If the recommendations of a committee set up by Prime Minister Manmohan Singh to study the financial health of the state-owned oil companies are accepted, then petrol prices may increase every month by Rs.2.50 so that market rates are reached by March 2009.

The high-power committee, headed by former Planning Commission member B.K. Chaturvedi, has submitted its report on oil pricing to Manmohan Singh.

The recommendations are yet to be made public.

The three-member committee - the other members are Saumitra Chaudhuri, who is on the Prime Minister's Advisory Council, and the government's Chief Economic Adviser Arvind Virmani - has reportedly recommended that the pricing structure should be based on export-parity method, replacing the two-year-old trade-parity model.

This would not mean a downward revision in retail prices, but will narrow down the under-recovery of oil marketing companies substantially.According to a senior ministry official, the committee has suggested that there should be monthly revision of prices at the rate of Rs.2.50 for petrol and 75 paise for diesel.

With a higher rate of increase, petrol prices should be brought to market rates by March, the report has recommended.At 75 paise a month, diesel prices have a more leisurely upward curve, with the committee suggesting that diesel price should come to the level of market price in 24 months.

Oil marketing companies - Indian Oil, Bharat Petroleum and Hindustan Petroleum - are currently selling petrol and diesel at a loss of Rs.11.60 a litre and Rs.23.23 a litre respectively.Earlier, India's oil pricing structure was based on import parity, which was changed in 2006 following the recommendations of the C. Rangarajan committee.

Thereafter, it was changed to trade parity methodology, in which import and export parity prices were given a weightage of 80 and 20 each in calculating petroleum product prices.

The introduction of export parity in pricing was to acknowledge that Indian refineries are now major exporters of petroleum products.At the time of the price revision in June, global oil prices had been going straight up and peaked at of $147 a barrel July 11. London Brent crude was down at $113 a barrel Friday.

After the price revision in June, the government had calculated that the total under-recovery of the oil marketing companies would still be around Rs.2,150 billion for the fiscal.The three oil marketing companies absorbed a loss of Rs.200 billion as a result, while Rs.450 billion was distributed to upstream companies like ONGC Ltd and Oil India.

The petroleum ministry was left with an unmet gap of Rs.1,500 billion, which they asked to be filled with oil bonds.With the oil companies together posting a first quarter loss of Rs.480 billion, the petroleum ministry had asked the finance ministry to issue oil bonds that amounted to 67 percent of this loss.

However, the finance ministry issued oil bonds that amounted to 50 percent of under-recoveries.With global oil prices going down, the petroleum ministry is now likely to ask the finance ministry to revise its demand of oil bonds worth Rs.1,500 billion to Rs.1,250 billion.