China Petroleum & Chemical Corporation
Annual Report 2021

Plain-text annual report

2021 ANNUAL REPORT AND ACCOUNTS 2 3 7 11 19 31 53 55 62 65 75 77 79 82 Company Profile Principal Financial Data and Indicators Chairman’s Address Business Review and Prospects Management’s Discussion and Analysis Corporate Governance Environment and Social Responsibilities Significant Events Connected Transactions Report of the Board of Directors Report of the Board of Supervisors Changes in Share Capital and Shareholdings of Principal Shareholders Bond General Information Principal Wholly-owned and Controlled Subsidiaries 83 223 224 Financial Statements Corporate Information Documents for Inspection This annual report includes forward-looking statements. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects or anticipates will or may occur in the future (including but not limited to projections, targets, reserve and other estimates and business plans) are forward-looking statements. The Company’s actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties. The Company makes the forward- looking statements referred to herein as at 25 March 2022 and unless required by regulatory authorities, the Company undertakes no obligation to update these statements. CONTENTSIMPORTANT NOTICE: THE BOARD OF DIRECTORS, THE BOARD OF SUPERVISORS, DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF SINOPEC CORP. WARRANT THAT THERE ARE NO FALSE REPRESENTATIONS, MISLEADING STATEMENTS OR MATERIAL OMISSIONS IN THIS ANNUAL REPORT, AND JOINTLY AND SEVERALLY ACCEPT FULL RESPONSIBILITY FOR THE AUTHENTICITY, ACCURACY AND COMPLETENESS OF THE INFORMATION CONTAINED IN THIS ANNUAL REPORT. THERE IS NO OCCUPANCY OF NON-OPERATING FUNDS BY THE CONTROLLING SHAREHOLDERS OF SINOPEC CORP. ALL DIRECTORS ATTENDED THE 7TH MEETING OF THE EIGHTH SESSION OF THE BOARD. MR. MA YONGSHENG, CHAIRMAN OF THE BOARD, MR. YU BAOCAI, PRESIDENT, MS. SHOU DONGHUA, CHIEF FINANCIAL OFFICER AND HEAD OF THE FINACIAL DEPARTMENT OF SINOPEC CORP. WARRANT THE AUTHENTICITY AND COMPLETENESS OF THE FINANCIAL STATEMENTS CONTAINED IN THIS ANNUAL REPORT. THE AUDIT COMMITTEE OF SINOPEC CORP. HAS REVIEWED THE ANNUAL REPORT OF SINOPEC CORP. FOR THE YEAR ENDED 31 DECEMBER 2021. THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 OF THE COMPANY PREPARED IN ACCORDANCE WITH THE PRC ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES (CASs) AND INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) HAVE BEEN AUDITED BY KPMG HUAZHEN LLP AND KPMG RESPECTIVELY. BOTH FIRMS HAVE ISSUED STANDARD UNQUALIFIED AUDITOR’S REPORT. AS APPROVED AT THE 7TH MEETING OF THE EIGHTH SESSION OF THE BOARD OF DIRECTORS OF SINOPEC CORP., THE BOARD PROPOSED A FINAL CASH DIVIDEND OF RMB0.31 (TAX INCLUSIVE) PER SHARE FOR 2021, COMBINING WITH THE INTERIM DIVIDEND OF RMB0.16 (TAX INCLUSIVE) PER SHARE, THE TOTAL CASH DIVIDEND FOR 2021WILL BE RMB0.47 (TAX INCLUSIVE) PER SHARE. THE DIVIDEND PROPOSAL IS SUBJECT TO THE SHAREHOLDERS’ APPROVAL AT THE ANNUAL GENERAL MEETING FOR THE YEAR 2021. COMPANY PROFILE Sinopec H shares were listed in Hong Kong, New York and London exchanges on October 18 and 19, 2000, respectively, and A shares were listed in the Shanghai Stock Exchange on August 8, 2001.Sinopec Corp. is one of the largest integrated energy and chemical companies in China. Its principal operations include the exploration and production, pipeline transportation and sale of petroleum and natural gas; the production, sale, storage and transportation of refinery products, petrochemical products, coal chemical products, synthetic fibre, and other chemical products; the import and export, including an import and export agency business, of petroleum, natural gas, petroleum products, petrochemical and chemical products, and other commodities and technologies; and research, development and application of technologies and information; hydrogen energy business and related services such as hydrogen production, storage, transportation and sales; battery charging and swaping, solar energy, wind energy and other new energy business and related services。 DEFINITIONS: In this report, unless the context otherwise requires, the following terms shall have the meaning as set out below: Sinopec Corp.: China Petroleum & Chemical Corporation Company: Sinopec Corp. and its subsidiaries China Petrochemical Corporation: The controlling shareholder of Sinopec Corp., China Petrochemical Corporation Sinopec Group: China Petrochemical Corporation and its subsidiaries NDRC: China National Development and Reform Commission RMC: Oil and Natural Gas Reserves Management Committee of the Company Sinopec Finance Co.: Sinopec Finance Co., Ltd. Century Bright: Sinopec Century Bright Capital Investment, Ltd. CSRC: China Securities Regulatory Commission. Hong Kong Stock Exchange: The Stock Exchange of Hong Kong Limited Hong Kong Listing Rules: Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited CONVERSION: For domestic production of crude oil, 1 tonne = 7.1 barrels; For overseas production of crude oil: 1 tonne = 7.22 barrels in 2021, 1 tonne = 7.20 barrels in 2020, 1 tonne = 7.21 barrels in 2019; For production of natural gas, 1 cubic meter = 35.31 cubic feet; Refinery throughput is converted at 1 tonne = 7.35 barrels. 2 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Company ProfileCOMPANY PROFILE1 FINANCIAL DATA AND INDICATORS PREPARED IN ACCORDANCE WITH CASS (1) Principal financial data Items Operating income Operating profit Profit before taxation Net profit attributable to equity shareholders of the Company Net profit/(loss) attributable to equity shareholders of the Company excluding extraordinary gains and losses Net cash flow from operating activities Operating income Net profit attributable to equity shareholders of the Company Net profit attributable to equity shareholders of the Company excluding extraordinary gains and losses Net cash flow from operating activities Items Total assets Total liabilities Total equity attributable to equity shareholders of the Company Total number of shares (1,000 shares) (2) Principal financial indicators Items Basic earnings per share Diluted earnings per share Basic earnings per share (excluding extraordinary gains and losses) Weighted average return on net assets (%) Weighted average return (excluding extraordinary gains and losses) on net assets (%) For the year ended 31 December 2020 After adjustment RMB million 2,104,724 50,803 48,441 33,271 2020 Before adjustment RMB million 2,105,984 50,331 47,969 32,924 2021 RMB million 2,740,884 112,414 108,348 71,208 72,220 225,174 (1,565) 168,520 (1,565) 167,518 2019 After adjustment RMB million 2,957,868 90,273 90,250 57,643 2019 Before adjustment RMB million 2,959,799 90,134 90,111 57,619 54,280 154,380 54,280 153,619 Change (%) 30.2 121.3 123.7 114.0 – 33.6 2021 First Quarter RMB million Second Quarter RMB million Third Quarter RMB million Fourth Quarter RMB million 576,559 18,160 684,214 21,266 740,918 20,603 17,674 (15,188) 20,746 63,535 20,300 68,397 739,193 11,179 13,500 108,430 Total RMB million 2,740,884 71,208 72,220 225,174 For the year ended 31 December 2020 After adjustment RMB million 1,738,896 850,176 747,294 121,071,210 2020 Before adjustment RMB million 1,733,805 849,929 742,463 121,071,210 2021 RMB million 1,889,255 973,214 775,102 121,071,210 2019 After adjustment RMB million 1,765,702 882,554 744,738 121,071,210 2019 Before adjustment RMB million 1,760,286 881,912 739,965 121,071,210 Change (%) 8.6 14.5 3.7 – For the year ended 31 December 2020 After adjustment RMB Yuan 2020 Before adjustment RMB Yuan 0.275 0.275 (0.013) 4.46 0.272 0.272 (0.013) 4.44 2021 RMB Yuan 0.588 0.588 0.597 9.35 2019 After adjustment RMB Yuan 2019 Before adjustment RMB Yuan 0.476 0.476 0.448 7.85 0.476 0.476 0.448 7.90 Change (%) 113.8 113.8 – 4.89 percentage points 9.49 (0.21) (0.21) 9.70 7.39 7.44 Net cash flow from operating activities per share 1.860 1.392 1.384 Items Net assets attributable to equity shareholders of the Company per share Liabilities to assets ratio (%) 2021 RMB Yuan 6.402 51.51 For the year ended 31 December 2020 After adjustment RMB Yuan 2020 Before adjustment RMB Yuan Change (%) 6.172 48.89 6.132 49.02 3.7 2.62 percentage points percentage points 33.6 1.275 1.269 2019 After adjustment RMB Yuan 6.151 49.98 2019 Before adjustment RMB Yuan 6.112 50.10 3 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Principal Financial Data and IndicatorsPRINCIPAL FINANCIAL DATA AND INDICATORS (3) Extraordinary items and corresponding amounts Items Net (gain)/loss on disposal of non-current assets Donations Government grants Gain on holding and disposal of various investments Other non-operating expenses, net Net (loss)/profit acquired through business combination under common control during the reporting period Subtotal Tax effect Total Attributable to: Equity shareholders of the Company Minority interests (4) Items measured by fair values Items Other equity instruments Derivative financial instruments Cash flow hedging Financial assets held for trading Receivables financing Total For the year ended 31 December (Income)/expenses 2021 RMB million 2020 RMB million 2019 RMB million (665) 165 (3,085) (259) 4,720 101 977 (72) 905 1,012 (107) (973) 301 (8,605) (37,520) 2,992 (472) (44,277) 6,736 (37,541) (34,836) (2,705) 1,318 209 (6,857) (410) 634 (139) (5,245) 1,757 (3,488) (3,363) (125) Beginning of the year End of the year 1,525 157 7,545 1 8,735 17,963 767 1,350 13,798 – 5,939 21,854 Unit: RMB million Influence on the profit of the year – (14,873) 10,690 99 – (4,084) Changes (758) 1,193 6,253 (1) (2,796) 3,891 4 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Principal Financial Data and IndicatorsPRINCIPAL FINANCIAL DATA AND INDICATORS (CONTINUED)(5) Significant changes of items in the financial statements The table below sets forth reasons for those changes where the fluctuation was more than 30% during the reporting period: Items Operating income As of 31 December 2021 RMB million 2020 RMB million Increase/(decrease) Amount RMB million Percentage (%) Reasons for change 2,740,884 2,104,724 636,160 30.2 A result of sharp increase in the price and sales volume of refining products Operating costs 2,216,551 1,685,674 530,877 31.5 Increase in procurement cost of raw materials due to the rising prices of commodities including crude oil Investment income 6,032 47,486 (41,454) (87.3) Lump-sum income from the restruction of PipeChina was recognised Gains/(Losses) from changes in fair value Impairment losses Operating profit Profit before taxation Income tax expense Net profit Cash flow hedges Derivative financial assets Derivative financial liabilities Receivables financing Inventories Short-term loans Accounts payable Other payables Net cash flow from operating activities Net cash received from disposal of subsidiaries and other business entities Net cash flow from investing activities 3,341 (13,165) 112,414 108,348 23,318 85,030 19,018 18,371 3,223 5,939 207,433 27,366 203,919 114,701 225,174 5,205 (1,253) (26,087) 50,803 48,441 6,344 42,097 7,073 12,528 4,826 8,735 152,191 20,756 151,514 85,012 168,520 49,869 4,594 12,922 61,611 59,907 16,974 42,933 11,945 5,843 (1,603) (2,796) 55,242 6,610 52,405 in 2020 – Impact of changes in variable gains and losses on hedged derivatives (49.5) Decrease in allowance for diminution in value of inventories 121.3 Increase in demand and gross margins of main products 123.7 Expansion of operation and increase in the level of gross profit 267.6 Increase in profit for the year 102.0 Increase in operating profit 168.9 Increase in effective portion of cash flow hedges 46.6 (33.2) (32.0) Improvement in fund efficiency and increase of bills turnover 36.3 Increase in the prices of crude oil, refined oil products and the cost Unrealised profit increased from crude oil hedging of inventory 31.8 Increase in loan of holding subsidiaries. 34.6 Increase in procurement cost due to increase in the price of crude oil and refined oil 29,689 56,654 (44,664) 34.9 Increase in derivative commodity margins 33.6 Increase in cash income from net profit due to higher gross profit (89.6) Mainly due to the cash consideration received from the restruction of PipeChina in 2020 (145,198) (102,650) (42,548) 41.4 Mainly because of the cash consideration received from the restruction of PipeChina in 2020 Net cash flow from financing activities (57,942) (37,510) (20,432) 54.5 Increase in actual cash dividend paid for 2021 5 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Principal Financial Data and Indicators 2 FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH IFRS Items Revenue Operating profit Profit before taxation Profit attributable to shareholders of the Company Basic earnings per share (RMB) Diluted earnings per share (RMB) Return on capital employed (%) Return on net assets (%) Net cash generated from operating activities per share (RMB) Items Non-current assets Net current liabilities Non-current liabilities Non-controlling interests Total equity attributable to shareholders of the Company Net assets per share (RMB) Adjusted net assets per share (RMB) Unit: RMB million For the year ended 31 December 2020 2019 2018 2017 2,104,724 13,669 48,615 33,443 0.276 0.276 6.22 4.48 1.392 2,957,868 86,516 90,161 57,517 0.475 0.475 8.94 7.73 1.275 2,879,192 82,884 99,658 61,920 0.511 0.511 9.21 8.57 1.455 2,347,726 72,396 87,544 51,821 0.428 0.428 8.27 7.08 1.579 Unit: RMB million As of 31 December 2020 2019 2018 2017 1,283,236 67,335 328,199 141,377 746,325 6.164 5.954 1,318,258 133,166 303,014 138,359 743,719 6.143 5.993 1,097,045 63,514 170,803 139,922 722,806 5.970 5.787 1,074,985 52,466 163,387 127,510 731,622 6.043 5.913 2021 2,740,884 94,628 109,169 71,975 0.594 0.594 11.29 9.30 1.860 2021 1,331,231 83,256 332,901 140,892 774,182 6.394 6.225 3 MAJOR DIFFERENCES BETWEEN THE AUDITED FINANCIAL STATEMENTS PREPARED UNDER CASS AND IFRS PLEASE REFER TO PAGE 216 OF THE REPORT. 6 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Principal Financial Data and IndicatorsPRINCIPAL FINANCIAL DATA AND INDICATORS (CONTINUED)for its compliance management system. By deepening reforms and strengthening management, the Company put the SOE Reform 3-year action plan into effect and implemented the benchmarking programme of improving management, enhanced the effectiveness of its internal controls, and upgraded its corporate management performance. Taking advantage of its Party-building activities, the Company further enhanced its supervision mechanisms, motivating staff to increase productivity and pursue career development. In addition, we placed great emphasis on shareholder returns, improved communications with stakeholders, and strengthened environmental, social, and governance measures and disclosures in an effort to consistently increase corporate transparency. Continuing connected transactions of the Company for the next three years gained support and approval by shareholders, ensuring greater production and operational stability. Research and development initiatives achieved fruitful results. We have vigorously implemented an innovation-driven strategy, deepened reform of our R&D mechanisms, built new R&D institutions and technology incubators, and accelerated the deployment of cutting- edge technologies in key areas, including oil & gas exploration and production, chemical new materials, new energy, and green and low- carbon development. As a result, a number of our major R&D projects achieved breakthroughs, and the Company’s comprehensive patent advantages continued to rank at the forefront of domestic enterprises, providing vital support for quality development of the Company. The Company has steadily improved the overall quality of its development. We have strengthened scientific and technological innovation, optimized production and operations, accelerated transformation and development, and upgraded the quality and efficiency of the industrial chain. In upstream, we accelerated our efforts in oil and gas exploration, and we achieved major breakthroughs in continental facies shale oilfields exploration. The domestic oil and gas reserve replacement rate reached 154%, while natural gas production grew by 11.9% over the previous year, thereby increasing reserves, stabilizing oil production, increasing gas output, and improving efficiency. In refining, throughput and major products have seen significant growth as a result of the Company’s ongoing structural adjustment, including initiatives to shift from oil products to chemicals and specialty products, as well as efforts to construct world-class refining and chemical production clusters. In the chemicals segment, we optimized our raw material and product mix, achieving ongoing increases in production of high-value-added products. In the marketing and distribution segment, we strove to integrate and coordinate 7 Dear Shareholders and Friends: First, I would like to express my sincere gratitude to our shareholders and directors for their valued trust and support in nominating me as Chairman of the Company. I am honored to take on this mission and the responsibilities of the role. Together with the Board, we will fulfill our duties with diligence, promote high-quality development of the Company, and continuously improve our corporate value. In 2021, confronted with the impacts of the Covid-19 pandemic as well as the complex and challenging macroeconomic environment, the Board of Directors fully evaluated market conditions both domestically and internationally, adhered to the goal of pursuing progress while maintaining stability, dedicated the Company to vigorously implementing its world-leading development strategy, and focused on promoting high-quality development. At the same time, the management led the entire staff with great dedication in order to accomplish all of the Company’s targets and tasks, getting off to a good start of the 14th Five-Year Plan. Operating results for 2021 achieved a 10-year record high. Over the past year, the Company has taken full advantage of its integrated businesses, made every effort to optimize operations, expanded sales and markets, and reduced costs and expenses, resulting in a substantial increase in operating performance. In accordance with International Financial Reporting Standards, our revenue increased by 30.2% from the previous year to RMB2.74 trillion, operating profit increased by 592.3% to RMB94.628 billion, and profits attributable to shareholders of the Company increased by 115.2% to RMB71.975 billion. Net cash flow from operating activities amounted to RMB225.174 billion, reaching a historical high. The ratio of liabilities to assets at the end of the year was 51.56%, representing a solid financial position. In view of the Company’s profitability, shareholder return, and future development needs, the Board of Directors recommended the payment of a final dividend of RMB0.31 per share. Taking into account the interim dividend of RMB0.16 per share, the total dividend for the year was RMB0.47 per share, with a dividend payout ratio of 80%. Corporate governance has continued to evolve. During the year, the Company elected new members to the Board of Directors and the Board of Supervisors and made appointments to senior management, enhancing diversity on the board level. All independent directors fulfilled their duties with diligence and offered strategic advice for reform and development. The Company optimized a number of corporate governance practices and laid a solid foundation CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Chairman’s AddressCHAIRMAN’S ADDRESSproduction and sales to increase market share, leading to steady growth of domestic sales of refined oil products. We have also achieved rapid development of our non-fuel businesses, as the Company accelerated its development into a comprehensive provider of gasoline, natural gas, hydrogen, power, and energy services. The Company accelerated the pace of its low-carbon transition, deployed projects for hydrogen energy, photovoltaic power stations, and battery charging and swapping, and actively developed biodegradable materials, medical and healthcare materials, and other new businesses. E-commerce platforms such as EPEC, Easy Joy and Chememall have also advanced rapidly. The Company also effectively fulfilled its corporate social responsibilities over the past year. As a Lead member of the United Nations Global Compact, the Company actively responded to climate change by implementing a green and low-carbon development strategy. It has been awarded the title of China Low- Carbon Model for eleven consecutive years. The Company diligently promoted the construction of its health, safety, and environment management system and carried out a three-year campaign to address production safety. We have also strengthened pollution prevention and control to better ensure ecological wellbeing and biodiversity. We implemented multiple measures to support the rural revitalization plan and proactively rendered assistance in flooded areas, as well as undertaking domestic disaster relief and post-disaster reconstruction. As a sponsor of the Beijing Winter Olympics and Paralympics, the Company was committed to providing the best services and disseminating the Olympic spirit. The Company actively and consistently participated in various social welfare initiatives, such as the Warm Stations Program and Drivers’ Home Program. We have always valued the physical and psychological health of all our staff, strictly following all mandated measures for pandemic control to safeguard health management. Moreover, the Company has been well recognized for supporting the fight against the pandemic in its business operating locations, and promoting local economic development and environmental protection. We attribute our hard-won achievements in 2021 to the efforts and dedication of the Company’s Board of Directors, the Board of Supervisors, the management, and all staff, as well as the valued support of our shareholders and the community. On behalf of the Board of Directors, the management, and our staff, I thank our shareholders and the community for their continued interest in and support of Sinopec Corp. Due to new working arrangements, Mr. Zhang Yuzhuo ended his term as the Chairman of the Company. During his tenure, he was devoted to his duties and played a vital role in improving corporate governance and promoting sustainable development of the Company. On behalf of the Board of Directors, I would like to extend my sincere gratitude to him. Looking ahead, in light of the country’s carbon peak and carbon neutrality goals, resource and environmental constraints will have a profound impact on the development of the energy and chemical industries. The energy industry has entered a phase of transition requiring qualitative changes and a deepening structural adjustment, which will pose serious challenges to the Company’s high-quality development. Considering the current stage of its development, as well as the existing opportunities and challenges, the Company will continue to optimize its 14th Five-Year Plan and Vision 2035, and will set out a clear path towards sustainable development through actionable goals and principles: Focus on promoting corporate governance. Through further improvements in its corporate governance system and enhancements to governance efficiency, the Company will ensure that it can achieve superior operating standards. To fulfill the goals of strengthening internal controls, reducing risk, and promoting compliance, we will work on the integration of risk control, internal control, and compliance management, and we will minimize risk in all aspects of our operations, including safety in production, environmental protection, and operations management. We will deepen our corporate reform to maintain the vitality of operating systems and mechanisms. In addition, the Company will elevate corporate management performance to new levels by benchmarking world-class management practices. The Company will further improve its Party-building efforts to promote high-quality development. Focus on implementing an innovation-driven strategy. The Company will strive to nurture a wellspring of self-developed new technologies, promote research and development of advanced oil and gas exploration technologies, and enhance innovation and breakthroughs in high-end chemicals, new materials, modern coal chemical technology, and new energy products, as well as in key, generic and advanced technologies. The Company will turn those technological achievements into its competitive business advantages to support its transformation and upgrading. Focus on improving energy supply capacity. The Company will redouble its efforts in exploration, especially in shale oil and shale gas. It will continue to implement integrated development of natural gas production, supply, storage, and sales. It will continue to develop its hydrogen energy business at a reliable pace, while building out photovoltaic power stations according to local conditions, thereby expanding the scope of its energy and resources. In addition, the Company will strengthen its international trade capability, coordinate the allocation of global resources, and further explore the build-out of a successful multi-energy supply system. Focus on enhancing the quality and upgrading of the petrochemical industry. Adhering to the goal of excelling in the refining business and strengthening its chemicals business, the Company will speed up the development of initiatives to shift from oil products to chemicals and specialty products, upgrade the chemicals business to concentrate on mid-to- high-end products, advance construction of world-class, large-scale, intelligent, integrated refining and chemical production clusters, and strengthen the resilience of its industrial chain. Following the general trend in transportation energy, the Company will accelerate its transformation to a comprehensive provider of gasoline, natural gas, hydrogen, power, and energy services. Furthermore, the Company will commit to implementing the digital transition and intelligent manufacturing of its traditional businesses, and further develop e-commerce platforms to expand momentum of new business growth. Focus on boosting green and low- carbon competitiveness. By coordinating its environmental goals with production development, the Company will base its emission reduction targets on scientifically achievable approaches, and continue to optimize its industrial and energy structure. It will enhance its energy efficiency with the aim of establishing an industry benchmark. The Company will establish its green and low-carbon initiatives and help advance the circular development system, thereby promoting resource utilization that is efficient, intensive, and recyclable. It will also accelerate research and innovation in green and low-carbon technologies such as carbon capture, utilization, and storage to take the initiative in innovative development. With the challenges of the ongoing global pandemic, geopolitical tensions, and high spot prices of commodity, the recovery of the world economy is still subject to significant 8 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Chairman’s AddressCHAIRMAN’S ADDRESS (CONTINUED)When the path ahead is tortuous, the only way forward is trailblazing. I cherish the strong belief that under the leadership of the Board of Directors and through the combined efforts of the management and staff, as well as the strong support of our shareholders and the community, Sinopec Corp. will be able to take full advantage of its strengths in the industry, its technologies, and its talents to forge a distinctive path to high- quality growth, creating greater value for our shareholders and society at large and providing cleaner energy for a better life. Ma Yongsheng Chairman 25 March 2022 uncertainties. The international environment faced by the Company has grown more complex. Nevertheless, China’s economy is expected to maintain steady growth, with strong resilience, great potential, and risk resistance capabilities. Domestic economic fundamentals will remain strong in the long term. The stable and healthy domestic economic environment will create great opportunities for the Company’s future development. In 2022, the Company will continue to adhere to the principle of pursuing progress while maintaining stability. In complete, accurate and comprehensive implementation of China’s new development philosophy, the Company will integrate the new development philosophy with its existing businesses by high quality to further enhance its corporate governance, production and operations, transformation and development, technological innovation, management reform, risk control, and Party building, making every effort to achieve its goal of becoming a world-leading company. In its upstream businesses, the Company will make greater efforts to increase reserves with higher efficiency, upgrade production in an economical way, and reduce costs and fees, while expanding its resource channels and improving its energy supply capacity. In refining, the Company will strive to adjust its structure to reduce costs and improve supply capacity. In the chemicals business, the Company will accelerate advanced capacity construction to extend its high- end industrial chain and develop new growth engines. In the marketing and distribution segment, it will further take advantage of its marketing network to provide customers with comprehensive, high-quality services. Moreover, the Company will actively and steadily deploy new energy businesses such as hydrogen energy and photovoltaic stations to strengthen its green and low-carbon competitiveness. Capital expenditures will be RMB198 billion in 2022, mainly for investments in high- quality exploration and production; natural gas systems including production, supply, storage, and sales; adjustments in the structure of the refining business; construction of refining and chemical production clusters; high-end materials projects; and integrated energy service stations for gasoline, natural gas, hydrogen, power, and services, as well as new energy businesses. The Company will endeavor to consolidate and enhance its business competitiveness to achieve a healthier and more sustainable growth. 9 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Chairman’s Address10 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Business Review and ProspectsBUSINESS REVIEW AND PROSPECTSBUSINESS REVIEW Movement of International Crude Oil Prices USD/Barrel In 2021, the COVID-19 pandemic continued and the world economic recovery was weak. China achieved remarkable results in pandemic prevention and control, and its economy continued to grow. The annual gross domestic product (GDP) increased by 8.1% year on year. International oil prices fluctuated with upward trend, the domestic demand for refined oil products recovered, the demand for natural gas increased rapidly, and the demand for chemical products remained stable. Following market conditions, the Company optimized the whole business chain, expanded market, increased sales volume, and significantly improved the profits of our core businesses. The net profit attributable to the shareholders of the company reached the best level in the same period for nearly a decade. 120 100 80 60 40 20 0 WTI-NYMEX BRENT ICE BRENT DTD DUBAI Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 1 MARKET REVIEW (1) Crude Oil & Natural Gas Market (2) Refined Oil Products Market (3) Chemical Products Market In 2021, international crude oil prices fluctuated with upward trend. The spot price of Platts Brent for the year averaged USD70.7 per barrel, up by 69.7% year on year. In the context of energy transition, the domestic natural gas demand grew rapidly. Based on statistics by NDRC, the domestic apparent consumption of natural gas reached 372.6 billion cubic meters, up by 12.7% year on year. In 2021, the domestic refined oil products market demand picked up. According to NDRC statistics, the apparent consumption of refined oil products (including gasoline, diesel and kerosene) was 340 million tonnes, up by 3.2% from the previous year. Among them, gasoline, diesel and kerosene increased by 5.7%, 0.5% and 5.7%, respectively. According to the change of international crude oil prices, there were 21 price adjustments domestically for refined oil products throughout the year with 15 increases and 6 decreases. In 2021, the domestic demand for chemicals maintained stable. Based on our statistics, the domestic apparent consumption of ethylene equivalent decreased by 1.7% from the previous year, and the apparent consumption of synthetic resin, synthetic fiber and synthetic rubber decreased by 0.3%, increased by 0.3% and decreased by 4.5%,, respectively. Domestic prices of chemical products increased year on year. 11 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Business Review and ProspectsBUSINESS REVIEW AND PROSPECTS2 PRODUCTION & OPERATION REVIEW (1) Exploration and Production In 2021, the Company seized the opportunity of rising oil prices to promote oil and gas exploration and development in major target basins, continuously scaled up profitable capacity, and made new breakthroughs in increasing reserves, maintaining oil production, increasing gas output, and improving efficiency. In exploration, we strengthened risk exploration and trap pre-exploration in new areas, and made a number of new oil and gas discoveries, including major breakthroughs in continental facies shale oilfields exploration in Bohai Bay Basin, North Jiangsu Basin and Sichuan Basin. In crude oil development, we accelerated building of production capacity in Shunbei and Tahe, and strengthened fine development in mature fields. In natural gas development, we sped up capacity building of Weirong, Yongchuan South and Nanchuan fields, strengthened fine development of Puguang, Yuanba and other fields, and deepened the development of Fuling shale gas field. In the meantime, we signed medium and long-term LNG agreements to increase overseas natural gas supply. We developed new natural gas market reaching more quality end users with sales volume and market share rising constantly. The Company’s production of oil and gas equivalent reached 479.74 million barrels including 249.60 million barrels of domestic crude which kept flat year on year, and 1,199.4 billion cubic feet of natural gas which increased by 11.9% year on year. Summary of Operations for the Exploration and Production Segment Oil and gas production (mmboe) Crude oil production (mmbbls) China Overseas Natural gas production (bcf) Summary of Reserves of Crude Oil and Natural Gas Items Proved reserves Proved developed reserves China Consolidated companies Shengli Others Overseas Consolidated companies Equity accounted entities Proved undeveloped reserves China Consolidated companies Shengli Others Overseas Consolidated companies Equity accounted entities 2021 479.74 279.76 249.60 30.16 1,199.44 2020 459.02 280.22 249.52 30.70 1,072.33 2019 458.92 284.22 249.43 34.79 1,047.78 Change from 2020 to 2021(%) 4.5 (0.2) 0.0 (1.8) 11.9 Crude oil reserves (mmbbls) 31 December 2021 31 December 2020 1,749 1,578 1,291 1,291 961 330 287 24 263 171 125 125 17 108 46 0 46 1,542 1,389 1,130 1,130 821 309 259 15 244 153 102 102 16 86 51 5 46 12 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Business Review and ProspectsBUSINESS REVIEW AND PROSPECTS (CONTINUED)Items Proved reserves Proved developed reserves China Consolidated companies Puguang Fuling Others Overseas Consolidated companies Equity accounted entities Proved undeveloped reserves China Consolidated companies Fuling Others Overseas Consolidated companies Equity accounted entities Exploration and Production Activities Natural gas reserves (bcf) 31 December 2021 31 December 2020 8,191 6,365 6,357 6,357 1,675 1,491 3,191 8 0 8 1,826 1,824 1,824 119 1,705 2 0 2 8,456 6,740 6,734 6,734 1,582 1,529 3,623 6 0 6 1,716 1,715 1,715 99 1,616 1 0 1 2020 2021 Wells drilled (as of 31 December) Exploratory Development Exploratory Development China Consolidated companies Shengli Others Overseas Consolidated companies Equity accounted entities Total Productive 363 363 170 193 2 0 2 365 Dry 129 129 58 71 1 0 1 130 Productive Dry Productive 1,828 1,828 944 884 114 2 112 1,942 4 4 2 2 0 0 0 4 383 383 204 179 2 0 2 385 Dry 136 136 64 72 0 0 0 136 Productive Dry 2,015 2,015 1,080 935 100 4 96 2,115 3 3 2 1 0 0 0 3 Wells drilling (as of 31 December) 2021 2020 Gross Net Gross Net Exploratory Development Exploratory Development Exploratory Development Exploratory Development China Consolidated companies Shengli Others Overseas Consolidated companies Equity accounted entities Total China Consolidated companies Shengli Others Overseas Consolidated companies Equity accounted entities Total 108 108 33 75 0 0 0 108 201 201 55 146 123 3 120 324 108 108 33 75 0 0 0 108 201 201 55 146 62 1 61 263 92 92 29 63 2 0 2 94 212 212 52 160 0 0 0 212 92 92 29 63 2 0 2 94 Oil productive wells (as of 31 December) 2021 2020 Gross 53,851 53,851 34,991 18,860 5,534 30 5,504 59,385 Net 53,851 53,851 34,991 18,860 2,372 11 2,361 56,223 Gross 53,240 53,240 34,572 18,668 7,055 28 7,027 60,295 212 212 52 160 0 0 0 212 Net 53,240 53,240 34,572 18,668 2,752 10 2,742 55,992 13 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Business Review and ProspectsRegion China Consolidated companies Puguang Fuling Others Total Acreage with exploration licenses China Acreage with development licenses China Overseas (2) Refining In 2021, the Company seized the favorable opportunity of recovery and rising oil prices, insisted on integration and optimisation of production and marketing, focused on expanding scale and adjusting structure, and maximized the overall profits along the value chain. Guided by the market demand, we expedited adjustment to increase the yield of chemicals feedstock and Natural gas productive wells (as of 31 December) 2021 2020 Gross 7,539 7,539 79 779 6,681 7,539 Net 7,489 7,489 79 779 6,631 7,489 Gross 6,976 6,976 67 632 6,277 6,976 Net 6,928 6,928 67 632 6,229 6,928 Unit: Square kilometers Area under license (as of 31 December) 2021 2020 390,023 390,023 42,391 36,480 5,911 436,864 436,864 39,195 33,965 5,230 hydrogen purification units and filling facilities were built throughout the year. In 2021, the Company processed 255 million tonnes of crude oil, up by 7.8%, yielding 146 million tonnes of refined oil products, with a year-on-year increase of 3.3%. Among them, gasoline output was 65.21 million tonnes, increased by 12.6%, and light chemical feedstock was 45.41 million tonnes, up by 12.9%. refining specialities. We vigorously increased production of gasoline and light chemical feedstock, continued to expand marketing and sales of special products such as low-sulfur bunker fuel, and maintained high utilization rate. The Company optimized resource allocation and achieved significant cost reduction in procurement. We accelerated building up advanced production capacity and promoted structural adjustments. Six Summary of Operations for the Refining Segment Unit: million tonnes Refinery throughput Gasoline, diesel and kerosene production Gasoline Diesel Kerosene Light chemical feedstock production Light product yield (%) Refinery yield (%) Note: Includes 100% of the production from domestic joint ventures. 2021 255.28 146.21 65.21 59.85 21.15 45.41 73.83 94.65 2020 236.91 141.50 57.91 63.21 20.38 40.22 74.34 94.77 2019 248.52 159.99 62.77 66.06 31.16 39.78 76.38 94.98 Change from 2020 to 2021 (%) 7.8 3.3 12.6 (5.3) 3.8 12.9 (0.51) percentage points (0.12) percentage points (3) Marketing and Distribution In 2021, domestic consumption of refined oil products recovered. The company gave full play to the advantages of integration and marketing network to continuously improve quality and scale in operation. We innovated marketing approaches, implemented precision marketing strategies, and expanded sales. Our network layout for end-users were further optimized, and an internet operation center was established, with online and offline businesses constantly integrated. We actively promoted the construction of comprehensive service stations including oil, gas, hydrogen, electricity and non-fuel businesses and accelerated building up new energy service networks. Total annual sales volume of refined oil products was 221 million tonnes, of which total domestic sales volume amounted to 171 million tonnes, up by 2.0% year on year. 14 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Business Review and ProspectsBUSINESS REVIEW AND PROSPECTS (CONTINUED)Summary of Operations for the Marketing and Distribution Segment Total sales volume of oil products (million tonnes)* Total domestic sales volume of oil products (million tonnes) Retail sales (million tonnes) Direct sales and distribution (million tonnes) Annual average throughput per station (tonne/station) 2021 220.79 171.31 114.30 57.01 3,720 2020 217.91 167.99 113.19 54.80 3,686 Change from 2019 2020 to 2021 (%) 254.95 184.45 122.54 61.91 3,992 1.3 2.0 1.0 4.0 0.9 Change from the end of the previous year to the end of the reporting period (%) 31 December 2021 31 December 2020 31 December 2019 Total number of service stations under the Sinopec brand Number of company-operated stations 30,725 30,725 30,713 30,707 30,702 30,696 0.04 0.06 Note: The total sales volume of refined oil products includes the amount of refined oil marketing and trading sales volume. (4) Chemicals In 2021, the Company adhered to “basic plus high-end”, accelerated the construction of advanced production capacity, strengthened structural adjustment, extended the industrial chain and cultivated growth points. We continuously diversified raw materials, optimized structure and maintenance scheduling of facilities, and maintained high-profitable units’ utilization rates. We further integrated process of production, marketing, research and application, strengthened R&D efforts for high- end products and new materials, and increased output of high value-added products such as metallocene polyolefin and carbon fiber. The production ratio of synthetic resin, synthetic rubber, synthetic fiber and fine chemicals with added value were increased by 1.0, 3.5, 1.6 and 3.0 percentage points respectively. The annual ethylene output was 13.38 million tonnes, representing a year-on-year increase of 10.9%. At the same time, we vigorously developed strategic customers and continuously improved the service level. The total operating volume of chemical products in 2021 was 81.6 million tonnes, realizing full production and sales. Summary of Operations for the Chemicals Segment Ethylene Synthetic resin Synthetic rubber Synthetic fiber monomer and polymer Synthetic fiber 2021 13,380 18,999 1,252 9,201 1,357 2020 12,060 17,370 1,067 9,057 1,313 Unit: thousand tonnes Change from 2020 to 2021 (%) 10.9 9.4 17.3 1.6 3.4 2019 12,493 17,244 1,047 10,029 1,289 Note: Includes 100% of the production of domestic joint ventures. (5) Research and Development In 2021, the Company deepened the reform of science and technology system and mechanism, increased science and technology investment, promoted key core technology research, and achieved fruitful results, giving full play to the leading role of science and technology in industrial development. In upstream, new progress was made in exploration theory and breakthrough was achieved in key technology for exploration and development of Sichuan Basin and Shunbei area. In refining, the world’s first industrial test of full distillates crude oil catalytic cracking technology was completed. The industrial application of MFP technology, which produces more propylene and low-sulfur fuel, realized a breakthrough. We also successfully developed and produced needle coke products. In chemicals, we took the lead in completing the industrial test of direct cracking of crude oil to ethylene in China, and we successfully developed 15 new lightweight products for green and environment-friendly vehicles, such as carbon fiber reinforced epoxy resin composites. Breakthroughs were made in the development of hydrogenated styrenic thermal-plastic elastomer. In 2021, the Company had 8,045 patent applications at home and abroad, among which 4,868 were granted. We won 1 first prize and 5 second prizes of National Scientific and Technological Progress Award and 1 second prize of National Technological Invention Award for 2020. We also obtained 1 gold, 4 silver and 11 excellence awards for Chinese patents. 15 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Business Review and Prospects(6) Health and Safety In 2021, the Company comprehensively promoted HSE management system and continuously strengthened management. We focused on employees’ health, safety and security management, enhanced pandemic prevention and control mechanism, and improved emergency response capacity, so as to maintain occupational, physical and mental health of employees at home and abroad. We implemented production safety responsibility among all employees, popularized prevention mechanisms of safety risk controlling and hidden risks shooting. We promoted the pilot project of “Industrial Internet plus Safe Production”, carried out special actions including a 3-year rectification program for production safety, and “A Hundred Days without Accidents” activity. The Company witnessed overall stable and safe production in 2021. expenditures of the refining segment were RMB22.5 billion, mainly used for the expansion of Zhenhai refinery and structural adjustment of Anqing and Yangzi refineries. The capital expenditures of the marketing and distribution segment were RMB21.9 billion, mainly used for service stations, integrated energy stations and logistics facilities. The capital expenditures of the chemicals segment were RMB51.6 billion, mainly used for Zhenhai, Sinopec-SK, Hainan, Tianjin Nangang, Gulei ethylene projects, AGCC project, Jiujiang Aromatics project, Shanghai large-tow carbon fiber project, Yizheng PTA project, Guizhou PGA project, and Qilu CCUS project. The capital expenditures for corporate and others were RMB3.8 billion, mainly for R&D facilities and information technology projects. BUSINESS PROSPECTS (7) Capital Expenditures (1) Market Prospects In 2021, focusing on investment quality and return, the Company continued to optimize investment management. The capital expenditures for the whole year were RMB167.9 billion. Capital expenditures of the exploration and production segment were RMB68.1 billion, mainly used for crude production capacity construction in Shunbei Oilfield, natural gas production capacity construction in Western Sichuan, Fuling and Weirong, storage and transmission facilities of Tianjin LNG Phase II and Qingdao LNG Phase III, and the CCUS Project in Shengli Oilfield. The capital Looking forward to 2022, the world economic growth is expected to maintain the recovery. China’s economy is expected to achieve stable growth, and the long-term positive fundamentals will remain unchanged. It is expected that the market demand for refined oil products will continue to recover, and that for natural gas and petrochemical products will continue to grow. Oil prices may face greater volatility risks due to geopolitical situation, changes in global supply and demand, inventory levels, and carbon peaking and neutrality targets. (2) Production & Operation In 2022, guided by the development strategy of building a world-leading company, the Company will focus on optimization of production and operation, transition and development, technology innovation, reform and management, and risk prevention and control to march toward its targets firmly. The following are specific measures: Exploration and production segment: The Company will enhance risk exploration and trap pre-exploration efforts, strengthen profitable development, and speed up the construction of natural gas production, supply, storage and marketing system, so as to achieve better results in oil production stabilization, gas production increase, cost reduction and efficiency improvement. In terms of crude oil development, the Company will scale up the production in Shunbei and Tahe oilfields, accelerate the construction of the national demonstration zone of continental facies shale oilfields in Jiyang, and refine the development of mature oilfields, so as to achieve steady crude oil production growth and a significant decrease in the break-even point. In terms of natural gas development, the Company will accelerate the capacity building of Dongsheng and Western Sichuan gas fields, further expand and tap the potential of Puguang, Yuanba gas fields, and deepen the development adjustment of Fuling gas field. At the same time, more efforts will be made in taking a diversified approach to expand resource channels, cultivate high-quality and efficient end-user markets, and maintain the good momentum of natural gas development. The planned annual production of crude oil is 281.20 million barrels, of which 31.28 million barrels will come from overseas and that of natural gas is 1,256.7 billion cubic feet. 16 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Business Review and ProspectsBUSINESS REVIEW AND PROSPECTS (CONTINUED)Capital expenditures: In 2022, the Company’s planned capital expenditures are RMB198 billion, of which, RMB81.5 billion will be for the exploration and production segment, including the construction of crude oil production capacity in Shunbei and Tahe oilfields, and natural gas production capacity in Western Sichuan, Dongsheng and Zhongjiang and construction of storage and transmission facilities such as Longkou LNG. Capital expenditures for the refining segment will be RMB20.4 billion, mainly for the construction of Anqing, Yangzi refinery structural adjustment projects and Zhenhai refinery Phase II. Capital expenditures for the marketing and distribution segment will be RMB23.7 billion, mainly used for the construction of service stations, integrated energy stations and logistics facilities. The capital expenditures of the chemicals segment will be RMB66.1 billion, which will be mainly used for Hainan and Tianjin Nangang ethylene projects, Jiujiang Aromatics project, Shanghai large-tow carbon fiber project, Yizheng PTA project, Guizhou PGA project, Zhenhai Refinery Phase II. Capital expenditures for corporate and others are planned to be RMB6.3 billion, which will be mainly used for R&D facilities and information technology projects. Refining segment: The Company will prioritize structural adjustment and cost reduction, speed up the construction of world-class refining and chemical bases, and promote the systemic improvement of the refining value chain. Oriented by profitability, the Company will make appropriate arrangement for facilities utilization and production scheduling, flexibly adjust the yield of refined oil products and diesel-gasoline ratio; dynamically optimize the allocation of crude oil resources to reduce procurement costs; accelerate the shift from refined oil products to chemicals, increase the production of chemical raw materials, improve the self-sufficient rate of chemical feedstocks; speed up the shift from refined oil products to special products, expand the market of special products such as low-sulfur bunker fuel, lubricating grease, base oil, needle coke, etc., and improve profitability. The annual plan for crude oil throughput is 258 million tonnes and that for refined oil products production is 147 million tonnes. Marketing segment: Giving full play to integrated advantages, the Company will make every effort to expand the market, improve efficiency, and consolidate its position in the market. The Company plans to improve the market monitoring system, implement well-targeted marketing strategies, increase both retailing sales volume and efficiency; implement network development strategies by different regions and levels, continue to optimize network layout, enhance network integrity, stability and competitiveness; strengthen the development of Sinopec-brand products, improve the quality and profitability of non-fuel business; promote gas and hydrogen refueling, power charging and battery swapping, build integrated energy stations covering gasoline, diesel, gas, hydrogen, electricity and non-fuel services; and accelerate the construction of carbon-neutral gas stations. The annual domestic sales volume of refined oil products is planned to be 174 million tonnes. Chemicals segment: Adhering to “basic + high-end”, the Company will promote the building of advanced capacity, speed up the deployment of large-scale ethylene plants, promote the upgrading and appropriate extension of the aromatics industry chain, continuously enhance market competitiveness; diversify raw materials, enhance the cost advantage; dynamically optimize and adjust the utilization, continue to promote facilities’ operation efficiency; stay market-oriented, vigorously develop new materials and applications with high added value and advanced technology. Meanwhile, we will optimize the mechanism to respond to market need rapidly, strengthen refined management, and improve service quality and efficiency. The planned annual ethylene production is 15.25 million tonnes. Technological development: Following the innovation-driven strategy, the Company aims to make breakthroughs in core technologies, promote the mechanism reform of the technological system, accelerate the intelligent application and digital transformation to build a technology-leading company. Specific focuses include technological breakthroughs in oil and gas exploration and production with the emphases on oil production stabilization, gas production increase, cost reduction, and efficiency improvement, oil and gas reserves and production increase; coordinated development of integration of refining and chemical technologies, refined oil products structure optimization, clean, efficient and low-carbon utilization of resources; key raw materials and high-end new materials development, coordination of the development and application of technologies such as safety and environmental protection; energy conservation and emission reduction, and intelligent optimization; forward- looking and basic research on such areas as green and low-carbon, new energy, and new materials to support industrial transition and upgrading. 17 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Business Review and Prospects18 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSISTHE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY’S AUDITED FINANCIAL STATEMENTS AND THE ACCOMPANYING NOTES. PARTS OF THE FOLLOWING FINANCIAL DATA WERE ABSTRACTED FROM THE COMPANY’S AUDITED FINANCIAL STATEMENTS THAT HAVE BEEN PREPARED ACCORDING TO THE IFRS, UNLESS OTHERWISE STATED. THE PRICES IN THE FOLLOWING DISCUSSION DO NOT INCLUDE VALUE-ADDED TAX. 1 CONSOLIDATED RESULTS OF OPERATIONS In 2021, the Company’s revenue was RMB2,740.9 billion, increased by 30.2% compared with that of 2020. That was mainly due to the good momentum of Chinese economy, increase of international crude oil price, recovery of domestic refined oil products demand and increase of chemical products prices. The Company sized the opportunity of demand recovery, optimised operation and production, promoted structural adjustment and transition and upgrading, and realised RMB94.6 billion operating profit, up by 592.3% year on year. The following table sets forth the main revenue and expenses from the Company’s consolidated financial statements: Revenue Revenue from primary business Other operating revenues Operating expenses Purchased crude oil, products and operating supplies and expenses Selling, general and administrative expenses Depreciation, depletion and amortisation Exploration expenses, including dry holes Personnel expenses Taxes other than income tax Other operating expenses, net Operating profit Net finance costs Investment income and share of profits less losses from associates and joint ventures Profit before taxation Income tax expense Profit for the year Attributable to: Shareholders of the Company Non-controlling interests (1) Revenue Year ended 31 December 2021 RMB million 2020 RMB million Change (%) 2,740,884 2,679,500 61,384 (2,646,256) (2,076,665) (54,978) (115,680) (12,382) (103,492) (259,032) (21,716) 94,628 (9,010) 23,551 109,169 (23,318) 85,851 2,104,724 2,048,654 56,070 (2,091,055) (1,589,821) (53,668) (107,461) (9,716) (87,525) (235,018) (5,780) 13,669 (9,510) 44,456 48,615 (6,344) 42,271 71,975 13,876 33,443 8,828 30.2 30.8 9.5 26.6 30.6 2.4 7.6 27.4 18.2 10.2 275.7 592.3 (5.3) (47.0) 124.6 267.6 103.1 115.2 57.2 In 2021, the Company’s revenue from primary business was RMB2,679.5 billion, representing an increase of 30.8% over 2020. This was mainly due to the price and sales volume increase in refined oil products and chemical products. The following table sets forth the external sales volume, average realised prices and respective rates of change of the Company’s major products in 2021 and 2020: Crude oil Natural gas (million cubic meters) Gasoline Diesel Kerosene Basic chemical feedstock Monomer and polymer for synthetic fibre Synthetic resin Synthetic fibre Synthetic rubber Chemical fertiliser Sales volume (thousand tonnes) Year ended 31 December Average realised price (RMB/tonne, RMB/thousand cubic meters) Year ended 31 December 2021 7,162 29,953 90,836 78,335 21,270 36,173 6,955 17,923 1,457 1,286 976 2020 Change (%) 7,422 26,280 86,193 77,280 20,828 36,683 9,691 17,112 1,402 1,361 1,177 (3.5) 14.0 5.4 1.4 2.1 (1.4) (28.2) 4.7 3.9 (5.5) (17.1) 2021 3,049 1,606 7,731 5,891 3,772 5,486 6,537 8,325 7,521 11,099 2,807 2020 2,029 1,352 6,300 4,789 2,635 3,636 4,297 7,148 6,381 7,982 1,955 Change (%) 50.3 18.8 22.7 23.0 43.1 50.9 52.1 16.5 17.9 39.1 43.6 19 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS Most crude oil and a small portion of natural gas produced by the Company were internally used for refining and chemical production, with the remaining sold to external customers. In 2021, the turnover from crude oil, natural gas and other upstream products sold externally amounted to RMB156.0 billion, representing an increase of 49.3% over 2020. The change was mainly due to increases in crude oil and natural gas prices, and the increase of natural gas sales volume. In 2021, petroleum products (mainly consisting of refined oil products and other refined petroleum products) sold by Refining Segment and Marketing and Distribution Segment achieved external sales revenues of RMB1,535.5 billion (accounting for 56.0% of the Company’s revenue), representing an increase of 30.6% over 2020, mainly due to the increase in prices and volume of refined oil products. The sales revenue of gasoline, diesel and kerosene was RMB1,243.9 billion, representing an increase of 28.5% over 2020, and accounting for 81.0% of the total sales revenue of petroleum products. Turnover of other refined petroleum products was RMB291.6 billion, representing an increase of 49.0% compared with that of 2020, accounting for 19.0% of the total sales revenue of petroleum products. The Company’s external sales revenue of chemical products was RMB424.8 billion, representing an increase of 31.8% over 2020, accounting for 15.5% of the Company’s total revenue. This was mainly due to the increase in price and sales volume of chemical products. (2) Operating expenses In 2021, the Company’s operating expenses was RMB2,646.3 billion, increased by 26.6% compared with that of 2020. The operating expenses mainly consisted of the following: Purchased crude oil, products and operating supplies and expenses was RMB2,076.7 billion, representing an increase of 30.6% over the same period of 2020, accounting for 78.5% of the total operating expenses, of which: Crude oil purchasing expenses was RMB689.5 billion, representing an increase of 43.9% over the same period of 2020. Crude oil purchased externally used for processing in 2021 was 212.55 million tonnes (excluding the volume processed for third parties), representing an increase of 7.9% over the same period of 2020. The average cost of crude oil purchased externally was RMB3,244 per tonne, representing an increase by 33.3% over 2020. The Company’s other purchasing expenses was RMB1,387.2 billion, representing an increase of 24.9% over the same period of 2020. This was mainly attributable to the sharp increase in international bulk raw material prices and purchasing volume increase. Selling, general and administrative expenses was RMB55.0 billion, representing an increase of 2.4% over 2020. Depreciation, depletion and amortisation was RMB115.7 billion, representing an increase of 7.6% over the same period of 2020. That was mainly because that the proved reserve decreased resulting from the decrease of international crude oil prices and appreciation of RMB exchange rate in 2020, thus the depletion ratio of oil and gas assets increased, which led to the depreciation and depletion increased. Exploration expenses was RMB12.4 billion, representing an increase of 27.4% compared with 2020. That was mainly due to increased investment in exploration and development to improve the quality of oil and gas assets. Personnel expenses was RMB103.5 billion, representing an increase of 18.2% over 2020. That was due to the government’s preferential policy on social insurance during the COVID-19 pandemic in 2020, which was cancelled in 2021, as well as a year-on-year increase in performance-related bonus as a reward for the significant improvement in operating profit. Taxes other than income tax was RMB259.0 billion, representing an increase of 10.2% over the same period of 2020. That was mainly due to the increase of consumption tax resulting from the increase of production volume in gasoline and diesel. Other operating expense, net was RMB21.7 billion, representing an increase of RMB275.7% over the same period of 2020. That was mainly due to impact of the loss on disposal of property, plant, equipment and other non-current assets. (3) Operating profit was RMB94.6 billion, representing an increase of 592.3% over the same period of 2020. That was mainly because that with the increase of international crude oil prices and steady improvement of market demand, the Company increased its processing volume and sales volumes which led to an increase in the gross profit margin of petrochemical products and significant improvement of the Company’s operating results. (4) Profit before taxation was RMB109.2 billion, representing an increase of 124.6% compared with 2020. (5) Income tax expense was RMB23.3 billion, representing an increase of 267.6% year on year. That was mainly due to the taxable income increase as a result of good profit the Company achieved in 2021. (6) Profit attributable to non-controlling shareholders was RMB13.9 billion, representing an increase of RMB5.0 billion and 57.2% over the same period of 2020. That was mainly due to the improvement in the profits of our non- wholly owned subsidiaries. (7) Profit attributable to shareholders of the Company was RMB72.0 billion, representing a year-on-year increase of 115.2%. 20 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)2 RESULTS OF SEGMENT OPERATIONS The Company manages its operations through four business segments, namely exploration and production segment, refining segment, marketing and distribution segment and chemicals segment, and corporate and others. Unless otherwise specified, the inter-segment transactions have not been eliminated from financial data discussed in this section. In addition, the operating revenue data of each segment include other operating revenues. The following table shows the operating revenues by each segment, the contribution of external sales and inter-segment sales as a percentage of operating revenues before elimination of inter-segment sales, and the contribution of external sales as a percentage of consolidated operating revenues (i.e. after elimination of inter-segment sales) for the periods indicated. Operating revenues Year ended 31 December 2020 RMB million RMB million 2021 162,700 87,298 249,998 173,109 1,212,455 1,385,564 110,242 57,513 167,755 117,847 826,219 944,066 1,404,469 7,075 1,411,544 1,097,352 4,854 1,102,206 435,261 70,242 505,503 330,927 40,702 371,629 565,345 732,356 1,297,701 4,850,310 (2,109,426) 2,740,884 460,210 430,073 890,283 3,475,939 (1,371,215) 2,104,724 As a percentage of consolidated operating revenue before elimination of inter-segment sales Year ended 31 December 2020 (%) 2021 (%) As a percentage of consolidated operating revenue after elimination of inter-segment sales Year ended 31 December 2020 (%) 2021 (%) 3.4 1.8 5.2 3.6 24.9 28.5 29.0 0.1 29.1 9.0 1.4 10.4 11.7 15.1 26.8 100.0 3.2 1.7 4.9 3.4 23.7 27.1 31.6 0.1 31.7 9.5 1.2 10.7 13.2 12.4 25.6 100.0 5.9 5.2 6.3 5.6 51.2 52.1 16.0 15.2 20.6 21.9 100.0 100.0 Exploration and Production Segment External sales* Inter-segment sales Operating revenues Refining Segment External sales* Inter-segment sales Operating revenues Marketing and Distribution Segment External sales* Inter-segment sales Operating revenues Chemicals Segment External sales* Inter-segment sales Operating revenues Corporate and Others External sales* Inter-segment sales Operating revenues Operating revenue before elimination of inter-segment sales Elimination of inter-segment sales Revenue * Other operating revenues are included. 21 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand Analysis The following table sets forth the operating revenues, operating expenses and operating profit by each segment before elimination of the inter- segment transactions for the periods indicated, and the percentage change of 2021 compared to 2020. Exploration and Production Segment Operating revenues Operating expenses Operating profit/(loss) Refining Segment Operating revenues Operating expenses Operating profit/(loss) Marketing and Distribution Segment Operating revenues Operating expenses Operating profit Chemicals Segment Operating revenues Operating expenses Operating profit Corporate and Others Operating revenues Operating expenses Operating loss Elimination of inter-segment profit/(loss) (1) Exploration and Production Segment Most crude oil and a small portion of the natural gas produced by the exploration and production segment were used for the Company’s refining and chemical production. Most of the natural gas and a small portion of crude oil were sold externally to other customers. In 2021, the operating revenues of this segment was RMB250.0 billion, representing an increase of 49.0% over 2020. This was mainly attributed to the increase of realised price in crude oil and natural gas, as well as the sales volume of natural gas increase. In 2021, the segment sold 34.09 million tonnes of crude oil, representing a decrease of 1.2% over 2020. Natural gas sales volume was 30.8 billion cubic meters (bcm), representing an increase of 11.1% over 2020. Regasified LNG sales volume was 19.1 bcm, representing an increase of 22.3% over 2020. LNG sales volume was 6.18 million tonnes, representing an increase of 0.1% over 2020. Average realised prices of crude oil, natural gas, Regasified LNG, and LNG were RMB2,932 per tonne, RMB1,605 per thousand cubic meters, RMB2,119 per thousand cubic meters, and RMB3,909 per tonne, respectively, representing an increase of 54.2%, 18.0%, 19.4%, and 53.7% respectively over 2020. 