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India allows Reliance to raise gas prices from April

NEW DELHI (Reuters) - India on Thursday allowed Reliance Industries (NSI:RELIANCE.NS - News) to charge higher prices for gas from April after the company offered financial guarantees to the government to settle any claims against it over a shortfall in its gas output.

In June, India approved a move to higher, market-related rates for locally-produced gas from April 2014, but the finance ministry later said prices for Reliance should be capped because the company's gas production from the offshore D6 block was far below its supply commitment.

"Bank guarantee will be equivalent to the incremental revenue that Reliance will get from the new gas pricing," Oil Secretary Vivek Rae told reporters after a cabinet meeting.

Reliance, which operates the D6 block off India's eastern coast, has reported a sharp decline in gas output since 2010.

Reliance and partner BP (LSE:BP.) have blamed geological complexities for the fall in output, but the oil regulator believes they failed to drill enough wells.

Output from the fields D1 and D3 at the block has plunged to about 10 million cubic meters a day (mmcmd), a company official has said, compared to the planned 80 mmcmd.

Falling output had already prompted the government to disallow proportionate cost recovery to Reliance, leading to arbitration proceedings over the issue.

Gas from D6 was earmarked for strategic domestic industries including fertiliser production, cooking gas and power, but has fallen so much that only some fertiliser plants now get supplies from the offshore block.

(Reporting by C. K. Nayak and Nidhi Verma; editing by by Mayank Bhardwaj)