Annual Financial Report-part 2

Mar 29 2021 08:00 BSTSource: RNS

RNS Number : 7197T

China Petroleum & Chemical Corp

29 March 2021

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58 CHANGE IN THE SCOPE OF CONSOLIDATION

Business combination under common control

Business combination under common control in 2020

Pursuant to the resolution passed at the Directors' meeting on 28 October 2020, the Company entered into an Agreement with Sinopec Assets Management Corporation ("SAMC") in relation to the formation of the Baling Petrochemical. According to the Agreement, the Company and SAMC subscribed capital contribution with the business of Baling area respectively and some cash. After the capital injection the Company remained to hold 55% of Baling Petrochemical's voting rights and was still able to control Baling Petrochemical.

As Sinopec Group Company controls both the Company and SAMC, the transaction described above between Sinopec and SAMC has been accounted as business combination under common control. Accordingly, the assets and liabilities of which SAMC subscribed have been accounted for at historical cost, and the consolidated financial statements of the Group prior to these acquisitions have been restated to include the results of operation and the assets and liabilities of Baling Branch of SAMC on a combined basis.

Baling Petrochemical is mainly engaged in the production and sales of petrochemicals, chemical fibers, fertilizers, fine chemical products and other chemical products.

58 CHANGE IN THE SCOPE OF CONSOLIDATION (Continued)

Business combination under common control (Continued)

Business combination under common control in 2020 (Continued)

(1) The relavent financial information disclosed for changes in the scope of consolidation are as follows:

Acquiree	Share of acquired equity	The basis for the business combination under the common control	Date of acquisition	Basis of Determination on the acquisition date	Income of the acquiree from 1 January 2020 to the acquisition date	Net profits of the acquiree from 1 January 2020 to the acquisition date	Income of the acquiree from 1 January 2019 to 31 December 2019	Net profits of the acquiree from 1 January 2019 to 31 December 2019	Net cash flow from operating activities of the acquiree from 1 January 2020 to the acquisition date	Net cash flow of the acquiree from 1 January 2020 to the acquisition date
					RMB Million	RMB Million	RMB Million	RMB Million	RMB Million	RMB Million
Baling Branch of SAMC	55%	The acquiree and the company are controlled by Sinopec Group Company both before and after combination, and the control is not transitory	1 November 2020	According to the agreement	10,973	119	16,906	50	1,639	7,205

(2) Cost of acquisition:

Cost of acquisition (RMB Million)

972

(3) Details of the assets and liabilities acquired are as follows:

	Book value at	Book value at
	the Acquisition Date	December 31 2019
	RMB Million	RMB Million
Total current assets	2,634	2,097
Total assets	6,633	5,858
Total current liabilities	4,892	4,247
Total liabilities	4,955	4,389
Total shareholders' equity	1,678	1,469

The principal subsidiaries included in the scope of consolidation this year are disclosed in Note 57.

59 COMMITMENTS

Capital commitments

At 31 December 2020 and 31 December 2019, capital commitments of the Group are as follows:

	At 31 December	At 31 December
	2020	2019
	RMB million	RMB million
Authorised and contracted for (i)	171,335	138,088
Authorised but not contracted for	33,942	63,967
Total	205,277	202,055

These capital commitments relate to oil and gas exploration and development, refining and petrochemical production capacity expansion projects, the construction of service stations and oil depots and investment commitments.

Note:

(i) The investment commitments of the Group is RMB 13,172 million (2019: RMB 6,100 million).

59 COMMITMENTS (Continued)

Commitments to joint ventures

Pursuant to certain of the joint venture agreements entered into by the Group, the Group is obliged to purchase products from the joint ventures based on market prices.

Exploration and production licenses

Exploration licenses for exploration activities are registered with the Ministry of Natural Resources. The maximum term of the Group's exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original term with each renewal being for a two-year term. The Group is obligated to make progressive annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Natural Resources also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The maximum term of the production licenses issued to the Group is 80 years as a special dispensation was given to the Group by the State Council. The Group's production license is renewable upon application by the Group 30 days prior to expiration.

The Group is required to make payments of exploration license fees and production right usage fees to the Ministry of Natural Resources annually which are expensed. Expenses recognised were approximately RMB 231 million for the year ended 31 December 2020 (2019: RMB 179 million).

Estimated future annual payments are as follows:

	At 31 December	At 31 December
	2020	2019
	RMB million	RMB million
Within one year	390	302
Between one and two years	99	69
Between two and three years	66	34
Between three and four years	63	30
Between four and five years	56	29
Thereafter	824	845
Total	1,498	1,309

The implementation of commitments in previous year and the Group's commitments did not have material discrepancy.

60 CONTINGENT LIABILITIES

(a) The Company has been advised by its PRC lawyers that, except for liabilities constituting or arising out of or relating to the business assumed by the Company in the Reorganisation, no other liabilities were assumed by the Company, and the Company is not jointly and severally liable for other debts and obligations incurred by Sinopec Group Company prior to the Reorganisation.

(b) At 31 December 2020 and 31 December 2019, the guarantees by the Group in respect of facilities granted to the parties below are as follows:

	At 31 December	At 31 December
	2020	2019
	RMB million	RMB million
Joint ventures	6,390	7,100
Associates (i)	8,450	10,140
Total	14,840	17,240

Note:

(i) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB 17,050 million. At 31 December 2020, the amount withdrawn by Zhongtian Synergetic Energy from banks and guaranteed by the Group was RMB 8,450 million (31 December 2019: RMB 10,140 million).

The Group monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss will occur, and recognises any such losses under guarantees when those losses are reliably estimable. At 31 December 2020 and 31 December 2019, the Group estimates that there is no need to pay for the guarantees. Thus no liabilities have been accrued for a loss related to the Group's obligation under these guarantee arrangements.

60 CONTINGENT LIABILITIES (Continued)

Environmental contingencies

Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. Environmental liabilities are subject to considerable uncertainties which affect the Group's ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas, whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material.

The Group recognised normal routine pollutant discharge fees of approximately RMB 11,362 million in the consolidated financial statements for the year ended 31 December 2020 (2019: RMB 9,271 million).

Legal contingencies

The Group is defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. Management has assessed the likelihood of an unfavourable outcome of such contingencies, lawsuits or other proceedings and believes that any resulting liabilities will not have a material adverse effect on the financial position, operating results or cash flows of the Group.

61 SEGMENT REPORTING

Segment information is presented in respect of the Group's operating segments. The format is based on the Group's management and internal reporting structure.

In a manner consistent with the way in which information is reported internally to the Group's chief operating decision maker for the purposes of resource allocation and performance assessment, the Group has identified the following five reportable segments. No operating segments have been aggregated to form the following reportable segments.

(i) Exploration and production - which explores and develops oil fields, produces crude oil and natural gas and sells such products to the refining segment of the Group and external customers.

(ii) Refining - which processes and purifies crude oil, which is sourced from the exploration and production segment of the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and distribution segments of the Group and external customers.

(iii) Marketing and distribution - which owns and operates oil depots and service stations in the PRC, and distributes and sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks.

(iv) Chemicals - which manufactures and sells petrochemical products, derivative petrochemical products and other chemical products to external customers.

(v) Corporate and others - which largely comprise the trading activities of the import and export companies of the Group and research and development undertaken by other subsidiaries.

The segments were determined primarily because the Group manages its exploration and production, refining, marketing and distribution, chemicals, and corporate and others businesses separately. The reportable segments are each managed separately because they manufacture and/or distribute distinct products with different production processes and due to their distinct operating and gross margin characteristics.

61 SEGMENT REPORTING (Continued)

(1) Information of reportable segmental revenues, profits or losses, assets and liabilities

The Group's chief operating decision maker evaluates the performance and allocates resources to its operating segments on an operating profit basis, without considering the effects of finance costs or investment income. Inter-segment transfer pricing is based on the market price or cost plus an appropriate margin, as specified by the Group's policy.

Assets and liabilities dedicated to a particular segment's operations are included in that segment's total assets and liabilities. Segment assets include all tangible and intangible assets, except for cash at bank and on hand, long-term equity investments, deferred tax assets and other unallocated assets. Segment liabilities exclude short-term loans, non-current liabilities due within one year, long-term loans, debentures payable, deferred tax liabilities, other non-current liabilities and other unallocated liabilities.

Reportable information on the Group's operating segments is as follows:

	2020	2019
	RMB million	RMB million
Income from principal operations
Exploration and production
External sales	104,524	111,114
Inter-segment sales	57,513	89,315
	162,037	200,429
Refining
External sales	114,064	141,674
Inter-segment sales	825,812	1,077,018
	939,876	1,218,692
Marketing and distribution
External sales	1,062,447	1,393,557
Inter-segment sales	4,854	4,159
	1,067,301	1,397,716
Chemicals
External sales	322,121	428,830
Inter-segment sales	40,518	78,165
	362,639	506,995
Corporate and others
External sales	458,154	824,507
Inter-segment sales	430,073	654,337
	888,227	1,478,844
Elimination of inter-segment sales	(1,370,624)	(1,902,994)
Consolidated income from principal operations	2,049,456	2,899,682
Income from other operations
Exploration and production	5,718	10,283
Refining	4,634	5,464
Marketing and distribution	34,905	33,247
Chemicals	9,215	9,273
Corporate and others	2,056	1,850
Consolidated income from other operations	56,528	60,117
Consolidated operating income	2,105,984	2,959,799

61 SEGMENT REPORTING (Continued)

(1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

	2020	2019
	RMB million	RMB million
Operating (loss)/profit
By segment
Exploration and production	(20,570)	6,289
Refining	(6,556)	30,074
Marketing and distribution	19,634	29,781
Chemicals	9,147	16,665
Corporate and others	(2,048)	3,530
Elimination	4,417	(40)
Total segment operating profit	4,024	86,299
Investment income
Exploration and production	13,837	3,148
Refining	13,085	(580)
Marketing and distribution	12,230	3,499
Chemicals	1,662	5,178
Corporate and others	6,672	1,383
Total segment investment income	47,486	12,628
Less: Financial expenses	9,506	10,048
Add: Other income	7,513	5,995
(Losses)/gains from changes in fair value	(1,253)	(3,511)
Asset disposal gains/(losses)	2,067	(1,229)
Operating profit	50,331	90,134
Add: Non-operating income	2,370	2,601
Less: Non-operating expenses	4,732	2,624
Profit before taxation	47,969	90,111

	At 31 December	At 31 December
	2020	2019
	RMB million	RMB million
Assets
Segment assets
Exploration and production	354,024	410,950
Refining	270,431	321,080
Marketing and distribution	373,430	399,242
Chemicals	189,678	180,974
Corporate and others	118,458	131,686
Total segment assets	1,306,021	1,443,932
Cash at bank and on hand	184,412	128,052
Long-term equity investments	188,342	152,204
Deferred tax assets	25,054	17,616
Other unallocated assets	29,976	18,482
Total assets	1,733,805	1,760,286
Liabilities
Segment liabilities
Exploration and production	157,430	162,262
Refining	135,046	120,617
Marketing and distribution	213,455	219,381
Chemicals	47,871	57,119
Corporate and others	117,684	136,420
Total segment liabilities	671,486	695,799
Short-term loans	20,756	31,196
Non-current liabilities due within one year	22,493	69,490
Long-term loans	45,459	39,677
Debentures payable	38,356	19,157
Deferred tax liabilities	8,124	6,809
Other non-current liabilities	17,942	15,454
Other unallocated liabilities	25,313	4,330
Total liabilities	849,929	881,912

61 SEGMENT REPORTING (Continued)

(1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

	2020	2019
	RMB million	RMB million
Capital expenditure
Exploration and production	56,416	61,739
Refining	24,722	31,372
Marketing and distribution	25,403	29,566
Chemicals	26,202	22,438
Corporate and others	2,312	1,979
	135,055	147,094
Depreciation, depletion and amortisation
Exploration and production	46,273	50,732
Refining	20,048	19,676
Marketing and distribution	23,196	21,572
Chemicals	14,376	14,326
Corporate and others	3,072	2,866
	106,965	109,172
Impairment losses on long-lived assets
Exploration and production	8,495	3
Refining	1,923	245
Marketing and distribution	536	80
Chemicals	3,606	17
Corporate and others	-	-
	14,560	345

(2) Geographical information

The following tables set out information about the geographical information of the Group's external sales and the Group's non-current assets, excluding financial assets and deferred tax assets. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers, and segment assets are based on the geographical location of the assets.

	2020	2019
	RMB million	RMB million
External sales
Mainland China	1,721,955	2,124,684
Singapore	215,846	505,672
Others	168,183	329,443
	2,105,984	2,959,799

	At 31 December	At 31 December
	2020	2019
	RMB million	RMB million
Non-current assets
Mainland China	1,211,441	1,239,437
Others	36,782	52,705
	1,248,223	1,292,142

62 FINANCIAL INSTRUMENTS

Overview

Financial assets of the Group include cash at bank and on hand, financial assets held for trading, derivative financial assets, accounts receivable, receivables financing, other receivables and other equity instrument investments. Financial liabilities of the Group include short-term loans, derivative financial liabilities, bills payable, accounts payable, employee benefits payable, other payables, long-term loans, debentures payable and lease liabilities.

The Group has exposure to the following risks from its uses of financial instruments:

‧ credit risk;

‧ liquidity risk; and

‧ market risk.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework, and developing and monitoring the Group's risk management policies.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, and set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group's audit committee.

Credit risk

(i) Risk management

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's deposits placed with financial institutions (including structured deposits) and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings. The majority of the Group's accounts receivable relates to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. No single customer accounted for greater than 10% of total accounts receivable at 31 December 2020, except for the amounts due from Sinopec Group Company and fellow subsidiaries. The Group performs ongoing credit evaluations of its customers' financial condition and generally does not require collateral on accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management's expectations.

The carrying amounts of cash at bank and on hand, financial assets held for trading, derivative financial assets, accounts receivable, receivables financing and other receivables, represent the Group's maximum exposure to credit risk in relation to financial assets.

(ii) Impairment of financial assets

The Group's primary type of financial assets that are subject to the expected credit loss model is accounts receivable, receivables financing and other receivables.

The Group's cash deposits are placed only with large financial institutions with acceptable credit ratings, and there is no material impairment loss identified.

For accounts receivable and receivables financing, the Group applies the "No.22 Accounting Standards for Business Enterprises - Financial instruments: recognition and measurement" simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all accounts receivable and receivables financing.

To measure the expected credit losses, accounts receivable and receivables financing have been grouped based on shared credit risk characteristics and the days past due.

The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2020 or 31 December 2019, respectively, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the accounts receivable and receivables financing.

The detailed analysis of accounts receivable and receivables financing is listed in note 7 and note 8.

The Group's other receivables are considered to have low credit risk(Note10), and the loss allowance recognised during the year was therefore limited to 12 months expected credit losses. The Group considers "low credit risk" for other receivables when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.

62 FINANCIAL INSTRUMENTS (Continued)

Liquidity risk

Liquidity risk is the risk that the Group encounters short fall of capital when meeting its obligation of financial liabilities. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed capital conditions, without incurring unacceptable losses or risking damage to the Group's reputation. The Group prepares monthly cash flow budget to ensure that they will always have sufficient liquidity to meet its financial obligations as they fall due. The Group arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the liquidity risk.

At 31 December 2020, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to
RMB 443,966 million (2019: RMB 379,649 million) on an unsecured basis, at a weighted average interest rate of 2.85% per annum (2019: 3.57%). At 31 December 2020, the Group's outstanding borrowings under these facilities were RMB 4,041 million (2019: RMB 2,947 million) and were included in loans.

The following table sets out the remaining contractual maturities at the balance sheet date of the Group's financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates at the balance sheet date) and the earliest date the Group would be required to repay:

	At 31 December 2020
	Carrying amount	Total contractual undiscounted cash flow	Within one year or on demand	More than one year but less than two years	More than two years but less than five years	More than five years
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Short-term loans	20,756	20,950	20,950	-	-	-
Derivative financial liabilities	4,826	4,826	4,826	-	-	-
Bills payable	10,394	10,394	10,394	-	-	-
Accounts payable	151,262	151,262	151,262	-	-	-
Other payables and employee benefits payable	91,681	91,681	91,681	-	-	-
Non-current liabilities due within one year	22,493	23,880	23,880	-	-	-
Debentures payable due within one year	3,018	3,024	3,024	-	-	-
Long-term loans	45,459	49,074	936	4,638	41,009	2,491
Debentures payable	38,356	44,791	1,240	8,044	29,514	5,993
Lease liabilities	172,306	313,126	-	15,456	43,513	254,157
Total	560,551	713,008	308,193	28,138	114,036	262,641

	At 31 December 2019
	Carrying amount	Total contractual undiscounted cash flow	Within one year or on demand	More than one year but less than two years	More than two years but less than five years	More than five years
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Short-term loans	31,196	31,633	31,633	-	-	-
Derivative financial liabilities	2,729	2,729	2,729	-	-	-
Bills payable	11,834	11,834	11,834	-	-	-
Accounts payable	188,189	188,189	188,189	-	-	-
Other payables and employee benefits payable	80,183	80,183	80,183	-	-	-
Non-current liabilities due within one year	69,490	72,180	72,180	-	-	-
Long-term loans	39,677	49,656	404	6,492	15,610	27,150
Debentures payable	19,157	24,400	764	764	16,667	6,205
Lease liabilities	177,674	351,223	-	15,676	45,008	290,539
Total	620,129	812,027	387,916	22,932	77,285	323,894

Management believes that the Group's current cash on hand, expected cash flows from operations and available standby credit facilities from financial institutions will be sufficient to meet the Group's short-term and long-term capital requirements.

62 FINANCIAL INSTRUMENTS (Continued)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

(a) Currency risk

Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group's currency risk exposure primarily relates to short-term and long-term debts denominated in USD and lease liabilities denominated in SGD. The Group enters into foreign exchange contracts to manage currency risk exposure.

Included primarily in short-term and long-term debts and lease liabilities are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

The Group

	At 31 December	At 31 December
	2020	2019
	million	million
Gross exposure arising from loans and lease liabilities
US Dollar	22	103
Singapore Dollar	-	4

A 5 percent strengthening/weakening of Renminbi against the following currencies at 31 December 2020 and 31 December 2019 would have increased/decreased net profit for the year of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2019.

The Group

	At 31 December	At 31 December
	2020	2019
	RMB million	RMB million
US Dollar	5	27
Singapore Dollar	-	1

Other than the amounts as disclosed above, the amounts of other financial assets and liabilities of the Group are substantially denominated in the functional currency of respective entity of the Group.

(b) Interest rate risk

The Group's interest rate risk exposure arises primarily from its short-term and long-term loans. Loans carrying interest at variable interest rates and at fixed interest rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates and terms of repayment of short-term and long-term loans of the Group are disclosed in Note 22 and Note 31, respectively.

At 31 December 2020, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group's net profit for the year by approximately RMB 245 million (2019: decrease/increase RMB 352 million). This sensitivity analysis has been determined assuming that the change of interest rates was applied to the Group's debts outstanding at the balance sheet date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2019.

The Group engages in oil and gas operations and is exposed to commodity price risk related to price volatility of crude oil, refined oil products and chemical products. The fluctuations in prices of crude oil, refined oil products and chemical products could have significant impact on the Group. The Group uses derivative financial instruments, including commodity futures and swaps contracts, to manage a portion of such risk.

At 31 December 2020, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. At 31 December 2020, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 12,353 million (2019: RMB 788 million) and derivative financial liabilities of RMB 4,808 million (2019:
RMB 2,728 million).

At 31 December 2020, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments, which would increase/decrease the Group's net profit for the year by approximately RMB 3,592 million (2019: increase/decrease RMB 3,134 million), and increase/decrease the Group's other comprehensive income by approximately RMB 10,379 million (2019: decrease/increase RMB 4,289 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change was applied to the Group's derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the same basis for 2019.

62 FINANCIAL INSTRUMENTS (Continued)

Fair values

(i) Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy. With the fair value of each financial instrument categorised in its entirely based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

‧ Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.

‧ Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all significant inputs are directly or indirectly based on observable market data.

‧ Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

At 31 December 2020

The Group

	Level 1	Level 2	Level 3	Total
	RMB million	RMB million	RMB million	RMB million
Assets
Financial assets held for trading:
- Equity investments, listed and at quoted market price	1	-	-	1
Derivative financial assets:
- Derivative financial assets	9,628	2,900	-	12,528
Receivables financing:
- Receivables financing	-	-	8,735	8,735
Other equity instrument investments:
- Other Investments	149	-	1,376	1,525
	9,778	2,900	10,111	22,789
Liabilities
Derivative financial liabilities:
- Derivative financial liabilities	2,471	2,355	-	4,826
	2,471	2,355	-	4,826

At 31 December 2019

The Group

	Level 1	Level 2	Level 3	Total
	RMB million	RMB million	RMB million	RMB million
Assets
Financial assets held for trading:
- Structured deposits	-	-	3,318	3,318
- Equity investments, listed and at quoted market price	1	-	-	1
Derivative financial assets:
- Derivative financial assets	128	709	-	837
Receivables financing:
- Receivables financing	-	-	8,661	8,661
Other equity instrument investments:
- Other Investments	90	-	1,431	1,521
	219	709	13,410	14,338
Liabilities
Derivative financial liabilities:
- Derivative financial liabilities	1,209	1,520	-	2,729
	1,209	1,520	-	2,729

During the year ended 31 December 2020 and 2019, there was no transfer between instruments in Level 1 and Level 2.

Management of the Group uses discounted cash flow model with inputted interest rate and commodity index, which were influenced by historical fluctuation and the probability of market fluctuation, to evaluate the fair value of the structured deposits and receivables financing classified as Level 3 financial assets.

62 FINANCIAL INSTRUMENTS (Continued)

Fair values (Continued)

(ii) Fair values of financial instruments carried at other than fair value

The fair values of the Group's financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristic and maturities range from 0.77% to 4.65% (2019: from 2.37% to 4.90%). The following table presents the carrying amount and fair value of the Group's long-term indebtedness other than loans from Sinopec Group Company and fellow subsidiaries at 31 December 2020 and 31 December 2019:

	At 31 December	At 31 December
	2020	2019
	RMB million	RMB million
Carrying amount	76,674	63,998
Fair value	74,282	62,646

The Group has not developed an internal valuation model necessary to estimate the fair value of loans from Sinopec Group Company and fellow subsidiaries as it is not considered practicable to estimate their fair value because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation of the Group, its existing capital structure and the terms of the borrowings.

Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 31 December 2020 and 31 December 2019.

