The federal government on Friday approved the purchase of 180,000 tons of wheat from the Russian government at a price of $279 per ton amid questions over the high cost and the decision to use Russian ships for transportation instead of the national flag carrier.
The Economic Coordination Committee (ECC) of the cabinet approved the import price of $279 per ton for supply on a government-to-government basis hardly a week after the Trading Corporation of Pakistan (TCP) cancelled a tender due to the high bid of $274 per ton and the suspicion of collusion.
“The ECC approved the import of 180,000 tons of wheat from Russia on GTG (government-to-government) basis, waiving all taxes/levies on GTG import of wheat,” according to a statement issued by the Ministry of Finance. The Ministry of National Food Security and Research created a sense of urgency for securing the ECC’s approval for wheat import. The ECC was told that Russia offered to supply 180,000 tons at $279 per ton and gave less than 24 hours to take decision on the offer.
TCP had accepted a bid in a competitive bidding process for the import of 330,000 tons of wheat at a price of $233.8 per ton. Russian wheat will be $45.2 or 19.3% expensive than the earlier public sector wheat deal.
Interestingly, in a separate summary that the food security ministry moved to secure the cabinet’s approval for signing a memorandum of understanding (MoU), it claimed “the Russian side has verbally assured that the rate of wheat will be a few dollars lower than the price in the international market”.
But the rate that Russia quoted and was eventually approved by the ECC was not only higher than the international prices for the day but was also at least $5 higher than the offer quoted in the tender that the TCP cancelled due to high rates.
Some ECC members objected and asked as to why the food security ministry was inclined to accept the higher price, said the sources.
Sources said Minister for Maritime Affairs Ali Zaidi objected to the food ministry’s decision to not use Pakistan National Shipping Corporation (PNSC) ships.
“The ECC and the federal cabinet have approved a national shipping policy that gives the first right of refusal in government contracts to the national flag carrier,” said Zaidi when The Express Tribune contacted the minister for his views.
Zaidi said his ministry was trying to lessen the burden on foreign exchange reserves as PNSC would charge the fare in Pak rupees.
“If our state does not give business to the national flag carrier, then who else would do it,” questioned the minister.
According to the finance ministry’s statement, the ECC was informed that about five million tons of wheat was available with the public sector in its stocks. So far, 430,000 tons had already been imported by the private sector and another 1.1 million tons were expected to be imported by the end of December 2020, said the finance ministry.
TCP has already opened a Letter of Credit for importing 330,000 tons of wheat and is in the process of issuing tenders for import of another 1.2 million tons, according to the statement. Import of 330,000 tons of wheat was being made at a price of $233.8 per ton.
Owing to the increasing shortage and fewer supplies, prices of wheat and wheat flour have been constantly increasing. Wheat prices, which were at Rs1,500 per 40 kg in the market two years ago, have now increased to Rs2,000, a hike of 33.3%.
Similarly, wheat flour prices, which were at Rs900 per 20 kg in August 2018, have increased to Rs1,400, a surge of Rs500 or 55.5% within two years.
The food security ministry told the ECC that Russia would provide 180,000 tons of milling wheat from October 15 to November 30, 2020. However, the proposal was valid until 1800 hours Pakistan Standard Time, October 2, 2020.
The ministry said it had evaluated the proposal and due to fluctuating prices in the international market, and the domestic demand and supply situation, the price of $279 per ton, equivalent to Rs46,116, offered by Russia was reasonable.
The entire cost of wheat import would be $50.22 million or Rs8.3 billion. Due to urgency, the Finance Division may be advised to arrange foreign exchange and to assist Pakistan Agricultural Storage and Services Corporation (Passco) in opening the Letter of Credit.
The food ministry claimed that due to the urgency of the situation, the summary could not be circulated to the ministries concerned. On July 15, the ECC had decided that the Ministry of National Food Security and Research may explore the possibility of government-to-government import of wheat from neighbouring and Central Asian countries.
The food ministry had contacted Ukraine, Russia and Iran for exploring the possibility of a minimum import of 200,000 tons of wheat. Only Russia responded to the request.
Russia had nominated United Grain Company and Prodintorg while Pakistan nominated Passco for contract negotiations. Talks began on September 5.
A commercial contract would be signed by Passco and Prodintorg after signing of the MoU. The federal cabinet approved a summary through circulation among ministers on Wednesday to allow Passco to sign the MoU.
The ECC also allowed exemption from sales tax on the supply of sugar imported through TCP for up to 300,000 tons.
Published in The Express Tribune, October 3rd, 2020.
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