22 Year ended 31 December 2021 RMB million 2020 RMB million Change (%) 249,998 245,313 4,685 1,385,564 1,320,285 65,279 1,411,544 1,390,340 21,204 505,503 494,397 11,106 1,297,701 1,300,926 (3,225) (4,421) 167,755 184,231 (16,476) 944,066 949,591 (5,525) 1,102,206 1,081,378 20,828 371,629 360,811 10,818 890,283 890,676 (393) 4,417 49.0 33.2 – 46.8 39.0 – 28.1 28.6 1.8 36.0 37.0 2.7 45.8 46.1 – – (2) Refining Segment Business activities of the refining segment include purchasing crude oil from third parties and the exploration and production segment of the Company, as well as processing crude oil into refined petroleum products. Gasoline, diesel and kerosene were sold internally to the marketing and distribution segment of the Company; part of the chemical feedstock was sold to the chemicals segment of the Company; and other refined petroleum products were sold externally to both domestic and overseas customers. In 2021, the operating revenues of this segment was RMB1,385.6 billion, representing an increase of 46.8% over 2020. This was mainly attributed to the demand recovery and the increases of refined oil products prices and sales volume. In 2021, the operating expenses of this segment was RMB245.3 billion, representing an increase of 33.2% over 2020. That was mainly due to the following: Procurement cost of LNG increased by RMB45.0 billion year on year; Depreciation, depletion and amortisation increased by RMB6.6 billion year on year, as a result of the increase of depletion ratio; Resource Tax and special oil income levy increased by RMB3.9 billion year on year; Exploration expense increased by RMB2.7 billion year on year; Impairment decreased by RMB6.0 billion year on year; In 2021, the oil and gas lifting cost was RMB776.94 per tonne, representing a year on year increase of 6.5%, mainly attributable to the increase in the cost of purchased material, fuels, and power as the international commodities prices increased, and the increase of personnel expenses. In 2021, the operating profit of the exploration and production segment was RMB4.7 billion, representing an increase of RMB21.2 billion over the same period of 2020, which was mainly attributable to the fact that the segment promoted high-quality exploration and profitable development, focused on reducing cost, enhanced integrated operation of production, supply, storage and sales. CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED) The following table sets forth the sales volumes, average realised prices and the respective changes of the Company’s major refined oil products of the segment in 2021 and 2020. Gasoline Diesel Kerosene Chemical feedstock Other refined petroleum products In 2021, sales revenue of gasoline was RMB460.1 billion, representing an increase of 40.7% over 2020. The sales revenue of diesel was RMB327.1 billion, representing an increase of 22.8% over 2020. The sales revenue of kerosene was RMB64.6 billion, representing an increase of 39.7% over 2020. The sales revenue of chemical feedstock was RMB180.4 billion, representing an increase of 74.3% over 2020. The sales revenue of refined petroleum products other than gasoline, diesel, kerosene and chemical feedstock was RMB348.1 billion, representing an increase of 77.3% over 2020. In 2021, the segment’s operating expenses was RMB1,320.3 billion, representing an increase of 39.0% over 2020. This was mainly attributed to the increase in procurement cost of crude oil, and the increase of taxes and surcharges related to sales revenue year on year. In 2021, the average processing cost for crude oil was RMB3,329 per tonne, representing a increase of 35.6% over 2020. Total crude oil processed was 263.85 million tonnes (excluding volume Sales Volume (thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2021 63,827 58,807 17,313 45,234 68,783 2020 Change (%) 56,259 61,167 17,309 39,872 65,353 13.5 (3.9) 0.0 13.5 5.3 2021 7,208 5,563 3,734 3,989 5,061 2020 Change (%) 5,813 4,354 2,673 2,596 3,004 24.0 27.8 39.7 53.7 68.5 processed for third parties), representing an increase of 7.3% over 2020. The total cost of crude oil processed was RMB878.4 billion, representing an increase of 45.5% over 2020. In 2021, refining margin was RMB532 per tonne, representing an increase of RMB292 per tonne compared with that of the same period of 2020. This was mainly attributed to the increase in demand for refined oil products and chemical raw materials,and substantial improvement in gross margin of refined oil products and naphtha, as well as the significant inventory gains of crude oil and refined products. In 2021, the refining unit cash operating cost (defined as operating expenses less the processing cost of crude oil and refining feedstock, depreciation and amortisation, taxes other than income tax and other operating expenses, then divided by the throughput of crude oil and refining feedstock) was RMB213 per tonne, representing an increase of 17.5% over 2020, which was mainly attributed to the increased expense of safety, environment protection, and maintenance year on year. In 2021, the operating revenue of the segment totaled RMB65.3 billion, representing an increase of RMB70.8 billion compared with that of 2020. This was mainly due to the fact that the segment seized the opportunity of market recovery to increase the utilisation rates of facilities and made efforts to optimise the product slate. The inventory gains of crude oil and refined products increased, and the refining margin improved significantly. (3) Marketing and distribution segment The business activities of the marketing and distribution segment include purchasing refined oil products from the refining segment and the third parties, conducting direct sales and wholesale to domestic customers and retailing, distributing oil products through the segment’s retail and distribution network as well as providing related services. In 2021, the operating revenues of this segment was RMB1,411.5 billion, up by 28.1% year-on-year. This was mainly attributed to the recovery of market demand and thus the increase in the sales volume and price of refined oil products. The sales revenues of gasoline totaled RMB702.5 billion, up by 27.9% year-on-year; the sales revenues of diesel was RMB462.8 billion, up by 22.7% year- on-year; the sales revenues of kerosene was RMB80.3 billion, up by 46.4% year- on-year. The following table sets forth the sales volumes, average realised prices and respective percentage changes of the segment’s four major refined oil products in 2021 and 2020, including detailed information about retail, direct sales and distribution of gasoline and diesel: Gasoline Retail Direct sales and distribution Diesel Retail Direct sales and distribution Kerosene Fuel oil Sales volume (thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2021 90,873 64,325 26,548 78,566 33,644 44,923 21,296 25,847 2020 Change (%) 86,216 61,446 24,770 77,507 36,757 40,750 20,828 23,331 5.4 4.7 7.2 1.4 (8.5) 10.2 2.2 10.8 2021 7,730 8,223 6,537 5,890 6,537 5,406 3,772 3,437 2020 Change (%) 6,370 6,940 4,955 4,865 5,351 4,426 2,634 2,536 21.4 18.5 31.9 21.1 22.2 22.1 43.2 35.6 23 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand AnalysisIn 2021, the operating expenses of the segment were RMB1,390.3 billion, up by 28.6% year-on-year. This was mainly due to the increase of sales volumes and prices of refined oil products, and thus the increase of procurement costs. In 2021, the segment’s marketing expense (defined as the operating expenses less the purchase costs, taxes other than income tax, depreciation and amortization, divided by sales volume) was RMB197.66 per tonne, up by 4.11% year on year. In 2021, the operating revenues of non- fuel business was RMB35.4 billion, up by RMB1.5 billion year-on-year and the profit of non-fuel business was RMB4.1 billion, up by RMB0.4 billion. This was mainly because the Company vigorously promoted company-owned and actively explored emerging business models to maintain the increase of volume and profit of non-fuel business. In 2021, the segment seized the favorable opportunity of market recovery, brought synergy advantages of industrial chain into full play, coordinated internal and external resources, expanded market and increased sales, and continuously expand business volume. Operating profit was RMB21.2 billion, representing an increase of RMB0.4 billion or 1.8% year on year. (4) Chemicals segment The business activities of the chemicals segment include purchasing chemical feedstock from the refining segment and the third parties and producing, marketing and distributing petrochemical and inorganic chemical products. In 2021, the operating revenues of this segment was RMB505.5 billion, up by 36.0% year-on-year. This was mainly due to the steady growth of domestic economy, and the fact that the demand for chemical products still maintained a high level, and the product prices increased year on year. In 2021, the sales revenue generated by the segment’s six major categories of chemical products (namely basic organic chemicals, synthetic resin, synthetic fiber monomer and polymer, synthetic fibre, synthetic rubber, and chemical fertiliser) was RMB478.6 billion, up by 34.9%, accounting for 94.7% of the operating revenues of the segment. The following table sets forth the sales volume, average realised prices and respective changes of each of the segment’s six categories of chemical products in 2021 and 2020. Sales Volume (Thousand tonnes) Average realised price (RMB/tonne) Year ended 31 December Year ended 31 December 2021 48,059 7,010 17,924 1,457 1,289 981 2020 Change (%) 47,109 9,743 17,124 1,403 1,364 1,181 2.0 (28.1) 4.7 3.8 (5.5) (16.9) 2021 5,311 6,580 8,325 7,521 11,104 2,797 2020 Change (%) 3,569 4,302 7,150 6,407 7,986 1,950 48.8 53.0 16.4 17.4 39.0 43.4 (5) Corporate and Others The business activities of corporate and others mainly consist of import and export business activities of the Company’s subsidiaries, R&D activities of the Company, and managerial activities of headquarters. In 2021, the operating revenue generated from corporate and others was approximately RMB1,297.7 billion, representing an increase of 45.8% over 2020. This was mainly attributed to the great increase in the trading prices of crude oil and refined oil products. In 2021, the operating expenses of corporate and others was RMB1,300.9 billion, representing an increase of 46.1% over 2020. In 2021, the operating loss from corporate and others was RMB3.2 billion, representing an increase in loss of RMB2.8 billion over the same period of 2020. This was mainly attributed to the expansion of R&D investment scale which led to increase in R&D expenses and the increase of personnel expenses. Basic organic chemicals Synthetic fibre monomer and polymer Synthetic resin Synthetic fibre Synthetic rubber Chemical fertiliser In 2021, the operating expenses of the chemicals segment was RMB494.4 billion, representing an increase of 37.0% over 2020, mainly because of the increase in the price of externally procured raw materials as a result of crude oil price increase. In 2021, the Company seized the favorable opportunities of economy recovery and high realised prices of chemical products, continuously optimised the structures of feedstock, product and facilities, and achieved growing profits with increased margins of petrochemicals. The operating profit of this segment was RMB11.1 billion, representing an increase of 2.7% over 2020. 24 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)3 ASSETS, LIABILITIES, EQUITY AND CASH FLOWS The major funding sources of the Company are its operating activities and short-term and long-term loans. The major use of funds includes operating expenses, capital expenditures, and repayment of the short-term and long-term debts. (1) Assets, liabilities and equity Total assets Current assets Non-current assets Total liabilities Current liabilities Non-current liabilities Total equity attributable to shareholders of the Company Share capital Reserves Non-controlling interests Total equity As of 31 December 2021, the Company’s total assets was RMB1,889.3 billion, representing an increase of RMB150.4 billion compared with that of the end of 2020, of which: Current assets was RMB558.0 billion, representing an increase of RMB102.4 billion compared with that of the end of 2020, mainly because the cash and cash equivalents and time deposit increased by RMB33.9 billion, and crude oil and refined oil product inventories increased by RMB55.2 billion as a result of international crude oil price increase. Non-current assets was RMB1,331.2 billion, representing an increase of RMB48.0 billion as compared with that As of 31 December 2021 As of 31 December 2020 1,889,255 558,024 1,331,231 974,181 641,280 332,901 774,182 121,071 653,111 140,892 915,074 1,738,896 455,660 1,283,236 851,194 522,995 328,199 746,325 121,071 625,254 141,377 887,702 Unit: RMB million Change 150,359 102,364 47,995 122,987 118,285 4,702 27,857 – 27,857 (485) 27,372 of the end of 2020. This was mainly due to the net value of property plant and equipment increased by RMB5.3 billion, construction in progress increased by RMB30.4 billion equity of associates and joint ventures increased by RMB20.8 billion because of the increased profit in these companies. RMB11.5 billion, accounts payable and bills payable and liabilities from contracts increased by RMB53.7 billion as a result of raw materials price escalation and operation scale expansion, other payables increased by RMB60.6 billion, and contract liabilities decreased RMB1.6 billion. The Company’s total liabilities was RMB974.2 billion, representing an increase of RMB123.0 billion compared with that of the end of 2020, of which: Non-current liabilities was RMB332.9 billion, representing an increase of RMB4.7 billion compared with that of the end of 2020. Current liabilities was RMB641.3 billion, representing an increase of RMB118.3 billion as compared with that of the end of 2020. This was mainly due to the fact that the short-term debts increased by Total equity attributable to owners of the Company was RMB774.2 billion, representing an increase of RMB27.9 billion compared with that of the end of 2020. 25 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand Analysis(2) Cash Flow The following table sets forth the major items in the consolidated cash flow statements for 2021 and 2020. Major items of cash flows Net cash generated from operating activities Net cash used in investing activities Net cash used in financing activities In 2021, the net cash generated from operating activities of the Company was RMB225.2 billion, representing an increase of RMB56.7 billion over 2020. This was mainly due to the increase of RMB60.6 billion in profit before taxation. In 2021, the net cash used in investing activities was RMB145.2 billion, representing an increase of RMB42.5 billion over 2020, of which: income from sales of investment and gains from investing in associates and joint ventures decreased by RMB44.8 billion, capital expenditure increased by RMB9.6 billion, exploratory wells expenditure increased by RMB3.6 billion, purchasing investment and associates and joint ventures investments decreased by RMB1.1 billion, and cash outflow from changes in time deposit with maturities over three months decreased by RMB13.2 billion. In 2021, the net cash used in the Company’s financing activities was Unit: RMB million Year ended 31 December 2021 225,174 (145,198) (57,942) 2020 168,520 (102,650) (37,510) RMB57.9 billion, representing an increase of cash outflow by RMB20.4 billion over 2020. This was mainly due to an increase of RMB3.2 billion in investments from non-controlling shareholders,, increase of RMB3.6 billion in cash paid for dividends, decrease of RMB3.2 billion in dividends allocated to non-controlling shareholders by subsidiaries, and increase of RMB7.1 billion in acquisition of non-controlling equity interests, and increase in repayment for lease liabilities of RMB4.1 billion. At the end of 2021, the cash and cash equivalents was RMB108.6 billion. (5) Research & Development and Environmental Expenditures R&D expenditures include expenses occurred in the period. In 2021 the expenditures for R&D was RMB21.1 billion, of which expense was RMB11.5 billion, and capitalised cost was RMB9.6 billion. Environmental expenditures refer to the normal routine pollutant discharge fees paid by the Company, excluding capitalised cost of pollutant treatment properties. In 2021, the Company paid environmental expenditures of RMB11.0 billion. (3) Contingent Liabilities (6) Measurement of fair values of derivatives Please refer to “Material Guarantee Contracts and Their Performance” in the “Significant Events” section of this report. (4) Capital Expenditure Please refer to “Capital Expenditures” in the “Business Review and Prospects” section of this report. and relevant system The Company has established sound decision-making mechanism, business process and internal control systems relevant to financial instrument accounting and information disclosure. 26 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)Items relevant to measurement of main fair values Unit: RMB million Items Financial assets held for trading Stock Derivative financial instruments Cash flow hedges Other equity instruments investment Total Profits and losses from variation of fair values in the current year – – (14,873) 694 – (14,179) Accumulated variation of fair values recorded as equity Impairment loss provision of the current year – – – 15,659 (6) 15,653 – – – – – – Funding source Self-owned fund Self-owned fund Self-owned fund Self-owned fund Beginning of the year 1 1 157 7,545 1,525 9,228 End of the year – – 1,350 13,798 767 15,915 4 ANALYSIS OF FINANCIAL STATEMENTS PREPARED UNDER CASs The major differences between the Company’s financial statements prepared under CASs and IFRS are set out in Section C of the financial statements of the Company on page 216 of this report. (1) Under CASs, the operating income and operating profit or loss by reportable segments were as follows: Operating income Exploration and Production Segment Refining Segment Marketing and Distribution Segment Chemicals Segment Corporate and Others Elimination of inter-segment sales Consolidated operating income Operating profit/(loss) Exploration and Production Segment Refining Segment Marketing and Distribution Segment Chemicals Segment Corporate and Others Elimination of inter-segment sales Financial expenses, investment income, losses from changes in fair value, other income and asset disposal gains/(losses) Consolidated operating profit Net profit attributable to equity shareholders of the Company Year ended 31 December 2021 RMB million 2020 RMB million 249,998 1,385,564 1,411,544 505,503 1,297,701 (2,109,426) 2,740,884 613 65,360 23,102 11,361 9,521 (4,421) 6,878 112,414 71,208 167,755 944,066 1,102,206 371,629 890,283 (1,371,215) 2,104,724 (20,570) (6,526) 19,634 9,592 (2,048) 4,417 46,304 50,803 33,271 Operating profit: In 2021, the operating profit of the Company was RMB112.4 billion, representing an increase of RMB62.1 billion as compared with that of 2020. Net profit: In 2021, the net profit attributable to the equity shareholders of the Company was RMB71.2 billion, representing an increase of RMB37.9 billion or 114.02% compared with 2020. 27 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand Analysis (2) Financial data prepared under CASs Total assets Non-current liabilities Shareholder’s equity Change analysis: As of 31 December 2021 RMB million As of 31 December 2020 RMB million 1,889,255 331,934 916,041 1,738,896 327,181 888,720 Change 150,359 4,753 27,321 At the end of 2021, the Company’s total assets was RMB1,889.3 billion, representing an increase of RMB150.4 billion compared with that of the end of 2020, mainly because inventory increased by RMB55.2 billion, cash at bank and on hand increased by RMB37.6 billion, long-term equity investment increased by RMB20.8 billion, and construction in progress increased by RMB30.4 billion. At the end of 2021, the Company’s non-current liabilities was RMB331.9 billion, representing an increase of RMB4.8 billion compared with that of the end of 2020. At the end of 2021, the shareholders’ equity of the Company was RMB916.0 billion, representing an increase of RMB27.3 billion compared with that of the end of 2020. (3) The results of the principal operations by segments Segments Exploration and Production Refining Marketing and Distribution Chemicals Corporate and Others Elimination of inter-segment sales Total Operation income RMB million Operation cost RMB million Gross profit margin* (%) 249,998 1,385,564 1,411,544 505,503 1,297,701 (2,109,426) 2,740,884 206,332 1,061,650 1,317,918 466,971 1,268,685 (2,105,005) 2,216,551 12.9 6.0 6.4 6.9 2.2 N/A 9.7 Increase of operation income on a year-on-year basis (%) Increase of operation cost on a year-on- year basis (%) Increase/ (decrease) of gross profit margin on a year-on-year basis (%) 49.0 46.8 28.1 36.0 45.8 N/A 30.2 37.3 50.8 29.4 38.8 45.1 N/A 31.5 7.0 4.0 (0.9) (2.0) 0.4 N/A 0.9 *: Gross profit margin = (operation income – operation cost, tax and surcharges)/operation income. 28 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand AnalysisMANAGEMENT’S DISCUSSION AND ANALYSIS (CONTINUED)5 THE CAUSE AND IMPACT OF THE CHANGE IN THE COMPANY’S ACCOUNTING POLICY, ACCOUNTING ESTIMATES AND ACCOUNTING METHODS For details, please refer to Note 3(26) to the financial statements prepared in accordance with CASs and Note 1 to the financial statement prepared in accordance with IFRS. 29 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Management’s Discussionand Analysis30 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE1 IMPROVEMENTS IN CORPORATE GOVERNANCE DURING THE REPORTING PERIOD During the reporting period, the Company complied with the Articles of Association as well as domestic and overseas laws and regulations, adhered to the standard operation, continuously improved the corporate governance and promoted the corporate quality. The Company further improved its corporate governance structure by completing the re-election of the Board of Directors and Board of Supervisors, which improved the diversity of the Board; adjusting the members of special committees of the Board, renaming the Social Responsibility Management Committee as the Sustainable Development Committee; and appointing the Senior Management. The Independent Non-executive Directors of Sinopec Corp. conscientiously fulfilled their duties, actively attended the board meetings and meetings of special committees of the Board, reviewed and considered proposals with due care, and offered advice and suggestions on the Company’s reforms and development. The Company strengthened the edifice of the fundamental system of corporate governance and laid a solid foundation by revising management regulations of Information Disclosure and Investor Relations, the Terms of Reference of the Independent Non-Executive Directors, the Nomination Committee and the Sustainable Development Committee according to the latest regulatory requirements and work practice. The Company endeavoured to improve the effectiveness of internal control policy, and the edifice of internal control system had reached a new level. The Company continuously improve the quality of information disclosure and enhance transparency by paying more attention to the information disclosure about ESG, appointing an independent third party to verify the sustainable development report, and providing more information voluntarily. As a result, the Company obtained an A-level rating of Shanghai Stock Exchange in the assessment of information disclosure. The Company focused on communication with investors, maintained positive interaction with investors despite of the adverse impact of the Covid-19 pandemic, resulting in new enhancements of investor relations. The Company continuously improved the quality of Party building to stimulate the enthusiasm of the staff for work, and enhanced the discipline inspection and supervision to maintain the effective implementation of the deployments of the Board all of which achieve the high-quality development of the Company. During the reporting period, there was no material inconsistency between Sinopec Corp.’s corporate governance and the requirements of the PRC Company Law and relevant regulations of the CSRC. The Board of Supervisors of Sinopec Corp. had no objection to any of the supervised matters. None of Sinopec Corp., the Board, the Directors, the Supervisors, the Senior Management, the controlling shareholder or de facto controllers of Sinopec Corp. were under the investigation by the CSRC or received any regulatory sanction or public condemnation by the CSRC, the Hong Kong Securities and Futures Commission, or the Securities and Exchange Commission of the United States, or received any public censure from Shanghai Stock Exchange, the Hong Kong Stock Exchange, the New York Stock Exchange or the London Stock Exchange. 2 GENERAL MEETINGS During the reporting period, Sinopec Corp. convened 2020 Annual General Meeting on 25 May 2021 in Beijing, China, and 2021 First Extraordinary General Meeting on 20 October 2021 in Beijing, China in accordance with the procedures of noticing, convening and holding pursuant to the relevant laws and regulations and the Articles of Association. For details of the general meetings, please refer to the poll results announcements published on 26 May and 21 October 2021 respectively on China Securities Journal, Shanghai Securities News, Securities Times and the website of Shanghai Stock Exchange, as well as those published on 25 May and 20 October 2021 respectively on the website of Hong Kong Stock Exchange. 3 EQUITY INTERESTS OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT As of December 31, 2021, Mr. Ling Yiqun, Director, Senior Vice President, held 13,000 A shares of Sinopec Corp., and Mr. Li Defang, Supervisor, held 40,000 A shares of Sinopec Corp. (held as interest of spouse). Save as disclosed above, during the reporting period, none of the Directors, Supervisors and Senior Management of Sinopec Corp. and their respective associates had any interests or short positions (including any interest or short position that is regarded or treated as being held in accordance with the SFO) in the shares, debentures and underlying shares of Sinopec Corp. or any associated corporations (as defined in Part XV of SFO) would fall to be disclosed to the Sinopec Corp. and the Hong Kong Stock Exchange under the Divisions 7 and 8 of Part XV of SFO or which was recorded in the register required to be kept under section 352 of SFO or otherwise should notified Sinopec Corp. or the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Company under the Hong Kong Listing Rules. 4 COMPANY’S INDEPENDENCE FROM CONTROLLING SHAREHOLDER The Company is independent from its controlling shareholder in terms of, among other matters, business, assets and finances. The controlling shareholder of the Company exercised shareholder’s rights through the general meeting according to applicable laws and didn’t overstep the authority of the general meeting or directly or indirectly interfere with the Company’s operating decisions and operating activities. The Company has a well-integrated independent business and independent operating capabilities. During the reporting period, the Company did not identify the controlling shareholder taking advantage of its special position to misappropriate and damage the interests of the Company or the other shareholders. 31 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE5 COMPETITION BETWEEN SINOPEC CORP. AND ITS CONTROLLING SHAREHOLDER Please refer to “Performance of Undertaking by China Petrochemical Corporation” under the section “Significant Events” in this annual report for details. 6 IMPROVEMENT AND IMPLEMENTATION OF THE INTERNAL CONTROL SYSTEM For details of internal control self-assessment and internal control auditing, please refer to the internal control assessment report and the internal control auditing report disclosed by the Company on the same date of this annual report. 7 MANAGEMENT CONTROL OF SUBSIDIARIES The Company implements standardized control over different types of subsidiaries in accordance with laws and regulations, the Articles of Association and the internal control system. During the Reporting Period, the Company did not purchase subsidiaries that met material criteria. 8 SENIOR MANAGEMENT APPRAISAL AND INCENTIVE SCHEMES Sinopec Corp. has established and is continuously improving its fair and transparent set of performance appraisal standards, incentive and restrictive mechanisms for Directors, Supervisors and other Senior Management. Sinopec Corp. has implemented incentive policies including the Measures of Sinopec Corp. for the Management of Performance Evaluations. 9 CORPORATE GOVERNANCE REPORT (IN ACCORDANCE WITH HONG KONG LISTING RULES) (1) Compliance with the Corporate Governance Code Sinopec Corp. complied with all code provisions of the Corporate Governance Code set out in Appendix 14 of the Hong Kong Listing Rules during the reporting period. A Board of Directors e. The Secretary to the Board assists A.1 Board of Directors a. The Board is the decision-making body of Sinopec Corp. and abides by good corporate governance practices and procedures. All decisions made by the Board are implemented by the Management of Sinopec Corp. b. The Board of the Company held its meetings at least once a quarter. The Board will usually communicate the time and proposals of the Board meeting 14 days before convening of the meeting. The relevant documents and materials for Board meetings are usually delivered to each Director 10 days in advance. In 2021, Sinopec Corp. held seven Board meetings. For details about each Director’s attendance at the Board meetings and the general meetings, please refer to the section “Report of the Board of Directors” in this annual report. c. Each Director of the Board can submit proposals to be included in the agenda of Board meetings, and each Director is entitled to request other related information. d. The Board has reviewed and evaluated its performance in 2021 and is of the view that the Board made decisions in compliance with domestic and overseas regulatory authorities’ requirements and the Company’s internal rules; that the Board has considered the suggestions from the Party organisation, Board of Supervisors and management during its decision-making process; and that the Board safeguarded the legitimate rights and interests of Sinopec Corp. and its shareholders. the Directors in handling the day-to-day work of the Board, continuously informs the Directors of the regulations, policies or other requirements of domestic or overseas regulatory authorities in relation to corporate governance and ensures that the Directors comply with domestic and overseas laws and regulations when performing their duties and responsibilities. Sinopec Corp. has purchased liability insurance for all Directors to minimise the potential risks that might arise from the adequate performance of their duties. A.2 Chairman and President a. Mr. Ma Yongsheng serves as Chairman of the Board and Mr. Yu Baocai serves as President of Sinopec Corp. The Chairman of the Board is elected by a majority vote of all Directors, and the President is nominated and appointed by the Board. The respective main duties and responsibilities of the Chairman and the President are clearly distinguished from each other, and the scope of their respective duties and responsibilities are set out in the Articles of Association. b. The Chairman of the Board places great emphasis on communication with the Independent Non- executive Directors. The Chairman independently held three meetings with the Independent Non-executive Directors in respect of development strategy, corporate governance, and operational management, etc. c. The Chairman encourages open and active discussions. The Directors fully and deeply participated in the discussions of significant decisions in the Board meetings. 32 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)A.3 Board composition a. The Board of Directors currently consists of ten members, among whom are four Executive Directors and six Non-executive Directors. Among the Non-executive Directors, there are four Independent Non- executive Directors, accounting for two-fifths of the total number of Directors. For details, please refer to the section “Directors, Supervisors, Senior Management and Employees” of this annual report. b. Sinopec Corp. has received from each of the Independent Non-executive Directors a letter of confirmation for 2022 regarding their compliance with relevant independence requirements set out in Rule 3.13 of the Hong Kong Listing Rules. Sinopec Corp. considers that each of the Independent Non- executive Directors is independent. A.4 Appointment, re-election and dismissal a. The Directors serve three-year terms, and the consecutive terms of office of any Independent Non-executive Director cannot exceed six years. In May 2021, Mr. Zhang Yuzhuo, Mr. Ma Yongsheng, Mr. Zhao Dong, Mr. Yu Baocai, Mr. Ling Yiqun, Mr. Li Yonglin, Mr. Liu Hongbin, Mr. Cai Hongbin, Mr. Ng, Kar Ling Johnny, Ms. Shi Dan, and Mr. Bi Mingjian, nominated by the Board of Directors as the candidates for the eighth session of the Board based on the actual needs of the Company, were elected by the general meeting of shareholders as Directors of the Company; Mr. Ma Yongsheng was elected by the Board of Directors as Chairman of the Board of Directors of Sinopec Corp on 29 November 2021. For details about the tenure of each Director, please refer to the section “Directors, Supervisors, Senior Management and Employees”. Mr. Bi was a Director of China International Capital Corporation Limited (“CICC”) before his retirement in February 2020. China International Capital Corporation Limited provided financial advisory services to China Petrochemical Corporation (being the controlling shareholder of the Company) and its subsidiaries during the period from 1 January 2019 to the date of this report. However, the Board is of the view that Mr. Bi satisfies the independence requirements for Independent Non- executive Directors, taking into account the following factors: (1) Mr. Bi was not a relationship holder of the Company or China Petrochemical Corporation in CICC throughout his service in CICC; (2) Other than being a consultant ending in March 2022, which is of honorary nature, Mr. Bi does not involve in the management or operation of CICC, and Mr. Bi has not had any engagement with CICC, nor holds any position in CICC after his retirement; (3) Mr. Bi holds no share in the Company or China Petrochemical Corporation as at the date of this report; (4) Mr. Bi holds 1,501,451 shares in CICC, representing 0.03% of the total issued shares of CICC as at the date of this report, which constitutes a minimal part of the share capital of CICC and is immaterial in the context of independence, and Mr. Bi does not have any other economic interest in or in association with CICC; (5) Mr. Bi has not involved or participated in, and will not involve or participate in, any transaction (if any) between the Company (or its controlling shareholder, or their respective subsidiaries or core connected persons) and CICC in his capacity as a consultant of CICC; and (6) Mr. Bi has met all requirements under Rule 3.13 (other than Rule 3.13(3)) of the Hong Kong Listing Rules (“Listing Rules”) and there are no other matters that would potentially compromise Mr. Bi’s compliance with the independence criterion as set out in Rule 3.13. b. All Directors of Sinopec Corp. have been elected at the general meeting of shareholders. The Board has no power to appoint temporary Directors. c. Sinopec Corp. engages professional consultants to prepare detailed materials for newly elected Directors, to notify them of the regulations of each listing place of Sinopec Corp. and to remind them of their rights, responsibilities, and obligations as Directors. A.5 Nomination Committee a. The Board of Directors established Nomination Committee, consisting of the Independent Non-executive Director, Ms. Shi Dan, who serves as the chairman, and the Chairman of the Board, Mr. Ma Yongsheng, and Mr. Ng, Kar Ling Johnny, who serve as members. The principal responsibilities of Nomination Committee are to provide suggestions to the Board on Board’s size and composition, the selecting standards and procedures, and candidates for Directors and senior management. Procedures to Propose a Person for Election as a Director of Sinopec Corp. are published on Sinopec Corp.’s website at http://www.sinopec.com. 33 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate Governanceb. The Board established the Board A.6 Responsibility of Directors A.7 Provision and use of information Diversity Policy which stipulates that the members of the Board shall be nominated and appointed based on the skills and experience for the overall optimum operation of the Board, while taking into account the targets and requirements of the board diversity. When deciding the composition of the Board, Sinopec Corp. shall consider several factors in relation to the diversity of the Board, including but not limited to professional experience, skills, knowledge, length of service, regions, cultural and educational backgrounds, gender, and age. The provisions of the Articles of Association concerning the term of office of directors help to ensure that the Board of Directors has a proper balance between continuous experience and new thinking, and enhance the level of diversity. Sinopec Corp. focuses on the implementation of the Board Diversity Policy. Currently, the Board has achieved diversity in terms of gender, culture, educational backgrounds, professional specialties, etc. The Directors come from different industries at home and abroad with rich work experience. Professional backgrounds of Directors include petroleum and petrochemical corporate management, as well as economics, accounting, finance, and industry and energy economy, which are conductive to strategic planning and scientific decision-making. c. The members of the Nomination Committee can engage professionals when performing their duties. Reasonable costs arising from such consultations are borne by Sinopec Corp. In the meantime, the Nomination Committee has also appointed consultant members and can require such member to provide advice. The working expenses of the Nomination Committee are included in the budget of Sinopec Corp. d. During the reporting period, the Nomination Committee held two meetings (please refer to “Meetings Held by the Board Committees” under the section “Report of the Board of Directors” in this annual report). a. All Non-executive Directors have a. The agenda and other documents for the same duties and powers as the Executive Directors. In addition, the Independent Non-executive Directors are entitled to certain specific powers. The Articles of Association and the Rules of Procedure of Board Meetings clearly prescribe the duties and powers of Directors, Non-executive Directors including Independent Non-executive Directors, which are published on the Sinopec Corp.’s website at http://www.sinopec.com. b. Each of the Directors was able to devote sufficient time and efforts to handling the affairs of Sinopec Corp. c. Each of the Directors confirmed that he/she has complied with the Model Code for Securities Transactions by Directors of Listed Issuers during the reporting period. Meanwhile, Sinopec Corp. formulated the Rules Governing Shares Held by Company Directors, Supervisors and Senior Managers and Changes in Shares and the Model Code of Securities Transactions by Company Employees to regulate the purchase and sale of Sinopec Corp.’s securities by relevant personnel. d. Sinopec Corp. organised and arranged training sessions for Directors and paid the relevant fees as well as making relevant records. During the reporting period, the Directors actively participated in the trainings and attached great importance to continuing professional development to ensure that their contribution to the Board remains informed and relevant. reference for meetings of the Board and Board committees are distributed prior to the meetings to allow each Director sufficient time to review the materials so that Directors can make informed decisions. b. Each Director can obtain all related information in a comprehensive and timely manner. The Secretary of the Board is responsible for organising and preparing the materials for the Board meetings, including preparation of explanations for each proposal to ensure fully understanding by the Directors. The Management is responsible for providing the Directors with necessary information and materials. The Directors may require the Management, or require, via the Management, relevant departments to provide necessary information or explanations. The Directors may seek advice from professional consultants when necessary. B REMUNERATION AND APPRAISAL COMMITTEE a. Remuneration and Appraisal Committee (“Remuneration Committee”) consists of Independent Non-executive Director, Mr. Bi Mingjian, who serves as the Chairman, and the Chairman of the Board, Mr. Ma Yongsheng and the Independent Non- executive Director, Mr. Ng, Kar Ling Johnny, who serve as the members of the Remuneration Committee. The Remuneration Committee is responsible for reviewing the implementation of the annual remuneration plans for Directors, Supervisors, and other senior management as approved at the general meeting of the shareholders, and reporting to the Board. b. The Remuneration Committee always consults the Chairman of the Board and the President about the remuneration plans for other Executive Directors. After the Remuneration Committee’s review, it is of the view that all the Executive Directors of Sinopec Corp. have fulfilled the duty clauses in their service contracts in 2021. 34 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)c. The members of the Remuneration c. Sinopec Corp. has adopted an Committee can engage independent professionals when performing its duties. Reasonable costs arising from such consultations are borne by Sinopec Corp. In the meantime, the Remuneration Committee has also appointed consultant members and can require such members to provide advice. The working expenses of the Remuneration Committee are included in the budget of Sinopec Corp. According to the policies of Sinopec Corp., the senior management and relevant departments of Sinopec Corp. shall actively cooperate with the Remuneration Committee. d. During the reporting period, the Remuneration Committee held one meeting (please refer to “Meetings Held by the Board Committees” under the section of “Report of the Board of Directors” in this annual report). C ACCOUNTABILITY AND AUDITING C.1 Financial reporting a. Directors are responsible for supervising the preparation of accounts for each fiscal period to ensure that the accounts truly and fairly reflect the condition of the business, the performance, and the cash flow of the Company during the period. The Board approved the Financial Report for 2021 and warranted that the annual report contained no false representations, no material omissions or misleading statements and jointly and severally accepted full responsibility for the authenticity, accuracy, and completeness of the content. b. Sinopec Corp. provides Directors with information about the financial, production and operating data of the Company, capital market updates, and securities regulatory developments every month to ensure that the Directors can learn about the latest developments of the Company and regulatory changes in a timely manner. internal control mechanism to ensure that the Management and relevant departments have provided the Board and the Audit Committee with sufficient financial data and related explanations and materials. d. The external auditors of Sinopec Corp. made a statement on their reporting responsibilities in the auditor’s report contained in the financial report. C.2 Internal Control and Risk Management a. Sinopec Corp. has formulated and implemented its internal control and risk management system. The Board as a decision-making body is responsible for evaluating and reviewing the effectiveness of its internal control and risk management. The Board and the Audit Committee periodically (at least annually) receive reports of the Company regarding internal control and risk management information from the Management. All major internal control and risk management issues are reported to the Board and the Audit Committee. Sinopec Corp. has set up its internal control and risk management department and internal auditing departments, which are equipped with sufficient staff, and these departments periodically (at least twice per year) report to the Audit Committee. The internal control and risk management system of the Company are designed to manage rather than eliminate all the risks of the Company. b. In terms of internal control, Sinopec Corp. adopted the internal control framework prescribed in the internationally accepted Committee of Sponsoring Organisations of the Treadway Commission Report (“COSO”). Based upon the Articles of Association and the applicable management policies currently in effect, as well as in accordance with relevant domestic and overseas applicable regulations, Sinopec Corp. formulates and continuously improves the Internal Control Manual to achieve internal control of all factors of internal environment, risk assessment, controlling activities, information and communication, and internal supervision. At the same time, Sinopec Corp. has constantly supervised and evaluated its internal control, and conducted comprehensive and multi-level inspections including regular test, enterprise self- examination and auditing check, and included headquarters, branches and subsidiaries into the scope of internal control evaluation, with an internal control evaluation report being produced. The Board annually reviews the internal control evaluation report. For detailed information about the internal control during the reporting period, please refer to the “Report on Internal Control Evaluation” prepared by Sinopec Corp. Sinopec Corp. has formulated and implemented its information disclosure policy and insider registration policy. The Company regularly evaluates the policy implementation and makes disclosure in accordance with relevant regulations. Please refer to the website of Sinopec Corp. (http://www.sinopec.com) for the details of the information disclosure policy. c. In terms of risk management, Sinopec Corp. adopts the enterprise risk management framework provided by COSO, and establishes its risk management policy and risk management organisation system. The Company annually conducts risk evaluation to identify major and important risks and perform risk management duties. It has designed major and important risks tackling strategies and measures combined with its internal control system and periodically monitors their implementation to ensure adequate care, monitor and tackling of major risks. 35 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate Governanced. Based upon the review and evaluation of internal control and risk management of the reporting period, the Board is of the view that the internal control and risk management of the Company are effective. C.3 Audit Committee a. The Board has established an Audit Committee. The Audit Committee consists of Independent Non-executive Director, Mr. Ng, Kar Ling Johnny, who serves as the Chairman, and Independent Non-executive Directors, Mr. Cai Hongbin, Ms. Shi Dan, and Mr. Bi Mingjian, who serve as members. b. During the reporting period, the Audit Committee held five meetings (please refer to the “Meetings Held by the Board Committees” under the section of “Report of the Board of Directors” in this annual report). The review opinions were issued at each meeting and submitted to the Board. During the reporting period, the Board and the Audit Committee had no disagreement. c. Audit Committee can engage independent professionals when performing its duties. Reasonable costs arising from such consultations are borne by Sinopec Corp. In the meantime, the Audit Committee has appointed consultant members and can request such members to provide advice. The working expenses of the Audit Committee are included in the budget of Sinopec Corp. In accordance with the policies of Sinopec Corp., the senior management and relevant departments of Sinopec Corp. shall actively cooperate with the Audit Committee. d. The Audit Committee has reviewed the adequacy and sufficiency of the resources for accounting and financial reporting and the qualifications and experience of the relevant employees as well as the sufficiency of the training courses and the budget thereof. Audit Committee is of the view that the Management has fulfilled the duties to establish an effective internal control system. The Company established a whistle- blowing policy in its internal control system, providing several channels including online reporting, reporting by letters, appeals and complaint mailbox, etc. to employees to report behaviour that violates the internal control system of the Company. The Audit Committee has reviewed and approved such policy. c. Each Board Committee shall report its decisions and recommendations to the Board and has formulated its terms of references. The Terms of Reference of the Audit Committee, the Terms of Reference of the Remuneration Committee, the Terms of Reference of the Nomination Committee and the Terms of Reference of the Nomination Committee are published on the website of Sinopec Corp. at http://www.sinopec.com. E INVESTOR RELATIONS a. Sinopec Corp. attach considerable significance to investor relations. The Management attends road shows every year to answer questions on subjects of concern to investors, such as introducing the development strategies and the production and business performance of the Company. The Board Secretariat of Sinopec Corp. is responsible for communicating with investors. In compliance with regulatory provisions, Sinopec Corp. enhances communication with investors by holding meetings with institutional investors, setting up an investor hotline, and communicating through internet platform, etc. b. During the reporting period, separate resolutions were proposed for each substantially separate issue at the general meeting of shareholders. All resolutions were voted by poll in protection of the interest of all shareholders. Notices of the general meeting were dispatched to shareholders 45 days (excluding the date of the general meeting) in advance. c. The Chairman (or the director who performs the duties of Chairman) of the Board hosted the annual general meeting for the year 2020 and the First Extraordinary General Meeting for the year 2021. Several members of the Board of Directors, the Board of Supervisors, and senior management attended the meetings and conducted in-depth communication with the investors. D DELEGATION OF POWER BY THE BOARD a. The Board and the Management have clear duties and responsibilities under written rules. The Articles of Association and the Rules of Procedure for the General Meetings of Shareholders and the Rules of Procedure of the Board Meetings clearly set forth the scope of duties, powers, and delegation of power of the Board and Management, which are published on the website of Sinopec Corp. at http://www.sinopec.com. b. In addition to the Audit Committee, the Remuneration Committee and Nomination Committee, the Board had established the Strategy Committee and the Sustainable Development Committee (formerly known as Social Responsibility Management Committee). The Strategy Committee is responsible for overseeing long-term development strategies and significant investment decisions of the Company. The Strategy Committee consists of eight Directors, including the Chairman of the Board, Mr. Ma Yongsheng, who serves as Chairman, Executive Directors, Mr. Yu Baocai, Mr. Ling Yiqun, Mr. Li Yonglin, Mr. Liu Hongbin, and Independent Non- executive Directors, Mr. Cai Hongbin, Ms. Shi Dan, and Mr. Bi Mingjian, who serve as members. The Sustainable Development Committee (formerly known as Social Responsibility Management Committee) is responsible for preparing policies, governance, strategies and plans for sustainable development of the Company, which consists of four Directors, including the Chairman of the Board, Mr. Ma Yongsheng, who serves as Chairman, the Non-executive Director, Mr. Zhao Dong, the Executive Director, Mr. Li Yonglin, and the Independent Non- executive Director, Mr. Cai Hongbin, who serve as members. 36 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)meeting for the year 2020. Each of the Former Auditors has no objections to the retirement, and has confirmed that there are no matters in relation to their retirement which should be brought to the attention of the shareholders of the Company. The Board is not aware of any matters in relation to the change in Auditors that need to be brought to the attention of the shareholders of the Company. (3) Other information about Sinopec Corp.’s corporate governance Except for their working relationships with Sinopec Corp., none of the Directors, Supervisors or other senior management has any financial, business or family relationship or any relationship in other material aspects with one another. For information about shareholdings of substantial shareholders and changes in share capital, please refer to page 77 to page 78; for information about meetings of the Board, please refer to page 65 to page 66; for information about meetings held by Board Committees, please refer to page 67; for information about tenure of Non-executive Directors, please refer to page 42; for information about equity interests of Directors, Supervisors and other senior management, please refer to page 31; for information about the biographies and annual remuneration of Directors, Supervisors and other senior management, please refer to page 38 to page 49. 10 DETAILED IMPLEMENTATION OF THE SHARE INCENTIVE SCHEME DURING THE REPORTING PERIOD The Company did not implement any share incentive scheme during the reporting period. d. According to relevant rules of Sinopec Corp., the Secretary to the Board is responsible for establishing an effective communication channel between Sinopec Corp. and its shareholders, for setting up special departments to communicate with the shareholders and for passing the opinions and proposals of the shareholders to the Board and Management in a timely manner. Contact details of Sinopec Corp. can be found in the “Investor Centre” column on Sinopec Corp.’s website. F COMPANY SECRETARY a. The Hong Kong Stock Exchange recognised the Secretary to the Board as having the relevant qualifications as company Secretary. Nominated by the Chairman of the Board and appointed by the Board, the Secretary to the Board is a senior management officer of Sinopec Corp. and responsible for the Company and the Board. The Secretary gives opinions on corporate governance to the Board and arranges orientation training and professional development for the Directors. b. During the reporting period, the Secretary to the Board actively participated in career development training for more than 15 training hours. G SHAREHOLDERS’ RIGHTS a. Shareholders who individually or collectively hold 10% of the total voting shares of Sinopec Corp. may request the Board in writing to convene the general meeting of shareholders. If the Board fails to approve the request to convene the meeting according to the Rules of Procedure for General Meetings of Shareholders, the shareholders may convene and hold the meeting at their discretion according to applicable laws, and reasonable expenses incurred will be borne by Sinopec Corp. These aforementioned provisions are subject to the following conditions: the proposals at the general meeting of shareholders must fall within the responsibilities of the general meeting of shareholders, with specific proposals and resolutions and in compliance with relevant laws, administrative regulations and the Articles of Association. b. When Sinopec Corp. holds the general meeting of shareholders, shareholders who individually or collectively hold 3% of the total voting shares of Sinopec Corp. may propose a supplemental proposal 10 days before the date of the general meeting. c. The eligibility for attending the general meeting, the rights of shareholders, the resolutions at the meeting and the voting procedures are clearly stated in the notice of the general meeting of shareholders of Sinopec Corp. dispatched to the shareholders. d. Sinopec Corp. has established a special organisation for communication with shareholders and publishes relevant contact details to facilitate shareholders to make enquiries in accordance with Articles of Association. (2) Auditors The appointment of KPMG Huazhen LLP and KPMG as Sinopec Corp.’s external auditors for 2021 and the authorisation of the Board to determine their remuneration were approved at Sinopec Corp.’s Annual General Meeting for the Year 2020 on 25 May 2021. The audit fee for 2021 is RMB41.69 million (including audit fee of internal control), which was approved at the 7th Meeting of the Eighth Session of the Board. The annual financial statements of the year ended 31 December 2021 have been audited by KPMG Huazhen LLP and KPMG. The Chinese certified public accountants signing the report are Yang Jie and He Shu from KPMG Huazhen LLP.During the reporting period, KPMG Huazhen LLP and KPMG and their affiliates firms provided non-audit service, such as tax consulting and due diligence investigation to the Company, and the fee charged was RMB8.11 million. PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP (collectively, the “Former Auditors”) served respectively as the external auditors of the Company for the year 2013 to 2020 and retired as the external auditors of the Company as resolved by shareholders at the annual general 37 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceMa Yongsheng Zhao Dong 11 INTRODUCTION OF DIRECTORS, SUPERVISORS AND OTHER SENIOR MANAGEMENT (1) Directors Ma Yongsheng, aged 60, Chairman of the Board of Sinopec Corp. Mr. Ma is a professor level senior engineer with a Ph.D. degree. Mr. Ma is a member of the 13th National Committee of Chinese People’s Political Consultative Conference (“CPPCC”) and an academician of the Chinese Academy of Engineering. In April 2002, he was appointed as Chief Geologist of Sinopec Southern Exploration and Production Company; in April 2006, he was appointed as Executive Deputy Manager (in charge of overall management), Chief Geologist of Sinopec Southern Exploration and Production Company; in January 2007, he was appointed as General Manager and Party Secretary of CPC Committee of Sinopec Southern Exploration and Production Company; in March 2007, he served as General Manager and Deputy Party Secretary of CPC Committee of Sinopec Exploration Company; in May 2007, he was appointed as Deputy Commander of Sichuan-East China Gas Pipeline Project Headquarter of Sinopec Corp.; in May 2008, he was appointed as Deputy Director General of Exploration and Production Department of Sinopec Corp. (Director General Level); in July 2010, he served as Deputy Chief Geologist of Sinopec Corp.; in August 2013, he was appointed as Chief Geologist of Sinopec Corp.; in December 2015, he served as Vice President of China Petrochemical Corporation and was appointed as Senior Vice President of Sinopec Corp.; in January 2017, he was appointed as Member of the Leading Party Member Group of China Petrochemical Corporation; in October 2018, he was appointed as President of Sinopec Corp; in April 2019, he was appointed as Director, President and Vice Secretary of the Leading Party Member Group of China Petrochemical Corporation; in November 2021, he was appointed as Chairman and Secretary of the Leading Party Member Group of China Petrochemical Corporation. Mr. Ma was elected as Director of Sinopec Corp. in February 2016, and was elected as the Chairman of the Board of Sinopec Corp. in November 2021. Zhao Dong, aged 51, Director of Sinopec Corp. Mr. Zhao is a professor level senior accountant with a Ph.D. degree. In July 2002, he was appointed as Chief Accountant and General Manager of Financial Assets Department of CNPC International (Nile) Ltd.; in January 2005, he was appointed as Deputy Chief Accountant and Executive Deputy Director of Financial and Capital Operation Department of China National Oil and Gas Exploration and Development Corporation; in April 2005, he was appointed as Deputy Chief Accountant and General Manager of Financial and Capital Operation Department of China National Oil and Gas Exploration and Development Corporation; in June 2008, he was appointed as Chief Accountant of China National Oil and Gas Exploration and Development Corporation; in October 2009, he was appointed as Chief Accountant of China National Oil and Gas Exploration and Development Corporation and Chief Financial Officer of PetroChina International Investment Company Limited; in September 2012, he was appointed as Deputy General Manager of CNPC Nile Company; in August 2013, he was appointed as General Manager of CNPC Nile Company; in November 2015, he was appointed as Chief Financial Officer of PetroChina Company Limited. In November 2016, he was appointed as a Member of the Leading Party Member Group and Chief Accountant of China Petrochemical Corporation; in May 2020, he was appointed as Director and Deputy Secretary of the Leading Party Member Group of China Petrochemical Corporation. In June 2017, he was elected as Chairman of Board of Supervisors of Sinopec Corp.; in May 2021, he was elected as Director of Sinopec Corp. 38 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)Yu Baocai Ling Yiqun Li Yonglin Yu Baocai, aged 57, Director and President of Sinopec Corp. Mr. Yu is a senior engineer with a master’s degree in economics. In September 1999, Mr. Yu was appointed as Deputy General Manager of Daqing Petrochemical Company; in December 2001, he was appointed as General Manager and Deputy Secretary of CPC Committee of Daqing Petrochemical Company; in September 2003, he was appointed as General Manager and Secretary of CPC Committee of Lanzhou Petrochemical Company; in June 2007, he was appointed as General Manager and Deputy Secretary of CPC Committee of Lanzhou Petrochemical Company and General Manager of Lanzhou Petroleum & Chemical Company; in September 2008, he was appointed as a member of the Leading Party Member Group and Deputy General Manager of China National Petroleum Corporation (“CNPC”) and since May 2011, he acted concurrently as Director of PetroChina Company Limited; in June 2018, he was appointed as a Member of the Leading Party Member Group and Vice President of China Petrochemical Corporation; in September 2020, he was appointed as Senior Vice President of Sinopec Corp. Mr. Yu was elected as Director of Sinopec Corp. in October 2018, and was appointed as President of Sinopec Corp. in November 2021. Ling Yiqun, aged 59, Director and Senior Vice President of Sinopec Corp. Mr. Ling is a professor level senior engineer with a Ph.D. degree. From August 1983, he worked in the refinery of Beijing Yanshan Petrochemical Company and the Refining Department of Beijing Yanshan Petrochemical Company Ltd.; in February 2000, he was appointed as Deputy Director General of Refining Department of Sinopec Corp.; in June 2003, he was appointed as Director General of Refining Department of Sinopec Corp.; in July 2010, he was appointed as Vice President of Sinopec Corp.; in May 2012, he was appointed concurrently as Executive Director, President and Secretary of CPC Committee of Sinopec Refinery Product Sales Company Limited; in August 2013, he was appointed concurrently as President and Secretary of CPC Committee of Sinopec Qilu Petrochemical Company, and President of Sinopec Qilu Company; in March 2017, he was appointed as Vice President of China Petrochemical Corporation; since April 2019, he has been a member of the Leading Party Member Group of China Petrochemical Corporation. In February 2018, he was appointed as Senior Vice President of Sinopec Corp.; in May 2018, he was elected as Director of Sinopec Corp. Li Yonglin, aged 55, Director and Senior Vice President of Sinopec Corp. Mr. Li is a professor level senior engineer with a Ph.D. degree. Mr. Li is a member of the 13th National Committee of CPPCC. He was appointed as Vice General Manager of Sinopec Maoming Company in March 2003; in July 2009, he was appointed as Chief of Preparatory Group for the Beihai Refining Off-Site Reconstruction Project; in November 2011, he was appointed as General Manager and Deputy Secretary of CPC Committee of Sinopec Beihai Refining & Chemical Co., Ltd.; in March 2015, he was appointed as Vice Director General of Refining Division of Sinopec Corp. (Director General Level); in December 2016 he was appointed as General Manager and Deputy Secretary of CPC Committee of Sinopec Tianjin Petrochemical Company, General Manager of Sinopec Tianjin Company and Vice Chairman of SINOPEC SABIC Tianjin Petrochemical Co., Ltd.; in October 2019, he was appointed as Secretary of CPC Committee of Sinopec Tianjin Petrochemical Company and Corporate Representative of Sinopec Tianjin Company; in July 2020, he was appointed as Assistant to the President of China Petrochemical Corporation, concurrently serving as General Manager of Human Resources Department and Head of Organizational Department of the Leading Party Member Group; in November 2020, he was appointed as a member of Leading Party Member Group and Vice President of China Petrochemical Corporation.; in May 2021, he was elected as Director of Sinopec Corp. and was appointed as Senior Vice President of Sinopec Corp. 39 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceLiu Hongbin Cai Hongbin Ng, Kar Ling Johnny Cai Hongbin, aged 54, Independent Director of Sinopec Corp. Mr. Cai is Dean of Faculty of Business and Economics and Professor of Economics of the University of Hong Kong. Mr. Cai has a Ph.D. degree in Economics. From 1997 to 2005, Mr. Cai taught at the University of California, Los Angeles. Since 2005, he served as a professor and Ph.D. supervisor in Applied Economics Department at Guanghua School of Management at Peking University, and he once served as Director, Assistant to the Dean and Vice Dean of the Applied Economics Department. From December 2010 to January 2017, he served as Dean of Guanghua School of Management at Peking University. In June 2017, he joined the Faculty of Business and Economics of the University of Hong Kong. Mr. Cai once served as a member of the 12th National People’s Congress, a member of Beijing Municipal Committee of CPPCC, a member of the 11th Central Committee of China Democratic League, Deputy Chairman of Beijing Municipal Committee of China Democratic League and a Special Auditor of the National Audit Office. He currently serves as an Independent Director of CCB International (Holdings) Limited and Ping An Bank Co., Ltd. In May 2018, he was elected as Independent Director of Sinopec Corp. Ng, Kar Ling Johnny, aged 61, Independent Director of Sinopec Corp. Mr. Ng currently is a practicing Certified Public Accountant in Hong Kong, a practicing auditor and accountant in Macau, a Fellow of the Hong Kong Institute of Certified Public Accountants (FCPA), a Fellow of the Association of Chartered Certified Accountant (FCCA), and a Fellow of the Institute of Chartered Accountants in England and Wales (FCA). Mr. Ng obtained a bachelor’s degree and a master’s degree in business administration from the Chinese University of Hong Kong in 1984 and 1999, respectively. Mr. Ng joined KPMG (Hong Kong) in 1984 and became a Partner in 1996. He acted as a Managing Partner from June 2000 to September 2015 and Vice Chairman of KPMG China from October 2015 to March 2016. Mr. Ng currently serves as Independent Non- executive Director of China Vanke Co., Ltd., Fangdd Network Group Ltd. and Metallurgical Corporation of China Ltd. In May 2018, he was elected as Independent Director of Sinopec Corp. Liu Hongbin, aged 59, Director and Senior Vice President of Sinopec Corp. Mr. Liu is a senior engineer with a bachelor’s degree. In June 1995, he was appointed as Chief Engineer of Tuha Petroleum Exploration & Development Headquarters; in July 1999, he was appointed as Deputy General Manager of PetroChina Tuha Oilfield Company; in July 2000, he was appointed as Commander and Deputy Secretary of CPC Committee of Tuha Petroleum Exploration & Development Headquarters; in March 2002, he served as General Manager of the Planning Department of PetroChina Company Limited; in September 2005, he served as Director of the Planning Department of CNPC; in June 2007, he was appointed as Vice President of PetroChina Company Limited, and in November 2007, he served concurrently as General Manager and Secretary of CPC Committee of the Marketing Branch of PetroChina Company Limited; in June 2009, he served concurrently as General Manager and Deputy Secretary of CPC Committee of the Marketing Branch of PetroChina Company Limited; in July 2013, he was appointed as Member of the Leading Party Member Group and Deputy General Manager of CNPC and in August 2013, he served concurrently as an Executive Director and General Manager of Daqing Oilfield Company Limited, Head of enterprise Coordination in Heilongjiang Province, Director of Daqing Petroleum Administration Bureau and Deputy Secretary of CPC Committee of Daqing Oilfield; in May 2014, he served concurrently as Director of PetroChina Company Limited; in November 2019, he was appointed as a member of the Leading Party Member Group of China Petrochemical Corporation; in December 2019, he was appointed as Vice President of China Petrochemical Corporation. In March 2020, he was appointed as Senior Vice President of Sinopec Corp. In May 2020, he was elected as Director of Sinopec Corp. 40 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)Shi Dan Bi Mingjian Shi Dan, aged 60, Independent Director of Sinopec Corp. Ms. Shi is the legal representative and Chairman of China Industrial Economics Society, a member of Expert Advisory Committee of the National Energy Commission and a member of National Expert Committee on Climate Change and enjoys special government subsidies from the State Council. Ms. Shi obtained bachelor’s degree in engineering, master’s degree in economics, master’s degree of development economics and Ph.D. degree in management from Changchun University of Technology, Renmin University of China, Australian National University and Huazhong University of Science and Technology respectively. In October 1993, Ms. Shi was appointed as Research Fellow and Assistant to the Dean of the Institute of Industrial Economics of Chinese Academy of Social Sciences; in August 2010, Ms. Shi was appointed as a Research Fellow and Deputy Dean of National Academy of Economic Strategy, Chinese Academy of Social Sciences; in November 2013, she was appointed as a Research Fellow and Secretary of CPC Committee (Deputy Dean) of the Institute of Industrial Economics of Chinese Academy of Social Sciences; in November 2017, she served as External Director of China Energy Investment Corporation Limited. In March 2019, she was appointed as Dean of Institute of Industrial Economics of Chinese Academy of Social Sciences. In May 2021, she was elected as Independent Director of Sinopec Corp. Bi Mingjian, aged 66, Independent Director of Sinopec Corp. Mr. Bi obtained the certificate of diploma majoring in English from East China Normal University in 1982 and master’s degree in business administration from George Mason University in the United States of America in 1993 respectively. Mr. Bi served as a cadre at Shanghai Subei Haifeng Farm from April 1977 to April 1979; he studied at the External Training Program of the Cadre School of the Ministry of State Farms and Land Reclamation, and subsequently he studied at a farm in Saskatchewan Province of Canada from April 1979 to November 1980; he served as a cadre at the Foreign Affairs Bureau of the Ministry of State Farms and Land Reclamation from November 1980 to December 1983; he served as Deputy Division Chief of the State Farms and Land Reclamation Bureau of the Ministry of Agriculture from January 1984 to December 1985; he served as Operation Officer of the World Bank Representative Office in China from December 1985 to June 1988; he served as Deputy Director of the project office of China Rural Trust and Investment Corporation from June 1988 to October 1988; he served as Project Economist and Advisor of the World Bank from October 1988 to January 1994; he served as a cadre at People’s Construction Bank of China from January 1994 to July 1995; he served as Deputy Chief Executive Officer, member and Deputy Chairman of the Management Committee, Co-Chief Operating Officer and Co-Head of the Investment Banking Department of China International Capital Corporation Limited (“CICC”) from August 1995 to February 2006; he served as a Senior Advisor to CICC from March 2006 to November 2012; he served as a Managing Partner of HOPU Investment Management Co., Ltd. from November 2012 to March 2015; he served as a non-executive director for China Investment Securities Co., Ltd. (currently known as China CICC Wealth Management Securities Company Limited) from March 2017 to January 2020; from March 2015 to December 2019, he served as Chief Executive Officer and Chairman of Management Committee of CICC; from May 2015 to February 2020, he served as Executive Director of CICC. In May 2021, he was elected as Independent Director of Sinopec Corp. 41 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceLIST OF MEMBERS OF THE BOARD Name Ma Yongsheng Zhao Dong Yu Baocai Ling Yiqun Li Yonglin Liu Hongbin Cai Hongbin Ng, Kar Ling Johnny Shi Dan Bi Mingjian Male Male Female Male Gender Age Position in Sinopec Corp. Tenure Male Male Male Male Male Male 60 Board Director, President 2016.02-2024.05 51 Board Director 2021.05-2024.05 57 Board Director, President 2018.10-2024.05 Board Director, 2018.05-2024.05 59 55 59 54 61 60 66 Senior Vice President Board Director, 2021.05-2024.05 Senior Vice President Board Director, 2020.05-2024.05 Senior Vice President Independent Director 2018.05-2024.05 Independent Director 2018.05-2024.05 Independent Director 2021.05-2024.05 Independent Director 2021.05-2024.05 LIST OF FORMER MEMBERS OF THE BOARD Name Gender Age Position in Sinopec Corp. Tenure Remuneration paid by in 2021 (RMB1,000, before tax) 715.3 – 441.8 – – – 416.7 416.7 300.0 300.0 Whether paid by Equity interests in Sinopec Corp. the holding Company No Yes No Yes Yes Yes No No No No (as at 31 December) 2021 0 0 0 13,000 2020 0 0 0 13,000 0 0 0 0 0 0 0 0 0 0 0 0 Remuneration paid by in 2021 (RMB1,000, before tax) Whether paid by Equity interests in Sinopec Corp. the holding Company (as at 31 December) 2021 2020 Zhang Yuzhuo Zhang Shaofeng Tang Min Male Male Male 60 50 68 Former Chairman 2020.03-2021.08 Former Director 2020.09-2021.05 Former Independent 2015.05-2021.05 – – 116.7 Yes Yes No 0 0 0 0 0 0 Director Note: According to regulation of the authority, Mr. Fan Gang did not get remuneration from the Company. 