63 EXTRAORDINARY GAINS AND LOSSES

Pursuant to "Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public-Extraordinary Gain and Loss" (2008), the extraordinary gains and losses of the Group are as follows:

	2020	2019
	RMB million	RMB million
Extraordinary (gains)/losses for the year:
Net (gains)/losses on disposal of non-current assets	(973)	1,318
Donations	301	209
Government grants	(8,605)	(6,857)
Gain on holding and disposal of business and various investments	(37,520)	(410)
Other non-operating losses, net	2,992	634
	(43,805)	(5,106)
Tax effect	6,611	1,642
Total	(37,194)	(3,464)
Attributable to:
Equity shareholders of the Company	(34,489)	(3,339)
Minority interests	(2,705)	(125)

64 BASIC AND DILUTED EARNINGS PER SHARE

(i) Basic earnings per share

Basic earnings per share is calculated by the net profit attributable to equity shareholders of the Company and the weighted average number of outstanding ordinary shares of the Company:

	2020	2019
Net profit attributable to equity shareholders of the Company (RMB million)	32,924	57,619
Weighted average number of outstanding ordinary shares of the Company (million)	121,071	121,071
Basic earnings per share (RMB/share)	0.272	0.476

The calculation of the weighted average number of ordinary shares is as follows:

	2020	2019
Weighted average number of outstanding ordinary shares of the Company at 1 January (million)	121,071	121,071
Weighted average number of outstanding ordinary shares of the Company at 31 December (million)	121,071	121,071

(ii) Diluted earnings per share

Diluted earnings per share is calculated by the net profit attributable to equity shareholders of the Company (diluted) and the weighted average number of ordinary shares of the Company (diluted):

	2020	2019
Net profit attributable to equity shareholders of the Company (diluted) (RMB million)	32,924	57,619
Weighted average number of outstanding ordinary shares of the Company (diluted) (million)	121,071	121,071
Diluted earnings per share (RMB/share)	0.272	0.476

The calculation of the weighted average number of ordinary shares (diluted) is as follows:

	2020	2019
Weighted average number of the ordinary shares issued at 31 December (million)	121,071	121,071
Weighted average number of the ordinary shares issued at 31 December (diluted) (million)	121,071	121,071

65 RETURN ON NET ASSETS AND EARNINGS PER SHARE

In accordance with "Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares No.9 - Calculation and Disclosure of the Return on Net Assets and Earnings Per Share" (2010 revised) issued by the CSRC and relevant accounting standards, the Group's return on net assets and earnings per share are calculated as follows:

	2020			2019
	Weighted average return on net assets	Basic earnings per share	Diluted earnings per share	Weighted average return on net assets	Basic earnings per share	Diluted earnings per share
	(%)	(RMB/Share)	(RMB/Share)	(%)	(RMB/Share)	(RMB/Share)
Net profit attributable to the Company's ordinary equity shareholders	4.44	0.272	0.272	7.90	0.476	0.476
Net profit deducted extraordinary gains and losses attributable to the Company's ordinary equity shareholders	(0.21)	(0.013)	(0.013)	7.44	0.448	0.448

REPORT OF THE INTERNATIONAL AUDITOR

Independent Auditor's Report

To the Shareholders of China Petroleum & Chemical Corporation

(incorporated in the People's Republic of China with limited liability)

OPINION

What we have audited

The consolidated financial statements of China Petroleum & Chemical Corporation (the "Company") and its subsidiaries (the "Group") set out on pages 144 to 199, which comprise:

‧ the consolidated balance sheet as at 31 December 2020;

‧ the consolidated income statement for the year then ended;

‧ the consolidated statement of comprehensive income for the year then ended;

‧ the consolidated statement of changes in equity for the year then ended;

‧ the consolidated statement of cash flows for the year then ended; and

‧ the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Our opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standard Board and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing ("HKSAs") issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the HKICPA's Code of Ethics for Professional Accountants ("the Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

The key audit matter identified in our audit is "Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities".

Key Audit Matter

How our audit addressed the Key Audit Matter

Recoverability of the carrying amount of property, plant and equipment relating to oil and gas producing activities

Refer to note 8 "Other operating expense, net", note 17 "Property, plant and equipment" and note 44 "Accounting estimates and judgements" to the consolidated financial statements.

Low crude oil prices gave rise to possible indication that the carrying amount of property, plant and equipment relating to oil and gas producing activities as at 31 December 2020 might be impaired. The Group has adopted value in use as the respective recoverable amounts of property, plant and equipment relating to oil and gas producing activities, which involved key estimations or assumptions including:

- Future crude oil prices;

- Future production profiles;

- Future cost profiles; and

- Discount rates.

Because of the significance of the carrying amount of property, plant and equipment relating to oil and gas producing activities as at 31 December 2020, together with the use of significant estimations or assumptions in determining their respective value in use, we had placed our audit emphasis on this matter.

In auditing the respective value in use calculations of property, plant and equipment relating to oil and gas producing activities, we performed the following key procedures on the relevant discounted cash flow projections prepared by management:

‧ Obtained an understanding of the management's internal control and assessment process of impairment of property, plant and equipment relating to oil and gas producing activities and assessed the inherent risk of material misstatement by considering the degree of estimation uncertainty and level of other inherent risk factors such as complexity, subjectivity, changes and susceptibility to management bias or fraud.

‧ Evaluated and tested the key controls in respect of the preparation of the discounted cash flow projections of property, plant and equipment relating to oil and gas producing activities.

‧ Assessed the methodology adopted in the discounted cash flow projections, tested mathematical accuracy of the projections, and the completeness, accuracy, and relevance of underlying data used in the projections.

‧ Compared estimates of future crude oil prices adopted by the Group against a range of published crude oil price forecasts.

‧ Compared the future production profiles against the oil and gas reserve estimation report approved by the management. Evaluated the competence, capability and objectivity of the management's experts engaged in estimating the oil and gas reserves. Assessed key estimations or assumptions used in the reserve estimation, by reference to historical data, management plans and/or relevant external data.

‧ Compared the future cost profiles against historical costs and relevant budgets of the Group.

‧ Tested selected other key data inputs, such as natural gas prices and production profiles in the projections by reference to historical data and/or relevant budgets of the Group.

‧ Used professionals with specialized skill and knowledge to assist in the evaluation of the appropriateness of discount rates adopted by the management.

‧ Evaluated the sensitivity analyses prepared by the Group, and assessed the potential impacts of a range of possible outcomes.

Based on our work, we found the key assumptions and input data adopted were supported by the evidence we obtained.

OTHER INFORMATION

The directors of the Company are responsible for the other information. The other information comprises all of the information included in the annual report other than the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

RESPONSIBILITIES OF DIRECTORS AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group's financial reporting process.

AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

‧ Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

‧ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

‧ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

‧ Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

‧ Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

‧ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is CHAN KWONG TAK.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 26 March 2021

(B) FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2020

(Amounts in million, except per share data)

	Note	Year ended 31 December
		2020	2019
		RMB	RMB
Turnover and other operating revenues
Turnover	3	2,049,456	2,899,682
Other operating revenues	4	56,528	60,117
		2,105,984	2,959,799
Operating expenses
Purchased crude oil, products and operating supplies and expenses		(1,594,130)	(2,370,699)
Selling, general and administrative expenses	5	(55,315)	(55,438)
Depreciation, depletion and amortisation		(106,965)	(109,172)
Exploration expenses, including dry holes		(9,716)	(10,510)
Personnel expenses	6	(86,006)	(82,743)
Taxes other than income tax	7	(234,947)	(244,517)
Other operating expense, net	8	(5,712)	(346)
Total operating expenses		(2,092,791)	(2,873,425)
Operating profit		13,193	86,374
Finance costs
Interest expense	9	(15,194)	(17,088)
Interest income		4,803	7,210
Foreign currency exchange gains/(losses), net		885	(170)
Net finance costs		(9,506)	(10,048)
Investment income	10	37,744	919
Share of profits less losses from associates and joint ventures	21,22	6,712	12,777
Profit before taxation		48,143	90,022
Income tax expense	11	(6,219)	(17,939)
Profit for the year		41,924	72,083
Attributable to:
Shareholders of the Company		33,096	57,493
Non-controlling interests		8,828	14,590
Profit for the year		41,924	72,083
Earnings per share:
Basic	16	0.273	0.475
Diluted	16	0.273	0.475

The notes on pages 151 to 199 form part of these consolidated financial statements. Details of dividends payable to shareholders of the Company attributable to the profit for the year are set out in Note 14.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2020

(Amounts in million)

	Note	Year ended 31 December
		2020	2019
		RMB	RMB
Profit for the year		41,924	72,083
Other comprehensive income:	15
Items that may not be reclassified subsequently to profit or loss
Equity investments at fair value through other comprehensive income		(22)	(31)
Total items that may not be reclassifled subsequently to profit or loss		(22)	(31)
Items that may be reclassified subsequently to profit or loss
Fair value hedges		162	-
Share of other comprehensive loss of associates and joint ventures		(2,441)	(810)
Cash flow hedges		7,073	4,941
Foreign currency translation differences		(4,457)	1,480
Total items that may be reclassified subsequently to profit or loss		337	5,611
Total other comprehensive income		315	5,580
Total comprehensive income for the year		42,239	77,663
Attributable to:
Shareholders of the Company		34,490	62,908
Non-controlling interests		7,749	14,755
Total comprehensive income for the year		42,239	77,663

The notes on pages 151 to 199 form part of these consolidated financial statements.

CONSOLIDATED BALANCE SHEET

As at 31 December 2020

(Amounts in million)

	Note	31 December	31 December
		2020	2019
		RMB	RMB
Non-current assets
Property, plant and equipment, net	17	589,247	625,692
Construction in progress	18	124,765	173,872
Right-of-use assets	19	266,368	267,937
Goodwill	20	8,620	8,697
Interest in associates	21	136,163	95,737
Interest in joint ventures	22	52,179	56,467
Financial assets at fair value through other comprehensive income	26	1,525	1,521
Deferred tax assets	29	25,054	17,616
Long-term prepayments and other assets	23	74,489	65,437
Total non-current assets		1,278,410	1,312,976
Current assets
Cash and cash equivalents		87,559	60,438
Time deposits with financial institutions		100,498	67,614
Financial assets at fair value through profit or loss		1	3,319
Derivative financial assets	24	12,528	837
Trade accounts receivable	25	35,587	54,375
Financial assets at fair value through other comprehensive income	26	8,735	8,661
Inventories	27	151,895	194,142
Prepaid expenses and other current assets	28	58,592	57,924
Total current assets		455,395	447,310
Current liabilities
Short-term debts	30	23,769	40,521
Loans from Sinopec Group Company and fellow subsidiaries	30	5,264	43,289
Lease liabilities	31	15,292	15,198
Derivative financial liabilities	24	4,826	2,729
Trade accounts payable and bills payable	32	161,656	200,023
Contract liabilities	33	126,160	126,833
Other payables	34	178,637	148,118
Income tax payable		6,586	3,267
Total current liabilities		522,190	579,978
Net current liabilities		66,795	132,668
Total assets less current liabilities		1,211,615	1,180,308
Non-current liabilities
Long-term debts	30	72,037	49,208
Loans from Sinopec Group Company and fellow subsidiaries	30	11,778	9,626
Lease liabilities	31	172,306	177,674
Deferred tax liabilities	29	8,124	6,809
Provisions	35	45,552	43,163
Other long-term liabilities		18,960	16,524
Total non-current liabilities		328,757	303,004
		882,858	877,304
Equity
Share capital	36	121,071	121,071
Reserves		620,423	617,875
Total equity attributable to shareholders of the Company		741,494	738,946
Non-controlling interests		141,364	138,358
Total equity		882,858	877,304

Approved and authorised for issue by the board of directors on 26 March 2021.

Zhang Yuzhuo	Ma Yongsheng	Shou Donghua
Chairman	President	Chief Financial Officer
(Legal representative)

The notes on pages 151 to 199 form part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2019

(Amounts in million)

	Share capital	Capital reserve	Share premium	Statutory surplus reserve	Discretionary surplus reserve	Other reserves	Retained earnings	Total equity attributable to shareholders of the Company	Non- controlling interests	Total equity
	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB
Balance at 31 December 2018	121,071	26,053	55,850	86,678	117,000	(4,477)	315,109	717,284	139,251	856,535
Contribution from SAMC in the Acquisition of Baling Branch of SAMC (Note 38)	-	735	-	-	-	-	58	793	670	1,463
Balance at 1 January 2019	121,071	26,788	55,850	86,678	117,000	(4,477)	315,167	718,077	139,921	857,998
Profit for the year	-	-	-	-	-	-	57,493	57,493	14,590	72,083
Other comprehensive income (Note 15)	-	-	-	-	-	5,415	-	5,415	165	5,580
Total comprehensive income for the year	-	-	-	-	-	5,415	57,493	62,908	14,755	77,663
Amounts transferred to initial carrying amount of hedged items	-	-	-	-	-	1,038	-	1,038	55	1,093
Transactions with owners, recorded directly in equity:
Contributions by and distributions to owners:
Final dividend for 2018 (Note 14)	-	-	-	-	-	-	(31,479)	(31,479)	-	(31,479)
Interim dividend for 2019 (Note 14)	-	-	-	-	-	-	(14,529)	(14,529)	-	(14,529)
Appropriation (Note (a))	-	-	-	3,745	-	-	(3,745)	-	-	-
Distributions to non-controlling interests	-	-	-	-	-	-	-	-	(18,989)	(18,989)
Contributions to subsidiaries from non-controlling interests	-	-	-	-	-	-	-	-	5,495	5,495
Total contributions by and distributions to owners	-	-	-	3,745	-	-	(49,753)	(46,008)	(13,494)	(59,502)
Transaction with non-controlling interests	-	2,933	-	-	-	-	-	2,933	(2,933)	-
Total transactions with owners	-	2,933	-	3,745	-	-	(49,753)	(43,075)	(16,427)	(59,502)
Others	-	9	-	-	-	(35)	24	(2)	54	52
Balance at 31 December 2019	121,071	29,730	55,850	90,423	117,000	1,941	322,931	738,946	138,358	877,304

The notes on pages 151 to 199 form part of these consolidated financial statements.

	Share capital	Capital reserve	Share premium	Statutory surplus reserve	Discretionary surplus reserve	Other reserves	Retained earnings	Total equity attributable to shareholders of the Company	Non- controlling interests	Total equity
	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB	RMB
Balance at 1 January 2020	121,071	29,730	55,850	90,423	117,000	1,941	322,931	738,946	138,358	877,304
Profit for the year	-	-	-	-	-	-	33,096	33,096	8,828	41,924
Other comprehensive income (Note 15)	-	-	-	-	-	1,406	(12)	1,394	(1,079)	315
Total comprehensive income for the year	-	-	-	-	-	1,406	33,084	34,490	7,749	42,239
Amounts transferred to initial carrying amount of hedged items	-	-	-	-	-	(47)	-	(47)	48	1
Transactions with owners, recorded directly in equity:
Contributions by and distributions to owners:
Final dividend for 2019 (Note 14)	-	-	-	-	-	-	(23,004)	(23,004)	-	(23,004)
Interim dividend for 2020 (Note 14)	-	-	-	-	-	-	(8,475)	(8,475)	-	(8,475)
Appropriation (Note (a))	-	-	-	1,857	-	-	(1,857)	-	-	-
Distributions to non-controlling interests	-	-	-	-	-	-	-	-	(6,726)	(6,726)
Contributions to subsidiaries from non-controlling interests	-	-	-	-	-	-	-	-	3,325	3,325
Distribution to SAMC in the Acquisition of Baling Branch of SAMC (Note 38)	-	(972)	-	-	-	-	-	(972)	972	-
Total contributions by and distributions to owners	-	(972)	-	1,857	-	-	(33,336)	(32,451)	(2,429)	(34,880)
Transaction with non-controlling interests	-	(138)	-	-	-	-	-	(138)	13	(125)
Total transactions with owners	-	(1,110)	-	1,857	-	-	(33,336)	(32,589)	(2,416)	(35,005)
Others	-	812	-	-	-	200	(318)	694	(2,375)	(1,681)
Balance at 31 December 2020	121,071	29,432	55,850	92,280	117,000	3,500	322,361	741,494	141,364	882,858

Notes:

(a) According to the PRC Company Law and the Articles of Association of the Company, the Company is required to transfer 10% of its net profit determined in accordance with the accounting policies complying with Accounting Standards for Business Enterprises ("CASs"), adopted by the Group to statutory surplus reserve. In the event that the reserve balance reaches 50% of the registered capital, no transfer is required. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to make good previous years' losses, if any, and may be converted into share capital by issuing of new shares to shareholders in proportion to their existing shareholdings or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

During the year ended 31 December 2020, the Company transferred RMB 1,857 million (2019: RMB 3,745 million) to the statutory surplus reserve, being 10% of the current year's net profit determined in accordance with the accounting policies complying with CASs.

(b) The usage of the discretionary surplus reserve is similar to that of statutory surplus reserve.

(c) As at 31 December 2020, the amount of retained earnings available for distribution was RMB 115,849 million (2019: RMB 130,645 million), being the amount determined in accordance with CASs. According to the Articles of Association of the Company, the amount of retained earnings available for distribution to shareholders of the Company is lower of the amount determined in accordance with the accounting policies complying with CASs and the amount determined in accordance with the accounting policies complying with International Financial Reporting Standards ("IFRS").

(d) The capital reserve represents (i) the difference between the total amount of the par value of shares issued and the amount of the net assets transferred from Sinopec Group Company in connection with the Reorganisation (Note 1); and (ii) the difference between the considerations paid over or received the amount of the net assets of entities and related operations acquired from or sold to Sinopec Group Company and non-controlling interests.

(e) The application of the share premium account is governed by Sections 167 and 168 of the PRC Company Law.

The notes on pages 151 to 199 form part of these consolidated financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2020

(Amounts in million)

	Note	Year ended 31 December
		2020	2019
		RMB	RMB
Net cash generated from operating activities	(a)	167,518	153,619
Investing activities
Capital expenditure		(117,874)	(130,057)
Exploratory wells expenditure		(13,315)	(11,497)
Purchase of investments, investments in associates and investments in joint ventures		(6,040)	(3,483)
Payment for financial assets at fair value through profit or loss		(6,700)	(12,851)
Proceeds from sale of financial assets at fair value through profit or loss		10,000	35,292
Payment for acquisition of subsidiary, net of cash acquired		(340)	(1,031)
Proceeds from disposal of investments and investments in associates		51,520	704
Proceeds from disposal of property, plant, equipment and other non-current assets		2,656	709
Increase in time deposits with maturities over three months		(84,689)	(103,231)
Decrease in time deposits with maturities over three months		54,950	90,710
Interest received		2,305	7,094
Investment and dividend income received		11,510	10,272
Repayments of other investing activities		(6,186)	(3,682)
Net cash used in investing activities		(102,203)	(121,051)
Financing activities
Proceeds from bank and other loans		558,680	602,467
Repayments of bank and other loans		(540,015)	(614,108)
Contributions to subsidiaries from non-controlling interests		4,219	3,919
Dividends paid by the Company		(31,479)	(46,008)
Distributions by subsidiaries to non-controlling interests		(4,157)	(7,357)
Interest paid		(7,508)	(6,250)
Payments made to acquire non-controlling interests		(1,121)	(8)
Repayments of lease liabilities		(15,327)	(16,859)
Proceeds from other financing activities		514	320
Repayments of other financing activities		(761)	(320)
Net cash used in financing activities		(36,955)	(84,204)
Net increase/(decrease) in cash and cash equivalents		28,360	(51,636)
Cash and cash equivalents at 1 January		60,438	111,927
Effect of foreign currency exchange rate changes		(1,239)	147
Cash and cash equivalents at 31 December		87,559	60,438

The notes on pages 151 to 199 form part of these consolidated financial statements.

NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2020

(Amounts in million)

(a) Reconciliation from profit before taxation to net cash generated from operating activities

	Year ended 31 December
	2020	2019
	RMB	RMB
Operating activities
Profit before taxation	48,143	90,022
Adjustments for:
Depreciation, depletion and amortisation	106,965	109,172
Dry hole costs written off	5,928	5,831
Share of profits from associates and joint ventures	(6,712)	(12,777)
Investment income	(37,744)	(919)
Interest income	(3,433)	(7,210)
Interest expense	14,449	17,088
Loss on foreign currency exchange rate changes and derivative financial instruments	2,003	3,624
(Gain)/loss on disposal of property, plant, equipment and other non-current assets, net	(398)	1,829
Impairment losses on assets	26,018	1,779
Credit impairment losses	2,066	1,264
	157,285	209,703
Net changes from:
Accounts receivable and other current assets	(17,623)	(11,915)
Inventories	22,703	(9,748)
Accounts payable and other current liabilities	14,175	(14,898)
	176,540	173,142
Income tax paid	(9,022)	(19,523)
Net cash generated from operating activities	167,518	153,619

The notes on pages 151 to 199 form part of these consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

for the year ended 31 December 2020

1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION

Principal activities

China Petroleum & Chemical Corporation (the "Company") is an energy and chemical company that, through its subsidiaries (hereinafter collectively referred to as the "Group"), engages in oil and gas and chemical operations in the People's Republic of China (the "PRC"). Oil and gas operations consist of exploring for, developing and producing crude oil and natural gas; transporting crude oil and natural gas by pipelines; refining crude oil into finished petroleum products; and marketing crude oil, natural gas and refined petroleum products. Chemical operations include the manufacture and marketing of a wide range of chemicals for industrial uses.

Organisation

The Company was established in the PRC on 25 February 2000 as a joint stock limited company as part of the reorganisation (the "Reorganisation") of China Petrochemical Corporation ("Sinopec Group Company"), the ultimate holding company of the Group and a ministry-level enterprise under the direct supervision of the State Council of the PRC. Prior to the incorporation of the Company, the oil and gas and chemical operations of the Group were carried on by oil administration bureaux, petrochemical and refining production enterprises and sales and marketing companies of Sinopec Group Company.

As part of the Reorganisation, certain of Sinopec Group Company's core oil and gas and chemical operations and businesses together with the related assets and liabilities were transferred to the Company. On 25 February 2000, in consideration for Sinopec Group Company transferring such oil and gas and chemical operations and businesses and the related assets and liabilities to the Company, the Company issued 68.8 billion domestic state-owned ordinary shares with a par value of RMB 1.00 each to Sinopec Group Company. The shares issued to Sinopec Group Company on 25 February 2000 represented the entire registered and issued share capital of the Company on that date. The oil and gas and chemical operations and businesses transferred to the Company were related to (i) the exploration, development and production of crude oil and natural gas, (ii) the refining, transportation, storage and marketing of crude oil and petroleum products, and (iii) the production and sales of chemicals.

Basis of preparation

The accompanying consolidated financial statements have been prepared in accordance with all applicable IFRS as issued by the International Accounting Standards Board ("IASB"). IFRS includes International Accounting Standards ("IAS") and related interpretations ("IFRIC"). These consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Group are set out in Note 2.

The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of new and amended standards as set out below.

(a) New and amended standards and interpretations adopted by the Group

On 28 May 2020, the IASB published IFRS 16 COVID-19-Related Rent Concessions Amendment, which has no material impact on the Group for 31 December 2020 reporting periods.

A number of new or amended standards became applicable for the current reporting period. The Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.

(b) New and amended standards and interpretations not yet adopted by the Group

Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

The preparation of the consolidated financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Key assumptions and estimation made by management in the application of IFRS that have significant effect on the consolidated financial statements and the major sources of estimation uncertainty are disclosed in Note 44.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of consolidation

The consolidated financial statements comprise the Company and its subsidiaries, and interest in associates and joint ventures.

(i) Subsidiaries and non-controlling interests

Subsidiaries are those entities controlled by the Group. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The financial statements of subsidiaries are included in the consolidated financial statements from the date that control effectively commences until the date that control effectively ceases.

Non-controlling interests at the balance sheet date, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly through subsidiaries, are presented in the consolidated balance sheet and consolidated statement of changes in equity within equity, separately from equity attributable to the shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated income statement and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the shareholders of the Company.

Changes in the Group's interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

If a business combination involving entities not under common control is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeasurement are recognised in the consolidated income statement.

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (Note 2(j)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (Note 2(a)(ii)).

In the Company's balance sheet, investments in subsidiaries are stated at cost less impairment losses (Note 2(n)).

The particulars of the Group's principal subsidiaries are set out in Note 42.

(ii) Associates and joint ventures

An associate is an entity, not being a subsidiary, in which the Group exercises significant influence over its management. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

The investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.

Investments in associates and joint ventures are accounted for in the consolidated and separate financial statements using the equity method from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. Under the equity method, the investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the Group's share of the investee's net assets and any impairment loss relating to the investment (Notes 2(i) and (n)).

