The much-anticipated reduction in fuel prices may be lower than the speculated rates, with petrol price likely to be cut by Rs 5 a litre and diesel by just Re one per litre.

Petroleum minister Murli Deora has been talking of a reduction in prices of petrol, diesel and domestic LPG since the last week of December, but no date have yet been fixed for a formal announcement in this regard.

"Petroleum ministry had on at least one occasion done the necessary paper work, but the proposal did not reach the Cabinet," a senior government official said.

"I think it has something to do with politics. They probably want to time it right (keeping the forthcoming General Elections in mind)," he said.

The fall in international oil prices has resulted in handsome margins for state-owned firms on petrol and diesel sales, but not all of it would be reflected in the cut in the retail selling price, as Finance Ministry wants to take away some of the gain by raising excise duty.

"Retailers are currently making a profit of Rs 9.86 a litre on petrol and Rs 3.48 a litre on diesel. But after considering the impact of raised excise duty (in the range of Rs 1-2 per litre), petrol price is likely to be cut by Rs 5 a litre and diesel by Re 1," the official said.

There is no consensus on the rate of reduction in LPG prices, as oil companies are resisting the move because they continue to lose Rs 32.97 per cylinder. "The political establishment wants Rs 20-22 per cylinder reduction," he said.

A parallel proposal to free auto fuel pricing that would have meant rates being adjusted every fortnight in sync with global prices, is being opposed as a retreat in international oil prices would mean a price hike on the eve of General Elections.

"Closely linked to free pricing is the issue of how to deal with the revenue loss on domestic LPG and kerosene. If auto fuel prices are to be freed, a mechanism for making good the losses on cooking fuel has to be formulated," the official said.

The fall in international oil prices has resulted in nearly wiping away of the ability of upstream firms like ONGC [Get Quote] to bear a part of those losses. "So, the losses on LPG and kerosene should be compensated by the Government...in what form, either from budget or through oil bonds, will have to be decided by the Cabinet," he said.

State-run oil firms are expected to log Rs 1,01,445 crore (Rs 1,014.45 billion) revenue loss on sales of petrol, diesel, kerosene and domestic LPG this fiscal. In July last year, when international crude prices touched an historic high of $ 147 a barrel, Indian Oil [Get Quote], Hindustan Petroleum and Bharat Petroleum together were projected to lose Rs 2,45,305 crore (Rs 2,453.05 billion) in revenues.

But with crude falling to four-year low, the losses have trimmed to Rs 1,01,445 crore (Rs 1,014.45 billion), the official said.

The three firms are currently making a profit of Rs 9.86 a litre on petrol and Rs 3.48 per litre on diesel but continue to lose Rs 12.16 on sale of kerosene through public distribution system and Rs 32.97 per domestic LPG cylinder.

The basket of crude oil India buys has averaged $44.88 per barrel this month as against the December average of $40.61 a barrel. Indian basket of crude has averaged $93.61 per barrel this fiscal as against $79.25 a barrel average procurement price in 2007-08.