42 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED) Zhang Shaofeng Jiang Zhenying Zhang Zhiguo (2) Supervisors Zhang Shaofeng, aged 50, Chairman of Board of Supervisors of Sinopec Corp. Mr. Zhang is a professor level senior accountant with a master’s degree in business administration. In December 2008, he was appointed as Chief Accountant and Member of the CPC Committee of Trans-Asia Gas Pipeline Company Limited of China National Petroleum Corporation (“CNPC”); in July 2017, he was appointed as General Manager of Finance Department of CNPC (PetroChina Company Limited); in December 2017, he was appointed as General Manager of Finance Department of CNPC (PetroChina Company Limited); in July 2020, he was appointed as Member of the Leading Party Member Group and Chief Accountant of China Petrochemical Corporation. In September 2020, he was elected as Director of Sinopec Corp.; in May 2021, he was elected as Chairman of Board of Supervisors of Sinopec Corp. Jiang Zhenying, aged 57,Supervisor of Sinopec Corp. Mr. Jiang is a professor level senior economist with a Ph.D. degree in management. In December 1998, he was appointed as Vice President of China Petrochemical Supplies & Equipment Co., Ltd.; in February 2000, he was appointed as Deputy Director General of Sinopec Procurement Management Department; in December 2001, he was appointed as Director General of Sinopec Procurement Management Department; in November 2005, he concurrently held the positions of Chairman of Board of Directors, President and Secretary of CPC Committee of China Petrochemical International Co., Ltd.; in March 2006, he was appointed as Director General (General Manager), Executive Director and Secretary of the CPC Committee of Sinopec Procurement Management Department (Sinopec International Co. Ltd.); in April 2010, he was appointed as Director General (General Manager), Executive Director and Deputy Secretary of the CPC Committee of Sinopec Procurement Management Department (Sinopec International Co. Ltd.); in November 2014, he was appointed as Director of Safety Supervisory Bureau of China Petrochemical Corporation and Director General of Safety Supervisory Department of Sinopec Corp. In May 2017, he was appointed as Deputy Director General (Director General level) of the Office of Leading Party Member Group Inspection Work of China Petrochemical Corporation; in December 2018, he was appointed as Director of Audit Bureau of China Petrochemical Corporation, and Director of Audit Department of Sinopec Corp.; in December 2019, he was appointed as President of Audit Bureau of Sinopec Corp. and Director of the Office of Audit Committee of Leading Party Member Group of China Petrochemical Corporation. In December 2010, he was elected as Employee’s Representative Supervisor of Sinopec Corp.; in May 2018, he was elected as Supervisor of Sinopec Corp. Zhang Zhiguo, aged 59, Supervisor of Sinopec Corp. Mr. Zhang is a professor level senior administration engineer with a master’s degree. In September 2009, he was appointed as Deputy Director General of Corporate Office of China Petrochemical Corporation (Sinopec President’s office); in March 2015, he was appointed as Secretary of CPC Committee of Sinopec Management Institute (Sinopec Communist Party School); in December 2018, he was appointed as Director General of the Office of Leading Party Member Group Inspection Work of China Petrochemical Corporation; in December 2019, he was appointed as Director General of the General Management Department and Director of Leading Party Member Group Office of China Petrochemical Corporation. In May 2021, he was elected as Supervisor of Sinopec Corp. 43 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceYin Zhaolin Guo Hongjin Li Defang Yin Zhaolin, aged 56, Supervisor of Sinopec Corp. Mr. Yin is a professor level senior engineer with a master’s degree in engineering. In April 2010, he was appointed as Deputy General Manager of Sinopec Maoming Company; in January 2017, he was appointed as Executive Deputy General Manager of Sinopec Maoming Company (administrated as a General Manager of a Level-I Large- scale Enterprise); in April 2017, he was appointed as General Manager and Deputy Secretary of CPC Committee of Sinopec Maoming Petrochemical Company and General Manager of Sinopec Maoming Company; in July 2017, he was appointed to serve a temporary position as a member of the Standing Committee of the CPC Maoming Municipal Committee; in October 2020, he was appointed as Executive Director and Secretary of CPC Committee of the Sinopec Maoming Petrochemical Company and the representative of the Sinopec Maoming Company, head of Maoming-Zhanjiang Integration Leading Group. In May 2021, he was elected as Supervisor of Sinopec Corp. Guo Hongjin, aged 56, Supervisor of Sinopec Corp. Mr. Guo is a professor level senior engineer with a Ph.D. degree. In July 2013, he was appointed as Deputy General Manager of Sinopec Shengli Oilfield Company; in March 2018, he was appointed as General Manager and Deputy Secretary of CPC Committee of Sinopec Shengli Petroleum Administrative Bureau Co., Ltd. and General Manager of Sinopec Shengli Oilfield Company; in December 2018, he was appointed as Executive Director, General Manager and Deputy Secretary of CPC Committee of Sinopec Jianghan Petroleum Administrative Bureau Co., Ltd. and General Manager of Sinopec Jianghan Oilfield Company; in July 2019, he was appointed as Executive Director and Secretary of CPC Committee of Sinopec Jianghan Petroleum Administrative Bureau Co., Ltd. and the representative of Sinopec Jianghan Oilfield Company; in April 2020, he was appointed as General Manager of the Petroleum Exploration & Development Department of Sinopec Corp. In May 2021, he was elected as Supervisor of Sinopec Corp. Li Defang, aged 60, Employee’s Representative Supervisor of Sinopec Corp. Mr. Li is a professor level senior engineer with a Ph.D. degree. In May 2001, he was appointed as Deputy Secretary of CPC Committee and Trade Union Chairman of Sinopec Engineering Incorporation; in December 2001, he was appointed as Director General of Information System Management Department of Sinopec Corp.; in September 2013, he was appointed as Director General of Informatisation Management Department of Sinopec Corp.; in October 2014, he was appointed as Chairman of Petro- CyberWorks Information Technology Co., Ltd.; in January 2018, he was elected as Employee Supervisor of China Petrochemical Corporation; in March 2019, he was appointed as Secretary of CPC Committee of Sinopec Management Institute (Sinopec Communist Party School); in November 2020, he was appointed as the Secretary of CPC Committee of Sinopec Management Institute and Executive Vice Principal of Sinopec Communist Party School. In May 2020, he was elected as Employee’s Representative Supervisor of Sinopec Corp. 44 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)Lv Dapeng Chen Yaohuan Lv Dapeng, aged 60, Employee’s Representative Supervisor of Sinopec Corp. Mr. Lv is a professor level senior administration engineer with a Master’s degree of business administration. In December 2001, he was appointed as Deputy Director General of China Petrochemical News; in March 2003, he was appointed as Deputy Director General and Chief Editor of China Petrochemical News; in June 2004, he was appointed as Director General and Chief Editor of China Petrochemical News; in December 2004, he was appointed as Director General, Secretary of CPC Committee and Chief Editor of China Petrochemical News; in March 2011, he was appointed as Director General of Corporate Culture Department of Sinopec Corp., and Director General of the Political Work Department of and Deputy Secretary of the CPC Committee directly under China Petrochemical Corporation; in June 2012, he was appointed concurrently as Deputy Director General of Working Committee of Trade Union and Deputy Director of the Youth Working Committee of China Petrochemical Corporation; in March 2015, he was appointed as Director General of Corporate Culture Department of Sinopec Corp. and Director General of Communications Department (Press Office) of China Petrochemical Corporation; in December 2019, he was appointed as Director General of Corporate Culture Department of Sinopec Corp., Director General of Communication Department and Director General of Press Office of China Petrochemical Corporation. In January 2021, he was elected as Employee’s Representative Supervisor of Sinopec Corp. Chen Yaohuan, aged 58, Employee’s Representative Supervisor of Sinopec Corp. Mr. Chen is a professor level senior engineer with a Master’s degree awarded by Central Party School of the CPC. In October 2008, he was appointed as Deputy Director General of Refining Department of Sinopec Corp.; in March 2015, he was appointed as Executive Director, General Manager and Deputy Secretary of the CPC Committee of Sinopec Beihai Refining and Chemical Limited Liability Company; in May 2015, he was appointed as a member of the Standing Committee of the CPC Beihai Municipal Committee; in June 2018, he was appointed as General Manager and Deputy Secretary of the CPC Committee of Guanzhou Branch of Sinopec Corp. and General Manager of Guangzhou Branch of Sinopec Assets Management Corporation; in July 2019, he was appointed as Deputy Director General (Director General Level) and Chief Engineer of Refining Department of Sinopec Corp.; in October 2019, he was appointed concurrently as Chairman of Sinopec Kantons International Limited and Sinopec Kantons Holdings Limited; in December 2019, he was appointed as General Manager and Chief Engineer of Refining Department of Sinopec Corp.; in December 2019, he was appointed concurrently as Vice Chairman and Chairman of Audit Committee of Yanbu Aramco Sinopec Refining Company Ltd.; in August 2020, he was appointed concurrently as Executive Director and Secretary of CPC Committee of Sinopec Petroleum Marketing Company Limited and Chairman of Sinopec Petroleum Storage and Reserve Limited. In January 2021, he was elected as Employee’s Representative Supervisor of Sinopec Corp. 45 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceLIST OF MEMBERS OF THE BOARD OF SUPERVISORS Remuneration paid by Sinopec Corp. in 2021 (RMB1,000, before tax) Whether paid by the shareholders of the Company or their related entities Position in Sinopec Corp. Tenure Chairman of the 2021.05-2024.05 – Board of Supervisors Name Gender Zhang Shaofeng Male Age 50 Jiang Zhenying Zhang Zhiguo Yin Zhaolin Guo Hongjin Li Defang Lv Dapeng Chen Yaohuan Male Male Male Male Male Male Male Supervisor 2018.05-2024.05 57 Supervisor 2021.05-2024.05 59 Supervisor 2021.05-2024.05 56 56 Supervisor 2021.05-2024.05 60 Employee Representative Supervisor 2020.05-2024.05 60 Employee representative Supervisor 2021.01-2024.05 58 Employee Representative Supervisor 2021.01-2024.05 – – – 403.2 298.4 417.2 1,165.4 Note: Mr. Li Defang holds 40,000 A shares of Sinopec Corp.(the actual holder of the said shares is the spouse of Mr. Li Defang). LIST OF FORMER MEMBERS OF THE BOARD OF SUPERVISORS Equity interests in Sinopec Corp. (as of 31 December) 2021 0 0 0 0 0 40,000 0 0 2020 0 0 0 0 0 40,000 0 0 Yes Yes Yes Yes No No No No Name Gender Age Position in Sinopec Corp. Tenure Zhao Dong Male 51 Former Chairman of the 2017.06-2021.05 Zou Huiping Sun Huanquan Yu Renming Male Male Male Supervisor 2006.05-2021.01 61 57 Employee Representative Supervisor 2020.05-2021.01 58 Employee Representative Supervisor 2010.12-2021.01 Board of supervisor Remuneration paid by in 2020 (RMB1,000, before tax) Whether paid by the shareholders of the Company or their related entities Equity interests in Sinopec Corp. (as of 31 December) 2021 2020 – 0 – – Yes No Yes Yes 0 0 0 0 0 0 0 0 46 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED) Chen Ge Yu Xizhi Shou Donghua Shou Donghua, aged 52, Chief Financial Officer and General Manager of Finance Department of Sinopec Corp. Ms. Shou is a professor level senior accountant with a Master’s degree of business administration. In July 2010, she was appointed as the Chief Financial Officer of Sinopec Zhenhai Refining & Chemical Company; in October 2014, she was appointed as Deputy Director General of Human Resource Department of Sinopec Corp.; in August 2017, she was appointed as the Secretary of CPC Committee of Sinopec Zhenhai Refining & Chemical Company and Deputy General Manager of Sinopec Zhenhai Refining & Chemical Company; in August 2018, she was appointed as the Director General of Finance Department of China Petrochemical Corporation and concurrently served as the Chairman of Sinopec Century Bright Capital Investment Limited; in December 2019, she was appointed as General Manager of Finance Department of Sinopec Corp. and concurrently served as the Chairman of Sinopec Century Bright Capital Investment Limited. In January 2020, she was appointed as Chief Financial Officer of Sinopec Corp. and General Manager of Finance Department. (3) Other Members of Senior Management Chen Ge, aged 59, Senior Vice President of Sinopec Corp. Mr. Chen is a senior economist with a Master’s degree. In February 2000, he was appointed as Deputy Director General of the Board Secretariat of Sinopec Corp.; in December 2001, he was appointed as Director General of the Board Secretariat of Sinopec Corp.; in April 2003, he was appointed as Secretary to the Board of Directors of Sinopec Corp.; from April 2005 to August 2013, he was appointed concurrently as Director General of Corporate Reform & Management Dept. of Sinopec Corp.; in July 2010, he was appointed as Assistant to President of China Petrochemical Corporation; from December 2013 to December 2015, he was appointed temporarily as Deputy Secretary-General of Guizhou Provincial People’s Government and a member of the Leading Party Member Group of Guizhou Provincial General Office; in November 2015, he was appointed as Employee’s Representative Director of China Petrochemical Corporation; in December 2017, he was appointed concurrently as Director General of Corporate Reform & Management Dept. of Sinopec Corp.; in October 2018, he was appointed as Senior Vice President of Sinopec Corp.; in July 2020, he was appointed concurrently as General counsel. Yu Xizhi, aged 59, Vice President of Sinopec Corp. Mr Yu is a professor-level senior engineer with a Ph.D. degree in engineering. In August 1997, he was appointed as Deputy General Manager of Anqing Petrochemical General Plant and concurrently as General Manager of Fertiliser Plant; in September 1999, he became a member of the CPC Standing Committee of Anqing Petrochemical General Plant; in February 2000, he was appointed as Deputy General Manager of Sinopec Anqing Company and in September 2000, he was appointed as General Manager of Sinopec Anqing Company; in January 2005, he was appointed as General Manager of Anqing Petrochemical General Plant and from May 2009 to July 2010, he temporarily served as a member of the Standing Committee of the CPC Anqing Municipal Committee; in July 2010, he became General Manager and Deputy Secretary of the CPC Committee of Maoming Petrochemical Company and General Manager of Sinopec Maoming Company; in July 2016, Mr. Yu was appointed as head of Maoming-Zhanjiang Integration Leading Group; in December 2016, he became Executive Director, General Manager and Deputy Secretary of the CPC Committee of Zhongke (Guangdong) Refining and Petrochemical Co., Ltd.; in April 2017, Mr. Yu was appointed as Director General of Human Resources Department of Sinopec Corp.; in June 2017, he was elected as Employee’s Representative Supervisor of Sinopec Corp.; in December 2019, he was appointed as President of Human Resource Department of Sinopec Corp. and the Director General of Organization Department of China Petrochemical Corporation; in January 2020, he was elected as Director of China Petrochemical Corporation. In July 2020, he was appointed as Vice President of Sinopec Corp. 47 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceZhao Rifeng Huang Wensheng Zhao Rifeng, aged 59, Vice President of Sinopec Corp. Mr. Zhao is a professor level Senior Engineer with a Master’s degree. In July 2000, he was appointed as Deputy General Manager of Sinopec Jinling Petrochemical Co., Ltd. and Deputy Manager of Sinopec Jinling Company; in October 2004, he was appointed as General Manager of Sinopec Jinling Company; in October 2006, he was appointed as Vice Chairman and General Manager of Sinopec Jinling Petrochemical Co., Ltd.; in November 2010, he was appointed as Chairman, General Manger, Deputy Secretary of CPC Committee of Sinopec Jinling Petrochemical Co., Ltd.; in August 2013, he was appointed as Director General of Refining Department of Sinopec Corp.; in December 2017, he was appointed as the Director General of the Marketing Department of Sinopec Corp. and Chairman and Secretary of CPC Committee of Sinopec Marketing Company Limited; in December 2019, he was appointed as the President of the Marketing Department of Sinopec Corp. and Chairman and Secretary of CPC Committee of Sinopec Marketing Company Limited. In February 2018, he was appointed as Vice President of Sinopec Corp. Huang Wensheng, aged 55, Vice President of Sinopec Corp., Secretary to the Board of Directors. Mr. Huang is a professor level senior economist with a university diploma. In March 2003, he was appointed as Deputy Director General of the Board Secretariat of Sinopec Corp.; in May 2006, he was appointed as Representative on Securities Matters of Sinopec Corp.; in August 2009, he was appointed as the Deputy Director General of President’s office of Sinopec Corp.; in September 2009, he was appointed as Director General of the Board Secretariat of Sinopec Corp.; in June 2018, he was appointed concurrently as Director General of Department of Capital Management and Financial Services of China Petrochemical Corporation; in July 2018, he was appointed concurrently as Chairman and Secretary of CPC Committee of Sinopec Capital Co., Ltd.; in December 2019, he was appointed as President of Department of Capital Management and Financial Services of China Petrochemical Corporation. In May 2012, he was appointed as Secretary to the Board of Directors of Sinopec Corp.; in May 2014, he was appointed as Vice President of Sinopec Corp. 48 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)LIST OF MEMBERS OF THE SENIOR MANAGEMENT Name Chen Ge Yu Xizhi Shou Donghua Zhao Rifeng Huang Wensheng Gender Male Male Female Male Male Position in Sinopec Corp. Senior Vice President Vice President Chief Financial Officer Vice President Vice President, Board Secretary Age 59 59 52 59 55 Remuneration paid by Sinopec Corp. in 2021 (RMB1,000, before tax) 1,586.7 1,411.0 1,292.4 1,451.9 1,407.9 12 INFORMATION ON APPOINTMENT OR TERMINATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT On 1 January 2021, Mr. Yu Renming, Mr. Sun Huanquan resigned as Employee’s Representative Supervisors of Sinopec Corp. due to change of working arrangement. Mr. Lv Dapeng and Mr. Chen Yaohuan were elected as the employee’s representative supervisors of the seventh session of the Board of Supervisors of Sinopec Corp. through democratic procedure, for a term commencing from 11 January 2021 to the date when the term of the seventh session of the board of supervisors of the Company expires. On 28 January 2021, Mr. Zou Huiping resigned as Supervisor of Sinopec Corp. due to age. On 25 May 2021, the members of the Eighth Session of the Board of Directors and the Board of Supervisors (non-Employee- Representative Supervisors) were elected at the 2020 general meeting of shareholders. The Chairman of the Board was elected and the senior management appointed at the 1st meeting of the Eighth session of Board held at the same date.The Chairman of the Board of Supervisors was elected at The 1st meeting of the Eighth Session of the Board of Supervisors.The changes of the Directors, Supervisors and other senior management are as follows: Board of Directors: Mr. Zhang Yuzhuo was elected as Non-executive Director and Chairman of the Board. Mr. Ma Yongsheng was elected as Executive Director and President; Mr. Zhao Dong was elected as Non-executive Director; Mr. Yu Baocai, Mr Ling Yiqun, Mr. Li Yonglin, Mr. Liu Hongbin were elected as Executive Directors and Senior Vice President. Mr. Cai Hongbin and Mr. Ng Kar Ling Johnny, Ms. Shi Dan, Mr. Bi Mingjian were elected as Independent Non-executive Directors. Mr. Tang Min was no longer the Independent Non-executive Directors of the Board. Board of Supervisors: Mr. Zhang Shaofeng was elected as the Chairman of Board of Supervisors. Mr. Jiang Zhenying, Mr. Zhang Zhiguo, Mr. Yin Zhaolin, Mr. Guo Hongjin were elected as Supervisors. Mr. Li Defang, Mr. Lv Dapeng, Mr. Chen Yaohuan were elected as Employee Representative Supervisors. Other Senior Management: Mr. Chen Ge was elected as Senior Vice President. Mr. Yu Xizhi, Mr. Zhao Rifeng, Mr. Huang Wensheng were elected as Vice Presidents. Ms. Shou Donghua was appointed as Chief Financial Officer. Mr. Huang Wensheng was elected as Secretary to the Board. Whether paid by the shareholders of the Company or Equity interests in Sinopec Corp. their related entities (as of 31 December) 2020 2021 No No No No No 0 0 0 0 0 0 0 0 0 0 On 2 August 2021, Mr. Zhang Yuzhuo resigned as Chairman of the Board, Non- executive Director and Chairman of each of the Strategy Committee, Nomination Committee and Sustainable Development Committee (Social Responsibility Management Committee)of the Board of Sinopec Corp. due to change of working arrangement. On 29 November 2021, Mr. Ma Yongsheng was appointed as Chairman of the Board, Chairman of each of the Strategy Committee, Nomination Committee and Sustainable Development Committee (formerly, the Social Responsibility Management Committee) of the Board of Sinopec Corp. resigned as President and became a non-executive director. On 29 November 2021, Mr. Yu Baocai was appointed as President of Sinopec Corp. 49 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate Governance13 CHANGE OF SHAREHOLDING OF 15 CONTRACTS WITH DIRECTORS AND 17 THE COMPANY’S EMPLOYEES DIRECTORS, SUPERVISORS, AND THE SENIOR MANAGEMENT There is no change in shareholdings of the Company by Directors, Supervisors and other senior managers during the reporting period. 14 CONTRACTUAL INTERESTS OF DIRECTORS AND SUPERVISORS As of 31 December 2021 or any time during the reporting period, no Director or Supervisor of the Company entered into any agreement with Sinopec Corp., its controlling shareholder, any subsidiary or related subsidiary which shall substantially benefit such Director or Supervisor. SUPERVISORS The Company has entered into service contracts with all the Directors and Supervisors. None of the Directors and Supervisors has entered into or will enter into service contracts that are not terminable by the Company within one year without compensation (except for statutory compensation). 16 REMUNERATION OF DIRECTORS, SUPERVISORS, AND THE SENIOR MANAGEMENT During this reporting period, a total of 16 Directors, Supervisors and other senior managers received remuneration from Sinopec Corp. with a total amount of RMB12.1413 million. As at 31 December 2021, the Company has a total of 385,691 employees. There are a total of 280,216 retired employees to be reimbursed by Sinopec Corp. Sinopec Marketing Co. Limited, the principal subsidiaries of Sinopec Corp., has 122,232 employees. THE BREAKDOWN OF NUMBER OF EMPLOYEES BY OPERATION SEGMENTS IS AS FOLLOWS: (INCLUDING EXPLORATION AND PRODUCTION, REFINING, MARKETING AND DISTRIBUTION, CHEMICALS, R&D AND OTHERS) Marketing and Distribution 122,232 32% R&D Other Segments 6,212 5,066 2% 1% Exploration and Production 126,874 33% Refining 57,513 15% Chemicals 67,794 17% EMPLOYEES’ PROFESSIONAL STRUCTURE AS FOLLOWS: (INCLUDING PRODUCTION, SALES, TECHNOLOGY, FINANCE, ADMINISTRATION AND OTHERS) Technology 87,231 22% Finance 8,612 Administration 30,725 Others 2,540 2% 8% 1% Production 145,786 38% Sales 110,797 29% 50 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)EDUCATIONAL BACKGROUND STRUCTURE FOR EMPLOYEES AS FOLLOWS: (INCLUDING MASTER’S DEGREE OR ABOVE, UNDERGRADUATE, JUNIOR COLLEGE, SENIOR HIGH SCHOOL AND TECHNICAL SCHOOL DEGREES OR BELOW) Senior high school and technical school degrees or below 136,667 35% Master’s degree or above 21,839 6% Undergraduate 109,327 28% Junior college 87,432 23% Technical secondary school 30,426 8% TECHNOLOGY PERSONNEL EDUCATION STRUCTURE: (INCLUDING PHD, MASTER’S DEGREE, UNDERGRADUATE OR BELOW) 2,295 1,960 1,957 2,400 2,300 2,200 2,100 2,000 1,900 1,800 1,700 PHD Master’s Degree Undergraduate or below TECHNOLOGY PERSONNEL AGE STRUCTURE 2,114 1,642 1467 2,500 2,000 1,500 1,000 500 0 989 21-30 31-40 41-50 51-60 51 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate Governance18 CHANGES OF CORE TECHNICAL TEAM OR 20 REMUNERATION POLICY 21 TRAINING PROGRAMS Based on a relatively unified basic remuneration system, Sinopec Corp. has established its remuneration distribution system based on the value of positions, performance & contribution, with an aim to improve employee capabilities, and constantly improve employee performance evaluation and incentive & discipline mechanisms. KEY TECHNICIANS During the reporting period, there are no significant changes of core technical team or key technicians. 19 EMPLOYEE BENEFITS SCHEME Details of the Company’s employee benefits scheme are set out in Note 40 of the financial statements prepared under IFRS of this annual report. As at 31 December 2021, the Company has a total of 280,216 retired employees. All of them participated in the basic pension schemes administered by provincial governments (or those of autonomous regions or municipalities). Government-administered pension schemes are responsible for the payments of basic pensions. In 2021, the Company strengthened coordination for training programs, took innovative approaches to establish high quality training system, and conducted training programs for all types of talents. The training for management staff became more systematic, with the 8-level echelon training system being constantly improved, covering new employees up to top management staff of subsidiaries, with an emphasis on middle- aged and young management staff training programs. The technician, skilled worker and specialist training proved more practically effective, with programmes focusing on oil and gas exploration specialists’ versatile knowledge and advanced study, high-end synthetic material specialists’ research and study, “future scientist” creativity upgrading, state craftsman forging and upgrading. The programmes enhanced post exposure, basic skill training and contingent skill training. The international talent training was further strengthened, focusing on overseas project teams, with training projects covering overseas project managers, international trade managers, refining and chemical international talents. The headquarters trained 5,122 key talents of various types. In addition, the Company strengthened online training by rendering it more intelligent and tailor-made, and participants have spent over 50 million hours on the online training program during the year of 2021. 52 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate GovernanceCORPORATE GOVERNANCE (CONTINUED)1 WORK CONDUCTED IN ECOLOGICAL (2) Construction and operation of pollution (7) Other environmental information to be PROTECTION, POLLUTION PREVENTION AND ENVIRONMENTAL RESPONSIBILITIES IMPLEMENTATION IN THE REPORTING PERIOD In the reporting period, the Company targeted to build a world-leading clean energy and chemical company, stuck to green and clean development strategy, persistently carried out “green enterprise action”, deepened the campaign of pollution prevention, kept environment risk from occurring, thus no substantial or sudden environmental incident happened. The COD and sulphur dioxide emissions decreased by 2.1% and 4.2% respectively, and the solid waste was 100% properly treated. 2 MEASURES TAKEN TO MITIGATE CARBON EMISSION AND ITS EFFECT IN THE REPORTING PERIOD In the reporting period, the Company, guided by the carbon peak and carbon neutrality targets, advanced the “energy efficiency upgrading plan” in depth, persistently intensified carbon assets management, thus the energy saving and carbon reduction has been further improved. In 2021, the Company decreased its greenhouse gas emission by 2.38 million ton carbon dioxide equivalent, recycled 1.52 million tons of carbon dioxide, used 0.31 million tons of carbon dioxide for EOR, recycled 717 million cubic meters of methane which is equivalent to 10.75 million tons of carbon dioxide in terms of greenhouse gas emission. 3 ENVIRONMENTAL PROTECTION SOLUTIONS OF COMPANIES AND THEIR SUBSIDIARIES AS MAJOR POLLUTANT DISCHARGING COMPANIES IDENTIFIED BY ENVIRONMENTAL PROTECTION DEPARTMENTS (1) Pollutant discharge information In the reporting period, certain subsidiaries of Sinopec Corp. listed as major pollutant discharge units announced by national or local ecological and environmental authorities have disclosed environmental information in accordance with the requirements of the national list of fixed pollution source emission permit classification management and acquired their pollutant discharge license as required by the relevant authorities and local government. The details of such information was published on national pollutant discharge license management information platform (http://permit.mee.gov.cn/permitExt/ defaults/default-index!getInformation. action) and the local government website. prevention facilities In the reporting period, the Company built prevention and control facilities for sewage, flue gas, solid waste and noise in accordance with the requirements of the national and local pollution prevention and environmental protection standards, kept effective and stable operation of pollution prevention and control facilities. (3) Environmental influence evaluation for construction projects and other administrative permit for environmental protection In the reporting period, the Company standardized environmental protection management for construction projects, enforced whole process construction and operation management, with measures of the “simultaneous three” implemented, all new projects have acquired approval for environmental evaluation from government. (4) Contingent scheme for sudden environmental incident In the reporting period, the Company complied with the requirements for environmental incident contingent scheme by the State, promulgated “contingent scheme for sudden environmental incidents”, and persistently improved its contingent scheme against sudden environmental incidents of enterprises and severe pollution weather. (5) Scheme for environment self-monitoring In the reporting period, the Company improved its self-monitoring scheme in accordance with the industry guideline, enforced the new requirements for sewage, flue gas and noise monitoring, and disclosed the monitor information as required. (6) Administrative penalties due to environmental problems in the reporting period In the reporting period, no penalty for significant environmental protection incident was imposed on the Company. The subsidiaries’ administrative penalties have been disclosed in the website required by environment departments of local government. disclosed In the reporting period, for subsidiaries not listed as major pollution units, the Company has acquired related permissions from national and local government, and enforces environmental protection measures. The above mentioned subsidiaries are not obliged to disclose in accordance with the requirements of national and local ecological environment authorities. 4 EXPAND THE ACHIEVEMENTS IN POVERTY- ALLEVIATION AND RURAL REVITALIZATION In the reporting period, the Company focused its rural revitalisation efforts on the 8 counties designated for its assistance, the poverty of which has already been alleviated. The Company recognised industry, education and consumption as three main fields of work, and strengthened the linkage between the outcome of poverty alleviation and rural revitalization. On 1 March 2021, Sinopec Corp. became the first to publish its 14th-five-year plan to support rural revitalization, mapped out its education and consumption support enforcement plans respectively, including the vision to be realized in the 14th-five-year period, the planed fund and major projects, which ensured the all-round support work. In 2021, the Company accumulatively dispatched 349 village teams and 925 village cadres to undertake 610 village-level support projects, invested and introduced to-be-paid and non-to-be-paid funds of RMB580 million in total, trained over 30,000 entry-level personnel and supported local consumption by RMB950 million. 5 SUPPORT THE WINTER OLYMPIC AND PARALYMPIC GAMES BEIJING 2022 As an official sponsor for Winter Olympic and Paralympic Games Beijing 2022, Sinopec Corp. proactively implemented its concept of “clean energy, serve the Winter Olympic Games”, dedicated itself to service, supply and promotion for the Olympic Games. The Company facilitated the construction of oil and hydrogen energy stations, used the hydrogen it produced to fuel the Olympic torches, and supplied clean energy for the Games. Meanwhile, the Company developed and manufactured the carbon fibre synthetic material used in the coat of the “flying upward” torch, which has promoted the Company’s brand concept of “cleaner energy, better life”. 53 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Environment and Social ResponsibilitiesENVIRONMENT AND SOCIAL RESPONSIBILITIES54 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Significant EventsSIGNIFICANT EVENTS1 MAJOR PROJECTS (4) Wuhan de-bottleneck project (7) Weirong shale gas project (phases 1 & 2) (1) Zhenhai refining & chemical expansion project (phase 1) Zhenhai Refining & Chemical expansion project (phase 1) consists of 4,000,000 tpa crude oil modification project for old refinery and 1,200,000 tpa ethylene project. The project was approved in June 2018, ethylene and relevant projects started at the end of October 2018. The mechanical completion was finished in June 2021. The Company’s self-owned fund accounts for 30% of the project investment, bank loan is the main source of the remaining 70%. As of 31 December 2021, the aggregate amount invested was RMB23 billion. (2) Zhenhai refining & chemical expansion project (phase 2) Zhenhai Refining & Chemical expansion project (phase 2) consists of building 11,000,000 tpa refinery project and 600,000 tpa propane dehydrogenatin and downstream projects. The project is expected to begin in March 2022 and mechanical completion is expected to be finished in June 2024. The Company’s self-owned fund accounts for 30% of the project investment, bank loan is the main source of the remaining funds. As of 31 December 2021, the aggregate amount invested was RMB2.1 billion. (3) Tianjin Nanggang ethylene and downstream high-end new material industry cluster project Tianjin Nanggang Ethylene and downstream High-End New Material Industry Cluster Project consists of 1,200,000 tpa ethylene project and downstream processing units. The project began in May 2021 and mechanical completion is expected to be finished in the end of 2023. The Company’s self- owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining funds. As of 31 December 2021, the aggregate amount invested was RMB3.0 billion. Wuhan de-bottleneck project expands the original an 800,000 tpa-to-1,100,000 tpa ethylene capacity expansion project. The project started at the end of October 2018 and mechanical completion was finished in June.2021. It’s put into operation in Sep. 2021. The Company’s self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining funds. As of 31 December 2021, the aggregate amount invested was RMB3.9 billion. (5) Hainan 1,000,000 tpa ethylene and refining expansion project Hainan Ethylene and Refining Expansion project mainly consists of 1,000,000 tpa ethylene and auxiliary units. The project started at the end of December 2018 and is expected to achieve the mechanical completion in Jun. 2022. The Company’s self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining funds. As of 31 December 2021, the aggregate amount invested was RMB15.6 billion. (6) Yifzheng PTA project Yizheng 3 million tpa PTA project mainly consists of oxidation, purification units and auxiliary units. The project started in July 2021 and the mechanical completion is expected to be finished in Aug. 2023. The Company’s self-owned fund accounts for 30% of the project investment, bank loan is the main source of the remaining funds. As of 31 December 2021, the aggregate amount invested was RMB0.65 billion. Guided by the principle of “overall deployment, stage-wise implementation and fully consideration”, the building of first phase of production capacity, which is 1 billion cubic meters per year, unfolded comprehensively since August 2018. The phase-one 1 billion-cubic- meter capacity was built up in December 2020. It is expected to complete phase- two 2 billion-cubic-meter capacity in December 2022. The Company’s self- owned fund accounts for 30% of the project investment and bank loan is the main source of the remaining funds. As of 31 December 2021, the aggregate amount invested was RMB6.3 billion. (8) Tianjin LNG project (phase 2) Tianjin LNG project (phase 2) mainly consists of a new wharf, five new 220,000-cubic-meter storage tanks etc. LNG capacity will reach 11 million tons per year after phase 2 is completed. The project started in January 2019 and is expected to put into operation in August 2023. The Company’s self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining funds. As of 31 December 2021, the aggregate amount invested was RMB3.0 billion. (9) Longkou LNG project Longkou LNG project mainly consists of a wharf, terminal and power plant warm drainage and water Intake. The first phase designed LNG capacity is 6 million tons per year. One LNG berth with 0.266 million cubic meter capacity will be modified and four 0.22 million cubic meter capacity storage tanks will be newly built up. The project started in Nov. 2021 and is expected to put into operation in Nov. 2024. The Company’s self-owned fund accounts for approximately 30% of the project investment and bank loan is the main source of the remaining funds. As of 31 December 2021, the aggregate amount invested was RMB1.4 billion. 55 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Significant EventsSIGNIFICANT EVENTS3. THE TRANSACTIONS WITH CHINA OIL & GAS PIPELINE NETWORK CORPORATION (PIPECHINA) On 28 January 2021, the Board approved the continuing related party transaction cap in relation to refined oil pipeline transportation between Marketing Company and PipeChina for the period from 1 October 2020 to 31 December 2021. The aggregate amount of the continuing related party transaction of the Company from 1 January 2021 to 31 December 2021 was RMB5.93 billion. 2 PURCHASE OF EQUITY AND NON-EQUITY ASSETS On 26 March 2021, Sinopec Corp. and Sinopec Group Asset Management Co., Ltd. (“Asset Company”) entered into acquisition agreements to purchase the equity interest in Cangzhou Toray and the polypropylene and utilities assets, Sinopec Corp. and Orient Petrochemical entered into agreement to purchase equipment and related assets. On the same day, Overseas Investment Company of Sinopec Corp. and Century Bright Company entered into agreement to purchase equity interest in Hainan Refining and Chemical, Beihai Refining & Chemical of Sinopec Corp. and Beihai Petrochemical entered into agreement to purchase the non- equity assets including the pier operation platform. As of 1 July 2021, conditions precedent for closing in above agreements have been met, the ownership, obligations, responsibilities and risks of targeted assets have been transferred to Sinopec Corp. or its subsidiaries. On 29 November 2021, Sinopec Corp. and Assets Company entered into the agreement on purchasing the equity assets, non-equity assets and liabilities of the production and operating business held by the Assets Company, Sinopec Yizheng Chemical Fibre Company Limited and Assets Company entered into the agreement on purchasing the equity assets, non-equity assets and liabilities of the production and operating business held by the Assets Company, Sinopec Corp. and Sinopec Beijing Yanshan Petrochemical Co., Ltd. entered into the agreement on purchasing the non-equity assets and liabilities of the production and operating business held by Sinopec Beijing Yanshan Petrochemical Co., Ltd. As of 1 December 2021, the ownership, obligations, responsibilities and risks of targeted assets have been transferred to Sinopec Corp. or its subsidiaries. For details, please refer to the announcements published by Sinopec Corp. on China Securities Journal, Shanghai Securities News, Securities Times, and on the website of Shanghai Stock Exchange on 29 March 2021, 2 July 2021, 30 November 2021 and 2 December 2021, on the website of Hong Kong Stock Exchange on 28 March 2021, 1 July 2021, 29 November 2021 and 1 December 2021. 56 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Significant EventsSIGNIFICANT EVENTS (CONTINUED)Whether bears deadline or not Whether strictly performed or not No Yes Yes Yes 4 PERFORMANCE OF THE UNDERTAKINGS BY CHINA PETROCHEMICAL CORPORATION Background Type of Undertaking Party Contents Term for performance Undertakings related to Initial Public Offerings (IPOs) IPOs China Petrochemical Corporation Other undertakings Other China Petrochemical Corporation 1 2 3 4 5 6 From 22 June 2001 Compliance with the connected transaction agreements; Solving the issues regarding the legality of land- use rights certificates and property ownership rights certificates within a specified period of time; Implementation of the Reorganisation Agreement (please refer to the definition of Reorganisation Agreement in the H share prospectus of Sinopec Corp.); Granting licenses for intellectual property rights; Avoiding competition within the same industry; Abandonment of business competition and conflicts of interest with Sinopec Corp. Within 10 years after 29 April 2014 or the date when China Petrochemical Corporation acquires the assets Given that China Petrochemical Corporation engages in the same or similar businesses as Sinopec Corp. with regard to the exploration and production of overseas petroleum and natural gas, China Petrochemical Corporation hereby grants a 10-year option to Sinopec Corp. with the following provisions: (i) after a thorough analysis from political, economic and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell its overseas oil and gas assets owned as of the date of the undertaking and still in its possession upon Sinopec Corp.’s exercise of the option to Sinopec Corp.; (ii) in relation to the overseas oil and gas assets acquired by China Petrochemical Corporation after the issuance of the undertaking, within 10 years of the completion of such acquisition, after a thorough analysis from political, economic and other perspectives, Sinopec Corp. is entitled to require China Petrochemical Corporation to sell these assets to Sinopec Corp. China Petrochemical Corporation undertakes to transfer the assets as required by Sinopec Corp. under aforesaid items (i) and (ii) to Sinopec Corp., provided that the exercise of such option complies with applicable laws and regulations, contractual obligations and other procedural requirements. As of the date of this report, Sinopec Corp. had no undertakings in respect of financial performance, asset injections or asset restructuring that had not been fulfilled, nor has Sinopec Corp. made any profit forecast in relation to any asset or project. 57 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Significant Events 5 MATERIAL GUARANTEE CONTRACTS AND THEIR PERFORMANCE Major external guarantees (excluding guarantees for controlled subsidiaries) Unit: RMB million Guarantor Sinopec Corp. Relationship with the Company Name of guaranteed company The listed company itself Zhongtian Hechuang Energy Co., Ltd Amount*1 Transaction date (date of signing) 5,746 May-16 Sinopec Corp. Sinopec Corp. The listed company itself The listed company itself Sinopec Corp. The listed company itself 5,680 Apr-18 3,264*4 Dec-21 173 Jan-21 Zhong An United Coal Chemical Co., Ltd. Russian Amur Natural Gas Chemical Integrated LLC Russian Amur Natural Gas Chemical Integrated LLC Total amount of guarantees provided during the reporting period*4 Total amount of guarantees outstanding at the end of reporting period*4 (A) Period of guarantee Type Principal debt condition Whether completed or not Whether overdue or not Amount of overdue guarantee Counter- guaranteed guaranty May 2016-December 2023 (the mature date is estimated) April 2018-December 2031 December 2021-December 2035 (the mature date is estimated) January 2021-June 2026 (the mature date is estimated) Joint and several liability guarantee Normal performance Joint and several liability guarantee Joint and several liability guarantee Normal performance Normal performance Joint and several liability guarantee Normal performance – – – – No No No No No No No No – – – – No No No No Guarantees by the Company to the controlled subsidiaries Total amount of guarantee provided to controlled subsidiaries during the reporting period Total amount of guarantee for controlled subsidiaries outstanding at the end of the reporting period (B) Total amount of guarantees for the Company (including those provided for controlled subsidiaries) Total amount of guarantees (A+B) The proportion of the total amount of guarantees to the Sinopec Corp.’s net assets (%) Guarantees provided for shareholder, de facto controller and its related parties (C) Amount of debt guarantees provided directly or indirectly to the companies with liabilities to assets ratio over 70% (D) The amount of guarantees in excess of 50% of the net assets (E) Total amount of the above three guarantee items (C+D+E) Statement of guarantee undue that might be involved in any joint and several liabilities Statement of guarantee status Whether guaranteed for connected parties yes or no)*2 No No No No 3,437 14,863 0 11,157 26,020 3.36 0 9,117 0 9,117 None * 1: Guarantee amount refers to the actual amount of guarantee liability that the company may undertake during the reporting period within the approved guarantee limit. * 2: As defined in the Rules Governing the Listing of Stocks on Shanghai Stock Exchange. * 3: Excluding the interest corresponding to the loan principal agreed in the guarantee contract, export credit premium and other expenses * 4: The amount of guarantees provided during the reporting period and the outstanding balance of guarantees amount at the end of the reporting period include the guarantees provided by the controlled subsidiaries to external parties. The amount of the guarantees provided by these subsidiaries is derived from multiplying the guarantees provided by Sinopec Corp.’s subsidiaries by the percentage of shareholding of Sinopec Corp. in such subsidiaries. For the details of the guarantees provided by Sinopec Corp. for Zhongtian Hechuang Energy Co., Lt, Zhong An United Coal Chemical Co., Ltd., and Russian Amur Natural Gas Chemical Integrated LLC in the above table, please refer to the Company’s respective documents dated December 29, 2015, March 26, 2018, And April 16, 2020 26 January 2021 A notice disclosed on the website of the Shanghai Stock Exchange on 16 December 2021 and a circular dated 7 January 2016, a circular dated 23 March 2018, and a notice dated 15 December 2021, respectively disclosed on the website of the Hong Kong Stock Exchange. 58 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Significant EventsSIGNIFICANT EVENTS (CONTINUED) 6. SPECIFIC STATEMENTS AND INDEPENDENT OPINIONS FROM INDEPENDENT NON-EXECUTIVE DIRECTORS REGARDING OUTSTANDING EXTERNAL GUARANTEES PROVIDED BY THE COMPANY DURING AND BY THE END OF 2021: We, as independent directors of Sinopec Corp., hereby make the following statements after conducting a thorough check of external guarantees provided by the Company accumulated up to and during 2021 in accordance with the requirements of the domestic regulatory authorities: The external guarantees prior to 2021 had been disclosed in previous annual report. The aggregate balance of outstanding external guarantees provided by Sinopec Corp. for the year 2021 was RMB26 billion, accounting for approximately 3.36% of the Company’s net assets. The total amount of guarantees provided during the reporting period was RMB3.4 billion, accounting for approximately 0.44% of the Company’s net assets. In accordance with the Articles of Association of the Company and the relevant laws and regulations and securities regulatory authorities on external guarantees, we hereby present the following opinions: In the reporting period, Sinopec Corp. strictly complied with the approval requirements by regulatory authorities and stock exchanges at home and abroad. There was no violation of decision-making procedures for offering external guarantees, no misconduct impairing the company’s and minority shareholders’ interest, thus no witness of possible significant risks. Sinopec Corp. shall continue to strengthen its management and actively monitor guarantee risks. It shall strictly follow the approval and disclosure procedures in relation to guarantee businesses for any new external guarantees provided thereafter. 7 SIGNIFICANT LITIGATION, ARBITRATION RELATING TO THE COMPANY No significant litigation, arbitration relating to the Company occurred during the reporting period. 8 INSOLVENCY AND RESTRUCTURING During the reporting period, the Company was not involved in any insolvency or restructuring matters. 9 OTHER MATERIAL CONTRACTS Saved as disclosed by Sinopec Corp., the Company did not enter into any material contracts subject to disclosure obligations during the reporting period. 10 CREDIBILITY FOR THE COMPANY, CONTROLLING SHAREHOLDERS AND DE FACTO CONTROLLER During the reporting period, the Company and its controlling shareholder did not fail to perform any effective judgments of the courts or fail to repay any substantial amount of debt due. 11 TRUSTEESHIP, CONTRACTING AND LEASES During the reporting period, the Company was not involved in any events relating to significant trusteeship, contracting or leases for the assets of any other company, nor has it placed its assets with any other company under a trust, contracting or lease agreement subject to disclosure obligations. 12 ENTRUSTED FINANCING AND LOAN (1) ENTRUSTED FINANCING During the reporting period, the Company was not involved in any entrusted financing. (2) ENTRUSTED LOAN Class Working capital loan Project construction loan (3) OTHER LOAN Class Project construction loan Origin Self-owned fund Self-owned fund Transaction amount (467) (42) Origin Self-owned fund Transaction amount 3,060 unit：RMB million Overdue 0 0 unit：RMB million Overdue 0 Undue amount 154 2,690 Undue amount 3,060 (4) OTHER FINANCING AND DERIVATIVE INVESTMENT During the reporting period, the Company was not involved in other financing or derivative investment. 59 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Significant Events13 BUSINESS WITH SINOPEC FINANCE CO., LTD. (SINOPEC FINANCE) AND SINOPEC CENTURY BRIGHT CAPITAL INVESTMENT, LTD. (CENTURY BRIGHT) (1) DEPOSIT Related party Sinopec Finance Century Bright Related party relationship Daily Cap Sinopec Group 51%; Sinopec Corp.49% Sinopec Group 100% RMB80 billion by Sinopec Finance and Century Bright Interest rate range current：0.35%-1.725%； time deposit: 1.35%-7.4% current：0%-0.25%；time deposit: 0.08%-1.23% unit: RMB million Transaction amount Balance at beginning 23,953 Total deposit 9,385 Total withdrawn Balance in the end 9,480 15,708 29,464 197,800 176,800 45,974 Note 1: generally, the deposit interest rate at Sinopec Finance and Century Bright is no lower than that of the same type of deposits for the same period from major commercial banks Note 2: the current period’s occurrence is on a time deposit basis. (2) LOAN Related party Related party relationship Century Bright Sinopec Group 100% Sinopec Finance Sinopec Group 51%; Sinopec Corp. 49% unit: RMB million Daily Cap 127,920 13,364 Interest rate range Balance at beginning Total loan Total withdrawn Balance in the end 0.56%-4.25% 1.08%-5.23% 6,614 10,428 151,233 32,305 154,648 29,369 3,199 13,364 Transaction amount Note: generally, the loan interest rate at Sinopec Finance and Century Bright is no higher than that of the same type of deposits for the same period from major commercial banks. (3) CREDIT OR OTHER FINANCIAL BUSINESS Related party Related party relationship Sinopec Finance Sinopec Group 51%; Sinopec Corp. 49% Note: the occurred amount includes the newly issued bills and discounts in the year unit: RMB million Business nature Credit Discounted bills Total amount 9,494 – Transaction amount 23,590 7,194 60 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Significant EventsSIGNIFICANT EVENTS (CONTINUED) In order to regulate related party transactions between the Company and Sinopec Finance Co., Ltd. (Sinopec Corp.’s domestic settlement center, hereinafter referred as the Finance Company) and to ensure the safety and liquidity of the deposits of the Company at the Finance Company, Sinopec Corp. and the Finance Company formulated the Risk Control System on Connected Transactions between China Petroleum & Chemical Corporation and Sinopec Finance Co., Ltd., which covers the risk control system and the risk management plan of the Company to prevent financial risks, ensuring the Company’s discretion to use and control its deposits with the Finance Company. At the same time, as the controlling shareholder of the Finance Company, China Petrochemical Corporation undertook that in case of an emergency when the Finance Company has difficulty in making payments, China Petrochemical Corporation would increase the capital of the Finance Company to meet the need for the purpose of making payment. 16 INFLUENCE ON THE INDUSTRY FROM NEWLY-ENFORCED LAW, ADMINISTRATIVE RULES, REGULATIONS AND INDUSTRY POLICIES In 2021, the NPC Standing Committee promulgated the Safety Production Law (revised in 2021) to strengthen the supervision on safety production. The State Council promulgated Sewage Permission Management Rules which set up a system to take sewage permit as core to monitor stationary pollution source. The NDRC promulgated Natural Gas Pipe Transportation Price Management Regulation and Natural Gas Pipe Transportation Pricing Cost Supervision Regulation (provisional) which specifies the trans-province natural gas pipe transportation pricing principle, method, procedures, cost structure and review method etc in detail. In addition, governmental departments promulgated relevant carbon peak and carbon neutrality guidelines which stress on the need to curb high energy consumption and high emission projects, and promote green transformation and high quality development. In order to regulate related party transactions between the Company and Sinopec Century Bright Capital Investment, Ltd. (Sinopec Corp.’s overseas settlement center, hereinafter referred at the Century Bright Company), Century Bright Company ensures the safety of the deposits of the Company at Century Bright Company by strengthening internal risk controls and obtaining support from China Petrochemical Corporation. China Petrochemical Corporation has formulated a number of internal rules, including the Rules for the Internal Control System, the Rules for Implementation of Overseas Capital Management Methods, and the Provisional Methods for Overseas Fund Platform Management, to impose strict restrictions on Century Bright Company regarding the provision of overseas financial services. Century Bright Company has also established the Rules for the Implementation of the Internal Control System, which ensures the standardisation and safety of its corporate deposits business. At the same time, as the wholly controlling shareholder of Century Bright Company, China Petrochemical Corporation entered into a keep-well agreement with Century Bright Company in 2013, in which China Petrochemical Corporation undertakes that when Century Bright Company has difficulty in making payments, China Petrochemical Corporation will ensure that Century Bright Company will fulfill its repayment obligation through various channels. The deposits of the Company at the Finance Company and Century Bright Company during the reporting period are in strict compliance with the relevant caps as approved at the general meeting of Sinopec Corp. During daily operations, the Company can withdraw the full amount of its deposits at the Finance Company and Century Bright Company. 14 APPROPRIATION OF NON-OPERATIONAL FUNDS BY THE CONTROLLING SHAREHOLDER AND ITS RELATED PARTIES AND THE PROGRESS FOR CLEARING UP Not applicable 15 STRUCTURED ENTITY CONTROLLED BY THE COMPANY None 61 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Significant Events1 AGREEMENTS CONCERNING CONTINUING 2 COMPLIANCE OF DISCLOSURE AND CONNECTED TRANSACTIONS BETWEEN SINOPEC CORP. AND CHINA PETROCHEMICAL CORPORATION Prior to Sinopec Corp.’s overseas listing, in order to ensure the smooth continuation of production and business conducted by the Company and China Petrochemical Corporation, the two parties entered into the agreements on continuing connected transactions. On 27 August 2021, Sinopec Corp. and China Petrochemical Corporation entered into the sixth supplemental agreement on continuing connected transactions. The resolution relating to continuing connected transactions for the three years from 2022 to 2024 was approved at the first extraordinary general meeting of Sinopec Corp. for the year of 2021 held on 20 October 2021. For details of the above continuing connected transactions, please refer to relevant announcements published on 30 August 2021 in China Securities Journal, Shanghai Securities News and Securities Times and on 29 August 2021 on the website of the Shanghai Stock Exchange and the website of the Hong Kong Stock Exchange. The capitalised terms used in this section shall have the same meaning as that used in the above-mentioned announcements. APPROVALS OF CONTINUING CONNECTED TRANSACTIONS BETWEEN THE COMPANY AND SINOPEC GROUP WITH HONG KONG LISTING RULES AND THE SHANGHAI LISTING RULES Pursuant to the Hong Kong Listing Rules and the Shanghai Listing Rules, the continuing connected transactions between the Company and Sinopec Group are subject to disclosure, independent non-executive directors’ approval and/or independent shareholders’ approval (if needed) based on the nature and the value of the transactions. Sinopec Corp. has fully complied with the above requirements in relation to the continuing connected transaction between the Company and Sinopec Group. The aggregated amount of the continuing connected transactions for 2021 of the Company is in compliance with the relevant requirements of the Hong Kong Listing Rules and the Shanghai Listing Rules. For performance details of connected transaction agreements, please refer to Item 3 below. 3 ACTUAL CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BY THE COMPANY DURING THE YEAR Pursuant to the above-mentioned agreements on continuing connected transactions, the aggregate amount of the continuing connected transactions of the Company during the reporting period was RMB382.445 billion. Among which, purchases expenses amounted to RMB259.882 billion, representing 9.35% of the total amount of this type of transaction for the reporting period, including purchases of products and services (procurement, storage and transportation, exploration and development services, and production-related services) of RMB246.211 billion, purchases of auxiliary and community services of RMB1.730 billion, payment of property rent of RMB565 million, payment of land use right of RMB10.831 billion, other lease payment RMB159 million, and the interest expenses amounted to RMB386 million. The sales income amounted to RMB122.563 billion, representing 4.25% of the total amount of this type of transaction for the reporting period, including RMB121.676 billion for sales of products and services, RMB165 million for agency commission income, and RMB722 million for interest income. The amounts of the above continuing connected transactions between the Company and Sinopec Group did not exceed the relevant caps for the continuing connected transactions as approved by the general meeting of shareholders and the Board. The pricing principles for the continuing connected transactions are as follows: (a) The government-prescribed price, if any, will apply; (b) where there is no government-prescribed price but where there is a government- guidance price, the government-guidance price will apply; (c) where there is neither a government- prescribed price nor a government- guidance price, the market price will apply; or (d) where none of the above is applicable, the price for the provision of the products or services is to be agreed between the relevant parties, which shall be the reasonable cost incurred in providing the same plus 6% or less of such cost. For details of the pricing principle, please refer to relevant announcements published on 30 August 2021 in China Securities Journal, Shanghai Securities News and Securities Times and on 29 August 2021 on the website of the Shanghai Stock Exchange and the website of the Hong Kong Stock Exchange. 62 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Connected TransactionsCONNECTED TRANSACTIONSDecision-making procedures: The continuing connected transaction agreements were entered into in the ordinary course of the Company’s business and in accordance with normal commercial terms that are fair and reasonable to the Company and its shareholders. The Company, according to its internal control procedures, adjusts the scope and the relevant caps of continuing connected transactions every three years, and will announce and implement upon the approval of the Board and/or independent shareholders. For the other connected transactions, Sinopec Corp., in strict compliance with domestic and overseas regulatory rules, will publish the announcement and implement the transactions only after submitting the relevant proposals of connected transactions to the Board and/or the general meeting of shareholders for consideration and approval according to internal control procedures. Related party transactions with the Sinopec Group that occurred during the year, as set out in Note 39 to the financial statements prepared under the IFRS in this annual report, also fall under the definition of connected transactions under Chapter 14A of the Hong Kong Listing Rules. The above-mentioned connected transactions between the Company and Sinopec Group were approved at the 2nd meeting of the eighth session of the Board and have complied with the requirements under Chapter 14A of the Hong Kong Listing Rules. The external auditor of Sinopec Corp. was engaged to report on the Company’s continuing connected transactions in accordance with the Hong Kong Standard on Assurance Engagements 3000, Assurance Engagement Other Than Audits or Reviews of Historical Financial Information, and with reference to Practice Note 740, Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules, issued by the Hong Kong Institute of Certified Public Accountants. The auditor has issued its unqualified letter containing its conclusions in respect of the above-mentioned continuing connected transactions in accordance with Rule 14A.56 of the Hong Kong Listing Rules. Sinopec Corp. has submitted a copy of the auditor’s letter to the Hong Kong Stock Exchange. After reviewing the above-mentioned connected transactions, the independent non-executive directors of Sinopec Corp. have confirmed the following: (a) The transactions have been conducted in the ordinary course of the Company’s business; (b) The transactions have been entered into based on either of the following terms: i normal commercial terms; or ii terms not less favorable than those available from or to independent third parties, where there is no available comparison to determine whether such terms are on normal commercial terms; and (c) The transactions were conducted pursuant to the terms of relevant agreements, and the terms were fair and reasonable and in the interests of Sinopec Corp. and its shareholders as a whole. 4 OTHER SIGNIFICANT CONNECTED TRANSACTIONS OCCURED THIS YEAR For details, please refer to item 2 “purchase of equity and non-equity assets” and item 3 “The transactions with China Oil & Gas Pipeline Network Corporation” of the section “Significant Events”. 5 FUNDS PROVIDED BETWEEN RELATED PARTIES Related Parties Sinopec Group Relations Parent company and affiliated companies* Associates and joint ventures Other related parties Total Reason for provision of funds between related parties Impacts on the Company Unit: RMB million Funds to related parties Funds from related parties Balance at the beginning of the year Amount incurred Balance at the end of the year Balance at the beginning of the year Amount incurred Balance at the end of the year 10,645 (848) 9,797 9,670 21,012 30,682 11,328 21,973 (4,185) (5,033) 7,143 16,940 6,087 15,757 (2,494) 18,518 3,593 34,275 Loans and other accounts receivable and payable No material negative impact *: affiliated companies include subsidiaries, associates and joint ventures. 63 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Connected Transactions 64 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORSThe Board is pleased to present the report of the Board of Directors for the year ended 31 December 2021 for the shareholders’ review. 1 MEETINGS OF THE BOARD During this reporting period, Sinopec Corp. held seven (7) Board meetings. The details are as follows: (1) The 20th meeting of the seventh session of the Board was held by written proposals on 28 January 2021, whereby the proposals in relation to the following matters were approved:(i) the continuing connected transactions with China Oil & Gas Pipeline Network Corporation for the year 2020-2021; (ii) Information Disclosure Management Regulation; (iii) Investor Relations Management Regulation; (iv) the Internal Control Manual (2021). (2) The 21st meeting of the seventh session of the Board was held by on- site meeting and via video conference on 26 March 2021, whereby the proposals in relation to the following matters were approved: (i) the development strategy of Sinopec Corp. (ii) the Work Report of the seventh session of the Board; (iii) the Work Report of the seventh session of the Senior Management; (iv) financial results and business performance of the Company for the year 2020; (v) provision for impairment for the year 2020; (vi) the continuing connected transactions for the year 2020; (vii) profit distribution plan for the year 2020; (viii) audit costs for the year 2020; (ix) to authorize the Board to determine the interim profit distribution plan of Sinopec Corp. for the year 2021; (x) to authorize the Board to determine the plan for issuance of debt financing instrument(s); (xi) the report of Risk Assessment for Capital Deposits at Finance Company and Century Bright Company; (xii) change in the accounting firm; (xiii) Internal control assessment report of Sinopec Corp. for the year 2020; (xiv) Financial Statements of Sinopec Corp. for the year 2020; (xv) Annual Report of the Company for the year 2020; (xvi) Form 20F of the Company for the year 2020; (xvii) Acquisition of relevant assets and equities of the Sinopec Group; (xviii) investment and construction of 11 million tonnes/year refinery and high- end synthetic new materials project; (xix) the report of Sustainable Development of Sinopec Corp. for the year 2020; (xx) granting to the Board a general mandate to issue new domestic shares and/or overseas-listed foreign shares of Sinopec Corp.; (xxi) the re-election of the Board of Directors; (xxii) the re- election of the Board of Supervisors; (xxiii) Service Contract for the Directors of the eighth session of the Board (including remuneration clauses) and Supervisors of the eighth session of the Board of Supervisors (including remuneration clauses); (xxiv) Notice of 2020 Annual General Meeting. (3) The 22th meeting of the seventh session of the Board was held by way of written resolution on 28 April 2021, whereby the proposals in relation to the following matters were approved: (i) the first quarterly report for the three months ended 31 March 2021; (ii) transformation and upgrading of refining business and improvement of ethylene business for Maoming Branch. (4) The 1st meeting of the eighth session of the Board was held by on-site meeting and via video conference on 25 May 2021, whereby the proposals in relation to the following matters were approved: (i) election of the Chairman of the eighth session of the Board; (ii) to rename the Social Responsibility Management Committee and revise the Term of Reference of Social Responsibility Management Committee; (iii) the revision of the terms of reference of the Nomination Committee; (iv) composition of the special committees of the eighth session of the Board; (v) the appointment of President of Sinopec Corp.; (vi) the appointment of Senior Vice President, Vice President, Chief Financial Officer of Sinopec Corp.; (vii) the appointment of the Secretary to the Board of Sinopec Corp., the Authorized Representative of the Hong Kong Stock Exchange and the Authorized Representative of the Shanghai Stock Exchange. (5) The 2nd meeting of the eighth session of the Board was held by on-site meeting on 27 August 2021, whereby the proposals in relation to the following matters were approved: (i) the report on the fulfillment of the key targets for the first half of the year 2021 and the work arrangements for the second half of the year 2021; (ii) amendments to the Article of Association; (iii) profit distribution plan for the first half of the year 2021; (iv) the report of Risk Assessment for Capital Deposits at Finance Company and Century Bright Company; (v) the financial statements for the first half of the year 2021; (vi) interim report for the six months ended 30 June 2021; (vii) the continuing connected transactions for the year 2022 to 2024; (viii) establishment of a joint venture by Shanghai Petrochemical and Baling Petrochemical; (ix) investment and construction of 1.5 million tonnes/year ethylene project for Zhenhai Refinery & Chemical Branch; (x) Notice of 2021 First Extraordinary General Meeting. (6) The 3rd meeting of the eighth session of the Board was held by written resolution on 28 October 2021, whereby the proposal in relation to the third quarterly report for three months ended 30 September 2021 was approved. (7) The 4th meeting of the eighth session of the Board was held by way of written resolution on 29 November 2021, whereby the proposals in relation to the following matters were approved: (i) the election of the Chairman of the Board; (ii) adjustment of the composition of the board special committees; (iii) the appointment of President of Sinopec Corp.; (iv) acquisition of relevant assets and equities of Sinopec Group; (v) the Terms of Reference of the Independent Non-Executive Directors. For details of each meeting, please refer to the announcements published in China Securities Journal, Shanghai Securities News and Securities Times after each meeting and on the websites of Shanghai Stock Exchange, Hong Kong Stock Exchange and Sinopec Corp. 65 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS2 IMPLEMENTATION OF RESOLUTIONS APPROVED AT THE GENERAL MEETINGS OF SHAREHOLDERS BY THE BOARD During this reporting period, in accordance with relevant laws and regulations as well as the Articles of Association, all members of the Board diligently implemented the resolutions approved at the general meetings of Sinopec Corp., and had completed all the tasks delegated to them at the general meetings. 3 DIRECTORS’ ATTENDANCE TO THE BOARD MEETINGS AND TO THE GENERAL MEETINGS (1) Attendance to the board meetings and general meetings during the reporting period by the Directors of the eighth session of the Board Director titles Name No. of meetings held On-site attendance Board meeting Meetings attended by communication Meetings attend by proxy General meeting Absent No. of meetings held Actual attendance Chairman Director Director Director Director Director Independent Director Independent Director Independent Director Independent Director Ma Yongsheng Zhao Dong Yu Baocai Ling Yiqun Li Yonglin Liu Hongbin Cai Hongbin Ng, Kar Ling Johnny Shi Dan Bi Mingjian 7 4 7 7 4 7 7 7 4 4 3 1 2 3 2 2 2 3 2 2 4 2 4 4 2 4 4 4 2 2 0 1 1 0 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 2 1 2 2 1 2 2 2 1 1 2 1 2 0 0 0 0 0 0 0 (2) Attendance to the board meetings and general meetings during the reporting period by the former Directors of the eighth session of the Board Director titles Name No. of meetings held On-site attendance Board meeting Meetings attend by communication Former Chairman Former Director Former Independent Director Zhang Yuzhuo Zhang Shaofeng Tang Min 4 3 3 2 1 1 2 2 2 Note 1: No directors were absent from two consecutive meetings of the Board. Note 2: Mr. Zhang Yuzhuo resigned as the Chairman, Director of the Board on 2 August 2021. Meetings attend by proxy 0 0 0 General meeting Absent No. of meetings held Actual attendance 0 0 0 1 1 1 1 0 0 (3) Attendance to the general meetings by the Independent Director During the reporting period, none of the Independent Directors had attended the general meetings of shareholders in person due to Covid-19 pandemic or official duties. 