The minister is likely to announce a cut in import duty on crude while increasing those on refined oil products, mainly kerosene and naphtha, to improve refining margins and dissuade costly product imports, they said.

"The key objective of the budget would be to provide an effective protection rate to the new refiners," said Sonal Jain of ABN Amro Asia Equities (India) Ltd.

Refineries of private sector Reliance Petroleum and Essar Oil are scheduled to go onstream in the second half of calendar year 1999. Reliance says it is setting up a 27 million tonne refinery at Jamnagar in the western state of Gujarat, while Essar claims that the first 12 million tonnes of its 24-million-tonne capacity unit at Vadinar near Jamnagar will be commissioned in December 1999.

An oil ministry officialsaid the budget would provide infrastructure status to the pipeline sector, giving projects a seven-year tax holiday and exemption from customs duty on imports.

The Oil Ministry's budget proposals, sent to the finance ministry this week, included raising customs duty on kerosene imports by private firms to 50 percent from 32 per cent, and a levy of five per cent customs duty on naphtha, a recommendation spelt out in the oil sector decontrol blueprint.

"Our proposal is for levy of five per cent duty on naphtha to bring landed price of imports at par with domestic and eliminate dumping," the bureaucrat said. Naphtha imports are exempted from customs duty.

"An increase in import duty on products will mean a higher remuneration (to new refiners) for products which are priced on import parity," said an analyst with a British investment firm.

Under import parity, refiners are paid prices equal to the landed cost of imported products. A higher duty will increase the landed cost, and their ex-refinery prices,he added. Sinha is expected to lower the customs duty on crude to 15 per cent from 22 per cent, officials and analysts said.

"Reduction in (import) duty on crude is a foregone conclusion. This was announced in November 1997. What will be of interest is the extent of the cut (in duty)," said another ministry official.

"The new refineries need this cut to shore up the low refining margins. Without this, the newcomers will not be able to recover their investments," he added.

Other new refineries expected to go on stream in 1999/2000 are the three million tonne capacity Numaligarh refinery in the north eastern state of Assam, and the six million tonne unit of Indian Oil Corp at Panipat in the northern Haryana state. The budget will include a special tax on diesel to fund road building projects.

"The proposal is to have the cess (special tax) along with a reduction in basic prices so as to leave the price unchanged," said the bureaucrat.

"Now it depends solely on the finance ministry, on how much moneythey want to raise...If they want 40 billion Rupees, they will have to levy a cess of one rupee per litre. If they want 20 billion, they will have to levy 0.50 rupee per litre."

He said the exploration sector would remain untouched since most of the reforms were introduced in last year's budget.