The Indian Oil Corporation has taken a hit of about Rs 1,000 crore (Rs 10 billion) in the first quarter of the current fiscal on selling subsidised LPG and kerosene below the cost.

"The government is paying a subsidy of Rs 45 per cylinder for LPG and Rs 1.70 per litre for kerosene, over and above the retail selling price, which is insufficient to meet the cost," senior IOC officials said in New Delhi on Tuesday.

The subsidy on liquefied petroleum gas and kerosene this fiscal has been scaled down from last year's Rs 67 per cylinder for LPG and Rs 2.75 per litre for kerosene.

"Last year, IOC had to bear a loss of Rs 3,300 crore (Rs 33 billion) on the under-realisation on LPG and kerosene," they said.

The current LPG price of Rs 241 in Delhi was about Rs 95 short of the cost, while under recoveries on kerosene was about Rs 5.4 per litre.

"There is no doubt that we are suffering on LPG and kerosene. Since the two products are subsidised, we need a government decision to revise the prices in step with the rise in the cost of production," he said.

Asked about the more than doubling of IOC profits in 2002-03 to Rs 6,115 crore (Rs 61.15 billion), despite the losses on LPG and kerosene, he said the increased profitability was on account of the improved refinery margins, which had doubled to $4.13 a barrel.

Ramachandran said the higher refinery margins had spiked the company's profitability by Rs 2,800 crore (Rs 28 billion) over Rs 2,885 crore (Rs 28.85 billion) net profit earned in 2001-02.

The refinery margins - the difference between value of product and cost of crude - were $2.02 a barrel in 2001-02. It increased to $4.13 a barrel last fiscal following the spurt in international crude prices. During the first quarter of the current fiscal, they averaged $3.5 a barrel.

"In the run up to the Iraq war (January-March), the refinery margins had gone up to as much as $7 a barrel," he said.

Ramachandran said that the selling of LPG and kerosene below the cost had led to a fall in net profit of its subsidiary IBP Co from Rs 196 crore (Rs 1.96 billion) in 2001-02 to Rs 88 crore (Rs 0.88 billion) in 2002-03.