The Group's share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated income statement, whereas the Group's share of the post-acquisition, post-tax items of the investees' other comprehensive income is recognised in the consolidated statement of comprehensive income.

When the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see Note 2(j)) or, when appropriate, the cost on initial recognition of an investment in an associate.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(a) Basis of consolidation (Continued)

(iii) Transactions eliminated on consolidation

Inter-company balances and transactions and any unrealised gains arising from inter-company transactions are eliminated on consolidation. Unrealised gains arising from transactions with associates and joint ventures are eliminated to the extent of the Group's interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(iv) Merger accounting for common control combination

The consolidated financial statements incorporate the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party. The net assets of the combining entities or businesses are combined using the existing book values from the controlling parties' perspective. No amount is recognised as consideration for goodwill or excess of acquirers' interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party's interest.

The consolidated income statement includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where there is a shorter period, regardless of the date of the common control combination. The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the previous balance sheet date or when they first came under common control, whichever is shorter.

A uniform set of accounting policies is adopted by those entities. All intra-group transactions, balances and unrealised gains on transactions between combining entities or businesses are eliminated on consolidation. Transaction costs, including professional fees, registration fees, costs of furnishing information to shareholders, costs or losses incurred in combining operations of the previously separate businesses, etc., incurred in relation to the common control combination that is to be accounted for by using merger accounting is recognised as an expense in the period in which it is incurred.

(b) Translation of foreign currencies

The presentation currency of the Group is Renminbi. Foreign currency transactions during the year are translated into Renminbi at the applicable rates of exchange quoted by the People's Bank of China (''PBOC'') prevailing on the transaction dates. Foreign currency monetary assets and liabilities are translated into Renminbi at the PBOC's rates at the balance sheet date.

Exchange differences, other than those capitalised as construction in progress, are recognised as income or expense in the "finance costs" section of the consolidated income statement.

The results of foreign operations are translated into Renminbi at the applicable rates quoted by the PBOC prevailing on the transaction dates. Balance sheet items, including goodwill arising on consolidation of foreign operations are translated into Renminbi at the closing foreign exchange rates at the balance sheet date. The income and expenses of foreign operation are translated into Renminbi at the spot exchange rates or an exchange rate that approximates the spot exchange rates on the transaction dates. The resulting exchange differences are recognised in other comprehensive income and accumulated in equity in the other reserves.

On disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to the consolidated income statement when the profit or loss on disposal is recognised.

Cash equivalents consist of time deposits with financial institutions with an initial term of less than three months when purchased. Cash equivalents are stated at cost, which approximates fair value.

(d) Trade, bills and other receivables

Trade, bills and other receivables are recognised initially at their transaction price, unless they contain significant financing components when they are recognised at fair value. They are subsequently measured at amortised cost using the effective interest method, less impairment losses for bad and doubtful debts (Note 2(j)). Trade, bills and other receivables are derecognised if the Group's contractual rights to the cash flows from these financial assets expire or if the Group transfers these financial assets to another party without retaining control or substantially all risks and rewards of the assets.

(e) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost mainly includes the cost of purchase computed using the weighted average method and, in the case of work in progress and finished goods, direct labour and an appropriate proportion of production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(f) Property, plant and equipment

An item of property, plant and equipment is initially recorded at cost, less accumulated depreciation and impairment losses (Note 2(n)). The cost of an asset comprises its purchase price, any directly attributable costs of bringing the asset to working condition and location for its intended use. The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred, when it is probable that the future economic benefits embodied with the item will flow to the Group and the cost of the item can be measured reliably. All other expenditure is recognised as an expense in the consolidated income statement in the year in which it is incurred.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment, other than oil and gas properties, are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised as income or expense in the consolidated income statement on the date of retirement or disposal.

Depreciation is provided to write off the cost amount of items of property, plant and equipment, other than oil and gas properties, over its estimated useful life on a straight-line basis, after taking into account its estimated residual value, as follows:

Estimated usage

period

Estimated

residuals rate

Buildings

12 to 50 years

Equipment, machinery and others

4 to 30 years

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reassessed annually.

(g) Oil and gas properties

The Group uses the successful efforts method of accounting for its oil and gas producing activities. Under this method, costs of development wells, the related supporting equipment and proved mineral interests in properties are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. The impairment of exploratory well costs occurs upon the determination that the well has not found proved reserves. The exploratory well costs are usually not carried as an asset for more than one year following completion of drilling, unless (i) the well has found a sufficient quantity of reserves to justify its completion as a producing well if the required capital expenditure is made; (ii) drilling of the additional exploratory wells is under way or firmly planned for the near future; or (iii) other activities are being undertaken to sufficiently progress the assessing of the reserves and the economic and operating viability of the project. All other exploration costs, including geological and geophysical costs, other dry hole costs and annual lease rentals to explore for or use oil and natural gas, are expensed as incurred. Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves.

Management estimates future dismantlement costs for oil and gas properties with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with the industry practices and the future cash flows are adjusted to reflect such risks specific to the liability, as appropriate. These estimated future dismantlement costs are discounted at pre-tax risk-free rate and are capitalised as oil and gas properties, which are subsequently amortised as part of the costs of the oil and gas properties.

(h) Construction in progress

Construction in progress represents buildings, oil and gas properties, various plant and equipment under construction and pending installation, and is stated at cost less impairment losses (Note 2(n)). Cost comprises direct costs of construction as well as interest charges, and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges, during the periods of construction.

Construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress.

(i) Goodwill

Goodwill represents amounts arising on acquisition of subsidiaries, associates or joint ventures. Goodwill represents the difference between the cost of acquisition and the fair value of the net identifiable assets acquired.

Prior to 1 January 2008, the acquisition of the non-controlling interests of a consolidated subsidiary was accounted for using the acquisition method whereby the difference between the cost of acquisition and the fair value of the net identifiable assets acquired (on a proportionate share) was recognised as goodwill. From 1 January 2008, any difference between the amount by which the non-controlling interest is adjusted (such as through an acquisition of the non-controlling interests) and the cash or other considerations paid is recognised in equity.

Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or groups of cash-generating units, that is expected to benefit the synergies of the combination and is tested annually for impairment (Note 2(n)). In respect of associates or joint ventures, the carrying amount of goodwill is included in the carrying amount of the interest in the associate or joint venture and the investment as a whole is tested for impairment whenever there is objective evidence of impairment (Note 2(n)).

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(j) Financial assets

(i) Classification and measurement

The Group classifies financial assets into different categories depending on the business model for managing the financial assets and the contractual terms of cash flows of the financial assets: a) financial assets measured at amortised cost, b) financial assets measured at fair value through other comprehensive income ("FVOCI"), c) financial assets measured at fair value through profit or loss. A contractual cash flow characteristic which could have only a de minimis effect, or could have an effect that is more than de minimis but is not genuine, does not affect the classification of the financial asset.

Financial assets are initially recognised at fair value. For financial assets measured at fair value through profit or loss, the relevant transaction costs are recognised in profit or loss. The transaction costs for other financial assets are included in the initially recognised amount. Howerver, trade accounts receivable and bills receivable arising from sale of goods or rendering services, without significant financing component, are initially recognised based on the transaction price expected to be entitled by the Group.

Debt instruments

Debt instruments held by the Group mainly includes cash and cash equivalents, time deposits with financial institutions, receivables. These financial assets are measured at amortised cost and FVOCI.

‧ Amortised cost: The business model for managing such financial assets by the Group are held for collection of contractual cash flows. The contractual cash flow characteristics are to give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Interest income from these financial assets is recognised using the effective interest rate method.

‧ FVOCI: The business model for managing such financial assets by the Group are held for collection of contractual cash flows and for selling the financial assets, where the assets' cash flows represent solely payments of principal and interest on the principal amount outstanding. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment gains or losses, foreign exchange gains and losses and interest income calculated using the effective interest rate method, which are recognised in profit or loss.

Equity instruments

Equity instruments that the Group has no power to control, jointly control or exercise significant influence over, are measured at fair value through profit or loss and presented in financial assets at fair value through profit or loss.

In addition, the Group designates some equity instruments that are not held for trading as financial assets at FVOCI, are presented in financial assets at FVOCI. The relevant dividends of these financial assets are recognised in profit or loss. When derecognised, the cumulative gain or loss previously recognised in other comprehensive income is transferred to retained earnings.

(ii) Impairment

The Group recognises a loss allowance for expected credit losses on a financial asset that is measured at amortised cost and a debt instrument that is measured at FVOCI.

The Group measures the expected credit losses of financial instruments on different stages at each balance sheet date. For financial instruments that have no significant increase in credit risk since the initial recognition, on first stage, the Group measures the loss allowance at an amount equal to 12-month expected credit losses. If there has been a significant increase in credit risk since the initial recognition of a financial instrument but credit impairment has not occurred, on second stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses. If credit impairment has occurred since the initial recognition of a financial instrument, on third stage, the Group recognises a loss allowance at an amount equal to lifetime expected credit losses.

For financial instruments that have low credit risk at the balance sheet date, the Group assumes that there is no significant increase in credit risk since the initial recognition, and measures the loss allowance at an amount equal to 12-month expected credit losses.

For financial instruments on the first stage and the second stage, and that have low credit risk, the Group calculates interest income according to carrying amount without deducting the impairment allowance and effective interest rate. For financial instruments on the third stage, interest income is calculated according to the carrying amount minus amortised cost after the provision of impairment allowance and effective interest rate.

For trade accounts receivable and bills receivable and financial assets at FVOCI related to revenue, the Group measures the loss allowance at an amount equal to lifetime expected credit losses.

The Group recognises the loss allowance accrued or written back in profit or loss.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(j) Financial assets (Continued)

(iii) Derecognition

The Group derecognises a financial asset when: a) the contractual right to receive cash flows from the financial asset expires; b) the Group transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset; c) the financial asset has been transferred and the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset, but the Group has not retained control.

On derecognition of equity instruments at FVOCI, the difference between the carrying amounts and the sum of the consideration received and any accumulated gain or loss previously recognised in other comprehensive income, is recognised in retained earnings. While on derecognition of other financial assets, this difference is recognised in profit or loss.

(k) Financial liabilities

The Group, at initial recognition, classifies financial liabilities as either financial liabilities subsequently measured at amortised cost or financial liabilities at fair value through profit or loss.

The Group's financial liabilities are mainly financial liabilities measured at amortised cost, including trade accounts payable and bills payable, other payables, and loans, etc. These financial liabilities are initially measured at the amount of their fair value after deducting transaction costs and use the effective interest rate method for subsequent measurement.

Where the present obligations of financial liabilities are completely or partially discharged, the Group derecognises these financial liabilities or discharged parts of obligations. The differences between the carrying amounts and the consideration received are recognised in profit or loss.

(l) Determination of fair value for financial instruments

If there is an active market for financial instruments, the quoted price in the active market is used to measure fair values of the financial instruments. If no active market exists for financial instruments, valuation techniques are used to measure fair values. In valuation, the Group adopts valuation techniques that are applicable in the current situation and have sufficient available data and other information to support it, and selects input values that are consistent with the asset or liability characteristics considered by market participants in the transaction of relevant assets or liabilities, and gives priority to relevant observable input values. Use of unobservable input values where relevant observable input values cannot be obtained or are not practicable.

(m) Derivative financial instruments and hedge accounting

Derivative financial instruments are recognised initially at fair value. At each balance sheet date, the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss, except where the derivatives qualify for hedge accounting.

Hedge accounting is a method which recognises the offsetting effects on profit or loss (or other comprehensive income) of changes in the fair values of the hedging instrument and the hedged item in the same accounting period, to represent the effect of risk management activities.

Hedged items are the items that expose the Group to risks of changes in future cash flows and that are designated as being hedged and that must be reliably measurable. The Group's hedged items include a forecast transaction that is settled with an undetermined future market price and exposes the Group to risk of variability in cash flows, etc.

A hedging instrument is a designated derivative whose changes in cash flows are expected to offset changes in cash flows of the hedged item.

The hedging relationship meets all of the following hedge effectiveness requirements:

(i) There is an economic relationship between the hedged item and the hedging instrument, which shares a risk and that gives rise to opposite changes in fair value that tend to offset each other.

(ii) The effect of credit risk does not dominate the value changes that result from that economic relationship.

(iii) The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the entity actually hedges and the quantity of the hedging instrument that the entity actually uses to hedge that quantity of hedged item. However, that designation does not reflect an imbalance between the weightings of the hedged item and the hedging instrument.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(m) Derivative financial instruments and hedge accounting (Continued)

Cash flow hedges

Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly probable forecast transaction, and could affect profit or loss. Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure that an economic relationship exists between the hedged item and hedging instrument.

As long as a cash flow hedge meets the qualifying criteria for hedge accounting, the separate component of equity associated with the hedged item (cash flow hedge reserve) is adjusted to the lower of the following (in absolute amounts):

(i) The cumulative gain or loss on the hedging instrument from inception of the hedge; and

(ii) The cumulative change in fair value (present value) of the hedged item (i.e. the present value of the cumulative change in the hedged expected future cash flows) from inception of the hedge.

The gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income.

The portion of the gain or loss on the hedging instrument that is determined to be an ineffective hedge is recognised in profit or loss.

If a hedged forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or a hedged forecast transaction for a non-financial asset or a non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, the entity removes that amount from the cash flow hedge reserve and include it directly in the initial cost or other carrying amount of the asset or the liability. This is not a reclassification adjustment and hence it does not affect other comprehensive income.

For cash flow hedges, other than those covered by the preceding policy statements, that amount is reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment in the same period or periods during which the hedged expected future cash flows affect profit or loss.

If the amount that has been accumulated in the cash flow hedge reserve is a loss and the Group expects that all or a portion of that loss will not be recovered in one or more future periods, the Group immediately reclassifies the amount that is not expected to be recovered into profit or loss.

When the hedging relationship no longer meets the risk management objective on the basis of which it qualified for hedge accounting (ie the entity no longer pursues that risk management objective), or when a hedging instrument expires or is sold, terminated, exercised, or there is no longer an economic relationship between the hedged item and the hedging instrument or the effect of credit risk starts to dominate the value changes that result from that economic relationship or no longer meets the criteria for hedge accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged future cash flows are still expected to occur, that amount remains in the cash flow hedge reserve and is accounted for as cash flow hedges. If the hedged future cash flows are no longer expected to occur, that amount is immediately reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment. A hedged future cash flow that is no longer highly probable to occur may still be expected to occur, if the hedged future cash flows are still expected to occur, that amount remains in the cash flow hedge reserve and is accounted for as cash flow hedges.

(n) Impairment of assets

The carrying amounts of assets, including property, plant and equipment, construction in progress, right-of-use assets and other assets, are reviewed at each balance sheet date to identify indicators that the assets may be impaired. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. For goodwill, the recoverable amount is estimated at each balance sheet date.

The recoverable amount is the greater of the fair value less costs to disposal and the value in use. In determining the value in use, expected future cash flows generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

The amount of the reduction is recognised as an expense in the consolidated income statement. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to disposal, or value in use, if determinable.

Management assesses at each balance sheet date whether there is any indication that an impairment loss recognised for an asset, except in the case of goodwill, in prior years may no longer exist. An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down or write-off cease to exist, is recognised as an income. The reversal is reduced by the amount that would have been recognised as depreciation had the write-down or write-off not occurred. An impairment loss in respect of goodwill is not reversed.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(o) Trade, bills and other payables

Trade, bills and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(p) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the consolidated income statement over the period of borrowings using the effective interest method.

(q) Provisions and contingent liability

A provision is recognised for liability of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, when it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

Provisions for future dismantlement costs are initially recognised based on the present value of the future costs expected to be incurred in respect of the Group's expected dismantlement and abandonment costs at the end of related oil and gas exploration and development activities. Any subsequent change in the present value of the estimated costs, other than the change due to passage of time which is regarded as interest cost, is reflected as an adjustment to the provision and oil and gas properties.

(r) Revenue recognition

Revenue arises in the course of the Group's ordinary activities, and increases in economic benefits in the form of inflows that result in an increase in equity, other than those relating to contributions from equity participants.

The Group sells crude oil, natural gas, petroleum and chemical products, etc. Revenue is recogniesd according to the expected consideration amount, when a customer obtains control over the relevant goods or services. To determine whether a customer obtains control of a promised asset, the Group shall consider indicators of the transfer of control, which include, but are not limited to, the Group has a present right to payment for the asset; the Group has transferred physical possession of the asset to the customer; the customer has the significant risks and rewards of ownership of the asset; the customer has accepted the asset.

Sales of goods

Sales are recognised when control of the goods have transferred, being when the products are delivered to the customer. Advance from customers but goods not yet delivered is recorded as contract liabilities and is recognised as revenues when a customer obtains control over the relevant goods.

(s) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to profit or loss on a straight-line basis over the expected lives of the related assets.

(t) Borrowing costs

Borrowing costs are expensed in the consolidated income statement in the period in which they are incurred, except to the extent that they are capitalised as being attributable to the construction of an asset which necessarily takes a period of time to get ready for its intended use.

(u) Repairs and maintenance expenditure

Repairs and maintenance expenditure is expensed as incurred.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(v) Environmental expenditures

Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations are expensed as incurred.

Liabilities related to future remediation costs are recorded when environmental assessments and/or cleanups are probable and the costs can be reliably estimated. As facts concerning environmental contingencies become known to the Group, the Group reassesses its position both with respect to accrued liabilities and other potential exposures.

(w) Research and development expense

Research and development expenditures that cannot be capitalised are expensed in the period in which they are incurred. Research and development expense amounted to RMB 10,086 million for the year ended 31 December 2020 (2019: RMB 9,450 million).

(x) Leases

A lease is a contract that a lessor transfers the right to use an identified asset for a period of time to a lessee in exchange for consideration.

(i) As lessee

The Group recognises a right-of-use asset at the date at which the leased asset is available for use by the Group, and recognises a lease liability measured at the present value of the remaining lease payments. The lease payments include fixed payments, the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and payments of penalties for terminating the lease if the lease term reflects the Group exercising that option, etc. Variable payments that are based on a percentage of sales are not included in the lease payments, and should be recognised in profit or loss when incurred. Lease liabilities to be paid within one year (including one year) from balance sheet date is presented in current liabilities.

Right-of-use assets of the Group mainly comprise land. Right-of-use assets are measured at cost which comprises the amount of the initial measurement of the lease liability, any lease payments made at or before the commencement date, any initial direct costs incurred by the lessee, less any lease incentives received. The Group depreciates the right-of-use assets over the shorter of the asset's useful life and the lease term on a straight-line basis. When the recoverable amount of a right-of-use asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount.

Payments associated with short-term leases with lease terms within 12 months and all leases of low-value assets are recognised on a straight-line basis over the lease term as an expense in profit or loss or as cost of relevant assets, instead of recognising right-of-use assets and lease liabilities.

A lessee shall account for a lease modification as a separate lease if both: (1) the modification increases the scope of the lease by adding the right to use one or more underlying assets; and (2) the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments to that stand-alone price to reflect the circumstances of the articular contract.

For a lease modification that is not accounted for as a separate lease, except for the practical expedient which applies only to rent concessions occurring as a direct consequence of the COVID-19 pandemic, the group determine the lease term of the modified lease at the effective date of the modification, and remeasure the lease liability by discounting the revised lease payments using a revised discount rate. The group decrease the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease for lease modifications that decrease the scope or shorten the term of the lease, and shall recognise in profit or loss any gain or loss relating to the partial or full termination of the lease. The group make a corresponding adjustment to the right-of-use asset for all other lease modifications.

(ii) As lessor

A lease that transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. An operating lease is a lease other than a finance lease.

When the Group leases self-owned plants and buildings, equipment and machinery, lease income from an operating lease is recognised on a straight-line basis over the period of the lease. The Group recognises variable lease income which is based on a certain percentage of sales as rental income when occurred.

(y) Employee benefits

The contributions payable under the Group's retirement plans are recognised as an expense in the consolidated income statement as incurred and according to the contribution determined by the plans. Further information is set out in Note 40.

Termination benefits, such as employee reduction expenses, are recognised when, and only when, the Group demonstrably commits itself to terminate employment or to provide benefits as a result of voluntary redundancy by having a detailed formal plan which is without realistic possibility of withdrawal.

2 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(z) Income tax

Income tax comprises current and deferred tax. Current tax is calculated on taxable income by applying the applicable tax rates. Deferred tax is provided using the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes only to the extent that it is probable that future taxable income will be available against which the assets can be utilised. Deferred tax is calculated on the basis of the enacted tax rates or substantially enacted tax rates that are expected to apply in the period when the asset is realised or the liability is settled. The effect on deferred tax of any changes in tax rates is charged or credited to the consolidated income statement, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously charged or credited to other comprehensive income or directly in equity.

The tax value of losses expected to be available for utilisation against future taxable income is set off against the deferred tax liability within the same legal tax unit and jurisdiction to the extent appropriate, and is not available for set off against the taxable profit of another legal tax unit. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and is reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(aa) Dividends

Dividends and distributions of profits proposed in the profit appropriation plan which will be authorised and declared after the balance sheet date, are not recognised as a liability at the balance sheet date and are separately disclosed in the notes to the financial statements. Dividends are recognised as a liability in the period in which they are declared.

(bb) Segment reporting

Operating segments, and the amounts of each segment item reported in the consolidated financial statements, are identified from the financial information provided regularly to the Group's chief operating decision maker for the purposes of allocating resources to, and assessing the performance of the Group's various lines of business.

3 TURNOVER

Turnover primarily represents revenue from the sales of refined petroleum products, chemical products, crude oil and natural gas, which are recognised at a point in time.

	2020	2019
	RMB million	RMB million
Gasoline	557,605	699,202
Diesel	422,569	615,342
Crude oil	351,707	549,720
Basic chemical feedstock	155,687	215,773
Synthetic resin	122,313	125,658
Kerosene	72,385	191,636
Natural gas	48,121	53,839
Synthetic fiber monomers and polymers	41,640	80,100
Others (i)	277,429	368,412
	2,049,456	2,899,682

(i) Others are primarily liquefied petroleum gas and other refinery and chemical byproducts and joint products.

4 OTHER OPERATING REVENUES

	2020	2019
	RMB million	RMB million
Sale of materials and others	55,441	58,886
Rental income	1,087	1,231
	56,528	60,117

5 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The following items are included in selling, general and administrative expenses:

	2020	2019
	RMB million	RMB million
Operating lease charges	2,685	1,858
Auditor's remuneration:
- Audit services	73	70
- Others	8	6
Impairment losses:
- Trade accounts receivable	2,105	1,283
- Other receivables	(25)	(2)

6 PERSONNEL EXPENSES

	2020	2019
	RMB million	RMB million
Salaries, wages and other benefits	77,202	70,921
Contributions to retirement schemes (Note 40)	8,804	11,822
	86,006	82,743

7 TAXES OTHER THAN INCOME TAX

	2020	2019
	RMB million	RMB million
Consumption tax (i)	197,542	204,388
City construction tax (ii)	15,699	16,387
Education surcharge	11,670	12,111
Resources tax	4,572	5,883
Others	5,464	5,748
	234,947	244,517

Notes:

(i) Consumption tax was levied based on sales quantities of taxable products, tax rate of products is presented as below:

Products	Effective from 13 January 2015
	RMB/Ton
Gasoline	2,109.76
Diesel	1,411.20
Naphtha	2,105.20
Solvent oil	1,948.64
Lubricant oil	1,711.52
Fuel oil	1,218.00
Jet fuel oil	1,495.20

(ii) City construction tax is levied on an entity based on its total paid amount of value-added tax and consumption tax.

