Anger from the Chinese Central Government - 39 Million RMB loss or more for years to come from Company's Non-Compliance with Regulations

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Anger from the Chinese Central Government - 39 Million RMB loss or more for years to come from Company's Non-Compliance with Regulations

Canada NewsWire

 

Expecting Recurring Annual Loss

- ¥ 39,299,853

Profit for the year of 2019

¥ 47,158,000

 

TORONTO, Oct. 16, 2020 /CNW/ - 11882716 Canada Inc. today announced that it has discovered that an inspection team of the State Council determined that natural gas prices for non-residential users were not reduced in Sanya as required pursuant to price reduction policies, according to an excerpt from an article published on the Government of China's Central Government website on November 11, 2019 (the "State Council Article", attached in its original form as Appendix A, with an unofficial partial English translation attached as Appendix A-1).

In fact, according to the State Council Article, it appears that natural gas prices for non-residential users in Sanya were reduced by a mere 0.01 RMB per cubic meter following a 0.42 RMB per cubic meter price increase.

Given that CF Energy Corp. ("CF Energy" or the "Company") is the sole natural gas operator in Sanya according to the Company's website, it follows then that the determination by the State Council's inspection team is indeed a determination that CF Energy failed to comply with the Central Government's mandated price reduction policies. Or in other words, it appears the Company disobeyed a directive of the Central Government.

The evidence above raises serious questions about whether the Company has met its obligation to make timely disclosure of material facts to shareholders. 

Further, in yet another apparent failure to inform shareholders of material developments, it appears that CF Energy has not disclosed the significant impact that recently imposed price regulations can be expected to have on the Company. The Company issued a press release on July 23, 2020 announcing that the Sanya City Development and Reform Commission (the "SYDRC") had finalized the city's natural gas utility pricing formula adjustment (the "Pricing Formula"), which would be the guideline for the Company and its subsidiaries to follow on its gas selling prices starting from August 1, 2020.

However, after disclosing this news, the Company failed to provide any details regarding the extent of the impact the Pricing Formula would be likely to have on CF Energy. Rather, the Company simply pointed out the obvious, noting only that the Pricing Formula would "negatively impact" gross profit from the Sanya natural gas distribution business segment.  

According to an article published in the Official Website of The People's Government of Sanya City on August 1st, 2020 (attached in its original form as Appendix B, with an unofficial English translation attached as Appendix B-2), the Pricing Formula imposed by the SYDRC required Sanya Changfeng Offshore Natural Gas Distribution Co., Ltd., a wholly owned subsidiary of CF Energy that distributes natural gas in Sanya according to the Company's public disclosure, to decrease the selling price of its natural gas for non-residential customers from RMB 5.0735 to RMB 4.00 per cubic metre – a price decrease of RMB 1.0734 per cubic metre. According to CF Energy's Management Discussion & Analysis for the year ended December 31, 2019, the annual volume of gas sold to commercial customers in Sanya City in 2019 was 36,609,086 cubic metres. On the basis of the foregoing, a price decrease of 1.0734 per cubic metre would therefore be expected to decrease revenue by more than RMB 39 million for years to come. Despite these figures being available to the Board, the Company appears to have, yet again, failed in its duty to shareholders to identify the significance and materiality of these matters, only stating that the Pricing Formula would "negatively impact" the Company's gross profit.

Shareholders urge the Company to come forward and explain itself to shareholders. Indeed, these allegations are serious, and shareholders deserve transparency from the Company and its board.

ADDITIONAL INFORMATION

Disclaimers

Except for the historical information contained herein, the matters addressed in these materials are forward looking statements that involve certain risks and uncertainties. You should be aware that actual results could differ materially from those contained in the forward-looking statements. 11882716 Canada Inc. does not assume any obligation to update the forward-looking information.

Appendix A – Original Version of the State Council Article

Appendix A – Original Version of the State Council Article (CNW Group/11882716 Canada Inc.)

