The government subsidy on domestic liquefied petroleum gas and kerosene sold through the public distribution system will end from April 1, 2005.

The finance ministry has rejected the petroleum ministry's demand to phase out the subsidy in five years after the dismantling of administered pricing mechanism and has decided to stick to its earlier stand to roll back the sops in three years.

Accordingly, during 2004-05, the subsidy will be reduced to 33 per cent compared with the current year, the first year after the dismantling of the APM in the oil sector.

The finance ministry's decision was conveyed to the petroleum ministry during a recently convened meeting to discuss the revised estimates for the current financial year.

Financial ministry officials said the petroleum ministry's request for phasing out the subsidy in five years could not be accepted and that the subsidy would be phased out in three years.

During the current financial year, the finance ministry had reduced the flat rate subsidy by 33 per cent.

The phasing out of the subsidy in three years will imply that it would be reduced by another 33 per cent in the next financial year so that the subsidy will become 'nil' in the following year.

While the subsidy on domestic LPG in the last financial year was Rs 67.75 a cylinder and that on PDS kerosene Rs 2.45 a litre, for the current financial year, the rates have been reduced to Rs 45.17 a cylinder and Rs 1.63 a litre respectively.

With the finance ministry's decision to eliminate sops on LPG and kerosene in three years, the subsidy on domestic LPG in 2004-05 will come down to Rs 22.58 a cylinder and on kerosene 81 paise a litre.

The petroleum ministry has been demanding that the flat rate subsidy be phased out in five years since the oil marketing companies have already been incurring heavy under-recoveries because of the increase in international prices of the two products and the non-increase in their retail prices.

Petroleum Minister Ram Naik had written to his counterpart in the finance ministry explaining that if subsidies were not phased out in three years, it would affect the bottomlines of the oil marketing companies.

Recently, the petroleum ministry had worked out a mechanism for public sector oil marketing units to share under-recoveries on the sale of the two subsidised cooking fuels, which may be around Rs 8,200 crore during 2003-04.