8 OTHER OPERATING EXPENSE, NET

	2020	2019
	RMB million	RMB million
Government grants (i)	8,775	6,933
Ineffective portion of change in fair value of cash flow hedges	3,052	(222)
Net realised and unrealised loss on derivative financial instruments not qualified as hedging	(1,252)	(4,384)
Impairment losses on long-lived assets (ii)	(14,560)	(345)
Gain/(loss) on disposal of property, plant, equipment and other non-current assets, net	398	(1,829)
Fines, penalties and compensations	(43)	(173)
Donations	(301)	(210)
Others	(1,781)	(116)
	(5,712)	(346)

Notes:

(i) Government grants for the years ended 31 December 2020 and 2019 primarily represent financial appropriation income and non-income tax refunds received from respective government agencies without conditions or other contingencies attached to the receipts of the grants.

(ii) Impairment losses on long-lived assets for the year ended 31 December 2020 primarily represent impairment losses recognised in the exploration and production ("E&P") segment of RMB 8,495 million (2019: RMB 3 million), the chemicals segment of RMB 3,606 million (2019: RMB 17 million), the refining segment of RMB 1,923 million (2019: RMB 245 million), and the marketing and distribution segment of RMB 536 million (2019: RMB 80 million). The impairment losses in the E&P segment were mainly the impairment losses of properties, plant and equipment relating to oil and gas producing activities. The primary factors resulting in the E&P segment impairment loss were low oil price outlook and downward revision of oil and gas reserve in certain fields. E&P segment determines recoverable amounts of properties, plant and equipment relating to oil and gas producing activities, which include significant judgments and assumptions. The recoverable amounts were determined based on the present values of the expected future cash flows of the assets using a pre-tax discount rate 10.47% (2019: 10.47%). Further future downward revisions to the Group's oil price outlook would lead to further impairments which, in aggregate, are likely to be material. It is estimated that a general decrease of 5% in oil price, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 4,548 million (2019: RMB 184 million). It is estimated that a general increase of 5% in operating cost, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 2,836 million (2019: RMB 180 million). It is estimated that a general increase of 5% in discount rate, with all other variables held constant, would result in additional impairment loss on the Group's properties, plant and equipment relating to oil and gas producing activities by approximately RMB 287 million (2019: RMB 7 million).The assets in the chemicals segment were written down because evidence indicates the economic performance of certain production facilities are worse than expected.

9 INTEREST EXPENSE

	2020	2019
	RMB million	RMB million
Interest expense incurred	6,513	7,039
Less: Interest expense capitalised*	(2,011)	(1,015)
	4,502	6,024
Interest expense on lease liabilities	9,349	9,646
Accretion expenses (Note 35)	1,343	1,418
Interest expense	15,194	17,088
* Interest rates per annum at which borrowing costs were capitalised for construction in progress	2.60% to 4.66%	2.92% to 4.66%

10 INVESTMENT INCOME

	2020	2019
	RMB million	RMB million
Investment income from disposal of business and long-term equity investments (i)	37,525	185
Dividend income from holding of other equity instrument investments	156	492
Others	63	242
	37,744	919

Note:

(i) The Company and Sinomart KTS Development Limited, Sinopec Natural Gas Limited Company and Sinopec Marketing Company Limited ("Marketing Company"), the subsidiaries of the Company entered into the Agreement on Cash Payment to Purchase Equity in Sinopec Yu Ji Pipeline Company Limited, the Agreement on Additional Issuance of Equity and Cash Payment to Purchase Assets, the Agreement on Cash Payment to Purchase Assets and the Agreement on Additional Issuance of Equity to Purchase Assets with China Oil & Gas Pipeline Network Corporation ("PipeChina"), on 21 July 2020 and on 23 July 2020 respectively, pursuant to which the Company and its subsidiaries proposed to dispose target business, including equity interests in the relevant companies, oil and gas pipeline and ancillary facilities, to PipeChina. The above transactions were considered and approved by the 15th Session of 7th Directorate Meeting on 23 July 2020 and the second Extraordinary General Meeting on 28 September 2020. The transaction consideration was mainly additional issuance of equity and/or cash payment by PipeChina and the gain on above transactions was RMB 37,731 million. Main assets and liabilities of disposed target business are as follows:

	30 September 2020
	RMB million
Property, plant and equipment, net	83,510
Construction in progress	19,843
Interest in associates	26,412
Inventories	8,191
Long-term debts and Loans from Sinopec Group Company and fellow subsidiaries	(41,800)
Other financial statement items	(9,035)
Net Assets	87,121

11 INCOME TAX EXPENSE

Income tax expense in the consolidated income statement represents:

	2020	2019
	RMB million	RMB million
Current tax
- Provision for the year	14,209	15,021
- Adjustment of prior years	(117)	(467)
Deferred taxation (Note 29)	(7,873)	3,385
	6,219	17,939

Reconciliation between actual income tax expense and the expected income tax expense at applicable statutory tax rates is as follows:

	2020	2019
	RMB million	RMB million
Profit before taxation	48,143	90,022
Expected PRC income tax expense at a statutory tax rate of 25%	12,036	22,506
Tax effect of non-deductible expenses	3,274	2,321
Tax effect of non-taxable income (i)	(8,330)	(4,458)
Tax effect of preferential tax rate (ii)	(1,011)	(2,003)
Effect of income taxes at foreign operations	(730)	(312)
Tax effect of utilisation of previously unrecognised tax losses and temporary differences	(65)	(335)
Tax effect of tax losses not recognised	1,087	498
Write-down of deferred tax assets	75	189
Adjustment of prior years	(117)	(467)
Actual income tax expense	6,219	17,939

Notes:

(i) For the year ended 31 December 2020, the tax effect of non-taxable income includes the tax exempt investment income of joint ventures and associates and the tax exempt part of the gain related to the disposal of oil and gas pipeline and ancillary facilities.

(ii) The provision for PRC current income tax is based on a statutory income tax rate of 25% of the assessable income of the Group as determined in accordance with the relevant income tax rules and regulations of the PRC, except for certain entities of the Group in western regions in the PRC are taxed at preferential income tax rate of 15% through the year 2020. According to Announcement [2020] No. 23 of the MOF "Announcement of the MOF, the State Taxation Administration and the National Development and Reform Commission on continuation of the income tax policy of western development enterprises", the preferential tax rate of 15% extends from 1 January 2021 to 31 December 2030.

12 DIRECTORS' AND SUPERVISORS' EMOLUMENTS

(a) Directors' and supervisors' emoluments

The emoluments of every director and supervisor is set out below:

	Emoluments paid or receivable in respect of director's other services in connection with the management of the affairs of the Company or its subsidiary undertaking			Emoluments paid or receivable in respect of a person's services as a director, whether of the Company or its subsidiary undertaking
	2020
Name	Salaries, allowances and benefits in kind	Bonuses	Retirement scheme contributions	Directors'/ Supervisors' fee	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Directors
Zhang Yuzhuo (i)	-	-	-	-	-
Ma Yongsheng	299	620	94	-	1,013
Yu Baocai	-	-	-	-	-
Liu Hongbin (ii)	-	-	-	-	-
Ling Yiqun	-	-	-	-	-
Zhang Shaofeng (iii)	-	-	-	-	-
Dai Houliang (iv)	-	-	-	-	-
Li Yunpeng (v)	-	-	-	-	-
Li Yong (vi)	-	-	-	-	-
Independent non-executive directors
Tang Min	-	-	-	350	350
Cai Hongbin	-	-	-	350	350
Johnny Karling Ng	-	-	-	350	350
Fan Gang (vii)	-	-	-	-	-
Supervisors
Zhao Dong	-	-	-	-	-
Jiang Zhenying	366	710	83	-	1,159
Zou Huiping	272	555	59	-	886
Sun Huanquan (viii)	247	160	60	-	467
Yu Renming	-	-	-	-	-
Li Defang (viii)	-	-	-	-	-
Yu Xizhi (ix)	125	613	23	-	761
Zhou Hengyou (ix)	125	611	23	-	759
Yang Changjiang (x)	-	-	-	-	-
Zhang Baolong (x)	-	-	-	-	-
Total	1,434	3,269	342	1,050	6,095

12 DIRECTORS' AND SUPERVISORS' EMOLUMENTS (Continued)

(a) Directors' and supervisors' emoluments (Continued)

The emoluments of every director and supervisor is set out below: (Continued)

	Emoluments paid or receivable in respect of director's other services in connection with the management of the affairs of the Company or its subsidiary undertaking			Emoluments paid or receivable in respect of a person's services as a director, whether of the Company or its subsidiary undertaking
	2019
Name	Salaries, allowances and benefits in kind	Bonuses	Retirement scheme contributions	Directors'/ Supervisors' fee	Total
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Directors
Dai Houliang (iv)	-	-	-	-	-
Ma Yongsheng	294	1,173	96	-	1,563
Li Yunpeng (v)	-	-	-	-	-
Yu Baocai	-	-	-	-	-
Ling Yiqun	-	-	-	-	-
Liu Zhongyun (xi)	-	-	-	-	-
Li Yong (vi)	-	-	-	-	-
Independent non-executive directors
Tang Min	-	-	-	350	350
Fan Gang (vii)	-	-	-	350	350
Cai Hongbin	-	-	-	350	350
Johnny Karling Ng	-	-	-	350	350
Supervisors
Zhao Dong	-	-	-	-	-
Jiang Zhenying	369	865	88	-	1,322
Yang Changjiang (x)	-	-	-	-	-
Zhang Baolong (x)	-	-	-	-	-
Zou Huiping	369	989	88	-	1,446
Yu Xizhi (ix)	369	880	88	-	1,337
Zhou Hengyou (ix)	369	874	88	-	1,331
Yu Renming	369	889	88	-	1,346
Total	2,139	5,670	536	1,400	9,745

Notes:

(i) Mr. Zhang Yuzhuo was elected to be chairman and non-executive director from 25 March 2020.

(ii) Mr. Liu Hongbin was elected to be executive director from 19 May 2020.

(iii) Mr. Zhang Shaofeng was elected to be non-executive director from 28 September 2020.

(iv) Mr. Dai Houliang ceased being chairman and non-executive director from 19 January 2020.

(v) Mr. Li Yunpeng ceased being non-executive director from 24 March 2020.

(vi) Mr. Li Yong ceased being non-executive director from 22 September 2020.

(vii) Mr. Fan Gang ceased being independent non-executive director from 28 August 2020.

(viii) Mr. Sun Huanquan was elected to be supervisor from 18 May 2020; Mr. Li Defang was elected to be supervisor from 18 May 2020.

(ix) Mr. Yu Xizhi ceased being supervisor from 18 May 2020; Mr. Zhou Hengyou ceased being supervisor from 18 May 2020.

(x) Mr. Yang Changjiang ceased being supervisor from 9 September 2020; Mr. Zhang Baolong ceased being supervisor from 9 September 2020.

(xi) Due to change of working arrangement, Mr. Liu Zhongyun has tendered his resignation as executive director, member of Strategy Committee of the Board and Senior Vice President of the Company from 9 December 2019.

13 SENIOR MANAGEMENT'S EMOLUMENTS

For the year ended 31 December 2020, the five highest paid individuals in the Company included one supervisor and four senior management. The emolument paid to each of one supervisor and four senior management was above RMB 1,000 thousand. The total salaries, wages and other benefits was RMB 6,378 thousand, and the total amount of their retirement scheme contributions was RMB 339 thousand. For the year ended 31 December 2019, the five highest paid individuals in the Company included one director and four senior management.

	Number of individuals
	2020	2019
Emoluments
HKD1,000,001 to HKD1,500,000	3	-
HKD1,500,001 to HKD2,000,000	2	5

During 2020 and 2019, the Company did not incur any emoluments paid or receivable in respect of a person accepting office as a director, or any payments to any director for loss of office.

14 DIVIDENDS

Dividends payable to shareholders of the Company attributable to the year represent:

	2020	2019
	RMB million	RMB million
Dividends declared and paid during the year of RMB 0.07 per share (2019: RMB 0.12 per share)	8,475	14,529
Dividends declared after the balance sheet date of RMB 0.13 per share (2019: RMB 0.19 per share)	15,739	23,004
	24,214	37,533

Pursuant to the shareholders' approval at the General Meeting on 28 September 2020, the interim dividends for the year ending 31 December 2020 of RMB 0.07 (2019: RMB 0.12) per share totaling RMB 8,475 million (2019: RMB 14,529 million) were approved. Dividends were paid on 23 October 2020.

Pursuant to a resolution passed at the director's meeting on 26 March 2021, final dividends in respect of the year ended 31 December 2020 of RMB 0.13 (2019: RMB 0.19) per share totaling RMB 15,739 million (2019: RMB 23,004 million) were proposed for shareholders' approval at the Annual General Meeting. Final cash dividend proposed after the balance sheet date has not been recognised as a liability at the balance sheet date.

Dividends payable to shareholders of the Company attributable to the previous financial year, approved during the year represent:

	2020	2019
	RMB million	RMB million
Final cash dividends in respect of the previous financial year, approved during the year of RMB 0.19 per share (2019: RMB 0.26 per share)	23,004	31,479

Pursuant to the shareholders' approval at the Annual General Meeting on 19 May 2020, a final dividend of RMB 0.19 per share totaling RMB 23,004 million according to total shares on 9 June 2020 was approved. All dividends have been paid in the year ended 31 December 2020.

Pursuant to the shareholders' approval at the Annual General Meeting on 9 May 2019, a final dividend of RMB 0.26 per share totaling RMB 31,479 million according to total shares on 10 June 2019 was approved. All dividends have been paid in the year ended 31 December 2019.

15 OTHER COMPREHENSIVE INCOME

	2020			2019
	Before tax	Tax	Net of tax	Before tax	Tax	Net of tax
	amount	effect	amount	amount	effect	amount
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Cash flow hedges:
Effective portion of changes in fair value of hedging instruments recognised during the year	9,207	(2,295)	6,912	5,258	(974)	4,284
Reclassification adjustments for amounts transferred to the consolidated income statement	198	(37)	161	853	(196)	657
Net movement during the year recognised in other comprehensive income (i)	9,405	(2,332)	7,073	6,111	(1,170)	4,941
Changes in the fair value of instruments at fair value through other comprehensive income	(6)	(4)	(10)	(39)	8	(31)
Transfer of loss on disposal of equity investments at fair value through other comprehensive income to retained earnings	(12)	-	(12)	-	-	-
Net movement during the year recognised in other comprehensive income	(18)	(4)	(22)	(39)	8	(31)
Fair value hedges	162	-	162	-	-	-
Share of other comprehensive loss of associates and joint ventures	(2,441)	-	(2,441)	(810)	-	(810)
Foreign currency translation differences	(4,457)	-	(4,457)	1,480	-	1,480
Other comprehensive income	2,651	(2,336)	315	6,742	(1,162)	5,580

Note:

(i) As at 31 December 2020, cash flow hedge reserve amounted to a gain of RMB 8,176 million (31 December 2019: a gain of RMB 1,102 million), of which a gain of RMB 7,805 million was attributable to shareholders of the Company (31 December 2019: a gain of RMB 1,037 million).

16 BASIC AND DILUTED EARNINGS PER SHARE

The calculation of basic earnings per share for the year ended 31 December 2020 is based on the profit attributable to ordinary shareholders of the Company of RMB 33,096 million (2019: RMB 57,493 million) and the weighted average number of shares of 121,071,209,646 (2019: 121,071,209,646) during the year.

The calculation of diluted earnings per share for the year ended 31 December 2020 is based on the profit attributable to ordinary shareholders of the Company (diluted) of RMB 33,096 million (2019: RMB 57,493 million) and the weighted average number of shares of 121,071,209,646 (2019: 121,071,209,646) calculated as follows:

(i) Profit attributable to ordinary shareholders of the Company (diluted)

	2020	2019
	RMB million	RMB million
Profit attributable to ordinary shareholders of the Company	33,096	57,493
Profit attributable to ordinary shareholders of the Company (diluted)	33,096	57,493

(ii) Weighted average number of shares (diluted)

	2020	2019
	Number of shares	Number of shares
Weighted average number of shares at 31 December	121,071,209,646	121,071,209,646
Weighted average number of shares (diluted) at 31 December	121,071,209,646	121,071,209,646

17 PROPERTY, PLANT AND EQUIPMENT

			Equipment,
	Plants and	Oil and gas,	machinery
	buildings	properties	and others	Total
	RMB million	RMB million	RMB million	RMB million
Cost:
Balance at 1 January 2019	123,946	695,724	973,688	1,793,358
Additions	159	1,408	3,993	5,560
Transferred from construction in progress	6,261	31,378	54,684	92,323
Reclassifications	1,051	(76)	(975)	-
Invest into the joint ventures and associated companies	(8)	-	(303)	(311)
Reclassification to other long-term assets	(748)	-	(729)	(1,477)
Disposals	(469)	(1,549)	(13,635)	(15,653)
Exchange adjustments	42	667	71	780
Balance at 31 December 2019	130,234	727,552	1,016,794	1,874,580
Balance at 1 January 2020	130,234	727,552	1,016,794	1,874,580
Additions	390	1,563	5,147	7,100
Transferred from construction in progress	10,848	32,214	98,095	141,157
Reclassifications	1,443	(125)	(1,318)	-
Invest into the joint ventures and associated companies	-	-	(115)	(115)
Reclassification to other long-term assets	(38)	-	(1,052)	(1,090)
Disposals (i)	(6,291)	(806)	(131,231)	(138,328)
Exchange adjustments	(141)	(2,806)	(226)	(3,173)
Balance at 31 December 2020	136,445	757,592	986,094	1,880,131
Accumulated depreciation:
Balance at 1 January 2019	56,242	550,288	565,830	1,172,360
Depreciation for the year	4,144	36,289	47,902	88,335
Impairment losses for the year	11	-	185	196
Reclassifications	292	(46)	(246)	-
Invest into the joint ventures and associated companies	-	-	(216)	(216)
Reclassification to other long-term assets	3	-	(94)	(91)
Written back on disposals	(854)	(6)	(11,564)	(12,424)
Exchange adjustments	21	667	40	728
Balance at 31 December 2019	59,859	587,192	601,837	1,248,888
Balance at 1 January 2020	59,859	587,192	601,837	1,248,888
Depreciation for the year	4,628	32,054	48,380	85,062
Impairment losses for the year	683	4,739	6,292	11,714
Reclassifications	393	(98)	(295)	-
Invest into the joint ventures and associated companies	-	-	(54)	(54)
Reclassification to other long-term assets	(8)	-	(161)	(169)
Written back on disposals (i)	(3,209)	(464)	(47,994)	(51,667)
Exchange adjustments	(49)	(2,703)	(138)	(2,890)
Balance at 31 December 2020	62,297	620,720	607,867	1,290,884
Net book value:
Balance at 1 January 2019	67,704	145,436	407,858	620,998
Balance at 31 December 2019	70,375	140,360	414,957	625,692
Balance at 31 December 2020	74,148	136,872	378,227	589,247

(i) Disposals for the year ended 31 December 2020 mainly due to the Company and its subsidiaries disposed their oil and gas pipeline and ancillary facilities to PipeChina.

The additions to oil and gas properties of the Group for the year ended 31 December 2020 included RMB 1,563 million (2019: RMB 1,408 million) of estimated dismantlement costs for site restoration (Note 35).

At 31 December 2020 and 31 December 2019, the Group had no individual substantial property, plant and equipment which had been pledged.

At 31 December 2020 and 31 December 2019, the Group had no individual significant property, plant and equipment which were temporarily idle or pending for disposal.

At 31 December 2020 and 31 December 2019, the Group had no individual significant fully depreciated property, plant and equipment which were still in use.

18 CONSTRUCTION IN PROGRESS

	2020	2019
	RMB million	RMB million
Balance at 1 January	173,872	137,449
Additions	130,283	144,751
Dry hole costs written off	(5,928)	(5,831)
Transferred to property, plant and equipment	(141,157)	(92,323)
Reclassification to other long-term assets	(11,464)	(10,086)
Impairment losses for the year	(844)	(135)
Disposals and others	(19,944)	46
Exchange adjustments	(53)	1
Balance at 31 December	124,765	173,872

As at 31 December 2020, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB 11,129 million (2019: RMB 8,961 million). The geological and geophysical costs paid during the year ended 31 December 2020 were RMB 3,166 million (2019: RMB 4,024 million).

19 RIGHT-OF-USE ASSETS

	Land	Others	Total
	RMB million	RMB million	RMB million
Cost
Balance at 1 January 2019	244,595	27,381	271,976
Additions	8,737	7,555	16,292
Decreases	(4,766)	(748)	(5,514)
Balance at 31 December 2019	248,566	34,188	282,754
Balance at 1 January 2020	248,566	34,188	282,754
Additions	13,983	10,222	24,205
Decreases	(9,405)	(3,142)	(12,547)
Balance at 31 December 2020	253,144	41,268	294,412
Accumulated depreciation
Balance at 1 January 2019	-	-	-
Additions	9,246	5,728	14,974
Decreases	(131)	(26)	(157)
Balance at 31 December 2019	9,115	5,702	14,817
Balance at 1 January 2020	9,115	5,702	14,817
Additions	9,247	6,354	15,601
Decreases	(799)	(1,575)	(2,374)
Balance at 31 December 2020	17,563	10,481	28,044
Impairment loss
Balance at 1 January 2019	-	-	-
Additions	-	-	-
Decreases	-	-	-
Balance at 31 December 2019	-	-	-
Balance at 1 January 2020	-	-	-
Additions	-	-	-
Decreases	-	-	-
Balance at 31 December 2020	-	-	-
Net book value
Balance at 1 January 2019	244,595	27,381	271,976
Balance at 31 December 2019	239,451	28,486	267,937
Balance at 31 December 2020	235,581	30,787	266,368

20 GOODWILL

	31 December	31 December
	2020	2019
	RMB million	RMB million
Cost	16,481	16,558
Less: Accumulated impairment losses	(7,861)	(7,861)
	8,620	8,697

Impairment tests for cash-generating units containing goodwill

Goodwill is allocated to the following Group's cash-generating units:

	Principal activities	31 December	31 December
	Principal activities	2020	2019
		RMB million	RMB million
Sinopec Zhenhai Refining and Chemical Branch	Manufacturing of intermediate petrochemical products and petroleum products	4,043	4,043
Shanghai SECCO Petrochemical Company Limited ("Shanghai SECCO")	Production and sale of petrochemical products	2,541	2,541
Sinopec Beijing Yanshan Petrochemical Branch	Manufacturing of intermediate petrochemical products and petroleum products	1,004	1,004
Other units without individually significant goodwill		1,032	1,109
		8,620	8,697

Goodwill represents the excess of the cost of purchase over the fair value of the underlying assets and liabilities. The recoverable amounts of the above cash generating units are determined based on value in use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a one-year period and pre-tax discount rates primarily ranging from 11.4% to 13.4% (2019: 11.0% to 11.9%). Cash flows beyond the one-year period are maintained constant. Based on the estimated recoverable amount, no major impairment loss was recognised.

Key assumptions used for cash flow forecasts for these entities are the gross margin and sales volume. Management determined the budgeted gross margin based on the gross margin achieved in the period immediately before the budget period and management's expectation on the future trend of the prices of crude oil and petrochemical products. The sales volume was based on the production capacity and/or the sales volume in the period immediately before the budget period.

21 INTEREST IN ASSOCIATES

The Group's investments in associates are with companies primarily engaged in the oil and gas, petrochemical, and marketing and distribution operations in the PRC.