Appendix A-1 – Unofficial English Translation of the State Council Article

Disclaimer: This does NOT in any shape way or form constitute a professional and complete translation of the Chinese document. This document is provided only on a best-effort basis. The person who has completed the translation does not claim to be a professional translator or other experts whose expertise may be interpreted to have completed the translation professionally.

http://www.gov.cn/hudong/ducha/2019-11/11/content_5450741.htm 

TITLE: Circular on the typical problems of some localities and corporates failing to implement the tax reduction and fee reduction policies found in the sixth general supervision of the State Council of the People's Republic of China

In September 2019, according to the unified deployment of the sixth general supervision and inspection of the State Council, 16 supervision groups of the State Council went to 16 provinces (inc. districts and cities) to carry out on-the-spot inspection. According to the clues provided from by enterprises and the people through the "Internet plus supervision platform" of the State Council, the inspection team found that some local government and corporate had not implemented the policy of benefiting the people through pass through the reduction in taxes and lowered taxes, and had eroded the policy dividends of such measures.

3、 Natural gas price adjustment in some areas of Hainan Province hasn't been put in place in a timely manner. The 10th supervision and inspection group of the State Council in Hainan Province found that from 2017 to 2019, the value-added tax rate of natural gas was reduced from 13% to 9% after three times of reduction.

However, for the non-residential gas consumption of pipeline gas in Hainan Province which consists of 19 counties and cities, except for the price in Haikou where it was reduced twice, it is observed that in Sanya City, Dongfang City and Chengmai County, the price was seen to be reduced once (by 1 cent, 5 cents and 1 point per cubic meter respectively), and there were no price that were lowered amongst the other cities and counties.

Among them, specifically, the price of non-resident gas supply in Sanya had gone up instead of going down - it went from 4.7 yuan per cubic meter to 5.12 yuan per cubic meter in 2017; after the value-added tax rate was adjusted from 10% to 9% in April 2019, it was reduced to 5.11 yuan per cubic meter in May 2019. After deducting the value-added tax, the price excluding tax actually increased from 4.6545 yuan per cubic meter to 4.688 yuan, an increase of 3.35 cents after deducting the value-added tax. The price authorities of Hainan Province and relevant cities and counties had failed to implement the relevant requirements set out, did not take into account the reduction factors of value-added tax rate when arranging the sales price of natural gas, and the adjustment of natural gas price was not timely and was not in place, resulting in the policy dividend of reducing the value-added tax rate of natural gas was not transmitted to the end users.

Appendix B – Original Version of the Article on the website of The People's Government of Sanya City

Appendix B – Original Version of the Article on the website of The People’s Government of Sanya City (CNW Group/11882716 Canada Inc.)

Appendix B-2 – Unofficial English Translation of the Article on the website of The People's Government of Sanya City

Disclaimer: This does NOT in any shape way or form constitute a professional and complete translation of the Chinese document. This document is provided only on a best-effort basis. The person who has completed the translation does not claim to be a professional translator or other experts whose expertise may be interpreted to have completed the translation professionally.

http://www.sanya.gov.cn/sanyasite/syyw/202008/f5bf17f368ed49189de0ba4bed8a59f4.shtml

Sanya will reduce the price of pipeline gas from August 1.

Changfeng residential users reduced from 3.15 yuan / m3 to 2.94 yuan / m3.

Recently, the City development and Reform Commission issued a notice on issues related to the gas distribution price and sales price of pipeline gas. According to the notice, the sales price of basic domestic gas for residents of Sanya Changfeng offshore natural gas supply Co., Ltd. has been reduced from 3.15 yuan / m3 to 2.94 yuan / m3 since August 1; public welfare users such as administrative institutions, schools, medical institutions, pension and welfare institutions, as well as It is confirmed that the sales price of gas for residential users without ladder gas price will be reduced from 3.46 yuan / m3 to 3.23 yuan / m3, and the sales price of non-residential gas will be reduced from 5.0735 yuan / m3 to 4.00 yuan / m3. Sanya Fushan Oil Field Pipeline Gas Co., Ltd. reduced the sales price of non-residential gas from 5.0735 yuan / m3 to 4.27 yuan / m3.

According to statistics, there are 231,600 living units of the city's residents that use domestic gas, 163 public welfare users such as administrative institutions, schools, medical care and pension institutions, and 1007 non-residents users, with an annual sales volume of 60.5 million cubic meters. It is estimated that this price adjustment will save 54.60 yuan per household for basic gas consumption (based on 260 cubic meters), which will reduce the burden of public welfare users and non-residents by 874000 yuan and 42.3 million yuan respectively.

SOURCE 11882716 Canada Inc.

Cision View original content to download multimedia: http://www.newswire.ca/en/releases/archive/October2020/16/c1850.html

Copyright CNW Group 2020

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