Reliance Industries, the country's largest LPG producer, will be spared from footing the Rs 7,200 crore (Rs 72 billion) bill for the one year freeze in LPG and kerosene prices, despite rising cost.

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Instead, the public sector oil retailers - Indian Oil Corporation, Bharat Petroleum Corporation Ltd and Hindustan Petroleum Corporation Ltd - and LPG and kerosene producers - Oil and Natural Gas Corporation, Oil India, Gail - and standalone refineries have been asked to share the Rs 7,200 crore bill for 2003-04, a senior government official said in New Delhi on Monday.

"Reliance produces LPG from crude oil purchased at market price, while ONGC and Gail extract LPG from natural gas which is priced way below the international prices," B K Chaturvedi, petroleum secretary, told PTI.

The private sector firm, which sells 2.4 million tonnes of LPG annually to the state-run retailers will be paid import parity price, he said.

With an eye on the coming assembly polls in four states and next year's general election, the government had last week frozen LPG and kerosene prices for a year and deferred phasing out of subsidy on the two mass cooking fuels by two years to 2007.

The rise in crude oil prices had necessitated a Rs 106.30 per cylinder increase in LPG prices in Delhi and Rs 3.03 per litre in kerosene price but the Cabinet, at its meeting on September 11, asked the state-run oil firms, who had made record profits last fiscal, to foot the bill.

Chaturvedi said the formula for sharing the subsidy bill among the LPG and kerosene producers and its retailers would be worked out in a fortnight.

With the government deciding against asking Reliance to foot the bill, it is clear that the state-run oil retailers will have to shell out Rs 613 crore (Rs 6.13 billion) for not paying Reliance import parity prices last year.

The oil PSUs had in October-November last year frozen LPG and kerosene prices paid to Reliance, contending that they were unable to recover cost from consumers as the government had neither allowed them to hike retail prices nor was the subsidy provided from the budget increased.

Chaturvedi said profit margins of public sector producers and retailers will have to be cut in order to share the cost of the government's decision.

He also did not agree with the contention of IOC, BPCL and HPCL that they together lost Rs 5,430 crore (Rs 54.30 billion) in 2002-03 on selling LPG and kerosene below the cost.

"Margins are highly inflated. Moreover, when you pay (a capped price of) Rs 2,850 per thousand cubic metres for gas used for extracting LPG, how can you ask for international import parity price," he said.

Oil companies say the government subsidy of Rs 67.75 per LPG cylinder in 2002-03 and Rs 45.17 a cylinder this fiscal and Rs 2.45 a litre of Kerosene last year and Rs 1.63 per litre for 2003-04, was well short of cost.

Sources said the petroleum ministry had put before the Cabinet a proposal for cutting duties and increasing the government subsidy on LPG and Kerosene to tide over losses to oil firms. However, the finance ministry was unwilling to part with any revenues and instead asked ONGC, country's highest profit making company, to share the burden.