The Group's principal associates are as follows:

Name of company	% of ownership interests	Principal activities	Measurement method	Country of incorporation	Principal place of business
PipeChina (i)	14.00	Operation of oil and natural gas pipeline and auxiliary facilities	Equity method	PRC	PRC
Sinopec Finance Company Limited ("Sinopec Finance")	49.00	Provision of non-banking financial services	Equity method	PRC	PRC
PAO SIBUR Holding ("SIBUR") (ii)	10.00	Processing natural gas and manufacturing petrochemical products	Equity method	Russia	Russia
Zhongtian Synergetic Energy Company Limited ("Zhongtian Synergetic Energy")	38.75	Mining coal and manufacturing of coal-chemical products	Equity method	PRC	PRC
Caspian Investments Resources Ltd. ("CIR")	50.00	Crude oil and natural gas extraction	Equity method	British Virgin Islands	The Republic of Kazakhstan

21 INTEREST IN ASSOCIATES (Continued)

Summarised financial information and reconciliation to their carrying amounts in respect of the Group's principal associates:

	PipeChina	Sinopec Finance		SIBUR		Zhongtian Synergetic Energy		CIR
	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December
	2020	2020	2019	2020	2019	2020	2019	2020	2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Current assets	74,012	175,139	180,383	30,678	31,634	3,721	4,219	2,402	7,612
Non-current assets	655,982	53,008	18,926	147,140	182,646	53,124	56,424	903	971
Current liabilities	(55,562)	(197,872)	(170,621)	(31,157)	(31,295)	(8,315)	(13,887)	(699)	(936)
Non-current liabilities	(104,150)	(514)	(582)	(58,941)	(71,289)	(28,422)	(26,227)	(286)	(166)
Net assets	570,282	29,761	28,106	87,720	111,696	20,108	20,529	2,320	7,481
Net assets attributable to owners of the Company	505,336	29,761	28,106	87,280	111,250	20,108	20,529	2,320	7,481
Net assets attributable to non-controlling interests	64,946	-	-	440	446	-	-	-	-
Share of net assets from associates	70,747	14,583	13,772	8,728	11,125	7,792	7,955	1,160	3,741
Carrying Amounts	70,747	14,583	13,772	8,728	11,125	7,792	7,955	1,160	3,741

Summarised statement of comprehensive income

Year ended 31 December	PipeChina (iii)	Sinopec Finance		SIBUR		Zhongtian Synergetic Energy		CIR
	2020	2020	2019	2020	2019	2020	2019	2020	2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	22,766	4,742	4,966	49,793	56,706	11,707	13,329	1,252	2,334
Profit/(loss) for the year	6,444	2,027	2,234	(1,936)	6,513	551	1,994	181	424
Other comprehensive (loss)/income	-	(372)	411	(19,180)	(1,435)	-	-	(308)	151
Total comprehensive income/(loss)	6,444	1,655	2,645	(21,116)	5,078	551	1,994	(127)	575
Dividends declared by associates	-	-	-	285	468	284	219	2,517	-
Share of profit/(loss) from associates	709	993	1,095	(194)	651	214	773	91	212
Share of other comprehensive (loss)/income from associates (iv)	-	(182)	201	(1,918)	(144)	-	-	(154)	76

The share of profit and other comprehensive income for the year ended 31 December 2020 in all individually immaterial associates accounted for using equity method in aggregate was RMB 4,264 million (2019: RMB 5,661 million) and RMB 817 million (2019: other comprehensive loss RMB 155 million) respectively. As at 31 December 2020, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB 33,153 million (2019: RMB 59,144 million).

Notes:

(i) The Group has a member in the Board of Directors of PipeChina. According to the structure and the resolution mechanism of the Board of Directors, the Group can exercise significant influence on PipeChina.

(ii) Sinopec is able to exercise significant influence in SIBUR since Sinopec has a member in SIBUR's Board of Directors and has a member in SIBUR's Management Board.

(iii) The summarised statement of comprehensive income for the year 2020 presents the operating results from the date when the Group can exercise significant influence on PipeChina to 31 December 2020.

(iv) Including foreign currency translation differences.

22 INTEREST IN JOINT VENTURES

The Group's principal interests in joint ventures are as follows:

Name of entity	% of ownership interests	Principal activities	Measurement method	Country of incorporation	Principal place of business
Fujian Refining & Petrochemical Company Limited ("FREP")	50.00	Manufacturing refining oil products	Equity method	PRC	PRC
BASF-YPC Company Limited ("BASF-YPC")	40.00	Manufacturing and distribution of petrochemical products	Equity method	PRC	PRC
Taihu Limited ("Taihu")	49.00	Crude oil and natural gas extraction	Equity method	Cyprus	Russia
Yanbu Aramco Sinopec Refining Company Ltd. ("YASREF")	37.50	Petroleum refining and processing business	Equity method	Saudi Arabia	Saudi Arabia
Sinopec SABIC Tianjin Petrochemical Company Limited ("Sinopec SABIC Tianjin")	50.00	Manufacturing and distribution of petrochemical products	Equity method	PRC	PRC

Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group's principal joint ventures:

	FREP		BASF-YPC		Taihu		YASREF		Sinopec SABIC Tianjin
	31 December 2020	31 December 2019	31 December 2020	31 December 2019	31 December 2020	31 December 2019	31 December 2020	31 December 2019	31 December 2020	31 December 2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Current assets
Cash and cash equivalents	7,448	5,603	1,838	1,154	1,280	4,485	1,408	733	5,259	3,242
Other current assets	7,492	11,977	4,777	4,937	1,223	2,336	7,516	11,311	2,665	4,501
Total current assets	14,940	17,580	6,615	6,091	2,503	6,821	8,924	12,044	7,924	7,743
Non-current assets	15,237	17,267	9,993	10,498	12,531	10,453	45,413	50,548	18,258	14,878
Current liabilities
Current financial liabilities	(1,203)	(1,280)	(456)	(237)	(38)	(57)	(9,520)	(7,445)	(998)	(500)
Other current liabilities	(5,147)	(7,090)	(2,190)	(1,808)	(1,043)	(1,815)	(8,644)	(12,504)	(3,052)	(2,896)
Total current liabilities	(6,350)	(8,370)	(2,646)	(2,045)	(1,081)	(1,872)	(18,164)	(19,949)	(4,050)	(3,396)
Non-current liabilities
Non-current financial liabilities	(8,761)	(11,185)	-	-	(85)	(125)	(29,650)	(29,445)	(6,773)	(4,592)
Other non-current liabilities	(235)	(290)	(42)	(35)	(2,017)	(1,984)	(2,008)	(1,963)	(378)	(368)
Total non-current liabilities	(8,996)	(11,475)	(42)	(35)	(2,102)	(2,109)	(31,658)	(31,408)	(7,151)	(4,960)
Net assets	14,831	15,002	13,920	14,509	11,851	13,293	4,515	11,235	14,981	14,265
Net assets attributable to owners of the company	14,831	15,002	13,920	14,509	11,439	12,829	4,515	11,235	14,981	14,265
Net assets attributable to non-controlling interests	-	-	-	-	412	464	-	-	-	-
Share of net assets from joint ventures	7,416	7,501	5,568	5,804	5,605	6,286	-	4,213	7,491	7,133
Carrying Amounts	7,416	7,501	5,568	5,804	5,605	6,286	-	4,213	7,491	7,133

Summarised statement of comprehensive income

Year ended 31 December	FREP		BASF-YPC		Taihu		YASREF		Sinopec SABIC Tianjin
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	38,691	57,047	15,701	19,590	9,528	15,222	37,337	75,940	14,881	20,541
Depreciation, depletion and amortisation	(2,222)	(2,541)	(1,244)	(1,474)	(541)	(629)	(3,140)	(3,048)	(1,085)	(1,094)
Interest income	118	124	27	32	291	94	17	58	183	171
Interest expense	(535)	(597)	(16)	(26)	(20)	(265)	(1,136)	(1,470)	(131)	(134)
Profit/(loss) before taxation	520	964	1,518	2,314	2,304	3,320	(7,193)	(1,292)	954	2,178
Tax expense	(87)	(197)	(379)	(579)	(378)	(708)	1,057	(8)	(236)	(533)
Profit/(loss) for the year	433	767	1,139	1,735	1,926	2,612	(6,136)	(1,300)	718	1,645
Other comprehensive loss	-	-	-	-	(3,368)	(1,105)	(584)	(261)	-	-
Total comprehensive income/(loss)	433	767	1,139	1,735	(1,442)	1,507	(6,720)	(1,561)	718	1,645
Dividends declared by joint ventures	300	1,400	691	1,224	-	-	-	-	-	1,750
Share of net profit/(loss) from joint ventures	217	384	456	694	911	1,235	(2,301)	(488)	359	823
Share of other comprehensive loss from joint ventures (i)	-	-	-	-	(1,593)	(522)	(219)	(98)	-	-

The share of profit and other comprehensive income for the year ended 31 December 2020 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 993 million (2019: RMB 1,737 million) and RMB 808 million (2019: other comprehensive loss RMB 168 million) respectively. As at 31 December 2020, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB 26,099 million (2019: RMB 25,530 million).

Note:

(i) Including foreign currency translation differences.

23 LONG-TERM PREPAYMENTS AND OTHER ASSETS

	31 December	31 December
	2020	2019
	RMB million	RMB million
Operating rights of service stations	31,856	34,013
Long-term receivables from and prepayment to Sinopec Group Company and fellow subsidiaries	2,801	1,562
Prepayments for construction projects to third parties	5,861	3,926
Others (i)	33,971	25,936
	74,489	65,437

Note:

(i) Others mainly comprise time deposits with terms of three years, catalyst expenditures and improvement expenditures of property, plant and equipment.

The cost of operating rights of service stations is charged to expense on a straight-line basis over the respective periods of the rights. The movement of operating rights of service stations is as follows:

	2020	2019
	RMB million	RMB million
Operating rights of service stations
Cost:
Balance at 1 January	53,549	52,216
Additions	493	1,494
Decreases	(475)	(161)
Balance at 31 December	53,567	53,549
Accumulated amortisation:
Balance at 1 January	19,536	17,282
Additions	2,365	2,357
Decreases	(190)	(103)
Balance at 31 December	21,711	19,536
Net book value at 31 December	31,856	34,013

24 DERIVATIVE FINANCIAL ASSETS AND DERIVATIVE FINANCIAL LIABILITIES

Derivative financial assets and derivative financial liabilities of the Group are primarily commodity futures and swaps contracts. See Note 43.

25 TRADE ACCOUNTS RECEIVABLE

	31 December	31 December
	2020	2019
	RMB million	RMB million
Amounts due from third parties	22,536	43,735
Amounts due from Sinopec Group Company and fellow subsidiaries	12,120	6,062
Amounts due from associates and joint ventures	4,791	6,426
	39,447	56,223
Less: Impairment losses for bad and doubtful debts	(3,860)	(1,848)
	35,587	54,375

The ageing analysis of trade accounts receivable (net of impairment losses for bad and doubtful debts) is as follows:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Within one year	34,509	54,027
Between one and two years	931	190
Between two and three years	64	64
Over three years	83	94
	35,587	54,375

Impairment losses for bad and doubtful debts are analysed as follows:

	2020	2019
	RMB million	RMB million
Balance at 1 January	1,848	606
Provision for the year	2,173	1,566
Written back for the year	(68)	(283)
Written off for the year	(23)	(41)
Others	(70)	-
Balance at 31 December	3,860	1,848

25 TRADE ACCOUNTS RECEIVABLE (Continued)

Sales are generally on a cash term. Credit is generally only available for major customers with well-established trading records. Amounts due from Sinopec Group Company and fellow subsidiaries are repayable under the same terms.

Trade accounts receivable (net of impairment losses for bad and doubtful debts) primarily represent receivables that are neither past due nor impaired. These receivables relate to a wide range of customers for whom there is no recent history of default.

Information about the impairment of trade accounts receivable and the Group's exposure to credit risk can be found in Note 43.

26 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

	31 December	31 December
	2020	2019
	RMB million	RMB million
Non-current assets
Unlisted equity instruments	1,376	1,431
Listed equity instruments	149	90
Current assets
Trade accounts receivable and bills receivable (i)	8,735	8,661
	10,260	10,182

Note:

(i) As at 31 December 2020 and 2019, bills receivable and certain trade accounts receivable were classified as financial assets at FVOCI, as the Group's business model is achieved both by collecting contractual cash flows and selling of these assets.

27 INVENTORIES

	31 December	31 December
	2020	2019
	RMB million	RMB million
Crude oil and other raw materials	60,155	89,908
Work in progress	13,053	12,687
Finished goods	78,415	91,554
Spare parts and consumables	3,372	2,578
	154,995	196,727
Less: Allowance for diminution in value of inventories	(3,100)	(2,585)
	151,895	194,142

The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB 1,659,355 million for the year ended 31 December 2020 (2019: RMB 2,441,380 million). It includes the write-down of inventories of RMB 11,689 million mainly related to crude oil and finished goods (2019: RMB 1,616 million mainly related to finished goods).

28 PREPAID EXPENSES AND OTHER CURRENT ASSETS

	31 December	31 December
	2020	2019
	RMB million	RMB million
Receivables	34,974	25,669
Advances to suppliers	4,862	5,063
Value-added input tax to be deducted	18,625	25,313
Prepaid income tax	131	1,879
	58,592	57,924

29 DEFERRED TAX ASSETS AND LIABILITIES

Deferred tax assets and liabilities before offset are attributable to the items detailed in the table below:

	Deferred tax assets		Deferred tax liabilities
	31 December	31 December	31 December	31 December
	2020	2019	2020	2019
	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	2,411	2,546	-	-
Payables	1,286	1,142	-	-
Cash flow hedges	1,790	116	(4,420)	(384)
Property, plant and equipment	15,793	16,463	(13,415)	(12,317)
Tax losses carried forward	13,322	3,594	-	-
Financial assets at fair value through other comprehensive income	127	131	(11)	(7)
Intangible assets	869	595	(517)	(508)
Others	371	318	(676)	(882)
Deferred tax assets/(liabilities)	35,969	24,905	(19,039)	(14,098)

The consolidated elimination amount between deferred tax assets and liabilities are as follows:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Deferred tax assets	10,915	7,289
Deferred tax liabilities	10,915	7,289

Deferred tax assets and liabilities after the consolidated elimination adjustments are as follows:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Deferred tax assets	25,054	17,616
Deferred tax liabilities	8,124	6,809

As at 31 December 2020, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB 17,718 million (2019: RMB 16,605 million), of which RMB 4,349 million (2019: RMB 1,992 million) was incurred for the year ended 31 December 2020, because it was not probable that the future taxable profits will be realised. These deductible losses carried forward of RMB 3,089 million, RMB 5,938 million, RMB 2,356 million, RMB 1,986 million and RMB 4,349 million will expire in 2021, 2022, 2023, 2024, 2025 and after, respectively.

Periodically, management performed assessment on the probability that future taxable profit will be available over the period which the deferred tax assets can be realised or utilised. In assessing the probability, both positive and negative evidence was considered, including whether it is probable that the operations will have sufficient future taxable profits over the periods which the deferred tax assets are deductible or utilised and whether the tax losses result from identifiable causes which are unlikely to recur. During the year ended 31 December 2020, write-down of deferred tax assets amounted to RMB 75 million (2019: RMB 189 million) (Note 11).

29 DEFERRED TAX ASSETS AND LIABILITIES (Continued)

Movements in the deferred tax assets and liabilities are as follows:

	Balance at 1 January 2019	Recognised in consolidated income statement	Recognised in other comprehensive income	Others	Transferred from reserve	Balance at 31 December 2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	2,563	(17)	-	-	-	2,546
Payables	1,808	(667)	-	1	-	1,142
Cash flow hedges	1,104	73	(1,195)	-	(250)	(268)
Property, plant and equipment	6,761	(2,575)	(39)	(1)	-	4,146
Tax losses carried forward	3,709	(151)	38	(2)	-	3,594
Financial assets at fair value through other comprehensive income	116	-	8	-	-	124
Intangible assets	(61)	148	-	-	-	87
Others	(254)	(196)	(49)	(65)	-	(564)
Net deferred tax assets/(liabilities)	15,746	(3,385)	(1,237)	(67)	(250)	10,807

	Balance at 1 January 2020	Recognised in consolidated income statement	Recognised in other comprehensive income	Others	Transferred from reserve	Balance at 31 December 2020
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Receivables and inventories	2,546	(122)	(12)	(1)	-	2,411
Payables	1,142	144	-	-	-	1,286
Cash flow hedges	(268)	(42)	(2,316)	-	(4)	(2,630)
Property, plant and equipment	4,146	(2,244)	127	349	-	2,378
Tax losses carried forward	3,594	9,960	(84)	(148)	-	13,322
Financial assets at fair value through other comprehensive income	124	(4)	(4)	-	-	116
Intangible assets	87	19	-	246	-	352
Others	(564)	162	24	73	-	(305)
Net deferred tax assets/(liabilities)	10,807	7,873	(2,265)	519	(4)	16,930

30 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES

Short-term debts represent:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Third parties' debts
Short-term bank loans	16,111	25,709
RMB denominated	16,111	25,619
US Dollar ("USD") denominated	-	90
Short-term other loans	3	22
RMB denominated	3	22
Current portion of long-term bank loans	4,637	1,790
RMB denominated	4,613	1,765
USD denominated	24	25
Current portion of long-term corporate bonds	-	13,000
RMB denominated	-	13,000
	4,637	14,790
Corporate bonds (i)	3,018	-
RMB denominated	3,018	-
	23,769	40,521
Loans from Sinopec Group Company and fellow subsidiaries
Short-term loans	4,642	5,465
RMB denominated	1,141	2,709
USD denominated	3,298	2,236
Hong Kong Dollar ("HKD") denominated	31	495
European Dollar ("EUR") denominated	172	25
Current portion of long-term loans	622	37,824
RMB denominated	622	37,824
	5,264	43,289
	29,033	83,810

The Group's weighted average interest rates on short-term loans were 2.53% (2019: 3.11%) per annum at 31 December 2020. The above borrowings are unsecured.

30 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES (Continued)

Long-term debts represent:

	Interest rate and final maturity	31 December	31 December
		2020	2019
		RMB million	RMB million
Third parties' debts
Long-term bank loans
RMB denominated	Interest rates ranging from 1.08% to	38,226	31,714
	5.23% per annum at 31 December 2020
	with maturities through 2030
USD denominated	Interest rates at 1.55% per annum	92	127
	at 31 December 2020 with maturities
	through 2039
		38,318	31,841
Corporate bonds (ii)
RMB denominated	Fixed interest rates ranging from 2.20% to	26,977	20,000
	4.90% per annum at 31 December 2020
	with maturity through 2023
USD denominated	Fixed interest rates ranging from 3.13% to	11,379	12,157
	4.25% per annum at 31 December 2020
	with maturities through 2043
		38,356	32,157
Total third parties' long-term debts		76,674	63,998
Less: Current portion		(4,637)	(14,790)
		72,037	49,208
Long-term loans from Sinopec Group Company and fellow subsidiaries
RMB denominated	Interest rates ranging from 1.08% to	11,013	47,450
	5.23% per annum at 31 December 2020
	with maturities through 2036
USD denominated	Interest rates at 1.60% per annum at 31 December 2020 with maturities in 2027	1,387	-
Less: Current portion		(622)	(37,824)
		11,778	9,626
		83,815	58,834

Short-term and long-term bank loans, short-term other loans and loans from Sinopec Group Company and fellow subsidiaries are primarily unsecured and carried at amortised cost.

Notes:

(i) The Company issued Super & Short-term Commercial Paper on 20 August 2020 at par value of RMB 100, and the interest will be paid at its maturity. The total issued amount of the 169-day corporate bonds is RMB 3 billion with a fixed rate at 1.70% per annum.

(ii) The Company issued corporate bonds with a maturity of three years on 31 March 2020 at par value of RMB 100. The total issued amount of the corporate bonds is RMB 10 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.70% per annum and the interest is paid once a year.

The Company issued corporate bonds with a maturity of three years on 27 May 2020 at par value of RMB 100. The total issued amount of the corporate bonds is RMB 10 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.20% per annum and the interest is paid once a year.

These corporate bonds are carried at amortised cost.

31 LEASE LIABILITIES

	31 December	31 December
	2020	2019
	RMB million	RMB million
Lease liabilities
Current	15,292	15,198
Non-current	172,306	177,674
	187,598	192,872

32 TRADE ACCOUNTS PAYABLE AND BILLS PAYABLE

	31 December	31 December
	2020	2019
	RMB million	RMB million
Amounts due to third parties	132,136	166,830
Amounts due to Sinopec Group Company and fellow subsidiaries	11,384	11,251
Amounts due to associates and joint ventures	7,742	10,108
	151,262	188,189
Bills payable	10,394	11,834
Trade accounts payable and bills payable measured at amortised cost	161,656	200,023

The ageing analysis of trade accounts payable and bills payable is as follows:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Within 1 month or on demand	146,295	185,377
Between 1 month and 6 months	9,665	8,981
Over 6 months	5,696	5,665
	161,656	200,023

33 CONTRACT LIABILITIES

As at 31 December 2020 and 2019, the Group's contract liabilities primarily represent advances from customers. Related performance obligations are satisfied and revenue is recognised within one year.

34 OTHER PAYABLES

	31 December	31 December
	2020	2019
	RMB million	RMB million
Salaries and welfare payable	7,081	4,807
Interest payable	667	612
Payables for constructions	41,724	50,824
Other payables	58,908	25,618
Financial liabilities carried at amortised costs	108,380	81,861
Taxes other than income tax	70,257	66,257
	178,637	148,118

35 PROVISIONS

Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has mainly committed to the PRC government to establish certain standardised measures for the dismantlement of its oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its oil and gas properties.

Movement of provision of the Group's obligations for the dismantlement of its oil and gas properties is as follow:

	2020	2019
	RMB million	RMB million
Balance at 1 January	42,438	42,007
Provision for the year	1,563	1,408
Accretion expenses	1,343	1,418
Decrease for the year	(1,490)	(2,439)
Exchange adjustments	(141)	44
Balance at 31 December	43,713	42,438

36 SHARE CAPITAL

	31 December	31 December
	2020	2019
	RMB million	RMB million
Registered, issued and fully paid
95,557,771,046 listed A shares (2019: 95,557,771,046) of RMB 1.00 each	95,558	95,558
25,513,438,600 listed H shares (2019: 25,513,438,600) of RMB 1.00 each	25,513	25,513
	121,071	121,071

The Company was established on 25 February 2000 with a registered capital of 68.8 billion domestic state-owned shares with a par value of RMB 1.00 each. Such shares were issued to Sinopec Group Company in consideration for the assets and liabilities transferred to the Company (Note 1).

Pursuant to the resolutions passed at an Extraordinary General Meeting held on 25 July 2000 and approvals from relevant government authorities, the Company is authorised to increase its share capital to a maximum of 88.3 billion shares with a par value of RMB 1.00 each and offer not more than 19.5 billion shares with a par value of RMB 1.00 each to investors outside the PRC. Sinopec Group Company is authorised to offer not more than 3.5 billion shares of its shareholdings in the Company to investors outside the PRC. The shares sold by Sinopec Group Company to investors outside the PRC would be converted into H shares.

In October 2000, the Company issued 15,102,439,000 H shares with a par value of RMB 1.00 each, representing 12,521,864,000 H shares and 25,805,750 American Depositary Shares ("ADSs", each representing 100 H shares), at prices of HKD 1.59 per H share and USD 20.645 per ADS, respectively, by way of a global initial public offering to Hong Kong and overseas investors. As part of the global initial public offering, 1,678,049,000 state-owned ordinary shares of RMB 1.00 each owned by Sinopec Group Company were converted into H shares and sold to Hong Kong and overseas investors.

