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ECC relaxes conditions for sugar millers, denies freight subsidy on export

Updated December 05, 2018

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ECC orders immediate payment of Rs2bn outstanding freight subsidy to sugar mills to persuade them for early start of crushing season which has already been delayed. ─ File photo
ECC orders immediate payment of Rs2bn outstanding freight subsidy to sugar mills to persuade them for early start of crushing season which has already been delayed. ─ File photo

ISLAMABAD: In a bid to break a deadlock, the government allowed sugar millers another 100,000 tonnes of export and relaxed the limit of 1m tonnes it had set previously. On top of that, the government also waived a requirement that millers begin crushing by Nov 15 in order to avail exports. Only a handful of millers started crushing by this date, so the Economic Coordination Committee (ECC) decided to waive it altogether.

Presided over by Finance Minister Asad Umar, a meeting of the Economic Coordination Committee (ECC) of the Cabinet also ordered immediate payment of Rs2 billion outstanding freight subsidy to sugar mills to persuade them for early start of crushing season that has already been delayed and causing hardship to farmers. The funds are subsidy payments owed from last year. The ECC decided to not allow any further subsidies, saying the millers should approach the provincial governments for such payments.

In the first week of October, the ECC had allowed one million tonnes of surplus sugar export with the condition that millers would ensure crushing season by Nov 15. The committee had also decided that only those sugar mill owners will be allowed to export the commodity who had cleared arrears to farmers for all the crops up to 2017-18.

Approves additional 100,000 tonnes for foreign sales

The decision was taken to ease sugar glut that was set to cause losses both to the industry and farming community and put pressure on commercial banks. It was expected that most of the surplus stocks could be exported to bordering Afghanistan without subsidy, owing to prevailing peace in the region.

The industry has not started crushing even until now, barring some minor exceptions. It demanded that conditions be relaxed for export of 1m tonnes of sugar and exporters be allowed to sell additional one million tonnes of the commodity in the local market without payment of sales tax.

On top of that, the millers demanded 250,000 tonnes of sugar procurement from them by the Trading Corporation of Pakistan as well as the immediate release of Rs2bn freight subsidy of last year from the government.

The meeting declined the request for procurement of additional sugar. Adviser to PM on Industries, Production and Commerce, Abdul Razak Dawood supported the millers demands. He also said that the condition to start crushing by Nov 15 should end as it had already become irrelevant.

The ECC refused to provide freight subsidy to the millers, though Rs2bn in freight subsidy from last year was approved for release. Any new demand for freight subsidy must be taken up with the provincial governments the ECC decided, and declined all future requests.

The ECC approved the proposal to enhance export quantity to 1.1m tonnes with the latest addition of 100,000 tonnes and asked Dawood to hold another meeting with sugar millers and work out export arrangement without any subsidy or other conditions and then jointly announce the decision with the industry.

The committee discussed a report submitted by Ministry of Industries & Production (MoIP) on measures to ensure availability of urea fertiliser in the country and possible impact on the price of urea owing to use of RLNG due to shortage of system gas in winter. However no final decision on the proposed subsidies was taken.

The MoIP proposed that additional gas quantities be provided to Fatima Fertiliser and Agritech because keeping these plants operational was the best option to ensure sufficient fertiliser quantities available in the system. Alternatively, Sui Northern Gas Pipelines Ltd (SNGPL) should be given Rs4.70bn in advance to ensure a feasible RLNG price of Rs782 per mmBtu for two months to ensure Rs1,712 per bag fertiliser price to farmers. For this, Rs790m were to be paid upfront to SNGPL on actual basis and Rs3.9bn in two monthly instalments.

In case these two options do not work out, the government should allow import of 316,000 tonnes of urea to fill the supply gap and will need to provide a total subsidy of Rs8.4bn, including $110m in foreign exchange, to ensure Rs1,712 price per urea bag. No decision could be taken on the issue.

The ECC also approved allocation of up to 30mmcfd gas from Zafir field, Sanghar, to Sui Southern Gas Company Ltd. It also approved allocation of 66mmcfd Mari Deep Gas to Mari Petroleum Company without agreeing to its plan to set up a 180MW power plant to utilise this additional gas. The ECC directed that a detailed report should be submitted examining the pros and cons of utilisation of 66mmcfd of gas at Mari Deep field for power generation or fertiliser production.

The meeting also recommended to the cabinet a case for supplementary grant of Rs1.80bn for agriculture tube well subsidy on the request of Power Division.

Published in Dawn, December 5th, 2018

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