35
•
Inefficient control on collections and
payments:
Different revenue and expense
control standards were in place across the
organization and policies were not clearly
established.
•
High and rising debt-to-asset ratio:
Internal
funds are not effectively used to satisfy
internal financing need. Subsidiaries have
to borrow increasing external debt to meet
financing requirements.
To support its global expansion strategy, increase
competitiveness, and maximize operational
efficiency, CNPC embarked on a multi-year
process re-engineering project to move from a
decentralized treasury model to a highly-centralized
structure that integrates their finance functions,
in-house bank, and internal settlement center.
Partnering with Citi, the company’s vision was
achieved with the launch of an ITS.
The Solution
CNPC’s treasury evolution has incorporated a
wide range of solutions that are drawn from
global best practice. These include:
1 Extended the concept of treasury
management from traditional cash
management to comprehensive management
of financial resources and established global
policies for all CNPC subsidiaries.
Based on
an all-encompassing system, robust controls,
clear structures, and defined authority and
accountability principles, CNPC formulated
a treasury management system guided
by comprehensive treasury management
policies. It has integrated liquidity
management, financing, investment, risk
management and other financial services
into a unified treasury management platform
to standardize the treasury management
process.
2 Refined the business operations and
management models covering liquidity,
financing, investment, and risk
management and integrated all these
aspects to ITS.
a
Liquidity management:
CNPC constructed
a domestic RMB structure in China with
collections concentrated and swept
intra-day. All RMB payments are centrally
managed through a header account and
payments information is delivered real-time.
Offshore settlements are conducted by
overseas subsidiaries via partner banks
with balances collectively swept to three
regional pool headers. Meanwhile, CNPC
leverages the external lending quota
approved by the State Administration of
Foreign Exchange (SAFE) to fund shortages
of offshore projects. This enables CNPC to
fund overseas subsidiaries by utilizing the
onshore surplus RMB. Its offshore surplus
cash can be moved or repatriated to China
in the form of dividends or settlement for
trade payments as well. Such arrangements
enable efficient cash movement across the
borders of China.
b
Financing management:
CNPC established
a financing management regime for debt
financing, which is defined by coordinated
planning and unified management by
the group and execution by individual
subsidiaries. Under this regime, CNPC can
leverage the advantages of the group, its
listed company and its finance company
to stringently select financing sources and
raise funds for its strategic development.
c
Investment management:
CNPC has set
up a management regime to coordinate
financial investments, in which the roles
of the group as sole financial investors
that are responsible of developing the
overall investment strategy. All the
investments are done at the group level
by using China Petroleum Finance (CPF)
as an investment vehicle.
d
Risk management:
CNPC implemented a
specialized management strategy based on
a clear distinction between liquidity risk,
operational risk, foreign exchange risk,
interest rate risk and credit risk. The group
has a guiding principle and protocol to
monitor individual companies’ FX exposure
and risk management profiles in a unified way.
The Results
ITS is an advanced global platform that
vertically integrates management and
connection between CNPC’s ERP system and
banking systems. This process of centralization
covers all of CNPC’s subsidiaries, with diversified
business needs including areas such as account
management, treasury operations, accounting,
reconciliation process, investments and
financing. Since its launch, ITS has significantly
reduced CNPC’s financial costs, improved
liquidity management including yield
enhancement and fund preservation, and
minimized funding risks. Benefits include:
•
Optimized banking relationship
CNPC has now rationalized its banking
relationships to seven Chinese banks
(supporting local needs), and six international
banks (for overseas banking needs). Host-
to-host connectivity has been established
with selected partner banks to achieve
straight through processing. Services and
implementation quality, operational efficiency
of banking services has been significantly
improved.
Asia Pacific Sector Insights
| China National Petroleum Corporation
