The government will provide private companies subsidy equivalent to that given to state retailing firms on LPG, petroleum secretary B K Chaturvedi said.

"The finance ministry has agreed to give private LPG marketing companies (or parallel LPG marketers), a subsidy of Rs 45.17 per cylinder," he told PTI in New Delhi.

Currently, the government provides state oil retailers -- Indian Oil Corporation, IBP, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd -- a subsidy of Rs 45.17 per LPG cylinder and Rs 1.64 per litre on Kerosene.

However, this subsidy is not enough to cover the cost of LPG. The difference between the cost and the retail price of LPG, after taking into account the subsidy of Rs 45.15, is around Rs 106 a cylinder.

For the public sector units, the government has now put together an intricate system of cross-subsidisation by which the retailing firms and LPG producers share the under-recoveries. This mechanism will not be available to private companies.

Chaturvedi said a notification for providing subsidy to private LPG marketing firms was likely to be issued by January end.

"The entry of private firms will bring in competition in the LPG retailing," he said, adding the subsidy on LPG next fiscal will fall to Rs 22.58 per cylinder and completely eliminated the year after.

Chaturvedi said the outgo on subsidy to parallel LPG marketers would be about Rs 60 crore (Rs 600 million) annually.

For PSUs, the subsidy on LPG during 2002-03 was Rs 3,691 crore (Rs 36.91 billion), while that on kerosene for public distribution system, Rs 3,018 crore (Rs 30.18 billion).

For the current fiscal, subsidy on domestic LPG will come down to Rs 2,772 crore (Rs 27.72 billion) following a three-year schedule for phasing out the entire subsidy, till March 2005. Similarly, for PDS kerosene, the subsidy this fiscal would be Rs 1,947 crore (Rs 19.47 billion).

The finance ministry provided state-run oil firms a subsidy of Rs 67.75 per cylinder on domestic LPG and Rs 2.45 a litre on kerosene in 2002-03. It has cut the subsidy on LPG to Rs 45.17 a cylinder and that on kerosene to Rs 1.63 a litre.

The finance ministry proposes to further cut subsidy on LPG to Rs 22.58 a cylinder in 2004-05 and that on kerosene to 81 paise a litre and eliminating it altogether in the subsequent year.

Besides, the petroleum ministry has proposed to the Cabinet for allowing private refiners like Reliance to sell directly to bulk customers after meeting the demand of state firms that sell cooking gas at subsidised rates, Chaturvedi said.

The proposal, if approved by the Cabinet, would allow the country's sole private sector refiner Reliance Industries Ltd as well as state exploration firm ONGC and gas transmission company Gail (India) Ltd to sell LPG directly to bulk buyers.