Government should cap local gas prices - parliamentary panel

NEW DELHI (Reuters) - India should cap local gas prices after a scheduled rise in April to avoid hurting the slowing economy, a parliamentary panel report said on Wednesday, renewing pressure on the government to review its new pricing policy.

India in June took the unpopular step of raising prices from April after a gap of three years, linking domestic gas prices with global liquefied natural gas (LNG) benchmarks, that could hurt the fertiliser and power sectors.

The panel, headed by former finance minister Yashwant Sinha said, a cap was necessary to avoid the potential for unlimited gains to local producers due to an upswing in global prices.

The recommendations of the panel are similar to those of the finance ministry that were sent to oil ministry. Minister M Veerappa Moily has said gas pricing will not be reviewed.

Recommendations of the panel are not binding but usually have a bearing on government policy.

Revision in gas pricing is seen as benefiting Reliance Industries , whose existing contracts for gas sales from block D6 on the east coast are expiring on April 1, 2014.

Output from the block, which was expected to contribute up to a quarter of the gas supply in the country, has been falling since April 2010, cutting supply of the fuel to the power and other sectors.

The committee's report on the 'Economic Impact of Gas Price Revision' also asked the government to ensure Reliance delivers any shortfall of gas it owes to customers at the old price of $4.2 per mmBtu.

Current gas output from block D6 is about 14 million cubic metres a day (mmscmd), way below the expected 80 mmscmd. BP owns 30 percent of block D6 and Niko Resources has a 10 percent share.

(Reporting by Nidhi Verma and Manoj Kumar; editing by Keiron Henderson)