The new Congress-led government is grappling with an imminent hike of at least Re 1 per litre in petrol and diesel prices necessitated due to spurt in global crude prices.

Minister for Petroleum and Natural Gas, Mani Shankar Aiyar, who took charge of his ministry on Monday, spent the first three hours trying to understand the situation arising from the $8 per barrel hike in crude prices since January 1, when the last revision in fuel prices had taken place.

Sources said Aiyar was briefed about the Rs 900 crore (Rs 9 billion) loss the PSU oil firms have suffered in January-May on account of they being forced to sell the two products below the cost.

The officials told the minister that the only way a hike could be avoided was by cutting import duty on crude oil and excise duty on products.

Aiyar did not commit apparently wanting to discuss the politically unpopular issue with his Cabinet colleagues particularly Prime Minister Manmohan Singh.

Aiyar also has to decide on LPG and kerosene subsidy. The prices of these two have remained unchanged in the last two years and budgetary support has been reduced to one-third from April 2004, the under-recoveries on account of the two products is estimated at nearly Rs 14,000 crore (Rs 140 billion) in 2004-05.

To sustain normal margins, price of LPG would have to be raised by Rs 42.61 per cylinder and Rs 1.49 per litre for kerosene.

When asked, Aiyar evaded a direct reply if the prices will be increased but said, "This is a very important issue. We have to give it utmost priority and seriously consider all aspects before arriving at a decision."