The government is likely to extend by two more years subsidies on LPG and kerosene while asking the state-run oil firms to bear part of the Rs 14,000 crore (Rs 140 billion) under-recoveries due to unchanged prices, despite a rise in the cost of raw material.

Subsidies on LPG and kerosene, estimated at Rs 3,500 crore (Rs 35 billion) for 2004-05, were to be eliminated from the next fiscal and a difference of Rs 130 per LPG cylinder and Rs 4 per litre of kerosene between selling price and cost was to be passed on to the consumers.

But the United Progressive Alliance government is likely to extend the 3-year subsidy phase-out plan, drawn by the previous government, by another two years to 2007, sources said.

The Rs 22.58 per cylinder subsidy on LPG budgeted in the interim Budget for 2004-05 is likely to be enhanced to Rs 34 in the full Budget to be presented in early July and that on kerosene to Rs 1.10 per litre from Rs 0.81 per litre budgeted.

In 2005-06, the LPG subsidy will come down to Rs 12 per cylinder and will be eliminated from the next year.

Sources said to narrow down the under-recoveries, the petroleum ministry has suggested lowering of import duty on LPG to nil from 8 per cent currently and restoring the excise duty on the cooking fuel to 8 per cent from 16 per cent now.

Besides, oil companies will be asked to bear a part of the under-recoveries while a part will be recovered by pricing petrol and diesel slightly above the cost, a formula which was effectively used in 2003-04 to cover Rs 8,200 crore of loss over and above the Rs 45.17 a cylinder and Rs 1.63 per litre subsidy on kerosene provided by the government.