China police detain two staff of BP venture, others in fuel trade probe: sources

SINGAPORE (Reuters) - Police in China's southern Guangdong province have detained several people, including two senior staff of a BP Plc joint venture, in connection with an investigation into suspected illicit fuel trading, three people said.

The detentions come after Guangdong, China's largest fuel consuming province, launched in February an investigation into suspected illicit trading between 2018 and 2020 of light cycle oil (LCO), a refinery by-product widely used to blend into diesel, said one of the sources.

The Guangdong police issued warrants of detention for more than 70 people in the probe, the source, who had direct knowledge of the matter, told Reuters. Under Chinese law, detention warrants allow people to be held for up to 37 days for investigations.

The subject of the warrants include two trading managers of BP Guangzhou Oil Products Development Co, said the source with direct knowledge and another person who had been briefed on the matter.

"This looks like a major crackdown led by the Guangdong provincial government," the first source said.

BP Guangzhou Oil Products Development Co is 40% owned by BP and 60% by local state-run Guangzhou Development Energy Logistics Group Co. Ltd, according to the company website. The company trades fuel and operates storage facilities in the provincial capital Guangzhou.

A senior official with the joint venture said some staff are "assisting the police investigation", but declined to comment further.

BP declined to comment.

Multiple calls to Guangzhou Development Group, parent of BP's Chinese partner, went unanswered.

A press official with the Guangdong Provincial Public Security Department said it didn't have the relevant information to respond yet.

The sources declined to be named due to the sensitivity of the matter.

Chinese customs data showed LCO imports almost doubled on year to a record of nearly 16 million tonnes in 2020 as traders exploited a tax loophole by importing LCO to blend into diesel.

LCO is an oil product of similar qualities to diesel but is exempted by the Chinese government from the $29 per barrel consumption tax that applies to diesel which makes LCO trades lucrative, industry sources said.

In 2017, prosecutors in Guangdong charged an employee of Swiss commodity trader Gunvor Group
for allegedly smuggling LCO and evading taxes on sales, Reuters reported.https://reut.rs/2Q7S5oC

(Reporting by Chen Aizhu; Additional reporting by Beijing newsroom; Editing by Florence Tan and Muralikumar Anantharaman)

By Chen Aizhu