• ECC okays import of 300,000 tonnes of food staple to ease price hike
• Orders immediate release of stocks held by Passco, provincial departments
• First shipment is expected to reach Karachi by Feb 15
• Meeting approves reduction of GIDC on gas consumed by fertiliser manufacturers
ISLAMABAD: Amid a political debate over the wheat and flour crisis, the government on Monday allowed duty-free import of 300,000 tonnes of wheat to ease an enormous price hike.
The decision was taken at a meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh. The meeting also allowed the power division to issue Rs200 billion worth of Islamic Sukuk bonds to finance a part of circular debt now estimated at Rs1.72 trillion.
Informed sources said the national food security and research ministry told the ECC meeting that about 4.2 million tonnes of wheat stocks were still available in the system. The quantity is enough for two months of domestic consumption — 2.1m tonnes per month — while fresh crop would also start coming to the market by the middle of March.
The flour price ranged between Rs800 and Rs1,200 per 20kg. It witnessed an increase of up to Rs20per kg against the official rate of Rs1,350-1,400 per 40kg.
It was explained that wheat stocks at this stage last year were around 7m tonnes, compared to 4.2m tonnes this year, hence a psychological factor was at play.
But more importantly, a thin margin between demand and supply and a big price differential between domestic and international markets offered an ideal opportunity to hoarders, black marketeers and commodity smugglers to make quick bucks.
Also, two other factors contributed to the crisis. First, the Sindh government procured 35 per cent lower than the target set by an inter-provincial committee on food and the ECC. Second, an increase in toll charges by the agencies under the communications ministry led to strikes and resultant disruption in normal wheat transportation. Therefore, it will be a political decision to allow wheat imports to send a message of comfort to the market about its availability.
According to the sources, Minister for National Food Security Khusro Bakhtyar insisted on import of 400,000 tonnes of wheat already announced by senior PTI leader Jehangir Tareen.
Dr Hafeez, however, believed that 300,000 tonnes would be enough to restore market confidence.
The meeting was told that there had been 60pc regulatory duty on export of wheat and wheat products since July last year. Wheat price in the international market currently stands at around $230 per tonne, compared to about $100 or so at home. With the removal of regulatory duty and inclusion of transportation cost, wheat will be available in Karachi and Hyderabad at lower than the prevailing price, where the imported quantities will be utilised. The first import shipment is expected to reach Karachi by Feb 15.
“Under the decision, the wheat will be imported by the private sector by withdrawing regulatory duty to the extent of the approved quantity. The wheat to be imported under the ECC decision would be allowed in the country until 31st March 2020 to ensure that the local wheat to be available from the start of April is picked up at the right price from the market,” said an official statement.
The ECC also issued instructions for immediate release of the stocks held by the Passco (Pakistan Agricultural Storage and Services Cooperation) and provincial departments.
The government had before July last year allowed export of about 693,000 tonnes of wheat. About 48,000 tonnes were exported to Afghanistan in October last year.
The ECC also approved a proposal by the industries and production ministry to reduce Gas Infrastructure Development Cess (GIDC) on gas consumed by the fertiliser manufacturers from Rs405 to Rs5 per bag so that this benefit could be passed on to the farmers.
Power sector loans
The ECC, on a request of the energy ministry (power division), allowed raising of Rs200bn from Islamic banks as fresh facility through the Power Holding Limited by way of issuance of Pakistan Energy Sukuk-II against the assets of Discos/Gencos (distribution/generation companies) as collateral through open competitive bidding to procure financing in a fair and transparent manner. The amount will be utilised for funding repayment liabilities of Discos.
The loans had been finalised about six months ago with the permission of the ECC but could not be formally actualised because of an IMF restriction barring the federal government from issuing sovereign guarantees. The International Monetary Fund relaxed the restriction by about Rs250bn as part of successful completion of the first quarterly review in December 2019.
The consortium, led by Meezan Islamic Bank, comprises Habib Bank, Bank Alfalah, Bank Islami, Dubai Islamic Bank, Bank Al-Habib, Bank Albaraka, National Bank of Pakistan, United Bank and Faisal Islamic Bank.
The ECC approved a mechanism proposed by the finance ministry for grant of sovereign guarantees. All requests for government guarantees are to be accompanied by a request for guarantee by the governing body of public sector entity. Also, every request will be reviewed and endorsed by the relevant administrative ministry as must and it will accompanied by audited financial statements of previous year prior to issuance of guarantee for evaluation of guarantee request.
The request will also be accompanied by business plan, including an explanation of the business model and financial projections for at least five years along with notes explaining the need for short-term or long-term guarantee and past performance of the entity.
The ECC approved a report on proposed exemption of 5pc sales tax on cotton seed cake. The meeting was told that in case the exemption was not introduced during the current fiscal year (2019-20), the same could be considered for inclusion in the Finance Bill 2020-21.
The meeting also approved a technical supplementary grant of Rs96.652m from the National Book Foundation, Ministry of Federal Education and Professional Training, followed by Rs15m for centralised procurement of ICT infrastructure and Rs458m from the Ministry of Interior for payment of subsistence allowance to the personnel of civil armed forces deployed in UN peacekeeping missions.
Published in Dawn, January 21st, 2020