June 29 (Bloomberg) -- Argentina agreed to pay Bolivia 47 percent more for its natural gas as Bolivian President Evo Morales, who seized his country's gas supplies two months ago, fulfills a campaign pledge to boost oil and gas revenue.

Argentina, after a meeting between Morales and Argentine President Nestor Kirchner, agreed to pay $5 per million British Thermal Units, up from $3.4 per million BTU, through 2006. Bolivia will increase supply to 7 million cubic meters a day from 5 million cubic meters a day while the countries negotiate next year's prices before yearend, the government said.

``This will help our country economically,'' Morales said at a rally in the outskirts of Buenos Aires. ``We are ready to increase exports to Argentina so that this resource benefits our region.''

The agreement may intensify pressure on Petroleo Brasilerio SA, the customer for 70 percent of Bolivia's gas, and on Brazil, which counts on Bolivia for half its supply, to renegotiate a 20-year gas agreement signed in 1999. A 10 percent increase under the contract, effective July 1, will raise the price Petrobras pays to between $3.80 and $4.65 per BTU.

Argentina may increase the price of gas it exports to Chile to offset higher cost of Bolivia imports, Clarin newspaper reported without saying how it obtained the information.

The agreement also ensures Argentina, which imports about 5 percent of its gas from Argentina, will have enough of the fuel this year to meet growing demand from companies and households as the economy expands for a fourth consecutive year. Argentina experienced gas shortages in the past three years as demand surged on three consecutive years of economic expansion.

'Needed Incentives'

The shortages also stemmed from a freeze on energy prices imposed by the government in 2002 after it defaulted on $95 billion of bonds in late 2001 in a bid to stem inflation.

As a result, companies such as Repsol YPF SA and Total SA, reined in investment. Gas prices were set at $1.27 per million BTU. In the northern hemisphere, the price of gas is around $7 per million BTU, according to Francisco Mezzadri, former CEO of CMS Energy Corp., owner of Michigan's largest natural-gas utility.

``My question is why we are not willing to allow domestic supplier to increase their prices,'' said economist Miguel Kiguel, a former under secretary of finance, who runs the Center for Financial Stability in Buenos Aires. ``That would provide the needed incentives to increase exploration and supply and reduce dependence on imports.''

The government in 2003 was forced to lower power in its electricity grid and cut electricity supply to some of its biggest companies, including steel maker Acindar SA. Gas Natural Ban, Argentina's second-largest gas distributor, this month reduced deliveries to 320 of its biggest clients as cold weather drove up consumption.

Seizure

Morales won elections last year on a promise to increase control of Bolivia's natural resources. He took control of Bolivia's oil and gas fields May 1, including Brazil's state- controlled Petroleo Brasileiro SA.

In a meeting on May 4, Morales and his counterparts of Argentina, Brazil and Venezuela said they would negotiate gas prices in the future in a ``rational'' way.

To contact the reporter on this story: Daniel Helft in Buenos Aires dhelft@bloomberg.net

Last Updated: June 29, 2006 17:14 EDT