High debt could lead to financial crisis of OMCs: Kelkar Report

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High debt could lead to crisis of OMCs: Kelkar Report
The Kelkar Committee, which was set up to suggest a path of fiscal consolidation has said that a worrying aspect related to the need for fiscal consolidation is the financial health of the Oil Marketing Companies (OMCs).

"While there appears to have been some correction in2009-2010, possibly due to petrol price deregulation the situation remains grim. It could worsen with a rise in crude prices and a ballooning of the oil subsidy burden. If the OMCs are not adequately funded against their under recoveries there is a genuine risk that is analogous to the case of the state electricity boards, the high debt of the OMCs could lead them into financial crisis. This in turn, could not only cause an oil supply breakdown resulting in immense public hardship but also adversely impact the banking system from where such debt is sourced," the Kelkar Committee report states.

OMCs have been facing huge losses and under recoveries on account of the rise in international prices of crude.

The government recently raised the price of diesel and also put a cap of the use of LPG cylinders to help the OMCs cut their losses. However, this is not expected to make a major impact on the finances of oil marketing companies.


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