In July 2001, the Company issued 2.8 billion listed A shares with a par value of RMB 1.00 each at RMB 4.22 by way of a public offering to natural persons and institutional investors in the PRC.

During the year ended 31 December 2010, the Company issued 88,774 listed A shares with a par value of RMB 1.00 each, as a result of exercise of 188,292 warrants entitled to the Bonds with Warrants.

During the year ended 31 December 2011, the Company issued 34,662 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds.

During the year ended 31 December 2012, the Company issued 117,724,450 listed A shares with a par value of RMB 1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds.

On 14 February 2013, the Company issued 2,845,234,000 listed H shares ("the Placing") with a par value of RMB 1.00 each at the Placing Price of HKD 8.45 per share. The aggregate gross proceeds from the Placing amounted to approximately HKD 24,042,227,300.00 and the aggregate net proceeds (after deduction of the commissions and estimated expenses) amounted to approximately HKD 23,970,100,618.00.

In June 2013, the Company issued 21,011,962,225 listed A shares and 5,887,716,600 listed H shares as a result of bonus issues of 2 shares converted from the retained earnings, and 1 share transferred from the share premium for every 10 existing shares.

During the year ended 31 December 2013, the Company issued 114,076 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds.

During the year ended 31 December 2014, the Company issued 1,715,081,853 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds.

During the year ended 31 December 2015, the Company issued 2,790,814,006 listed A shares with a par value of RMB 1.00 each, as a result of exercise of conversion by the holders of the 2011 Convertible Bonds.

All A shares and H shares rank pari passu in all material aspects.

Capital management

Management optimises the structure of the Group's capital, which comprises of equity, debts and bonds. In order to maintain or adjust the capital structure of the Group, management may cause the Group to issue new shares, adjust the capital expenditure plan, sell assets to reduce debt, or adjust the proportion of short-term and long-term loans and bonds. Management monitors capital on the basis of the debt-to-capital ratio, which is calculated by dividing long-term loans (excluding current portion) and debentures payable, including long-term debts and loans from Sinopec Group Company and fellow subsidiaries, by the total of equity attributable to shareholders of the Company and long-term loans (excluding current portion) and debentures payable, and liability-to-asset ratio, which is calculated by dividing total liabilities by total assets. Management's strategy is to make appropriate adjustments according to the Group's operating and investment needs and the changes of market conditions, and to maintain the debt-to-capital ratio and the liability-to-asset ratio of the Group at a range considered reasonable. As at 31 December 2020, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 10.2% (2019: 7.4%) and 49.1% (2019: 50.2%), respectively.

The schedule of the contractual maturities of loans and commitments are disclosed in Notes 30 and 37, respectively.

There were no changes in the management's approach to capital management of the Group during the year. Neither the Company nor any of its subsidiaries is subject to externally imposed capital requirements.

37 COMMITMENTS AND CONTINGENT LIABILITIES

Capital commitments

At 31 December 2020 and 2019, capital commitments of the Group are as follows:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Authorised and contracted for (i)	171,335	138,088
Authorised but not contracted for	33,942	63,967
	205,277	202,055

Note:

(i) The investment commitments of the Group is RMB 13,172 million (2019: RMB 6,100 million).

Commitments to joint ventures

Pursuant to certain of the joint venture agreements entered into by the Group, the Group is obliged to purchase products from the joint ventures based on market prices.

Exploration and production licenses

Exploration licenses for exploration activities are registered with the Ministry of Natural Resources. The maximum term of the Group's exploration licenses is 7 years, and may be renewed twice within 30 days prior to expiration of the original term with each renewal being for a two-year term. The Group is obligated to make progressive annual minimum exploration investment relating to the exploration blocks in respect of which the license is issued. The Ministry of Natural Resources also issues production licenses to the Group on the basis of the reserve reports approved by relevant authorities. The maximum term of a full production license is 30 years unless a special dispensation is given by the State Council. The maximum term of production licenses issued to the Group is 80 years as a special dispensation was given to the Group by the State Council. The Group's production license is renewable upon application by the Group 30 days prior to expiration.

Estimated future annual payments are as follows:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Within one year	390	302
Between one and two years	99	69
Between two and three years	66	34
Between three and four years	63	30
Between four and five years	56	29
Thereafter	824	845
	1,498	1,309

Contingent liabilities

At 31 December 2020 and 2019, the guarantees by the Group in respect of facilities granted to the parties below are as follows:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Joint ventures	6,390	7,100
Associates (ii)	8,450	10,140
	14,840	17,240

Management monitors the conditions that are subject to the guarantees to identify whether it is probable that a loss will occur, and recognises any such losses under guarantees when those losses are reliably estimable. At 31 December 2020 and 2019, the Group estimates that there is no need to pay for the guarantees. Thus no liability has been accrued for a loss related to the Group's obligation under these guarantee arrangements.

Note:

(ii) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB 17,050 million. As at 31 December 2020, the amount withdrawn by Zhongtian Synergetic Energy and guaranteed by the Group was RMB 8,450 million (2019: RMB 10,140 million).

37 COMMITMENTS AND CONTINGENT LIABILITIES (Continued)

Environmental contingencies

Under existing legislation, management believes that there are no probable liabilities that will have a material adverse effect on the financial position or operating results of the Group. The PRC government, however, has moved, and may move further towards more rigorous enforcement of applicable laws, and towards the adoption of more stringent environmental standards. Environmental liabilities are subject to considerable uncertainties which affect management's ability to estimate the ultimate cost of remediation efforts. These uncertainties include (i) the exact nature and extent of the contamination at various sites including, but not limited to refineries, oil fields, service stations, terminals and land development areas,whether operating, closed or sold, (ii) the extent of required cleanup efforts, (iii) varying costs of alternative remediation strategies, (iv) changes in environmental remediation requirements, and (v) the identification of new remediation sites. The amount of such future cost is indeterminable due to such factors as the unknown magnitude of possible contamination and the unknown timing and extent of the corrective actions that may be required. Accordingly, the outcome of environmental liabilities under proposed or future environmental legislation cannot reasonably be estimated at present, and could be material.

The Group paid normal routine pollutant discharge fees of approximately RMB 11,362 million in the consolidated financial statements for the year ended 31 December 2020 (2019: RMB 9,271 million).

Legal contingencies

38 BUSINESS COMBINATION

Pursuant to the resolution passed at the Directors' meeting on 28 October 2020, the Company entered into an Agreement with Sinopec Assets Management Corporation ("SAMC") in relation to the formation of Sinopec Baling Petrochemical Co. Ltd ("Baling Petrochemical"). According to the Agreement, the Company and SAMC subscribed capital contribution with the business of Baling area respectively and some cash. After the capital injection, the Company remained to hold 55% of Baling Petrochemical's voting rights and was still able to control Baling Petrochemical.

Baling Petrochemical is mainly engaged in the production and sales of petrochemicals, chemical fibers, fertilizers, fine chemical products and other chemical products.

The financial condition as at 31 December 2019 and the results of operation for the year ended 31 December 2019 previously reported by the Group have been restated, as set out below:

	The Group, as	Baling	Elimination	The Group,
	previously	Branch	and	as restated
	reported	of SAMC	Adjustment*
	RMB million	RMB million	RMB million	RMB million
Summarised consolidated income statement for the year ended 31 December 2019:
Turnover and other operating revenues	2,966,193	16,906	(23,300)	2,959,799
Profit attributable to shareholders of the Company	57,465	50	(22)	57,493
Profit attributable to non-controlling interests	14,568	-	22	14,590
Basic earnings per share (RMB)	0.475	0.0004	-	0.475
Diluted earnings per share (RMB)	0.475	0.0004	-	0.475
Summarised consolidated balance sheet as at 31 December 2019:
Current assets	445,856	2,097	(643)	447,310
Total assets	1,755,071	5,858	(643)	1,760,286
Current liabilities	576,374	4,247	(643)	579,978
Total liabilities	879,236	4,389	(643)	882,982
Total equity attributable to shareholders of the Company	738,150	1,448	(652)	738,946
Non-controlling interests	137,685	21	652	138,358
Summarised consolidated statement of cash flows for the year ended 31 December 2019:
Net cash generated from operating activities	153,420	199	-	153,619
Net cash used in investing activities	(120,463)	(588)	-	(121,051)
Net cash (used in)/generated from financing activities	(84,713)	509	-	(84,204)
Net (decrease)/increase in cash and cash equivalents	(51,756)	120	-	(51,636)

At the completion date, the non-controlling interests amount to RMB 972 million was recognised in relation to SAMC's 45% interest in Baling Branch of the Company.

39 RELATED PARTY TRANSACTIONS

Parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control or jointly control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to control or common control. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

(a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures

The Group is part of a larger group of companies under Sinopec Group Company, which is controlled by the PRC government, and has significant transactions and relationships with Sinopec Group Company and fellow subsidiaries. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.

The principal related party transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures, which were carried out in the ordinary course of business are as follows:

	Note	2020	2019
		RMB million	RMB million
Sales of goods	(i)	233,283	285,853
Purchases	(ii)	158,963	189,914
Transportation and storage	(iii)	8,848	8,206
Exploration and development services	(iv)	31,444	33,310
Production related services	(v)	32,106	38,827
Ancillary and social services	(vi)	3,099	3,098
Agency commission income	(vii)	160	116
Interest income	(viii)	704	1,066
Interest expense	(ix)	919	1,334
Net deposits (placed with)/withdrawn from related parties	(viii)	(17,585)	5,230
Net funds (repaid to)/obtained from related parties	(x)	(31,144)	3,438

The amounts set out in the table above in respect of the year ended 31 December 2020 and 2019 represent the relevant costs and income as determined by the corresponding contracts with the related parties.

Included in the transactions disclosed above, for the year ended 31 December 2020 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB 150,239 million (2019: RMB 151,851 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB 134,359 million (2019: RMB 135,198 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB 3,099 million (2019: RMB 3,097 million), lease charges for land, buildings and others paid by the Group of RMB 11,086 million, RMB 565 million and RMB 211 million (2019: RMB 11,330 million, RMB 509 million and RMB 383 million), respectively and interest expenses of RMB 919 million (2019: RMB 1,334 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB 71,862 million (2019: RMB 64,774 million), comprising RMB 71,075 million (2019: RMB 63,686 million) for sales of goods, RMB 704 million (2019: RMB 1,066 million) for interest income and RMB 83 million (2019: RMB 22 million) for agency commission income.

For the year ended 31 December 2020, no individually significant right-of-use assets were leased from Sinopec Group Company and fellow subsidiaries, associates and joint ventures by the Group. The interest expense recognised for the year ended 31 December 2020 on lease liabilities in respect of amounts due to Sinopec Group Company and fellow subsidiaries, associates and joint ventures was RMB 8,160 million (2019: RMB 8,518 million).

For the year ended 31 December 2020, the amount of rental the Group paid to Sinopec Group Company and fellow subsidiaries, associates and joint ventures for land, buildings and others are RMB 11,090 million, RMB 571 million and RMB 330 million (2019: RMB 11,333 million, RMB 518 million and RMB 468 million).

As at 31 December 2020 and 2019, there was no guarantee given to banks by the Group in respect of banking facilities to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, except for the guarantees disclosed in Note 37. Guarantees given to banks by the Group in respect of banking facilities to associates and joint ventures are disclosed in Note 37.

The directors of the Company are of the opinion that the above transactions with related parties were conducted in the ordinary course of business and on normal commercial terms or in accordance with the agreements governing such transactions, and this has been confirmed by the independent non-executive directors.

39 RELATED PARTY TRANSACTIONS (Continued)

(a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued)

Notes:

(i) Sales of goods represent the sale of crude oil, intermediate petrochemical products, petroleum products and ancillary materials.

(ii) Purchases represent the purchase of materials and utility supplies directly related to the Group's operations such as the procurement of raw and ancillary materials and related services, supply of water, electricity and gas.

(iii) Transportation and storage represent the cost for the use of railway, road and marine transportation services, pipelines, loading, unloading and storage facilities.

(iv) Exploration and development services comprise direct costs incurred in the exploration and development such as geophysical, drilling, well testing and well measurement services.

(v) Production related services represent ancillary services rendered in relation to the Group's operations such as equipment repair and general maintenance, insurance premium, technical research, communications, firefighting, security, product quality testing and analysis, information technology, design and engineering, construction of oilfield ground facilities, refineries and chemical plants, manufacture of replacement parts and machinery, installation, project management, environmental protection and management services.

(vi) Ancillary and social services represent expenditures for social welfare and support services such as educational facilities, media communication services, sanitation, accommodation, canteens, and property maintenance.

(vii) Agency commission income represents commission earned for acting as an agent in respect of sales of products and purchase of materials for certain entities owned by Sinopec Group Company.

(viii) Interest income represents interest received from deposits placed with Sinopec Finance and Sinopec Century Bright Capital Investment Limited, finance companies controlled by Sinopec Group Company. The applicable interest rate is determined in accordance with the prevailing saving deposit rate. The balance of deposits at 31 December 2020 was RMB 53,417 million (2019: RMB 35,832 million).

(ix) Interest expense represents interest charges on the loans obtained from Sinopec Group Company and fellow subsidiaries.

(x) The Group obtained loans, discounted bills and others from Sinopec Group Company and fellow subsidiaries.

In connection with the Reorganisation, the Company and Sinopec Group Company entered into a number of agreements under which 1) Sinopec Group Company will provide goods and products and a range of ancillary, social and supporting services to the Group and 2) the Group will sell certain goods to Sinopec Group Company. These agreements impacted the operating results of the Group for the year ended 31 December 2020. The terms of these agreements are summarised as follows:

‧ The Company has entered into a non-exclusive "Agreement for Mutual Provision of Products and Ancillary Services" ("Mutual Provision Agreement") with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain ancillary production services, construction services, information advisory services, supply services and other services and products. While each of Sinopec Group Company and the Company is permitted to terminate the Mutual Provision Agreement upon at least six months notice, Sinopec Group Company has agreed not to terminate the agreement if the Group is unable to obtain comparable services from a third party. The pricing policy for these services and products provided by Sinopec Group Company to the Group is as follows:

(1) the government-prescribed price;

(2) where there is no government-prescribed price, the government-guidance price;

(3) where there is neither a government-prescribed price nor a government-guidance price, the market price; or

(4) where none of the above is applicable, the price to be agreed between the parties, which shall be based on a reasonable cost incurred in providing such services plus a profit margin not exceeding 6%.

‧ The Company has entered into a non-exclusive "Agreement for Provision of Cultural and Educational, Health Care and Community Services" with Sinopec Group Company effective from 1 January 2000 in which Sinopec Group Company has agreed to provide the Group with certain cultural, educational, health care and community services on the same pricing terms and termination conditions as described in the above Mutual Provision Agreement.

‧ The Company has entered into a series of lease agreements with Sinopec Group Company to lease certain lands and buildings effective on 1 January 2000. The lease term is 40 or 50 years for lands and 20 years for buildings, respectively. The Company and Sinopec Group Company can renegotiate the rental amount every three years for land. The Company and Sinopec Group Company can renegotiate the rental amount for buildings every year. However such amount cannot exceed the market price as determined by an independent third party.

‧ The Company has entered into agreements with Sinopec Group Company effective from 1 January 2000 under which the Group has been granted the right to use certain trademarks, patents, technology and computer software developed by Sinopec Group Company.

‧ The Company has entered into a service stations franchise agreement with Sinopec Group Company effective from 1 January 2000 under which its service stations and retail stores would exclusively sell the refined products supplied by the Group.

39 RELATED PARTY TRANSACTIONS (Continued)

(a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued)

‧ On the basis of a series of continuing connected transaction agreements signed in 2000, the Company and Sinopec Group Company have signed the Fifth Supplementary Agreement and the Fourth Revised Memorandum of land use rights leasing contract on 24 August 2018, which took effect on 1 January 2019 and made adjustment to "Mutual Supply Agreement", "Agreement for Provision of Cultural and Educational, Health Care and Community Services", "Buildings Leasing Contract", "Intellectual Property Contract" and "Land Use Rights Leasing Contract", etc.

Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and joint ventures included in the following accounts captions are summarised as follows:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Trade accounts receivable	16,896	12,470
Financial assets at fair value through other comprehensive income	760	407
Prepaid expenses and other current assets	19,305	12,771
Long-term prepayments and other assets	6,435	734
Total	43,396	26,382
Trade accounts payable and bills payable	22,805	25,177
Contract liabilities	5,940	4,456
Other payables	12,116	18,793
Other long-term liabilities	3,010	-
Short-term loans and current portion of long-term loans from Sinopec Group Company and fellow subsidiaries	5,264	43,289
Long-term loans excluding current portion from Sinopec Group Company and fellow subsidiaries	11,778	9,626
Lease liabilities (including to be paid within one year)	162,048	171,402
Total	222,961	272,743

Amounts due from/to Sinopec Group Company and fellow subsidiaries, associates and joint ventures, other than short-term loans and long-term loans, bear no interest, are unsecured and are repayable in accordance with normal commercial terms. The terms and conditions associated with short-term loans and long-term loans payable to Sinopec Group Company and fellow subsidiaries are set out in Note 30.

As at and for the year ended 31 December 2020, and as at and for the year ended 31 December 2019, no individually significant impairment losses for bad and doubtful debts were recognised in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and joint ventures.

(b) Key management personnel emoluments

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and supervisors of the Group. The key management personnel compensation is as follows:

	2020	2019
	RMB'000	RMB'000
Short-term employee benefits	5,753	9,209
Retirement scheme contributions	342	536
	6,095	9,745

The Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The details of the Group's employee benefits plan are disclosed in Note 40. As at 31 December 2020 and 2019, the accrual for the contribution to post-employment benefit plans was not material.

39 RELATED PARTY TRANSACTIONS (Continued)

(d) Transactions with other state-controlled entities in the PRC

The Group is a state-controlled energy and chemical enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the PRC government through its government authorities, agencies, affiliations and other organisations (collectively referred as "state-controlled entities").

Apart from transactions with Sinopec Group Company and fellow subsidiaries, the Group has transactions with other state-controlled entities, include but not limited to the followings:

‧ sales and purchases of goods and ancillary materials;

‧ rendering and receiving services;

‧ lease of assets;

‧ depositing and borrowing money; and

‧ uses of public utilities.

These transactions are conducted in the ordinary course of the Group's business on terms comparable to those with other entities that are not state-controlled.

40 EMPLOYEE BENEFITS PLAN

As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by municipal and provincial governments for its staff. The Group is required to make contributions to the retirement plans at rates ranging from 13.0% to 16.0% of the salaries, bonuses and certain allowances of its staff. In addition, the Group provides a supplementary retirement plan for its staff at rates not exceeding 8% of the salaries. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the annual contributions described above. The Group's contributions for the year ended 31 December 2020 were RMB 8,804 million (2019: RMB 11,822 million).

41 SEGMENT REPORTING

Segment information is presented in respect of the Group's business segments. The format is based on the Group's management and internal reporting structure.

(i) Exploration and production, which explores and develops oil fields, produces crude oil and natural gas and sells such products to the refining segment of the Group and external customers.

(ii) Refining, which processes and purifies crude oil, that is sourced from the exploration and production segment of the Group and external suppliers, and manufactures and sells petroleum products to the chemicals and marketing and distribution segments of the Group and external customers.

(iii) Marketing and distribution, which owns and operates oil depots and service stations in the PRC, and distributes and sells refined petroleum products (mainly gasoline and diesel) in the PRC through wholesale and retail sales networks.

(iv) Chemicals, which manufactures and sells petrochemical products, derivative petrochemical products and other chemical products mainly to external customers.

(v) Corporate and others, which largely comprises the trading activities of the import and export companies of the Group and research and development undertaken by other subsidiaries.

41 SEGMENT REPORTING (Continued)

(1) Information of reportable segmental revenues, profits or losses, assets and liabilities

Assets and liabilities dedicated to a particular segment's operations are included in that segment's total assets and liabilities. Segment assets include all tangible and intangible assets, except for interest in associates and joint ventures, investments, deferred tax assets, cash and cash equivalents, time deposits with financial institutions and other unallocated assets. Segment liabilities exclude short-term debts, income tax payable, long-term debts, loans from Sinopec Group Company and fellow subsidiaries, deferred tax liabilities and other unallocated liabilities.

Information of the Group's reportable segments is as follows:

	2020	2019
	RMB million	RMB million
Turnover
Exploration and production
External sales	104,524	111,114
Inter-segment sales	57,513	89,315
	162,037	200,429
Refining
External sales	114,064	141,674
Inter-segment sales	825,812	1,077,018
	939,876	1,218,692
Marketing and distribution
External sales	1,062,447	1,393,557
Inter-segment sales	4,854	4,159
	1,067,301	1,397,716
Chemicals
External sales	322,121	428,830
Inter-segment sales	40,518	78,165
	362,639	506,995
Corporate and others
External sales	458,154	824,507
Inter-segment sales	430,073	654,337
	888,227	1,478,844
Elimination of Inter-segment sales	(1,370,624)	(1,902,994)
Turnover	2,049,456	2,899,682
Other operating revenues
Exploration and production	5,718	10,283
Refining	4,634	5,464
Marketing and distribution	34,905	33,247
Chemicals	9,215	9,273
Corporate and others	2,056	1,850
Other operating revenues	56,528	60,117
Turnover and other operating revenues	2,105,984	2,959,799

41 SEGMENT REPORTING (Continued)

(1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

	2020	2019
	RMB million	RMB million
Result
Operating (loss)/profit
By segment
- Exploration and production	(16,476)	9,284
- Refining	(5,555)	30,632
- Marketing and distribution	20,828	29,107
- Chemicals	10,372	17,327
- Corporate and others	(393)	64
- Elimination	4,417	(40)
Total segment operating profit	13,193	86,374
Share of profit/(loss) from associates and joint ventures
- Exploration and production	2,117	3,167
- Refining	(2,516)	(640)
- Marketing and distribution	2,200	3,309
- Chemicals	1,723	4,611
- Corporate and others	3,188	2,330
Aggregate share of profits from associates and joint ventures	6,712	12,777
Investment income/(loss)
- Exploration and production	13,118	(19)
- Refining	14,941	59
- Marketing and distribution	8,980	73
- Chemicals	(61)	578
- Corporate and others	766	228
Aggregate investment income	37,744	919
Net finance costs	(9,506)	(10,048)
Profit before taxation	48,143	90,022

	31 December	31 December
	2020	2019
	RMB million	RMB million
Assets
Segment assets
- Exploration and production	354,024	410,950
- Refining	270,431	321,080
- Marketing and distribution	373,430	399,242
- Chemicals	186,033	180,974
- Corporate and others	118,458	131,686
Total segment assets	1,302,376	1,443,932
Interest in associates and joint ventures	188,342	152,204
Financial assets at fair value through other comperhensive income	1,525	1,521
Deferred tax assets	25,054	17,616
Cash and cash equivalents, time deposits with financial institutions	188,057	128,052
Other unallocated assets	28,451	16,961
Total assets	1,733,805	1,760,286
Liabilities
Segment liabilities
- Exploration and production	163,588	167,933
- Refining	136,869	122,264
- Marketing and distribution	234,309	226,531
- Chemicals	49,497	58,066
- Corporate and others	119,215	137,881
Total segment liabilities	703,478	712,675
Short-term debts	23,769	40,521
Income tax payable	6,586	3,267
Long-term debts	72,037	49,208
Loans from Sinopec Group Company and fellow subsidiaries	17,042	52,915
Deferred tax liabilities	8,124	6,809
Other unallocated liabilities	19,911	17,587
Total liabilities	850,947	882,982

41 SEGMENT REPORTING (Continued)

(1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued)

	2020	2019
	RMB million	RMB million
Capital expenditure
Exploration and production	56,416	61,739
Refining	24,722	31,372
Marketing and distribution	25,403	29,566
Chemicals	26,202	22,438
Corporate and others	2,312	1,979
	135,055	147,094
Depreciation, depletion and amortisation
Exploration and production	46,273	50,732
Refining	20,048	19,676
Marketing and distribution	23,196	21,572
Chemicals	14,376	14,326
Corporate and others	3,072	2,866
	106,965	109,172
Impairment losses on long-lived assets
Exploration and production	8,495	3
Refining	1,923	245
Marketing and distribution	536	80
Chemicals	3,606	17
Corporate and others	-	-
	14,560	345

(2) Geographical information

The following tables set out information about the geographical information of the Group's external sales and the Group's non-current assets, excluding financial instruments and deferred tax assets. In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers, and segment assets are based on the geographical location of the assets.

