UPDATE 2-Chinese provinces act to ease coal shortage

(Writes through)

By Rujun Shen

SHANGHAI, June 5 (Reuters) - Faced with a growing coal and power shortage, China's provinces are devising their own policies to ensure cheap coal supply, as price controls on electricity increasingly cause distortions in China's power and coal markets.

Central planners want to fight inflation and prevent blackouts, while recovering from a terrible earthquake ahead of the Olympic Games in Beijing in August.

But by discouraging production and limiting trade within China, unilateral policies by provinces could further complicate Beijing's efforts to ensure a smooth economy this summer.

Shaanxi province, one of the country's top coal producers, has urged local mines not to increase coal prices before Sept. 15 to comply with Beijing's goals of cheaper coal supply.

"Now coal prices have risen, and the profit margin of power generating companies has been squeezed," Shaanxi vice governor Wu Dengchang said in a speech published on an official website.

"But everyone, especially state-owned enterprises, should understand that we ought to take the entire country's interest into consideration."

Although capping coal prices brings no economic benefit to coal-exporting provinces and could discourage mines from producing more to meet shortages, political pressure to maintain thermal coal supply is significant, analysts said.