The National Development and Reform Commission (NDRC), China's economic planner and price regulator, said Friday it has asked local governments to crack down on some gas stations selling diesel above the state-set prices.

NDRC investigators found some gas stations have been selling diesel above state-set prices in the provinces of Sichuan, Hubei, Henan, Zhejiang, Jiangsu, Liaoning, Jiangxi and Shanxi and Chongqing Municipality.

The NDRC has requested local governments to punish the offending gas stations.

The stations were ordered to stop overcharging and turn over illegal incomes to authorities, according to a statement on the NDRC web-site.

Also, the stations would receive punitive fines, it said.

Among the violators, Yueyuan gas station in Xichang, Sichuan Province, sold No. 0 diesel for 9 yuan (US$1.35) per liter, as against the state-set 6.55 yuan.

The NDRC said that consumers can call 12358 to complain about diesel overpricing and the price regulators will respond quickly.

The latest measures were adopted in the wake of those publicized Tuesday, which were aimed to stop some refiners and diesel wholesalers from overcharging.

An unprecedented diesel shortage has hit China's cities and markets, leading some wholesalers and gas stations to sell diesel above the state-set prices.

Due to the diesel shortage, some enterprises suspended production and express deliveries turned into "snail deliveries."

People found that it took much longer for buses to arrive and even some crematories found it hard to get enough diesel for cremations.

"We can't find enough diesel. Ten of the trucks in our company can't go out to deliver cargo. Our businesses are affected," said Du Zhanhai, head of a freight transportation company in Tangshan, north China's Hebei Province.

The deadline for China's planned reduction in energy consumption is approaching. The country announced that it would reduce energy consumption by 20 percent per GDP unit during the 11th Five-Year Plan (2006-2010).

As a result, some provinces, under the pressure to meet the requirements, took emergency measures, such as limiting power supplies so as to cut energy consumption. This has pushed up the demand for diesel as factories turned to the fuel for power.

"Many places cut power supplies, forcing factories to use diesel to generate power and this contributed to the abrupt diesel demand," said Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University.

Wang Zhen, head of the Business Administration College of China University of Petroleum, said two major factors which contributed to the shortages included abrupt demand amid economic recovery and diesel supply strain due to "emergency" power cuts.

In Xinglong, a county with about 300,000 residents in North China's Hebei province, the power quota available was 89 million kilowatts per month throughout July and August. This was due to energy-saving and emission-cut requirements.

The quota dropped to 66 million kilowatts in October, forcing 46 plants to close. They reopened in November as the monthly quota rose to 70 million kilowatts. Many plants had to turn to diesel for power to continue production.

The. second round of quantitative easing monetary policy by the US also pushed up commodity prices. China raised oil prices on October 26 to narrow the gap with international levels, but expectations were not relieved on further rises of domestic oil prices, resulting in hoarding for profits.

Finally, China's oil price-fixing mechanism also contributed to the severe shortages this time, experts said.

According to the mechanism, which was updated in 2009, domestic oil prices can change after the international crude prices rise or fall more than 4 percent in 22 working days.

Thus, domestic oil prices changed far behind international prices and the time lag may have encouraged arbitrage activities, Lin said.

Lin said China needs to further update the oil-price fixing mechanism to provide full play for prices in the market.

To relieve the domestic diesel shortages, both Sinopec and PetroChina, China's two oil giants, are increasing diesel imports.

Sinopec said on November 19 that it had even suspended diesel exports.

(Xinhua News Agency November 27, 2010)