66 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS (CONTINUED)4 MEETINGS HELD BY THE BOARD COMMITTEES During the reporting period, the Board committees held ten (10) meetings, among which the Audit Committee held five (5) meetings, the Strategy Committee held one (1) meeting, the Remuneration and Appraisal Committee held one (1) meeting, the Sustainable Development Committee (formerly known as Social Responsibility Management Committee) held one (1) meeting, and the Nomination Committee held two (2) meetings. All members of each committee had attended the relevant meetings. Details of those meetings are as follows: (1) The 14th meeting of the seventh session of the Audit Committee was held by way of written resolution on 28 January 2021, whereby the proposal in relation to the Internal Control Manual (2021) was approved. (2) The 15th meeting of the seventh session of the Audit Committee was held by on- site meeting and via video conference on 25 March 2021, whereby the proposals in relation to the following matters were approved: (i) Financial results and business performance of the Company for the year 2020; (ii) Financial statements of Sinopec Corp. for the year 2020; (iii) Annual Report of the Company for the year 2020; (iv) Form 20F of the Company for the year 2020; (v) change in the accounting firm; (vi) Internal control assessment report of Sinopec Corp. for the year 2020; (vii) Report on audit work for 2020 and audit work arrangement for 2021. (3) The 16th meeting of the seventh session of the Audit Committee was held by way of written resolution on 28 April 2021, whereby the proposal in relation to the first quarterly report for the three months ended 31 March 2021 was approved. (4) The 1st meeting of the eighth session of the Audit Committee was held by on site meeting on 25 August 2021, whereby the proposals in relation to the following matters were approved: (i) Notes on financial results and business performance for the first half of the year 2021; (ii) Financial statements for the first half of the year 2021;(iii) Interim report for the six months ended 30 June 2021; (iv) Proposal in relation to the continuing connected transactions for the year 2022 to2024; (v) Report on the main audit work for the first half of 2021 and the overall arrangement of audit work for the second half of 2021. (5) The 2nd meeting of the eighth session of the Audit Committee was held by way of written resolution on 28 October 2021, whereby the proposal in relation to the third quarterly report for the three months ended 30 September 2021 was approved. (6) The 7th meeting of the seventh session of the Strategy Committee was held by way of written resolution on 25 March 2021, whereby the proposals in relation to the following matters were approved:(i) the development strategy of Sinopec Corp.; (ii) the investments plan of 2021 of Sinopec Corp. (7) The 3rd meeting of the seventh session of the Remuneration and Appraisal Committee was held by way of written resolution on 25 March 2021 whereby the proposal in relation to implementation of the rules of the remuneration of directors, supervisors and senior management for 2020 and the remuneration of the Board of Directors and the Board of Supervisors of the eighth session of the Board was approved. (8) The 3rd meeting of the seventh session of the Social Responsibility Management Committee was held by way of written resolution on 25 March 2021, whereby the proposals in relation to the following matters were approved:(i) Report of Sustainable Development of Sinopec Corp. for the year 2020; (ii) Report on the environmental protection work of Sinopec Corp. for the year 2020 and the plan of 2021; (iii) Report on the anti- corruption compliance work of Sinopec Corp. for the year 2020 and the plan of 2021. (9) The 8th meeting of the seventh board of the Nomination Committee was held by way of written resolution on 25 March 2021, whereby the proposal in relation to the re-election of the Board of Directors was approved. (10) The 1st meeting of the eighth session of the Nomination Committee was held by on site meeting and via video conference on 25 May 2021, whereby the proposals in relation to the following matters were approved:(i) the appointment of President of Sinopec Corp.; (ii) the appointment of Senior Vice President, Vice President, Chief Financial Officer of Sinopec Corp.; (iii) the appointment of the Secretary to the Board of Directors of Sinopec Corp.. 5 BOARD SPECIAL COMMITTEES ISSUED REVIEW OPINIONS TO THE BOARD WHEN PERFORMING THEIR DUTIES DURING THE REPORTING PERIOD, WITHOUT OBJECTION. 6 PERFORMANCE OF THE DIRECTORS’ DUTIES During the reporting period, the Directors of Sinopec Corp. fulfilled their duties diligently in accordance with the Articles of Association, actively attended Board meetings and meetings of the Board committees (please refer to the Report of the Board of Directors in this annual report for their attendance of the meeting), reviewed the relevant documents with due care. They utilised their professional expertise to provide suggestions on decision-making of the Company of significant events. The Directors maintained timely and effective communication with the management, external auditors and internal audit department, and promoted scientific decision-making by offering advice on the Company’s development strategy, and operations and reform. The Independent Directors of Sinopec Corp. fulfilled their duties in good faith as required by Terms of Reference of the Independent Directors, put forward specific requirements on auditing, participated in the replacement of external auditor and other significant events, issued their independent opinions on matters such as appointment of senior management, connected transactions and profit distribution plan, and protected the legitimate interests of the minority shareholders’ interests. All directors had no objection to the Company’s resolutions, and every director’s suggestions to the Company were accepted. 67 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of DirectorsPursuant to requirements of securities regulatory authority of China, Independent Directors of Sinopec Corp. reviewed the performance of the senior management of Sinopec Corp. who held concurrent positions as senior management in China Petrochemical Corporation and issued a special opinion as follows: “The President Mr. Yu Baocai, Senior Vice President Mr. Ling Yiqun, Mr. Li Yonglin and Mr. Liu Hongbin, each of whom concurrently held position as senior management of China Petrochemical Corporation, have obtained the exemptions for holding concurrent position from CSRC in accordance with the applicable rules. In 2021, Mr. Yu Baocai, Mr. Ling Yiqun, Mr. Li Yonglin and Mr. Liu Hongbin strictly abided by the provisions of laws and regulations, the Articles of Association and the service contract, conscientiously fulfilled their duties of loyalty and diligence, devoted sufficient time and energy to organize production, operation and management in accordance with the decision and deployment of the Board, and earnestly implemented the decisions of the Board. They protected the interests of the Company and its shareholders effectively and had not violated the legitimate interests of Sinopec Corp. and its shareholders due to holding aforesaid concurrent positions in China Petrochemical Corporation.” 7 BUSINESS PERFORMANCE The financial results of the Company for the year ended 31 December 2021, which were prepared in accordance with IFRS and the financial position as at that date and the accompanying analysis are set out from page 155 to page 215 in this annual report. A fair review of the Company’s business, a discussion and analysis on business performance using financial key performance indicators and the material factors underlying our results and financial position during the reporting period, particulars of significant events affecting the Company and the outlook of the Company’s business are discussed throughout this annual report and included in the sections “Chairman’s Address”, “Business Review and Prospects”, “Management’s Discussion and Analysis” and “Significant Events” of this annual report. All of the above discussions constitute parts of the report of the Board of Directors. 8 DIVIDEND The profit distribution policy of Sinopec Corp. maintains consistency and steadiness and considers the long-term interests of the Company, overall interests of all the shareholders and the sustainable development of the Company. Sinopec Corp. gives priority to adopting cash dividends for profit distribution and is allowed to deliver an interim profit distribution. When the net profits and retained earnings of the Company are positive in current year and in the event that the cash flow of Sinopec Corp. can satisfy the normal operation and sustainable development, Sinopec Corp. should adopt cash dividends and the distribution profits in cash every year are no less than 30% of the net profits of the Company realised during the corresponding year. The profit distribution plan of Sinopec Corp. for the corresponding year will be carried out in accordance with the policy and procedures stipulated in the Articles of Association, taking into account the advice from the minority shareholders. Meanwhile, the Independent Directors will issue independent opinions. Proposals for dividend distribution At the 7th meeting of the eighth session of the Board, the Board approved the proposal to distribute a final cash dividend of RMB0.31 (tax inclusive) per share for 2021. Taking into account the distributed interim dividend of RMB0.16 (tax inclusive) per share for the first half of 2021, the total dividend for the whole year is RMB0.47 (tax inclusive) per share. The final cash dividend will be distributed on or before Thursday, 23 June 2022 to all shareholders whose names appear on the register of members of Sinopec Corp. on the record date of Thursday, 9 June 2022. In order to qualify for the final dividend for H shares, the holders of H shares must lodge all share certificates accompanied by the transfer documents with Hong Kong Registrars Limited located at 1712-1716, 17th Floor Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong before 4:30 p.m. on Wednesday, 1 June 2022 for registration. The H shares register and transfer of members of Sinopec Corp. will be closed from Thursday, 2 June 2022 to Thursday, 9 June 2022 (both dates inclusive). The dividend will be denominated and declared in RMB, and distributed to the domestic shareholders and investors participating in the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect Programmes in RMB and to the overseas shareholders in Hong Kong Dollar. The exchange rate for the dividend calculated in Hong Kong Dollar is based on the average benchmark exchange rate of RMB against Hong Kong Dollar as published by the People’s Bank of China one week preceding the date of the declaration and distribution of such dividend. In accordance with the Enterprise Income Tax Law of the People’s Republic of China and its implementation regulations which came into effect on 1 January 2008, Sinopec Corp. is required to withhold and pay enterprise income tax at the rate of 10% on behalf of the non-resident enterprise shareholders whose names appear on the register of members for H Shares of Sinopec Corp. when distributing the cash dividends or issuing bonus shares by way of capitalisation from retained earnings. Any H Shares of the Sinopec Corp. which are not registered under the name of an individual shareholder, including those registered under HKSCC Nominees Limited, other nominees, agents or trustees, or other organisations or groups, shall be deemed as shares held by non- resident enterprise shareholders. On such basis, enterprise income tax shall be withheld from dividends payable to such shareholders. If holders of H Shares intend to change their shareholder status, please enquire about the relevant procedures with your agents or trustees. Sinopec Corp. will strictly comply with the law or the requirements of the relevant government authority to withhold and pay enterprise income tax on behalf of the relevant shareholders based on the registration of members for H shares of Sinopec Corp. as at the record date. 68 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS (CONTINUED)If the individual holders of H shares are residents of Hong Kong, Macau or countries which had an agreed tax rate of 10% for cash dividends or bonus shares by way of capitalisation from retained earnings with China under the relevant tax agreement, Sinopec Corp. should withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. If the individual holders of H Shares are residents of countries which had an agreed tax rate of less than 10% with China under relevant tax agreement, Sinopec Corp. shall withhold and pay individual income tax on behalf of the relevant shareholders at a rate of 10%. In that case, if the relevant individual holders of H Shares wish to reclaim the extra amount withheld due to the application of 10% tax rate, Sinopec Corp. would apply for the relevant agreed preferential tax treatment pursuant to the relevant tax agreement provided that the relevant shareholders submit the evidence required by the notice of the tax agreement to the share register of H Shares of Sinopec Corp. in a timely manner. Sinopec Corp. will assist with the tax refund after the approval of the competent tax authority. If the individual holders of H Shares are residents of countries which had an agreed tax rate of over 10% but less than 20% with China under the tax agreement, Sinopec Corp. shall withhold and pay the individual income tax at the agreed actual rate in accordance with the relevant tax agreements. If the individual holders of H Shares are residents of countries which had an agreed tax rate of 20% with China, or which had not entered into any tax agreement with China, or otherwise, Sinopec Corp. shall withhold and pay the individual income tax at a rate of 20%. Pursuant to the Notice on the Tax Policies Related to the Pilot Program of the Shanghai- Hong Kong Stock Connect (關於滬港股票市 場交易互聯互通機制試點有關稅收政策的通知) (Caishui [2014] No. 81) and the Notice on the Tax Policies Related to the Pilot Program of the Shenzhen-Hong Kong Stock Connect (《關於深港股票市場交易互聯互通機制試點有關稅 收政策的通知》) (Caishui [2016] No.127): For dividends of domestic investors investing in the H Shares of Sinopec Corp. through Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect Program, the Company shall withhold and pay income tax at the rate of 20% on behalf of individual investors and securities investment funds. The Company will not withhold or pay the income tax of dividends for domestic enterprise investors and those domestic enterprise investors shall report and pay the relevant tax by themselves. For dividends of investors of the Hong Kong Stock Exchange (including enterprises and individuals) investing in the A Shares of Sinopec Corp. through Shanghai-Hong Kong Stock Connect Program, the Company will withhold and pay income taxes at the rate of 10% on behalf of those investors and will report to the competent tax authorities for the withholding. For investors who are tax residents of other countries which have entered into a tax treaty with the PRC stipulating a dividend tax rate of lower than 10%, the enterprises and individuals may, or may entrust a withholding agent to, apply to the competent tax authorities for the entitlement of the rate under such tax treaty. Upon approval by the tax authorities, the amount paid in excess of the tax payable based on the tax rate according to such tax treaty will be refunded. According to the PRC Accounting Standards, the dividend distribution and bonus shares declared by Sinopec Corp. in the past three years are as follows: Cash dividends (RMB/Share, tax inclusive) Total amount of cash dividends (RMB billion, tax inclusive) Net profits attributed to the shareholders of the listed company shown in the consolidated statement for the dividend year (RMB billion) Ratio of the dividends to the net profit attributed to the shareholders of the listed company in the consolidated statement (%) Note: The final cash dividend for 2021 is subject to the approval at the 2021 annual general meeting. The aggregate cash dividend declared by Sinopec Corp. during three years from 2019 to 2021 is RMB0.98 per share, and the total dividend payment from 2019 to 2021 as a percentage of average net profit attributed to the shareholders of the listed company in the three years is 220%. 9 RESPONSIBILITIES FOR THE COMPANY’S INTERNAL CONTROL The Board is fully responsible for establishing and maintaining the internal control system related to the financial statements as well as ensuring its effective implementation. In 2021, the Board assessed and evaluated the internal control of Sinopec Corp. according to the Basic Standard for Enterprise Internal Control, Application Guidelines for Enterprise Internal Control and Assessment Guidelines for Enterprise Internal Control. There were no material defects in relation to the internal control system as of 31 December 2021. The internal control system of Sinopec Corp. related to the financial statements is sound and effective. 2021 0.47 569.03 712.08 79.9 2020 0.20 242.14 332.71 72.8 2019 0.31 375.33 576.43 65.1 2021 Internal Control Assessment Report of Sinopec Corp. was reviewed and approved at the 7th meeting of the eighth session of the Board on 25 March 2022, and all members of the Board warrant that the contents of the report are true, accurate and complete, and there are no false representations, misleading statements or material omissions contained in the report. 69 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of Directors10 DURING THE REPORTING PERIOD, THE IMPLEMTATION OF ENVIRONMENTAL POLICIES BY THE COMPANY During the reporting period, the Company complied with the environmental policy in all material aspects. Details with regard to the Company’s performance in relation to environmental and social-related policies and performances are provided in the section “Environment and Social Responsibilities” in this annual report as well as the 2021 Sustainability Report of Sinopec Corp. 11 DURING THE REPORTING PERIOD, THE COMPANY DID NOT VIOLATE LAWS OR REGULATIONS WHICH HAVE A MATERIAL IMPACT ON THE COMPANY 12 MAJOR SUPPLIERS AND CUSTOMERS During the reporting period, the total value of the purchasing from the top five crude oil suppliers of the Company accounted for 31% of the total value of the crude oil purchasing by the Company, of which the total value of the purchasing from the largest supplier accounted for 12% of the total value of the crude oil purchasing by the Company. The total revenue from the five largest customers of the Company in 2021 was RMB216,201 million, accounting for 7.89% of the total revenue of the Company, of which the sales value to the connected party Sinopec Group among the five largest customers was RMB73,186 million, accounting for 2.67% of the total revenue for the year. During the reporting period, other than disclosed above, to the best knowledge of the Board of the Directors of the Company, none of the Directors of the Company, their close associates, and shareholders holding more than 5% of the shares of the Company had any interest in the top five suppliers or the top five customers of the Company. There were no suppliers, customers, employees or others that have a significant impact on the Company and on which the Company’s success depends. 13 BANK LOANS AND OTHER BORROWINGS Details of bank loans and other borrowings of the Company as of 31 December 2021 are set out in Note 30 to the financial statements prepared in accordance with IFRS in this annual report. 14 FIXED ASSETS During the reporting period, changes to the fixed assets of the Company are set out in Note 17 to the financial statements prepared in accordance with IFRS in this annual report. 15 RESERVES During the reporting period, the changes to the reserves of the Company are set out in the consolidated statement of changes in shareholders’ equity in the financial statements prepared in accordance with IFRS in this annual report. 16 DONATIONS During the reporting period, the amount of charity donations made by the Company amounted to RMB165 million. 17 PRE-EMPTIVE RIGHTS Pursuant to the Articles of Association and the laws of the PRC, the shareholders of Sinopec Corp. are not entitled to any pre-emptive rights. Therefore the existing shareholders cannot request Sinopec Corp. to issue shares to them on a preferential basis in proportion to their shareholdings. 18 REPURCHASE, SALES AND REDEMPTION OF SHARES During the reporting period, neither Sinopec Corp. nor any of its subsidiaries repurchased, sold or redeemed any listed shares of Sinopec Corp. or its subsidiaries. 19 DIRECTORS’ INTERESTS IN COMPETING BUSINESS As at the end of the reporting period, the Company has resolved its competition with Sinopec Group in the chemical business. For details for the positions held by the Directors (excluding Independent Non-Executive Directors) of Sinopec Corp. in the Sinopec Group during the reporting period, please refer to the section “Corporate Governance” of this annual report. 20 DIRECTORS’ INTERESTS IN CONTRACTS No Director had a material interest, either directly or indirectly, in any contract of significance to the business of the Company to which Sinopec Corp. or any of its holding companies, subsidiaries or fellow subsidiaries was a party during the reporting period. 21 MANAGEMENT CONTRACTS No contracts concerning management or administration of the whole or any substantial part of the business of the Company were entered into or existed during the reporting period. 22 PERMITTED INDEMNITY PROVISIONS During the reporting period, Sinopec Corp. has purchased liability insurance for all Directors to minimise their risks arising from the performance of their duties. The permitted indemnity provisions are stipulated in such Directors’ liability insurance in respect of the liabilities and costs associated with the potential legal proceedings that may be brought against such Directors. 23 EQUITY-LINKED AGREEMENTS As of 31 December 2021, the Company has not entered into any equity-linked agreement. 24 OIL & GAS RESERVE APPRAISAL PRINCIPLES We manage our reserves estimation through a two-tier management system. Our Oil and Natural Gas Reserves Management Committee, or RMC, at the headquarters level oversees the overall reserves estimation process including organisation, coordination, monitoring and major decision-making, and reviews the reserves estimation of our Company. Each of our branches has a reserves management committee that manages and coordinates the reserves estimation, organises the estimation process and reviews the reserve estimation report at the branch level, being responsible to the RMC of the Company. 70 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS (CONTINUED)Our RMC consists of the senior management of the Company, related departments of headquarters, Petroleum Exploration and Production Research Institute of Sinopec (PEPRIS) and senior managers of oilfield branches. Mr. Liu Hongbin, the Chairman of RMC is Senior Vice President of Sinopec Corp., with over 30 years of experience in oil and gas industry. A majority of our RMC members hold master’s or Ph.D. degrees, and have an average of more than 20 years of technical experience in relevant professional fields, such as geology, engineering and economics. 25 CORE COMPETITIVENESS ANALYSIS The Company is a large scale integrated energy and petrochemical company with upstream, mid-stream and downstream operations. The Company is a large scaled oil and gas producer in China; in respect of refining capacity, it ranks first in China; equipped with a well-developed refined oil products sales network, the Company is the largest supplier of refined oil products in China; and in terms of ethylene production capacity, the Company ranks first in China, and has a well-established marketing network for chemical products. Our reserves estimates are guided by procedural manuals and technical guidance formulated by the Company. A number of working divisions at the production bureau level, including the exploration, development and financial divisions, are responsible for initial collection and compilation of information about reserves. Experts from exploration, development and economic divisions prepare the initial report on the reserves estimate which is then reviewed by the RMC at the subsidiary level to ensure the qualitative and quantitative compliance with technical guidance as well as its accuracy and reasonableness. We also engage external consultants to assist in our compliance with the rules and regulations of the U.S. Securities and Exchange Commission. Our reserves estimation process is further facilitated by a specialised reserves database, which is improved and updated periodically. The integrated business structure of the Company carries strong advantages in synergy among its various business segments, enabling the Company to continuously tap onto potentials in attaining an efficient and comprehensive utilisation of its resources, and endowed the Company with strong resistance against risks, as well as remarkable capabilities in sustaining profitability. The Company enjoys a favourable positioning with its operations located close to the consumer markets. Along with the steady growth in the Chinese economy, sales volume of both refined oil products and chemical products of the Company has been increasing steadily over the years; through continuous and specialised marketing efforts, the Company’s capability in international operations and market expansion has been further enhanced. The Company owns a team of professionals with expertise in the production of oil and gas, operation of refineries and chemical plants, as well as marketing activities. The Company applies outstanding fine management measures with its remarkable capabilities in management of operations, and enjoys a favourable operational cost advantage in its downstream businesses. The Company has formulated a well- established technology system and mechanism, and owns competent teams specialised in R&D covering a wide range of subjects; the four platforms for technology advancement is taking shape, which includes exploration and development of oil and gas, refining, petrochemicals and strategic emerging technology. With its overall technologies reaching state of the art level in the global arena, and some of them taking the lead globally, the Company enjoys a strong technical strength. The Company always attaches great importance to the fulfilment of social responsibilities, and carries out the green and low carbon development strategy to pursue a sustainable development. Moreover, the Company enjoys an outstanding “Sinopec” brand name, plays an important role in the national economy and is a renowned and reputable company in China. 71 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of Directors26 RISK FACTORS In the course of its production and operations, the Company will actively take various measures to circumvent operational risks. However, in practice, it may not be possible to prevent the occurrence of all risks and uncertainties described below. Risks with regard to the variations from macroeconomic situation: The business results of the Company are closely related to China’s and global economic situation. China achieved remarkable results in pandemic prevention and control, and its economy continued to grow. World economic recovery was weak, and with significant imbalance situation. The development of economy is increasingly constrained by climate change and environmental issues. The Company’s business could also be adversely affected by other factors such as the impact on export due to trade protectionism from certain countries, and negative impact on the investment of overseas oil and gas exploration and development and refining and chemical storage projects which results from the uncertainty of geopolitics, international crude oil price and etc. Risks with regard to the cyclical effects from the industry: The majority of the Company’s operating income comes from the sales of refined oil products and petrochemical products, and part of those businesses and their related products are cyclic and are sensitive to macro-economy, cyclic changes of regional and global economy, the changes of the production capacity and output, demand of consumers, prices and supply of the raw materials, as well as prices and supply of the alternative products etc. Although the Company is an integrated company with upstream, midstream and downstream operations, it can only counteract the adverse influences of industry cycle to a certain extent. Risks from the macroeconomic policies and government regulation: Although the Chinese government is gradually liberalizing the market entry regulations on petroleum and petrochemicals sector, the petroleum and petrochemical industries in China are still subject to entry regulations to a certain degree, which include: issuing the exploration and development licenses of crude oil and natural gas; issuing licenses in relation to exploration and development of crude oil and natural gas, issuing business licenses for trading crude oil and refined oil, setting caps for retail prices of gasoline, diesel and other oil products, the imposition of the special oil income levy; the formulation of refined oil import and export quotas and procedures; the formulation of safety, quality and environmental protection standards and the formulation of energy conservation policies. In addition, the changes which have occurred or might occur in macroeconomic and industry policies such as the opening up the right of managing and using of imported crude oil; reforming and improvement in pricing mechanism of natural gas, cost supervision of gas pipeline and access to third party; cancellation of qualification approval of the wholesale and storage of refined oil business, decentralisation of retail business authorisation of refined oil products to regional and city level government, further improvement in pricing mechanism of refined oil products, gas stations investment being fully opened to foreign investment; and reforming in resource tax and environmental tax, etc. Such changes might further intensify market competition and have certain effects on the operations and profitability of the Company. Risks with regard to the changes from environmental legislation requirements: Our production activities generate waste liquids, gases and solids. The Company has built up the supporting effluent treatment systems to prevent and reduce the pollution to the environment. However, the relevant government authorities may issue and implement much stricter environmental protection laws and regulations, adopt much stricter environment protection standards. Under such situations, the Company may increase expenses in relation to the environment protection accordingly. Risks from the uncertainties of obtaining additional oil and gas resources: The future sustainable development of the Company is partly dependent to a certain extent on our abilities in continuously discovering or acquiring additional oil and natural gas resources. To obtain additional oil and natural gas resources, the Company faces some inherent risks associated with exploration and development and/or with acquisition activities, and the Company has to invest a large amount of money with no guarantee of certainty. If the Company fails to acquire additional resources through further exploration, development and acquisition to increase the reserves of crude oil and natural gas, the oil and natural gas reserves and production of the Company may decline over time which may adversely affect the Company’s financial situation and operation performance. 72 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of DirectorsREPORT OF THE BOARD OF DIRECTORS (CONTINUED)Risks with regard to the external purchase of crude oil: A significant amount of crude oil as needed by the Company is satisfied through external purchases. In recent years, especially influenced by the continues spread of COVID-19 pandemic, mismatch between supply and demand of crude oil, geopolitics, global economic growth and other factors, the prices of crude oil fluctuate sharply. Additionally, the supply of crude oil may even be interrupted due to some extreme major incidents in certain regions. Although the Company has taken flexible countermeasures, it may not fully avoid risks associated with any significant fluctuation of international crude oil prices and sudden disruption of supply of crude oil from certain regions. Risks with regard to the operation and natural disasters: The process of petroleum chemical production is exposed to the high risks of inflammation, explosion, toxicity, harm and environmental pollution and is vulnerable to extreme natural disasters. Such contingencies may cause serious impacts to the society, major financial losses to the Company and grievous injuries to people. The Company has always been laying great emphasis on the safety production, and has implemented a strict HSSE management system as an effort to avoid such risks as far as possible. Meanwhile, the main assets and inventories of the Company as well as the possibility of damage to a third party have been insured. However, such measures may not shield the Company from financial losses or adverse impact resulting from such contingencies. Investment risks: Petroleum and chemical sector is a capital intensive industry. Although the Company has adopted a prudent investment strategy, as stipulated and enforced by the new investment decision-making rules in 2021, developed negative investment lists, and conducted rigorous feasibility study and risk evaluation on each investment project, which consists of special verifications in raw material market, technical scheme, profitability, safety and environmental protection, legal compliance, etc., certain investment risks will still exist and expected returns may not be achieved due to major changes in factors such as market environment, prices of equipment and raw materials, and construction period during the implementation of the projects. Risks with regard to overseas business development and management: The Company engages in oil and gas exploration, refining and chemical, warehouse logistics and international trading businesses in some regions outside China. The Company’s overseas businesses and assets are subject to the jurisdiction of the host country’s laws and regulations. In light of the complicated factors such as changes in international geopolitics, spread of COVID-19, uncertainty of economic recovery, imbalance of global economy, competitiveness of industry and trade structure, exclusiveness of regional trading blocs, polarisation of benefits distribution in trade, and politicisation of economic and trade issues, including sanctions, barriers to entry, instability in the financial and taxation policies, contract defaults, tax dispute, the Company’s risks with regard to overseas business development and management could be increased. Currency risks: At present, China implements an administered floating exchange rate regime based on market supply and demand which is regulated with reference to a basket of currencies in terms of the exchange rate of Renminbi. As the Company purchases a significant portion of crude oil in foreign currency which is based on US dollar- denominated prices, the realized price of crude oil is based on international crude oil price. Despite the fact that, the price of the domestic refined oil products will change as the exchange rate of the Renminbi changes according to the pricing mechanism for the domestic refined oil products, and the price of other domestic petrochemical products will also be influenced by the price of the imported products, which to a large extent, smooths the impact of the Renminbi exchange rate on the processing and sales of the Company’s crude oil refined products. However, the fluctuation of the Renminbi exchange rate will still have an effect on the income of the upstream sector. Cyber-security risks: The Company has a well-established network safety system. We establish an emergency response mechanism in relation to network security operation and information system, build an information platform of network security risk management and control, and devote significant resources to protecting our digital infrastructure and data against cyber-attacks. However, if our systems against cyber-security risk are proved to be ineffective, we could be adversely affected by, among other things, disruptions to our business operations, and loss of proprietary information, including, intellectual property, financial information and employer and customer data, thus causing harm to our personnel, property, environment and reputation. As cyber-security attacks continue to evolve, we may be required to expend additional resources to enhance our protective measures against cyber-security breaches. By Order of the Board Ma Yongsheng Chairman Beijing, China, 25 March 2022 73 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of Directors74 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of SupervisorsREPORT OF THE BOARD OF SUPERVISORSOn 25 May 2021, the 1st meeting of the eighth session of the Board of Supervisors was held, on which Mr. Zhang Shaofeng was elected as Chairman of the eighth session of the Board of Supervisors. On 27 August 2021, the 2nd meeting of the eighth session of the Board of Supervisors was held, the Interim Financial Statements of Sinopec Corp. for 2021, the Interim Report of Sinopec Corp. for 2021 for 2021 and the proposal of continuing connected transactions for 2022 to 2024, were reviewed and approved at the meeting. On 28 October 2021, the 3rd meeting of the eighth session of the Board of Supervisors was held, and the Third Quarterly Report of Sinopec Corp. for the three months ended 31 September 2021 was reviewed and approved at the meeting. In addition, the Company organised the supervisors to attend the general meetings of shareholders and meetings of the Board. The Company also organised some of the supervisors to attend the trainings for directors and supervisors of listed companies organised by Beijing Securities Supervisory Bureau under CSRC, which have further improved the Supervisors’ capabilities in performing supervisory duties. Through supervision and inspection on the production and operation management as well as financial management, the Board of Supervisors and all the supervisors conclude that in 2021, although the COVID-19 pandemic accelerates unprecedented change in a century and the external situation tends to be more complicated and severe, China is establishing its new development pattern, with all industries restructuring and deep adjustment. Energy development has entered into a phase of transformative and qualitative change. The Company conscientiously implements the decision-making and deployment of the board of directors to improve performance, coordinates energy supply, scores new achievements in scientific and technological innovation and promotes all work as a whole to maintain the steady advance of business operations, and achieves the best business performance in the company’s history. The Board of Supervisors had no objection to the supervised issues during the reporting period. 75 Dear Shareholders: In 2021, the Board of Supervisors and each supervisor of Sinopec Corp. diligently performed their supervision responsibilities, actively participated in the supervision process of decision making, carefully reviewed and effectively supervised the major decisions of the Company, and endeavored to safeguard the interests of shareholders and the Company in accordance with the PRC Company Law and the Articles of Association of Sinopec Corp. During the reporting period, the Board of Supervisors held five (5) meetings in total, and mainly reviewed and approved the proposals in relation to the Company’s annual report, financial statements, sustainable development report, internal control assessment report and working report of the Board of Supervisors etc. On 26 March 2021, the 12th meeting of the seventh session of the Board of Supervisors was held, and the proposals in relation to Annual Report of Sinopec Corp. for 2020, the Financial Statements of Sinopec Corp. for 2020, Sustainable Development Report of Sinopec Corp. for 2020, Internal Control Assessment Report of Sinopec Corp. for 2020, Work Report of the Board of Supervisors of Sinopec Corp. for 2020, Work Report of the 7th Session of Board of Supervisors of Sinopec Corp., and Work Plan of the Board of Supervisors of Sinopec Corp. for 2021, were reviewed and approved at the meeting. On 28 April 2021, the 13th meeting of the seventh session of the Board of Supervisors was held, and the proposal in relation to the First Quarterly Report of Sinopec Corp. for the three months ended 31 March 2021 was reviewed and approved at the meeting. CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of SupervisorsREPORT OF THE BOARD OF SUPERVISORSFirstly, the Board and the senior management of Sinopec Corp. performed their responsibilities pursuant to relevant laws and regulations, and implemented efficient management. The Board diligently fulfilled its obligations and exercised its rights under the PRC Company Law and the Articles of Association, and made informed decisions on major issues. The senior management diligently executed the resolutions approved by the Board, made all-out efforts to tap potentials and enhance efficiency, optimise business structures, committed to achieving the target of business operations set by the Board. During the reporting period, the Board of Supervisors did not discover any behavior of any director or senior management which violated laws, regulations, or the Articles of Association, or was detrimental to the interests of Sinopec Corp. or its shareholders. Secondly, the reports and financial statements prepared by Sinopec Corp. in 2021 complied with the relevant regulation of domestic and overseas securities regulators, the disclosed information truly, accurately, completely and fairly reflected Sinopec Corp.’s financial results and operation performance. The dividend distribution plan was made after comprehensive consideration of the long-term interests of Sinopec Corp. and the interests of the shareholders. No violation of confidential provisions of persons who prepared and reviewed the report was found. Thirdly, Sinopec Corp.’s internal control system was effective. No material defects of internal control were found. Fourthly, the consideration for assets transactions made by Sinopec Corp. was fair and reasonable, neither insider trading, damage to shareholders’ interest nor losses of corporate assets were discovered. Fifthly, all connected transactions between the Company and Sinopec Group were in compliance with the relevant rules and regulations of domestic and overseas listing exchanges. The pricing of all the connected transaction was fair and reasonable. No behavior detrimental to the interests of Sinopec Corp. or its shareholders was discovered. In 2022, the Board of Supervisors and each supervisor will continue to follow the principle of due diligence and integrity, earnestly perform the duties of supervision as delegated by the shareholders, strictly review the significant decisions, strengthen the process control and supervision, increase the strength of inspection and supervision on subsidiaries and protect Sinopec Corp.’s benefit and its shareholders’ interests. Zhang Shaofeng Chairman of the Board of Supervisors 25 March 2022 76 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Report of the Board of SupervisorsREPORT OF THE BOARD OF SUPERVISORS (CONTINUED)1 CHANGES IN THE SHARE CAPITAL There was no change in the number and nature of shares of Sinopec Corp. during the reporting period 2 NUMBER OF SHAREHOLDERS AND THEIR SHAREHOLDINGS As of 31 December 2021, the total number of shareholders of Sinopec Corp. was 517,592 including 512,026 holders of A shares and 5,566 holders of H shares. As of 28 February 2022, the total number of shareholders of Sinopec Corp. was 527,563. Sinopec Corp. has complied with requirement for minimum public float under the Hong Kong Listing Rules. (1) Shareholdings of top ten shareholders The shareholdings of top ten shareholders as of 31 December 2021 are listed as below: Name of shareholders Nature of Shareholders Percentage of shareholdings % Total number of shares held China Petrochemical Corporation HKSCC Nominees Limited2 中國證券金融股份有限公司 香港中央結算有限公司 中國人壽保險股份有限公司 － 傳統 － 普通保險產品 －005L－CT001滬 中央匯金資產管理有限責任公司 國信證券股份有限公司 中國工商銀行 － 上證50交易型開放式指數證券投資基金 全國社保基金一一三組合 中國人壽保險股份有限公司 － 分紅 － 個人分紅 －005L－FH002滬 State-owned Share H Share A Share A Share A Share A Share A Share A Share A Share A Share Note 1: As compared with the number of shares held as of 31 December 2020. 68.31 20.97 1.92 0.87 0.69 0.26 0.17 0.09 0.09 0.08 82,709,227,393 25,386,207,159 2,325,374,407 1,054,953,821 834,160,431 315,223,600 202,363,585 113,436,276 110,044,157 98,655,327 Unit: share Number of shares subject to pledges or lock-up 0 unknown 0 0 0 0 0 0 0 0 Changes of shareholding1 0 926,751 (283,937,650) 213,881,539 19,554,400 (6,814,300) 183,178,790 13,846,100 110,044,157 (717,014,841) Note 2: Sinopec Century Bright Capital Investment Limited, an overseas wholly-owned subsidiary of China Petrochemical Corporation, held 623,454,000 H shares, accounting for 0.52% of the total issued share capital of Sinopec Corp. Those shareholdings were included in the total number of the shares held by HKSCC Nominees Limited. Statement on the connected relationship or acting in concert among the above-mentioned shareholders: Apart from 除中國人壽保險股份有限公司 － 分紅 － 個人分紅 －005L－FH002 滬and中國人壽保險股份有限公司 － 傳統 － 普通保險產品 －005L－CT001滬 which were both managed by 中國人壽保險股份有限公司, Sinopec Corp. is not aware of any connected relationship or acting in concert among or between the above-mentioned shareholders. 77 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Changes in Share Capital andShareholdings of Principal ShareholdersCHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS(2) Information disclosed by the shareholders of H shares in accordance with the Securities and Futures Ordinance (SFO) as of 31 December 2021 Name of shareholders Status of shareholders BlackRock, Inc. Citigroup Inc. Interest of corporation controlled by the substantial shareholder Person having a security interest in shares Interest of corporation controlled by the substantial shareholder Approved lending agent Number of shares interested 2,029,241,960(L) 11,307,899(L) 68,263,244(L) 66,210,083(S) 1,704,518,264(L) % of Sinopec Corp.’s issued voting shares (H Share) 7.95(L) 0.04(L) 0.27(L) 0.26(S) 6.68(L) (L): Long position, (S): Short position 3 ISSUANCE AND LISTING OF SECURITIES (1) Issuance of securities during the reporting period There was no issuance of securities of the Company during the reporting period. (2) Existing employee shares There was no existing employee shares of the Company during the reporting period. 4 CHANGES IN THE CONTROLLING SHAREHOLDERS AND THE DE FACTO CONTROLLER There was no change in the controlling shareholder and the de facto controller of Sinopec Corp. during the reporting period. (1) Controlling shareholder The controlling shareholder of Sinopec Corp. is China Petrochemical Corporation. Established in July 1998, China Petrochemical Corporation is a state-authorised investment organisation and a state-owned enterprise. The legal representative is Mr. Ma Yongsheng. Through re-organization in 2000, China Petrochemical Corporation injected its principal petroleum and petrochemical businesses into Sinopec Corp. and retained certain petrochemical facilities. It provides well-drilling services, well- logging services, downhole operation services, services in connection with manufacturing and maintenance of production equipment, engineering construction, and utility services including water and power and social services. (3) Basic information of the de facto controller China Petrochemical Corporation is the de facto controller of Sinopec Corp. (4) Diagram of the equity and controlling relationship between Sinopec Corp. and its de facto controller Shares of other listed companies directly held by China Petrochemical Corporation as of the end of the reporting period State-owned Assets Supervision and Administration Commission of the State Council Name of Company Sinopec Engineering (Group) Co. Ltd Sinopec Oilfield Service Corporation Sinopec Oilfield Equipment Corporation China Merchants Energy Shipping Co., Ltd Number of Shares Held Shareholding Percentage 2,907,856,000 65.67% 10,727,896,364 56.51% 456,756,300 58.74% 1,095,463,711 13.54% (2) Other than HKSCC Nominees Limited, there was no other legal person shareholder holding 10% or more of the total issued share capital of Sinopec Corp. 100% China Petrochemical Corporation 68.83%* Sinopec Corp. * : Inclusive of 623,454,000 H shares held by Sinopec Century Bright Capital Investment Ltd. (overseas wholly-owned subsidiary of China Petrochemical Corporation) through HKSCC Nominees Limited. 78 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Changes in Share Capital andShareholdings of Principal ShareholdersCHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS (CONTINUED) 1. CORPORATE BOND Bond name Abbreviation Code Issuance date Interest commencement date Maturity date Amount issued (RMB billion) Outstanding balance (RMB billion) Interest rate (%) Principal and interest repayment Investor Qualification Arrangement Applicable trading mechanism Risk of suspension for listed trading, and countermeasures Listing exchange Use of proceeds Credit rating Special terms for Issuer or investor option or investor protection, whether triggered or executed Guarantee, repayment scheme and other related events during the reporting period Convening of corporate bond holders’ meeting Performance of corporate bonds trustee Sinopec Corp. 2012 Corporate bond 12石化02 122150 1 June 2012 1 June 2012 1 June 2022 7 7 4.90 Simple interest is calculated and paid on an annual basis without compounding interests. Interest is paid once a year. The principal will be paid at maturity with last instalment of interest. 12石化02 was publicly offered to qualified investors in accordance with Administration of the Issuance and Trading of Corporate Bonds. Floor trading at Shanghai Stock Exchange, in line with pledge repurchase requirement N/A Shanghai Stock Exchange Proceeds from the above-mentioned corporate bonds have been used for their designated purpose as disclosed. All the proceeds have been completely used. During the reporting period, China Lianhe Credit Rating Co., Ltd. tracked and provided credit rating for 12 石化02 and reaffirmed AAA credit rating in the continuing credit rating report. The long-term credit rating of Sinopec Corp. remained AAA with its outlook being stable. Pursuant to relevant regulations, the latest credit rating results have been published through media designated by regulators within six months commencing from the disclosure of annual report for 2020. No special terms for Issuer or investor option or investor protection, thus not applicable China Petrochemical Corporation bears non-irrevocable joint liability guarantee. Interest is paid as usual during the reporting period without triggering any guarantee. During the reporting period, the bondholders’ meeting was not convened. During the durations of the above-mentioned bonds, the bond trustee, China International Capital Corporation Limited, has strictly followed the Bond Trustee Management Agreement and continuously tracked the Company’s credit status, utilisation of bond proceeds and repayment of principals and interests of the bond. The bond trustee has also advised the Company to fulfil obligations as described in the corporate bond prospectus and actively exercised its duty to protect the bondholders’ legitimate rights and interests. The bond trustee has disclosed the Trustee Management Affairs Report of last year. The full disclosure is available on the website of Shanghai Stock Exchange (http://www.sse.com.cn). 79 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Bond General InformationBOND GENERAL INFORMATION 2. INTERBANK BOND MARKET DEBT FINANCING INSTRUMENT OF NON-FINANCIAL ENTERPRISES Bond name Abbreviation code Issuance date Interest commencement date Maturity date Amount issued (RMB billion) Outstanding balance (RMB billion) Interest rate (%) Principal and interest repayment Investor Qualification Arrangement Applicable trading mechanism Risk of suspension for listed trading (if any), and countermeasures Trading market Use of proceeds Credit rating The first medium-term notes in 2020 20中石化MTN001 102000568 2020/3/31 2020/4/1 2023/4/1 5 5 2.7 The second medium-term notes in 2020 20中石化MTN002 102000569 2020/3/31 2020/4/1 2023/4/1 5 5 2.7 The third medium-term notes in 2020 20中石化MTN003 102001109 2020/5/27 2020/5/28 2023/5/28 10 10 2.2 The first medium-term notes in 2021 21中石化MTN001 102101386 2021/7/23 2021/7/27 2026/7/27 5 5 3.2 The second medium-term notes in 2021 21中石化MTN002 102101480 2021/8/5 2021/8/6 2024/8/6 2 2 2.95 The third medium-term notes in 2021 21中石化MTN003 102101489 2021/8/5 2021/8/9 2023/8/9 2 2 2.8 The first green medium-term notes in 2021 21中石化GN001 132100172 2021/12/27 2021/12/28 2024/12/28 2.55 2.55 2.5 Interest is paid once a year. The principal will be paid at maturity with last instalment of interest. Nationwide inter-bank bond market institutional investors Circulated and transferred in nationwide inter-bank bond market Not applicable Nationwide inter-bank bond market Proceeds from the above-mentioned corporate bonds have been used for their designated purpose as disclosed in the corporate bond prospectus. All the proceeds have been completely used till now. During the reporting period, United Credit Ratings Co., Ltd. issued the continuing credit rating report on May 21. The long-term credit rating of Sinopec Corp. remained AAA with its outlook being stable. Not applicable Special terms for Issuer or investor option or investor protection, whether triggered or executed Guarantee, repayment scheme and other related events during the reporting period Convening of corporate bond holders’ meeting Performance of corporate bonds trustee Corporate bonds trustee has performed its duties in accordance with regulatory requirements No guarantee. Interest is paid as usual during the reporting period without triggering any guarantee. Not applicable Note: Please refer to the website of Shanghai Stock Exchange (http://www.sse.com.cn), China Money Network (WWW) for the name, office address, name, contact person and telephone number of the intermediary institutions providing services for the issuance and maturity of the debt financing instruments of the above-mentioned corporate bonds and non-financial enterprises in the interbank market. Chinamoney.com.cn) and other websites disclosed the relevant contents of the prospectus and other documents. 80 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Bond General InformationBOND GENERAL INFORMATION (CONTINUED) Principal accounting data and financial indicators for the two years ended 31 December 2021 Principal data Current ratio Quick ratio Liability-to-asset ratio (%) Loan repayment rate (%) 31 Dec. 2021 31 Dec. 2020 Change Reasons for change 0.87 0.55 51.51 100 2021 0.87 0.58 0 (0.03) 48.89 2.62 percentage points 0 100 Increase in current liabilities Increase in liabilities 2020 Change Reasons for change Net profit/(loss) attributable to equity shareholders of the Company excluding extraordinary gains and losses (RMB million) Net profit of the Company excluding extraordinary gains and losses (RMB million) EBITDA to total debt ratio EBITDA to interest coverage ratio Interest coverage ratio Cash interest coverage ratio Interest payment rate (%) 72,220 (1,565) 73,785 Increase in total profit 85,935 1.41 15.12 8.28 43.56 100 4,556 1.14 9.89 4.05 24.65 100 81,379 0.27 5.23 4.23 18.91 0 Increase in total profit Increase in total profit Increase in total profit Increase in total profit Increase in net cash flow Note: Liability-to-asset ratio indicates the ratio of total liabilities to total assets During the reporting period, the Company paid in full and on time the interest accrued for the other bonds and debt financing instruments. As at 31 December 2021, the standby credit line provided by several domestic financial institutions to the Company was RMB441.6 billion in total, facilitating the Company to get such amount of unsecured loans. The Company has fulfilled all the relevant undertakings in the corporate bond prospectus and had no significant matters which could influence the Company’s operation and debt paying ability. On 18 April 2013, Sinopec Capital (2013) Limited, a wholly-owned overseas subsidiary of Sinopec Corp., issued senior notes guaranteed by the Company with four different maturities, 3 years, 5 years, 10 years and 30 years. The 3-year notes principal totaled USD750 million, with an annual interest rate of 1.250% and had been repaid and delisted; the 5-year notes principal totaled USD1 billion, with an annual interest rate of 1.875% and had been repaid and delisted; the 10-year notes principal totaled USD1.25 billion, with an annual interest rate of 3.125%; and the 30-year notes principal totaled USD500 million, with an annual interest rate of 4.250%. These notes were listed on the Hong Kong Stock Exchange on 25 April 2013, with interest payable semi-annually. The first payment of interest was made on 24 October 2013. During the reporting period, the Company has paid in full the current-period interests of all notes with maturity of 5 years, 10 years and 30 years. 81 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Bond General Information On 31 December 2021, details of the principal wholly-owned and controlled subsidiaries of the Company were as follows: Percentage of Shares Held by Sinopec Corp. (%) 100 100 100 100 100 100 100 Total Assets RMB million 31,713 Net Assets RMB million 12,460 Net Profit/ (Net Loss) RMB million Principal Activities 1,429 Investment in exploration, production and 　sale of petroleum and natural gas 30,655 14,187 3,714 Coal chemical industry investment 　management, production and sale of coal chemical products 36,602 22,482 1,945 Manufacturing of intermediate petrochemical 9,100 4,330 　products and petroleum products (1,290) Production and sale of polyester chips and 　polyester fibres 9,311 4,789 141 Production and sale of refined petroleum products, lubricant base oil, and petrochemical materials 5,319 1,370 873 Manufacturing of intermediate petrochemical 22,423 5,476 　products and petroleum products 1,547 Marketing and distribution of 　petrochemical products 100 229,548 44,082 6,268 Trading of crude oil and Registered Capital RMB million 8,250 22,761 15,651 4,000 3,374 1,595 1,000 5,000 3,009 Million USD 1,500 1,400 100 100 100 23,019 13,467 　petrochemical products (27) Overseas investment holding 11,330 21,113 6,317 4,270 715 Production and sale of catalyst products 603 Trading of petrochemical products 5,294 99 19,396 13,461 2,729 Import and processing of crude oil, production, 　storage and sale of petroleum products and petrochemical products 85 23,807 13,357 3,711 Manufacturing of intermediate petrochemical 　products and petroleum products 100 40,040 23,265 4,097 Manufacturing of intermediate petrochemical Name of Company Sinopec International Petroleum Exploration and Production Limited Sinopec Great Wall Energy & Chemical Company Limited Sinopec Yangzi Petrochemical Company Limited Sinopec Yizheng Chemical Fibre Limited Liability Company Sinopec Lubricant Company Limited Sinopec Qingdao Petrochemical Company Limited Sinopec Chemical Sales Company Limited China International United Petroleum and Chemical Company Limited Sinopec Overseas Investment Holding Limited Sinopec Catalyst Company Limited China Petrochemical International Company Limited Sinopec Beihai Refining and Chemical Limited Liability Company Sinopec Qingdao Refining and Chemical Company Limited Sinopec Hainan Refining and Chemical Company Limited Sinopec Marketing Co., Limited Sinopec Shanghai SECCO Petrochemical Company Limited Sinopec-SK(Wuhan) Petrochemical Company Limited 5,000 9,606 28,403 500 7,193 Sinopec Kantons Holdings Limited Sinopec Shanghai Gaoqiao Petroleum and Chemical Limited Sinopec Shanghai Petrochemical Company Limited 248 Million HKD 10,000 10,824 Fujian Petrochemical Company Limited 10,492 50 14,672 13,830 486,036 233,117 　products and petroleum products 18,582 Marketing and distribution of refined petroleum products 17,468 10,616 2,817 Production and sale of petrochemical products 27,441 11,807 1,606 Production, sale, research and development of 12,956 12,590 　petroleum, petrochemical, ethylene and downstream by-products 871 Oil jetty and nature gas pipeline 37,561 18,214 3,536 Manufacturing of intermediate petrochemical 47,039 30,395 70 68 59 60 55 50 　products and petroleum products 2,004 Manufacturing of synthetic fibres, resin 　and plastics, intermediate petrochemical products and petroleum products 951 Manufacturing of plastics, intermediate 　petrochemical products and petroleum products Note 1: All above subsidiaries except Fujian Petrochemical Company Limited are audited by KPMG Huazhen LLP or KPMG. 2: The above indicated total assets and net profit has been prepared in accordance with CASs. Except for Sinopec Kantons Holdings Limited and Sinopec Overseas Investment Holdings Ltd., which are incorporated in Bermuda and Hong Kong SAR, respectively, all of the above wholly-owned and non-wholly-owned subsidiaries are incorporated in the PRC. All of the above wholly-owned and controlling subsidiaries are limited liability companies except for Sinopec Shanghai Petrochemical Company Limited, Sinopec Marketing Co., Limited and Sinopec Kantons Holdings Limited. The Board of Directors considered that it would be redundant to disclose the particulars of all subsidiaries of Sinopec Corp. and, therefore, only those which have material impact on the results or assets of Sinopec Corp. are set out above. 82 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Principal Wholly-Ownedand Controlled SubsidiariesPRINCIPAL WHOLLY-OWNED AND CONTROLLED SUBSIDIARIES KPMG Huazhen LLP 8th Floor, KPMG Tower Oriental Plaza 1 East Chang An Avenue Beijing 100738 China Telephone +86 (10) 8508 5000 +86 (10) 8518 5111 Fax kpmg.com/cn Internet 畢馬威華振會計師事務所 （特殊普通合夥） 中國北京 東長安街1號 東方廣場畢馬威大樓8層 郵政編碼：100738 電話 +86 (10) 8508 5000 傳真 +86 (10) 8518 5111 網址 kpmg.com/cn 畢馬威華振審字第2202273號 AUDITOR’S REPORT The Shareholders of China Petroleum & Chemical Corporation: OPINION We have audited the accompanying financial statements of China Petroleum & Chemical Corporation (“the Company”), which comprise the consolidated and company balance sheets as at 31 December 2021, the consolidated and company income statements, the consolidated and company cash flow statements, the consolidated and company statements of changes in shareholders’ equity for the year then ended, and notes to the financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and company financial position of the Company as at 31 December 2021, and the consolidated and company financial performance and cash flows of the Company for the year then ended in accordance with Accounting Standards for Business Enterprises issued by the Ministry of Finance of the People’s Republic of China. BASIS FOR OPINION We conducted our audit in accordance with China Standards on Auditing for Certified Public Accountants (“CSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the China Code of Ethics for Certified Public Accountants (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Assessment of impairment of fixed assets relating to oil and gas producing activities Refer to Note 3 (8) Oil and gas properties, (12) Impairment of other non-financial long-term assets, Note 13 Fixed assets, and Note 58 Principal accounting estimates and judgements to the financial statements The Key Audit Matter How the matter was addressed in our audit The Company reported fixed assets of Renminbi (“RMB”) 598,932 million as at 31 December 2021, a portion of which related to oil and gas producing activities. The Company reported impairment losses of RMB2,467 million for the fixed assets relating to oil and gas producing activities for the year ended 31 December 2021. The Company groups fixed assets relating to oil and gas producing activities into cash-generating units (“CGUs”) for impairment assessment. The Company compares the carrying amount of individual CGU with its value in use, using a discounted cash flow forecast, which was prepared based on the future production profiles included in the oil and gas reserves reports, to determine the impairment loss to be recognised. We identified assessment of impairment of fixed assets relating to oil and gas producing activities as a key audit matter. The value in use amounts of these CGUs are sensitive to the changes to future selling prices and production costs for crude oil and natural gas, future production profiles, and discount rates. Therefore a higher degree of subjective auditor judgment was required to evaluate the Company’s impairment assessment of fixed assets relating to oil and gas producing activities. The following are the primary procedures we performed to address this key audit matter: ‧ we evaluated the design and tested the operating effectiveness of certain internal controls related to the process for impairment assessment of fixed assets relating to oil and gas producing activities; ‧ we assessed the competence, capabilities and objectivity of the Company’s reserves specialists and evaluated the methodology adopted by them in estimating the oil and gas reserves against the recognised industry standards; ‧ we compared future selling prices for crude oil and natural gas used in the discounted cash flow forecasts with the Company’s business plans and forecasts by external analysts; ‧ we compared future production costs and future production profiles used in the discounted cash flow forecasts with oil and gas reserves reports issued by the reserves specialists; and ‧ we involved valuation professionals with specialised skills and knowledge, who assisted in assessing the discount rates applied in the discounted cash flow forecasts against a discount rate range that was independently developed using publicly available market data for comparable companies in the same industry. 83 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)REPORT OF THE PRC AUDITOROTHER INFORMATION The Company’s management is responsible for the other information. The other information comprises all the information included in 2021 annual report of the Company, other than the financial statements and our auditor’s report thereon. Our opinion on the 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 financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the 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 MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of the financial statements in accordance with the Accounting Standards for Business Enterprises, and for the design, implementation and maintenance of such internal control necessary to enable that the financial statements are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’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 management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the 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. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CSAs 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 financial statements. As part of an audit in accordance with CSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: ‧ Identify and assess the risks of material misstatement of the 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. ‧ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. ‧ Conclude on the appropriateness of management’s 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 Company’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 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 Company to cease to continue as a going concern. ‧ Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the 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 Company to express an opinion on the 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. 84 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED)AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS (Continued) We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence and, where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the 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. KPMG Huazhen LLP Beijing, China 25 March 2022 Certified Public Accountants Registered in the People’s Republic of China Yang Jie (Engagement Partner) He Shu 85 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)REPORT OF THE PRC AUDITOR (CONTINUED)Assets Current assets Cash at bank and on hand Financial assets held for trading Derivative financial assets Accounts receivable Receivables financing Prepayments Other receivables Inventories Other current assets Total current assets Non-current assets Long-term equity investments Other equity instrument investments Fixed assets Construction in progress Right-of-use assets Intangible assets Goodwill Long-term deferred expenses Deferred tax assets Other non-current assets Total non-current assets Total assets Liabilities and shareholders’ equity Current liabilities Short-term loans Derivative financial liabilities Bills payable Accounts payable Contract liabilities Employee benefits payable Taxes payable Other payables Non-current liabilities due within one year Other current liabilities Total current liabilities Non-current liabilities Long-term loans Debentures payable Lease liabilities Provisions Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities Shareholders’ equity Share capital Capital reserve Other comprehensive income Specific reserve Surplus reserves Retained earnings Total equity attributable to shareholders of the Company Minority interests Total shareholders’ equity Total liabilities and shareholders’ equity These financial statements have been approved for issue by the board of directors on 25 March 2022. Notes At 31 December 2021 RMB million At 31 December 2020 RMB million 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 22 6 23 24 25 26 27 28 29 30 31 32 33 34 19 35 36 37 38 39 221,989 – 18,371 34,861 5,939 9,267 35,664 207,433 24,500 558,024 209,179 767 598,932 155,939 184,974 119,210 8,594 10,007 19,389 24,240 1,331,231 1,889,255 27,366 3,223 11,721 203,919 124,622 14,048 81,267 114,701 28,651 31,762 641,280 49,341 42,649 170,233 43,525 7,910 18,276 331,934 973,214 121,071 120,188 (690) 2,664 213,224 318,645 775,102 140,939 916,041 1,889,255 184,412 1 12,528 35,439 8,735 4,857 33,724 152,191 23,773 455,660 188,342 1,525 593,653 125,525 189,018 114,280 8,620 9,584 25,054 27,635 1,283,236 1,738,896 20,756 4,826 10,394 151,514 126,241 7,129 76,848 85,012 22,494 17,781 522,995 45,459 38,356 171,740 45,552 8,124 17,950 327,181 850,176 121,071 127,389 1,038 1,941 209,280 286,575 747,294 141,426 888,720 1,738,896 Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 86 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)(A) FINANCIAL STATEMENTS PREPARED UNDER CHINA ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES CONSOLIDATED BALANCE SHEET As at 31 December 2021 Assets Current assets Cash at bank and on hand Derivative financial assets Accounts receivable Receivables financing Prepayments Other receivables Inventories Other current assets Total current assets Non-current assets Long-term equity investments Other equity instrument investments Fixed assets Construction in progress Right-of-use assets Intangible assets Long-term deferred expenses Deferred tax assets Other non-current assets Total non-current assets Total assets Liabilities and shareholders’ equity Current liabilities Short-term loans Derivative financial liabilities Bills payable Accounts payable Contract liabilities Employee benefits payable Taxes payable Other payables Non-current liabilities due within one year Other current liabilities Total current liabilities Non-current liabilities Long-term loans Debentures payable Lease liabilities Provisions Other non-current liabilities Total non-current liabilities Total liabilities Shareholders’ equity Share capital Capital reserve Other comprehensive income Specific reserve Surplus reserves Retained earnings Total shareholders’ equity Total liabilities and shareholders’ equity Notes At 31 December 2021 RMB million At 31 December 2020 RMB million 7 9 10 12 13 14 15 110,691 4,503 21,146 227 4,540 46,929 63,661 23,408 275,105 360,847 201 284,622 66,146 105,712 9,334 2,875 8,715 34,227 872,679 1,147,784 16,550 1,121 6,058 85,307 7,505 8,398 46,333 211,179 16,737 13,702 412,890 34,258 31,522 104,426 35,271 3,103 208,580 621,470 121,071 67,897 6,024 1,658 213,224 116,440 526,314 1,147,784 99,188 7,776 21,763 707 2,626 37,938 39,034 14,048 223,080 343,356 428 283,695 59,880 108,737 8,779 2,499 12,661 26,828 846,863 1,069,943 20,669 362 6,061 65,779 5,840 1,673 43,500 188,568 12,026 439 344,917 30,413 26,977 105,691 36,089 3,581 202,751 547,668 121,071 68,976 5,910 1,189 209,280 115,849 522,275 1,069,943 These financial statements have been approved for issue by the board of directors on 25 March 2022. Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 87 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)BALANCE SHEETAs at 31 December 2021 Operating income Less: Operating costs Taxes and surcharges Selling and distribution expenses General and administrative expenses Research and development expenses Financial expenses Including: Interest expenses Interest income Exploration expenses, including dry holes Add: Other income Investment income Including: Income from investment in associates and joint ventures Losses from changes in fair value Credit impairment losses Impairment losses Asset disposal gains Operating profit Add: Non-operating income Less: Non-operating expenses Profit before taxation Less: Income tax expense Net profit Including: Net (loss)/profit of acquiree before business combination under common control Classification by going concern: Continuous operating net profit Termination of net profit Classification by ownership: Equity shareholders of the Company Minority interests Basic earnings per share Diluted earnings per share Other comprehensive income Items that may not be reclassified subsequently to profit or loss Changes in fair value of other equity instrument investments Items that may be reclassified subsequently to profit or loss Other comprehensive income that can be converted into profit under the equity method Cost of hedging reserve Cash flow hedges Foreign currency translation differences Total other comprehensive income Total comprehensive income Attributable to: Equity shareholders of the Company Minority interests These financial statements have been approved for issue by the board of directors on 25 March 2022. Notes 2021 RMB million 2020 RMB million 40 40 41 44 45 46 42 47 48 49 50 51 52 53 54 65 65 38 2,740,884 2,216,551 259,032 57,891 62,535 11,481 9,010 15,018 5,732 12,382 5,850 6,032 23,253 3,341 (2,311) (13,165) 665 112,414 3,516 7,582 108,348 23,318 85,030 (200) 85,030 – 71,208 13,822 0.588 0.588 (4) (4) 17,511 441 (220) 19,018 (1,728) 17,507 102,537 88,782 13,755 2,104,724 1,685,674 235,018 64,495 67,082 10,087 9,510 15,198 4,803 9,716 7,514 47,486 6,712 (1,253) (2,066) (26,087) 2,067 50,803 2,370 4,732 48,441 6,344 42,097 347 42,097 – 33,271 8,826 0.275 0.275 (22) (22) 337 (2,441) 162 7,073 (4,457) 315 42,412 34,665 7,747 Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 88 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2021 Operating income Less: Operating costs Taxes and surcharges Selling and distribution expenses General and administrative expenses Research and development expenses Financial expenses Including: Interest expenses Interest income Exploration expenses, including dry holes Add: Other income Investment income Including: Income from investment in associates and joint ventures Gains from changes in fair value Credit impairment reversal Impairment losses Asset disposal gains Operating profit Add: Non-operating income Less: Non-operating expenses Profit before taxation Less: Income tax expense Net profit Classification by going concern: Continuous operating net profit Termination of net profit Other comprehensive income Items that may be reclassified subsequently to profit or loss Other comprehensive income that can be converted into profit or loss under the equity method Cash flow hedges reserve Total other comprehensive income Total comprehensive income These financial statements have been approved for issue by the board of directors on 25 March 2022. Notes 40 40 49 2021 RMB million 2020 RMB million 1,045,000 808,540 156,174 1,774 30,551 10,102 10,644 13,602 2,953 10,502 4,045 30,881 8,151 644 1 (7,192) 58 45,150 776 2,209 43,717 4,273 39,444 39,444 – 13,612 12 13,600 13,612 53,056 770,321 584,315 148,350 3,256 29,868 9,098 8,749 11,892 3,181 8,297 4,922 43,356 3,637 350 71 (16,374) 261 10,974 900 1,319 10,555 (8,017) 18,572 18,572 – 4,766 (182) 4,948 4,766 23,338 Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 89 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)INCOME STATEMENTFor the year ended 31 December 2021 Cash flows from operating activities: Cash received from sale of goods and rendering of services Refund of taxes and levies Other cash received relating to operating activities Sub-total of cash inflows Cash paid for goods and services Cash paid to and for employees Payments of taxes and levies Other cash paid relating to operating activities Sub-total of cash outflows Net cash flow from operating activities Cash flows from investing activities: Cash received from disposal of investments Cash received from returns on investments Net cash received from disposal of fixed assets, intangible assets and other long-term assets Net cash received from disposal of subsidiaries and other business entities Other cash received relating to investing activities Sub-total of cash inflows Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for acquisition of investments Net cash paid for the acquisition of subsidiaries and other business entities Other cash paid relating to investing activities Sub-total of cash outflows Net cash flow from investing activities Cash flows from financing activities: Cash received from capital contributions Including: Cash received from minority shareholders’ capital contributions to subsidiaries Cash received from borrowings Other cash received relating to financing activities Sub-total of cash inflows Cash repayments of borrowings Cash paid for dividends, profits distribution or interest Including: Subsidiaries’ cash payments for distribution of dividends or profits to minority shareholders Other cash paid relating to financing activities Sub-total of cash outflows Net cash flow from financing activities Effects of changes in foreign exchange rate Net increase in cash and cash equivalents Add: Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the period These financial statements have been approved for issue by the board of directors on 25 March 2022. Notes 2021 RMB million 2020 RMB million 2,980,918 4,641 158,049 3,143,608 (2,317,629) (95,778) (325,348) (179,679) (2,918,434) 225,174 9,812 10,134 1,478 5,205 38,208 64,837 (144,921) (13,085) (1,106) (50,923) (210,035) (145,198) 1,001 1,001 356,459 133 357,593 (338,232) (49,027) (8,068) (28,276) (415,535) (57,942) (1,003) 21,031 87,559 108,590 2,295,665 2,985 212,918 2,511,568 (1,749,873) (85,481) (282,390) (225,304) (2,343,048) 168,520 11,651 11,510 2,656 49,869 58,669 134,355 (131,636) (12,740) (340) (92,289) (237,005) (102,650) 4,219 4,219 558,680 700 563,599 (540,015) (43,812) (4,821) (17,282) (601,109) (37,510) (1,239) 27,121 60,438 87,559 56(a) 56(d) 56(e) 56(b) Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 90 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2021 Cash flows from operating activities: Cash received from sale of goods and rendering of services Refund of taxes and levies Other cash received relating to operating activities Sub-total of cash inflows Cash paid for goods and services Cash paid to and for employees Payments of taxes and levies Other cash paid relating to operating activities Sub-total of cash outflows Net cash flow from operating activities Cash flows from investing activities: Cash received from disposal of investments Cash received from returns on investments Net cash received from disposal of fixed assets, intangible assets and other long-term assets Other cash received relating to investing activities Sub-total of cash inflows Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for acquisition of investments Other cash paid relating to investing activities Sub-total of cash outflows Net cash flow from investing activities Cash flows from financing activities: Cash received from borrowings Other cash received relating to financing activities Sub-total of cash inflows Cash repayments of borrowings Cash paid for dividends or interest Other cash paid relating to financing activities Sub-total of cash outflows Net cash flow from financing activities Effects of changes in foreign exchange rate Net increase in cash and cash equivalents Add: Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the period These financial statements have been approved for issue by the board of directors on 25 March 2022. Notes 2021 RMB million 2020 RMB million 1,155,516 2,959 13,868 1,172,343 (823,402) (49,784) (181,187) (25,895) (1,080,268) 92,075 32,738 22,712 72 136,276 191,798 (70,578) (52,212) (134,009) (256,799) (65,001) 159,879 298,755 458,634 (151,310) (42,933) (284,979) (479,222) (20,588) 8 6,494 28,081 34,575 862,093 2,796 9,407 874,296 (606,295) (44,139) (164,635) (19,239) (834,308) 39,988 12,157 18,805 6,579 78,751 116,292 (59,216) (41,066) (66,408) (166,690) (50,398) 195,770 70,516 266,286 (199,727) (36,973) (7,074) (243,774) 22,512 (5) 12,097 15,984 28,081 Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 91 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)CASH FLOW STATEMENTFor the year ended 31 December 2021 Other comprehensive income RMB million Specific reserve RMB million Surplus reserves RMB million Retained earnings RMB million Total shareholders’ equity attributable to equity shareholders of the Company RMB million Minority interests RMB million Total shareholders’ equity RMB million (321) – (321) – 1,406 1,406 (47) – – – – – – – – – 1,038 1,038 – 17,574 17,574 (19,302) – – – – – – – – – (690) 1,741 207,423 287,187 739,965 138,409 878,374 – 1,741 – 207,423 – 287,187 4,773 744,738 1 138,410 – – – – – – – – – – – 200 – 1,941 1,941 – – – – – – – – – – – 723 – 2,664 – – – – 1,857 – – – – – 1,857 – – 209,280 209,280 – – – – 3,944 – – – – – 3,944 – – 213,224 33,271 (12) 33,259 – (1,857) (31,479) – – – – (33,336) – (535) 286,575 286,575 71,208 – 71,208 – (3,944) (35,110) – – – – (39,054) – (84) 318,645 33,271 1,394 34,665 (47) – (31,479) – (138) – (972) (32,589) 200 327 747,294 747,294 71,208 17,574 88,782 (19,302) – (35,110) – (1,396) – (6,124) (42,630) 723 235 775,102 8,826 (1,079) 7,747 48 – – 3,325 13 (6,726) 972 (2,416) 37 (2,400) 141,426 141,426 13,822 (67) 13,755 (648) – – 1,973 (6,796) (8,982) – (13,805) 52 159 140,939 4,774 883,148 42,097 315 42,412 1 – (31,479) 3,325 (125) (6,726) – (35,005) 237 (2,073) 888,720 888,720 85,030 17,507 102,537 (19,950) – (35,110) 1,973 (8,192) (8,982) (6,124) (56,435) 775 394 916,041 Share capital RMB million Capital reserve RMB million 121,071 122,864 – 121,071 4,773 127,637 – – – – – – – – – – – – – 121,071 121,071 – – – – – – – – – – – – – 121,071 – – – – – – – (138) – (972) (1,110) – 862 127,389 127,389 – – – – – – – (1,396) – (6,124) (7,520) – 319 120,188 Balance at 31 December 2019 Adjustment for business combination of entities under common control (Note 60) Balance at 1 January 2020 Change for the year 1. Net profit 2. Other comprehensive income (Note 38) Total comprehensive income Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriations for surplus reserves – Distributions to shareholders (Note 55) Contributions to subsidiaries from minority interests 4. 5. Transaction with minority interests 6. Distributions to minority interests 7. Adjustment for business combination of entities under common control Total transactions with owners, recorded directly in shareholders’ equity 8. Net increase in specific reserve for the year 9. Others Balance at 31 December 2020 Balance at 1 January 2021 Change for the year 1. Net profit 2. Other comprehensive income (Note 38) Total comprehensive income Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: – Appropriations for surplus reserves (Note 39) – Distributions to shareholders (Note 55) Contributions to subsidiaries from minority interests 4. 5. Transaction with minority interests 6. Distributions to minority interests 7. Adjustment for business combination of entities under common control (Note 60) Total transactions with owners, recorded directly in shareholders’ equity 8. Net increase in specific reserve for the year 9. Others Balance at 31 December 2021 These financial statements have been approved for issue by the board of directors on 25 March 2022. Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 92 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2021 Balance at 1 January 2020 Change for the year 1. Net profit 2. Other comprehensive income Total comprehensive income Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: －Appropriations for surplus reserves －Distributions to shareholders (Note 55) Total transactions with owners, recorded directly in shareholders’ equity 4. Net increase in specific reserve for the year 5. Others Balance at 31 December 2020 Balance at 1 January 2021 Change for the year 1. Net profit 2. Other comprehensive income Total comprehensive income Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in shareholders’ equity: 3. Appropriations of profits: －Appropriations for surplus reserves (Note 39) －Distributions to shareholders (Note 55) Total transactions with owners, recorded directly in shareholders’ equity 4. Net increase in specific reserve for the year 5. Others Balance at 31 December 2021 Share capital RMB million Capital reserve RMB million Other comprehensive income RMB million Specific reserve RMB million Surplus reserves RMB million Retained earnings RMB million Total shareholders’ equity RMB million 121,071 68,841 1,181 949 207,423 130,645 530,110 – – – – – – – – – 121,071 121,071 – – – – – – – – – – 121,071 – – – – – – – – 135 68,976 68,976 – – – – – – – – – (1,079) 67,897 – 4,766 4,766 (37) – – – – – 5,910 5,910 – 13,612 13,612 (13,498) – – – – – – 6,024 – – – – – – – 240 – 1,189 1,189 – – – – – – – – 469 – 1,658 – – – – 1,857 – 1,857 – – 209,280 209,280 – – – – – 3,944 – 3,944 – – 213,224 18,572 – 18,572 – (1,857) (31,479) (33,336) – (32) 115,849 115,849 39,444 – 39,444 – – (3,944) (35,110) (39,054) – 201 116,440 18,572 4,766 23,338 (37) – (31,479) (31,479) 240 103 522,275 522,275 39,444 13,612 53,056 (13,498) – – (35,110) (35,110) 469 (878) 526,314 These financial statements have been approved for issue by the board of directors on 25 March 2022. Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The accompanying notes form part of these financial statements. 93 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)STATEMENT OF CHANGES IN EQUITYFor the year ended 31 December 2021 1 STATUS OF THE COMPANY China Petroleum & Chemical Corporation (the “Company”) was established on 25 February 2000 as a joint stock limited company. The company is registered in Beijing, the People’s Republic of China, and the headquarter is located in Beijing, the People’s Republic of China. The approval date of the financial report is 25 March 2022. According to the State Council’s approval to the “Preliminary Plan for the Reorganisation of China Petrochemical Corporation” (the “Reorganisation”), the Company was established by China Petrochemical Corporation, which transferred its core businesses together with the related assets and liabilities at 30 September 1999 to the Company. Such assets and liabilities had been valued jointly by China United Assets Appraisal Corporation, Beijing Zhong Zheng Appraisal Company, CIECC Assets Appraisal Corporation and Zhong Fa International Properties Valuation Corporation. The net asset value was determined at RMB98,249,084,000. The valuation was reviewed and approved by the Ministry of Finance (the “MOF”) (Cai Ping Zi [2000] No. 20 “Comments on the Review of the Valuation Regarding the Formation of a Joint Stock Limited Company by China Petrochemical Corporation”). In addition, pursuant to the notice Cai Guan Zi [2000] No. 34 “Reply to the Issue Regarding Management of State-Owned Equity by China Petroleum and Chemical Corporation” issued by the MOF, 68.8 billion domestic state-owned shares with a par value of RMB1.00 each were issued to Sinopec Group Company, the amount of which is equivalent to 70% of the above net asset value transferred from Sinopec Group Company to the Company in connection with the Reorganisation. Pursuant to the notice Guo Jing Mao Qi Gai [2000] No. 154 “Reply on the Formation of China Petroleum and Chemical Corporation”, the Company obtained the approval from the State Economic and Trade Commission on 21 February 2000 for the formation of a joint stock limited company. The Company took over the exploration, development and production of crude oil and natural gas, refining, chemicals and related sales and marketing business of Sinopec Group Company after the establishment of the Company. The Company and its subsidiaries (the “Group”) engage in the oil and gas and chemical operations and businesses, including: (1) the exploration, development and production of crude oil and natural gas; (2) the refining, transportation, storage and marketing of crude oil and petroleum product; and (3) the production and sale of chemical. Details of the Company’s principal subsidiaries are set out in Note 59. 2 BASIS OF PREPARATION (1) Statement of compliance of China Accounting Standards for Business Enterprises (“CASs”) The financial statements have been prepared in accordance with the requirements of Accounting Standards for Business Enterprises – Basic Standards, specific standards and relevant regulations (hereafter referred as CASs collectively) issued by the MOF on or after 15 February 2006. These financial statements also comply with the disclosure requirements of “Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No.15: General Requirements for Financial Reports” issued by the China Securities Regulatory Commission (“CSRC”). These financial statements present truly and completely the consolidated and company financial position as at 31 December 2021, and the consolidated and company financial performance and the consolidated and company cash flows for the year ended 31 December 2021. These financial statements are prepared on a basis of going concern. (2) Accounting period The accounting year of the Group is from 1 January to 31 December. (3) Measurement basis The financial statements of the Group have been prepared under the historical cost convention, except for the assets and liabilities set out below: – Financial assets held for trading (see Note 3(11)) – Other equity instrument investments (see Note 3(11)) – Derivative financial instruments (see Note 3(11)) – Receivables financing (see Note 3(11)) (4) Functional currency and presentation currency The functional currency of the Company’s and most of its subsidiaries are Renminbi. The Company and its subsidiaries determine their functional currency according to the main economic environment in where they operate. The Group’s consolidated financial statements are presented in Renminbi. Some of subsidiaries use other currency as the functional currency. The Company translates the financial statements of subsidiaries from their respective functional currencies into Renminbi (see Note 3(2)) if the subsidiaries’ functional currencies are not Renminbi. 94 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTSFor the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES The Group determines specific accounting policies and accounting estimates based on the characteristics of production and operational activities, mainly reflected in the accounting for allowance for financial assets (Note 3(11)), valuation of inventories (Note 3(4)), depreciation of fixed assets and depletion of oil and gas properties (Note 3(7), (8)), measurement of provisions (Note 3(16)), etc. Principal accounting estimates and judgements of the Group are set out in Note 58. (1) Accounting treatment of business combination involving entities under common control and not under common control (a) Business combination involving entities under common control A business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The assets and liabilities that the acquirer receives in the acquisition are accounted for at the acquiree’s carrying amount on the acquisition date. The difference between the carrying amount of the acquired net assets and the carrying amount of the consideration paid for the acquisition (or the total nominal value of shares issued) is recognised in the share premium of capital reserve, or the retained earnings in case of any shortfall in the share premium of capital reserve. Any costs directly attributable to the combination shall be recognised in profit or loss for the current period when occurred. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. The combination date is the date on which the acquirer effectively obtains control of the acquiree. (b) Business combination involving entities not under common control A business combination involving entities or businesses not under common control is a business combination in which all of the combining entities or businesses are not ultimately controlled by the same party or parties both before and after the business combination. Difference between the consideration paid by the Group as the acquirer, comprises of the aggregate of the fair value at the acquisition date of assets given, liabilities incurred or assumed, and equity securities issued by the acquirer in exchange for control of the acquiree, and the Group’s interest in the fair value of the identifiable net assets of the acquiree, is recognised as goodwill (Note 3(10)) if it is an excess, otherwise in the profit or loss. The expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in the initial cost of the securities. Any other expense directly attributable to the business combination is recognised in the profit or loss for the year. The difference between the fair value and the book value of the assets given is recognised in profit or loss. The acquiree’s identifiable assets, liabilities and contingent liabilities, if satisfying the recognition criteria, are recognised by the Group at their fair value at the acquisition date. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree. (c) Method for preparation of consolidated financial statements The scope of consolidated financial statements is based on control and the consolidated financial statements comprise the Company and its subsidiaries. Control means an entity 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 commences until the date that control ceases. Where the Company combines a subsidiary during the reporting period through a business combination involving entities under common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the combination had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common control was established. Therefore the opening balances and the comparative figures of the consolidated financial statements are restated. In the preparation of the consolidated financial statements, the subsidiary’s assets, liabilities and results of operations are included in the consolidated balance sheet and the consolidated income statement, respectively, based on their carrying amounts in the subsidiary’s financial statements, from the date that common control was established. Where the Company acquires a subsidiary during the reporting year through a business combination involving entities not under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated into consolidated financial statements from the date that control commences, based on the fair value of those identifiable assets and liabilities at the acquisition date. Where the Company acquired a minority interest from a subsidiary’s minority shareholders, the difference between the investment cost and the newly acquired interest into the subsidiary’s identifiable net assets at the acquisition date is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. Where the Company partially disposed an investment of a subsidiary that do not result in a loss of control, the difference between the proceeds and the corresponding share of the interest into the subsidiary is adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. If the credit balance of capital reserve (capital surplus) is insufficient, any excess is adjusted to retained profits. In a business combination involving entities not under common control achieved in stages, the Group remeasures its previously held equity interest in the acquiree on the acquisition date. The difference between the fair value and the net book value is recognised as investment income for the year. If other comprehensive income was recognised regarding the equity interest previously held in the acquiree before the acquisition date, the relevant other comprehensive income is transferred to investment income in the period in which the acquisition occurs. 95 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (1) Accounting treatment of business combination involving entities under common control and not under common control (Continued) (c) Method for preparation of consolidated financial statements (Continued) Where control of a subsidiary is lost due to partial disposal of the equity investment held in a subsidiary, or any other reasons, the Group derecognises assets, liabilities, minority interests and other equity items related to the subsidiary. The remaining equity investment is remeasured to fair value at the date in which control is lost. The sum of consideration received from disposal of equity investment and the fair value of the remaining equity investment, net of the fair value of the Group’s previous share of the subsidiary’s identifiable net assets recorded from the acquisition date, is recognised in investment income in the period in which control is lost. Other comprehensive income related to the previous equity investment in the subsidiary, is transferred to investment income when control is lost. Other comprehensive income related to the equity investment of the original subsidiary shall be converted into the current investment income in the event of loss of control. Minority interest is presented separately in the consolidated balance sheet within shareholders’ equity. Net profit or loss attributable to minority shareholders is presented separately in the consolidated income statement below the net profit line item. The excess of the loss attributable to the minority interests during the period over the minority interests’ share of the equity at the beginning of the reporting period is deducted from minority interests. Where the accounting policies and accounting period adopted by the subsidiaries are different from those adopted by the Company, adjustments are made to the subsidiaries’ financial statements according to the Company’s accounting policies and accounting period. Intra-group balances and transactions, and any unrealised profit or loss arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. The unrealised profit or loss arising from the sale of assets by the Company to its subsidiaries is eliminated in full against the net profit attributed to shareholders; the unrealised profit or loss from the sale of assets by subsidiaries to the Company is eliminated according to the distribution ratio between shareholders of the parent company and minority interests. For sale of assets that occurred between subsidiaries, the unrealised gains and losses is eliminated according to the distribution ratio for its subsidiaries seller between net profit attributable to shareholders of the parent company and minority interests. (2) Transactions in foreign currencies and translation of financial statements in foreign currencies Foreign currency transactions are, on initial recognition, translated into Renminbi at the spot exchange rates quoted by the People’s Bank of China (“PBOC rates”) at the transaction dates. Foreign currency monetary items are translated at the PBOC rates at the balance sheet date. Exchange differences, except for those directly related to the acquisition, construction or production of qualified assets, are recognised as income or expenses in the income statement. Non-monetary items denominated in foreign currency measured at historical cost are not translated. Non-monetary items denominated in foreign currency that are measured at fair value are translated using the exchange rates at the date when the fair value was determined. The difference between the translated amount and the original currency amount is recognised as other comprehensive income, if it is classified as other equity instrument investments; or charged to the income statement if it is measured at fair value through profit or loss. The assets and liabilities of foreign operation are translated into Renminbi at the spot exchange rates at the balance sheet date. The equity items, excluding “Retained earnings”, are translated into Renminbi at the spot exchange rates at the transaction dates. 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 separately presented as other comprehensive income in the balance sheet within equity. Upon disposal of a foreign operation, the cumulative amount of the exchange differences recognised in which relate to that foreign operation is transferred to profit or loss in the year in which the disposal occurs. 96 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (3) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits, short-term and highly liquid investments which are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value. (4) Inventories Inventories are initially measured at cost. Cost includes the cost of purchase and processing, and other expenditures incurred in bringing the inventories to their present location and condition. The cost of inventories is mainly calculated using the weighted average method. In addition to the cost of purchase of raw material, work in progress and finished goods include direct labour and an appropriate allocation of manufacturing overhead costs. At the balance sheet date, inventories are stated at the lower of cost and net realisable value. Any excess of the cost over the net realisable value of each item of inventories is recognised as a provision for diminution in the value of inventories. Net realisable value is the estimated selling price in the normal course of business less the estimated costs of completion and the estimated costs necessary to make the sale and relevant taxes. The net realisable value of materials held for use in the production is measured based on the net realisable value of the finished goods in which they will be incorporated. The net realisable value of the quantity of inventory held to satisfy sales or service contracts is measured based on the contract price. If the quantities held by the Group are more than the quantities of inventories specified in sales contracts, the net realisable value of the excess portion of inventories is measured based on general selling prices. Inventories include raw materials, work in progress, semi-finished goods, finished goods and reusable materials. Reusable materials include low-value consumables, packaging materials and other materials, which can be used repeatedly but do not meet the definition of fixed assets. Reusable materials are amortised in full when received for use. The amounts of the amortisation are included in the cost of the related assets or profit or loss. Inventories are recorded by perpetual method. (5) Long-term equity investments (a) Investment in subsidiaries In the Company’s separate financial statements, long-term equity investments in subsidiaries are accounted for using the cost method. Except for cash dividends or profits distributions declared but not yet distributed that have been included in the price or consideration paid in obtaining the investments, the Company recognises its share of the cash dividends or profit distributions declared by the investee as investment income irrespective of whether these represent the net profit realised by the investee before or after the investment. Investments in subsidiaries are stated at cost less impairment losses (see Note 3(12)) in the balance sheet. At initial recognition, such investments are measured as follows: The initial investment cost of a long-term equity investment obtained through a business combination involving entities under common control is the Company’s share of the carrying amount of the subsidiary’s equity at the combination date. The difference between the initial investment cost and the carrying amounts of the consideration given is adjusted to share premium in capital reserve. If the balance of the share premium is insufficient, any excess is adjusted to retained earnings. For a long-term equity investment obtained through a business combination not involving enterprises under common control, the initial investment cost comprises the aggregate of the fair values of assets transferred, liabilities incurred or assumed, and equity securities issued by the Company, in exchange for control of the acquiree. For a long-term equity investment obtained through a business combination not involving enterprises under common control, if it is achieved in stages, the initial cost comprises the carrying value of previously-held equity investment in the acquiree immediately before the acquisition date, and the additional investment cost at the acquisition date. An investment in a subsidiary acquired otherwise than through a business combination is initially recognised at actual purchase cost if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if an investment is contributed by investors. 97 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (5) Long-term equity investments (Continued) (b) Investment in joint ventures and associates A joint venture is an incorporated entity over which the Group, based on legal form, contractual terms and other facts and circumstances, has joint control with the other parties to the joint venture and rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the Group and the parties sharing control. An associate is the investee that the Group has significant influence on their financial and operating policies. Significant influence represents the right to participate in the financial and operating policy decisions of the investee but is not control or joint control over the establishment of these policies. The Group generally considers the following circumstances in determining whether it can exercise significant influence over the investee: whether there is representative appointed to the board of directors or equivalent governing body of the investee; whether to participate in the investee’s policy-making process; whether there are significant transactions with the investees; whether there is management personnel sent to the investee; whether to provide critical technical information to the investee. An investment in a joint ventures or an associate is accounted for using the equity method, unless the investment is classified as held for sale. The initial cost of investment in joint ventures and associates is stated at the consideration paid except for cash dividends or profits distributions declared but unpaid at the time of acquisition and therefore included in the consideration paid should be deducted if the investment is made in cash. Under the circumstances that the long-term investment is obtained through non-monetary asset exchange, the initial cost of the investment is stated at the fair value of the assets exchanged if the transaction has commercial substance, the difference between the fair value of the assets exchanged and its carrying amount is charged to profit or loss; or stated at the carrying amount of the assets exchanged if the transaction lacks commercial substance. The Group’s accounting treatments when adopting the equity method include: Where the initial investment cost of a long-term equity investment exceeds the Group’s interest in the fair value of the investee’s identifiable net assets at the date of acquisition, the investment is initially recognised at the initial investment cost. Where the initial investment cost is less than the Group’s interest in the fair value of the investee’s identifiable net assets at the time of acquisition, the investment is initially recognised at the investor’s share of the fair value of the investee’s identifiable net assets, and the difference is charged to profit or loss. After the acquisition of the investment, the Group recognises its share of the investee’s net profits or losses and other comprehensive income as investment income or losses and other comprehensive income, and adjusts the carrying amount of the investment accordingly. Once the investee declares any cash dividends or profits distributions, the carrying amount of the investment is reduced by that attributable to the Group. The Group recognises its share of the investee’s net profits or losses after making appropriate adjustments to align the accounting policies or accounting periods with those of the Group based on the fair values of the investee’s net identifiable assets at the time of acquisition. Under the equity accounting method, unrealised profits and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group’s interest in the associates or joint ventures. Unrealised losses resulting from transactions between the Group and its associates or joint ventures are fully recognised in the event that there is an evidence of impairment. The Group discontinues recognising its share of net losses of the investee after the carrying amount of the long-term equity investment and any long-term interest that is in substance forms part of the Group’s net investment in the associate or the joint venture is reduced to zero, except to the extent that the Group has an obligation to assume additional losses. However, if the Group has incurred obligations for additional losses and the conditions on recognition of provision are satisfied in accordance with the accounting standard on contingencies, the Group continues recognising the investment losses and the provision. Where net profits are subsequently made by the associate or joint venture, the Group resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. The Group adjusts the carrying amount of the long-term equity investment for changes in owners’ equity of the investee other than those arising from net profits or losses and other comprehensive income, and recognises the corresponding adjustment in capital reserve. (c) The impairment assessment method and provision accrual on investment The impairment assessment and provision accrual on investments in subsidiaries, associates and joint ventures are stated in Note 3(12). 98 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (6) 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. (a) As Lessee The Group recognises a right-of-use asset at the commencement date, and recognises the lease liability at the present value of the lease payments that are not paid at that date. 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 non-current liabilities due within one year. 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 leases for which the underlying assets are individually of low value when it is new 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. (b) 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. (7) Fixed assets and construction in progress Fixed assets represent the tangible assets held by the Group using in the production of goods, rendering of services and for operation and administrative purposes with useful life over one year. Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see Note 3(12)). Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(12)). The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure for bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of materials, direct labour, capitalised borrowing costs (see Note 3(19)), and any other costs directly attributable to bringing the asset to working condition for its intended use. According to legal or contractual obligations, costs of dismantling and removing the items and restoring the site on which the related assets located are included in the initial cost. Construction in progress is transferred to fixed assets when the asset is ready for its intended use. No depreciation is provided against construction in progress. Where the individual component parts of an item of fixed asset have different useful lives or provide benefits to the Group in different patterns thus necessitating use of different depreciation rates or methods, each part is recognised as a separate fixed asset. The subsequent costs including the cost of replacing part of an item of fixed assets are recognised in the carrying amount of the item if the recognition criteria are satisfied, and the carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of fixed assets are recognised in profit or loss as incurred. The Group terminates the recognition of an item of fixed asset when it is in a state of disposal or it is estimated that it is unable to generate any economic benefits through use or disposal. Gains or losses arising from the retirement or disposal of an item of fixed asset are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal. 99 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (7) Fixed assets and construction in progress (Continued) Other than oil and gas properties, the cost of fixed assets less residual value and accumulated impairment losses is depreciated using the straight-line method over their estimated useful lives, unless the fixed asset is classified as held for sale. The estimated useful lives and the estimated rate of residual values adopted for respective classes of fixed assets are as follows: Plants and buildings Equipment, machinery and others Useful lives, residual values and depreciation methods are reviewed at least each year end. Estimated useful life Estimated rate of residual value 12-50 years 4-30 years 3% 3% (8) Oil and gas properties Oil and gas properties include the mineral interests in properties, wells and related support equipment arising from oil and gas exploration and production activities. The acquisition cost of mineral interest is capitalised as oil and gas properties. Costs of development wells and related support equipment are capitalised. The cost of exploratory wells is initially capitalised as construction in progress pending determination of whether the well has found proved reserves. Exploratory well costs are charged to expenses upon the determination that the well has not found proved reserves. However, in the absence of a determination of the discovery of proved reserves, exploratory well costs are not carried as an asset for more than one year following completion of drilling. If, after one year has passed, a determination of the discovery of proved reserves cannot be made, the exploratory well costs are impaired and charged to expense. All other exploration costs, including geological and geophysical costs, are charged to profit or loss in the year as incurred. The Group 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. These estimated future dismantlement costs are discounted at credit-adjusted 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. Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced and reserves. (9) Intangible assets Intangible assets, where the estimated useful life is finite, are stated in the balance sheet at cost less accumulated amortisation and provision for impairment losses (see Note 3(12)). For an intangible asset with finite useful life, its cost less estimated residual value and accumulated impairment losses is amortised on a straight-line basis over the expected useful lives, unless the intangible assets are classified as held for sale. An intangible asset is regarded as having an indefinite useful life and is not amortised when there is no foreseeable limit to the year over which the asset is expected to generate economic benefits for the Group. Useful lives and amortisation methods are reviewed at least each year end. (10) Goodwill The initial cost of goodwill represents the excess of cost of acquisition over the acquirer’s interest in the fair value of the identifiable net assets of the acquiree under the business combination involving entities not under common control. Goodwill is not amortised and is stated at cost less accumulated impairment losses (see Note 3(12)). On disposal of an asset group or a set of asset groups, any attributable amount of purchased goodwill is written off and included in the calculation of the profit or loss on disposal. 100 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) Financial Instruments Financial instruments, refer to the contracts that form one party’s financial assets and form the financial liabilities or equity instruments of the other party. The Group recognises a financial asset or a financial liability when the Group enters into and becomes a party to the underlining contract of the financial instrument. (a) 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: (1) financial assets measured at amortised cost, (2) financial assets measured at fair value through other comprehensive income, (3) 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. However, accounts receivable arising from sales 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 The debt instruments held by the Group refer to the instruments that meet the definition of financial liabilities from the perspective of the issuer, and are measured in the following ways: – Measured at 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. The financial assets include cash at bank and on hand and receivables. – Measured at fair value through other comprehensive income: 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, the contractual cash flow characteristics of such financial assets are consistent with the basic lending arrangements. 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. The financial assets include receivables financing. 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 as financial assets held for trading. In addition, the Group designates some equity instruments that are not held for trading as financial assets at fair value through other comprehensive income, and presented in other equity instrument investments. 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 financial assets measured at amortised cost and receivables financing measured at fair value through other comprehensive income. 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 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. 101 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) Financial Instruments (Continued) (a) Financial assets (Continued) (ii) Impairment (Continued) 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 accounts receivable and receivables financing 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. (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 assets have 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 other equity instrument investments, the difference between the carrying amounts and the sum of the consideration received and any cumulative 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. (b) 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 bills payable, accounts payable, other payables, loans and debentures payable, 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. Financial guarantee liabilities Financial guarantees are contracts that requires the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantees issued are initially recognised at fair value, which is determined by reference to fees charged in an arm’s length transaction for similar services, when such information is obtainable, or to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss. Subsequent to initial recognition, the amount initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. 102 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) Financial Instruments (Continued) (c) Determination of fair value 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. (d) 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 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 the cash flows of the hedged item. The hedging relationship meets all of the following hedge effectiveness requirements: (1) There is an economic relationship between the hedged item and the hedging instrument, which share a risk and that gives rise to opposite changes in fair value that tend to offset each other. (2) The effect of credit risk does not dominate the value changes that result from that economic relationship. (3) 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 shall not reflect an imbalance between the weightings of the hedged item and the hedging instrument. – 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. As long as a cash flow hedge meets the qualifying criteria for hedge accounting, the hedging relationship shall be accounted for as follows: – The cumulative gain or loss on the hedging instrument from inception of the hedge; – The cumulative change in present value of the expected future cash flows on the hedged item 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 shall remove 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. 103 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (11) Financial Instruments (Continued) (d) Derivative financial instruments and hedge accounting (Continued) (3) (Continued) – Cash flow hedges (Continued) For cash flow hedges, other than those covered by the preceding two policy statements, that amount shall be 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 reclassify 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 (i.e. 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 shall remain in the cash flow hedge reserve and shall be accounted for as cash flow hedges. If the hedged future cash flows are no longer expected to occur, that amount shall be 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 shall remain in the cash flow hedge reserve and shall be accounted for as cash flow hedges. – Fair value hedges A fair value hedge is a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognised firm commitment, or a portion of such an asset, liability or firm commitment. The gain or loss from remeasuring the hedging instrument is recognised in profit or loss. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the recognised hedged item not measured at fair value and is recognised in profit or loss. Any adjustment to the carrying amount of a hedged item is amortised to profit or loss if the hedged item is a financial instrument (or a component thereof) measured at amortised cost.The amortisation is based on a recalculated effective interest rate at the date that amortisation begins. (12) Impairment of other non-financial long-term assets Internal and external sources of information are reviewed at each balance sheet date for indications that the following assets, including fixed assets, construction in progress, right-of-use assets, goodwill, intangible assets, long-term deferred expenses and investments in subsidiaries, associates and joint ventures may be impaired. Assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The recoverable amounts of goodwill and intangible assets with uncertain useful lives are estimated annually no matter there are any indications of impairment. Goodwill is tested for impairment together with related asset units or groups of asset units. An asset unit is the smallest identifiable group of assets that generates cash inflows largely independent of the cash inflows from other assets or groups of assets. An asset unit comprises related assets that generate associated cash inflows. In identifying an asset unit, the Group primarily considers whether the asset unit is able to generate cash inflows independently as well as the management style of production and operational activities, and the decision for the use or disposal of asset. 104 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (12) Impairment of other non-financial long-term assets (Continued) The recoverable amount is the greater of the fair value less costs to sell and the present value of expected future cash flows generated by the asset (or asset unit, set of asset units). Fair value less costs to sell of an asset is based on its selling price in an arm’s length transaction less any direct costs attributable to the disposal. Present value of expected future cash flows is the estimation of future cash flows to be generated from the use of and upon disposal of the asset, discounted at an appropriate pre-tax discount rate over the asset’s remaining useful life. If the recoverable amount of an asset is less than its carrying amount, the carrying amount is reduced to the recoverable amount. The amount by which the carrying amount is reduced is recognised as an impairment loss in profit or loss. A provision for impairment loss of the asset is recognised accordingly. Impairment losses related to an asset unit or a set of asset units first reduce the carrying amount of any goodwill allocated to the asset unit or set of asset units, and then reduce the carrying amount of the other assets in the asset unit or set of asset units on a pro rata basis. However, the carrying amount of an impaired asset will not be reduced below the highest of its individual fair value less costs to sell (if determinable), the present value of expected future cash flows (if determinable) and zero. Once an impairment loss is recognised, it is not reversed in a subsequent period. (13) Long-term deferred expenses Long-term deferred expenses are amortised on a straight-line basis over their beneficial periods (14) Employee benefits Employee benefits are all forms of considerations and compensation given in exchange for services rendered by employees, including short-term compensation, post-employment benefits, termination benefits and other long term employee benefits. (a) Short-term compensation Short term compensation includes salaries, bonuses, allowances and subsidies, employee benefits, medical insurance premiums, work-related injury insurance premium, maternity insurance premium, contributions to housing fund, unions and education fund and short-term absence with payment etc. When an employee has rendered service to the Group during an accounting period, the Group shall recognise the short-term compensation actually incurred as a liability and charge to the cost of an asset or to profit or loss in the same period, and non-monetary benefits are valued with the fair value. (b) Post-employment benefits The Group classifies post-employment benefits into either Defined Contribution Plan (DC plan) or Defined Benefit Plan (DB plan). DC plan means the Group only contributes a fixed amount to an independent fund and no longer bears other payment obligation; DB plan is post-employment benefits other than DC plan. In this reporting period, the post-employment benefits of the Group primarily comprise basic pension insurance and unemployment insurance and both of them are DC plans. Basic pension insurance Employees of the Group participate in the social insurance system established and managed by local labor and social security department. The Group makes basic pension insurance to the local social insurance agencies every month, at the applicable benchmarks and rates stipulated by the government for the benefits of its employees. After the employees retire, the local labor and social security department has obligations to pay them the basic pension. When an employee has rendered service to the Group during an accounting period, the Group shall recognise the accrued amount according to the above social security provisions as a liability and charge to the cost of an asset or to profit or loss in the same period. (c) Termination benefits When the Group terminates the employment relationship with employees before the employment contracts expire, or provides compensation as an offer to encourage employees to accept voluntary redundancy, a provision for the termination benefits provided is recognised in profit or loss under the conditions of both the Group has a formal plan for the termination of employment or has made an offer to employees for voluntary redundancy, which will be implemented shortly; and the Group is not allowed to withdraw from termination plan or redundancy offer unilaterally. 105 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (15) Income tax Current tax and deferred tax are recognised in profit or loss except to the extent that they relate to business combinations and items recognised directly in equity (including other comprehensive income). Current tax is the expected tax payable calculated at the applicable tax rate on taxable income for the year, plus any adjustment to tax payable in respect of previous years. At the balance sheet date, current tax assets and liabilities are offset if the Group has a legally enforceable right to set them off and also intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Deferred tax assets and liabilities are recognised based on deductible temporary differences and taxable temporary differences respectively. Temporary difference is the difference between the carrying amounts of assets and liabilities and their tax bases. Unused tax losses and unused tax credits able to be utilised in subsequent years are treated as temporary differences. Deferred tax assets are recognised to the extent that it is probable that future taxable income will be available to offset the deductible temporary differences. Temporary differences arise in a transaction, which is not a business combination, and at the time of transaction, does not affect accounting profit or taxable profit (or unused tax losses), will not result in deferred tax. Temporary differences arising from the initial recognition of goodwill will not result in deferred tax. At the balance sheet date, the amounts of deferred tax recognised is measured based on the expected manner of recovery or settlement of the carrying amount of the assets and liabilities, using tax rates that are expected to be applied in the period when the asset is recovered or the liability is settled in accordance with tax laws. The carrying amount of deferred tax assets is reviewed at each balance sheet date. If it is unlikely to obtain sufficient taxable income to offset against the benefit of deferred tax asset, the carrying amount of the deferred tax assets is written down. Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available. At the balance sheet date, deferred tax assets and liabilities are offset if all the following conditions are met: – the taxable entity has a legally enforceable right to offset current tax assets and current tax liabilities; and – they relate to income taxes levied by the same tax authority on either: – the same taxable entity; or – different taxable entities which either to intend to settle the current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. (16) Provisions Provisions are recognised when the Group has a present obligation as a result of a contingent event, it is probable that an outflow of economic benefits will be required to settle the obligations and a reliable estimate can be made. Where the effect of time value of money is material, provisions are determined by discounting the expected future cash flows. 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 costs, is reflected as an adjustment to the provision of oil and gas properties. 106 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (17) 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 recognised 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. (18) Government grants Government grants are the gratuitous monetary assets or non-monetary assets that the Group receives from the government, excluding capital injection by the government as an investor. Special funds such as investment grants allocated by the government, if clearly defined in official documents as part of “capital reserve” are dealt with as capital contributions, and not regarded as government grants. Government grants are recognised when there is reasonable assurance that the grants will be received and the Group is able to comply with the conditions attaching to them. Government grants in the form of monetary assets are recorded based on the amount received or receivable, whereas non-monetary assets are measured at fair value. Government grants received in relation to assets are recorded as deferred income, and recognised evenly in profit or loss over the assets’ useful lives. Government grants received in relation to revenue are recorded as deferred income, and recognised as income in future periods as compensation when the associated future expenses or losses arise; or directly recognised as income in the current period as compensation for past expenses or losses. (19) Borrowing costs Borrowing costs incurred on borrowings for the acquisition, construction or production of qualified assets are capitalised into the cost of the related assets in the capitalisable period. Except for the above, other borrowing costs are recognised as financial expenses in the income statement when incurred. (20) Repairs and maintenance expenses Repairs and maintenance (including overhauling expenses) expenses are recognised in profit or loss when incurred. (21) Environmental expenditures Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations is 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. (22) Research and development costs Research costs and development costs that cannot meet the capitalisation criteria are recognised in profit or loss when incurred. 107 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20213 SIGNIFICANT ACCOUNTING POLICIES (Continued) (23) 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. (24) Related parties If a party has the power to control, jointly control or exercise significant influence over another party, or vice versa, or where two or more parties are subject to common control, joint control from another party, they are considered to be related parties, except for the two parties significantly influenced by a party. Related parties may be individuals or enterprises. Where enterprises are subject to state control but are otherwise unrelated, they are not related parties. In addition to the related parties stated above, the Company determines related parties based on the disclosure requirements of Administrative Procedures on the Information Disclosures of Listed Companies issued by the CSRC. (25) Segment reporting Reportable segments are identified based on operating segments which are determined based on the structure of the Group’s internal organisation, management requirements and internal reporting system. An operating segment is a component of the Group that meets the following respective conditions: • engage in business activities from which it may earn revenues and incur expenses; • whose operating results are regularly reviewed by the Group’s management to make decisions about resource to be allocated to the segment and assess its performance; and • for which financial information regarding financial position, results of operations and cash flows are available. Inter-segment revenues are measured on the basis of actual transaction price for such transactions for segment reporting, and segment accounting policies are consistent with those for the consolidated financial statements. (26) Changes in significant accounting policies In 2021, the Group has adopted the following newly revised accounting standards and implementation guidance and illustrative examples issued by the MOF, mainly include: – CAS Bulletin No.14 (Caikuai [2021] No.1) (“Bulletin No. 14”) – Notice of Extending the Applicable Period of ‘Accounting Treatment of COVID-19 Related Rent Concessions’ (Caikuai [2021] No.9) (a) Bulletin No.14 Bulletin No.14 takes effect on 26 January 2021 (implementation date). (i) “Public-private partnership” (PPP) arrangements Bulletin No.14, implementation Q&As and illustrative examples clarify the features and conditions of PPP arrangements, sets out the accounting and disclosure requirements of a private entity in PPP arrangements. The adoption of Bulletin No.14 does not have significant effect on the financial position and financial performance of the Group. (b) Caikuai [2021] No.9 The Accounting Treatment of COVID-19 Related Rent Concessions (Caikuai [2020] No.10) provides practical expedient under certain conditions for rent concessions occurring as a direct consequence of the COVID-19 pandemic, and combining the requirements of Caikuai [2021] No.9, such practical expedient is only applicable to any reduction in lease payments due before 30 June 2022. The adoption of the above regulations does not have significant effect on the financial position and financial performance of the Group. 108 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 20214 TAXATION Major types of tax applicable to the Group are value-added tax, resources tax, consumption tax, income tax, crude oil special gain levy, city construction tax, education surcharge and local education surcharge. Tax rate of products is presented as below: Type of taxes Tax rate Value Added Tax (the “VAT”) 13%, 9%, 6% Resource Tax Consumption Tax Corporate Income Tax Crude Oil Special Gain Levy City Maintenance and Construction Tax Education surcharges Local Education surcharges 6% RMB2,109.76 per tonnage for Gasoline, RMB1,411.20 per tonnage for Diesel, RMB2,105.20 per tonnage for Naphtha, RMB1,948.64 per tonnage for Solvent oil, RMB1,711.52 per tonnage for Lubricant oil, RMB1,218.00 per tonnage for Fuel oil, and RMB1,495.20 per tonnage for Jet fuel oil. 5% to 50% 20% to 40% 1%, 5% or 7% 3% 2% 5 CASH AT BANK AND ON HAND The Group Tax basis and method Based on taxable value added amount. Tax payable is calculated using the taxable sales amount multiplied by the applicable tax rate less current period’s deductible VAT input. Based on the revenue from sales of crude oil and natural gas. Based on quantities Based on taxable income. Based on the sales of domestic crude oil at prices higher than a specific level. Based on the actual paid VAT and consumption tax. Based on the actual paid VAT and consumption tax. Based on the actual paid VAT and consumption tax. Cash on hand Renminbi Cash at bank Renminbi US Dollar Hong Kong Dollar EUR Others Deposits at related parities Renminbi US Dollar EUR Others Total At 31 December 2021 At 31 December 2020 Original currency million Exchange rates 2,027 3,533 3 6.3757 0.8176 7.2197 6,943 67 6.3757 7.2197 Original currency million Exchange rates 1,054 1,377 1 6.5249 0.8416 8.0250 4,443 49 6.5249 8.0250 RMB million 1 144,294 12,924 2,888 20 180 160,307 15,758 44,266 483 1,175 61,682 221,989 RMB million 8 120,542 6,875 1,159 8 2,403 130,995 23,737 28,993 394 293 53,417 184,412 Deposits at related parties represent deposits placed at Sinopec Finance Company Limited and Sinopec Century Bright Capital Investment Limited. Deposits interest is calculated based on market rate. At 31 December 2021, time deposits with financial institutions of the Group amounted to RMB113,399 million (2020: RMB96,853 million). 109 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 6 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 64. 7 ACCOUNTS RECEIVABLE Accounts receivable Less: Allowance for doubtful accounts Total Ageing analysis on accounts receivable is as follows: The Group The Company At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million 38,894 4,033 34,861 39,299 3,860 35,439 21,239 93 21,146 21,871 108 21,763 At 31 December 2021 At 31 December 2020 The Group Percentage to total accounts receivable % 88.1 1.6 8.8 1.5 100.0 Allowance RMB million 83 181 3,190 579 4,033 Percentage of allowance to accounts receivable balance % 0.2 29.0 93.5 97.0 Amount RMB million 34,478 4,062 149 610 39,299 Percentage to total accounts receivable % 87.7 10.3 0.4 1.6 100.0 Allowance RMB million 117 3,131 85 527 3,860 At 31 December 2021 At 31 December 2020 The Company Percentage to total accounts receivable % 95.1 4.5 0.1 0.3 100.0 Allowance RMB million 9 6 2 76 93 Percentage of allowance to accounts receivable balance % 0.1 0.6 10.0 98.7 Amount RMB million 21,647 76 49 99 21,871 Percentage to total accounts receivable % 99.0 0.3 0.2 0.5 100.0 Allowance RMB million 1 7 13 87 108 Percentage of allowance to accounts receivable balance % 0.3 77.1 57.0 86.4 Percentage of allowance to accounts receivable balance % – 9.2 26.5 87.9 Amount RMB million 34,263 623 3,411 597 38,894 Amount RMB million 20,196 946 20 77 21,239 Within one year Between one and two years Between two and three years Over three years Total Within one year Between one and two years Between two and three years Over three years Total At 31 December 2021 and 31 December 2020, the total amounts of the top five accounts receivable of the Group are set out below: Total amount (RMB million) Percentage to the total balance of accounts receivable Allowance for doubtful accounts At 31 December 2021 At 31 December 2020 10,444 26.9% 2,062 15,628 39.8% 2,057 Sales are generally on a cash term. Credit is generally only available for major customers with well-established trading records. Amounts due from China Petrochemical Corporation (“Sinopec Group Company”) and fellow subsidiaries are repayable under the same terms. Accounts receivable (net of allowance for doubtful accounts) 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 accounts receivable and the Group exposure to credit risk can be found in Note 64. During 2021 and 2020, the Group and the Company had no individually significant accounts receivable been fully or substantially provided allowance for doubtful accounts. During 2021 and 2020, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years. 110 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 7 ACCOUNTS RECEIVABLE (Continued) Ageing started from the overdue date of accounts receivable. The Group always measured the provision for impairment of accounts receivable based on the amount equivalent to the expected credit loss during the entire duration. The ECLs were calculated based on historical actual credit loss experience. The rates were considered the differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables. The Group performed the calculation of ECL rates by the operating segment and geographical location. 31 December 2021 Current and within 1 year past due 1 to 2 years past due 2 to 3 years past due Over 3 years past due Total 31 December 2020 Current and within 1 year past due 1 to 2 years past due 2 to 3 years past due Over 3 years past due Total 8 RECEIVABLES FINANCING Impairment provision on individual basis Impairment provision on provision matrix basis Gross carrying amount RMB million Carrying amount RMB million Impairment provision on individual basis RMB million 34,263 623 3,411 597 38,894 4,280 500 3,324 208 8,312 26 137 3,146 190 3,499 Weighted- average loss rate % 0.2% 35.8% 50.6% 100.0% Impairment provision RMB million Loss allowance RMB million 57 44 44 389 534 83 181 3,190 579 4,033 Impairment provision on individual basis Impairment provision on provision matrix basis Gross carrying amount RMB million Carrying amount RMB million Impairment provision on individual basis RMB million 34,478 4,062 149 610 39,299 5,023 3,637 27 218 8,905 117 3,024 18 182 3,341 Weighted- average loss rate % 0.0% 25.2% 54.9% 88.0% Impairment provision RMB million Loss allowance RMB million – 107 67 345 519 117 3,131 85 527 3,860 Receivables financing represents mainly the bills of acceptance issued by banks for sales of goods and products and certain trade accounts receivable.The business model of financial assets is achieved both by collecting contractual cash flows and selling of these assets. At 31 December 2021, the Group’s derecognised but outstanding bills due to endorsement or discount amounted to RMB36,400 million (2020: RMB25,740 million). At 31 December 2021, the Group considers that its bills of acceptance issued by banks do not pose a significant credit risk and will not cause any significant loss due to the default of drawers. 