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China’s recent plan to raise the prices of gasoline and diesel along with upgrades of fuel quality will hurt local small, privately owned oil refineries, even driving some into bankruptcy, industry experts said.

Last month, China’s top economic regulator — the National Development and Reform Commission (NDRC) — announced the timetable for fuel quality upgrades. It said gasoline should meet the National IV standard by the beginning of 2014 and diesel by the beginning of 2015, and both should meet the National V standard by the beginning of 2018.

The upgrade comes as part of the effort to combat air pollution and the smog that engulfs larges areas of China.

The upgrade plan is coupled with a new pricing policy which will raise the prices of gasoline and diesel that meet the National IV standard by 290 yuan ($47) and 370 yuan ($60) per ton respectively over the next two years.

Another price hike is to occur after the fuels reach the National V standard by 2018, when gasoline prices will be lifted by 170 yuan ($28) per ton and diesel by 160 yuan ($26) per ton, the NDRC said.

Domestic refineries have been urged to upgrade their production facilities in order to supply qualified fuel on schedule. Despite their reluctance, state refiners – China National Petroleum Corp., China Petroleum & Chemical Corp. and China National Offshore Oil Corp. – have commenced their upgrade works and will meet the target.

However, China has around 100 local small, privately owned refineries which are producing low-quality fuels at National II Standard.

Poorly-financed small refineries will have a hard time to update equipment, which will cost billions of yuan.

Without upgrade, they won’t be able to supply qualified fuels and will lose market.

Even with technology and equipment upgrades, small refiners may lose customers when prices to consumers are lifted by government order, forcing some to shut down or be acquired by state oil giants, said industry insiders.

Source: CNR (中国广播网), Xinhua News