IMF has also asked the government to identify possible measures to mitigate the impact on vulnerable population groups if prices are adjusted and asked it to prepare a report in this regard as conditions for releasing the 6th instalment of Poverty Reduction Growth Facilities (PRGF) loan by April 30.

A seven-member team led by Thomas R Rumbaugh, adviser to the Asia and Pacific Department of IMF is due in Dhaka toward the end of this month to review Bangladesh's performance in fulfilling the conditions for releasing the loan.

Bangladesh Institute of Development Studies (BIDS)'s Research Director Zaid Bakht said there is no way to mitigate the sufferings of the vulnerable groups if prices of fuel, especially of diesel and kerosene, are raised.

What the government can do is to avoid wasteful expenditures like purchasing fighter planes and can lower taxes on fuel items to tackle the situation, he said.

According to statistics, the country consumes 36 lakh metric tons of fuel annually. Twenty-three lakh metric tons of it is diesel and 6 lakh metric tons is kerosene. According to energy ministry estimation 48 percent of the total diesel consumption is in the road transport sector, 34 percent in irrigation and about 10 percent by water transports.

About 96 percent of kerosene is consumed for domestic purposes.

Bakht said the poor people in remote villages, where there is no electricity, consume a large chunk of the country's total kerosene consumption. So, if kerosene price is raised the poor will be directly hit.

Again if the price of diesel is increased, transportation cost will go up, which in turn will raise food prices further. Besides, since a sizeable amount of diesel is used for irrigation, a price hike of diesel will once again hit the farmers and ultimately raise food prices, he explained.

"I don't see how the government can provide diesel and kerosene to these sectors at low prices after raising the prices," he said.

Since the elections are around the corner and inflation is on the rise, the government should not raise the prices of diesel and kerosene, Bakht said. A government which earns about Tk 3,000 crore in the form of taxes from oil import, can sacrifice some of it by lowering tariffs on oil items, he added.

A Bangladesh Petroleum Corporation (BPC) source said since 1976-77 it had paid off Tk 34,833 crore in tariff, vat and other taxes, while in the July-October period of the current fiscal it paid about Tk 823 crore.

An energy division source said from July 2005 to February 2006 the government on an average had to give a subsidy of Tk 10 for each litre of diesel and kerosene.

In recent times the subsidy amount has gone up further to Tk 20 per litre, as prices on the international market have continued to rise.

In cases of octane, petrol and jet fuel the government however is making some profit, about Tk 3 to Tk 4 per litre.

However, due to the price hike of these items on the international market the government might no longer sustain its profit level.

From July-March in the current fiscal BPC had to bear a deficit of Tk 1510 crore due to a huge gap between import prices and sale prices. If prices are not adjusted immediately the loss might touch Tk 3,000 crore mark by the end of the current fiscal.

BPC already owes Tk 11,000 crore to government banks. The amount will further rise in the event of no adjustment in fuel prices.

Under the circumstances the finance ministry is going through a tough time, sources said. Talks are on in the highest level of the government to find a way out.

On Sunday while talking to journalists the finance minister termed the rise in oil prices on the international market "the most formidable challenge for Bangladesh" and added, "The decision to raise or not oil prices will be taken in a way so that it is less harmful to the economy and less painful for the nation."