The government is planning to introduce two different price bands for petrol and diesel, which will allow oil marketing companies the freedom to revise prices in tandem with the international prices of the two petroleum products.

Two price bands are required because of the difference in the international prices of the two automobile fuels and the different rates of duties attracted by them.

"Though there will be two price bands, their width could be the same," a senior official of a public sector oil company told Business Standard, after a meeting convened by Petroleum Minister Mani Shankar Aiyar in New Delhi on Saturday to discuss the issue.

Public sector oil companies are working on a Rs 1-1.40 a litre band for diesel and Rs 1.60-2 a litre for petrol. Their recommendations will be sent to a committee of secretaries and then to the Cabinet for implementation.

After the dismantling of the administered pricing mechanism in the petroleum sector on April 1, 2002, oil companies had been allowed to review the prices of the two products on a fortnightly basis.

However, during the first five months of 2004, the previous National Democratic Alliance government had "sounded" oil companies against revising prices, even as global prices spiralled.

The price band mechanism is designed to insulate the consumer from the volatility in the international prices of crude oil and petroleum products.

The moving average price band will be a 10 per cent variation of the rolling average of the product price over a three-month period, as well as that over a year.

Therefore, if the international price of crude is around $30 a barrel, and consequently diesel is around $34 a barrel, the allowed band will be 10 per cent of $34 or $3.4 a barrel or Rs 1-1.40 a litre for diesel.