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)
