* Govt last year approved near doubling of gas price from
* Move seen negative for energy conglomerate Reliance
* Decision on price hike now expected to be taken by next
* Reliance, ONGC shares fall more than 3 percent
(Updates with stock reactions, analyst comment, details)
By Sumeet Chatterjee
MUMBAI, March 25 An unexpected request by
India's Election Commission for the government to defer a rise
in gas prices until after a looming general election hit shares
in Reliance Industries Ltd and Oil and Natural Gas
Corp on Tuesday.
A price increase had been due to come into effect on April
1, just days before India starts voting in an election that
starts on April 7 and will end on May 12.
The Election Commission gave no reason for its decision late
But India's Supreme Court on Tuesday resumed a hearing on
two petitions to strike down the cabinet's June 2013 approval of
a doubling in the gas price on grounds that it favoured a
corporate house and was against the interests of the nation.
The government told the court on Tuesday that it would
comply with the Commission's request.
Arvind Kejriwal, the head of India's new anti-corruption Aam
Aadmi Party (AAP), which briefly controlled the state government
in New Delhi, last month called for a criminal investigation
into government officials and Reliance Industries Chairman
Mukesh Ambani over the matter. Kejriwal had also called for the
Election Commission to stall the price rise.
Reliance Industries is India's second most valuable company,
and Ambani is its richest man.
The cabinet last year approved a near-doubling of gas prices
from the current $4.20 per million British thermal units to spur
investment in exploration for gas.
Following the Election Commission's action, shares in
Reliance fell as much as 3.8 percent to 872.50 rupees, on a day
when the Mumbai share markets were trading broadly flat. ONGC
was also down 3.8 percent and state-run Oil India Ltd
was trading down 2.5 percent.
"It sends a very bad signal to the outside world. In this
country, due to elections even the commercial decisions can be
postponed," said Deven Choksey, managing director at Mumbai
brokerage K.R. Choksey Securities.
Many brokerages had upgraded earnings estimates for Reliance
and ONGC after the cabinet approved the price hike last year.
"Thank you Election Commission for saving the people of
India from huge price rise that would have happened if gas
prices had increased from 1 Apr," Kejriwal tweeted after the
commission announced it had called for a delay.
Reliance says Kejriwal's allegation that it created an
artificial gas shortage to "blackmail" the government into
raising prices is baseless. It has long maintained that
geological complexities have pushed production lower and costs
up, warranting an increase in prices in order to boost
investment that will lead to higher output.
"A political party has written to the Election Commission
(EC) to keep on hold a bona fide decision of the Union Cabinet
on gas pricing. The party has a history of ill-informed
diatribe," Reliance said in a statement issued on Sunday.
The company declined to comment after the Election
Commission announced its decision late Monday.
HIGH DEMAND, LOW PRICE
Analysts noted that the cabinet approval was granted long
before the election dates were announced, and some said the
Commission's intervention could further undermine sentiment
towards an energy sector that has struggled to attract
The election commission can ask the government to put on
hold any decision that comes into effect after announcement of
the poll schedule if the move is seen influencing voters or
benefitting any particular political party, but it did not
explain its reasoning in this case.
In a letter to the petroleum ministry's secretary, the
commission said it had decided the proposed price increase could
be deferred, without elaborating.
In its statement on Sunday, Reliance said the government's
decision to implement the new price from April 1 was part of a
"contractual obligation", as current gas prices are valid until
Demand for gas in India far outstrips consumption and
domestic supply, but the government has kept prices below global
market levels for producers of fertilizer and electricity, which
has deterred investment in domestic exploration and production.
India, the world's fourth-largest energy consumer, has few
energy resources other than coal, which meets 56 percent of its
energy needs. Oil, mostly imported, accounts for 26 percent.
Gas output from wells operated by Reliance and its partner
BP off India's east coast, has fallen sharply since 2010.
The companies say the decline in due to the geological
complexity of the KG D6 block.
(Additional reporting by Abhishek Vishnoi, Sruthi Gottipati and
Nidhi Verma; Editing by Jane Baird, Tony Munroe and Simon