Tuesday, September 6 2005 14:56 Hrs (IST) - World Time -

New Delhi: The Government today (Sept 6, 2005) decided to raise petrol price by Rs 3 a litre and diesel by Rs 2 per litre in line with rising crude prices, but spared consumers of domestic cooking gas (LPG) and kerosene from any price hike.

"The hike will be effective midnight tonight," Petroleum Minister Mani Shankar Aiyar told reporters after a meeting of the Cabinet, Chaired by Prime Minister Manmohan Singh.

Aiyar also said that there would be no cut in excise duties on petrol and diesel, as indirect tax revenues were lower than the target.

Public sector oil firms, which lost Rs 14,500 crore this fiscal on selling fuel below the cost, would be compensated for uncovered portion of petrol, diesel, LPG and kerosene cost through issue of oil bonds.

"The Government has decided that bonds will be issued to oil companies (IOC, BPCL, HPCL and IBP). The value of bonds, the structure and duration (tenure) will be decided by Finance Ministry in consultation with Petroleum Ministry," Aiyar said.

Petrol is currently being under-priced by Rs 7.45 a litre to the cost and diesel by Rs 5.15 per litre. LPG was being sold at a loss of Rs 96 per cylinder and kerosene price was discounted by Rs 12.85 a litre to the cost.

But for the hike, public sector oil retailing firms would have become bankrupt, beginning with IBP Co Ltd, which would have become a BIFR case by month end.

Aiyar said the decision to hike fuel prices was taken with a view to protect financial viability of oil companies and ensure that they were able to meet their capital expenditure targets.

Upstream oil firms like Oil and Natural Gas Corp (ONGC) would continue to take on themselves, a part of the losses, while oil retailing firms would continue to suffer despite the price hike.