On 22 November 2010, the National Development and Reform Commission (NDRC) announced1 that it was in the process of determining remedies against eight oil companies for selling diesel above the maximum prices set by the Government.
The eight companies are: (a) Shaanxi Petroleum Chemistry Industry Trade Company; (b) Shaanxi Yanchang New Resources Co., Ltd; (c) Shanxi Yanlian Petroleum Chemistry Co., Ltd Xi’an Supply Store; (d) Shandong Jincheng Petroleum Chemistry Group Company; (e) Jiangsu Province Lianyungang PetroChina Sales Co., Ltd; (f) Sinopec Wuhan branch company; (g) Sinopec Luoyang branch company; (h) PetroChina Wuhan branch Company. [Note: The companies listed in (e) to (h) are State Owned Enterprises (SOEs).]
Pursuant to the Tentative Rules for the Administration of Oil Products (Rules) promulgated by the NDRC on 7 May 2009:
- the NDRC has the power to set maximum wholesale and retail prices of diesel for all provinces and central cities in China;
- suppliers of diesel are prohibited from selling above these maximum wholesale and retail prices (see Articles 8 and 10 of the Rules);
- generally, the NDRC sets the maximum retail prices first – the difference between the maximum wholesale prices and maximum retail prices are genally 300RMB or 400RMB per tonne (see Articles 10 of the Rules).
- the NDRC may adjust the maximum wholesale and retail prices of diesel if the moving average price for crude oil in the international crude oil market either increases or decreases more than 4% within 22 consecutive working days (see Article 6 of the Rules).
The NDRC has determined that all eight companies listed above sold wholesale diesel at prices which exceeded the maximum wholesale diesel prices set by the Government. Generally, these companies exceeded the prices set by the Government at between 1RMB to 635 RMB per tonne.
The NDRC has yet to determine the nature and extent of remedies to be applied to the eight companies listed above. Pursuant to Article 39 of the Price Law, if a business operator fails to adhere to Government set prices, the business operator may be ordered to:
- rectify the situation;
- surrender the business operator’s illegal income;
- pay a fine of not more than five times the illegal income;
- if there is no illegal income involved, the business operator may still be fined;
- if the conduct or circumstances are deemed “serious”, the business operator will be ordered to suspend its business and to carry out stipulated “re-organisation of its business.
The NDRC has recently been very serious and active in enforcing price rules in other industries as well (e.g. in sugar, cotton and other agricultural products industries), with the objective of addressing inflation.