Petroleum Minister Ram Naik on Tuesday hinted at deregulation of natural gas pricing by the year end, by when costlier liquefied natural gas will arrive in India.

"Natural gas prices will have to be deregulated by early 2004 when imported LNG from Qatar arrives at Dahej in Gujarat. The distortion between market-determined price and the highly subsidised domestic natural gas prices will have to be removed to promote competition between the two," Naik told reporters on the eve of completing one year of oil sector deregulation.

He said the issue of decontrolling pricing of natural gas by removing the existing cap prices, has been referred to a Group of Ministers as the move would have impacted subsidy carrying sectors like power and fertiliser.

"A decision was likely soon," he said while stating that his ministry had also circulated an Integrated LNG Policy that provided for tax breaks to make imported fuel cheaper.

The incentives envisaged in the policy include nil import duty and declared goods status making LNG taxable at a uniform central sales tax rate of 4 per cent as against the existing highs of 22 per cent in Gujarat.

Naik said natural gas pricing were among the few grey areas left after the petroleum sector was deregulated on April 1, 2002 with the dismantled the administered pricing mechanism.

"Seventy-five per cent of the task (of deregulation) has been accomplished and only 25 per cent work remains," he said while referring to impending deregulation of natural gas.

He said LNG would be cheaper than alternate fuels like naphtha and power plants and fertiliser units currently running on naphtha would switch-over to the imported fuel.

The petroleum minister said that in the first year of deregulation, effort has been made to align domestic petroleum product prices with the international movement, which has resulted in increase of retail price of petrol and diesel on many occasions.

"We are suffering because of volatility in the global oil markets caused by the war in Iraq," he said, pointing out that the average procurement cost of Indian basket of crude in 2001-02 was $22.75 a barrel which has risen to $26.59 a barrel in 2002-03.

"An example of volatility in the international market is the fact that global petrol prices jumped from $32.73 a barrel on March 27 to $36 a barrel on March 28 as opposed to less than 2 per cent increase in crude oil prices from $25.81 a barrel to $26.66 a barrel in the same period," he said.

State-owned oil companies have been 'prudently' passing on the increase in prices to domestic consumers, he said.