A hike in the prices of petrol and diesel is unlikely before June 15 as the Congress-led government does not want a showdown with its allies in the first session of Parliament beginning June 2.

Petroleum Minister Mani Shankar Aiyar has written to Prime Minister Manmohan Singh a three-tier formula to share the burden arising due to international crude prices touching an all-time high of $41 a barrel.

Aiyar has suggested an increase of Rs 1-1.5 per litre in petrol and diesel prices, effective from June 16, and that oil companies should bear at least one third of the under recoveries on liquefied petroleum gas and kerosene, sources said.

The third stakeholder, the government, will have to part with its revenue on LPG and kerosene to lessen the burden on consumers.

Aiyar has suggested that finance ministry should bring down the custom duty on LPG to zero per cent from the current 8 per cent, while halving the excise duty on the product to 8 per cent, sources said.

Aiyar, sources said, in his letter explained to the prime minister in detail the reasons why prices of petrol and diesel have to be raised.

The previous government had put on hold any increase in petrol and diesel prices necessitated due to rise in cost of raw material (crude oil) so as not to alienate the voters.

Indian basket of crude oil which averaged $29.33 a barrel in the second fortnight of December, based on which the last price hike of Re 1 per litre in both was effected on January 1, had risen by $5.48 a barrel or 18.7 per cent to $34.81 a barrel in the first fortnight of May.

The import parity price, the benchmark for deciding the domestic price, of petrol has risen by 17.6 per cent and diesel by 19.8 per cent during the period, the letter said.

Based on the spurt, public sector oil companies have been demanding a Rs 3.53 per litre increase in petrol prices - from Rs 33.71 to Rs 37.24, and Rs 2.25 per litre in diesel prices - from Rs 21.74 to Rs 23.99 per litre in Delhi.

However, the minister was of the view that a price hike in the band of Rs 1 to 1.50 per litre in both products would suffice to recoup losses.

"Moreover, the Organisation of Petroleum Exporting Countries is meeting on June 3 and a possible output hike by them will subside the sharp rise in crude prices," they said.

On LPG and kerosene, the oil companies have estimated an under-recovery of nearly Rs 14,000 crore (Rs 140 billion) in 2004-05 because of unchanged prices in the last two years and reduction in budgetary support to one-third from April 2004.

"The subsidy on LPG and kerosene, which was to be phased out by the year end, may be extended by two more years," they added.