewater Engineering reported that more than 60 types of organic pollutants had been found in a Lanzhou-area stretch of the Yellow River, which is also the city's source of public water. Local academics said Lanzhou Petrochemical Co. was largely to blame for the problem.

Violators of the country's Environmental Protection Law can be fined for illegally releasing pollutants, and the Tort Law says polluters should pay compensation for any damage caused by pollution for which they are found responsible.

Regulators at the level of county government or above can force polluters to suspend operations in the face of investigations, or even shut down. The Lanzhou city government, however, is largely powerless against a central government-controlled company.

The water benzene leak into the Yellow River in April embarrassed city government officials and all but ruined Lanzhou's status as a tourist destination. It also left residents without running water for two days.

The next crisis occurred on August 4 when an ethylene leak triggered a fire at one of its refinery plants. Then on January 3, dangerous ammonia leaked from another refinery plant run by a Lanzhou Petrochemical subsidiary. Another fire broke out five days later.

People who live near the refinery say they've been affected by these incidents. Jia Husheng, for example, said in recent months he's witnessed two fires with towering flames and eye-stinging smoke.

On two other occasions," Jia said, "black smoke was to billowing into the sky. Afterward, houses and cars were covered with thick dust. We had to wear face masks."

Some academics critical of Lanzhou Petrochemical, who asked not to be named, have called the company the city's biggest environmental threat.

The company operates a 27 kilometer sewage pipeline that cuts through downtown Lanzhou en route to a discharge point on the Yellow River, downstream from the city. Lanzhou Petrochemical also operates a web of oil, natural gas and steam pipelines that run alongside pipelines for public water or other utilities.

To mitigate the risks, academics have been urging the company and city officials to move forward with relocation plans.

The Lanzhou government has been promoting the relocation plan since 2011. Officials would like to move not only Lanzhou Petrochemical but other manufacturers to an industrial park 38 kilometers from downtown.

So far, no one in an official capacity has publicly mentioned a timeframe for a possible move. Bai said a relocation could cost about 60 billion yuan, a price that the Lanzhou government can't afford and CNPC might be unwilling to pay.

Neither is the central government likely to help "because there are some 20 companies nationwide facing the same problems as Lanzhou Petrochemical," Bai said.

(Rewritten by Li Rongde)

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