111 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 9 PREPAYMENTS Prepayments Less: Allowance for doubtful accounts Total Ageing analysis of prepayments is as follows: The Group The Company At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million 9,350 83 9,267 4,934 77 4,857 4,556 16 4,540 2,637 11 2,626 At 31 December 2021 At 31 December 2020 The Group Percentage to total prepayments % Allowance RMB million Percentage of allowance to prepayments balance % 91.3 4.8 1.8 2.1 100.0 – 7 25 51 83 – 1.6 15.1 25.8 Amount RMB million 8,541 444 166 199 9,350 Percentage to total prepayments % Allowance RMB million 89.9 5.4 2.9 1.8 100.0 – 20 8 49 77 Amount RMB million 4,435 267 142 90 4,934 Percentage of allowance to prepayments balance % – 7.5 5.6 54.4 The Company At 31 December 2021 At 31 December 2020 Percentage to total prepayments % Allowance RMB million Percentage of allowance to prepayments balance % 87.0 8.1 2.2 2.7 100.0 – 2 10 4 16 – 0.5 10.1 3.3 Amount RMB million 3,965 369 99 123 4,556 Percentage to total prepayments % Allowance RMB million Percentage of allowance to prepayments balance % 88.6 6.0 1.5 3.9 100.0 – 7 – 4 11 – 4.4 – 3.9 Amount RMB million 2,337 159 39 102 2,637 Within one year Between one and two years Between two and three years Over three years Total Within one year Between one and two years Between two and three years Over three years Total At 31 December 2021 and 31 December 2020, the total amounts of the top five prepayments of the Group are set out below: Total amount (RMB million) Percentage to the total balance of prepayments At 31 December 2021 At 31 December 2020 2,939 31.4% 1,131 22.9% 112 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 10 OTHER RECEIVABLES Other receivables Less: Allowance for doubtful accounts Total Ageing analysis of other receivables is as follows: The Group The Company At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million 37,254 1,590 35,664 35,255 1,531 33,724 47,827 898 46,929 38,835 897 37,938 At 31 December 2021 At 31 December 2020 The Group Percentage to total other receivables % 71.3 1.6 20.6 6.5 100.0 Amount RMB million 26,579 597 7,661 2,417 37,254 Allowance RMB million 35 112 165 1,278 1,590 Percentage of allowance to other receivables balance % 0.1 18.8 2.2 52.9 Percentage to total other receivables % 68.1 24.2 3.3 4.4 100.0 Amount RMB million 24,010 8,513 1,169 1,563 35,255 Allowance RMB million 51 196 84 1,200 1,531 At 31 December 2021 At 31 December 2020 The Company Percentage to total other receivables % Allowance RMB million 58.9 7.8 3.0 30.3 100.0 – 2 2 894 898 Amount RMB million 28,176 3,740 1,414 14,497 47,827 Percentage of allowance to other receivables balance % – 0.1 0.1 6.2 Percentage to total other receivables % Allowance RMB million 55.0 5.5 4.2 35.3 100.0 – 1 5 891 897 Amount RMB million 21,378 2,123 1,618 13,716 38,835 Percentage of allowance to other receivables balance % 0.2 2.3 7.2 76.8 Percentage of allowance to other receivables balance % – – 0.3 6.5 Within one year Between one and two years Between two and three years Over three years Total Within one year Between one and two years Between two and three years Over three years Total At 31 December 2021 and at 31 December 2020, the total amounts of the top five other receivables of the Group are set out below: Total amount (RMB million) Ageing Percentage to the total balance of other receivables Allowance for doubtful accounts At 31 December 2021 At 31 December 2020 19,056 Within one year, one to two years, two to three years and over three years 51.2% 74.0 22,581 Within one year, one to two years, two to three years and over three years 64.1% – During the year ended 31 December 2021 and 2020, the Group and the Company had no individually significant other receivables been fully or substantially provided allowance for doubtful accounts. During the year ended 31 December 2021 and 2020, the Group and the Company had no individually significant write-off or recovery of doubtful debts which had been fully or substantially provided for in prior years. 113 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 11 INVENTORIES The Group Raw materials Work in progress Finished goods Spare parts and consumables Less: Provision for diminution in value of inventories Total At 31 December 2021 RMB million At 31 December 2020 RMB million 109,940 15,701 84,174 2,515 212,330 4,897 207,433 60,379 13,066 78,481 3,372 155,298 3,107 152,191 At 31 December 2021, the provision for diminution in value of inventories of the Group was primarily due to the costs of finished goods were higher than net realisable value. 12 LONG-TERM EQUITY INVESTMENTS The Group Balance at 1 January 2021 Additions for the year Share of profits less losses under the equity method Change of other comprehensive loss under the equity method Other equity movements under the equity method Dividends declared Disposals for the year Foreign currency translation differences Other movements Movement of provision for impairment Balance at 31 December 2021 The Company Investments in joint ventures RMB million Investments in associates RMB million Provision for impairment losses RMB million 55,018 4,110 9,366 155 24 (3,872) (1,176) (368) 127 – 63,384 136,872 5,212 13,887 286 675 (7,120) (97) (315) 100 – 149,500 (3,548) – – – – – – 42 – (199) (3,705) Total RMB million 188,342 9,322 23,253 441 699 (10,992) (1,273) (641) 227 (199) 209,179 Investments in subsidiaries RMB million Investments in joint ventures RMB million Investments in associates RMB million Provision for impairment losses RMB million Total RMB million Balance at 1 January 2021 Additions for the year Share of profits less losses under the equity method Change of other comprehensive loss under the equity method Other equity movements under the equity method Dividends declared Disposals for the year Other movement Movement of provision for impairment Balance at 31 December 2021 266,939 12,646 – – – – (2,275) – – 277,310 14,762 812 4,190 – 18 (1,387) (786) – – 17,609 69,540 1,014 3,961 12 155 (1,019) (8) 199 – 73,854 (7,885) – – – – – – – (41) (7,926) 343,356 14,472 8,151 12 173 (2,406) (3,069) 199 (41) 360,847 For the year ended 31 December 2021, the Group and the Company had no individually significant long-term investment impairment. Details of the Company’s principal subsidiaries are set out in Note 59. 114 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 Principal place of business Register location Legal representative Principal activities Registered Capital RMB million Percentage of equity/voting right directly or indirectly held by the Company PRC PRC PRC PRC Gu Yuefeng Gu Yuefeng Manufacturing refining oil products 12 LONG-TERM EQUITY INVESTMENTS (Continued) Principal joint ventures and associates of the Group are as follows: (a) Principal joint ventures and associates Name of investees 1. Joint ventures Fujian Refining & Petrochemical Company Limited (“FREP”) BASF-YPC Company Limited (“BASF-YPC”) Taihu Limited (“Taihu”) Yanbu Aramco Sinopec Refining Company Ltd. (“YASREF”) Sinopec SABIC Tianjin Petrochemical Company Limited (“Sinopec SABIC Tianjin”) 2. Associates China Oil & Gas Pipeline Network Corporation (“PipeChina”) (i) Sinopec Finance Company Limited (“Sinopec Finance”) Sinopec Capital Co.,Ltd. (“Sinopec Capital”) Russia Saudi Arabia Cyprus Saudi Arabia NA NA PRC PRC AHMED AL-SHAIKH PRC PRC PRC PRC PRC PRC Zhang Wei Jiang Yongfu Sun Mingrong Zhongtian Synergetic Energy Company Limited (“Zhongtian Synergetic Energy”) Caspian Investments Resources Ltd. (“CIR”) PRC PRC Peng Yi The Republic of Kazakhstan British Virgin NA Islands Joint ventures and associates above are limited companies. Manufacturing and distribution of petrochemical products Crude oil and natural gas extraction Petroleum refining and processing Manufacturing and distribution of petrochemical products 14,758 12,704 25,000 USD 1,560 million USD 10,520 50.00% 40.00% 49.00% 37.50% 50.00% Operation of oil and natural gas pipelines and auxiliary facilities Provision of non-banking financial services Project management, equity management, investment consulting, self-owned equity management Mining coal and manufacturing of coal- chemical products Crude oil and natural gas extraction 500,000 14.00% 18,000 49.00% 10,000 49.00% 17,516 10,002 USD 38.75% 50.00% 115 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 12 LONG-TERM EQUITY INVESTMENTS (Continued) (b) Major financial information of principal joint ventures 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 At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Current liabilities Current financial liabilities Other current liabilities Total current liabilities Non-current liabilities Non-current financial liabilities Other non-current liabilities Total non-current liabilities Net assets Net assets attributable to shareholders of the company Net assets attributable to minority interests Share of net assets from joint ventures Carrying Amounts Summarised income statement 6,562 9,217 15,779 13,744 (1,177) (5,008) (6,185) (6,857) (242) (7,099) 16,239 7,448 7,492 14,940 15,237 (1,203) (5,147) (6,350) (8,761) (235) (8,996) 14,831 5,375 6,953 12,328 9,336 (77) (2,546) (2,623) – (92) (92) 18,949 1,838 4,777 6,615 9,993 (456) (2,190) (2,646) – (42) (42) 13,920 1,258 2,188 3,446 14,032 (32) (1,931) (1,963) (85) (1,439) (1,524) 13,991 1,280 1,223 2,503 12,531 (38) (1,043) (1,081) (85) (2,017) (2,102) 11,851 5,441 12,404 17,845 41,947 (9,549) (15,844) (25,393) (30,903) (1,723) (32,626) 1,773 1,408 7,516 8,924 45,413 (9,520) (8,644) (18,164) (29,650) (2,008) (31,658) 4,515 4,820 3,437 8,257 18,835 (597) (3,547) (4,144) (7,599) (382) (7,981) 14,967 5,259 2,665 7,924 18,258 (998) (3,052) (4,050) (6,773) (378) (7,151) 14,981 16,239 14,831 18,949 13,920 13,523 11,439 1,773 4,515 14,967 14,981 – 8,120 8,120 – 7,416 7,416 – 7,580 7,580 – 5,568 5,568 468 6,626 6,626 412 5,605 5,605 – – – – – – – 7,484 7,484 – 7,491 7,491 For the year ended 31 December 2021 FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million Turnover Interest income Interest expense Profit/(loss) before taxation Tax expense Profit/(loss) for the year Other comprehensive loss Total comprehensive income/(loss) Dividends from joint ventures Share of net profit/(loss) from joint ventures Share of other comprehensive loss from joint ventures (ii) 47,224 147 (411) 2,261 (597) 1,664 – 1,664 128 832 – 38,691 118 (535) 520 (87) 433 – 433 300 217 – 27,499 52 (5) 8,218 (2,054) 6,164 – 6,164 454 2,466 – 15,701 27 (16) 1,518 (379) 1,139 – 1,139 691 456 – 15,190 451 (107) 2,864 (601) 2,263 (123) 2,140 – 9,528 291 (20) 2,304 (378) 1,926 (3,368) (1,442) – 1,081 911 (60) (1,593) 68,548 6 (945) (2,868) 332 (2,536) (206) (2,742) – – – 37,337 17 (1,136) (7,193) 1,057 (6,136) (584) (6,720) – (2,301) (219) 24,631 209 (89) 1,393 (407) 986 – 986 500 493 – 14,881 183 (131) 954 (236) 718 – 718 – 359 – The share of profit and other comprehensive income for the year ended 31 December 2021 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB4,494 million (2020: RMB993 million) and RMB215 million (2020: other comprehensive income RMB808 million) respectively. As at 31 December 2021, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB30,640 million (2020: RMB26,099 million). 116 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 12 LONG-TERM EQUITY INVESTMENTS (Continued) (c) Major financial information of principal associates Summarised balance sheet and reconciliation to their carrying amounts in respect of the Group’s principal associates: PipeChina At 31 December 2021 RMB million At 31 December 2020 RMB million Sinopec Finance At 31 December 2021 RMB million At 31 December 2020 RMB million Sinopec Capital At 31 December 2021 RMB million At 31 December 2020 RMB million Zhongtian Synergetic Energy At 31 December 2020 RMB million At 31 December 2021 RMB million CIR At 31 December 2021 RMB million At 31 December 2020 RMB million Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to shareholders of the Company Net assets attributable to minority interests Share of net assets from associates Carrying Amounts Summarised income statement 86,335 768,161 (136,150) (103,243) 615,103 74,012 655,982 (55,562) (104,150) 570,282 194,458 55,086 (217,987) (602) 30,955 175,139 53,008 (197,872) (514) 29,761 13,140 102 (28) (676) 12,538 11,871 106 (18) (411) 11,548 3,532 51,331 (8,577) (22,216) 24,070 3,721 53,124 (8,315) (28,422) 20,108 526,241 505,336 30,955 29,761 12,538 11,548 24,070 20,108 88,862 73,674 73,674 64,946 70,747 70,747 – 15,168 15,168 – 14,583 14,583 – 6,144 6,144 – 5,659 5,659 – 9,327 9,327 – 7,792 7,792 576 870 (822) (144) 480 480 – 240 240 2,402 903 (699) (286) 2,320 2,320 – 1,160 1,160 For the year ended 31 December 2021 PipeChina 2021 RMB million 2020 RMB million Sinopec Finance 2021 RMB million 2020 RMB million Sinopec Capital 2021 RMB million 2020 RMB million ZTHC Energy 2021 RMB million 2020 RMB million CIR 2021 RMB million 2020 RMB million Turnover Profit for the year Other comprehensive income Total comprehensive income Dividends declared by associates Share of profit from associates Share of other comprehensive income from associates (ii) 101,572 29,776 2 29,778 442 3,205 22,766 6,444 – 6,444 – 709 5,177 2,168 26 2,194 490 1,062 4,742 2,027 (372) 1,655 – 993 – – 13 (182) 2 990 – 990 – 485 – 2 1,278 – 1,278 – 626 – 16,959 4,184 – 4,184 86 1,621 11,707 551 – 551 284 214 1,826 461 3 464 1,152 231 1,252 181 (308) (127) 2,517 91 – – 2 (154) The share of profit and other comprehensive income for the year ended 31 December 2021 in all individually immaterial associates accounted for using equity method in aggregate was RMB7,283 million (2020: RMB3,444 million) and RMB271 million (2020: loss of RMB1,101 million) respectively. As at 31 December 2021, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB44,176 million (2020: RMB36,222 million). Notes: (i) Sinopec is able to exercise significant influence in PipeChina since Sinopec has a member in PipeChina’s Board of Directors and has a member in PipeChina’s Management Board. (ii) Including foreign currency translation differences. 117 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 At 31 December 2021 RMB million At 31 December 2020 RMB million 598,925 7 598,932 593,615 38 593,653 Plants and buildings RMB million Oil and gas properties RMB million 138,550 509 5,487 646 (1,970) (57) 143,165 59,471 4,586 185 (734) (29) 63,479 4,069 742 (124) – 4,687 74,999 75,010 757,592 2,192 40,357 (617) (5,539) (940) 793,045 572,603 39,670 (410) (7) (844) 611,012 48,117 1,904 (135) (60) 49,826 132,207 136,872 Equipment, machinery and others RMB million 996,702 5,177 65,182 (29) (18,710) (95) 1,048,227 577,748 48,568 225 (12,987) (56) 613,498 37,221 6,774 (984) (1) 43,010 391,719 381,733 Total RMB million 1,892,844 7,878 111,026 – (26,219) (1,092) 1,984,437 1,209,822 92,824 – (13,728) (929) 1,287,989 89,407 9,420 (1,243) (61) 97,523 598,925 593,615 At 31 December 2021 RMB million At 31 December 2020 RMB million 284,618 4 284,622 283,691 4 283,695 13 FIXED ASSETS The Group Fixed assets (a) Fixed assets pending for disposal Total (a) Fixed assets Cost: Balance at 1 January 2021 Additions for the year Transferred from construction in progress Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2021 Less: Accumulated depreciation: Balance at 1 January 2021 Additions for the year Reclassifications Decreases for the year Exchange adjustments Balance at 31 December 2021 Less: Provision for impairment losses: Balance at 1 January 2021 Additions for the year Decreases for the year Exchange adjustments Balance at 31 December 2021 Net book value: Balance at 31 December 2021 Balance at 31 December 2020 The Company Fixed assets (a) Fixed assets pending for disposal Total 118 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 13 FIXED ASSETS (Continued) (a) Fixed assets (Continued) The Company (Continued) Cost: Balance at 1 January 2021 Additions for the year Transferred from construction in progress Reclassifications Transferred from subsidiaries Transferred to subsidiaries Decreases for the year Balance at 31 December 2021 Accumulated depreciation: Balance at 1 January 2021 Additions for the year Reclassifications Transferred from subsidiaries Transferred to subsidiaries Decreases for the year Balance at 31 December 2021 Provision for impairment losses: Balance at 1 January 2021 Additions for the year Transferred to subsidiaries Decreases for the year Balance at 31 December 2021 Net book value: Balance at 31 December 2021 Balance at 31 December 2020 Plants and buildings RMB million Oil and gas properties RMB million Equipment, machinery and others RMB million 49,356 2,056 970 360 – (422) (624) 51,696 25,189 2,604 98 – (91) (428) 27,372 1,917 359 (27) (21) 2,228 22,096 22,250 618,483 1,592 29,458 (620) – (286) (2,607) 646,020 468,718 31,534 (412) – – (7) 499,833 41,406 1,901 – – 43,307 102,880 108,359 484,351 10,850 27,752 260 33 (667) (8,157) 514,422 309,841 27,473 314 1 (383) (6,793) 330,453 21,428 3,472 (2) (571) 24,327 159,642 153,082 Total RMB million 1,152,190 14,498 58,180 – 33 (1,375) (11,388) 1,212,138 803,748 61,611 – 1 (474) (7,228) 857,658 64,751 5,732 (29) (592) 69,862 284,618 283,691 The additions to oil and gas properties of the Group and the Company for the year ended 31 December 2021 included RMB2,163 million (2020: RMB1,563 million) and RMB1,525 million (2019: RMB1,256 million), respectively of the estimated dismantlement costs for site restoration. In 2021, the impairment loss on fixed assets was mainly due to the impairment loss of the chemical segment of RMB5,184 million (2020: RMB2,680 million), and the impairment loss of the exploration and development segment of RMB2,467 million (2020: RMB8,435 million). RMB894 million (2020: RMB226 million), impairment loss of the refining segment and RMB873 million (2020: RMB442 million) of the marketing and distribution segment. The impairment losses in the exploration and development segment were mainly impairment losses on fixed assets related to oil and gas production activities. Among them, oil and gas properties and other fixed assets provided impairment losses of RMB1,904 billion and RMB563 million respectively, which were mainly related to the decline in oil and gas reserves of individual oilfields. The Exploration and Development segment allocates fixed assets related to oil and gas production activities into individually identifiable groups of assets and estimates their recoverable amounts. The recoverable amount is determined based on the discounted value of the reserves of the relevant asset group and estimated future cash flows, and the pre-tax discount rate adopted is 10.47% (2020: 10.47%). If the Group’s estimate of future oil prices is lowered, further impairment losses may be incurred and the aggregate amount of impairment losses may be significant. With other conditions remaining constant and a 5% drop in oil prices, the Group’s impairment loss on fixed assets related to oil and gas production activities will increase by approximately RMB3,628 million (2020: RMB4,548 million); Other conditions remain unchanged and operating costs increase by 5%, the Group’s impairment loss on fixed assets related to oil and gas production activities will increase by approximately RMB2,400 million (2020: RMB2,836 million); With other conditions remaining unchanged and the discount rate increasing by 5%, the Group’s impairment loss on fixed assets related to oil and gas production activities will increase by approximately RMB180 million (2020: RMB287 million). Impairment losses recognised in the chemical segment and refining segment relate to certain refinery and chemical production facilities and are not individually significant. The primary factors resulting in the impairment losses were due to the suspension of operations of certain production facilities, and evidence that indicate the economic performance of certain production facilities was lower than the expectation, thus the carrying amounts of these facilities were written down to their recoverable amounts, which were determined based on the present values of expected future cash flows of the assets using a pre-tax discount rates ranging from 10.50% to 13.9% (2020: 9.87% to 11.60%). At 31 December 2021 and 31 December 2020, the Group and the Company had no individually significant fixed assets which were pledged. At 31 December 2021 and 31 December 2020, the Group and the Company had no individually significant fixed assets which were temporarily idle or pending for disposal. At 31 December 2021 and 31 December 2020, the Group and the Company had no individually significant fully depreciated fixed assets which were still in use. 119 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 14 CONSTRUCTION IN PROGRESS Cost: Balance at 1 January 2021 Additions for the year Disposals for the year Dry hole costs written off Transferred to fixed assets Reclassification to other assets Exchange adjustments Balance at 31 December 2021 Provision for impairment losses: Balance at 1 January 2021 Additions for the year Decreases for the year Exchange adjustments Balance at 31 December 2021 Net book value: Balance at 31 December 2021 Balance at 31 December 2020 The Group RMB million The Company RMB million 127,572 159,729 (146) (7,702) (111,026) (10,302) (56) 158,069 2,047 144 (39) (22) 2,130 60,182 72,196 (90) (6,733) (58,180) (927) – 66,448 302 – – – 302 155,939 125,525 66,146 59,880 At 31 December 2021, major construction projects of the Group are as follows: Project name Budgeted amount RMB million Balance at 1 January 2021 RMB million Net change for the year RMB million Balance at 31 December 2021 RMB million Percentage of project investment to budgeted amount Source of funding Hainan Refining and Chemical Ethylene and Refining Reconstruction and Expansion Project Zhenhai Refinery Expansion Ethylene Project Caprolactam Industry Chain Relocation and Upgrading Transformation Development Project Tianjin Nangang Ethylene and Downstream High-end New Material Industry Cluster Project Zhenhai Refining and Chemical Refining and High-end Synthetic New Material Project 28,565 23,055 13,950 29,052 41,639 5,002 9,155 1,000 – 328 10,600 2,022 2,700 2,999 1,800 15,602 11,177 3,700 2,999 2,128 55% 48% Bank loans & self-financing Bank loans & self-financing 27% Bank loans & self-financing 10% Bank loans & self-financing 5% Self-financing Accumulated interest capitalised at 31 December 2021 RMB million 63 305 32 13 – 120 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 15 RIGHT-OF-USE ASSETS The Group Cost： Balance at 1 January 2021 Additions for the year Decreases for the year Balance at 31 December 2021 Accumulated depreciation: Balance at 1 January 2021 Additions for the year Decreases for the year Balance at 31 December 2021 Net book value: Balance at 31 December 2021 Balance at 31 December 2020 The Company Cost： Balance at 1 January 2021 Additions for the year Decreases for the year Balance at 31 December 2021 Accumulated depreciation: Balance at 1 January 2021 Additions for the year Decreases for the year Balance at 31 December 2021 Net book value: Balance at 31 December 2021 Balance at 31 December 2020 Land RMB million Others RMB million Total RMB million 171,392 2,389 (1,677) 172,104 12,591 6,495 (182) 18,904 153,200 158,801 40,698 9,653 (3,430) 46,921 10,481 6,863 (2,197) 15,147 31,774 30,217 212,090 12,042 (5,107) 219,025 23,072 13,358 (2,379) 34,051 184,974 189,018 Land RMB million Others RMB million Total RMB million 115,047 653 (211) 115,489 7,494 3,760 (50) 11,204 104,285 107,553 2,272 1,619 (935) 2,956 1,088 882 (441) 1,529 1,427 1,184 117,319 2,272 (1,146) 118,445 8,582 4,642 (491) 12,733 105,712 108,737 121 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 16 INTANGIBLE ASSETS The Group Cost: Balance at 1 January 2021 Additions for the year Decreases for the year Balance at 31 December 2021 Accumulated amortisation: Balance at 1 January 2021 Additions for the year Decreases for the year Balance at 31 December 2021 Provision for impairment losses: Balance at 1 January 2021 Additions for the year Decreases for the year Balance at 31 December 2021 Net book value: Balance at 31 December 2021 Balance at 31 December 2020 Land use rights RMB million Patents RMB million Non-patent technology Operation rights RMB million RMB million Others RMB million Total RMB million 102,177 10,690 (1,003) 111,864 24,957 3,406 (169) 28,194 226 11 (1) 236 83,434 76,994 5,383 1,159 (9) 6,533 3,791 1,123 (7) 4,907 482 – – 482 1,144 1,110 5,593 379 (832) 5,140 3,477 332 (9) 3,800 27 103 – 130 1,210 2,089 53,567 912 (688) 53,791 21,522 2,458 (310) 23,670 189 241 (23) 407 6,179 2,122 (84) 8,217 3,931 604 (43) 4,492 17 – – 17 172,899 15,262 (2,616) 185,545 57,678 7,923 (538) 65,063 941 355 (24) 1,272 29,714 31,856 3,708 2,231 119,210 114,280 Amortisation of the intangible assets of the Group charged for the year ended 31 December 2021 is RMB6,363 million (2020: RMB5,907 million). 17 GOODWILL Goodwill is allocated to the following Group’s cash-generating units: Name of investees Principal activities Sinopec Zhenhai Refining and Chemical Branch Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) Sinopec Beijing Yanshan Petrochemical Branch Other units without individual significant goodwill Total Manufacturing of intermediate petrochemical products and petroleum products Production and sale of petrochemical products Manufacturing of intermediate petrochemical products and petroleum products At 31 December 2021 RMB million At 31 December 2020 RMB million 4,043 2,541 1,004 1,006 8,594 4,043 2,541 1,004 1,032 8,620 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 11.7% (2020: 11.4% to 13.4%). 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. 18 LONG-TERM DEFERRED EXPENSES Long-term deferred expenses primarily represent catalysts expenditures and improvement expenditures of fixed assets. 122 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 19 DEFERRED TAX ASSETS AND LIABILITIES Deferred tax assets and liabilities before the consolidated elimination adjustments are as follows: Receivables and inventories Payables Cash flow hedges Fixed assets Tax value of losses carried forward Other equity instrument investments Intangible assets Others Deferred tax assets/(liabilities) Deferred tax assets Deferred tax liabilities At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million 3,763 2,858 258 16,777 4,749 127 1,008 1,056 30,596 2,411 1,286 1,790 15,793 13,322 127 869 371 35,969 – – (2,709) (15,037) – (9) (492) (870) (19,117) – – (4,420) (13,415) – (11) (517) (676) (19,039) The consolidated elimination amount between deferred tax assets and liabilities are as follows: Deferred tax assets Deferred tax liabilities Deferred tax assets and liabilities after the consolidated elimination adjustments are as follows: Deferred tax assets Deferred tax liabilities At 31 December 2021 RMB million At 31 December 2020 RMB million 11,207 11,207 10,915 10,915 At 31 December 2021 RMB million At 31 December 2020 RMB million 19,389 7,910 25,054 8,124 At 31 December 2021, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB18,342 million (2020: RMB17,718 million), of which RMB5,564 million (2020: RMB4,349 million) was incurred for the year ended 31 December 2021, because it was not probable that the related tax benefit will be realised. These deductible losses carried forward of RMB4,135 million, RMB2,308 million, RMB1,986 million, RMB4,349 million and RMB5,564 million will expire in 2022, 2023, 2024, 2025, 2026 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. 20 OTHER NON-CURRENT ASSETS Other non-current assets mainly represent long-term receivables, prepayments for construction projects and purchases of equipment. 123 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202121 DETAILS OF IMPAIRMENT LOSSES At 31 December 2021, impairment losses of the Group are analysed as follows: Allowance for doubtful accounts Included: Accounts receivable Prepayments Other receivables Other non-current assets Inventories Long-term equity investments Fixed assets Construction in progress Intangible assets Goodwill Others Total Note 7 9 10 11 12 13 14 16 17 Balance at 1 January 2021 RMB million Provision for the year RMB million Written back for the year RMB million Written off for the year RMB million Other increase/ (decrease) RMB million Balance at 31 December 2021 RMB million 3,860 77 1,531 – 5,468 3,107 3,548 89,407 2,047 941 7,861 6 112,385 436 14 83 1,931 2,464 3,148 206 9,420 144 262 – 43 15,687 (127) (54) (12) – (193) (18) – – – – – – (211) (30) – (12) – (42) (1,300) (7) (1,141) (33) (24) – – (2,547) (106) 46 – 2 (58) (40) (42) (163) (28) 93 – – (238) 4,033 83 1,590 1,933 7,639 4,897 3,705 97,523 2,130 1,272 7,861 49 125,076 The reasons for recognising impairment losses are set out in the respective notes of respective assets. 22 SHORT-TERM LOANS The Group’s short-term loans represent: At 31 December 2021 At 31 December 2020 Original currency million Exchange rates RMB million Original currency million Exchange rates Short-term bank loans – Renminbi loans Short-term other loans – Renminbi loans Short-term loans from Sinopec Group Company and fellow subsidiaries – Renminbi loans – US Dollar loans – Hong Kong Dollar loans – Euro loans Total 24,959 24,959 – – 2,407 1,320 934 – 153 27,366 146 – 21 6.3757 7.2197 505 37 21 6.5249 0.8416 8.0250 RMB million 16,111 16,111 3 3 4,642 1,141 3,298 31 172 20,756 At 31 December 2021, the Group’s interest rates on short-term loans were from interest 0.53% to 4.20% (At 31 December 2020: 0.63% to 4.55%) per annum. The majority of the above loans are by credit. At 31 December 2021 and 31 December 2020, the Group had no significant overdue short-term loans. 23 BILLS PAYABLE Bills payable primarily represented bank accepted bills for the purchase of material, goods and products. Bills payable were due within one year. At 31 December 2021 and 31 December 2020, the Group had no overdue unpaid bills. 24 ACCOUNTS PAYABLE At 31 December 2021 and 31 December 2020, the Group had no individually significant accounts payable aged over one year. 25 CONTRACT LIABILITIES As at 31 December 2021 and 31 December 2020, the Group’s contract liabilities primarily represent advances from customers. Related performance obligations are satisfied and revenue is recognised within one year. 124 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 26 EMPLOYEE BENEFITS PAYABLE (1) Employee benefits payable: Short-term employee benefits Post-employment benefits defined contribution plans Total (2) Short-term employee benefits Salaries, bonuses, allowances Staff welfare Social insurance Medical insurance Work-related injury insurance Maternity insurance Housing fund Labour union fee, staff and workers’ education fee Other short-term employee benefits Total (3) Post-employment benefits – defined contribution plans Basic pension insurance Unemployment insurance Annuity Total 27 TAXES PAYABLE The Group Value-added tax payable Consumption tax payable Income tax payable Mineral resources compensation fee payable Other taxes Total 28 OTHER PAYABLES Balance at the beginning of the year 7,043 74 12 7,129 Accrued during the year Decreased during the year 97,396 12,241 91 109,728 (90,472) (12,246) (91) (102,809) Balance at the beginning of the year Accrued during the year Decreased during the year 3,836 2,660 234 224 5 5 47 236 30 7,043 72,704 7,610 5,955 5,423 381 151 6,244 2,246 2,637 97,396 (65,810) (7,684) (5,912) (5,382) (380) (150) (6,243) (2,203) (2,620) (90,472) Balance at the beginning of the year Accrued during the year Decreased during the year 51 8 15 74 8,147 305 3,789 12,241 (8,148) (305) (3,793) (12,246) Balance at the end of the year 13,967 69 12 14,048 Balance at the end of the year 10,730 2,586 277 265 6 6 48 279 47 13,967 Balance at the end of the year 50 8 11 69 At 31 December 2021 RMB million At 31 December 2020 RMB million 8,818 56,084 4,809 8 11,548 81,267 5,089 56,762 6,586 132 8,279 76,848 At 31 December 2021 and 31 December 2020, other payables of the Group over one year primarily represented payables for constructions. 125 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202129 NON-CURRENT LIABILITIES DUE WITHIN ONE YEAR The Group’s non-current liabilities due within one year represent: Long-term bank loans – Renminbi loans – US Dollar loans Long-term loans from Sinopec Group Company and fellow subsidiaries – Renminbi loans Long-term loans due within one year Debentures payable due within one year – Renminbi debentures Lease liabilities due within one year Others Non-current liabilities due within one year At 31 December 2021 At 31 December 2020 Original currency million Exchange rates RMB million Original currency million Exchange rates RMB million 2 6.3757 3,281 12 466 3,759 7,000 15,173 2,719 28,651 4 6.5249 4,613 24 622 5,259 – 15,293 1,942 22,494 At 31 December 2021 and 31 December 2020, the Group had no significant overdue long-term loans. 30 OTHER CURRENT LIABILITIES At 31 December 2021 and 31 December 2020, other current liabilities mainly represent output VAT to be transferred. 31 LONG-TERM LOANS The Group’s long-term loans represent: At 31 December 2021 At 31 December 2020 Original currency million Exchange rates RMB million Original currency million Exchange rates RMB million 38,880 38,226 10 6.3757 64 14 6.5249 92 (3,293) 35,651 12,988 (4,637) 33,681 11,013 183 6.3757 1,168 213 6.5249 1,387 (466) 13,690 49,341 (622) 11,778 45,459 At 31 December 2021 RMB million At 31 December 2020 RMB million 18,373 26,633 4,335 49,341 3,520 39,504 2,435 45,459 Long-term bank loans – Renminbi loans – US Dollar loans Interest rate and final maturity Interest rates ranging from interest 1.08% to 4.00% per annum at 31 December 2021 (2020: 1.08% to 5.23%) with maturities through 2039 Interest rates at 1.55% per annum at 31 December 2020 (2020: 1.55%) with maturities through 2038 Less: Portion with one year Long-term bank loans Long-term loans from Sinopec Group Company and fellow subsidiaries – Renminbi loans – US Dollar loans Interest rates ranging from interest 1.08% to 5.23% per annum at 31 December 2021 (2020: 1.08% to 5.23%) with maturities through 2037 Interest rates at 1.65% per annum at 31 December 2021 (2020:1.60%)with maturities in 2027 Less: Portion with one year (note 29) Long-term loans from Sinopec Group Company and fellow subsidiaries Total The maturity analysis of the Group’s long-term loans is as follows: Between one and two years Between two and five years After five years Total Long-term loans are carried at amortised costs. 126 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 32 DEBENTURES PAYABLE The Group Debentures payable: – Corporate Bonds (i) Less: Portion with one year (Note 29) Total Note: At 31 December 2021 RMB million At 31 December 2020 RMB million 49,649 7,000 42,649 38,356 – 38,356 (i) The Company issued corporate bonds with a maturity of five years on 26 July 2021 at par value of RMB100. The total issued amount of the corporate bonds is RMB5 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 3.20% per annum and the interest is paid once a year. The Company issued corporate bonds with a maturity of three years on 5 August 2021 at par value of RMB100. The total issued amount of the corporate bonds is RMB2 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.59% per annum and the interest is paid once a year. The Company issued corporate bonds with a maturity of two years on 6 August 2021 at par value of RMB100. The total issued amount of the corporate bonds is RMB2 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.80% per annum and the interest is paid once a year. The Company issued corporate bonds with a maturity of three years on 27 December 2021 at par value of RMB100. The total issued amount of the corporate bonds is RMB2.55 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.50% per annum and the interest is paid once a year. These corporate bonds are carried at amortised cost, including USD denominated corporate bonds of RMB11,127 million, and RMB denominated corporate bonds of RMB38,521 million (2020: USD denominated corporate bonds of RMB11,379 million, and RMB denominated corporate bonds of RMB26,977 million). 33 LEASE LIABILITY The Group Lease liabilities Deduct: Portion of lease liabilities with one year (Note 29) Total 34 PROVISIONS At 31 December 2021 RMB million At 31 December 2020 RMB million 185,406 15,173 170,233 187,033 15,293 171,740 Provisions primarily represent provision for future dismantlement costs of oil and gas properties. The Group has established certain standardised measures for the dismantlement of its retired oil and gas properties by making reference to the industry practices and is thereafter constructively obligated to take dismantlement measures of its retired oil and gas properties. Movement of provision of the Group’s obligations for the dismantlement of its retired oil and gas properties is as follows: Balance at 1 January 2021 Provision for the year Accretion expenses Decrease for the year Exchange adjustments Balance at 31 December 2021 35 OTHER NON-CURRENT LIABILITIES Other non-current liabilities primarily represent long-term payables, special payables and deferred income. The Group RMB million 43,713 2,163 1,135 (6,435) (81) 40,495 127 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 36 SHARE CAPITAL The Group Registered, issued and fully paid: 95,557,771,046 listed A shares (2020: 95,557,771,046) of RMB1.00 each 25,513,438,600 listed H shares (2020: 25,513,438,600) of RMB1.00 each Total At 31 December 2021 RMB million At 31 December 2020 RMB million 95,558 25,513 121,071 95,558 25,513 121,071 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 RMB1.00 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 RMB1.00 each and offer not more than 19.5 billion shares with a par value of RMB1.00 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 RMB1.00 each, representing 12,521,864,000 H shares and 25,805,750 American Depositary Shares (“ADSs”, each representing 100 H shares), at prices of HKD1.59 per H share and USD20.645 per ADS, respectively, by way of a global initial public offering to Hong Kong SAR and overseas investors. As part of the global initial public offering, 1,678,049,000 state-owned ordinary shares of RMB1.00 each owned by Sinopec Group Company were converted into H shares and sold to Hong Kong SAR and overseas investors. In July 2001, the Company issued 2.8 billion listed A shares with a par value of RMB1.00 each at RMB4.22 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 RMB1.00 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 RMB1.00 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 RMB1.00 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 RMB1.00 each at the Placing Price of HKD8.45 per share. The aggregate gross proceeds from the Placing amounted to approximately HKD24,042,227,300.00 and the aggregate net proceeds (after deduction of the commissions and estimated expenses) amounted to approximately HKD23,970,100,618.00. 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 capital reserve 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 RMB1.00 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 RMB1.00 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 RMB1.00 each, as a result of conversion by the holders of the 2011 Convertible Bonds. All A shares and H shares rank pari passu in all material aspects. 128 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 36 SHARE CAPITAL (Continued) The Group (Continued) Capital management Management optimises the structure of the Group’s capital, which comprises of equity and 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, 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 2021, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 10.6% (2020: 10.1%) and 51.5% (2020: 48.9%), respectively. The schedule of the contractual maturities of loans and commitments are disclosed in Notes 31,32 and 61, 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 CAPITAL RESERVE The movements in capital reserve of the Group are as follows: Balance at 1 January 2021 Adjustment for business combination of entities under common control Transaction with minority interests Others Balance at 31 December 2021 RMB million 127,389 (6,124) (1,396) 319 120,188 Capital reserve represents mainly: (a) 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; (b) share premiums derived from issuances of H shares and A shares by the Company and excess of cash paid by investors over their proportionate shares in share capital, the proportionate shares of unexercised portion of the Bond with Warrants at the expiration date, and the amount transferred from the proportionate liability component and the derivative component of the converted portion of the 2011 Convertible Bonds; (c) difference between consideration paid for the combination of entities under common control and the transactions with minority interests over the carrying amount of the net assets acquired. 129 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202138 OTHER COMPREHENSIVE INCOME The Group (a) The changes of other comprehensive income in consolidated income statement Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year Less: Reclassification adjustments for amounts transferred to the consolidated income statement Subtotal Cost of hedging reserve Changes in fair value of other equity instrument investments Other comprehensive loss that can be converted into profit or loss under the equity method Foreign currency translation differences Other comprehensive income Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year Less: Reclassification adjustments for amounts transferred to the consolidated income statement Subtotal Cost of hedging reserve Changes in fair value of other equity instrument investments Other comprehensive loss that can be converted into profit or loss under the equity method Foreign currency translation differences Other comprehensive income (b) The change of each item in other comprehensive income Equity Attributable to shareholders of the company Before-tax amount RMB million 2021 Tax effect RMB million Net-of-tax amount RMB million 15,659 (3,881) 11,778 (8,858) 24,517 (220) (6) 441 (1,728) 23,004 1,618 (5,499) – 2 – – (5,497) (7,240) 19,018 (220) (4) 441 (1,728) 17,507 Before-tax amount RMB million 2020 Tax effect RMB million Net-of-tax amount RMB million 9,207 (198) 9,405 162 (18) (2,441) (4,457) 2,651 (2,295) 37 (2,332) – (4) – – (2,336) 6,912 (161) 7,073 162 (22) (2,441) (4,457) 315 Other comprehensive income that can be converted into profit or loss under the equity method RMB million (4,088) (2,001) (6,089) (6,089) 324 (5,765) Changes in fair value of other equity instrument investments RMB million (16) (4) (20) (20) 2 (18) 1 January 2020 Changes in 2020 31 December 2020 1 January 2021 Changes in 2021 31 December 2021 fair value hedges RMB million Cash flow hedges RMB million – 81 81 81 (110) (29) 1,037 6,768 7,805 7,805 (591) 7,214 Foreign currency translation differences RMB million 2,746 (3,485) (739) (739) (1,353) (2,092) Minority interests RMB million Total other comprehensive income RMB million (1,569) (1,031) (2,600) (2,600) (715) (3,315) (1,890) 328 (1,562) (1,562) (2,443) (4,005) Subtotal RMB million (321) 1,359 1,038 1,038 (1,728) (690) As at 31 December 2021, cash flow hedge reserve amounted to a gain of RMB7,244 million (31 December 2020: a gain of RMB8,176 million), of which a gain of RMB7,214 million was attribute to shareholders of the Company (31 December 2020: a gain of RMB7,805 million). 130 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 39 SURPLUS RESERVES Movements in surplus reserves are as follows: Balance at 1 January 2021 Appropriation Balance at 31 December 2021 Statutory surplus reserve RMB million The Group Discretionary surplus reserves RMB million 92,280 3,944 96,224 117,000 – 117,000 Total RMB million 209,280 3,944 213,224 The PRC Company Law and Articles of Association of the Company have set out the following profit appropriation plans: (a) 10% of the net profit is transferred to the statutory surplus reserve. In the event that the reserve balance reaches 50% of the registered capital, no transfer is needed; (b) After the transfer to the statutory surplus reserve, a transfer to discretionary surplus reserve can be made upon the passing of a resolution at the shareholders’ meeting. 40 OPERATING INCOME AND OPERATING COSTS Income from principal operations Income from other operations Total Operating costs The Group 2021 RMB million 2020 RMB million The Company 2021 RMB million 2020 RMB million 2,679,500 61,384 2,740,884 2,216,551 2,048,654 56,070 2,104,724 1,685,674 1,013,961 31,039 1,045,000 808,540 743,188 27,133 770,321 584,315 The income from principal operations mainly represents revenue from the sales of refined petroleum products, chemical products, crude oil and natural gas, which are recognised at a point in time. The income from other operations mainly represents revenue from sale of materials, services providing, rental income and others. Operating costs primarily represent the products cost related to the principal operations. The Group’s segmental information is set out in Note 63. The detailed information about the Group’s operating income is as follows: Income from principal operations Gasoline Diesel Crude oil Basic chemical feedstock Synthetic resin Kerosene Natural gas Synthetic fiber monomers and polymers Others (i) Income from other operations Sale of materials and others Rental income Total Note: (i) Others are primarily liquefied petroleum gas and other refinery and chemical byproducts and joint products and so on. (ii) The above incomes, except rental income, are all income from contracts. 2021 RMB million 2020 RMB million 2,679,500 726,057 542,260 429,038 242,532 149,208 112,519 68,443 45,464 363,979 61,384 59,990 1,394 2,740,884 2,048,654 557,605 422,566 351,707 155,397 122,368 72,385 48,099 42,388 276,139 56,070 54,986 1,084 2,104,724 131 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202141 TAXES AND SURCHARGES The Group Consumption tax City construction tax Education surcharge Resources tax Others Total The applicable tax rate of the taxes and surcharges are set out in Note 4. 42 FINANCIAL EXPENSES The Group Interest expenses incurred Less: Capitalised interest expenses Add: Interest expense on lease liabilities Net interest expenses Accretion expenses (Note 34) Interest income Net foreign exchange gains Total 2021 RMB million 2020 RMB million 213,894 18,044 13,409 6,432 7,253 259,032 197,542 15,710 11,678 4,572 5,516 235,018 2021 RMB million 2020 RMB million 5,679 996 9,200 13,883 1,135 (5,732) (276) 9,010 6,517 2,011 9,349 13,855 1,343 (4,803) (885) 9,510 The interest rates per annum at which borrowing costs were capitalised during the year ended 31 December 2021 by the Group ranged from 1.84% to 4.35% (2020: 2.60% to 4.66%). 43 CLASSIFICATION OF EXPENSES BY NATURE The operating costs, selling and distribution expenses, general and administrative expenses, research and development expenses and exploration expenses (including dry holes) in consolidated income statement classified by nature are as follows: Purchased crude oil, products and operating supplies and expenses Personnel expenses Depreciation, depletion and amortisation Exploration expenses (including dry holes) Other expenses Total 44 SELLING AND DISTRIBUTION EXPENSES 2021 RMB million 2020 RMB million 2,076,665 103,492 115,680 12,382 52,621 2,360,840 1,589,821 87,525 107,461 9,716 42,531 1,837,054 Selling expenses mainly include wages and salaries of sales staff, depreciation and amortization of sales equipment and related systems, etc. 45 GENERAL AND ADMINISTRATIVE EXPENSES Administrative expenses mainly include salaries and salaries of administrative personnel, depreciation and amortization of office facilities, office systems and software, and repair costs. 46 RESEARCH AND DEVELOPMENT EXPENSES The research and development expenditures are mainly used for the replacement of resources in upstream, optimising structure and operation upgrades in refining sector, structured adjustment of materials and products in chemical segment. 47 EXPLORATION EXPENSES Exploration expenses include geological and geophysical expenses and written-off of unsuccessful dry hole costs. 48 OTHER INCOME Other income are mainly the government grants related to the business activities. 132 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202149 INVESTMENT INCOME Income from investment of subsidiaries accounted for under cost method Income from investment accounted for under equity method Investment income from disposal of business and long-term equity investments Dividend income from holding of other equity instrument investments Investment (loss)/income from holding/disposal of financial assets and liabilities and derivative financial instruments at fair value through profit or loss Gain from ineffective portion of cash flow hedges Others Total 50 INCOME FROM CHANGES IN FAIR VALUE The Group The Group 2021 RMB million 2020 RMB million The Company 2021 RMB million 2020 RMB million – 23,253 82 34 (17,687) 266 84 6,032 – 6,712 37,525 156 687 2,475 (69) 47,486 21,416 8,151 56 22 (376) 409 1,203 30,881 19,296 3,637 21,079 16 (1,013) 84 257 43,356 Net fair value gains on financial assets and financial liabilities at fair value through profit or loss Unrealised gains from ineffective portion cash flow hedges, net Others Total 51 IMPAIRMENT LOSSES The Group Prepayments Inventories Long-term equity investment Fixed assets Intangible assets Construction in progress Others Total 52 NON-OPERATING INCOME The Group Government grants Others Total 53 NON-OPERATING EXPENSES The Group Fines, penalties and compensation Donations Asset scrap, damage loss Others Total 2021 RMB million 2020 RMB million 2,913 428 – 3,341 (1,824) 576 (5) (1,253) 2021 RMB million 2020 RMB million (40) 3,130 206 9,420 262 144 43 13,165 97 11,361 1,955 11,783 47 844 – 26,087 2021 RMB million 2020 RMB million 806 2,710 3,516 1,210 1,160 2,370 2021 RMB million 2020 RMB million 220 165 3,727 3,470 7,582 43 301 1,669 2,719 4,732 133 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 54 INCOME TAX EXPENSE The Group Provision for income tax for the year Deferred taxation Under-provision for income tax in respect of preceding year Total Reconciliation between actual income tax expense and accounting profit at applicable tax rates is as follows: Profit before taxation Expected income tax expense at a tax rate of 25% Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of preferential tax rate (i) Effect of income taxes at foreign operations Tax effect of utilisation of previously unrecognised tax losses and temporary differences Tax effect of tax losses not recognised and temporary differences Write-down of deferred tax assets Adjustment for under provision for income tax in respect of preceding years Actual income tax expense Note: 2021 RMB million 2020 RMB million 17,522 6,258 (462) 23,318 14,334 (7,873) (117) 6,344 2021 RMB million 2020 RMB million 108,348 27,087 6,142 (8,085) (2,766) (222) (701) 1,391 934 (462) 23,318 48,441 12,110 3,340 (8,345) (1,011) (730) (65) 1,087 75 (117) 6,344 (i) 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 2021. 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 income tax rate extends from 1 January 2021 to 31 December 2030. 55 DIVIDENDS (a) Dividends of ordinary shares declared after the balance sheet date Pursuant to a resolution passed at the director’s meeting on 25 March 2022, final dividends in respect of the year ended 31 December 2021 of RMB0.31 (2020: RMB0.13) per share totaling RMB37,532 million (2020: RMB15,739 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. (b) Dividends of ordinary shares declared during the year Pursuant to the shareholders’ approval at the General Meeting on 27 August 2021, the interim dividends for the year ending 31 December 2021 of RMB0.16 (2020: RMB0.07) per share totaling RMB19,371 million (2020: RMB8,475 million) were approved. Dividends were paid on 17 September 2021. Pursuant to the shareholders’ approval at the Annual General Meeting on 25 May 2021, a final dividend of RMB0.13 per share totaling RMB15,739 million according to total shares on 6 June 2021 was approved. All dividends have been paid in the year ended 31 December 2021. Pursuant to the shareholders’ approval at the Annual General Meeting on 19 May 2020, a final dividend of RMB0.19 per share totaling RMB23,004 million according to total shares on 9 June 2020 was approved. All dividends have been paid in the year ended 31 December 2020. 134 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202156 SUPPLEMENTAL INFORMATION TO THE CASH FLOW STATEMENT The Group (a) Reconciliation of net profit to cash flows from operating activities: Net profit Add: Impairment losses on assets Credit impairment losses Depreciation of right-of-use assets Depreciation of fixed assets Amortisation of intangible assets and long-term deferred expenses Dry hole costs written off Net loss/(gain) on disposal of non-current assets Fair value (gain)/loss Financial expenses Investment income Decrease/(increase)in deferred tax assets Increase in deferred tax liabilities (Increase)/decrease in inventories Safety fund reserve Increase in operating receivables Increase in operating payables Net cash flow from operating activities (b) Net change in cash: Cash balance at the end of the year Less: Cash at the beginning of the year Net increase of cash (c) The analysis of cash held by the Group is as follows: Cash at bank and on hand – Cash on hand – Demand deposits Cash at the end of the year (d) Net cash received from disposal of subsidiaries and other business entities： Cash received from disposal of equity interests in the relevant companies, oil and gas pipeline and ancillary facilities Others Total (e) Other cash paid relating to financing activities： Repayments of lease liabilities Others Total 2021 RMB million 2020 RMB million 85,030 13,165 2,311 12,972 92,824 9,884 7,702 3,062 (3,341) 9,286 (6,032) 5,456 802 (58,372) 775 (8,177) 57,827 225,174 42,097 26,087 2,066 12,842 85,494 9,125 5,928 (398) 1,253 10,395 (47,486) (10,143) 2,270 22,407 237 (17,610) 23,956 168,520 2021 RMB million 2020 RMB million 108,590 87,559 21,031 87,559 60,438 27,121 2021 RMB million 2020 RMB million 1 108,589 108,590 8 87,551 87,559 2021 RMB million 2020 RMB million 4,225 980 5,205 49,832 37 49,869 2021 RMB million 2020 RMB million 19,412 8,864 28,276 15,327 1,955 17,282 135 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 57 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (1) Related parties having the ability to exercise control over the Group The name of the company Unified social credit identifier Registered address Principal activities Relationship with the Group Types of legal entity Authorised representative Registered capital : : : : China Petrochemical Corporation 9111000010169286X1 No. 22, Chaoyangmen North Street, Chaoyang District, Beijing Exploration, production, storage and transportation (including pipeline transportation), sales and utilisation of crude oil and natural gas; refining; wholesale and retail of gasoline, kerosene and diesel; production, sales, storage and transportation of petrochemical and other chemical products; industrial investment and investment management; exploration, construction, installation and maintenance of petroleum and petrochemical constructions and equipments; manufacturing electrical equipment; research, development, application and consulting services of information technology and alternative energy products; import & export of goods and technology. : Ultimate holding company State-owned : : Ma Yongsheng : RMB326,547 million Sinopec Group Company is an enterprise controlled by the PRC government. Sinopec Group Company directly and indirectly holds 68.77% shareholding of the Company. (2) Related parties not having the ability to exercise control over the Group Related parties under common control of a parent company with the Company: Sinopec Finance (Note) Sinopec Shengli Petroleum Administration Bureau Sinopec Zhongyuan Petroleum Exploration Bureau Sinopec Assets Management Corporation Sinopec Engineering Incorporation Sinopec Century Bright Capital Investment Limited Sinopec Petroleum Storage and Reserve Limited Associates of the Group: PipeChina Sinopec Finance Sinopec Capital Zhongtian Synergetic Energy CIR Joint ventures of the Group: FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin Note: Sinopec Finance is under common control of a parent company with the Company and is also the associate of the Group. 136 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202157 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued) (3) 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: Sales of goods Purchases Transportation and storage Exploration and development services Production related services Ancillary and social services Agency commission income Interest income Interest expense Net deposits placed with related parties Net funds obtained from/(repaid to) related parties Note (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (viii) (x) The Group 2021 RMB million 2020 RMB million 297,381 191,888 19,443 33,930 44,405 1,730 194 715 385 (8,265) 30,305 228,307 151,300 8,734 31,444 31,915 2,952 160 704 919 (17,585) (31,144) The amounts set out in the table above in respect of the year ended 31 December 2021 and 2020 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 2021 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB173,718 million (2020: RMB149,560 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB160,048 million (2020: RMB133,827 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB1,730 million (2020: RMB2,952 million), lease charges for land, buildings and others paid by the Group of RMB10,831 million, RMB565 million and RMB159 million (2020: RMB11,086 million, RMB565 million and RMB211 million), respectively and interest expenses of RMB385 million (2020: RMB919 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB54,453 million (2020: RMB69,470 million), comprising RMB53,671 million (2020: RMB68,683 million) for sales of goods, RMB715 million (2020: RMB704 million) for interest income and RMB67 million (2020: RMB83 million) for agency commission income. For the year ended 31 December 2021, 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 2021 on lease liabilities in respect of amounts due to Sinopec Group Company and fellow subsidiaries, associates and joint ventures was RMB7,863 million (2020: RMB8,160 million). For the year ended 31 December 2021, the amount of rental the Group paid to Sinopec Group Company and fellow subsidiaries, associates and joint ventures for land, buildings and others are RMB10,834 million, RMB572 million and RMB269 million (2020: RMB11,090 million, RMB571 million and RMB330 million). Among them, according to the continuing connected transaction agreement signed in 2000, the fifth supplementary agreement for continuing connected transactions signed on August 24, 2018, and the fourth revision memorandum of the land use right lease contract, the actual payment of land, land and land use rights between Sinopec Group and Sinopec Group The rental amount of houses was RMB10,831 million and RMB565 million respectively (2020: RMB11,086 million and RMB565 million). As at 31 December 2021 and 31 December 2020, 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 disclosure set out in Note 62(b). Guarantees given to banks by the Group in respect of banking facilities to associates and joint ventures are disclosed in Note 62(b). 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 and 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. 137 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202157 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued) (3) 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: (Continued) Notes: (Continued) (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. (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 issued the acceptance bills 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 2021. The terms of these agreements are summarised as follows: (a) 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: ‧ the government-prescribed price; ‧ where there is no government-prescribed price, the government-guidance price; ‧ where there is neither a government-prescribed price nor a government-guidance price, the market price; or ‧ 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%. (b) 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 agreed to in the above Mutual Provision Agreement. (c) The Company has entered into a number 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. (d) 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. (e) The Company has entered into a service station 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. (f) On the basis of a series of continuing connected transaction agreements signed in 2000, the Company and Sinopec Group Company have signed the Sixth Supplementary Agreement on 27 August 2021, which took effect on 1 January 2022 and made adjustment to “Mutual Supply Agreement” and “Buildings Leasing Contract”, etc. 138 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202157 RELATED PARTIES AND RELATED PARTY TRANSACTIONS (Continued) (4) Balances with Sinopec Group Company and fellow subsidiaries, associates and joint ventures The balances with Sinopec Group Company and fellow subsidiaries, associates and joint ventures at 31 December 2021 and 31 December 2020 are as follows: Cash at bank and on hand Accounts receivable Receivables financing Other receivables Prepayments and other current assets Other non-current assets Bills payable Accounts payable Contract liabilities Other payables and other current liabilities Other non-current liabilities Short-term loans Long-term loans (including current portion) Lease liabilities (including current portion) The ultimate holding company Other related companies At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million – 30 – – 19 – 5 228 50 85 – – – 72,176 – 42 – 122 7 – 8 123 41 681 – – – 74,178 61,682 8,625 186 13,941 577 3,116 3,798 10,139 4,627 50,564 2,779 2,407 14,156 86,585 53,417 16,735 760 18,062 1,231 6,435 3,671 18,990 5,896 12,078 3,010 4,642 12,400 87,870 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 22 and Note 31. As at and for the year ended 31 December 2021, and as at and for the year ended 31 December 2020, no individually significant impairment losses for bad and doubtful debts were recorded in respect of amounts due from Sinopec Group Company and fellow subsidiaries, associates and joint ventures. (5) 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 compensations are as follows: Short-term employee benefits Retirement scheme contributions Total 58 PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS 2021 RMB thousand 2020 RMB thousand 4,612 379 4,991 5,753 342 6,095 The Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the financial statements. The Group 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 on-going 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 those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the financial statements. The significant accounting policies are set forth in Note 3. The Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the financial statements. 139 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202158 PRINCIPAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued) (a) Oil and gas properties and reserves The accounting for the exploration and production segment’s oil and gas activities is subject to accounting rules that are unique to the oil and gas industry. The Group has used the successful efforts method to account for oil and gas business activities. 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. These costs primarily include dry hole costs, seismic costs and other exploratory costs. 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 estimate of proved and proved developed reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related 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, the Group’s earnings could be affected by changes in depreciation expense or an immediate write-down of the carrying amount of oil and properties. 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 the 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 expense 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. (b) Impairment for 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 “CASs 8 – 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 fair value less costs to sell and the present value of expected future cash flows. It is difficult to precisely estimate the fair value because quoted market prices for the Group’s assets or cash-generating units are not readily available. In determining the value of expected future cash flows, expected cash flows generated by the asset or the cash-generating unit are discounted to their present value, which requires significant judgement relating to sales volume, selling price, amount of operating costs and discount rate. The Group 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 sales volume, selling price, amount of operating costs and discount rate. (c) Depreciation Fixed assets 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 taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates. (d) Measurement of expected credit losses ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive). 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. (e) 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 would be higher than estimated. 140 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202159 PRINCIPAL SUBSIDIARIES The Company’s principal subsidiaries have been consolidated into the Group’s financial statements for the year ended 31 December 2021. The following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group: Full name of enterprise Principal activities Registered capital/paid- up capital million Actual investment at 31 December 2021 million (a) Subsidiaries acquired through group restructuring: China Petrochemical International Company Limited China International United Petroleum and Chemical Company Limited Sinopec Catalyst Company Limited Sinopec Yangzi Petrochemical Company Limited Trading of petrochemical products Trading of crude oil and petrochemical products RMB1,400 RMB5,000 RMB1,856 RMB6,585 Production and sale of catalyst products Manufacturing of intermediate petrochemical products and RMB1,500 RMB15,651 RMB2,424 RMB15,651 petroleum products Percentage of equity interest/ voting right held by the Group % 100.00 100.00 100.00 100.00 Sinopec Lubricant Company Limited Production and sale of refined petroleum products, lubricant base RMB3,374 RMB3,374 100.00 Sinopec Yizheng Chemical Fibre Limited Liability Company Marketing Company Sinopec Kantons Holdings Limited (“Sinopec Kantons”) Production and sale of polyester chips and polyester fibres Marketing and distribution of refined petroleum products Provision of crude oil jetty services and natural gas pipeline RMB4,000 RMB28,403 HKD248 RMB6,713 RMB20,000 HKD3,952 oil, and petrochemical materials Sinopec Shanghai Petrochemical Company Limited (“Shanghai Petrochemical”) Fujian Petrochemical Company Limited (“Fujian Petrochemical”) (i) (b) Subsidiaries established by the Group: transmission services Manufacturing of synthetic fibres, resin and plastics, intermediate RMB10,824 RMB5,820 petrochemical products and petroleum products Manufacturing of plastics, intermediate petrochemical products RMB10,492 RMB5,246 and petroleum products 100.00 70.42 60.33 50.44 50.00 Minority Interests at 31 December 2021 RMB million 11 5,259 233 _ 88 _ 75,560 5,011 15,132 6,915 Sinopec International Petroleum Exploration and Investment in exploration, production and sale of petroleum and RMB8,250 RMB8,250 100.00 6,119 Production Limited (“SIPL”) natural gas Sinopec Overseas Investment Holding Limited (“SOIH”) Sinopec Chemical Sales Company Limited Sinopec Great Wall Energy & Chemical Company Limited Investment holding of overseas business Marketing and distribution of petrochemical products Coal chemical industry investment management, production and USD3,009 RMB1,000 RMB22,761 USD3,009 RMB1,165 RMB22,795 Sinopec Beihai Refining and Chemical Limited Liability Company ZhongKe (Guangdong) Refinery & Petrochemical Company Limited Sinopec Qingdao Refining and Chemical Company Limited Sinopec-SK (Wuhan) Petrochemical Company Limited (“Sinopec-SK”) sale of coal chemical products Import and processing of crude oil, production, storage and sale RMB5,294 RMB5,240 of petroleum products and petrochemical products Crude oil processing and petroleum products manufacturing RMB6,397 RMB5,776 Manufacturing of intermediate petrochemical products and RMB5,000 RMB4,250 petroleum products Production, sale, research and development of ethylene and RMB7,193 RMB7,193 downstream byproducts 100.00 100.00 100.00 98.98 90.30 85.00 59.00 (c) Subsidiaries acquired through business combination under common control: Sinopec Hainan Refining and Chemical Company Limited Manufacturing of intermediate petrochemical products and RMB9,606 RMB12,615 100.00 Sinopec Qingdao Petrochemical Company Limited Manufacturing of intermediate petrochemical products and RMB1,595 RMB7,233 100.00 petroleum products Gaoqiao Petrochemical Company Limited Manufacturing of intermediate petrochemical products and RMB10,000 RMB4,804 petroleum products Sinopec Baling Petrochemical Co. Ltd. (“Baling Petrochemical”) petroleum products Crude oil processing and petroleum products manufacturing RMB3,000 RMB3,000 55.00 55.00 – 124 18 137 2,288 2,004 5,130 – _ 8,197 2,272 (d) Subsidiaries acquired through business combination not under common control: Shanghai SECCO Production and sale of petrochemical products RMB500 RMB500 67.59 3,441 * The minority interests of subsidiaries which the Group holds 100% of equity interests at the end of the year are the minority interests of their subsidiaries. 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. Note: (i) 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 return through its power over the entity. 