Pakistan on Monday caved in to China’s demand for opening a revolving bank account that would partially save Chinese power plants from circular debt but it may cause concern among officials of the International Monetary Fund (IMF).
It also allowed import of 580,000 tons of wheat at a price of $372 per ton, excluding the incidental and transportation charges, which would cost the national exchequer a minimum of $216 million.
Wheat import will cost a total of $224 million after including the incidental charges.
The decisions were taken by the Economic Coordination Committee (ECC) of the cabinet that stamped a second government-to-government wheat contract with a Russian state-owned supplier. Finance Minister Ishaq Dar chaired the ECC meeting.
“The ECC approved a proposal of the finance ministry to change the title of the revolving fund account for CPEC independent power producers (IPPs) from Pakistan Energy Revolving Fund to Pakistan Energy Revolving Account,” said a statement issued by the Ministry of Finance.
The finance ministry informed the ECC that the title of the fund had been reviewed to bring it in conformity with the original CPEC agreement dated November 8, 2014.
Pakistan took eight years to implement the important clause and the delay not only caused friction in relations with China but also led to over $1 billion being stuck in arrears for Chinese companies.
However, the move may irritate the IMF that on the insistence of its largest shareholder – the United States – is pressing Pakistan against giving any preferential treatment to the Chinese companies. But having good relations with China has once again become critical after the government has not been able to satisfy the IMF.
The delay in the start of ninth review talks with the IMF has again triggered a debate on the possibility of default, which Dar has strongly denied.
In late October, the ECC had approved the setting up of Pakistan Energy Revolving Fund to be operated by the Central Power Purchasing Agency-Guarantee (CPPA-G).
The Express Tribune reported at the time that the fund was not an alternative to the revolving bank account under the CPEC Energy Project Cooperation Agreement and that the Chinese would not accept the arrangement.
The ECC amended its decision on Monday after China refused to accept the previous arrangement. Unlike ensuring a bank credit line or providing additional money from the budget for the revolving account, the government has placed Rs50 billion out of the already approved subsidy budget of Rs180 billion that has been diverted towards the new energy account.
A monthly limit of Rs4 billion has been imposed on withdrawal from the energy fund and the first tranche of Rs4 billion was withdrawn and paid to Chinese firms in November, according to the officials.
The monthly payment of Rs4 billion would not completely resolve the Chinese companies’ problems. They will still get around Rs10 billion less than the monthly bills, according to the officials.
Pakistan had committed to open a revolving fund that would have deposits equal to 21% of the power generation cost. But the commitment was never honoured.
Meanwhile, the Ministry of National Food Security and Research submitted a summary on the award of seventh international wheat tender for 2022, which was opened on November 30, 2022.
The ECC approved the lowest bid of Cereal Crop Trading LLC at $372 per ton for the supply of 130,000 tons of wheat at Karachi ports during the shipment period from December 16, 2022 to February 8, 2023, according to the finance ministry.
The ECC also granted approval to the offer of Prodintorg, Russia, on a government-to-government basis for the supply of 450,000 tons of wheat at $372 per ton at Gwadar Port during shipment period from February 1, 2023 to March 31, 2023. The import at Gwadar Port will cost an additional Rs1.25 per kg.
It was decided that any additional cost of inland transportation from Gwadar Port would be borne by Pakistan Agricultural Storage and Services Corporation (Passco) to be recovered from provinces at the time of release of wheat stock.
With the fresh approval, the government has so far given permission for the import of 2.24 million tons of wheat. The country still has to import another 355,000 tons to bridge the projected shortfall of 2.6 million tons.
Last month, Prodintorg – the state-owned company of the Russian government – also signed a contract for the supply of 300,000 tons of wheat at $372 per ton.
Published in The Express Tribune, December 6th, 2022.
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