PESHAWAR, Feb 4: Flour mills of the NWFP have requested Prime Minister Shaukat Aziz to direct the State Bank to lift cash margin restrictions on loans for wheat procurement so that millers could take advantage of the loan facility in the coming wheat season.

"We have requested the prime minister to ensure a level-playing field for the NWFP flour mills by asking the central bank to ease restrictions imposed last year," Naeem Butt, chairman of the NWFP chapter of the Pakistan Flour Mills Association (PFMA) told Dawn on Friday.

Under the SBP circular No.12, issued on May 10, 2004, cash margin restrictions on bank advances meant for procurement of wheat by the private sector were made tougher to discourage hoarding of wheat and ensure stability of flour prices in the country.

The central bank had imposed a cash margin limit of 50 per cent, raising it from 10 per cent, on fresh disbursements by banks to the private sector for wheat procurement.

Lending institutions were also asked to ensure that advances extended to the private sector were adjusted by Sept 30, 2004 - a condition which made the facility less attractive for the NWFP flour mills.

Business circles in Peshawar said the SBP policy had added to the difficulties being faced by local flour mills as, according to the PFMA-NWFP, none of its members utilized the loan facility last year.

Explaining the position, market sources said after the Punjab government lifted its ban on transportation of wheat to other parts of the country, the NWFP mill owners were left with not much time to procure wheat from Punjab.

Mr Butt said during the ban period the Punjab government and local flour mills procured wheat from the open market in large quantities, leaving a small amount in the market when restriction on wheat transportation was lifted in September.

"When the NWFP mill owners were allowed to procure wheat from Punjab, not much quantity of the commodity was left in the market, hence most of the Frontier flour mills could not utilize the loan facility last year," said a PFMA-NWFP spokesman.

Similarly, he added, the NWFP mill owners did not opt for the facility as most of them were of the view that it would not be worthwhile to obtain bank advances on 50 per cent cash margin condition and that too only for a period of less than a month - as the SBP circular had asked banks and financial institutions to adjust the advances by Sept 30, 2004.

"The whole situation made the facility unattractive and even those who had arranged funding lines - before the ban on wheat movement was imposed on April 20 - did not obtain loans," said the spokesman.

In his letter to the prime minister, the PFMA-NWFP chairman requested him to ask the SBP to restore its policy of extending loans for procurement of wheat against 10 per cent cash margin.

Under the previous policy, millers obtaining loans for procurement of wheat were required to arrange 10 per cent of the total size of the loan on their own with the rest (90 per cent) coming from bank(s).

"We have requested Mr Aziz to waive the 50 per cent cash margin condition for the NWFP flour mills and restore the previous policy before the next crop season begins in April 2005," said Mr Butt and added that no response had so far been received for the letter sent on Jan 1.

He said that continuation of the policy to adjust bank advances by Sept 30 would make the facility less attractive as mill owners, particularly those belonging to the NWFP, did not have the financial capacity to return loans in four months time.