141 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 59 PRINCIPAL SUBSIDIARIES (Continued) Summarised financial information on subsidiaries with material minority interests Set out below are the summarised financial information which the amount before inter-company eliminations for each subsidiary whose minority interests that are material to the Group. Summarised consolidated balance sheet Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical Sinopec Kantons Shanghai SECCO At 31 December 2021 RMB million At 31 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million Sinopec-SK At 31 December 2021 RMB million At 31 December 2020 RMB million 159,599 (193,315) (33,716) 326,437 (59,604) 172,352 (201,678) (29,326) 323,571 (59,554) 22,759 (1,430) 21,329 8,954 (17,823) 22,620 (475) 22,145 8,951 (18,270) 20,932 (15,796) 5,136 26,106 (847) 17,305 (15,232) 2,073 27,444 (162) 1,464 (142) 1,322 13,208 (700) 1,582 (458) 1,124 12,568 (693) 4,761 (196) 4,565 8,195 (170) 4,373 (924) 3,449 9,106 (170) 6,066 (5,434) 632 11,402 (1,418) 10,431 (2,783) 7,648 12,177 (1,553) 6,791 (8,122) (1,331) 20,650 (7,512) 3,639 (6,377) (2,738) 22,187 (8,509) 266,833 264,017 (8,869) (9,319) 25,259 27,282 12,508 11,875 8,025 8,936 9,984 10,624 13,138 13,678 Current assets Current liabilities Net current (liabilities)/assets Non-current assets Non-current liabilities Net non-current assets/ (liabilities) Summarised consolidated statement of comprehensive income and cash flow Year ended 31 December Marketing Company SIPL Shanghai Petrochemical Fujian Petrochemical 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million Sinopec Kantons 2021 RMB million 2020 RMB million Shanghai SECCO 2021 RMB million 2020 RMB million Sinopec-SK 2021 RMB million 2020 RMB million Turnover Profit/(loss) for the year Total comprehensive income Comprehensive income attributable to minority interests Dividends paid to minority interests Net cash generated from/ (used in) operating activities 1,408,523 18,582 18,439 1,099,680 22,415 21,149 6,822 7,064 7,205 2,766 28,923 54,139 2,166 1,429 1,045 579 – 690 2,017 1,160 (720) 89,280 2,004 2,145 (287) 1,065 541 316 281 74,705 639 628 317 649 5,549 951 951 476 64 4,871 243 243 121 150 4,060 1,751 (292) (244) 528 871 677 268 164 133 1,064 2,047 1,814 707 175 586 29,723 2,817 2,817 2,390 1,028 3,447 21,626 2,132 2,132 691 767 50,208 1,606 1,606 659 – 28,702 (920) (920) (377) – 3,119 5,476 (363) 60 CHANGE IN THE SCOPE OF CONSOLIDATION Business combination under common control Business combination under common control in 2021 Pursuant to resolution passed at the Director’s meeting on 26 March 2021, the Company entered into agreements with Sinopec Assets Management Corporation (“SAMC”) and Beijing Orient Petrochemical Industry Co., Ltd. (“BJOPI”), and its subsidiary,Sinopec Beihai Refining and Chemical Limited Liability Company entered into an agreement with Beihai Petrochemical Limited Liability Company of Sinopec Group (“BHP”). According to the relevant agreements, the Company proposed to acquire non equity assets such as the polypropylene devices and utility business assets of Cangzhou Branch held by SAMC, organic plant business held by BJOPI, and the pier operation platform held by BHP. Pursuant to the resolution passed at the Directors’ meeting on 29 November 2021, the Company entered into agreements with SAMC, and Sinopec Beijing Yanshan Petrochemical Co., Ltd. (“SBJYSP”), and its subsidiary, Sinopec Yizheng Chemical Fibre Company Limited entered into an agreement with SAMC. According to the relevant agreements, the Group proposed to acquire non equity assets such as thermal power, water and other business, PBT resin and other business of Yizheng Branch held by SAMC, and thermal power and other businesses held by SBJYSP. As the Company, SAMC, BJOPI, BHP and SBJYSP are all under the control of Sinopec Group Company, the transaction described above has been accounted as business combination under common control. Accordingly, the equity and assets acquired from Sinopec Group Company 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 Sinopec Group Company on a combined basis. The transactions under the after-mentioned agreements will further improve the integrated operation level of the Group, optimise the allocation of resources, reduce connected transactions on the whole, so as to enhance the comprehensive competitiveness of the Group in its business locations. The financial condition as at 31 December 2020 and the results of operation for the year ended 31 December 2020 previously reported by the Group have been restated, as set out below: 142 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 60 CHANGE IN THE SCOPE OF CONSOLIDATION (Continued) Business combination under common control (Continued) Business combination under common control in 2021 (Continued) (1) The relevant financial information disclosed for changes in the scope of consolidation are as follows: Income of the acquiree from 1 January 2021 to the acquisition date RMB Million Net profits/ (losses) of the acquiree from 1 January 2021 to the acquisition date RMB Million Income of the acquiree from 1 January 2020 to 31 December 2020 RMB Million Net profits/ (losses) of the acquiree from 1 January 2020 to 31 December 2020 RMB Million Net cash flow from operating activities of the acquiree from 1 January 2021 to the acquisition date RMB Million Net cash flow of the acquiree from 1 January 2021 to the acquisition date RMB Million 13 5 39 19 43 620 84 1,223 87 162 246 (15) 560 (6) 20 7,723 (376) 7,177 242 385 3,086 102 3,234 5 392 11,688 (200) 12,233 347 1,002 – – – – – – acquiree Share of acquired equity The basis for the business combination under the common control Date of acquisition Beihai petrochemical business Oriental Petrochemical Business Cangzhou Branch business Asset company business Group Yanshan Business Total 98.98% The acquiree and the 1 July 2021 company are controlled by Sinopec Group Company both before and after combination, and the control is not transitory 100% The acquiree and the 1 July 2021 company are controlled by Sinopec Group Company both before and after combination, and the control is not transitory 100% The acquiree and the 1 July 2021 company are controlled by Sinopec Group Company both before and after combination, and the control is not transitory 100% The acquiree and the 1 December 2021 company are controlled by Sinopec Group Company both before and after combination, and the control is not transitory 100% The acquiree and the 1 December 2021 company are controlled by Sinopec Group Company both before and after combination, and the control is not transitory Basis of Determination on the acquisition date According to the agreement According to the agreement According to the agreement According to the agreement According to the agreement (2) Cost of acquisition ： Cost of acquisition(RMB Million) (3) Details of the assets and liabilities acquired are as follows： Total current assets Total assets Total current liabilities Total liabilities Total shareholders’ equity The principal subsidiaries included in the scope of consolidation this year are disclosed in Note 59. 6,124 Book value at the Acquisition Date RMB Million Book value at December 31 2020 RMB Million 974 6,712 2,540 2,557 4,155 480 5,875 1,020 1,031 4,844 143 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 61 COMMITMENTS Capital commitments At 31 December 2021 and 31 December 2020, capital commitments of the Group are as follows: Authorised and contracted for (i) Authorised but not contracted for Total At 31 December 2021 RMB million At 31 December 2020 RMB million 184,430 90,227 274,657 171,597 33,997 205,594 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 RMB3,648 million (2020: RMB13,172 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 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 RMB181 million for the year ended 31 December 2021 (2020: RMB231 million). Estimated future annual payments are as follows: Within one year Between one and two years Between two and three years Between three and four years Between four and five years Thereafter Total At 31 December 2021 RMB million At 31 December 2020 RMB million 301 112 110 102 64 846 1,535 390 99 66 63 56 824 1,498 The implementation of commitments in previous year and the Group’s commitments did not have material discrepancy. 144 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202162 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 2021 and 31 December 2020, the guarantees by the Group in respect of facilities granted to the parties below are as follows: Joint ventures(i) Associates (ii) Total Notes: At 31 December 2021 RMB million At 31 December 2020 RMB million 9,117 5,746 14,863 6,390 8,450 14,840 (i) The Group provided a guarantee in respect to standby credit facilities granted to Zhongan United Coal Chemical Co., Ltd. (“Zhongan United”) by banks amount to RMB7,100 million. As at 31 December 2021, the amount withdrawn (The portion corresponding to the shareholding ratio of the Group) by Zhongan United from banks and guaranteed by the Group was RMB5,680 million (31 December 2020: RMB6,390 million). The Group provided a guarantee in respect to standby credit facilities granted to Amur Gas Chemical Complex Limited Liability Company (“Amur Gas”) by banks amount to RMB23,208 million. As at 31 December 2021, the amount withdrawn (The portion corresponding to the shareholding ratio of the Group) by Amur Gas from banks and guaranteed by the Group was RMB3,264 million (31 December 2020: Nil). The Group provided a guarantee in respect to payment obligation under the raw material supply agreements of Amur Gas amount to RMB15,493 million. As at 31 December 2021, Amur Gas has not yet incurred the relevant payment obligations and therefore the Group has no guarantee amount (31 December 2020: Nil). The Group provided a guarantee in respect engineering services agreement of Amur Gas amount to RMB3,012 million. As at 31 December 2021, the relevant payables for constructions of Amur Gas (The portion corresponding to the shareholding ratio of the Group) and guaranteed by the Group was RMB173 million (31 December 2020: Nil). (ii) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB17,050 million. As at 31 December 2021, the amount withdrawn (The portion corresponding to the shareholding ratio of the Group) by Zhongtian Synergetic Energy and guaranteed by the Group was RMB5,746 million (2020: RMB8,450 million). Management monitors the risk that the specified debtor will default on the contract and recognises a provision when ECLs on the financial guarantees are determined to be higher than the carrying amount in respect of the guarantees. At 31 December 2021 and 2020, the Group estimates that there is no material liability has been accrued for ECLs related to the Group’s obligation under these guarantee arrangements. 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 RMB10,968 million in the consolidated financial statements for the year ended 31 December 2021 (2020: RMB11,368 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. 145 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202163 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. (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. 146 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202163 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Reportable information on the Group’s operating segments is as follows: Income from principal operations Exploration and production External sales Inter-segment sales Refining External sales Inter-segment sales Marketing and distribution External sales Inter-segment sales Chemicals External sales Inter-segment sales Corporate and others External sales Inter-segment sales Elimination of inter-segment sales Consolidated income from principal operations Income from other operations Exploration and production Refining Marketing and distribution Chemicals Corporate and others Consolidated income from other operations Consolidated operating income Operating profit/(loss) By segment Exploration and production Refining Marketing and distribution Chemicals Corporate and others Elimination Total segment operating profit Investment income Exploration and production Refining Marketing and distribution Chemicals Corporate and others Total segment investment income Less: Financial expenses Add: Other income Gains/(losses) from changes in fair value Asset disposal gains Operating profit Add: Non-operating income Less: Non-operating expenses Profit before taxation 2021 RMB million 2020 RMB million 156,026 87,298 243,324 167,948 1,212,455 1,380,403 1,367,605 7,075 1,374,680 424,774 70,242 495,016 563,147 732,356 1,295,503 (2,109,426) 2,679,500 6,674 5,161 36,864 10,487 2,198 61,384 2,740,884 104,524 57,513 162,037 113,214 826,219 939,433 1,062,447 4,854 1,067,301 322,169 40,702 362,871 458,154 430,073 888,227 (1,371,215) 2,048,654 5,718 4,633 34,905 8,758 2,056 56,070 2,104,724 2021 RMB million 2020 RMB million 613 65,360 23,102 11,361 9,521 (4,421) 105,536 3,023 547 1,796 11,269 (10,603) 6,032 9,010 5,850 3,341 665 112,414 3,516 7,582 108,348 (20,570) (6,526) 19,634 9,592 (2,048) 4,417 4,499 13,837 13,085 12,230 1,662 6,672 47,486 9,510 7,514 (1,253) 2,067 50,803 2,370 4,732 48,441 147 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 63 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Assets Segment assets Exploration and production Refining Marketing and distribution Chemicals Corporate and others Total segment assets Cash at bank and on hand Long-term equity investments Deferred tax assets Other unallocated assets Total assets Liabilities Segment liabilities Exploration and production Refining Marketing and distribution Chemicals Corporate and others Total segment liabilities Short-term loans Non-current liabilities due within one year Long-term loans Debentures payable Deferred tax liabilities Other non-current liabilities Other unallocated liabilities Total liabilities Capital expenditure Exploration and production Refining Marketing and distribution Chemicals Corporate and others Depreciation, depletion and amortisation Exploration and production Refining Marketing and distribution Chemicals Corporate and others Impairment losses on long-lived assets Exploration and production Refining Marketing and distribution Chemicals Corporate and others 148 At 31 December 2021 RMB million At 31 December 2020 RMB million 371,100 304,785 377,499 222,803 133,961 1,410,148 221,989 209,179 19,389 28,550 1,889,255 159,358 129,103 210,215 65,103 197,447 761,226 27,366 28,651 49,341 42,649 7,910 18,276 37,795 973,214 354,024 270,766 373,430 194,434 118,458 1,311,112 184,412 188,342 25,054 29,976 1,738,896 157,430 135,157 213,455 47,992 117,684 671,718 20,756 22,494 45,459 38,356 8,124 17,950 25,319 850,176 2021 RMB million 2020 RMB million 68,148 22,469 21,897 51,648 3,786 167,948 52,880 20,743 23,071 16,093 2,893 115,680 2,467 860 1,211 5,332 165 10,035 56,416 24,756 25,403 28,217 2,312 137,104 46,273 20,090 23,196 14,830 3,072 107,461 8,495 1,923 536 3,675 – 14,629 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 63 SEGMENT REPORTING (Continued) (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. External sales Mainland China Singapore Others Non-current assets Mainland China Others 64 FINANCIAL INSTRUMENTS Overview 2021 RMB million 2020 RMB million 2,166,040 278,024 296,820 2,740,884 1,720,695 215,846 168,183 2,104,724 At 31 December 2021 RMB million At 31 December 2020 RMB million 1,268,814 40,551 1,309,365 1,216,267 36,782 1,253,049 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 2021, 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. 149 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 64 FINANCIAL INSTRUMENTS (Continued) Credit risk (Continued) (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 2021 or 31 December 2020, respectively, and the corresponding historical credit losses experienced within this period and calculate expected credit losses for the above financial assets using an allowance matrix 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 (Note 10), 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. 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 2021, the Group has standby credit facilities with several PRC financial institutions which provide the Group to borrow up to RMB441,559 million (2020: RMB443,966 million) on an unsecured basis, at a weighted average interest rate of 2.81% per annum (2020: 2.85%). At 31 December 2021, the Group’s outstanding borrowings under these facilities were RMB11,700 million (2020: RMB4,041 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 2021 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 Carrying amount More than five years RMB million RMB million RMB million RMB million RMB million RMB million Short-term loans Derivative financial liabilities Bills payable Accounts payable Other payables and employee benefits payable Non-current liabilities due within one year Long-term loans Debentures payable Lease liabilities Total 27,366 3,223 11,721 203,919 128,749 28,651 49,341 42,649 170,233 665,852 27,787 3,223 11,721 203,919 128,749 29,554 53,704 47,553 280,652 786,862 27,787 3,223 11,721 203,919 128,749 29,554 1,230 1,195 – 407,378 – – – – – – 19,350 30,645 12,030 62,025 – – – – – – 27,786 10,443 35,412 73,641 – – – – – – 5,338 5,270 233,210 243,818 150 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202164 FINANCIAL INSTRUMENTS (Continued) Liquidity risk (Continued) Total contractual undiscounted cash flow At 31 December 2020 More than one year but less than two years More than two years but less than five years Within one year or on demand Carrying amount More than five years RMB million RMB million RMB million RMB million RMB million RMB million Short-term loans Derivative financial liabilities Bills payable Accounts payable Other payables and employee benefits payable Non-current liabilities due within one year Debentures payable due within one year Long-term loans Debentures payable Lease liabilities Total 20,756 4,826 10,394 151,514 92,141 22,494 3,018 45,459 38,356 171,740 560,698 20,950 4,826 10,394 151,514 92,141 23,880 3,024 49,074 44,791 312,544 713,138 20,950 4,826 10,394 151,514 92,141 23,880 3,024 936 1,240 – 308,905 – – – – – – – 4,638 8,044 15,456 28,138 – – – – – – – 41,009 29,514 43,513 114,036 – – – – – – – 2,491 5,993 253,575 262,059 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. 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 does not have significant financial instruments that are denominated in foreign currencies other than the functional currencies of respective entities as at 31 December, and consequently does not have significant exposure to foreign currency risk. (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 2021, 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 RMB254 million (2020: decrease/increase RMB245 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 2020. (c) Commodity price risk 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 2021, 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 2021, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB18,359 million (2020: RMB12,353 million) and derivative financial liabilities of RMB3,214 million (2020: RMB4,808 million). At 31 December 2021, it is estimated that a general increase/decrease of USD10 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 RMB2,996 million (2020: increase/decrease RMB3,592 million), and decrease/increase the Group’s other comprehensive income by approximately RMB1,160 million (2020: increase/decrease RMB10,379 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 2020. 151 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202164 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 2021 The Group Assets Financial assets held for trading: – Derivative financial assets Receivables financing: – Receivables financing Other equity instrument investments: – Other Investments Liabilities Derivative financial liabilities: – Derivative financial liabilities At 31 December 2020 The Group Assets Financial assets held for trading: Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million 5,883 12,488 – 18,371 – 179 6,062 804 804 – – 12,488 2,419 2,419 5,939 588 6,527 – – 5,939 767 25,077 3,223 3,223 Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million – Equity investments, listed and at quoted market price 1 – Derivative financial assets: – Derivative financial assets Receivables financing: – Receivables financing Other equity instrument investments: – Other Investments Liabilities Derivative financial liabilities: – Derivative financial liabilities 9,628 2,900 – – 1 12,528 – 149 9,778 2,471 2,471 – 8,735 8,735 – 2,900 2,355 2,355 1,376 10,111 1,525 22,789 – – 4,826 4,826 During the year ended 31 December 2021 and 2020, 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. 152 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 64 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 0.30% to 4.65% (2020: from 0.77% to 4.65%). 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 2021 and 31 December 2020: Carrying amount Fair value At 31 December 2021 RMB million At 31 December 2020 RMB million 88,593 85,610 76,674 74,282 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 2021 and 31 December 2020. 65 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: Net profit attributable to equity shareholders of the Company (RMB million) Weighted average number of outstanding ordinary shares of the Company (million) Basic earnings per share (RMB/share) The calculation of the weighted average number of ordinary shares is as follows: Weighted average number of outstanding ordinary shares of the Company at 1 January (million) Weighted average number of outstanding ordinary shares of the Company at 31 December (million) (ii) Diluted earnings per share 2021 71,208 121,071 0.588 2021 121,071 121,071 2020 33,271 121,071 0.275 2020 121,071 121,071 There are no potential dilutive ordinary shares, and diluted earnings per share are equal to the basic earning per share. 153 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 202166 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/(loss) per share are calculated as follows: 2021 2020 Weighted average return on net assets (%) Basic earnings per share (RMB/Share) Diluted earnings per share (RMB/Share) Weighted average return on net assets (%) Basic earnings per share (RMB/Share) Diluted earnings per share (RMB/Share) 9.35 0.588 0.588 4.46 0.275 0.275 Net profit attributable to the Company’s ordinary equity shareholders Net profit/(loss) deducted extraordinary gains and losses attributable to the Company’s ordinary equity shareholders 9.49 0.597 0.597 (0.21) (0.013) (0.013) 67 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: Extraordinary (gains)/losses for the year: Net gains on disposal of non-current assets Donations Government grants Gain on holding and disposal of business and various investments Other non-operating losses, net Net (loss)/profit acquired through business combination under common control during the reporting period Tax effect Total Attributable to: Equity shareholders of the Company Minority interests 2021 RMB million 2020 RMB million (665) 165 (3,085) (259) 4,720 101 977 (72) 905 1,012 (107) (973) 301 (8,605) (37,520) 2,992 (472) (44,277) 6,736 (37,541) (34,836) (2,705) 154 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (PRC)NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)For the year ended 31 December 2021 KPMG 8th Floor, Prince’s Building Central, Hong Kong G P O Box 50, Hong Kong Telephone +852 2522 6022 Fax +852 2845 2588 Internet kpmg.com/cn 畢馬威會計師事務所 香港中環太子大廈8樓 香港郵政總局信箱50號 電話+852 2522 6022 傳真+852 2845 2588 網址kpmg.com/cn Independent auditor’s report To the shareholders of China Petroleum & Chemical Corporation (established in the People’s Republic of China with limited liability) OPINION We have audited the consolidated financial statements of China Petroleum & Chemical Corporation (“the Company”) and its subsidiaries (“the Group”) set out on pages 158 to 215, which comprise the consolidated statement of financial position as at 31 December 2021, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies. 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 2021 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 Standards Board (“IASB”) 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 are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”) together with any ethical requirements that are relevant to our audit of the consolidated financial statements in the People’s Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KEY AUDIT MATTER Key audit matter is the matter that, in our professional judgment, was of most significance in our audit of the consolidated financial statements of the current period. The matter was 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 this matter. Assessment of impairment of property, plant and equipment relating to oil and gas producing activities Refer to notes 2(g), 2(n), 8, 17 and 44 to the consolidated financial statements The Key Audit Matter How the matter was addressed in our audit The Company reported property, plant and equipment of Renminbi (“RMB”) 598,925 million as at 31 December 2021, a portion of which related to oil and gas producing activities. The Company reported impairment losses of RMB2,467 million for the property, plant and equipment relating to oil and gas producing activities for the year ended 31 December 2021. The Company groups property, plant and equipment relating to oil and gas producing activities into cash-generating units (“CGUs”) for impairment assessment. The Company compares the carrying amount of individual CGU with its value in use, using a discounted cash flow forecast, which was prepared based on the future production profiles included in the oil and gas reserves reports, to determine the impairment loss to be recognised. We identified assessment of impairment of property, plant and equipment relating to oil and gas producing activities as a key audit matter. The value in use amounts of these CGUs are sensitive to the changes to future selling prices and production costs for crude oil and natural gas, future production profiles, and discount rates. Therefore a higher degree of subjective auditor judgment was required to evaluate the Company’s impairment assessment of property, plant and equipment relating to oil and gas producing activities. The following are the primary procedures we performed to address this key audit matter: • • • • • we evaluated the design and tested the operating effectiveness of certain internal controls related to the process for impairment assessment of property, plant and equipment relating to oil and gas producing activities; we assessed the competence, capabilities and objectivity of the Company’s reserves specialists and evaluated the methodology adopted by them in estimating the oil and gas reserves against the recognised industry standards; we compared future selling prices for crude oil and natural gas used in the discounted cash flow forecasts with the Company’s business plans and forecasts by external analysts; we compared future production costs and future production profiles used in the discounted cash flow forecasts with oil and gas reserves reports issued by the reserves specialists; and we involved valuation professionals with specialised skills and knowledge, who assisted in assessing the discount rates applied in the discounted cash flow forecasts against a discount rate range that was independently developed using publicly available market data for comparable companies in the same industry. 155 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITORINFORMATION OTHER THAN THE CONSOLIDATED FINANCIAL STATEMENTS AND AUDITOR’S REPORT THEREON The directors are responsible for the other information. The other information comprises all 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 THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs issued by the IASB 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. The directors are assisted by the Audit Committee in discharging their responsibilities 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. This report is made 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 judgement 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. 156 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITOR (CONTINUED)We communicate with the Audit Committee 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 the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and 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 the Audit Committee, 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 Ho Ying Man, Simon. KPMG Certified Public Accountants 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 25 March 2022 157 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)REPORT OF THE INTERNATIONAL AUDITOR (CONTINUED)Revenue Revenue from primary business Other operating revenues Operating expenses Purchased crude oil, products and operating supplies and expenses Selling, general and administrative expenses Depreciation, depletion and amortisation Exploration expenses, including dry holes Personnel expenses Taxes other than income tax Impairment losses on trade and other receivables Other operating income/(expenses), net Total operating expenses Operating profit Finance costs Interest expense Interest income Foreign currency exchange gains, net Net finance costs Investment income Share of profits less losses from associates and joint ventures Profit before taxation Income tax expense Profit for the year Attributable to: Shareholders of the Company Non-controlling interests Profit for the year Earnings per share: Basic Diluted Note Year ended 31 December 2021 RMB 2020 RMB 3 4 5 6 7 8 9 10 21,22 11 16 16 2,679,500 61,384 2,740,884 (2,076,665) (54,978) (115,680) (12,382) (103,492) (259,032) (2,311) (21,716) (2,646,256) 94,628 (15,018) 5,732 276 (9,010) 298 23,253 109,169 (23,318) 85,851 71,975 13,876 85,851 0.594 0.594 2,048,654 56,070 2,104,724 (1,589,821) (53,668) (107,461) (9,716) (87,525) (235,018) (2,066) (5,780) (2,091,055) 13,669 (15,198) 4,803 885 (9,510) 37,744 6,712 48,615 (6,344) 42,271 33,443 8,828 42,271 0.276 0.276 The notes on pages 165 to 215 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. 158 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)(B) FINANCIAL STATEMENTS PREPARED UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2021 (Amounts in million, except per share data) Profit for the year Other comprehensive income: Items that may not be reclassified subsequently to profit or loss Equity investments at fair value through other comprehensive income Total items that may not be reclassified subsequently to profit or loss Items that may be reclassified subsequently to profit or loss Cost of hedging reserve Share of other comprehensive income of associates and joint ventures Cash flow hedges Foreign currency translation differences Total items that may be reclassified subsequently to profit or loss Total other comprehensive income Total comprehensive income for the year Attributable to: Shareholders of the Company Non-controlling interests Total comprehensive income for the year Note Year ended 31 December 15 2021 RMB 85,851 (4) (4) (220) 441 19,018 (1,728) 17,511 17,507 103,358 89,549 13,809 103,358 2020 RMB 42,271 (22) (22) 162 (2,441) 7,073 (4,457) 337 315 42,586 34,837 7,749 42,586 The notes on pages 165 to 215 form part of these consolidated financial statements. 159 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2021(Amounts in million) 　 　 　 　 　 Non-current assets Property, plant and equipment, net Construction in progress Right-of-use assets Goodwill Interest in associates Interest in joint ventures Financial assets at fair value through other comprehensive income Deferred tax assets Long-term prepayments and other assets Total non-current assets Current assets 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 fair value through other comprehensive income Inventories Prepaid expenses and other current assets Total current assets Current liabilities Short-term debts Loans from Sinopec Group Company and fellow subsidiaries Lease liabilities Derivative financial liabilities Trade accounts payable and bills payable Contract liabilities Other payables Income tax payable Total current liabilities Net current liabilities Total assets less current liabilities Non-current liabilities Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Lease liabilities Deferred tax liabilities Provisions Other long-term liabilities Total non-current liabilities Equity Share capital Reserves Total equity attributable to shareholders of the Company Non-controlling interests Total equity Approved and authorised for issue by the board of directors on 25 March 2022. Note 31 December 2021 RMB 31 December 2020 RMB 17 18 19 20 21 22 26 29 23 24 25 26 27 28 30 30 31 24 32 33 34 30 30 31 29 35 36 598,925 155,939 268,408 8,594 148,729 60,450 767 19,389 70,030 1,331,231 108,590 113,399 – 18,371 34,861 5,939 207,433 69,431 558,024 35,252 2,873 15,173 3,223 215,640 124,622 239,688 4,809 641,280 83,256 1,247,975 78,300 13,690 170,233 7,910 43,525 19,243 332,901 915,074 121,071 653,111 774,182 140,892 915,074 593,615 125,525 266,012 8,620 136,163 52,179 1,525 25,054 74,543 1,283,236 87,559 100,498 1 12,528 35,439 8,735 152,191 58,709 455,660 23,769 5,264 15,293 4,826 161,908 126,241 179,108 6,586 522,995 67,335 1,215,901 72,037 11,778 171,740 8,124 45,552 18,968 328,199 887,702 121,071 625,254 746,325 141,377 887,702 Ma Yongsheng Chairman (Legal representative) Yu Baocai President Shou Donghua Chief Financial Officer The notes on pages 165 to 215 form part of these consolidated financial statements. 160 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAs at 31 December 2021(Amounts in million) Share capital RMB 121,071 – 121,071 – – – – – – – – – Capital reserve RMB 29,730 4,773 34,503 – – – – – – – – – Share premium RMB 55,850 – 55,850 – – – – – – – – – – – – – – 121,071 (972) (972) (138) (1,110) 870 34,263 – – – – – 55,850 Statutory surplus reserve RMB 90,423 Discretionary surplus reserve RMB 117,000 – 90,423 – – – – – – 1,857 – – – 1,857 – 1,857 – 92,280 – 117,000 – – – – – – – – – – – – – – 117,000 Total equity attributable to shareholders of the Company RMB 738,946 4,773 743,719 33,443 1,394 34,837 Retained earnings RMB 322,931 – 322,931 33,443 (12) 33,431 Other reserves RMB 1,941 – 1,941 – 1,406 1,406 Non- controlling interests RMB 138,358 1 138,359 8,828 (1,079) 7,749 Total equity RMB 877,304 4,774 882,078 42,271 315 42,586 (47) – (47) 48 1 – – – – – – – – – 200 3,500 (23,004) (8,475) (1,857) – (23,004) (8,475) – – – – – (6,726) (23,004) (8,475) – (6,726) – – 3,325 3,325 – (33,336) – (33,336) (665) 322,361 (972) (32,451) (138) (32,589) 405 746,325 972 (2,429) 13 (2,416) (2,363) 141,377 – (34,880) (125) (35,005) (1,958) 887,702 Balance at 31 December 2019 Adjustment for business combination of entities under common control (Note 38) Balance at 1 January 2020 Profit for the year Other comprehensive income (Note 15) Total comprehensive income for the year Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in equity: Contributions by and distributions to owners: Final dividend for 2019 (Note 14) Interim dividend for 2020 (Note 14) Appropriation (Note (a)) Distributions to non-controlling interests Contributions to subsidiaries from non-controlling interests Distribution to SAMC in the Acquisition of Baling Branch of SAMC Total contributions by and distributions to owners Transaction with non-controlling interests Total transactions with owners Others Balance at 31 December 2020 The notes on pages 165 to 215 form part of these consolidated financial statements. 161 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2020(Amounts in million) Share capital RMB 121,071 – – – Capital reserve RMB 34,263 – – – Share premium RMB 55,850 – – – Statutory surplus reserve RMB 92,280 – – – Discretionary surplus reserve RMB 117,000 – – – Other reserves RMB 3,500 – 17,574 17,574 Total equity attributable to shareholders of the Company RMB 746,325 71,975 17,574 89,549 Retained earnings RMB 322,361 71,975 – 71,975 Non- controlling interests RMB 141,377 13,876 (67) 13,809 Total equity RMB 887,702 85,851 17,507 103,358 – – – – – – – – – – – – – – – – – – – – – – – 121,071 (6,124) (6,124) (1,396) (7,520) 319 27,062 – – – – – 55,850 – – – 3,944 – – – 3,944 – 3,944 – 96,224 – – – – – – – – – – – 117,000 (19,302) – (19,302) (648) (19,950) – – – – – – – – – 723 2,495 (15,739) (19,371) (3,944) – (15,739) (19,371) – – – – – (8,982) (15,739) (19,371) – (8,982) – – 1,973 1,973 – (39,054) – (39,054) (802) 354,480 (6,124) (41,234) (1,396) (42,630) 240 774,182 – (7,009) (6,796) (13,805) 159 140,892 (6,124) (48,243) (8,192) (56,435) 399 915,074 Balance at 1 January 2021 Profit for the year Other comprehensive income (Note 15) Total comprehensive income for the year Amounts transferred to initial carrying amount of hedged items Transactions with owners, recorded directly in equity: Contributions by and distributions to owners: Final dividend for 2020 (Note 14) Interim dividend for 2021 (Note 14) Appropriation (Note (a)) Distributions to non-controlling interests Contributions to subsidiaries from non-controlling interests Distribution to sellers in the business combination of entities under common control (Note 38) Total contributions by and distributions to owners Transaction with non-controlling interests Total transactions with owners Others Balance at 31 December 2021 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 2021, the Company transferred RMB3,944 million (2020: RMB1,857 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 2021, the amount of retained earnings available for distribution was RMB116,440 million (2020: RMB115,849 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 165 to 215 form part of these consolidated financial statements. 162 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)for the year ended 31 December 2021(Amounts in million) Net cash generated from operating activities Investing activities Capital expenditure Exploratory wells expenditure Purchase of investments Payment for financial assets at fair value through profit or loss Proceeds from settlement of financial assets at fair value through profit or loss Payment for acquisition of subsidiary, net of cash acquired Proceeds from disposal of investments Proceeds from disposal of property, plant, equipment and other non-current assets Increase in time deposits with maturities over three months Decrease in time deposits with maturities over three months Interest received Investment and dividend income received Proceeds from/(payments of) other investing activities Net cash used in investing activities Financing activities Proceeds from bank and other loans Repayments of bank and other loans Contributions to subsidiaries from non-controlling interests Dividends paid by the Company Distributions by subsidiaries to non-controlling interests Interest paid Payments made to acquire non-controlling interests Repayments of lease liabilities Proceeds from other financing activities Repayments of other financing activities Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign currency exchange rate changes Cash and cash equivalents at 31 December Note Year ended 31 December 2021 RMB 2020 RMB (a) 225,174 168,520 (127,965) (16,956) (4,935) (8,150) 8,248 (1,106) 6,769 1,478 (50,844) 34,298 3,372 10,134 459 (145,198) 356,459 (338,232) 1,001 (35,110) (8,068) (5,849) (8,198) (19,412) 133 (666) (57,942) 22,034 87,559 (1,003) 108,590 (118,321) (13,315) (6,040) (6,700) 10,000 (340) 51,520 2,656 (84,689) 54,950 2,305 11,510 (6,186) (102,650) 558,680 (540,015) 4,219 (31,479) (4,821) (7,512) (1,121) (15,327) 700 (834) (37,510) 28,360 60,438 (1,239) 87,559 The notes on pages 165 to 215 form part of these consolidated financial statements. 163 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2021(Amounts in million) (a) Reconciliation from profit before taxation to net cash generated from operating activities Year ended 31 December Operating activities Profit before taxation Adjustments for: Depreciation, depletion and amortisation Dry hole costs written off Share of profits from associates and joint ventures Investment income Interest income Interest expense (Gain)/loss on foreign currency exchange rate changes and derivative financial instruments Loss/(gain) on disposal of property, plant, equipment and other non-current assets, net Impairment losses on assets Impairment losses on trade and other receivables Net changes from: Accounts receivable and other current assets Inventories Accounts payable and other current liabilities Income tax paid Net cash generated from operating activities 2021 RMB 109,169 115,680 7,702 (23,253) (298) (5,732) 15,018 (3,723) 3,062 13,165 2,311 233,101 (8,177) (58,372) 82,408 248,960 (23,786) 225,174 2020 RMB 48,615 107,461 5,928 (6,712) (37,744) (4,803) 15,198 2,003 (398) 26,087 2,066 157,701 (17,610) 22,407 15,169 177,667 (9,147) 168,520 The notes on pages 165 to 215 form part of these consolidated financial statements. 164 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2021(Amounts in million) 1 PRINCIPAL ACTIVITIES, ORGANISATION AND BASIS OF PREPARATION Principal activities China Petroleum & Chemical Corporation (the “Company”) is an energy and chemical company incorporated in the People’s Republic of China (the “PRC”) that, through its subsidiaries (hereinafter collectively referred to as the “Group”), engages in oil and gas and chemical operations. 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 RMB1.00 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 The IASB has issued the following amendments to IFRSs that are first effective for the current accounting period of the Group: • Amendment to IFRS 16, COVID-19-related rent concessions • Amendment to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, Interest rate benchmark reform – phase 2 None of these developments have had a material effect on how the Group’s results and financial position for the current or prior periods have been prepared or presented. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. (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 2021 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. 165 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2021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. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered. 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 date of statement of financial position, 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 statement of financial position 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 statement of financial position, 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’s share of losses exceeds its interest in the associate or the joint venture, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method, together with any other long-term interests that in substance form part of the Group’s net investment in the associate or the joint venture, after applying the expected credit losses (“ECLs”) model to such other long-term interests where applicable. 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. 166 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021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 beginning of the earliest period presented 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 date of the statement of financial position. 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. The statement of financial position items, including goodwill arising on consolidation of foreign operations are translated into Renminbi at the closing foreign exchange rates at the date of the statement of financial position. 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. (c) Cash and cash equivalents 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 loss allowances for ECLs (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. 167 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021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: Buildings Equipment, machinery and others Estimated usage period 12 to 50 years 4 to 30 years Estimated residuals rate 3% 3% 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)). 168 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021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. However, 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 ECLs on a financial asset that is measured at amortised cost and a debt instrument that is measured at FVOCI. The Group measures and recognises ECLs, considering reasonable and supportable information about the relevant past events, current conditions and forecasts of future economic conditions. The Group measures the ECLs of financial instruments on different stages at each the date of the statement of financial position. 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 ECLs. 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 ECLs. 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 ECLs. For financial instruments that have low credit risk at the date of the statement of financial position, 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 ECLs. 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 ECLs. The Group recognises the loss allowance accrued or written back in profit or loss. 169 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021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 amount accumulated in the fair value reserve is transferred to retained earnings. It is not recycled through profit or loss. While on derecognition of other financial assets, this difference is recognised in profit or loss. (iv) Financial guarantees issued Financial guarantees are contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the guarantee (the “holder”) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantees issued are initially recognised at fair value, which is determined by reference to fees charged in an arm’s length transaction for similar services, when such information is obtainable, or to interest rate differentials, by comparing the actual rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not been available, where reliable estimates of such information can be made. Where consideration is received or receivable for the issuance of the guarantee, the consideration is recognised in accordance with the Group’s policies applicable to that category of asset. Where no such consideration is received or receivable, an immediate expense is recognised in profit or loss. Subsequent to initial recognition, the amount initially recognised as deferred income is amortised in profit or loss over the term of the guarantee as income from financial guarantees issued. The Group monitors the risk that the specified debtor will default on the contract and recognises a provision when ECLs on the financial guarantees are determined to be higher than the carrying amount in respect of the guarantees (i.e. the amount initially recognised, less accumulated amortisation). (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. 170 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20212 SIGNIFICANT ACCOUNTING POLICIES (Continued) (m) Derivative financial instruments and hedge accounting Derivative financial instruments are recognised initially at fair value. At each date of the statement of financial position, 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. 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 (i.e. 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. 171 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20212 SIGNIFICANT ACCOUNTING POLICIES (Continued) (m) Derivative financial instruments and hedge accounting (Continued) Fair value hedges A fair value hedge is a hedge of the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment, or a portion of such an asset, liability or firm commitment. The gain or loss from remeasuring the hedging instrument is recognised in profit or loss. The gain or loss on the hedged item attributable to the hedged risk adjusts the carrying amount of the recognised hedged item not measured at fair value and is recognised in profit or loss. Any adjustment to the carrying amount of a hedged item is amortised to profit or loss if the hedged item is a financial instrument (or a component thereof) measured at amortised cost.The amortisation is based on a recalculated effective interest rate at the date that amortisation begins. (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 date of the statement of financial position 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 date of the statement of financial position. 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 date of the statement of financial position 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. (o) Trade, bills and other payables Trade, bills and other payables generally are financial liabilities and 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 invoice amounts. (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. 172 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20212 SIGNIFICANT ACCOUNTING POLICIES (Continued) (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 recognised 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. Obtaining control of relevant goods means that a customer can direct the use of the goods and obtain almost all the economic benefits from it. 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. (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 RMB11,481 million for the year ended 31 December 2021 (2020: RMB10,087 million). 173 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20212 SIGNIFICANT ACCOUNTING POLICIES (Continued) (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 the date of the statement of financial position 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. (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 statement of financial position 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 date of statement of financial position and is reduced to the extent that it is no longer probable that the related tax benefit will be realised. 174 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 20212 SIGNIFICANT ACCOUNTING POLICIES (Continued) (aa) Dividends Dividends and distributions of profits proposed in the profit appropriation plan which will be authorised and declared after the date of statement of financial position, are not recognised as a liability at the date of statement of financial position 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 REVENUE FROM PRIMARY BUSINESS Revenue from primary business mainly represents revenue from the sales of refined petroleum products, chemical products, crude oil and natural gas, which are recognised at a point in time. Gasoline Diesel Crude oil Basic chemical feedstock Synthetic resin Kerosene Natural gas Synthetic fiber monomers and polymers Others (i) Note: (i) Others are primarily liquefied petroleum gas and other refinery and chemical byproducts and joint products. 4 OTHER OPERATING REVENUES Sale of materials and others Rental income 5 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES The following items are included in selling, general and administrative expenses: Variable lease payments, low-value and short-term lease payment Auditor’s remuneration: – Audit services – Others 6 PERSONNEL EXPENSES Salaries, wages and other benefits Contributions to retirement schemes (Note 40) 2021 RMB million 2020 RMB million 726,057 542,260 429,038 242,532 149,208 112,519 68,443 45,464 363,979 2,679,500 557,605 422,566 351,707 155,397 122,368 72,385 48,099 42,388 276,139 2,048,654 2021 RMB million 2020 RMB million 59,990 1,394 61,384 54,986 1,084 56,070 2021 RMB million 2,393 2020 RMB million 2,683 59 8 73 8 2021 RMB million 2020 RMB million 91,560 11,932 103,492 78,542 8,983 87,525 175 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 7 TAXES OTHER THAN INCOME TAX Consumption tax (i) City construction tax (ii) Education surcharge (ii) Resources tax Others Notes: (i) Consumption tax was levied based on sales quantities of taxable products, tax rate of products is presented as below: Products Gasoline Diesel Naphtha Solvent oil Lubricant oil Fuel oil Jet fuel oil 2021 RMB million 2020 RMB million 213,894 18,044 13,409 6,432 7,253 259,032 197,542 15,710 11,678 4,572 5,516 235,018 RMB/Ton 2,109.76 1,411.20 2,105.20 1,948.64 1,711.52 1,218.00 1,495.20 (ii) City construction tax and education surcharge is levied on an entity based on its paid amount of value-added tax and consumption tax. 8 OTHER OPERATING INCOME/(EXPENSES), NET Government grants (i) Ineffective portion of change in fair value of cash flow hedges Net realised and unrealised loss on derivative financial instruments not qualified as hedging Impairment losses on long-lived assets (ii) (Loss)/gain on disposal of property, plant, equipment and other non-current assets, net Fines, penalties and compensations Donations Others Notes: 2021 RMB million 2020 RMB million 6,706 694 (14,873) (10,035) (3,062) (220) (165) (761) (21,716) 8,776 3,052 (1,252) (14,629) 398 (43) (301) (1,781) (5,780) (i) Government grants for the years ended 31 December 2021 and 2020 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 2021 primarily represent impairment losses recognised in the exploration and production (“E&P”) segment of RMB2,467 million (2020: RMB8,495 million), the chemicals segment of RMB5,332 million (2020: RMB3,675 million), the refining segment of RMB860 million (2020: RMB1,923 million), and the marketing and distribution segment of RMB1,211 million (2020: RMB536 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 in the long term 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% (2020: 10.47%). Further future downward revisions to the Group’s oil or nature gas 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 nature gas producing activities by approximately RMB3,628 million (2020: RMB4,548 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 RMB2,400 million (2020: RMB2,836 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 RMB180 million (2020: RMB287 million). Impairment losses recognised in the chemical segment and refining segment relate to certain refinery and chemical production facilities and are not individually significant. The impairment losses were mainly due to the suspension of operations of certain production facilities, and evidence that indicate the economic performance of certain production facilities continuously was lower than the expectation, thus the carrying amounts of these facilities were written down to their recoverable amounts, which were determined based on the present values of forecasted future cash flows of the cash generating units using pre-tax discount rates ranging from 10.50% to 13.9% (2020: 9.87% to 11.60%). 176 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 9 INTEREST EXPENSE Interest expense incurred Less: Interest expense capitalised* Interest expense on lease liabilities Accretion expenses (Note 35) Interest expense * Interest rates per annum at which borrowing costs were capitalised for construction in progress 10 INVESTMENT INCOME Investment income from disposal of business and long-term equity investments (i) Dividend income from holding of other equity instrument investments Others Note: 2021 RMB million 2020 RMB million 6,517 (2,011) 4,506 9,349 1,343 15,198 1.84% to 4.35% 2.60% to 4.66% 5,679 (996) 4,683 9,200 1,135 15,018 2021 RMB million 2020 RMB million 82 34 182 298 37,525 156 63 37,744 (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 RMB37,731 million in 2020. 11 INCOME TAX EXPENSE Income tax expense in the consolidated income statement represents: Current tax – Provision for the year – Adjustment of prior years Deferred taxation (Note 29) 2021 RMB million 2020 RMB million 17,522 (462) 6,258 23,318 14,334 (117) (7,873) 6,344 Reconciliation between actual income tax expense and the expected income tax expense at applicable statutory tax rates is as follows: Profit before taxation Expected PRC income tax expense at a statutory tax rate of 25% Tax effect of non-deductible expenses Tax effect of non-taxable income Tax effect of preferential tax rate (i) Effect of income taxes at foreign operations Tax effect of utilisation of previously unrecognised tax losses and temporary differences Tax effect of tax losses not recognised and temporary differences Write-down of deferred tax assets Adjustment of prior years Actual income tax expense Notes: 2021 RMB million 2020 RMB million 109,169 27,292 5,948 (8,096) (2,766) (222) (701) 1,391 934 (462) 23,318 48,615 12,154 3,281 (8,330) (1,011) (730) (65) 1,087 75 (117) 6,344 (i) 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 2021. 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. 177 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 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 Salaries, allowances and benefits in kind RMB’000 Bonuses RMB’000 2021 Retirement scheme contributions RMB’000 Emoluments paid or receivable in respect of a person’s services as a director, whether of the Company or its subsidiary undertaking Directors’/ Supervisors’ fee RMB’000 Total RMB’000 291 – 24 – – – – – – – – – – – – 202 154 216 371 – – – 1,258 322 – 409 – – – – – – – – – – – – 140 100 140 692 – – – 1,803 102 – 9 – – – – – – – – – – – – 61 44 61 102 – – – 379 – – – – – – 417 417 300 300 117 – – – – – – – – – – – 1,551 715 – 442 – – – 417 417 300 300 117 – – – – 403 298 417 1,165 – – – 4,991 Name Directors Ma Yongsheng Zhao Dong (i) Yu Baocai Ling Yiqun Li Yonglin (ii) Liu Hongbin Zhang Yuzhuo (iii) Independent non-executive directors Cai Hongbin Johnny Karling Ng Shi Dan (iv) Bi Mingjian (iv) Tang Min (v) Supervisors Zhang Shaofeng (vi) Jiang Zhenying Zhang Zhiguo (vii) Yin Zhaolin (vii) Guo Hongjin (vii) Li Defang Lv Dapeng (viii) Chen Yaohuan (viii) Zou Huiping (ix) Sun Huanquan (x) Yu Renming (x) Total 178 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 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 Salaries, allowances and benefits in kind RMB’000 Bonuses RMB’000 2020 Retirement scheme contributions RMB’000 Emoluments paid or receivable in respect of a person’s services as a director, whether of the Company or its subsidiary undertaking Directors’/ Supervisors’ fee RMB’000 Total RMB’000 – 299 – – – – – – – – – – – – 366 272 247 – – 125 125 – – 1,434 – 620 – – – – – – – – – – – – 710 555 160 – – 613 611 – – 3,269 – 94 – – – – – – – – – – – – 83 59 60 – – 23 23 – – 342 – – – – – – – – – 350 350 350 – – – – – – – – – – – 1,050 – 1,013 – – – – – – – 350 350 350 – – 1,159 886 467 – – 761 759 – – 6,095 Name Directors Zhang Yuzhuo (iii) Ma Yongsheng Yu Baocai Liu Hongbin Ling Yiqun Zhang Shaofeng (vi) Dai Houliang (xi) Li Yunpeng (xii) Li Yong (xiii) Independent non-executive directors Tang Min (v) Cai Hongbin Johnny Karling Ng Fan Gang (xiv) Supervisors Zhao Dong (i) Jiang Zhenying Zou Huiping (ix) Sun Huanquan (x) Yu Renming (x) Li Defang Yu Xizhi (xv) Zhou Hengyou (xv) Yang Changjiang (xvi) Zhang Baolong (xvi) Total Notes： (i) Mr. Zhao Dong ceased being chairman of the Board of Supervisors from 25 May 2021, and was elected to be non-executive director from 25 May 2021. (ii) Mr. Li Yonglin was elected to be director from 25 May 2021. (iii) Due to change of working arrangement, Mr. Zhang Yuzhuo has tendered his resignation as chairman, non-executive director, chairman of Strategy Committee,and Sustainable Development Committee of the Board, member of Nomination Committee of the Board from 2 August 2021. (iv) Ms. Shi Dan was elected to be independent non-executive director from 25 May 2021; Mr. Bi Mingjian was elected to be independent non-executive director from 25 May 2021. (v) Mr. Tang Min ceased being independent non-executive director from 25 May 2021. (vi) Mr. Zhang Shaofeng ceased being non-executive director from 25 May 2021, and was elected to be chairman of the Board of Supervisors from 25 May 2021. (vii) Mr. Zhang Zhiguo was elected to be supervisor from 25 May 2021; Mr. Yin Zhaolin was elected to be supervisor from 25 May 2021; Mr. Guo Hongjin was elected to be supervisor from 25 May 2021 (viii) Mr. Lv Dapeng was elected to be supervisor from 11 January 2021; Mr. Chen Yaohuan was elected to be supervisor from 11 January 2021. (ix) Mr. Zou Huiping ceased being supervisor from 28 January 2021. (x) Mr. Sun Huanquan ceased being supervisor from 11 January 2021; Mr. Yu Renming ceased being supervisor from 11 January 2021. (xi) Mr. Dai Houliang ceased being chairman and non-executive director from 19 January 2020. (xii) Mr. Li Yunpeng ceased being non-executive director from 24 March 2020. (xiii) Mr. Li Yong ceased being non-executive director from 22 September 2020. (xiv) Mr. Fan Gang ceased being independent non-executive director from 28 August 2020. (xv) Mr. Yu Xizhi ceased being supervisor from 18 May 2020; Mr. Zhou Hengyou ceased being supervisor from 18 May 2020. (xvi) Mr. Yang Changjiang ceased being supervisor from 9 September 2020; Mr. Zhang Baolong ceased being supervisor from 9 September 2020. 179 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 13 SENIOR MANAGEMENT’S EMOLUMENTS For the year ended 31 December 2021, the five highest paid individuals in the Company included five senior management. The emolument paid to each of five senior management was above RMB1,000 thousand. The total salaries, wages and other benefits was RMB7,100 thousand, and the total amount of their retirement scheme contributions was RMB510 thousand. For the year ended 31 December 2020, the five highest paid individuals in the Company included one supervisor and four senior management. Emoluments HKD1,000,001 to HKD1,500,000 HKD1,500,001 to HKD2,000,000 Number of individuals 2021 2020 – 5 3 2 During 2021 and 2020, 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: Dividends declared and paid during the year of RMB0.16 per share (2020: RMB0.07 per share) Dividends declared after the date of the statement of financial position of RMB0.31 per share (2020: RMB0.13 per share) 2021 RMB million 2020 RMB million 19,371 37,532 56,903 8,475 15,739 24,214 Pursuant to the shareholders’ approval at the General Meeting on 27 August 2021, the interim dividends for the year ended 31 December 2021 of RMB0.16 (2020: RMB0.07) per share totaling RMB19,371 million (2020: RMB8,475 million) were approved. Dividends were paid on 17 September 2021. Pursuant to a resolution passed at the director’s meeting on 25 March 2022, final dividends in respect of the year ended 31 December 2021 of RMB0.31 (2020: RMB0.13) per share totaling RMB37,532 million (2020: RMB15,739 million) were proposed for shareholders’ approval at the Annual General Meeting. Final cash dividend proposed after the date of the statement of financial position has not been recognised as a liability at the date of the statement of financial position. Dividends payable to shareholders of the Company attributable to the previous financial year, approved during the year represent: Final cash dividends in respect of the previous financial year, approved during the year of RMB0.13 per share (2020: RMB0.19 per share) 2021 RMB million 2020 RMB million 15,739 23,004 Pursuant to the shareholders’ approval at the Annual General Meeting on 25 May 2021, a final dividend of RMB0.13 per share totaling RMB15,739 million according to total shares on 16 June 2021 was approved. All dividends have been paid in the year ended 31 December 2021. Pursuant to the shareholders’ approval at the Annual General Meeting on 19 May 2020, a final dividend of RMB0.19 per share totaling RMB23,004 million according to total shares on 9 June 2020 was approved. All dividends have been paid in the year ended 31 December 2020. 180 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 15 OTHER COMPREHENSIVE INCOME Cash flow hedges: Effective portion of changes in fair value of hedging instruments recognised during the year Reclassification adjustments for amounts 2021 Before tax amount RMB million Tax effect RMB million Net of tax amount RMB million Before tax amount RMB million 2020 Tax effect RMB million Net of tax amount RMB million 15,659 (3,881) 11,778 9,207 (2,295) 6,912 transferred to the consolidated income statement 8,858 (1,618) 7,240 198 (37) 161 Net movement during the year recognised in other comprehensive income (i) Changes in the fair value of instruments at fair value through other comprehensive income Transfer of loss on disposal of equity investments at fair value through other comprehensive income to retained earnings Net movement during the year recognised in other comprehensive income Cost of hedging reserve Share of other comprehensive income of associates and joint ventures Foreign currency translation differences Other comprehensive income Note: 24,517 (5,499) 19,018 9,405 (2,332) 7,073 (6) – (6) (220) 441 (1,728) 23,004 2 – 2 – – – (5,497) (4) – (4) (220) 441 (1,728) 17,507 (6) (12) (18) 162 (4) – (4) – (10) (12) (22) 162 (2,441) (4,457) 2,651 – – (2,336) (2,441) (4,457) 315 (i) As at 31 December 2021, cash flow hedge reserve amounted to a gain of RMB7,244 million (31 December 2020: a gain of RMB8,176 million), of which a gain of RMB7,214 million was attributable to shareholders of the Company (31 December 2020: a gain of RMB7,805 million). 16 BASIC AND DILUTED EARNINGS PER SHARE The calculation of basic earnings per share for the year ended 31 December 2021 is based on the profit attributable to ordinary shareholders of the Company of RMB71,975 million (2020: RMB33,443 million) and the weighted average number of shares of 121,071,209,646 (2020: 121,071,209,646) during the year. There are no potential dilutive ordinary shares, and diluted earnings per share are equal to the basic earning per share. 181 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 17 PROPERTY, PLANT AND EQUIPMENT Cost: Balance at 1 January 2020 Additions Transferred from construction in progress Reclassifications Invest into the joint ventures and associated companies Reclassification to other long-term assets Disposals Exchange adjustments Balance at 31 December 2020 Balance at 1 January 2021 Additions Transferred from construction in progress Reclassifications Invest into the joint ventures and associated companies Reclassification to other long-term assets Disposals Exchange adjustments Balance at 31 December 2021 Accumulated depreciation and impairment losses: Balance at 1 January 2020 Depreciation for the year Impairment losses for the year Reclassifications Invest into the joint ventures and associated companies Reclassification to other long-term assets Written back on disposals Exchange adjustments Balance at 31 December 2020 Balance at 1 January 2021 Depreciation for the year Impairment losses for the year Reclassifications Invest into the joint ventures and associated companies Reclassification to other long-term assets Written back on disposals Exchange adjustments Balance at 31 December 2021 Net book value: Balance at 1 January 2020 Balance at 31 December 2020 Balance at 31 December 2021 Plants and buildings RMB million Oil and gas, properties RMB million Equipment, machinery and others RMB million Total RMB million 132,327 390 10,965 1,443 – (38) (6,396) (141) 138,550 138,550 509 5,487 646 (8) (665) (1,297) (57) 143,165 61,069 4,680 684 393 – (8) (3,229) (49) 63,540 63,540 4,586 742 185 (5) (82) (771) (29) 68,166 71,258 75,010 74,999 727,552 1,563 32,214 (125) – – (806) (2,806) 757,592 757,592 2,192 40,357 (617) – (22) (5,517) (940) 793,045 587,192 32,054 4,739 (98) – – (464) (2,703) 620,720 620,720 39,670 1,904 (410) – (7) (135) (904) 660,838 140,360 136,872 132,207 1,027,324 5,163 98,427 (1,318) (115) (1,052) (131,501) (226) 996,702 996,702 5,177 65,182 (29) (188) (1,027) (17,495) (95) 1,048,227 608,622 48,760 6,360 (295) (54) (161) (48,125) (138) 614,969 614,969 48,568 6,774 225 (133) (170) (13,668) (57) 656,508 418,702 381,733 391,719 1,887,203 7,116 141,606 – (115) (1,090) (138,703) (3,173) 1,892,844 1,892,844 7,878 111,026 – (196) (1,714) (24,309) (1,092) 1,984,437 1,256,883 85,494 11,783 – (54) (169) (51,818) (2,890) 1,299,229 1,299,229 92,824 9,420 – (138) (259) (14,574) (990) 1,385,512 630,320 593,615 598,925 The Group compares the carrying amount of individual cash-generating units which were grouped for the property, plant and equipment related to oil and gas producing activities with its value in use, using a discounted cash flow forecast prepared based on the future production profiles included in the oil and gas reserve reports, and recorded impairment losses amounting to RMB2,467 million for the year ended 31 December 2021 (2020: RMB8,435 million). The addition to oil and gas properties of the Group for the year ended 31 December 2021 included RMB2,163 million (2020: RMB1,563 million) of estimated dismantlement costs for site restoration. At 31 December 2021 and 31 December 2020, the Group had no individual significant property, plant and equipment which had been pledged. At 31 December 2021 and 31 December 2020, the Group had no individual significant property, plant and equipment which were temporarily idle or pending for disposal. At 31 December 2021 and 31 December 2020, the Group had no individual significant fully depreciated property, plant and equipment which were still in use. 182 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 18 CONSTRUCTION IN PROGRESS Balance at 1 January Additions Dry hole costs written off Transferred to property, plant and equipment Reclassification to other long-term assets Impairment losses for the year Disposals and others Exchange adjustments Balance at 31 December 2021 RMB million 2020 RMB million 125,525 159,729 (7,702) (111,026) (10,302) (144) (107) (34) 155,939 176,119 131,099 (5,928) (141,606) (11,464) (844) (21,798) (53) 125,525 As at 31 December 2021, the amount of capitalised cost of exploratory wells included in construction in progress related to the exploration and production segment was RMB12,255 million (2020: RMB11,129 million). The geological and geophysical costs paid during the year ended 31 December 2021 were RMB4,174 million (2020: RMB3,166 million). 19 RIGHT-OF-USE ASSETS Cost Balance at 1 January 2020 Additions Decreases Balance at 31 December 2020 Balance at 1 January 2021 Additions Decreases Balance at 31 December 2021 Accumulated depreciation Balance at 1 January 2020 Additions Decreases Balance at 31 December 2020 Balance at 1 January 2021 Additions Decreases Balance at 31 December 2021 Net book value Balance at 1 January 2020 Balance at 31 December 2020 Balance at 31 December 2021 Land RMB million Others RMB million Total RMB million 248,775 14,370 (9,790) 253,355 253,355 13,263 (2,862) 263,756 9,101 9,358 (896) 17,563 17,563 9,966 (407) 27,122 239,674 235,792 236,634 34,188 9,653 (3,140) 40,701 40,701 9,650 (3,430) 46,921 5,702 6,354 (1,575) 10,481 10,481 6,863 (2,197) 15,147 28,486 30,220 31,774 282,963 24,023 (12,930) 294,056 294,056 22,913 (6,292) 310,677 14,803 15,712 (2,471) 28,044 28,044 16,829 (2,604) 42,269 268,160 266,012 268,408 183 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 20 GOODWILL Cost Less: Accumulated impairment losses Impairment tests for cash-generating units containing goodwill Goodwill is allocated to the following Group’s cash-generating units: Principal activities Sinopec Zhenhai Refining and Chemical Branch Manufacturing of intermediate petrochemical Shanghai SECCO Petrochemical Company Limited (“Shanghai SECCO”) Sinopec Beijing Yanshan Petrochemical Branch Other units without individually significant goodwill products and petroleum products Production and sale of petrochemical products Manufacturing of intermediate petrochemical products and petroleum products 31 December 2021 RMB million 31 December 2020 RMB million 16,455 (7,861) 8,594 16,481 (7,861) 8,620 31 December 2021 RMB million 31 December 2020 RMB million 4,043 2,541 1,004 1,006 8,594 4,043 2,541 1,004 1,032 8,620 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 11.7% (2020: 11.4% to 13.4%). Cash flows beyond the one-year period are maintained constant. Based on the estimated recoverable amount, no major impairment loss was recognized for the year ended 31 December, 2021. Key assumptions used for cash flow forecasts for these cash generating units 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 PipeChina (i) % of ownership interests Principal activities Measurement method Country of incorporation Principal place of business 14.00 Operation of oil and natural gas Equity method PRC pipeline and auxiliary facilities Sinopec Finance Company Limited 49.00 Provision of non-banking financial Equity method PRC (“Sinopec Finance”) services Sinopec Capital Company Limited 49.00 Project and equity investment, Equity method PRC (“Sinopec Capital”) investment management, investment consulting,self-owned equity management PRC PRC PRC Zhongtian Synergetic Energy Company 38.75 Mining coal and manufacturing Equity method PRC PRC Limited (“Zhongtian Synergetic Energy”) Caspian Investments Resources Ltd. of coal-chemical products 50.00 Crude oil and natural gas extraction (“CIR”) Equity method British Virgin Islands The Republic of Kazakhstan 184 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 　 21 INTEREST IN ASSOCIATES (Continued) Summarised financial information and reconciliation to their carrying amounts in respect of the Group’s principal associates: PipeChina 31 December 2021 RMB million 31 December 2020 RMB million Sinopec Finance Sinopec Capital 31 December 2021 RMB million 31 December 2020 RMB million 31 December 2021 RMB million 31 December 2020 RMB million Zhongtian Synergetic Energy 31 December 2020 RMB million 31 December 2021 RMB million CIR 31 December 2021 RMB million 31 December 2020 RMB million Current assets Non-current assets Current liabilities Non-current liabilities Net assets Net assets attributable to owners of the Company Net assets attributable to non-controlling interests Share of net assets from associates Carrying Amounts 86,335 768,161 (136,150) (103,243) 615,103 74,012 655,982 (55,562) (104,150) 570,282 194,458 55,086 (217,987) (602) 30,955 175,139 53,008 (197,872) (514) 29,761 13,140 102 (28) (676) 12,538 11,871 106 (18) (411) 11,548 3,532 51,331 (8,577) (22,216) 24,070 3,721 53,124 (8,315) (28,422) 20,108 526,241 505,336 30,955 29,761 12,538 11,548 24,070 20,108 88,862 64,946 – – 73,674 73,674 70,747 70,747 15,168 15,168 14,583 14,583 – 6,144 6,144 – 5,659 5,659 – 9,327 9,327 – 7,792 7,792 576 870 (822) (144) 480 480 – 240 240 2,402 903 (699) (286) 2,320 2,320 – 1,160 1,160 Summarised statement of comprehensive income Year ended 31 December PipeChina (ii) 2021 RMB million 2020 RMB million Sinopec Finance 2021 RMB million 2020 RMB million Sinopec Capital 2021 RMB million 2020 RMB million Zhongtian Synergetic Energy 2020 RMB million 2021 RMB million CIR 2021 RMB million 2020 RMB million Revenue Profit for the year Other comprehensive income Total comprehensive income Dividends declared by associates Share of profit from associates Share of other comprehensive income from associates (iii) 101,572 29,776 2 29,778 442 3,205 – 22,766 6,444 – 6,444 – 709 – 5,177 2,168 26 2,194 490 1,062 4,742 2,027 (372) 1,655 – 993 13 (182) 2 990 – 990 – 485 – 2 1,278 – 1,278 – 626 – 16,959 4,184 – 4,184 86 1,621 – 11,707 551 – 551 284 214 – 1,826 461 3 464 1,152 231 1,252 181 (308) (127) 2,517 91 2 (154) The share of profit and other comprehensive income for the year ended 31 December 2021 in all individually immaterial associates accounted for using equity method in aggregate was RMB7,283 million (2020: RMB3,444 million) and RMB271 million (2020: loss of RMB1,101 million) respectively. As at 31 December 2021, the carrying amount of all individually immaterial associates accounted for using equity method in aggregate was RMB44,176 million (2020: RMB36,222 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) 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. (iii) Including foreign currency translation differences. 