Dr Hafeez told his colleagues that the withdrawal of GST was out of question because under a government policy a number of sectors had been brought under the tax net after a lot of discussions. - File photo

ISLAMABAD: There was a clear division between the political constituency and economic policy at a meeting of the Economic Coordination Committee of the cabinet on two crucial issues — purchase of sugar for strategic stocks at abnormally high rates and exemption of tractors from tax.

In the process, the ECC deferred at least two other important proposals — a ban on import of CNG equipment and imposition of taxes on oil products to Afghanistan. However, it allowed import of 200,000 tons of urea for Rabi 2011-12 on the recommendations of a committee headed by Senior Minister for Industries Chaudhry Pervaiz Elahi.

Informed sources told Dawn that a proposal to purchase 200,000 tons of sugar from the Pakistan Sugar Mills Association (PSMA) consumed most of the time. The meeting was informed that sugar mills had agreed to reduce their bid price offered to the Trading Corporation of Pakistan (TCP) from Rs63 to about Rs59 per kg after negotiations.

The commerce ministry's additional secretary said the wholesale price of sugar stood at Rs49 per kg on Monday morning in Karachi and Rs51 in other cities. He was criticised by the ministers for his belated information when a lot of time had already been wasted by the secretary commerce.

Some economic ministers questioned the rationale of purchasing sugar for poor people and the Utility Stores Corporation through the TCP when the sugar situation in the country was satisfactory and its prices in the wholesale and retail markets were on a continuous decline.

The operations of TCP also came under criticism when its management informed the meeting that there was a cost factor of Rs3.5 per kg for replacing old sugar with fresh produce. It said 27 mills had participated in the bidding for supplying 175,000 tons of sugar at about Rs58.90 per kg, while a few others had offered lower prices for another 10,000 tons though they had not taken part in the bidding.

After the economic managers quizzed the TCP, it reduced the replace cost to Rs1.5 per kg from the earlier Rs3.5. At this, Dr Hafeez put five questions before the ministers and wanted them to give satisfactory answers before he could take a decision.

The questions were: How many mills were in the run and why all of them had offered similar prices? Whether the quality of sugar from all mills was the same or different? What was the role of the TCP that was changing goal posts? What was the justification for Rs3.5 per kg replacement cost? Was any PPRA rule violated in the process?

Interestingly, PSMA chairman Javed Kiyani, who also attended the ECC meeting, defended the higher price offered by the sugar millers. An insider said nobody asked why did a private citizen attend the meeting and plead his association's case.

Mr Kiyani said if the government did not want to purchase sugar from mills at their bid price they should be allowed to export their surplus quantities. He warned that the government would have to import the equivalent quantities at Rs80 per kg at a later stage. He said he feared that if full payments were not made to the sugar mills, growers would switch to other crops.

He offered to reduce sugar price by 0.5 per cent if the government made full payment for the commodity to be purchased by the TCP. Even at 95 per cent payment, the mills would not be in a position to provide any discount, he added.

According to an official statement, the ECC constituted a committee to look into the sugar situation, quantity of sugar from different mills and their respective price, additional expenses as per tender terms and the role of the TCP. It has also been asked to ensure that there is no violation of the PPRA rules in finalising the lifting of sugar from the PSMA. Dr Hafeez said the rest of sugar mills should also be invited to participate in the tender.

The committee, headed by the industries minister and comprising secretaries of finance and industries and prime minister's adviser on agriculture, will submit its report to the finance minister before the next ECC meeting expected on Thursday.

The ECC remained divided over the withdrawal of 16 per cent GST on tractors. While ministers with agricultural background, particularly Chaudhry Pervaiz, Ghous Bux Mehar, Mir Changez Khan Jamali and Anwar Ali Cheema, supported the proposal, Prime Minister's Adviser on Agriculture Kamal Majidullah and other ministers opposed it.

Dr Hafeez told his colleagues that the withdrawal of GST was out of question because under a government policy a number of sectors had been brought under the tax net after a lot of discussions.