Sinopec Personnel Detained After Deadly Pipeline Blast

Chinese authorities detained seven people from China Petroleum & Chemical Corp., the nation’s biggest refiner, after at least 55 died in a pipeline blast.

The personnel from Sinopec, as the refiner is known, and two from an economic development zone in China’s eastern Qingdao city were detained by police, the city’s Huangdao district government said yesterday on its official microblog.

The explosion and crude oil leak on Nov. 22, the deadliest since at least 2005, adds to a growing toll from industrial accidents that’s building pressure for better safety standards. It shines a spotlight on management of state-owned energy companies after the government pledged this month to allow more private investment as part of the biggest reforms since the 1990s.

“Someone has to be accountable for what has happened,” said Laban Yu, a Hong Kong-based analyst at Jefferies Group LLC. “Sinopec executives can only escape with minor punishment if an investigation concludes that local government was at least equally responsible for the accident.”

Three calls today to the office and mobile phone of Lv Dapeng, Sinopec’s Beijing-based spokesman, weren’t answered. There was no reply to a text message sent to Lv’s mobile phone requesting comment. Brunswick Group, which consults on public relations for Sinopec, could not immediately comment.

Detained Officials

A woman who answered the phone at the personnel department of Qingdao Economic and Technological Development Zone, who declined to give her name or title, said she had no further information on the two detained officials.

Sinopec fell 2.6 percent to HK$6.65 in Hong Kong trading as at 2:48 p.m. local time. Its Shanghai-listed stock declined 2.7 percent to 4.72 yuan.

Last week’s blast in a section of pipe running under city streets in Qingdao exposed severe problems of human error and a “very serious dereliction of duty,” the official Xinhua News Agency reported yesterday, citing Yang Dongliang, head of the team investigating the accident. President Xi Jinping said the probe should be fast-tracked and responsibility established, China Central Television reported Nov. 24.

Management Changes

The biggest risk for Sinopec would be a management reshuffle and the resulting uncertainty if the company was found to be at fault following the investigation, UBS AG said in an e-mailed note today.

Fatal accidents in the past decade at PetroChina Co., the nation’s biggest energy company, and parent China National Petroleum Corp. led to management changes at those companies. The Qingdao accident is the deadliest in the petrochemicals industry since at least 2005, according to a chart of 11 accidents compiled by Xinhua and published on Nov. 22.

“An industrial disaster of this magnitude will result in the resignation of a senior company official,” said Willy Wo-Lap Lam, an adjunct professor of history at the Chinese University of Hong Kong. “In this case the No. 1 or No. 2 at Sinopec may be dismissed or at the very least transferred to a less important position as a sign of punishment.”

The 249-kilometer (155-mile) pipeline began leaking oil at about 3 a.m. and emergency crews were dispatched to conduct repairs when the fire started in Qingdao’s development zone, according to a Xinhua report on Nov. 22. Xinhua also reported the death toll. Some of those killed were Sinopec employees working to fix the leak, the company said on its website.

Flying Sidewalk

The incident interrupted electricity and water supplies in nearby areas, with about 18,000 people evacuated, the Qingdao government said. Cleaning and fishing vessels and dispersant were being used to clean up the oil leak, which spread across 3,000 square meters in Jiaozhou Bay and the Yellow Sea, the Qingdao Municipal People’s Government Information Office said on its microblog on Nov. 22.

In Qingdao the explosion sent chunks of sidewalk flying, crushing the roofs of trucks and public buses, tearing down branches of trees and felling power poles. A local police post was destroyed and rescue workers scrambled to secure combustible materials while residents queued for food as household gas supplies for cooking were disrupted.

It’s the latest fatal industrial accident as China seeks to improve workplace safety. More than 27,700 people were killed or went missing at workplaces in the first half of this year, according to the State Administration of Work Safety. In June, a fire at a poultry plant in the northeastern province of Jilin killed 120 people in the nation’s deadliest blaze in 13 years. Authorities detained executives from the plant after the fire, according to Xinhua.

Company Resignations

Two top managers were removed from their posts at PetroChina after a fire at the Dalian oil complex killed two people in June. The blaze was a “serious accident” and had a “severely negative impact” on the group, according to a statement on the website of parent CNPC. Ma Fucai resigned as president of CNPC, the nation’s top oil producer, after an explosion that killed 243 at the Chuandongbei natural gas field in southwest China in 2003. More than 10,000 people were poisoned as a result and 40,000 residents living near the site were evacuated.

Globally industry executives have come under pressure after industrial accidents. Tony Hayward quit as BP Plc chief executive officer in July 2010 after facing rising public anger and attacks from lawmakers over his handling of the worst oil spill in U.S. history. Masataka Shimizu resigned as president of Tokyo Electric Power Co. in 2011 after the utility posted the biggest loss by a Japanese company, stoked by the Fukushima nuclear disaster.

Credit Rating

While the pipeline accident is credit negative for Sinopec, it doesn’t have an immediate impact on the company’s Aa3 rating and stable outlook, Moody’s Investors Service said in a note yesterday.

“It is too early to determine the extent of Sinopec Corp.’s responsibility, but it could suffer reputational damage as China’s largest refiner,” Moody’s said in the note. “The company may need to provide a large amount of compensation for those affected by the accident and there may be other related damages.”

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