Dongsheng is an exploration, development, and production affiliate under Chinese state-controlled oil company Sinopec Corp.

In a statement published on the website of the Chinese embassy in Uzbekistan, Dongsheng said was originally in a 50:50 joint venture with Uzbekistan’s state oil company Uzbekneftegaz of putting back into operation seven oil fields in the southwestern Fergana oil province. Investment of the entire project was estimated at $110 million.

Under a cooperation agreement signed in October 2003, the Dongsheng- Uzbekneftegaz joint venture would produce crude to be processed by the Uzbek refineries and the resulting oil products output would be exported to the international market.

According to Dongsheng, Uzbekistan charges a 20% resource tax on companies developing crude oil in the nation. Even though the tax rate has gone down from 35% earlier, Dongsheng noted that the current rate is still too high for the company to bear. In addition, reserves in the Uzbek oil fields covered by the cooperation agreement of the joint venture were difficult to extract, thus adding to Dongsheng’s production cost.

The crude produced from the Uzbek oil fields must be sold at a price set by the Uzbekistan government, Dongsheng said. The Tashkent-set price level, however, was lower than the international market prices by about 30%, the Chinese company added.

Dongsheng also said under the agreement signed, it had no authority to export its equity crude output. Rather it must sell its share of production to the Fergana refinery in Uzbekistan.

The Sinopec affiliate said it decided to pull out of Uzbekistan as negotiations with its Uzbek partner on the difficulties had failed to generate satisfactory results.

The statement did not give details on the amount of crude production of the oil fields under the Dongsheng-Uzbekneftegaz joint venture.

Other than the Sinopec affiliate, Chinese state oil giant China National Petroleum Corp. is also tapping upstream business opportunities in the Central Asia nation. It is in an international consortium which holds a production sharing contract covering the Uzbek section of the Aral Sea.

China and Turkmenistan also signed a bilateral agreement a year ago covering the supply of gas from Turkmenistan to China and the construction of a new gas pipeline linking the two countries.