The petroleum ministry will ask the Cabinet to exempt oil companies from paying excise duty on kerosene sold through the public distribution system and domestic liquefied petroleum gas.

It will also suggest that the time limit for phasing out subsidies on the two products be increased to five years, instead of the three years suggested by the finance ministry.

In a draft note prepared for the Cabinet, the ministry has said oil companies are suffering huge under-recoveries on the sale of the two products as they cannot increase retail prices and the government is not providing them adequate subsidy to cover their losses.

In this financial year, the under-recoveries of oil companies has reached Rs 2,000 crore (Rs 20 billion). The amount stood at Rs 5,430 crore (Rs 54.30 billion) in 2002-03.

To ease the financial woes of oil companies, the petroleum ministry suggested that it would be prudent on the part of the government to impose 'zero' excise duty on PDS kerosene and domestic LPG.

At present, the two products attract a 16 per cent excise duty.

The ministry also said the subsidy on the two products, which was currently being paid through the Budget, should be phased out in five years. Apparently, the finance ministry has decided to completely phase out this subsidy in three years.

This year, the finance ministry reduced the subsidy to two-thirds of the amount allowed during 2002-03, the first year after the administered pricing mechanism in the oil sector was dismantled.

It will be brought down further in 2004-05 and completely eliminated by April 1, 2006.

The subsidy on domestic LPG, which was Rs 67.75 a cylinder in 2002-03, would be brought down to Rs 45.17 a cylinder in 2003-04, and Rs 22.58 a cylinder in 2004-05.

Similarly, the subsidy on PDS kerosene, which was Rs 2.45 a litre in 2002-03, would come down to Rs 1.63 a litre in 2003-04, and 81 paise a litre during 2004-05.

Though the petroleum ministry has taken up the issue with the finance ministry a number of times, the finance ministry is learnt to have stuck to its stand.

Having failed to make any headways there, the petroleum ministry has decided to take up the matter with the Cabinet.