	2020	2019
	RMB million	RMB million
External sales
Mainland China	1,721,955	2,124,684
Singapore	215,846	505,672
Others	168,183	329,443
	2,105,984	2,959,799

	31 December	31 December
	2020	2019
	RMB million	RMB million
Non-current assets
Mainland China	1,211,441	1,239,437
Others	36,782	52,705
	1,248,223	1,292,142

42 PRINCIPAL SUBSIDIARIES

As at 31 December 2020, the following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group.

Name of company

Particulars of

issued capital

(million)

Interests

held by the

Company

Interests

held by

non-controlling

interests

Principal activities

Sinopec Great Wall Energy & Chemical
Company Limited

RMB 22,761

100.00

Coal chemical industry investment
management, production and sale of
coal chemical products

Sinopec Yangzi Petrochemical Company
Limited

RMB 15,651

100.00

Manufacturing of intermediate petrochemical
products and petroleum products

Sinopec Overseas Investment Holding
Limited ("SOIH")

USD1,662

100.00

Investment holding of overseas business

Sinopec International Petroleum Exploration
and Production Limited ("SIPL")

RMB 8,250

100.00

Investment in exploration, production and
sale of petroleum and natural gas

Sinopec Yizheng Chemical Fibre Limited
Liability Company

RMB 4,000

100.00

Production and sale of polyester chips and
polyester fibres

Sinopec Lubricant Company Limited

RMB 3,374

100.00

Production and sale of refined petroleum
products, lubricant base oil, and
petrochemical materials

China International United Petroleum and
Chemical Company Limited

RMB 5,000

100.00

Trading of crude oil and petrochemical
products

Sinopec Qingdao Petrochemical
Company Limited

RMB 1,595

100.00

Manufacturing of intermediate petrochemical
products and petroleum products

Sinopec Catalyst Company Limited

RMB 1,500

100.00

Production and sale of catalyst products

China Petrochemical International
Company Limited

RMB 1,400

100.00

Trading of petrochemical products

Sinopec Chemical Sales Company Limited

RMB 1,000

100.00

Marketing and distribution of
petrochemical products

Sinopec Beihai Refining and Chemical Limited
Liability Company

RMB 5,294

98.98

1.02

Import and processing of crude oil,

production, storage and sale of petroleum

products and petrochemical products

ZhongKe (Guangdong) Refinery &
Petrochemical Company Limited

RMB 6,397

90.30

9.70

Crude oil processing and petroleum
products manufacturing

Sinopec Qingdao Refining and Chemical
Company Limited

RMB 5,000

85.00

15.00

Manufacturing of intermediate petrochemical
products and petroleum products

Sinopec Hainan Refining and Chemical
Company Limited

RMB 9,606

75.00

25.00

Manufacturing of intermediate petrochemical
products and petroleum products

Marketing Company

RMB 28,403

70.42

29.58

Marketing and distribution of refined
petroleum products

Shanghai SECCO

RMB 7,801

67.60

32.40

Production and sale of petrochemical
products

Sinopec Kantons Holdings Limited
("Sinopec Kantons")

HKD248

60.33

39.67

Provision of crude oil jetty services
and natural gas pipeline transmission
services

Sinopec-SK (Wuhan) Petrochemical Company
Limited ("Sinopec-SK")

RMB 7,193

59.00

41.00

Production, sale, research and development
of petrochemical products, ethylene and
downstream byproducts

Gaoqiao Petrochemical Company Limited

RMB 10,000

55.00

45.00

Manufacturing of intermediate petrochemical
products and petroleum products

Baling Petrochemical (i)

RMB 3,000

55.00

45.00

Crude oil processing and petroleum
products manufacturing

Sinopec Shanghai Petrochemical Company
Limited ("Shanghai Petrochemical")

RMB 10,824

50.44

49.56

Manufacturing of synthetic fibres, resin and
plastics, intermediate petrochemical
products and petroleum products

Fujian Petrochemical Company Limited
("Fujian Petrochemical") (ii)

RMB 10,492

50.00

Manufacturing of plastics, intermediate
petrochemical products and petroleum
products

Except for Sinopec Kantons and SOIH, which are incorporated in Bermuda and Hong Kong SAR respectively, all of the above principal subsidiaries are incorporated and operate their businesses principally in the PRC. All of the above principal subsidiaries are limited companies.

The Group entered into an Agreement on transferring equity interests in the relevant oil and pipeline companies with PipeChina, which included 100% equity of Sinopec Pipeline Storage & Transportation Company Limited. See Note 10.

Notes:

(i) See Note 38.

(ii) The Group consolidated the financial statements of the entity because it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

42 PRINCIPAL SUBSIDIARIES (Continued)

Summarised financial information on subsidiaries with material non-controlling interests

Set out below are the summarised financial information which the amount before inter-company eliminations for each subsidiary that has non-controlling interests that are material to the Group.

Summarised consolidated balance sheet

	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO		Sinopec-SK
	At	At	At	At	At	At	At	At	At	At	At	At	At	At
	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December	31 December
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Current assets	172,352	129,266	22,620	19,151	17,305	22,309	1,582	1,788	4,373	1,284	10,431	11,858	3,639	5,337
Current liabilities	(201,678)	(192,106)	(475)	(456)	(15,232)	(15,479)	(458)	(804)	(924)	(2,961)	(2,783)	(3,196)	(6,377)	(15,037)
Net current (liabilities)/ assets	(29,326)	(62,840)	22,145	18,695	2,073	6,830	1,124	984	3,449	(1,677)	7,648	8,662	(2,738)	(9,700)
Non-current assets	323,571	340,356	8,951	13,234	27,314	23,185	12,568	11,558	9,106	12,777	12,177	11,473	22,187	21,567
Non-current liabilities	(59,554)	(58,732)	(18,270)	(16,952)	(52)	(21)	(693)	(688)	(170)	(158)	(1,553)	(1,627)	(8,509)	(7)
Net non-current assets/ (liabilities)	264,017	281,624	(9,319)	(3,718)	27,262	23,164	11,875	10,870	8,936	12,619	10,624	9,846	13,678	21,560
Net assets	234,691	218,784	12,826	14,977	29,335	29,994	12,999	11,854	12,385	10,942	18,272	18,508	10,940	11,860
Attributable to owners of the Company	159,205	148,256	5,876	6,308	14,727	14,998	6,499	5,927	7,454	6,583	12,352	12,511	6,455	6,997
Attributable to non-controlling interests	75,486	70,528	6,950	8,669	14,608	14,996	6,500	5,927	4,931	4,359	5,920	5,997	4,485	4,863

Summarised consolidated statement of comprehensive income

Year ended 31 December	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO		Sinopec-SK
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Turnover	1,099,680	1,427,705	2,017	3,282	74,624	100,270	4,871	5,535	1,064	1,274	21,626	28,341	28,702	31,016
Profit/(loss) for the year	22,415	22,992	1,160	2,831	656	2,227	243	477	2,047	1,131	2,132	3,137	(920)	701
Total comprehensive income/(loss)	21,149	23,362	(720)	2,693	645	2,235	243	477	1,814	1,140	2,132	3,137	(920)	701
Comprehensive income/ (loss) attributable to non-controlling interests	7,205	8,289	(287)	1,651	325	1,113	121	238	707	433	691	1,016	(377)	245
Dividends paid to non-controlling interests	2,766	4,830	316	10,926	649	1,344	150	650	175	159	767	822	-	-

Summarised statement of cash flows

Year ended 31 December	Marketing Company		SIPL		Shanghai Petrochemical		Fujian Petrochemical		Sinopec Kantons		Shanghai SECCO		Sinopec-SK
	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Net cash generated from/ (used in) operating activities	54,139	40,260	281	2,128	1,680	5,057	(244)	622	586	716	3,119	4,601	(363)	5,532
Net cash (used in)/ generated from investing activities	(40,010)	(25,923)	(2,659)	678	(3,888)	(4,623)	(649)	(472)	3,846	397	(4,335)	(91)	(2,340)	(4,987)
Net cash (used in)/ generated from financing activities	(12,402)	(21,535)	1,683	(116)	1,682	(1,737)	882	(163)	(1,250)	(1,208)	(2,879)	(2,050)	2,176	250
Net increase/(decrease) in cash and cash equivalents	1,727	(7,198)	(695)	2,690	(526)	(1,303)	(11)	(13)	3,182	(95)	(4,095)	2,460	(527)	795
Cash and cash equivalents at 1 January	6,901	14,142	8,833	5,993	7,450	8,742	79	92	117	198	9,278	6,817	1,593	798
Effect of foreign currency exchange rate changes	14	(43)	(439)	150	(8)	11	-	-	(117)	14	(2)	1	-	-
Cash and cash equivalents at 31 December	8,642	6,901	7,699	8,833	6,916	7,450	68	79	3,182	117	5,181	9,278	1,066	1,593

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES

Overview

Financial assets of the Group include cash and cash equivalents, time deposits with financial institutions, financial assets at fair value through profit or loss, derivative financial assets, trade accounts receivable, amounts due from Sinopec Group Company and fellow subsidiaries, amounts due from associates and joint ventures, financial assets at FVOCI and other receivables. Financial liabilities of the Group include short-term debts, loans from Sinopec Group Company and fellow subsidiaries, derivative financial liabilities, trade accounts payable and bills payable, amounts due to Sinopec Group Company and fellow subsidiaries, amounts due to associates and joint ventures, other payables, long-term debts and lease liabilities.

The Group has exposure to the following risks from its uses of financial instruments:

‧ credit risk;

‧ liquidity risk; and

‧ market risk.

The Board of Directors has overall responsibility for the establishment, oversight of the Group's risk management framework, and developing and monitoring the Group's risk management policies.

The Group's risk management policies are established to identify and analyse the risks faced by the Group, and set appropriate risk limits and controls to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management controls and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Internal audit department undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Group's audit committee.

Credit risk

(i) Risk management

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's deposits placed with financial institutions (including structured deposits) and receivables from customers. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large financial institutions in the PRC with acceptable credit ratings. The majority of the Group's trade accounts receivable relate to sales of petroleum and chemical products to related parties and third parties operating in the petroleum and chemical industries. No single customer accounted for greater than 10% of total trade accounts receivable at 31 December 2020, except the amounts due from Sinopec Group Company and fellow subsidiaries. Management performs ongoing credit evaluations of the Group's customers' financial condition and generally does not require collateral on trade accounts receivable. The Group maintains an impairment loss for doubtful accounts and actual losses have been within management's expectations.

The carrying amounts of cash and cash equivalents, time deposits with financial institutions, financial assets at fair value through profit or loss, derivative financial assets, trade accounts receivable, financial assets at FVOCI and other receivables, represent the Group's maximum exposure to credit risk in relation to financial assets.

(ii) Impairment of financial assets

The Group's primary type of financial assets that are subject to the expected credit loss model is trade accounts receivable, financial assets at FVOCI and other receivables.

The Group's cash deposits are placed only with large financial institutions with acceptable credit ratings, and there is no material impairment loss identified.

For trade accounts receivable and financial assets at FVOCI, the Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade accounts receivable and financial assets at FVOCI.

To measure the expected credit losses, trade accounts receivable and financial assets at FVOCI have been grouped based on shared credit risk characteristics and the days past due.

The detailed analysis of trade accounts receivable and financial assets at FVOCI, based on which the Group generated its payment profile is listed in Notes 25 and 26.

All of the entity's other receivables are considered to have low credit risk, and the loss allowance recognised during the period was therefore limited to 12 months expected losses. The Group considers 'low credit risk' for other receivables when they have a low risk of default and the issuer has a strong capacity to meet its contractual cash flow obligations in the near term.

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation. Management prepares monthly cash flow budget to ensure that the Group will always have sufficient liquidity to meet its financial obligations as they fall due. The Group arranges and negotiates financing with financial institutions and maintains a certain level of standby credit facilities to reduce the Group's liquidity risk.

As at 31 December 2020, the Group has standby credit facilities with several PRC financial institutions which provide borrowings up to RMB 443,966 million (2019: RMB 379,649 million) on an unsecured basis, at a weighted average interest rate of 2.85% per annum (2019: 3.57%). As at 31 December 2020, the Group's outstanding borrowings under these facilities were RMB 4,041 million (2019: RMB 2,947 million) and were included in debts.

The following table sets out the remaining contractual maturities at the balance sheet date of the Group's financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates current at the balance sheet date) and the earliest date the Group would be required to repay:

	31 December 2020
		Total
		contractual	Within	More than 1	More than 2
	Carrying	undiscounted	1 year or	year but less	years but less	More than
	amount	cash flow	on demand	than 2 years	than 5 years	5 years
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Short-term debts	23,769	25,280	25,280	-	-	-
Long-term debts	72,037	80,562	1,339	11,753	60,414	7,056
Loans from Sinopec Group Company and fellow subsidiaries	17,042	17,978	5,512	929	10,109	1,428
Lease liabilities	187,598	329,083	15,957	15,456	43,513	254,157
Derivative financial liabilities	4,826	4,826	4,826	-	-	-
Trade accounts payable and bills payable	161,656	161,656	161,656	-	-	-
Other payables	93,623	93,623	93,623	-	-	-
	560,551	713,008	308,193	28,138	114,036	262,641

	31 December 2019
		Total
		contractual	Within	More than 1	More than 2
	Carrying	undiscounted	1 year or	year but less	years but less	More than
	amount	cash flow	on demand	than 2 years	than 5 years	5 years
	RMB million	RMB million	RMB million	RMB million	RMB million	RMB million
Short-term debts	40,521	42,240	42,240	-	-	-
Long-term debts	49,208	62,955	952	6,271	25,189	30,543
Loans from Sinopec Group Company and fellow subsidiaries	52,915	54,508	43,623	985	7,088	2,812
Lease liabilities	192,872	367,711	16,488	15,676	45,008	290,539
Derivative financial liabilities	2,729	2,729	2,729	-	-	-
Trade accounts payable and bills payable	200,023	200,023	200,023	-	-	-
Other payables	81,861	81,861	81,861	-	-	-
	620,129	812,027	387,916	22,932	77,285	323,894

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

Market risk

(a) Currency risk

Currency risk arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group's currency risk exposure primarily relates to short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries denominated in USD and lease liabilities denominated in Singapore Dollar ("SGD"). The Group enters into foreign exchange contracts to manage its currency risk exposure.

Included primarily in short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries of the Group and lease liabilities are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

	31 December	31 December
	2020	2019
	million	million
Gross exposure arising from loans and lease liabilities
USD	22	103
SGD	-	4

A 5 percent strengthening/weakening of RMB against the following currencies at 31 December 2020 and 2019 would have increased/decreased profit for the year of the Group by the amounts shown below. This analysis has been determined assuming that the change in foreign exchange rates had occurred at the balance sheet date and had been applied to the foreign currency balances to which the Group has significant exposure as stated above, and that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2019.

	31 December	31 December
	2020	2019
	RMB million	RMB million
USD	5	27
SGD	-	1

(b) Interest rate risk

The Group's interest rate risk exposure arises primarily from its short-term and long-term debts and loans from Sinopec Group Company and fellow subsidiaries. Debts bearing interest at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively. The interest rates and terms of repayment of short-term and long-term debts, and loans from Sinopec Group Company and fellow subsidiaries of the Group are disclosed in Note 30.

As at 31 December 2020, it is estimated that a general increase/decrease of 100 basis points in variable interest rates, with all other variables held constant, would decrease/increase the Group's profit for the year by approximately RMB 245 million (2019: decrease/increase by approximately RMB 352 million). This sensitivity analysis has been determined assuming that the change of interest rates was applied to the Group's debts outstanding at the balance sheet date with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2019.

As at 31 December 2020, the Group had certain commodity contracts of crude oil, refined oil products and chemical products designated as qualified cash flow hedges and economic hedges. As at 31 December 2020, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB 12,353 million (2019: RMB 788 million) and derivative financial liabilities of RMB 4,808 million (2019:
RMB 2,728 million).

As at 31 December 2020, it is estimated that a general increase/decrease of USD 10 per barrel in basic price of derivative financial instruments, with all other variables held constant, would impact the fair value of derivative financial instruments, which would increase/decrease the Group's profit for the year by approximately RMB 3,592 million (2019: increase/decrease RMB 3,134 million), and increase/decrease the Group's other reserves by approximately RMB 10,379 million (2019: decrease/increase RMB 4,289 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the balance sheet date and the change was applied to the Group's derivative financial instruments at that date with exposure to commodity price risk. The analysis is performed on the same basis for 2019.

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

Fair values

(i) Financial instruments carried at fair value

The following table presents the carrying value of financial instruments measured at fair value at the balance sheet date across the three levels of the fair value hierarchy defined in IFRS 7, 'Financial Instruments: Disclosures', with the fair value of each financial instrument categorised in its entirety based on the lowest level of input that is significant to that fair value measurement. The levels are defined as follows:

‧ Level 1 (highest level): fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments.

‧ Level 3 (lowest level): fair values measured using valuation techniques in which any significant input is not based on observable market data.

At 31 December 2020

	Level 1	Level 2	Level 3	Total
	RMB million	RMB million	RMB million	RMB million
Assets
Financial assets at fair value through profit or loss:
- Equity investments, listed and at quoted market price	1	-	-	1
Derivative financial assets:
- Derivative financial assets	9,628	2,900	-	12,528
Financial assets at fair value through other comprehensive income:
- Equity instruments	149	-	1,376	1,525
- Trade accounts receivable and bills receivable	-	-	8,735	8,735
	9,778	2,900	10,111	22,789
Liabilities
Derivative financial liabilities:
- Derivative financial liabilities	2,471	2,355	-	4,826
	2,471	2,355	-	4,826

At 31 December 2019

	Level 1	Level 2	Level 3	Total
	RMB million	RMB million	RMB million	RMB million
Assets
Financial assets at fair value through profit or loss:
- Structured deposits	-	-	3,318	3,318
- Equity investments, listed and at quoted market price	1	-	-	1
Derivative financial assets:
- Derivative financial assets	128	709	-	837
Financial assets at fair value through other comprehensive income:
- Equity instruments	90	-	1,431	1,521
- Trade accounts receivable and bills receivable	-	-	8,661	8,661
Liabilities	219	709	13,410	14,338
Derivative financial liabilities:
- Derivative financial liabilities	1,209	1,520	-	2,729
	1,209	1,520	-	2,729

During the years ended 31 December 2020 and 2019, there was no transfer between instruments in Level 1 and Level 2.

Management of the Group uses discounted cash flow model with inputted interest rate and commodity index, which were influenced by historical fluctuation and the probability of market fluctuation, to evaluate the fair value of the structured deposits and trade accounts receivable and bills receivable classified as Level 3 financial assets.

43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued)

Fair values (Continued)

(ii) Fair values of financial instruments carried at other than fair value

The disclosures of the fair value estimates, and their methods and assumptions of the Group's financial instruments, are made to comply with the requirements of IFRS 7 and IFRS 9 and should be read in conjunction with the Group's consolidated financial statements and related notes. The estimated fair value amounts have been determined by the Group using market information and valuation methodologies considered appropriate. However, considerable judgement is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could realise in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The fair values of the Group's financial instruments carried at other than fair value (other than long-term indebtedness and investments in unquoted equity securities) approximate their carrying amounts due to the short-term maturity of these instruments. The fair values of long-term indebtedness are estimated by discounting future cash flows using current market interest rates offered to the Group for debt with substantially the same characteristic and maturities range from 0.77% to 4.65% (2019: 2.37% to 4.90%). The following table presents the carrying amount and fair value of the Group's long-term indebtedness other than loans from Sinopec Group Company and fellow subsidiaries at 31 December 2020 and 2019:

	31 December	31 December
	2020	2019
	RMB million	RMB million
Carrying amount	76,674	63,998
Fair value	74,282	62,646

The Group has not developed an internal valuation model necessary to estimate the fair values of loans from Sinopec Group Company and fellow subsidiaries as it is not considered practicable to estimate their fair values because the cost of obtaining discount and borrowing rates for comparable borrowings would be excessive based on the Reorganisation of the Group, the Group's existing capital structure and the terms of the borrowings.

Except for the above items, the financial assets and liabilities of the Group are carried at amounts not materially different from their fair values at 31 December 2020 and 2019.

44 ACCOUNTING ESTIMATES AND JUDGEMENTS

The Group's financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the consolidated financial statements. Management bases the assumptions and estimates on historical experience and on various other assumptions that it believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an ongoing basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of such policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the consolidated financial statements. The significant accounting policies are set forth in Note 2. Management believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the consolidated financial statements.

Oil and gas properties and reserves

The accounting for the exploration and production's oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. There are two methods to account for oil and gas business activities, the successful efforts method and the full cost method. The Group has elected to use the successful efforts method. The successful efforts method reflects the volatility that is inherent in exploring for mineral resources in that costs of unsuccessful exploratory efforts are charged to expense as they are incurred. These costs primarily include dry hole costs, seismic costs and other exploratory costs. Under the full cost method, these costs are capitalised and written-off or depreciated over time.

Engineering estimates of the Group's oil and gas reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated oil and gas reserves can be designated as "proved". Proved and proved developed reserves estimates are updated at least annually and take into account recent production and technical information about each field. In addition, as prices and cost levels change from year to year, the estimates of proved and proved developed reserves also change. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in relation to depreciation rates. Oil and gas reserves have a direct impact on the assessment of the recoverability of the carrying amounts of oil and gas properties reported in the financial statements. If proved reserves estimates are revised downwards, earnings could be affected by changes in depreciation expense or an immediate write-down of the property's carrying amount.

Future dismantlement costs for oil and gas properties are estimated with reference to engineering estimates after taking into consideration the anticipated method of dismantlement required in accordance with industry practices in similar geographic area, including estimation of economic life of oil and gas properties, technology and price level. The present values of these estimated future dismantlement costs are capitalised as oil and gas properties with equivalent amounts recognised as provisions for dismantlement costs.

Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expense, impairment loss and future dismantlement costs. Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves.

44 ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

Impairment for long-lived assets

If circumstances indicate that the net book value of a long-lived asset may not be recoverable, the asset may be considered "impaired", and an impairment loss may be recognised in accordance with IAS 36 "Impairment of Assets". The carrying amounts of long-lived assets are reviewed periodically in order to assess whether the recoverable amounts have declined below the carrying amounts. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to recoverable amount. For goodwill, the recoverable amount is estimated annually. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for the Group's assets or cash-generating units are not readily available. In determining the value in use, expected cash flows generated by the asset or the cash-generating units are discounted to their present value, which requires significant judgement relating to level of sale volume, selling price, amount of operating costs and discount rate. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of sale volume, selling price, amount of operating costs and discount rate.

Depreciation

Property, plant and equipment, other than oil and gas properties, are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Management reviews the estimated useful lives of the assets at least annually in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group's historical experience with similar assets and take into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

Measurement of expected credit losses

The Group measures and recognises expected credit losses, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions. The Group regularly monitors and reviews the assumptions used for estimating expected credit losses.