185 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 202122 INTEREST IN JOINT VENTURES The Group’s principal interests in joint ventures are as follows: Name of entity Fujian Refining & Petrochemical Company Limited (“FREP”) BASF-YPC Company Limited (“BASF-YPC”) Taihu Limited (“Taihu”) Yanbu Aramco Sinopec Refining Company Ltd. (“YASREF”) Sinopec SABIC Tianjin Petrochemical Company Limited (“Sinopec SABIC Tianjin”) % of ownership interests Principal activities Measurement method Country of incorporation Principal place of business 50.00 Manufacturing refining oil products Equity method| PRC 40.00 49.00 37.50 50.00 Equity method PRC Manufacturing and distribution of petrochemical products Crude oil and natural gas extraction Equity method Cyprus Petroleum refining and processing business Manufacturing and distribution of petrochemical products Equity method PRC Equity method Saudi Arabia PRC PRC Russia Saudi Arabia PRC Summarised statement of financial position 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 2021 RMB million 31 December 2020 RMB million 31 December 2021 RMB million 31 December 2020 RMB million 31 December 2021 RMB million 31 December 2020 RMB million 31 December 2021 RMB million 31 December 2020 RMB million 31 December 2021 RMB million 31 December 2020 RMB million Current assets Cash and cash equivalents Other current assets Total current assets Non-current assets Current liabilities Current financial liabilities Other current liabilities Total current liabilities Non-current liabilities Non-current financial liabilities Other non-current liabilities Total non-current liabilities Net assets Net assets attributable to owners of the company Net assets attributable to non-controlling interests Share of net assets from joint ventures Carrying Amounts 6,562 9,217 15,779 13,744 (1,177) (5,008) (6,185) (6,857) (242) (7,099) 16,239 16,239 – 8,120 8,120 7,448 7,492 14,940 15,237 (1,203) (5,147) (6,350) (8,761) (235) (8,996) 14,831 14,831 – 7,416 7,416 5,375 6,953 12,328 9,336 (77) (2,546) (2,623) – (92) (92) 18,949 18,949 – 7,580 7,580 1,838 4,777 6,615 9,993 (456) (2,190) (2,646) – (42) (42) 13,920 13,920 – 5,568 5,568 1,258 2,188 3,446 14,032 (32) (1,931) (1,963) (85) (1,439) (1,524) 13,991 13,523 468 6,626 6,626 1,280 1,223 2,503 12,531 (38) (1,043) (1,081) (85) (2,017) (2,102) 11,851 11,439 412 5,605 5,605 5,441 12,404 17,845 41,947 (9,549) (15,844) (25,393) (30,903) (1,723) (32,626) 1,773 1,773 – – – 1,408 7,516 8,924 45,413 (9,520) (8,644) (18,164) (29,650) (2,008) (31,658) 4,515 4,515 – – – 4,820 3,437 8,257 18,835 (597) (3,547) (4,144) (7,599) (382) (7,981) 14,967 14,967 – 7,484 7,484 5,259 2,665 7,924 18,258 (998) (3,052) (4,050) (6,773) (378) (7,151) 14,981 14,981 – 7,491 7,491 Summarised statement of comprehensive income Year ended 31 December FREP BASF-YPC Taihu YASREF Sinopec SABIC Tianjin 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million Revenue Depreciation, depletion and amortisation Interest income Interest expense Profit/(loss) before taxation Tax expense Profit/(loss) for the year Other comprehensive income Total comprehensive income Dividends declared by joint ventures Share of net profit/(loss) from joint ventures Share of other comprehensive loss from joint ventures (i) 47,224 (2,789) 147 (411) 2,261 (597) 1,664 – 1,664 128 832 – 38,691 (2,222) 118 (535) 520 (87) 433 – 433 300 217 – 27,499 (1,467) 52 (5) 8,218 (2,054) 6,164 – 6,164 454 2,466 – 15,701 (1,244) 27 (16) 1,518 (379) 1,139 – 1,139 691 456 – 15,190 (667) 451 (107) 2,864 (601) 2,263 (123) 2,140 – 1,081 (60) 9,528 (541) 291 (20) 2,304 (378) 1,926 (3,368) (1,442) – 911 (1,593) 68,548 (3,224) 6 (945) (2,868) 332 (2,536) (206) (2,742) – – – 37,337 (3,140) 17 (1,136) (7,193) 1,057 (6,136) (584) (6,720) – (2,301) (219) 24,631 (1,164) 209 (89) 1,393 (407) 986 – 986 500 493 – 14,881 (1,085) 183 (131) 954 (236) 718 – 718 – 359 – The share of profit and other comprehensive income for the year ended 31 December 2021 in all individually immaterial joint ventures accounted for using equity method in aggregate was RMB4,494 million (2020: RMB993 million) and RMB215 million (2020: RMB808 million) respectively. As at 31 December 2021, the carrying amount of all individually immaterial joint ventures accounted for using equity method in aggregate was RMB30,640 million (2020: RMB26,099 million). Note: (i) Including foreign currency translation differences. 186 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 23 LONG-TERM PREPAYMENTS AND OTHER ASSETS Operating rights of service stations Long-term receivables from and prepayment to Sinopec Group Company and fellow subsidiaries Prepayments for construction projects to third parties Others (i) Note: 31 December 2021 RMB million 31 December 2020 RMB million 29,714 1,520 7,470 31,326 70,030 31,856 2,801 5,861 34,025 74,543 (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: Operating rights of service stations Cost: Balance at 1 January Additions Decreases Balance at 31 December Accumulated amortisation: Balance at 1 January Additions Decreases Balance at 31 December Net book value at 31 December 2021 RMB million 2020 RMB million 53,567 912 (688) 53,791 21,711 2,699 (333) 24,077 29,714 53,549 493 (475) 53,567 19,536 2,365 (190) 21,711 31,856 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. 187 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 25 TRADE ACCOUNTS RECEIVABLE Amounts due from third parties Amounts due from Sinopec Group Company and fellow subsidiaries Amounts due from associates and joint ventures Less: Loss allowance for expected credit losses The ageing analysis of trade accounts receivable (net of loss allowance for expected credit losses) is as follows: Within one year Between one and two years Between two and three years Over three years Loss allowance for expected credit losses are analysed as follows: Balance at 1 January Provision for the year Written back for the year Written off for the year Others Balance at 31 December 31 December 2021 RMB million 31 December 2020 RMB million 30,159 2,199 6,536 38,894 (4,033) 34,861 22,473 12,045 4,781 39,299 (3,860) 35,439 31 December 2021 RMB million 31 December 2020 RMB million 34,180 442 221 18 34,861 34,361 931 64 83 35,439 2021 RMB million 2020 RMB million 3,860 436 (127) (30) (106) 4,033 1,848 2,173 (68) (23) (70) 3,860 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. 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. 188 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 26 FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Non-current assets Unlisted equity instruments Listed equity instruments Current assets Trade accounts receivable and bills receivable (i) Note: 31 December 2021 RMB million 31 December 2020 RMB million 588 179 5,939 6,706 1,376 149 8,735 10,260 (i) As at 31 December 2021 and 2020, 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 Crude oil and other raw materials Work in progress Finished goods Spare parts and consumables Less: Allowance for diminution in value of inventories 31 December 2021 RMB million 31 December 2020 RMB million 109,940 15,701 84,174 2,515 212,330 (4,897) 207,433 60,379 13,066 78,481 3,372 155,298 (3,107) 152,191 The cost of inventories recognised as an expense in the consolidated income statement amounted to RMB2,177,141 million for the year ended 31 December 2021 (2020: RMB1,657,227 million). It includes the write-down of inventories of RMB3,148 million mainly related to finished goods (2020: RMB11,689 million mainly related to finished goods). 189 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 28 PREPAID EXPENSES AND OTHER CURRENT ASSETS Receivables Advances to suppliers Value-added input tax to be deducted Prepaid income tax 29 DEFERRED TAX ASSETS AND LIABILITIES 31 December 2021 RMB million 31 December 2020 RMB million 35,918 9,267 19,137 5,109 69,431 35,096 4,857 18,625 131 58,709 Deferred tax assets and liabilities before offset are attributable to the items detailed in the table below: Receivables and inventories Payables Cash flow hedges Property, plant and equipment Tax losses carried forward Financial assets at fair value through other comprehensive income Intangible assets Others Deferred tax assets/(liabilities) Deferred tax assets Deferred tax liabilities 31 December 2021 RMB million 31 December 2020 RMB million 31 December 2021 RMB million 31 December 2020 RMB million 3,763 2,858 258 16,777 4,749 127 1,008 1,056 30,596 2,411 1,286 1,790 15,793 13,322 127 869 371 35,969 – – (2,709) (15,037) – (9) (492) (870) (19,117) – – (4,420) (13,415) – (11) (517) (676) (19,039) The consolidated elimination amount between deferred tax assets and liabilities are as follows: Deferred tax assets Deferred tax liabilities Deferred tax assets and liabilities after the consolidated elimination adjustments are as follows: Deferred tax assets Deferred tax liabilities 31 December 2021 RMB million 11,207 11,207 31 December 2020 RMB million 10,915 10,915 31 December 2021 RMB million 19,389 7,910 31 December 2020 RMB million 25,054 8,124 As at 31 December 2021, certain subsidiaries of the Company did not recognise deferred tax of deductible loss carried forward of RMB18,342 million (2020: RMB17,718 million), of which RMB5,564 million (2020: RMB4,349 million) was incurred for the year ended 31 December 2021, because it was not probable that the future taxable profits will be available. These deductible losses carried forward of RMB4,135 million, RMB2,308 million, RMB1,986 million, RMB4,349 million and RMB5,564 million will expire in 2022, 2023, 2024, 2025, 2026 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. 190 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 29 DEFERRED TAX ASSETS AND LIABILITIES (Continued) Movements in the deferred tax assets and liabilities are as follows: Receivables and inventories Payables Cash flow hedges Property, plant and equipment Tax losses carried forward Financial assets at fair value through other comprehensive income Intangible assets Others Net deferred tax assets/(liabilities) Receivables and inventories Payables Cash flow hedges Property, plant and equipment Tax losses carried forward Financial assets at fair value through other comprehensive income Intangible assets Others Net deferred tax assets/(liabilities) Balance at 1 January 2020 RMB million Recognised in consolidated income statement RMB million Recognised in other comprehensive income RMB million Transferred from reserve RMB million Balance at 31 December 2020 RMB million Others RMB million 2,546 1,142 (268) 4,146 3,594 124 87 (564) 10,807 (122) 144 (42) (2,244) 9,960 (4) 19 162 7,873 (12) – (2,316) 127 (84) (4) – 24 (2,265) (1) – – 349 (148) – 246 73 519 – – (4) – – – – – (4) 2,411 1,286 (2,630) 2,378 13,322 116 352 (305) 16,930 Balance at 1 January 2021 RMB million Recognised in consolidated income statement RMB million Recognised in other comprehensive income RMB million Transferred from reserve RMB million Balance at 31 December 2021 RMB million Others RMB million 2,411 1,286 (2,630) 2,378 13,322 116 352 (305) 16,930 1,378 1,572 (203) (1,004) (8,554) – 63 490 (6,258) (26) – (5,499) 41 (19) 2 – (3) (5,504) – – – 325 – – 101 4 430 – – 5,881 – – – – – 5,881 3,763 2,858 (2,451) 1,740 4,749 118 516 186 11,479 30 SHORT-TERM AND LONG-TERM DEBTS AND LOANS FROM SINOPEC GROUP COMPANY AND FELLOW SUBSIDIARIES Short-term debts represent: Third parties’ debts Short-term bank loans RMB denominated Short-term other loans RMB denominated Current portion of long-term bank loans RMB denominated USD denominated Current portion of long-term corporate bonds RMB denominated Corporate bonds RMB denominated Loans from Sinopec Group Company and fellow subsidiaries Short-term loans RMB denominated USD denominated Hong Kong Dollar (“HKD”) denominated European Dollar (“EUR”) denominated Current portion of long-term loans RMB denominated 31 December 2021 RMB million 31 December 2020 RMB million 24,959 24,959 – – 3,293 3,281 12 7,000 7,000 – – 35,252 2,407 1,320 934 – 153 466 466 2,873 38,125 16,111 16,111 3 3 4,637 4,613 24 – – 3,018 3,018 23,769 4,642 1,141 3,298 31 172 622 622 5,264 29,033 The Group’s weighted average interest rates on short-term loans were 2.72% (2020: 2.53%) per annum at 31 December 2021. The above borrowings are unsecured. 191 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 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 Third parties’ debts Long-term bank loans RMB denominated USD denominated Corporate bonds (i) RMB denominated USD denominated Interest rates ranging from 1.08% to 4.00% per annum at 31 December 2021 with maturities through 2039 Interest rates at 1.55% per annum at 31 December 2021 with maturities through 2038 Fixed interest rates ranging from 2.20% to 4.90% per annum at 31 December 2021 with maturities through 2026 Fixed interest rates ranging from 3.13% to 4.25% per annum at 31 December 2021 with maturities through 2043 Total third parties’ long-term debts Less: Current portion Long-term loans from Sinopec Group Company and fellow subsidiaries RMB denominated USD denominated Less: Current portion Interest rates ranging from 1.08% to 5.23% per annum at 31 December 2021 with maturities through 2037 Interest rates at 1.65% per annum at 31 December 2021 with maturities in 2027 31 December 2021 RMB million 31 December 2020 RMB million 38,880 38,226 64 92 38,944 38,522 38,318 26,977 11,127 11,379 49,649 88,593 (10,293) 78,300 38,356 76,674 (4,637) 72,037 12,988 11,013 1,168 (466) 13,690 91,990 1,387 (622) 11,778 83,815 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 corporate bonds with a maturity of five years on 26 July 2021 at par value of RMB100. The total issued amount of the corporate bonds is RMB5 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 3.20% per annum and the interest is paid once a year. The Company issued corporate bonds with a maturity of three years on 5 August 2021 at par value of RMB100. The total issued amount of the corporate bonds is RMB2 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.95% per annum and the interest is paid once a year. The Company issued corporate bonds with a maturity of two years on 6 August 2021 at par value of RMB100. The total issued amount of the corporate bonds is RMB2 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.80% per annum and the interest is paid once a year. The Company issued corporate bonds with a maturity of three years on 27 December 2021 at par value of RMB100. The total issued amount of the corporate bonds is RMB2.55 billion. The corporate bonds adopt a simple interest rate on an annual basis with a fixed rate at 2.50% per annum and the interest is paid once a year. These corporate bonds are carried at amortised cost. 31 LEASE LIABILITIES Lease liabilities Current Non-current 192 31 December 2021 RMB million 31 December 2020 RMB million 15,173 170,233 185,406 15,293 171,740 187,033 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 　 　 32 TRADE ACCOUNTS PAYABLE AND BILLS PAYABLE Amounts due to third parties Amounts due to Sinopec Group Company and fellow subsidiaries Amounts due to associates and joint ventures Bills payable Trade accounts payable and bills payable measured at amortised cost The ageing analysis of trade accounts payable and bills payable is as follows: Within 1 month or on demand Between 1 month and 6 months Over 6 months 33 CONTRACT LIABILITIES 31 December 2021 RMB million 31 December 2020 RMB million 193,547 4,227 6,145 203,919 11,721 215,640 132,256 11,512 7,746 151,514 10,394 161,908 31 December 2021 RMB million 31 December 2020 RMB million 138,741 25,280 51,619 215,640 146,415 9,793 5,700 161,908 As at 31 December 2021 and 2020, the Group’s contract liabilities primarily represent advances from customers. Related performance obligations are expected to be satisfied and revenue is recognised within one year. 34 OTHER PAYABLES Salaries and welfare payable Interest payable Payables for constructions Other payables Taxes other than income tax 35 PROVISIONS 31 December 2021 RMB million 31 December 2020 RMB million 14,048 822 54,596 93,764 76,458 239,688 7,129 667 42,027 59,023 70,262 179,108 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: Balance at 1 January Provision for the year Accretion expenses Decrease for the year Exchange adjustments Balance at 31 December 2021 RMB million 2020 RMB million 43,713 2,163 1,135 (6,435) (81) 40,495 42,438 1,563 1,343 (1,490) (141) 43,713 193 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 36 SHARE CAPITAL Registered, issued and fully paid 95,557,771,046 listed A shares (2020: 95,557,771,046) of RMB1.00 each 25,513,438,600 listed H shares (2020: 25,513,438,600) of RMB1.00 each 31 December 2021 RMB million 31 December 2020 RMB million 95,558 25,513 121,071 95,558 25,513 121,071 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 RMB1.00 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 RMB1.00 each and offer not more than 19.5 billion shares with a par value of RMB1.00 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 RMB1.00 each, representing 12,521,864,000 H shares and 25,805,750 American Depositary Shares (“ADSs”, each representing 100 H shares), at prices of HKD1.59 per H share and USD20.645 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 RMB1.00 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 RMB1.00 each at RMB4.22 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 RMB1.00 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 RMB1.00 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 RMB1.00 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 RMB1.00 each at the Placing Price of HKD8.45 per share. The aggregate gross proceeds from the Placing amounted to approximately HKD24,042,227,300.00 and the aggregate net proceeds (after deduction of the commissions and estimated expenses) amounted to approximately HKD23,970,100,618.00. 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 RMB1.00 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 RMB1.00 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 RMB1.00 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 2021, the debt-to-capital ratio and the liability-to-asset ratio of the Group were 10.6% (2020: 10.1%) and 51.6% (2020: 49.0%), 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. 194 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 37 COMMITMENTS AND CONTINGENT LIABILITIES Capital commitments At 31 December 2021 and 2020, capital commitments of the Group are as follows: Authorised and contracted for (i) Authorised but not contracted for 31 December 2021 RMB million 31 December 2020 RMB million 184,430 90,227 274,657 171,597 33,997 205,594 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 RMB3,648 million (2020: RMB13,172 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. 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 RMB181 million for the year ended 31 December 2021 (2020: RMB231 million). Estimated future annual payments are as follows: Within one year Between one and two years Between two and three years Between three and four years Between four and five years Thereafter Contingent liabilities 31 December 2021 RMB million 31 December 2020 RMB million 301 112 110 102 64 846 1,535 390 99 66 63 56 824 1,498 At 31 December 2021 and 2020, the guarantees by the Group in respect of facilities granted to the parties below are as follows: Joint ventures (ii) Associates (iii) 31 December 2021 RMB million 31 December 2020 RMB million 9,117 5,746 14,863 6,390 8,450 14,840 195 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 37 COMMITMENTS AND CONTINGENT LIABILITIES (Continued) Contingent liabilities (Continued) Management monitors the risk that the specified debtor will default on the contract and recognises a provision when ECLs on the financial guarantees are determined to be higher than the carrying amount in respect of the guarantees. At 31 December 2021 and 2020, the Group estimates that there is no material liability has been accrued for ECLs related to the Group’s obligation under these guarantee arrangements. Notes: (ii) The Group provided a guarantee in respect to standby credit facilities granted to Zhongan United Coal Chemical Co., Ltd. (“Zhongan United”) by banks amount to RMB7,100 million. As at 31 December 2021, the amount withdrawn (The portion corresponding to the shareholding ratio of the Group) by Zhongan United from banks and guaranteed by the Group was RMB5,680 million (31 December 2020: RMB6,390 million). The Group provided a guarantee in respect to standby credit facilities granted to Amur Gas Chemical Complex Limited Liability Company (“Amur Gas”) by banks amount to RMB23,208 million. As at 31 December 2021, the amount withdrawn (The portion corresponding to the shareholding ratio of the Group) by Amur Gas from banks and guaranteed by the Group was RMB3,264 million (31 December 2020: Nil). The Group provided a guarantee in respect to payment obligation under the raw material supply agreement of Amur Gas amount to RMB15,493 million. As at 31 December 2021, Amur Gas has not yet incurred the relevant payment obligations and therefore the Group has no guarantee amount (31 December 2020: Nil). The Group provided a guarantee in respect the engineering services agreement of Amur Gas amount to RMB3,012 million. As at 31 December 2021, the relevant payables for constructions of Amur Gas (The portion corresponding to the shareholding ratio of the Group) and guaranteed by the Group was RMB173 million (31 December 2020: Nil). (iii) The Group provided a guarantee in respect to standby credit facilities granted to Zhongtian Synergetic Energy by banks amount to RMB17,050 million. As at 31 December 2021, the amount withdrawn (The portion corresponding to the shareholding ratio of the Group) by Zhongtian Synergetic Energy and guaranteed by the Group was RMB5,746 million (2020: RMB8,450 million). 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 RMB10,968 million in the consolidated financial statements for the year ended 31 December 2021 (2020: RMB11,368 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. 38 BUSINESS COMBINATION Pursuant to resolution passed at the Director’s meeting on 26 March 2021, the Company entered into agreements with Sinopec Assets Management Corporation (“SAMC”) and Beijing Orient Petrochemical Industry Co., Ltd. (“BJOPI”), and its subsidiary,Sinopec Beihai Refining and Chemical Limited Liability Company entered into an agreement with Beihai Petrochemical Limited Liability Company of Sinopec Group (“BHP”). According to the relevant agreements, the Company proposed to acquire non equity assets such as the polypropylene devices and utility business assets of Cangzhou Branch held by SAMC, organic plant business held by BJOPI, and the pier operation platform held by BHP. Pursuant to the resolution passed at the Directors’ meeting on 29 November 2021, the Company entered into agreements with SAMC, and Sinopec Beijing Yanshan Petrochemical Co., Ltd. (“SBJYSP”), and its subsidiary, Sinopec Yizheng Chemical Fibre Company Limited entered into an agreement with SAMC. According to the relevant agreements, the Group proposed to acquire non equity assets such as thermal power, water and other business, PBT resin and other business of Yizheng Branch held by SAMC, and thermal power and other businesses held by SBJYSP. The consideration of the transaction amount to RMB6,124 million. As the Company, SAMC, BJOPI, BHP and SBJYSP are all under the control of Sinopec Group Company, the transaction described above has been accounted as business combination under common control. Accordingly, the equity and assets acquired from Sinopec Group Company 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 Sinopec Group Company on a combined basis. The transactions under the after-mentioned agreements will further improve the integrated operation level of the Group, optimise the allocation of resources, reduce connected transactions on the whole, so as to enhance the comprehensive competitiveness of the Group in its business locations. 196 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 202138 BUSINESS COMBINATION (Continued) The financial condition as at 31 December 2020 and the results of operation for the year ended 31 December 2020 previously reported by the Group have been restated, as set out below: Summarised consolidated income statement for the year ended 31 December 2020: Revenue Profit attributable to shareholders of the Company Profit attributable to non-controlling interests Basic earnings per share (RMB) Diluted earnings per share (RMB) Summarised consolidated statement of financial position as at 31 December 2020: Current assets Total assets Current liabilities Total liabilities Total equity attributable to shareholders of the Company Non-controlling interests Summarised consolidated statement of cash flows for the year ended 31 December 2020: Net cash generated from operating activities Net cash used in investing activities Net cash used in financing activities Net increase in cash and cash equivalents 39 RELATED PARTY TRANSACTIONS The Group, as previously reported RMB million Acquired assets and liabilities of Sinopec Group Company RMB million Elimination and Adjustment RMB million The Group, as restated RMB million 2,105,984 33,096 8,828 0.273 0.273 455,395 1,733,805 522,190 850,947 741,494 141,364 167,518 (102,203) (36,955) 28,360 12,233 347 – 0.003 0.003 480 5,875 1,020 1,031 4,831 13 1,002 (447) (555) – (13,493) – – – – (215) (784) (215) (784) – – – – – – 2,104,724 33,443 8,828 0.276 0.276 455,660 1,738,896 522,995 851,194 746,325 141,377 168,520 (102,650) (37,510) 28,360 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: Sales of goods Purchases Transportation and storage Exploration and development services Production related services Ancillary and social services Agency commission income Interest income Interest expense Net deposits placed with related parties Net funds obtained from/(repaid to) related parties Note (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (viii) (x) 2021 RMB million 2020 RMB million 297,381 191,888 19,443 33,930 44,405 1,730 194 715 385 (8,265) 30,305 228,307 151,300 8,734 31,444 31,915 2,952 160 704 919 (17,585) (31,144) The amounts set out in the table above in respect of the year ended 31 December 2021 and 2020 represent the relevant costs and income as determined by the corresponding contracts with the related parties. 197 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 39 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) Included in the transactions disclosed above, for the year ended 31 December 2021 are: a) purchases by the Group from Sinopec Group Company and fellow subsidiaries amounting to RMB173,718 million (2020: RMB149,560 million) comprising purchases of products and services (i.e. procurement, transportation and storage, exploration and development services and production related services) of RMB160,048 million (2020: RMB133,827 million), ancillary and social services provided by Sinopec Group Company and fellow subsidiaries of RMB1,730 million (2020: RMB2,952 million), lease charges for land, buildings and others paid by the Group of RMB10,831 million, RMB565 million and RMB159 million (2020: RMB11,086 million, RMB565 million and RMB211 million), respectively and interest expenses of RMB385 million (2020: RMB919 million); and b) sales by the Group to Sinopec Group Company and fellow subsidiaries amounting to RMB54,453 million (2020: RMB69,470 million), comprising RMB53,671 million (2020: RMB68,683 million) for sales of goods, RMB715 million (2020: RMB704 million) for interest income and RMB67 million (2020: RMB83 million) for agency commission income. For the year ended 31 December 2021, 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 2021 on lease liabilities in respect of amounts due to Sinopec Group Company and fellow subsidiaries, associates and joint ventures was RMB7,863 million (2020: RMB8,160 million). For the year ended 31 December 2021, the amount of rental the Group paid to Sinopec Group Company and fellow subsidiaries, associates and joint ventures for land, buildings and others are RMB10,834 million, RMB572 million and RMB269 million (2020: RMB11,090 million, RMB571 million and RMB330 million). As at 31 December 2021 and 2020, 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. 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 2021 was RMB61,682 million (2020: RMB53,417 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 issued the acceptance bills from Sinopec Group Company and fellow subsidiaries. 198 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 202139 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) 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 2021. 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. ‧ On the basis of a series of continuing connected transaction agreements signed in 2000, the Company and Sinopec Group Company have signed the Sixth Supplementary Agreement on 27 August 2021, which took effect on 1 January 2022 and made adjustment to “Mutual Supply Agreement” and “Buildings 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 2021 RMB million 31 December 2020 RMB million Trade accounts receivable Financial assets at fair value through other comprehensive income Prepaid expenses and other current assets Long-term prepayments and other assets Total Trade accounts payable and bills payable Contract liabilities Other payables Other long-term liabilities Short-term loans and current portion of long-term loans from Sinopec Group Company and fellow subsidiaries Long-term loans excluding current portion from Sinopec Group Company and fellow subsidiaries Lease liabilities (including to be paid within one year) Total 8,655 186 14,537 3,116 26,494 14,170 4,677 50,649 2,779 2,873 13,690 158,761 247,599 16,777 760 19,422 6,435 43,394 22,792 5,937 12,759 3,010 5,264 11,778 162,048 223,588 199 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 202139 RELATED PARTY TRANSACTIONS (Continued) (a) Transactions with Sinopec Group Company and fellow subsidiaries, associates and joint ventures (Continued) 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 2021, and as at and for the year ended 31 December 2020, no individually significant loss allowance for expected credit losses 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: Short-term employee benefits Retirement scheme contributions (c) Contributions to defined contribution retirement plans 2021 RMB’000 4,612 379 4,991 2020 RMB’000 5,753 342 6,095 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 2021 and 2020, the accrual for the contribution to post-employment benefit plans was not material. (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 2021 were RMB11,932 million (2020: RMB8,983 million). 200 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 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. 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, 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. 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. 201 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 202141 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 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: 2021 RMB million 2020 RMB million 156,026 87,298 243,324 167,948 1,212,455 1,380,403 1,367,605 7,075 1,374,680 424,774 70,242 495,016 563,147 732,356 1,295,503 (2,109,426) 2,679,500 6,674 5,161 36,864 10,487 2,198 61,384 2,740,884 104,524 57,513 162,037 113,214 826,219 939,433 1,062,447 4,854 1,067,301 322,169 40,702 362,871 458,154 430,073 888,227 (1,371,215) 2,048,654 5,718 4,633 34,905 8,758 2,056 56,070 2,104,724 Revenue from primary business Exploration and production External sales Inter-segment sales Refining External sales Inter-segment sales Marketing and distribution External sales Inter-segment sales Chemicals External sales Inter-segment sales Corporate and others External sales Inter-segment sales Elimination of Inter-segment sales Revenue from primary business Other operating revenues Exploration and production Refining Marketing and distribution Chemicals Corporate and others Other operating revenues Revenue 202 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 41 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Result Operating profit/(loss) By segment – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others – Elimination Total segment operating profit Share of profit/(loss) from associates and joint ventures – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Aggregate share of profits from associates and joint ventures Investment income – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Aggregate investment income Net finance costs Profit before taxation Assets Segment assets – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Total segment assets Interest in associates and joint ventures Financial assets at fair value through other comprehensive income Deferred tax assets Cash and cash equivalents, time deposits with financial institutions Other unallocated assets Total assets Liabilities Segment liabilities – Exploration and production – Refining – Marketing and distribution – Chemicals – Corporate and others Total segment liabilities Short-term debts Income tax payable Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Deferred tax liabilities Other unallocated liabilities Total liabilities 2021 RMB million 2020 RMB million 4,685 65,279 21,204 11,106 (3,225) (4,421) 94,628 2,783 662 3,731 11,323 4,754 23,253 55 (10) 3 (54) 304 298 (9,010) 109,169 (16,476) (5,525) 20,828 10,818 (393) 4,417 13,669 2,117 (2,516) 2,200 1,723 3,188 6,712 13,118 14,941 8,980 (61) 766 37,744 (9,510) 48,615 31 December 2021 RMB million 31 December 2020 RMB million 371,100 304,785 377,499 222,803 133,961 1,410,148 209,179 767 19,389 221,989 27,783 1,889,255 166,486 146,763 228,826 69,977 198,828 810,880 35,252 4,809 78,300 16,563 7,910 20,467 974,181 354,024 270,766 373,430 190,789 118,458 1,307,467 188,342 1,525 25,054 188,057 28,451 1,738,896 163,588 136,980 234,309 49,625 119,215 703,717 23,769 6,586 72,037 17,042 8,124 19,919 851,194 203 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 41 SEGMENT REPORTING (Continued) (1) Information of reportable segmental revenues, profits or losses, assets and liabilities (Continued) Capital expenditure Exploration and production Refining Marketing and distribution Chemicals Corporate and others Depreciation, depletion and amortisation Exploration and production Refining Marketing and distribution Chemicals Corporate and others Impairment losses on long-lived assets Exploration and production Refining Marketing and distribution Chemicals Corporate and others (2) Geographical information 2021 RMB million 2020 RMB million 68,148 22,469 21,897 51,648 3,786 167,948 52,880 20,743 23,071 16,093 2,893 115,680 2,467 860 1,211 5,332 165 10,035 56,416 24,756 25,403 28,217 2,312 137,104 46,273 20,090 23,196 14,830 3,072 107,461 8,495 1,923 536 3,675 – 14,629 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. 2021 RMB million 2020 RMB million 2,166,040 278,024 296,820 2,740,884 1,720,695 215,846 168,183 2,104,724 31 December 2021 RMB million 31 December 2020 RMB million 1,268,814 40,551 1,309,365 1,216,267 36,782 1,253,049 External sales Mainland China Singapore Others Non-current assets Mainland China Others 204 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 42 PRINCIPAL SUBSIDIARIES As at 31 December 2021, the following list contains the particulars of subsidiaries which principally affected the results, assets and liabilities of the Group. Name of company Sinopec Great Wall Energy & Chemical Company Limited Particulars of issued capital (million) Interests held by the Company % RMB22,761 100.00 Interests held by non-controlling interests % Principal activities – Coal chemical industry investment management, production and sale of coal chemical products Sinopec Yangzi Petrochemical Company Limited RMB15,651 100.00 – Manufacturing of intermediate petrochemical Sinopec Overseas Investment Holding Limited (“SOIH”) Sinopec International Petroleum Exploration and Production Limited (“SIPL”) Sinopec Yizheng Chemical Fibre Limited Liability Company Sinopec Lubricant Company Limited USD3,009 100.00 RMB8,250 100.00 – – products and petroleum products Investment holding of overseas business Investment in exploration, production and sale of petroleum and natural gas RMB4,000 100.00 – Production and sale of polyester chips and RMB3,374 100.00 – polyester fibres Production and sale of refined petroleum products, lubricant base oil, and petrochemical materials China International United Petroleum and Chemical Company Limited Sinopec Qingdao Petrochemical Company Limited RMB5,000 100.00 – Trading of crude oil and petrochemical products RMB1,595 100.00 – Manufacturing of intermediate petrochemical Sinopec Catalyst Company Limited China Petrochemical International Company Limited Sinopec Chemical Sales Company Limited RMB1,500 RMB1,400 RMB1,000 100.00 100.00 100.00 products and petroleum products Production and sale of catalyst products Trading of petrochemical products – – – Marketing and distribution of petrochemical products Sinopec Hainan Refining and Chemical Company Limited Sinopec Beihai Refining and Chemical Limited Liability Company ZhongKe (Guangdong) Refinery & Petrochemical Company Limited Sinopec Qingdao Refining and Chemical Company Limited Marketing Company RMB9,606 100.00 – Manufacturing of intermediate petrochemical RMB5,294 98.98 RMB6,397 90.30 RMB5,000 85.00 1.02 products and petroleum products Import and processing of crude oil, production, storage and sale of petroleum products and petrochemical products 9.70 Crude oil processing and petroleum products manufacturing 15.00 Manufacturing of intermediate petrochemical products and petroleum products RMB28,403 70.42 29.58 Marketing and distribution of refined petroleum products Shanghai SECCO RMB500 67.59 32.41 Production and sale of petrochemical Sinopec Kantons Holdings Limited (“Sinopec Kantons”) Sinopec-SK (Wuhan) Petrochemical Company Limited (“Sinopec-SK”) HKD248 60.33 39.67 Provision of crude oil jetty services and products RMB7,193 59.00 41.00 natural gas pipeline transmission services Production, sale, research and development of petrochemical products, ethylene and downstream byproducts Gaoqiao Petrochemical Company Limited RMB10,000 55.00 Sinopec Baling Petrochemical Co.Ltd. (“Baling Petrochemical”) Sinopec Shanghai Petrochemical Company Limited (“Shanghai Petrochemical”) Fujian Petrochemical Company Limited (“Fujian Petrochemical”) (i) 45.00 Manufacturing of intermediate petrochemical products and petroleum products 45.00 Crude oil processing and petroleum products RMB3,000 55.00 RMB10,824 50.44 49.56 RMB10,492 50.00 50.00 manufacturing Manufacturing of synthetic fibres, resin and plastics, intermediate petrochemical products and petroleum products 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. Notes: (i) 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. 205 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 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 statement of financial position Marketing Company SIPL* At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million Current assets Current liabilities Net current (liabilities)/assets Non-current assets Non-current liabilities Net non-current assets/(liabilities) Net assets Attributable to owners of the Company Attributable to non-controlling interests 159,599 (193,315) 172,352 (201,678) (33,716) 326,437 (59,604) (29,326) 323,571 (59,554) 266,833 233,117 264,017 234,691 157,557 159,205 75,560 75,486 22,759 (1,430) 21,329 8,954 (17,823) (8,869) 12,460 6,341 6,119 Shanghai Petrochemical At 31 December 2020 RMB million At 31 December 2021 RMB million 20,932 (15,796) 17,305 (15,232) 5,136 25,988 (747) 25,241 30,377 2,073 27,314 (52) 27,262 29,335 22,620 (475) 22,145 8,951 (18,270) (9,319) 12,826 5,876 15,254 14,727 6,950 15,123 14,608 Fujian Petrochemical Sinopec Kantons Shanghai SECCO At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million At 31 December 2021 RMB million At 31 December 2020 RMB million Sinopec-SK At 31 December 2021 RMB million At 31 December 2020 RMB million 1,464 (142) 1,322 13,208 (700) 12,508 13,830 6,915 6,915 1,582 (458) 1,124 12,568 (693) 11,875 12,999 6,499 6,500 4,761 (196) 4,565 8,195 (170) 8,025 12,590 7,579 5,011 4,373 (924) 3,449 9,106 (170) 8,936 12,385 7,454 4,931 6,066 (5,434) 632 11,402 (1,418) 9,984 10,616 10,431 (2,783) 7,648 12,177 (1,553) 10,624 18,272 7,175 12,352 3,441 5,920 6,791 (8,122) (1,331) 20,650 (7,512) 13,138 11,807 6,966 4,841 3,639 (6,377) (2,738) 22,187 (8,509) 13,678 10,940 6,455 4,485 Summarised consolidated statement of comprehensive income Year ended 31 December Marketing Company SIPL* 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million Shanghai Petrochemical 2020 RMB million 2021 RMB million Fujian Petrochemical 2021 RMB million 2020 RMB million Sinopec Kantons 2021 RMB million 2020 RMB million Shanghai SECCO 2021 RMB million 2020 RMB million Sinopec-SK 2021 RMB million 2020 RMB million Revenue Profit/(loss) for the year Total comprehensive income Comprehensive income attributable to non- controlling interests Dividends paid to non- controlling interests 1,408,523 18,582 1,099,680 22,415 18,439 21,149 6,822 7,064 7,205 2,766 2,166 1,429 1,045 579 – 2,017 1,160 89,198 2,077 74,624 656 5,549 951 4,871 243 (720) 2,218 (287) 1,101 316 541 645 325 649 951 476 64 243 121 150 528 871 677 268 164 1,064 2,047 1,814 707 175 29,723 2,817 21,626 2,132 50,208 1,606 28,702 (920) 2,817 2,132 1,606 (920) 2,390 1,028 691 767 659 – (377) – Summarised statement of cash flows Year ended 31 December Marketing Company SIPL* 2021 RMB million 2020 RMB million 2021 RMB million 2020 RMB million Shanghai Petrochemical 2020 RMB million 2021 RMB million Fujian Petrochemical 2021 RMB million 2020 RMB million Sinopec Kantons 2021 RMB million 2020 RMB million Shanghai SECCO 2021 RMB million 2020 RMB million Sinopec-SK 2021 RMB million 2020 RMB million Net cash generated from/ (used in) operating activities Net cash generated from/ (used in) investing activities Net cash (used in)/generated from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign currency exchange rate changes Cash and cash equivalents at 31 December 28,923 54,139 690 281 3,950 1,680 (292) (244) 133 586 3,447 3,119 5,476 (363) 2,420 (40,010) 15 (2,659) (2,359) (3,888) (31,081) (12,402) (1,172) 1,683 (3,393) 1,682 262 8,642 95 1,727 6,901 (467) (695) (1,802) (526) 7,699 8,833 6,916 7,450 14 (164) (439) (2) (8) 8,999 8,642 7,068 7,699 5,112 6,916 420 (142) (14) 68 – 54 (649) 1,276 3,846 1,534 (4,335) (1,789) (2,340) 882 (11) 79 – 68 (1,066) (1,250) (7,828) (2,879) (653) 2,176 343 3,182 (2,847) (4,095) 3,034 (527) 3,182 117 5,181 9,278 1,066 1,593 (93) (117) (1) (2) – – 3,432 3,182 2,333 5,181 4,100 1,066 * The non-controlling interests of subsidiaries which the Group holds 100% of equity interests at the end of the year are the non-controlling interests of their subsidiaries. 206 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 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 2021, 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 a loss allowance for expected credit losses 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 ECLs which uses a lifetime expected loss allowance for all trade accounts receivable and financial assets at FVOCI. To measure the ECLs, trade accounts receivable and financial assets at FVOCI have been grouped based on shared credit risk characteristics and the days past due. The ECLs were calculated based on historical actual credit loss experience. The rates were considered the differences between economic conditions during the period over which the historical data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables. The Group performed the calculation of ECL rates by the operating segment. 207 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 202143 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) Credit risk (Continued) (ii) Impairment of financial assets (Continued) The following table provides information about the exposure to credit risk and ECLs for accounts receivable as at December 31, 2021 and 2020. Impairment provision on individual basis Impairment provision on provision matrix basis Gross carrying amount RMB million Carrying amount RMB million 34,263 623 3,411 597 38,894 4,280 500 3,324 208 8,312 Impairment provision on individual basis RMB million 26 137 3,146 190 3,499 Weighted- average loss rate % 0.2% 35.8% 50.6% 100.0% Impairment provision RMB million Loss allowance RMB million 57 44 44 389 534 83 181 3,190 579 4,033 Impairment provision on individual basis Impairment provision on provision matrix basis Gross carrying amount RMB million Carrying amount RMB million 34,478 4,062 149 610 39,299 5,023 3,637 27 218 8,905 Impairment provision on individual basis RMB million 117 3,024 18 182 3,341 Weighted- average loss rate % 0.0% 25.2% 54.9% 88.0% Impairment provision RMB million Loss allowance RMB million – 107 67 345 519 117 3,131 85 527 3,860 31 December 2021 Current and within 1 year past due 1 to 2 years past due 2 to 3 years past due Over 3 years past due Total 31 December 2020 Current and within 1 year past due 1 to 2 years past due 2 to 3 years past due Over 3 years past due Total 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 there was no significant increase in credit risk for other receivables by taking into account of their past history of making payments when due and current ability to pay, and thus the impairment provision recognised during the period was limited to 12 months expected losses. 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 2021, the Group has standby credit facilities with several PRC financial institutions which provide borrowings up to RMB441,559 million (2020: RMB443,966 million) on an unsecured basis, at a weighted average interest rate of 2.81% per annum (2020: 2.85%). As at 31 December 2021, the Group’s outstanding borrowings under these facilities were RMB11,700 million (2020: RMB4,041 million) and were included in debts. 208 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (Continued) Liquidity risk (Continued) The following table sets out the remaining contractual maturities at the date of the statement of financial position 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 date of the statement of financial position) and the earliest date the Group would be required to repay: Short-term debts Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Lease liabilities Derivative financial liabilities Trade accounts payable and bills payable Other payables Short-term debts Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Lease liabilities Derivative financial liabilities Trade accounts payable and bills payable Other payables Total contractual undiscounted cash flow RMB million 35,871 85,718 18,457 296,485 3,223 215,640 131,468 786,862 Total contractual undiscounted cash flow RMB million 25,280 80,562 17,978 328,501 4,826 161,908 94,083 713,138 Carrying amount RMB million 35,252 78,300 16,563 185,406 3,223 215,640 131,468 665,852 Carrying amount RMB million 23,769 72,037 17,042 187,033 4,826 161,908 94,083 560,698 31 December 2021 Within 1 year or on demand RMB million More than 1 year but less than 2 years RMB million More than 2 years but less than 5 years RMB million More than 5 years RMB million 35,871 2,169 3,174 15,833 3,223 215,640 131,468 407,378 – 49,390 604 12,031 – – – 62,025 – 27,518 10,712 35,411 – – – 73,641 – 6,641 3,967 233,210 – – – 243,818 31 December 2020 Within 1 year or on demand RMB million More than 1 year but less than 2 years RMB million More than 2 years but less than 5 years RMB million More than 5 years RMB million 25,280 1,339 5,512 15,957 4,826 161,908 94,083 308,905 – 11,753 929 15,456 – – – 28,138 – 60,414 10,109 43,513 – – – 114,036 – 7,056 1,428 253,575 – – – 262,059 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. 209 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 43 FINANCIAL RISK MANAGEMENT AND FAIR VALUES (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 does not have significant financial instruments that are denominated in foreign currencies other than the functional currencies of respective entities as at 31 December, and consequently does not have significant exposure to foreign currency risk. (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 2021, 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 RMB254 million (2020: decrease/increase by approximately RMB245 million). This sensitivity analysis has been determined assuming that the change of interest rates was applied to the Group’s debts outstanding at the date of the statement of financial position with exposure to cash flow interest rate risk. The analysis is performed on the same basis for 2020. (c) Commodity price risk 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 this risk. Based on the dynamic study and judging of the market, combined with the resource demand and production and operation plan, the Group evaluate and monitor the market risk exposure caused by transaction positions, and continuously manage and hedge the risk of commodity price fluctuation caused by market changes. As at 31 December 2021, 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 2021, the fair value of such derivative hedging financial instruments is derivative financial assets of RMB18,359 million (2020: RMB12,353 million) and derivative financial liabilities of RMB3,214 million (2020: RMB4,808 million). As at 31 December 2021, it is estimated that a general increase/decrease of USD10 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 decrease/increase the Group’s profit for the year by approximately RMB2,996 million (2020: increase/decrease RMB3,592 million), and decrease/increase the Group’s other reserves by approximately RMB1,160 million (2020: increase/decrease RMB10,379 million). This sensitivity analysis has been determined assuming that the change in prices had occurred at the date of the statement of financial position 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 2020. 210 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021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 date of the statement of financial position 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 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 2021 Assets Derivative financial assets: – Derivative financial assets Financial assets at fair value through other comprehensive income: – Equity instruments – Trade accounts receivable and bills receivable Liabilities Derivative financial liabilities: – Derivative financial liabilities At 31 December 2020 Assets Financial assets at fair value through profit or loss: – Equity investments, listed and at quoted market price Derivative financial assets: – Derivative financial assets Financial assets at fair value through other comprehensive income: – Equity instruments – Trade accounts receivable and bills receivable Liabilities Derivative financial liabilities: – Derivative financial liabilities Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million 5,883 179 – 6,062 804 804 12,488 – – 12,488 2,419 2,419 – 588 5,939 6,527 – – 18,371 767 5,939 25,077 3,223 3,223 Level 1 RMB million Level 2 RMB million Level 3 RMB million Total RMB million 1 9,628 149 – 9,778 2,471 2,471 – 2,900 – – 2,900 2,355 2,355 – – 1,376 8,735 10,111 – – 1 12,528 1,525 8,735 22,789 4,826 4,826 During the years ended 31 December 2021 and 2020, 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. 211 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 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 0.30% to 4.65% (2020: 0.77% to 4.65%). 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 2021 and 2020: Carrying amount Fair value 31 December 2021 RMB million 88,593 85,610 31 December 2020 RMB million 76,674 74,282 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 2021 and 2020. 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. 212 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021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, including environmental protection and energy structure transition variables, 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 future selling prices of crude oil, natural gas, refined and chemical products, the production costs, the product mix, production volumes, production profiles, the oil and gas reserves 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 ECLs using readiness matrix, 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 ECLs. 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 2021 is Sinopec Group Company, a state-owned enterprise established in the PRC. This entity does not produce financial statements available for public use. 213 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 202146 STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY STATEMENT OF FINANCIAL POSITION OF THE COMPANY (Amounts in million) Note 31 December 2021 RMB 31 December 2020 RMB Non-current assets Property, plant and equipment, net Construction in progress Right-of-use assets Investment in subsidiaries Interest in associates Interest in joint ventures Financial assets at fair value through other comprehensive income Deferred tax assets Long-term prepayments and other assets Total non-current assets Current assets Cash and cash equivalents Time deposits with financial institutions Derivative financial assets Trade accounts receivable Financial assets at fair value through other comprehensive income Dividends receivable Inventories Prepaid expenses and other current assets Total current assets Current liabilities Short-term debts Loans from Sinopec Group Company and fellow subsidiaries Lease liabilities Derivative financial liabilities Trade accounts payable and bills payable Contract liabilities Other payables Total current liabilities Net current liabilities Total assets less current liabilities Non-current liabilities Long-term debts Loans from Sinopec Group Company and fellow subsidiaries Lease liabilities Provisions Other long-term liabilities Total non-current liabilities Equity Share capital Reserves Total equity 284,618 66,146 113,304 269,456 73,782 17,609 201 8,715 38,848 872,679 34,575 76,116 4,503 21,146 227 971 63,661 73,906 275,105 24,387 867 7,085 1,121 91,365 7,505 280,560 412,890 137,785 734,894 56,765 9,015 104,426 35,271 3,955 209,432 525,462 121,071 404,391 525,462 283,691 59,880 115,992 259,087 69,508 14,761 428 12,661 30,855 846,863 28,081 71,107 7,776 21,763 707 796 39,034 53,816 223,080 21,571 3,271 7,190 362 71,840 5,840 234,844 344,918 121,838 725,025 49,311 8,079 105,691 36,089 4,472 203,642 521,383 121,071 400,312 521,383 (a) 214 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 46 STATEMENT OF FINANCIAL POSITION 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: Capital reserve Balance at 1 January Others Balance at 31 December Share premium Balance at 1 January Balance at 31 December Statutory surplus reserve Balance at 1 January Appropriation Balance at 31 December Discretionary surplus reserve Balance at 1 January Balance at 31 December Other reserves Balance at 1 January Share of other comprehensive income of associates and joint ventures, net of deferred tax Cash flow hedges, net of deferred tax Special reserve Balance at 31 December Retained earnings Balance at 1 January Profit for the year Distribution to owners (Note 14) Appropriation Special reserve Others Balance at 31 December The Company 2021 RMB million 2020 RMB million 9,382 (1,079) 8,303 55,850 55,850 92,280 3,944 96,224 9,247 135 9,382 55,850 55,850 90,423 1,857 92,280 117,000 117,000 117,000 117,000 8,881 12 102 469 9,464 116,919 39,950 (35,110) (3,944) (469) 204 117,550 404,391 3,912 (182) 4,911 240 8,881 131,674 18,821 (31,479) (1,857) (240) – 116,919 400,312 215 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial Statements (International)NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)for the year ended 31 December 2021 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: Shareholders’ equity under CASs Adjustments: Government grants Total equity under IFRS* Note (i) 31 December 2021 RMB million 31 December 2020 RMB million 916,041 888,720 (967) 915,074 (1,018) 887,702 Effects of major differences between the net profit under CASs and the profit for the year under IFRS are analysed as follows: Net profit under CASs Adjustments: Government grants Safety production fund Others Profit for the year under IFRS* Note (i) (ii) 2021 RMB million 85,030 2020 RMB million 42,097 51 775 (5) 85,851 52 237 (115) 42,271 * 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 2020 and 2021which have been audited by PricewaterhouseCoopers and KPMG, respectively. 216 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Differences between Consolidated Financial Statements Prepared in Accordance with the Accounting Policies Complying with CASs and IFRS (Unaudited)(C) DIFFERENCES BETWEEN CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH THE ACCOUNTING POLICIES COMPLYING WITH CASS AND IFRS (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 2021 and 2020, 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 The Group Property cost, wells and related equipments and facilities Supporting equipments and facilities Uncompleted wells, equipments and facilities Total capitalised costs Accumulated depreciation, depletion, amortisation and impairment losses Net capitalised costs Equity method investments Share of net capitalised costs of associates and 2021 RMB million Other countries Total China 2020 RMB million Other countries Total China 793,045 188,766 43,349 1,025,160 752,352 188,742 43,236 984,330 40,693 24 113 40,830 757,592 184,638 37,445 979,675 716,683 184,621 37,439 938,743 40,909 17 6 40,932 (787,623) 237,537 (748,705) 235,625 (38,918) 1,912 (742,195) 237,480 (702,829) 235,914 (39,366) 1,566 joint ventures 3,521 – 3,521 5,843 – Total of the Group’s and its equity method investments’ net capitalised costs 241,058 235,625 5,433 243,323 235,914 Table II: Costs incurred in oil and gas exploration and development The Group Exploration Development Total costs incurred Equity method investments Total China 21,762 46,147 67,909 21,762 45,590 67,352 Share of costs of exploration and development of associates and joint ventures Total of the Group’s and its equity method investments’ exploration and development costs 442 – 68,351 67,352 2021 RMB million Other countries – 557 557 442 999 Total China 16,752 38,241 54,993 16,752 37,636 54,388 100 – 55,093 54,388 5,843 7,409 2020 RMB million Other countries – 605 605 100 705 217 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) Table III: Results of operations related to oil and gas producing activities The Group Revenues Sales Transfers Production costs excluding taxes Exploration expenses Depreciation, depletion, amortisation and impairment losses Taxes other than income tax Profit before taxation Income tax expense Results of operation from producing activities Equity method investments Revenues Sales Production costs excluding taxes Exploration expenses Depreciation, depletion, amortisation and impairment losses Taxes other than income tax Profit before taxation Income tax expense Share of profit for producing activities of associates and joint ventures Total of the Group’s and its equity method investments’ results of operations for producing activities 2021 RMB million Other countries 2020 RMB million Other countries Total China Total China 72,953 86,650 159,603 (49,649) (12,382) (54,104) (11,249) 32,219 (8,225) 23,994 8,812 8,812 (2,246) – (533) (4,391) 1,642 (355) 1,287 72,953 84,484 157,437 (48,674) (12,382) (53,644) (11,249) 31,488 (7,872) 23,616 – – – – – – – – – – 2,166 2,166 (975) – (460) – 731 (353) 378 8,812 8,812 (2,246) – (533) (4,391) 1,642 (355) 52,354 58,069 110,423 (44,595) (9,716) (52,608) (7,379) (3,875) 188 (3,687) 4,913 4,913 (998) – (940) (1,930) 1,045 (303) 1,287 742 52,354 56,052 108,406 (43,487) (9,716) (51,754) (7,379) (3,930) – (3,930) – – – – – – – – – 25,281 23,616 1,665 (2,945) (3,930) – 2,017 2,017 (1,108) – (854) – 55 188 243 4,913 4,913 (998) – (940) (1,930) 1,045 (303) 742 985 The results of operations for producing activities for the years ended 31 December 2021 and 2020 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. 218 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) 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 2021 and 2020 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. The Group Proved developed and undeveloped reserves (oil) (million barrels) Beginning of year Revisions of previous estimates Improved recovery Extensions and discoveries Production End of year Non-controlling interest in proved developed and undeveloped reserves at the end of year Proved developed reserves Beginning of year End of year Proved undeveloped reserves Beginning of year End of year Proved developed and undeveloped reserves (gas) (billion cubic feet) Beginning of year Revisions of previous estimates Improved recovery Extensions and discoveries Production End of year Proved developed reserves Beginning of year End of year Proved undeveloped reserves Beginning of year End of year 2021 2020 Total China Other countries Total China Other countries 1,252 194 141 101 (248) 1,440 8 1,145 1,315 107 125 8,181 32 666 678 (1,108) 8,449 6,357 6,734 1,824 1,715 1,232 185 141 101 (243) 1,416 – 1,130 1,291 102 125 8,181 32 666 678 (1,108) 8,449 6,357 6,734 1,824 1,715 20 9 – – (5) 24 8 15 24 5 – – – – – – – – – – – 1,450 (161) 109 111 (257) 1,252 5 1,343 1,145 107 107 7,216 171 692 1,171 (1,069) 8,181 6,026 6,357 1,190 1,824 1,433 (171) 109 111 (250) 1,232 – 1,326 1,130 107 102 7,216 171 692 1,171 (1,069) 8,181 6,026 6,357 1,190 1,824 17 10 – – (7) 20 5 17 15 – 5 – – – – – – – – – – 219 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) Table IV: Reserve quantities information (Continued) Equity method investments Proved developed and undeveloped reserves of associates and joint ventures (oil) (million barrels) Beginning of year Revisions of previous estimates Improved recovery Extensions and discoveries Production End of year Proved developed reserves Beginning of year End of year Proved undeveloped reserves Beginning of year End of year Proved developed and undeveloped reserves of associates and joint ventures (gas) (billion cubic feet) Beginning of year Revisions of previous estimates Improved recovery Extensions and discoveries Production End of year Proved developed reserves Beginning of year End of year Proved undeveloped reserves Beginning of year End of year Total of the Group and its equity method investments Proved developed and undeveloped reserves (oil) (million barrels) Beginning of year End of year Proved developed and undeveloped reserves (gas) (billion cubic feet) Beginning of year End of year 2021 2020 Total China Other countries Total China Other countries 290 8 1 35 (25) 309 244 263 46 46 10 1 – – (4) 7 8 6 2 1 – – – – – – – – – – – – – – – – – – – – 1,542 1,749 8,191 8,456 1,232 1,416 8,181 8,449 290 8 1 35 (25) 309 244 263 46 46 10 1 – – (4) 7 8 6 2 1 310 333 10 7 290 13 – 11 (24) 290 245 244 45 46 9 4 – – (3) 10 9 8 – 2 – – – – – – – – – – – – – – – – – – – – 1,740 1,542 7,225 8,191 1,433 1,232 7,216 8,181 290 13 – 11 (24) 290 245 244 45 46 9 4 – – (3) 10 9 8 – 2 307 310 9 10 220 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) 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 2021 and 2020 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. The Group Future cash flows Future production costs Future development costs Future income tax expenses Undiscounted future net cash flows 10% annual discount for estimated timing of cash flows Standardised measure of discounted future net cash flows Discounted future net cash flows attributable to non-controlling interests Equity method investments Future cash flows Future production costs Future development costs Future income tax expenses Undiscounted future net cash flows 10% annual discount for estimated timing of cash flows Standardised measure of discounted future net cash flows Total of the Group’s and its equity method investments’ results of standardised measure of discounted future net cash flows 2021 RMB million 2020 (Revised) Note RMB million Total China Other countries Total China Other countries 941,015 (413,006) (79,562) (113,598) 334,849 (93,354) 241,495 370 49,217 (18,026) (6,328) (4,513) 20,350 (10,201) 10,149 930,302 (407,903) (77,687) (111,178) 333,534 (93,164) 240,370 10,713 (5,103) (1,875) (2,420) 1,315 (190) 1,125 595,159 (275,409) (80,785) (11,758) 227,207 (54,158) 173,049 589,659 (271,824) (77,659) (10,521) 229,655 (52,706) 176,949 – – – – – – – – 370 (1,284) 49,217 (18,026) (6,328) (4,513) 20,350 (10,201) 10,149 31,259 (13,050) (5,712) (1,740) 10,757 (4,828) 5,929 – – – – – – – – 5,500 (3,585) (3,126) (1,237) (2,448) (1,452) (3,900) (1,284) 31,259 (13,050) (5,712) (1,740) 10,757 (4,828) 5,929 251,644 240,370 11,274 178,978 176,949 2,029 Note: Pursuant to Amendments to the XBRL Taxonomy, Accounting Standards Update No. 2010-03 Extractive Activities-Oil and Gas (Topic 932), the Company has revised the future development cost attributable to China for the year ended 31 December 2020 in Table V and Table VI to include future cash flows related to the settlement of asset retirement obligations. 221 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) Table VI: Changes in the standardised measure of discounted cash flows The Group Sales and transfers of oil and gas produced, net of production costs Net changes in prices and production costs Net changes in estimated future development cost Net changes due to extensions, discoveries and improved recoveries Revisions of previous quantity estimates Previously estimated development costs incurred during the year Accretion of discount Net changes in income taxes Net changes for the year Equity method investments Sales and transfers of oil and gas produced, net of production costs Net changes in prices and production costs Net changes in estimated future development cost Net changes due to extensions, discoveries and improved recoveries Revisions of previous quantity estimates Previously estimated development costs incurred during the year Accretion of discount Net changes in income taxes Net changes for the year Total of the Group’s and its equity method investments’ results of net changes for the year 2021 RMB million 2020 (Revised) RMB million (98,705) 135,697 (7,413) 62,449 26,613 5,475 16,448 (72,118) 68,446 (2,174) 4,967 (752) 1,760 402 287 1,022 (1,292) 4,220 72,666 (58,449) (122,641) (11,628) 44,602 (11,211) 6,684 31,940 19,375 (101,328) (1,984) (5,190) (299) 369 437 232 979 1,180 (4,276) (105,604) 222 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Financial StatementsSupplemental Information on Oil andGas Producing Activities (Unaudited)(D) SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED) STATUTORY NAME 中国石油化工股份有限公司 ENGLISH NAME China Petroleum & Chemical Corporation 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 188 Yanggao South Road Shanghai Pilot Free Trade Zone, 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. CHINESE ABBREVIATION 中国石化 ENGLISH ABBREVIATION Sinopec Corp. LEGAL REPRESENTATIVE Mr. Ma Yongsheng AUTHORISED REPRESENTATIVES Mr. Yu Baocai 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 Tel. Fax Website E-mail addresses : ir@sinopec.com : 100728 : 86-10-59960028 : 86-10-59960386 : http://www.sinopec.com REGISTERED ADDRESS CHANGE INFORMATION No change during the reporting period 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 PLACES OF LISTING OF SHARES, STOCK NAMES AND STOCK CODES A Shares: Shanghai Stock Exchange Stock name Stock code : SINOPEC CORP : 600028 H Shares: Hong Kong Stock Exchange 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 : KPMG Huazhen LLP Certified Public Accountants in China : 8th Floor Address Postcode Overseas Auditors Address KPMG Tower Oriental Plaza 1 East Chang An Avenue, Beijing, PRC : 100738 : KPMG Public Interest Entity Auditor registered in accordance with the Financial Reporting Council Ordinance : 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 223 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Corporate InformationCORPORATE INFORMATIONThe Company’s 2021 annual report is disclosed on the website of the Shanghai Stock Exchange (http://www.sse.com.cn) and the Company’s designated information disclosure media “China Securities News”, “Shanghai Securities News” and “Securities Times”. The following documents will be available for inspection during normal business hours after 25 March 2022 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 2021 annual report signed by Mr. Ma Yongsheng, the Chairman; b) The original copies of financial statements and consolidated financial statements as of 31 December 2021 prepared under IFRS and CASs, signed by Mr. Ma Yongsheng, the Chairman, Mr. Yu Baocai, the President, 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 Ma Yongsheng Chairman Beijing, PRC, 25 March 2022 If there is any inconsistency between the Chinese and English versions of this annual report, the Chinese version shall prevail. 224 CHINA PETROLEUM & CHEMICAL CORPORATIONAnnual Report 2021Documents for InspectionDOCUMENTS FOR INSPECTION中國北京市朝陽區朝陽門北大街 22 號 22 Chaoyangmen North Street, Chaoyang District, Beijing, China www.sinopec.com Printed on environmentally friendly paper 

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