The Economic Co-ordination Committee (ECC) of the Cabinet, which is scheduled to meet on Wednesday, will discuss 'possible' sugar crisis in Ramazan and additional contractual safeguards after scrapping the tender floated by the Trading Corporation of Pakistan (TCP) for buying sugar, sources in Ministry of Industries told Business Recorder.
Finance Minister Abdul Hafeez Shaikh will preside over the meeting. On the instructions of the federal government, TCP had floated a tender to procure 50,000 tons white/crystal sugar from local mills at Rs 60 per kg, but the mills did not show any interest as the tender was violative of the CCP rules.
Market players fear that sugar prices will show further upwards trend in the coming days, especially in Ramazan, because no concrete steps have so far been taken to enhance strategic reserves of sugar and curbing hoarding.
Official documents from the Industries Ministry show that a summary was presented on May 7, 2011 to the ECC, which allowed purchase of 50,000 tons of sugar from PSMA after completing all codal formalities. The interim arrangement would be reviewed after its purchase.
The ECC also constituted a committee comprising Secretary Industries (convenor), Finance, Minfa and Commerce to work out a mechanism for purchase of sugar from mills and to present its report in the next ECC meeting. The committee was to come up with a mechanism to ensure that: (i) payment is made to farmers/growers; (ii) the maximum price of sugar to be determined by the committee which would be reflected as upper limit of price in tender; (iii) the mills, who defaulted in earlier purchase, are eliminated and; (iv) to determine the agency (TCP or USC) to procure sugar from mills.
According to documents, the committee met twice on 14th and 16th May and after thorough analysis of sugar manufacturing cost in 2010-11 season, made the following recommendations: (i) the upper limit of sugar purchase price should be Rs 60 per kg; (ii) to ensure that the payment to the selling sugar mills reaches the growers, TCP may make 80 percent of the payment, initially, and upon receipt of certification from Cane Commissioners' the remaining 20 percent be released; (iii) the TCP may procure 100,000 tons sugar, in two instalments, from PSMA; (iv) contract would include a clause imposing 100 percent penalty if violated; (v) the stocks purchased by the TCP will be kept at the mills without additional cost; (vi) USC would be lifting and selling the stock as and when authorised by TCP and; (vii) USC may sell stocks at purchase price of TCP while subsidising only the incidentals.
The draft report of the committee was sent on May 19, 2011 for comments to Ministries of Finance, Food and Commerce.
Finance Division supported the committee's recommendations. Minfa, however, suggested that Rs 57 per kg as the pre-tax indicative tender price instead of Rs 60 and recommended to confine sugar purchase to 50,000 tons.
Ministry of Commerce, however, pointed out that; (i) Rs 60 per kg is the pre-tax price and will increase to Rs 70 per kg after tax, and TCP incidentals and mark-up of Rs 3.52 per kg; (ii) imposing 100 percent penalty along with mark up @ Kibour+ 2.75 percent payable in principal; bidding mills to provide 5 percent bid bond to be converted into performance guarantee for successful bidders; requiring successful bidding millers to furnish post-dated cheques, for the full quantity of stocks sold, as guarantee" and; (iii) TCP purchased stocks would be kept separately in covered ware houses and looked after by TCP-appointed muqaddams.
USC's incidental charges are also Rs 6 per kg which would increase the price of sugar to Rs 76 it would entail a Rs 0.8 billion subsidy approximately on 50,000 tons of sugar.
The ECC, documents say, will also consider additional contractual safeguards proposed by TCP/Commerce Division.
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