Unipec, the trading arm of Asia’s largest refiner Sinopec 600028.SS0386.HK, has stepped in to supply crude oil to two independent refiners facing an official tax probe, as Beijing moves to help them maintain their operations for now, several sources told Reuters.

The step restores some demand from independent buyers through state majors at the world’s top importer as Chinese regulators push ahead with reforms of the refining sector.

Beijing earlier this year ramped up scrutiny over its bloated refining industry by clamping down on trading of oil quotas and tax evasion aimed at curbing excess, inefficient fuel production and cutting emissions. This year, China cut independent refiners’ crude import quotas for the first time since 2015.

Unipec has since September taken over the purchase of crude for Liaoning Bora Enterprise Group and Panjin Haoye Chemical Co Ltd, both based in the city of Panjin in the northeastern province of Liaoning, said senior trade sources with knowledge of the situation.

The two companies, with combined crude processing capacity of at least 400,000 barrels per day (bpd), have come under central government’s investigation since June for allegedly evading tens of billions of yuan in fuel taxes, sources said.

“Unipec has been supplying the plants crude oil, which is obviously a government arrangement to help tide the plants through a transitional period before the dust settles,” said a Beijing-based source.

The sources declined to be named as they are not authorized to speak to media.

Sinopec declined comment.

A representative of Bora Group declined comment.

Calls to Haoye Chemical’s website listed numbers went unanswered and a senior company executive declined comment.

Unipec has sold crude cargoes including Oman, Upper Zakum from the United Arab Emirates and Russia’s ESPO Blend to the plants, said one of the sources, who estimated that the two plants are currently processing about 300,000 bpd.

Under the crude supply deal, which is likely to last through end of this year, Unipec will off take refined oil products from these refineries, sources said.

They said the probe could lead to the two refiners disposing of some of their stakes in the firms to new investors.

The economic planner of the government of Panjin city, where the two firms are located, did not respond to requests for comment on the plants’ current operations or the status of the probe.

The National Development and Reform Commission, the country’s top economic planner, and the State Taxation Administration did not immediately respond to request for comment on the Sinopec supply deal or the status of tax investigation into the two firms.

The development followed a separate government probe into PetroChina Fuel Oil, a unit of state energy giant PetroChina 0857.HK, for allegedly trading off crude oil quotas to independent refiners.

PetroChina Fuel Oil used to be a regular crude supplier to several private refiners including these two in Liaoning, traders said.

Bora, with annual turnover at 153 billion yuan ($23.77 billion) in 2019, is one of China’s largest teapot refiners allowed to process imported crude oil since 2016.

The tax probe on Bora group, however, is not affecting the firm’s $2.5 billion petrochemical complex in Panjin, a joint-venture with U.S. firm LyondellBasell LYB.N, said the U.S. company and two separate Chinese industry sources.

“We are aware of the Chinese Government’s tax investigation involving Bora Group. The investigation is limited to the Bora group and does not include our joint venture,” LyondellBasell told Reuters in an email.

“The joint venture facility continues to operate well and remains as a strategic long-term investment for us.”
Source: Reuters (Reporting by Chen Aizhu and Florence Tan; additional reporting by Erwin Seba in Houston Editing by Shri Navaratnam)