Wednesday, February 15 2006 14:16 Hrs (IST) - World Time -

New Delhi: Petrol and diesel prices may go up by Rs 1-2 a litre by the month end but LPG and kerosene are likely to be spared, as Finance Ministry has agreed to give oil firms a second tranche of bonds to cover for the losses suffered by them on sale of the two subsidised cooking fuel.

The 2006-07 Budget, to be presented on February 28, may propose a Rs 0.79-one a litre hike in petrol and Rs 1.72-2 per litre increase in diesel prices after affecting a customs dutycut on the two products as suggested by the C Rangarajan Committee on petroleum pricing, a top official said.

Without reducing the customs duty to 7.5 per cent from current 10 per cent, the hike required in petrol prices would have been Rs 1.70 a litre and Rs 2.60 a litre in diesel.

The Committee's suggestion to immediately raise domestic LPG price by Rs 75 per cylinder and thereafter by Rs 25 every quarter till subsidy is eliminated is unlikely to be adopted.

Its other suggestion to hike kerosene price by Rs 10 a litre, with a Rs 9 per litre subsidy component by way of discount coupons or vouchers to beneficiaries, could also meet the same fate as Petroleum Minister Murli Deora is against any hike in cooking fuel price.

The Committee, which is to submit the final report on February 17, has also suggested a reduction in excise duties on petrol and diesel but this too is unlikely to be adopted.

The official said Finance Ministry has agreed to giveIOC, BPCL, HPCL and IBP a second tranche of 9-year oil bondsworth Rs 5,750 crore, carrying an average coupon rate of 7 per cent to compensate them for losses on LPG and Kerosene in the current fiscal. For the next fiscal, cess on domestic crude oil would be increased by Rs 5,005 per tonne.

The Finance Ministry had in December approved of Rs 5,750 crore of bonds that carried zero coupon rate. But the bonds were never issued as the Petroleum Ministry contended that the net present value of the zero-interest bonds worked out to Rs 4,400 crores.

The Ministry will move Cabinet by next week proposing that bonds worth Rs 11,500 crore be issued in two tranche of Rs 5,750 crores each carrying an average of seven per cent interest rate, the official said, adding the Finance Ministry agreed to the move.

The maturities suggested would be three years (Rs 2,000 crore), six years (Rs 2,000 crore) and nine years (Rs 1,750 crore).

The official said the Rangarajan Committee's draft report suggested a free float in retail prices of petrol and diesel after customs duty on petrol/diesel was reduced to 7.5 per cent and both be priced at trade partity (weighted average of import parity and export parity in 80:20 ratio) at retail and refinery gate levels.

Another possibility is that PDS kerosene and domestic LPG would get 'Declared Goods' status to reduce the sales tax rates on them to four per cent across the country, he said.