With assembly polls in four crucial states in mind, the government has decided not to increase prices of cooking gas and kerosene for a year.

The government has also decided to phase out subsidy on the two important fuels over a period of five years, instead of three as planned earlier.

The Cabinet turned down the pleas of state-run oil firms that prices of liquefied petroleum gas and kerosene be increased in line with rising crude prices and falling government subsidy, official sources said.

Petroleum Minister Ram Naik informed the Cabinet that oil companies together lost over Rs 1,000 crore (Rs 10 billion) in the first quarter of this fiscal year due to unrealised cost of subsidised LPG and kerosene. They lost around Rs 5,400 crore (Rs 54 billion) last year.

After providing for government subsidy, oil companies are selling LPG at Rs 91 per cylinder below the cost and kerosene at about Rs 1.5 per litre.

Sources said the Cabinet decided that the loss on account of non-revision in prices would be shared between the oil marketing firms - Indian Oil, Bharat Petroleum and Hindustan Petroleum, and exploration company Oil and Natural Gas Corp.

It was also decided to phase out subsidy on the two fuels by March 2007.

During 2002-03, subsidy on LPG was Rs 3,691 crore (Rs 36.91 billion), while that on kerosene for Public Distribution System Rs 3,018 crore (Rs 30.18 billion).

For the current fiscal year, subsidy on domestic LPG would come down to Rs 2,772 crore (Rs 27.72 billion) if the three-year schedule for phasing out the entire subsidy were implemented. If the subsidy is phased out in five years, then the outgo on LPG this fiscal would be Rs 3,326 crore (Rs 33.26 billion).

For PDS kerosene, the subsidy this fiscal would be Rs 1,947 crore (Rs 19.47 billion), as per a three-year phasing out schedule, and Rs 2,336 crore (Rs 23.36 billion), according to five-year phase out plan.

The finance ministry provided state-run oil firms a subsidy of Rs 67.75 per cylinder on domestic LPG and Rs 2.45 a litre on kerosene in 2002-03.

Following a three year phase out plan, it has cut the subsidy on LPG to Rs 45.17 a cylinder and that on kerosene to Rs 1.63 a litre.

The finance ministry proposes to further cut subsidy on LPG to Rs 22.58 a cylinder in 2004-05 and that on kerosene to 81 paise a litre and eliminating it altogether in the subsequent year.