* Government still drafting eligibility rules * Teapot refiners have not formally applied for quotas * Process could take longer than expected

It could be some time before more independent refineries in China are given the right to import crude oil as applications for licenses have not been filed with the government, sources said recently.

There has been talk since late last year that China's central government would be loosening crude import rights by awarding new crude import quotas to more independent refiners, known as "teapot" refiners.

The import of crude and oil products is strictly controlled and currently only a handful of state-owned oil companies have been given the right to purchase imported crude.

However, Beijing has indicated it is willing to consider expanding this to other companies. It has awarded a 10 million mt/year crude import quota to state-owned China National Chemical Corporation, or ChemChina, which is involved in the chemicals business and also owns seven refineries in eastern China with combined capacity of about 500,000 b/d.

A source with Shandong Dongming Petrochemical, a company earlier reported to be keen on securing a crude import quota, said Tuesday: "We have not submitted any formal application at the moment as we are still waiting for the official guidelines from the government."

Another refinery that expressed desire for a crude import quota was the 5 million mt/year Hongrun Petrochemical, where state-owned trader Sinochem has a 51% stake. A company source also said no application had yet been made. EXPRESSIONS OF INTEREST

A second source at Shandong Dongming, which has a capacity of 10 million mt/year, said representatives of various teapot refineries had met with the government late last year and had submitted expressions of interest for crude import quotas, but there has been little formal progress since then as the refiners are still waiting for detailed requirements from the government before formal applications can be lodged with the Ministry of Commerce.

The guidelines will likely stipulate criteria for teapot refiners applying for the quotas. These include meeting a minimum capacity, achieving specific run rates and producing oil products that meet the national sulfur standards, said the source.

The first source said: "We hope the government will release the details as soon as possible, but we don't know when this will take place."

A source at the commerce ministry said late last week that no teapot refinery had submitted an application to date and that the State Council, or Cabinet, as well as the National Development and Reform Commission, were still drafting the rules.

The timeline for the awarding of the new crude import quotas is still unclear but given where things stand currently, the process is unlikely to be concluded by the end of this year, said one industry observer. This is despite numerous local media reports since late last year indicating that approvals were likely to be announced soon. QUALIFICATION RULES

As part of the consultation process with the industry, the National Energy Administration, which is under the NDRC, had sought feedback and recommendations on the proposal to increase the crude import quotas in the fourth quarter of last year.

At the time, the agency had suggested that the quotas be restricted only to refineries which have primary processing capacity of at least 5 million mt/year, including a single cracking unit of at least 3 million mt/year. In addition, the agency was also reported to have stipulated that applicants maintain their utilization at above 50%.

Observers say if these thresholds are adopted, most teapot refiners will not qualify for crude import quotas, as most facilities are under the minimum capacity and their run rates typically below 50%. Deregulation of the crude import framework is in line with the government's push to involve more private participation in the energy sector as part of overall state-owned enterprise reform.

The awarding of new quotas will likely formalize and accelerate what is already happening in the teapot sector.

China's teapot refiners traditionally used imported fuel oil as their primary feedstock due to their inability to access domestic or foreign crude supplies, which are controlled by the country's two state owned refiners China National Petroleum Corp. and Sinopec.

However in recent years the teapot refiners have managed to gain access to more crude, particularly domestic grades such as Shengli as well as production from China National Offshore Oil Corp.'s offshore fields. This is because of strategic alliances the state-owned majors have formed with a number of teapot refiners in order to increase their market share.

According to Beijing-based energy data provider JYD Commodities Hub, crude now accounts for over 80% of the feedstock consumed by teapot refiners in Shandong, up from under 60% in the first half of 2013.

ChemChina was given its 10 million mt/year quota allocation -- valid for three years starting 2013 -- at the end of 2012, three years after its application to the government. It started purchasing cargoes in April 2013.

One source close to the matter said recently the company was on track to fully utilize its quota this year. The company has a preference for medium sweet grades and its crude slate is understood to include Oman from the Middle East, Russia's ESPO and some West African grades.