Banks' refusal to provide finance to USC: TCP to purchase sugar from mills for USC

The banks refusal to extend Rs 25 billion financing to the Utility Stores Corporation (USC) for sugar procurement has compelled the government to give the task to Trading Corporation of Pakistan (TCP), sources close to Secretary Industries told Business Recorder.
The sources said federal cabinet in its meeting on November 04 approved the National Sugar Policy and decided the government's intervention to provide sugar at affordable price will continue through USC. It was also decided that USC will be financed to purchase 0.5 million tons of sugar directly from sugar mills, so as to avoid the complications of payment in getting supplies from TCP.
The sources said in compliance with the cabinet decision, USC has been continuously floating tenders for purchase of sugar since November 2009. To the first tender, there was no response. However, in subsequent tenders the rates quoted by the mills were much higher than the wholesale market rate. Consequently, those tenders were scrapped. In the latest tenders, lowest rate of Rs 58.35 per kg has been received, which is lower than the wholesale market rate. As per PPRA advice, the USC can procure 100,000 metric tons at this rate.
The sources said cash credit limit of Rs 25 billion was allocated to USC for purchase of sugar. The State Bank of Pakistan (SBP) assigned the limit to MCB, UBL and National Bank. Consequently, USC contacted the assigned banks for provision and allocation of cash credit limits. However, the response has been very discouraging. Only M/s MCB has made allocation of cash credit limit of Rs 500 million. In this regard meetings were also held with the regional heads of the concerned banks by the USC management, but unfortunately they did not cooperate, the sources added.
The average monthly consumption of sugar at USC outlets is about 50,000 MT. In the current tender, USC has asked for 100,000 MT. The finances required to purchase the said stock of sugar has been worked out to be Rs 5.835 billion. It may be mentioned here that sale price of sugar at USC outlets has always been fixed by the government. In February 2009, the sale price of sugar at USC outlets was fixed at Rs 38 per kg.
This was revised in December 2009 and new price was fixed at Rs 45 per kg. The corporation is incurring incidental expenses of 4.71 on per kg over and above the purchase price. In case of the purchase and sale of sugar at the above rate an extra amount of Rs 18 per kg will be incurred. Thus the corporation will face monthly cash flow gap of Rs 900 million, the sources continued.
They said that Industries Ministry had requested the ECC to advise Finance Ministry to arrange Rs 5.835 billion for purchase of sugar through banks and upfront subsidy of Rs 900 million on monthly basis so as to keep cash liquidity of USC intact to enable it to make payment for other purchases.
According to sources when the issue came under consideration in the ECC meeting on March 30, 2010, presided over by the Prime Minister, Syed Yousaf Raza Gilani, it was decided that the TCP will procure sugar from mills instead of USC because banks are not willing to extend credit to the corporation.