Allowance for diminution in value of inventories

If the costs of inventories become higher than their net realisable values, an allowance for diminution in value of inventories is recognised. Net realisable value represents the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. Management bases the estimates on all available information, including the current market prices of the finished goods and raw materials, and historical operating costs. If the actual selling prices were to be lower or the costs of completion were to be higher than estimated, the actual allowance for diminution in value of inventories could be higher than estimated.

45 PARENT AND ULTIMATE HOLDING COMPANY

The directors consider the parent and ultimate holding company of the Group as at 31 December 2020 is Sinopec Group Company, a state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use.

46 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY

BALANCE SHEET OF THE COMPANY (Amounts in million)	Note	31 December	31 December
		2020	2019
		RMB	RMB
Non-current assets
Property, plant and equipment, net		283,691	291,544
Construction in progress		59,880	60,493
Right-of-use assets		115,992	120,037
Investment in subsidiaries		259,087	266,359
Interest in associates		69,508	22,798
Interest in joint ventures		14,761	15,530
Financial assets at fair value through other comprehensive income		428	395
Deferred tax assets		12,661	7,315
Long-term prepayments and other assets		30,855	6,727
Total non-current assets		846,863	791,198
Current assets
Cash and cash equivalents		28,081	15,984
Time deposits with financial institutions		71,107	38,088
Derivative financial assets		7,776	940
Trade accounts receivable		21,763	21,544
Financial assets at fair value through other comprehensive income		707	207
Dividends receivable		796	41
Inventories		39,034	49,116
Prepaid expenses and other current assets		53,816	106,645
Total current assets		223,080	232,565
Current liabilities
Short-term debts		21,571	32,329
Loans from Sinopec Group Company and fellow subsidiaries		3,271	39,439
Lease liabilities		7,190	7,198
Derivative financial liabilities		362	157
Trade accounts payable and bills payable		71,840	80,118
Contract liabilities		5,840	5,112
Other payables		234,844	162,852
Total current liabilities		344,918	327,205
Net current liabilities		121,838	94,640
Total assets less current liabilities		725,025	696,558
Non-current liabilities
Long-term debts		49,311	12,999
Loans from Sinopec Group Company and fellow subsidiaries		8,079	6,681
Lease liabilities		105,691	107,783
Provisions		36,089	34,514
Other long-term liabilities		4,472	5,404
Total non-current liabilities		203,642	167,381
		521,383	529,177
Equity
Share capital		121,071	121,071
Reserves	(a)	400,312	408,106
Total equity		521,383	529,177

46 BALANCE SHEET AND RESERVE MOVEMENT OF THE COMPANY (Continued)

(a) RESERVES MOVEMENT OF THE COMPANY

The reconciliation between the opening and closing balances of each component of the Group's consolidated reserves is set out in the consolidated statement of changes in equity. Details of the change in the Company's individual component of reserves between the beginning and the end of the year are as follows:

	The Company
	2020	2019
	RMB million	RMB million
Capital reserve
Balance at 1 January	9,247	9,201
Others	135	46
Balance at 31 December	9,382	9,247
Share premium
Balance at 1 January	55,850	55,850
Balance at 31 December	55,850	55,850
Statutory surplus reserve
Balance at 1 January	90,423	86,678
Appropriation	1,857	3,745
Balance at 31 December	92,280	90,423
Discretionary surplus reserve
Balance at 1 January	117,000	117,000
Balance at 31 December	117,000	117,000
Other reserves
Balance at 1 January	3,912	2,286
Share of other comprehensive (loss)/income of associates and joint ventures, net of deferred tax	(182)	201
Cash flow hedges, net of deferred tax	4,911	1,465
Special reserve	240	(40)
Balance at 31 December	8,881	3,912
Retained earnings
Balance at 1 January	131,674	144,132
Profit for the year	18,821	37,256
Distribution to owners (Note 14)	(31,479)	(46,008)
Appropriation	(1,857)	(3,745)
Special reserve	(240)	40
Others	-	(1)
Balance at 31 December	116,919	131,674
	400,312	408,106

(C) DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE ACCOUNTING POLICIES COMPLYING WITH CASs AND IFRS (UNAUDITED)

Other than the differences in the classifications of certain financial statements captions and the accounting for the items described below, there are no material differences between the Group's consolidated financial statements prepared in accordance with the accounting policies complying with CASs and IFRS. The reconciliation presented below is included as supplemental information, is not required as part of the basic financial statements and does not include differences related to classification, presentation or disclosures. Such information has not been subject to independent audit or review. The major differences are:

(i) GOVERNMENT GRANTS

Under CASs, grants from the government are credited to capital reserve if required by relevant governmental regulations. Under IFRS, government grants relating to the purchase of fixed assets are recognised as deferred income and are transferred to the income statement over the useful life of these assets.

(ii) SAFETY PRODUCTION FUND

Under CASs, safety production fund should be recognised in profit or loss with a corresponding increase in reserve according to PRC regulations. Such reserve is reduced for expenses incurred for safety production purposes or, when safety production related fixed assets are purchased, is reduced by the purchased cost with a corresponding increase in the accumulated depreciation. Such fixed assets are not depreciated thereafter. Under IFRS, payments are expensed as incurred, or capitalised as fixed assets and depreciated according to applicable depreciation methods.

Effects of major differences between the shareholders' equity under CASs and the total equity under IFRS are analysed as follows:

	Note	31 December	31 December
		2020	2019
		RMB million	RMB million
Shareholders' equity under CASs		883,876	878,374
Adjustments:
Government grants	(i)	(1,018)	(1,070)
Total equity under IFRS*		882,858	877,304

Effects of major differences between the net profit under CASs and the profit for the year under IFRS are analysed as follows:

	Note	2020	2019
		RMB million	RMB million
Net profit under CASs		41,750	72,172
Adjustments:
Government grants	(i)	52	54
Safety production fund	(ii)	237	69
Others		(115)	(212)
Profit for the year under IFRS*		41,924	72,083

* The figures are extracted from the consolidated financial statements prepared in accordance with the accounting policies complying with IFRS during the year ended 31 December 2019 and 2020 which have been audited by PricewaterhouseCoopers.

(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)

In accordance with "Accounting Standards Codification (ASC) Topic 932 Extractive Activities - Oil and Gas", issued by the Financial Accounting Standards Board of the United States, "Rule 4-10 of Regulation S-X", issued by Securities and Exchange Commission (SEC), and in accordance with "Industrial Information Disclosure Guidelines for Public Company - No.8 Oil and Gas Exploitation", issued by Shanghai Stock Exchange, this section provides supplemental information on oil and gas exploration and producing activities of the Group and its equity method investments at 31 December 2020 and 2019, and for the years then ended in the following six separate tables. Tables I through III provide historical cost information under IFRS pertaining to capitalised costs related to oil and gas producing activities; costs incurred in oil and gas exploration and development; and results of operation related to oil and gas producing activities. Tables IV through VI present information on the Group's and its equity method investments' estimated net proved reserve quantities; standardised measure of discounted future net cash flows; and changes in the standardised measure of discounted cash flows.

Tables I to VI of supplemental information on oil and gas producing activities set out below represent information of the Company and its consolidated subsidiaries and equity method investments.

Table I: Capitalised costs related to oil and gas producing activities

	2020 RMB million			2019 RMB million
	Total	China	Other countries	Total	China	Other countries
The Group
Property cost, wells and related equipments and facilities	757,592	716,683	40,909	727,552	684,246	43,306
Supporting equipments and facilities	184,638	184,621	17	202,208	202,192	16
Uncompleted wells, equipments and facilities	37,445	37,439	6	46,712	46,526	186
Total capitalised costs	979,675	938,743	40,932	976,472	932,964	43,508
Accumulated depreciation, depletion, amortisation and impairment losses	(742,195)	(702,829)	(39,366)	(702,392)	(661,177)	(41,215)
Net capitalised costs	237,480	235,914	1,566	274,080	271,787	2,293
Equity method investments
Share of net capitalised costs of associates and joint ventures	5,843	-	5,843	5,743	-	5,743
Total of the Group's and its equity method investments' net capitalised costs	243,323	235,914	7,409	279,823	271,787	8,036

Table II: Costs incurred in oil and gas exploration and development

	2020 RMB million			2019 RMB million
	Total	China	Other countries	Total	China	Other countries
The Group
Exploration	16,752	16,752	-	16,295	16,295	-
Development	38,241	37,636	605	37,412	37,245	167
Total costs incurred	54,993	54,388	605	53,707	53,540	167
Equity method investments
Share of costs of exploration and development of associates and joint ventures	100	-	100	747	-	747
Total of the Group's and its equity method investments' exploration and development costs	55,093	54,388	705	54,454	53,540	914

Table III: Results of operations related to oil and gas producing activities

	2020 RMB million			2019 RMB million
	Total	China	Other countries	Total	China	Other countries
The Group
Revenues
Sales	52,354	52,354	-	59,552	59,262	290
Transfers	58,069	56,052	2,017	83,633	80,641	2,992
	110,423	108,406	2,017	143,185	139,903	3,282
Production costs excluding taxes	(44,595)	(43,487)	(1,108)	(47,969)	(46,725)	(1,244)
Exploration expenses	(9,716)	(9,716)	-	(10,510)	(10,510)	-
Depreciation, depletion, amortisation and impairment losses	(52,608)	(51,754)	(854)	(48,630)	(47,580)	(1,050)
Taxes other than income tax	(7,379)	(7,379)	-	(9,395)	(9,395)	-
Profit before taxation	(3,875)	(3,930)	55	26,681	25,693	988
Income tax expense	188	-	188	338	-	338
Results of operation from producing activities	(3,687)	(3,930)	243	27,019	25,693	1,326
Equity method investments
Revenues
Sales	4,913	-	4,913	9,325	-	9,325
	4,913	-	4,913	9,325	-	9,325
Production costs excluding taxes	(998)	-	(998)	(2,516)	-	(2,516)
Exploration expenses	-	-	-	-	-	-
Depreciation, depletion, amortisation and impairment losses	(940)	-	(940)	(1,124)	-	(1,124)
Taxes other than income tax	(1,930)	-	(1,930)	(4,068)	-	(4,068)
Profit before taxation	1,045	-	1,045	1,617	-	1,617
Income tax expense	(303)	-	(303)	(486)	-	(486)
Share of profit for producing activities of associates and joint ventures	742	-	742	1,131	-	1,131
Total of the Group's and its equity method investments' results of operations for producing activities	(2,945)	(3,930)	985	28,150	25,693	2,457

The results of operations for producing activities for the years ended 31 December 2020 and 2019 are shown above. Revenues include sales to unaffiliated parties and transfers (essentially at third-party sales prices) to other segments of the Group. Income taxes are based on statutory tax rates, reflecting allowable deductions and tax credits. General corporate overhead and interest income and expense are excluded from the results of operations.

Table IV: Reserve quantities information

The Group's and its equity method investments' estimated net proved underground oil and gas reserves and changes thereto for the years ended 31 December 2020 and 2019 are shown in the following table.

Proved oil and gas reserves are those quantities of oil and gas, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulation before contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate. Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject to change as additional information becomes available.

Proved developed oil and gas reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.

"Net" reserves exclude royalties and interests owned by others and reflect contractual arrangements and obligation of rental fee in effect at the time of the estimate.

	2020			2019
			Other			Other
	Total	China	countries	Total	China	countries
The Group
Proved developed and undeveloped reserves (oil) (million barrels)
Beginning of year	1,450	1,433	17	1,367	1,339	28
Revisions of previous estimates	(161)	(171)	10	81	85	(4)
Improved recovery	109	109	-	160	160	-
Extensions and discoveries	111	111	-	98	98	-
Production	(257)	(250)	(7)	(256)	(249)	(7)
End of year	1,252	1,232	20	1,450	1,433	17
Non-controlling interest in proved developed and undeveloped reserves at the end of year	5	-	5	8	-	8
Proved developed reserves
Beginning of year	1,343	1,326	17	1,271	1,244	27
End of year	1,145	1,130	15	1,343	1,326	17
Proved undeveloped reserves
Beginning of year	107	107	-	96	95	1
End of year	107	102	5	107	107	-
Proved developed and undeveloped reserves (gas) (billion cubic feet)
Beginning of year	7,216	7,216	-	6,793	6,793	-
Revisions of previous estimates	171	171	-	123	123	-
Improved recovery	692	692	-	469	469	-
Extensions and discoveries	1,171	1,171	-	875	875	-
Production	(1,069)	(1,069)	-	(1,044)	(1,044)	-
End of year	8,181	8,181	-	7,216	7,216	-
Proved developed reserves
Beginning of year	6,026	6,026	-	5,822	5,822	-
End of year	6,357	6,357	-	6,026	6,026	-
Proved undeveloped reserves
Beginning of year	1,190	1,190	-	971	971	-
End of year	1,824	1,824	-	1,190	1,190	-

Table IV: Reserve quantities information (Continued)

	2020			2019
			Other			Other
	Total	China	countries	Total	China	countries
Equity method investments
Proved developed and undeveloped reserves of associates and joint ventures (oil) (million barrels)
Beginning of year	290	-	290	299	-	299
Revisions of previous estimates	13	-	13	(8)	-	(8)
Improved recovery	-	-	-	2	-	2
Extensions and discoveries	11	-	11	25	-	25
Production	(24)	-	(24)	(28)	-	(28)
End of year	290	-	290	290	-	290
Proved developed reserves
Beginning of year	245	-	245	261	-	261
End of year	244	-	244	245	-	245
Proved undeveloped reserves
Beginning of year	45	-	45	38	-	38
End of year	46	-	46	45	-	45
Proved developed and undeveloped reserves of associates and joint ventures (gas) (billion cubic feet)
Beginning of year	9	-	9	13	-	13
Revisions of previous estimates	4	-	4	(1)	-	(1)
Improved recovery	-	-	-	-	-	-
Extensions and discoveries	-	-	-	-	-	-
Production	(3)	-	(3)	(3)	-	(3)
End of year	10	-	10	9	-	9
Proved developed reserves
Beginning of year	9	-	9	13	-	13
End of year	8	-	8	9	-	9
Proved undeveloped reserves
Beginning of year	-	-	-	-	-	-
End of year	2	-	2	-	-	-
Total of the Group and its equity method investments
Proved developed and undeveloped reserves (oil) (million barrels)
Beginning of year	1,740	1,433	307	1,666	1,339	327
End of year	1,542	1,232	310	1,740	1,433	307
Proved developed and undeveloped reserves (gas) (billion cubic feet)
Beginning of year	7,225	7,216	9	6,806	6,793	13
End of year	8,191	8,181	10	7,225	7,216	9

Table V: Standardised measure of discounted future net cash flows

The standardized measure of discounted future net cash flows, related to the above proved oil and gas reserves, is calculated in accordance with the requirements of "ASC Topic 932 Extractive Activities - Oil and Gas", "SEC Rule 4-10 of Regulation S-X", and "Industrial Information Disclosure Guidelines for Public Company - No.8 Oil and Gas Exploitation". Estimated future cash inflows from production are computed by applying the average, first-day-of-the-month price adjusted for differential for oil and gas during the twelve-month period before the ending date of the period covered by the report to year-end quantities of estimated net proved reserves. Future price changes are limited to those provided by contractual arrangements in existence at the end of each reporting year. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end estimated proved reserves based on year-end cost indices, assuming continuation of year-end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates to estimated future pre-tax net cash flows, less the tax basis of related assets. Discounted future net cash flows are calculated using 10% discount factors. This discounting requires a year-by-year estimate of when the future expenditure will be incurred and when the reserves will be produced.

The information provided does not represent management's estimate of the Group's and its equity method investments' expected future cash flows or value of proved oil and gas reserves. Estimates of proved reserve quantities are imprecise and change over time as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The arbitrary valuation requires assumptions as to the timing and amount of future development and production costs. The calculations are made for the years ended 31 December 2020 and 2019 and should not be relied upon as an indication of the Group's and its equity method investments' future cash flows or value of its oil and gas reserves.

	2020 RMB million			2019 RMB million
	Total	China	Other countries	Total	China	Other countries
The Group
Future cash flows	595,159	589,659	5,500	869,402	856,037	13,365
Future production costs	(275,409)	(271,824)	(3,585)	(384,417)	(377,692)	(6,725)
Future development costs	(27,028)	(23,902)	(3,126)	(27,065)	(22,216)	(4,849)
Future income tax expenses	(11,758)	(10,521)	(1,237)	(40,720)	(39,634)	(1,086)
Undiscounted future net cash flows	280,964	283,412	(2,448)	417,200	416,495	705
10% annual discount for estimated timing of cash flows	(87,579)	(86,127)	(1,452)	(126,203)	(126,175)	(28)
Standardised measure of discounted future net cash flows	193,385	197,285	(3,900)	290,997	290,320	677
Discounted future net cash flows attributable to non-controlling interests	(1,284)	-	(1,284)	305	-	305
Equity method investments
Future cash flows	31,259	-	31,259	41,796	-	41,796
Future production costs	(13,050)	-	(13,050)	(13,141)	-	(13,141)
Future development costs	(5,712)	-	(5,712)	(5,603)	-	(5,603)
Future income tax expenses	(1,740)	-	(1,740)	(3,995)	-	(3,995)
Undiscounted future net cash flows	10,757	-	10,757	19,057	-	19,057
10% annual discount for estimated timing of cash flows	(4,828)	-	(4,828)	(8,852)	-	(8,852)
Standardised measure of discounted future net cash flows	5,929	-	5,929	10,205	-	10,205
Total of the Group's and its equity method investments' results of standardised measure of discounted future net cash flows	199,314	197,285	2,029	301,202	290,320	10,882

Table VI: Changes in the standardised measure of discounted cash flows

	2020	2019
	RMB million	RMB million
The Group
Sales and transfers of oil and gas produced, net of production costs	(58,449)	(85,821)
Net changes in prices and production costs	(122,641)	(25,442)
Net changes in estimated future development cost	(7,912)	(10,108)
Net changes due to extensions, discoveries and improved recoveries	44,602	61,465
Revisions of previous quantity estimates	(11,211)	12,995
Previously estimated development costs incurred during the year	6,684	9,737
Accretion of discount	31,940	32,407
Net changes in income taxes	19,375	1,547
Net changes for the year	(97,612)	(3,220)
Equity method investments
Sales and transfers of oil and gas produced, net of production costs	(1,984)	(2,741)
Net changes in prices and production costs	(5,190)	(2,804)
Net changes in estimated future development cost	(299)	(881)
Net changes due to extensions, discoveries and improved recoveries	369	1,321
Revisions of previous quantity estimates	437	(423)
Previously estimated development costs incurred during the year	232	355
Accretion of discount	979	1,438
Net changes in income taxes	1,180	701
Net changes for the year	(4,276)	(3,034)
Total of the Group's and its equity method investments' results of net changes for the year	(101,888)	(6,254)

CORPORATE INFORMATION

STATUTORY NAME

中国石油化工股份有限公司

ENGLISH NAME

China Petroleum & Chemical Corporation

CHINESE ABBREVIATION

中国石化

ENGLISH ABBREVIATION

Sinopec Corp.

LEGAL REPRESENTATIVE

Mr. Zhang Yuzhuo

AUTHORISED REPRESENTATIVES

Mr. Ma Yongsheng

Mr. Huang Wensheng

SECRETARY TO THE BOARD

Mr. Huang Wensheng

REPRESENTATIVE ON SECURITIES MATTERS

Mr. Zhang Zheng

REGISTERED ADDRESS AND PLACE OF

BUSINESS

No.22 Chaoyangmen North Street,

Chaoyang District

Beijing, PRC

Postcode	:	100728
Tel.	:	86-10-59960028
Fax	:	86-10-59960386
Website	:	http://www.sinopec.com
E-mail addresses	:	ir@sinopec.com

PLACE OF BUSINESS IN HONG KONG

20th Floor, Office Tower

Convention Plaza

1 Harbour Road

Wanchai

Hong Kong

CHANGES IN THE PLACES FOR INFORMATION

DISCLOSURE AND THE PROVISION OF

REPORTS

No change during the reporting period

LEGAL ADVISORS

People's Republic of China:

Haiwen & Partners

20th Floor, Fortune Financial Centre

No. 5, Dong San Huan Central Road

Chaoyang District

Beijing PRC

Postcode: 100020

Hong Kong:

Herbert Smith Freehills

23rd Floor, Gloucester Tower

15 Queen's Road

Central, Hong Kong

U.S.A.:

Skadden, Arps, Slate, Meagher & Flom LLP

30/F, China World Office 2

No. 1, Jian Guo Men Wai Avenue,

Beijing, PRC

REGISTRARS

A Shares:

China Securities Registration and Clearing

Company Limited Shanghai Branch Company

36th Floor, China Insurance Building

166 Lujiazui East Road

Shanghai, PRC

H Shares:

Hong Kong Registrars Limited

R1712-1716, 17th Floor, Hopewell Centre

183 Queen's Road East

Hong Kong

DEPOSITARY FOR ADRS

The US:

Citibank, N.A.

388 Greenwich St., 14th Floor

New York NY 10013

United States of America

COPIES OF THIS ANNUAL REPORT ARE

AVAILABLE AT

The PRC:

China Petroleum & Chemical Corporation

Board Secretariat

No.22 Chaoyangmen North Street,

Chaoyang District

Beijing, PRC

The US:

Citibank, N.A.

388 Greenwich St., 14th Floor

New York NY 10013

USA

The UK:

Citibank, N.A.

Citigroup Centre

Canada Square

Canary Wharf

London E14 5LB, U.K.

PLACES OF LISTING OF SHARES, STOCK

NAMES AND STOCK CODES

A Shares:

Shanghai Stock Exchange

Stock name	:	SINOPEC CORP
Stock code	:	600028

H Shares:

Hong Kong Stock Exchange Limited

Stock code

00386

ADRs:

New York Stock Exchange

Stock code

SNP

London Stock Exchange

Stock code

SNP

NAMES AND ADDRESSES OF AUDITORS OF

SINOPEC CORP.

Domestic Auditors	:	PricewaterhouseCoopers
		Zhong Tian LLP
Address	:	11th Floor
		PricewaterhouseCoopers,
		2 Corporate Avenue,
		202 Hu Bin Road,
		Huangpu District,
		Shanghai, PRC 200021
Overseas Auditors	:	PricewaterhouseCoopers
Address	:	22nd Floor,
		Prince's Building,
		Central, Hong Kong

DOCUMENTS FOR INSPECTION

The following documents will be available for inspection during normal business hours after 26 March 2021 at the registered address of Sinopec Corp. upon requests by the relevant regulatory authorities and shareholders in accordance with the Articles of Association and the laws and regulations of PRC:

a) The original copies of the 2020 annual report signed by Mr. Zhang Yuzhuo, the Chairman of the Board of Directors;

b) The original copies of financial statements and consolidated financial statements as of 31 December 2020 prepared under IFRS and CASs, respectively, signed by Mr. Zhang Yuzhuo, the Chairman of the Board of Directors, Mr. Ma Yongsheng, the President, and Ms. Shou Donghua, the Chief Financial Officer and head of the Financial Department of Sinopec Corp.;

c) The original auditors'reports signed by the auditors; and

d) Copies of the documents and announcements that Sinopec Corp. has published in the newspapers designated by the CSRC during the reporting period.

By Order of the Board

Zhang Yuzhuo

Chairman

Beijing, PRC, 26 March 2021

If there is any inconsistency between the Chinese and English versions of this annual report, the Chinese version shall prevail.

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Annual Financial Report-part 2