The government has decided to allow Utility Stores Corporation (USC) to procure sugar directly from mills and withdraw subsidy of Rs 5 per kilogram at USC outlets, sources close to Secretary Industries and Production (MoI&P) told Business Recorder.
The sources said, Finance Minister Senator Ishaq Dar took this decision in principle at a recent meeting of the Price Monitoring Committee (PMC). However, the proposal is being submitted to the Economic Co-ordination Committee (ECC) of the Cabinet for a formal approval as the ECC is the forum, which had approved subsidy of Rs 5 on one kilogram of sugar.
Under the Rules of Business 1973, the Ministry of Industries & Production is responsible for keeping a watch, from the national angle, over general price trends and supply position of essential commodities that, inter alia, includes sugar. During 2008-09 and 2009-10, Pakistan experienced an unprecedented shortage of sugar as domestic sugar production was less than its consumption. In 2008-09 and 2009-10, sugar production was 3.13 million tons and 3.14 million tons against the estimated consumption of 4.2 million.
Keeping in view this shortage, the government decided to import sugar through Trading Corporation of Pakistan (TCP) and to sell it at subsidised rates through the USC. The TCP imported 2 million tons sugar during 2009-10 and 2010-11, which was sold at USC outlets with a price differential of Rs 10/Kg between market sugar price and USC sugar price, in accordance with the ECC decision taken in 2010.
In continuation of the same policy, the TCP started procuring sugar from domestic sugar mills when the country became sugar surplus during 2011-12 and 2012-13. The TCP procured 1.35 million tons sugar from domestic sugar mills during 2011-12 and 2012-13. This sugar was sold at the USC outlets with a price differential of Rs 5/Kg between market sugar price and USC sugar price, in accordance with the ECC decision. Presently, the TCP provides 40,000 - 50,000 tons of sugar to the USC on monthly basis.
According to sources, due to surplus sugar production during 2011-12 and 2012-13, the sugar price remained around Rs 50-53/Kg which is well within the purchasing power of the general public. Moreover, there have been reports of black marketing of the USC sugar to take an advantage of Rs 5/kg price differential and general public could not receive the complete benefit of the government policy.
The government also has to pay subsidy on this price differential. During the period July 2012-December 2013, the amount of subsidy involved on sugar sales through the USC outlets was Rs 22.2 billion including the TCP procurement charges (Rs 4.25Kg) and the USC incidental charges (Rs 8/Kg).
Utility Store Corporation procures all essential items such as Atta, pulses, ghee etc through open tender, and the process does not involve any procurement cost. With this background, domestic procurement of sugar through the TCP at an exorbitant procurement cost defies all economic or logistical logic.
The sources said, when the issue of sugar came under discussion at a recent meeting of the ECC and PMC, the finance minister inquired about the justification of Rs 5 per kg subsidy on sugar when the prices in the open market are affordable. He argued that subsidy should be withdrawn for now, adding that if price of sugar reaches Rs 70 or 80 per kg then subsidy is needed.
According to sources, when this issue came under a discussion, officials representing the MoI&P revealed that the price of sugar being procured through the TCP is not less than Rs 57 per kg despite the fact that the price of one kilogram of sugar is Rs 48. They argued that if USC is allowed to procure sugar directly from the mills, it can be financially beneficial to the consumers as well as the USC.
According to sources, the finance minister gave his consent and directed the Secretary MoI&P to bring a summary for formal approval of the proposal at the ECC level. The MoI&P, sources said, has proposed to the ECC that USC may be allowed to sell sugar at market price and procure sugar directly from the domestic sugar mills without the involvement of the TCP.