(Repeats earlier story with no change in text)
NEW DELHI, June 27 (Reuters) - India took the unpopular step
of approving a gas price rise for the first time in three years
on Thursday, a move which could inject much needed investment in
local production but boost imports of more costly liquefied
natural gas (LNG).
"On gas pricing, the proposal of the Rangarajan Committee
has been accepted," Food Minister K. V. Thomas told reporters
after a cabinet meeting, referring to a formula which has
produced indicative prices around double current levels.
The move will be unpopular with voters as local and national
elections loom in the next 12 months, but is key to easing acute
power shortages in the country, where cheap gas deters
investment and keeps demand way above actual use.
Indicative pricing has suggested domestic gas could rise to
around $8.4-8.5 per mmBtu with the new mechanism, drawn up by a
committee headed by C. Rangarajan, from a current $4.2 mmBtu.
That would help boost revenues of producers like state-run Oil
and Natural Gas Corp and Oil India.
That would be in line with Indonesia's gas prices which are
$6-9 per mmBtu but still short of typical LNG import costs.
The government needs to encourage power production in order
to help revive Asia's third-largest economy that grew at its
slowest pace in a decade in the year ending March 31, 2013.
Demand for gas in India far outstrips consumption, but
prices have been kept low for strategic industries, deterring
investment in the sector. India has few energy resources other
than coal and is the world's fourth-biggest importer of fuel.
"We have a massive shift this year in India from gas to
coal, similar to Europe. And the reasons have to do with limited
domestic capacity to produce gas and high LNG prices, and the
reasons for that have to do with the Indian pricing system,"
said Christof Ruhl, group chief economist at energy giant BP
, at a presentation earlier on Thursday.
Currently, India uses coal for nearly 56 percent of its
energy needs, with oil filling 26 percent and gas a distant
third at 10 percent. It wants to double the share of gas in the
mix by 2020, replacing more expensive diesel and fuel oil.
Without a price rise, India's gas demand would have risen to
466 million cubic metres a day (mcmd) in 2016/17 from 286 mcmd,
the government calculated, and supply would be only half that.
Some political parties see the move as aimed at helping
Reliance Industries, which has been calling for an
increase in gas prices when its contract for sales from its gas
block off the east coast expires on April 1, 2014.
Reliance and BP could commercialise other discoveries in the
block and help reverse declining production there, said a source
privy to Reliance's operations.
And while the reform will still not bring domestic prices in
line with imported LNG costs, it will narrow the gap enough to
encourage investment in infrastructure to handle higher imports.
Industries that can't get low-priced local gas, which has
been restricted by the government to key sectors like fertiliser
producers and some power plants, will take LNG as it is still
cheaper than alternatives like diesel, fuel oil and naphtha.
(Reporting by Mayank Bhardwaj and Nigam Prusty; Writing by Jo
Winterbottom; editing by Malini Menon)