UPDATE 1-India Reliance Industries reopens 900 gas stations

(Adds details, background)

NEW DELHI, Nov 24 (Reuters) - India's Reliance Industries (RELI.BO: Quote, Profile, Research) has reopened 900 gas stations, which were shut down when state firms were selling heavily subsidised fuel, the head of the firm's refinery business, P. Raghavendran, said.

"Mostly these are in western and southern India. Wherever we can operate at PSU (public sector undertaking) prices, we are operating," he told reporters on Tuesday.

In March last year, a Reliance official said the company was shutting down 900 company-owned pumps as subsidised sale by state firms made private sales unviable.

Reliance Industries, India's biggest conglomerate, also sold fuel via 500 dealer-operated pumps.

Essar Oil (ESRO.BO: Quote, Profile, Research), the only other private refiner in India, and Reliance had together captured about 17 percent of domestic retail market for diesel and accounted for 10 percent of petrol sales by 2005 before heavily subsidised sales by state-run firms knocked them out of the arena.

When crude oil prices more than halved in three months from their $147 a barrel peak scaled in July 2008, retail sales by private firms became viable again, prompting Essar to say it would reopen most of its 1,250 fuel stations.

But Reliance Industries adopted a more cautious approach and a company official said on October 2008 that the firm would reopen its pumps only if the government changes its policy of subsidising only the fuel sold by state-run retailers.

The federal government subsidises fuel sales to control inflation.

The government forced state explorer Oil and Natural Gas Corp (ONGC.BO: Quote, Profile, Research) to supply cheap crude to government-run refiners, who were also given oil bonds to compensate them for low-priced fuel sales. (Reporting by Nidhi Verma; Editing by Malini Menon) ((himangshu.watts@thomsonreuters.com; +91 11 4178 1017; Reuters Messaging: himangshu.watts.reuters.com@reuters.net)) ((If you have a query or comment on this story, send an email to newsfeedback.asia@thomsonreuters.com))