LAHORE, July 1: Sugar mills have begun adjusting their (working capital) loans obtained from commercial banks against the security of their sugar stocks as is ordered by the central bank, leading to the stoppage of payment to sugarcane growers.

“The mills are diverting all their sale proceeds for the adjustment of their loans secured from the banks against their sugar stocks,” Pakistan Sugar Mills Association (PSMA) chairman Zaka Ashraf told Dawn on Saturday. But, he says, it has resulted in the stoppage of payments to the tune of Rs180-200 million in Punjab and 100 million in Sindh to the growers of sugarcane.

The central bank had ordered all banks through its circular BPD-4 issued on June 9 to “ensure that all advances against the security of sugar stocks are fully adjusted latest by July 31”. The circular also instructed the banks that “all renewals/fresh disbursements are made only after a clean up period of at least one month”. The central bank also ordered the banks that all renewals/fresh disbursements are subjected to 50 per cent cash margin requirement against the security of sugar stocks. Earlier, all such disbursements were made subject to cash margin of 25 per cent.The central bank is believed to have issued these instructions with a view to forcing the sugar millers to sell all their stocks in order to bring down the retail price of the sweetener in the market. The consumer price of sugar touched an all time high of Rs48 per kg in some parts of the country to drop to the current level of Rs37-40 a kg.

The millers say the increase in sugar’s international rates as well as higher rates of sugarcane charged by the growers jacked up the retail price of the sweetener in the local market.

“Though the mills are trying to adjust their loans secured against their stocks, it will not be possible for any one of them to make full adjustment by the end of this month as instructed by the central bank,” says Mr Ashraf. The mills, he says, together have sugar stocks of around 1.15 million tons at present and it is not possible for them to offload these stocks in just one month. “Where should we go to sell these stocks because the average sugar consumption in Pakistan is around 325,000 tons?”

Dubbing the central bank’s decision as unwise, he fears that the issue of sugar prices will compound further if the mills default and banks take possession of the surety (sugar stocks). “That will result in stoppage of release of sweetener in the market and its prices would shoot up like anything.” In order to avoid any such situation, he demands, the central banks must withdraw its order and let the mills repay their loans according to the agreed schedules. According to him, the mills’ working capital loan stock stands at around Rs20-25 billion against the current level of their stocks.

Mr Ashraf says the mills have already offered the government to lift their stocks at the same price at which the Trading Corporation of Pakistan (TCP) has been importing from other sources. The government has already rejected the offer and asked the mills to bring out their stocks in the market instead of making such offers.

The millers have also been trying to convince the government to waive sales tax on sugar, saying this single measure will result in the drop of Rs4-5 per kg in the retail market. “Last year the Central Board of Revenue (CBR) collected about Rs15 billion in sales tax from the sugar industry. This year it has already collected Rs25 billion. If the sales tax on the current sugar stocks is waived, the government will not have to bear any loss as it is already providing relief to consumers to the tune of Rs7-8 billion by selling the sweetener at the subsidised rates at the utility stores,” Mr Ashraf says. The government has also refused to oblige.