State-owned oil retailing firms are seeking a Rs 40 per cylinder raise in the domestic cooking gas prices and a Rs 2 per litre hike in kerosene prices to offset the drastic cut in the subsidy provided by the government.

"This year, the finance ministry has reduced the subsidy (on liquefied petroleum gas and kerosene) to two-thirds of the amount allowed in 2002-03. Without a hike in LPG and kerosene prices, the all-time high profits of oil companies will erode," sources said in New Delhi on Thursday.

The subsidy of Rs 67.75 per cylinder on LPG and Rs 2.45 a litre on kerosene in 2002-03 was not enough to cover the cost and the Indian Oil Corporation, Bharat Petroleum Corporation Ltd, Hindustan Petroleum Corporation Ltd and IBP Co Ltd together lost Rs 5,430 crore (Rs 54.30 billion), they said.

The state-run firms have approached the Petroleum Minister Ram Naik for being allowed to immediately raise the LPG and kerosene prices.

The losses on selling LPG and kerosene below the cost were covered by the higher refining margins, higher realisation on petroleum stocks and sharp reduction in interest rates.

This year things would be different. With the subsidy on LPG cut to Rs 45.17 a cylinder and that on kerosene to Rs 1.63 a litre, under-recoveries will rise substantially.

"Indian Oil Corporation has already issued a profit warning, saying its net profit will fall to Rs 2,744 crore (Rs 27.44 billion) this year from Rs 6,115 crore (Rs 61.15 billion) in 2002-03 unless the LPG and kerosene prices were raised," they said.

Naik, on the other hand, is not going with the oil firms in the election year and has instead sought a cut in the excise duty on LPG and kerosene to zero from the current 16 per cent, a demand that has not found favour with the finance ministry.