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Indian cabinet panel to soon discuss natural gas price rise

BY SAURABH CHATURVEDI

NEW DELHI -- A top Indian cabinet panel will soon discuss a proposal for raising domestic natural gas prices, the oil minister said, a closely watched issue that is likely to affect both investors and end users.

In January 2013, a panel of experts led by the head of the prime minister' s economic advisory council, C. Rangarajan, recommended almost doubling local gas prices and suggested that the south Asian country should scrap its system for setting natural gas prices according to the field it comes from in favor of a uniform pricing model.

After studying the panel suggestions, the oil ministry sought comments from different federal ministries on the plans of raising natural gas prices before finalizing the proposal.

There were differences between different ministries on the panel' s recommendations Oil Minister Veerappa Moily said. "I will sign the final proposal and send it to the cabinet committee on economic affairs tomorrow" though he didn' t say when the proposal would be discussed.

Investors are keeping a close watch on this issue as any increase in gas prices would incentivize companies such a Reliance Industries and Essar Oil to work towards raising gas output and supplies. Any price rise is likely to have an impact only from next year when the prices from Reliance' s east coast block are due to be revised.

But a price rise would be bad news for end user industries, such as power generators and steelmakers, as it will raise their production costs, something which could be passed on to consumers.

The panel headed by C. Rangarajan suggested gas prices should be based on an average using various export and global benchmark prices rather than being fixed by the government.

Indian gas producers have been clamoring for higher prices, which are far lower than international prices, with some analysts saying lower gas prices have hindered output, while a shortage of natural gas has curbed power generation.

Separately, a senior oil ministry official said the cabinet panel at its meeting may approve ONGC Videsh' s plan to invest an additional $65 million for further exploration of Block 06.1 project in Vietnam.

ONGC Videsh needs government approval for its overseas investments.

ONGC Videsh holds a 45% participating interest in the block, while PetroVietnam 20%. BP Exploration Vietnam Ltd has the remainder.

Dow Jones Newswires

05/15/2013

 

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