Lawsuit puts biodiesel use under spotlight

Yingding Biofuel Technology Co Ltd, the privately owned Chinese biodiesel producer, has won its monopoly case against the country's biggest oil refiner, China Petrochemical Corp Ltd.

The company had accused the industry giant of blocked sales of its fuel and that it had effectively monopolized the market.

The Kunming Intermediate People's Court in Kunming, the capital city of Yunnan province, has ruled in favor of Yingding, in what is being seen as a landmark lawsuit in efforts to reduce the country's reliance on oil and promote the use of biofuel energy.

Lyu Dapeng, a spokesman for China Petrochemical, also known as Sinopec, said on Friday that the company now plans to appeal against the ruling in the Yunnan Higher Peoples' Court.

"This is not about conflict between State and private companies, it is about being responsible to our consumers to make sure they get better quality oil products, and about guarding our brand reputation," he said. "We have the right to choose our distributors, and separate the good from the bad."

The legal team working for Yingding, which is based in southwest Yunnan province, also said it planned to take matters further, appealing the decision even though it already won the lawsuit, claiming that the trial had only been against Sinopec's subsidiary in Yunnan province, instead of the group.

"This is the right thing to do because our products meet the required standards; our biodiesel is economically better and also cleaner," said Chen Weibiao, its lawyer and legal counsel.

Gas stations owned by State oil groups now no longer sell biodiesel. And so those who are still trying to make it in the business have no choice but to sell to middlemen who mix the fuel and sell it to China's oil giants including Sinopec and China National Petroleum Corp, or directly to end-users.

Yingding, which is capable of producing 15,000 metric tons of biodiesel annually, said they are able to meet the nation's quality standards but the block from the sales network has caused them losses of as much as 3 million yuan ($482,000) per year.

Conflict between the dominant State-owned enterprises and privately owned energy firms has been long running in China with smaller firms often being starved of credit or muscled out completely.

Experts have argued that the dominance of the State-owned oil giants has hindered the use of China's biofuels as they have little incentive to develop the clean fuel, given the huge profits they make from traditional fossil fuels.

Considered cleaner and cheaper, biofuel is viewed as important in the country's efforts to diversify its energy mix.

The world's largest crude importer, China started developing the fuel later than other major markets such as the United States and Europe.

Zhang Yonghao, a leading oil and gas analyst, said he thinks China can realistically use more biofuel to reduce dependence on imported crude oil in the future, and that Yingding's victory has caused quite a stir in the market.

"It has bought hope to struggling biodiesel producers who have been squeezed out of the market despite a renewables law launched in 2006 mandating that oil companies accept biodiesel that meets industry standards."

"The technology is mature, but the question is how to regulate the biofuel industry, since all the players in the sector are small and sometimes cannot meet certain standards," he said.

China plans to blend 2 million tons of biodiesel into its annual fuel consumption by 2020, said a report from the National Development and Reform Commission.