The International Monetary Fund also wants the government to introduce a safety net at the same time to minimise the negative impacts of the price hike on the vulnerable groups.

An IMF mission during its visit early this month dictated to the government these conditions for the PRGF loan.

If the present government agrees to the terms but does not carry them out in its tenure, the caretaker government will have to shoulder the obligation. And, sources said, the government is reluctant to increase oil prices with the general elections just around the corner, adding it is trying to defer the sensitive task to the next caretaker government.

"If the government makes the commitment, the caretaker government will be bound to keep it as an international obligation," M Hafizuddin Khan, finance and planning adviser to the last caretaker government, told the Daily Star yesterday.

The government, to get the World Bank's Development Support Credit, in 2003 had an understanding with the Bank that it would adjust the domestic prices of petroleum products to the global ones every six months. However, it has never translated that pricing formula into practice.

Now the IMF is pressuring the government to act in line with the agreed formula, pointing out the huge gap existing between the domestic and global oil prices for the last three years.

According to the formula, in fiscal year (FY) 2003-04 the price of kerosene would be Tk 23 a litre instead of Tk 17 and that of diesel Tk 23 instead of Tk 20. However, in 2004 octane's price was Tk 7 higher than the formula price.

If the formula were applied, in FY05 the price of kerosene and diesel would be Tk 31 a litre instead of Tk 22. That year too, octane price was Tk 2 more than the formula price.

In the current FY06 the price of kerosene and diesel would be Tk 41 a litre, not Tk 30 as it is. The octane as usual costs Tk 5 more a litre than the formula price.

Since diesel and kerosene constitute the bulk of the imported petroleum products, the government has been providing huge subsidies to keep their prices low in the domestic market. But, the IMF argued the poor have enjoyed only 10 per cent of the subsidy benefits, which went mostly to some 60 per cent people of the upper echelon.

Against this backdrop, the IMF suggested that the government assist the poor through four safety-net programmes -- stipends for secondary schoolgirls, old-age pension, primary education stipends, and the Food for Work -- instead of subsidising oil prices. This way, the Fund argued, the government can offset the adverse impacts of higher oil prices on the poor.

Both World Bank and IMF have been pressing the government to implement the pricing formula. The last IMF mission categorically said unless the government adjusts oil prices it will not recommend releasing the last PRGF loan tranche to the IMF board.