Banks reluctant to open wheat LCs

Pakistani banks have refused to open letters of credit (LCs) for wheat import from Russia, fearing the United States may impose a fine on them owing to an intense row between the Cold War super powers over the Ukrainian conflict.

Two Pakistani banks have already been slapped with penalties in the US due to regulatory violations. Though Washington has not imposed any sanctions on Pakistan’s trade with Russia, banks are wary of opening LCs for engaging in trade with Moscow.

Pakistani banks have flatly refused to open LCs without making queries about wheat import from Russia, sources close to the developments told The Express Tribune. Now, according to sources, another available option is being explored for bringing wheat shipments from Russia. Pakistan requires supplies of the staple commodity as the recent massive floods have damaged its crops.

A delegation visited Russia a few days ago for negotiations on oil import, which later claimed that Moscow had agreed to supply oil at discounted rates. However, the hesitation on the part of banks in importing wheat has sparked questions about the prospects of oil trade as well.

A Pakistani refinery has also made efforts in the past to purchase oil from Russia. However, the plan could not materialise because of tensions between the US and Russia as Pakistani banks did not open LCs in that case as well. T h e E c o n o m i c Coordination Committee (ECC) on Monday approved the offer of Russian company Prodintorg for supply of 450,000 tons of wheat at $372 per ton on a government-to-government (G2G) basis at Gwadar Port during shipment period from February 1 to March 31, 2023.

It was decided that any additional cost of inland transportation from Gwadar Port would be borne by Pakistan Agriculture Storage and Services Corporation (Passco), which would be recovered from provinces at the time of release of wheat stock. Earlier, the ECC had approved another government-to-government deal for import of 300,000 tons of wheat from Russia. Prodintorg – a state-owned company of the Russian government – agreed to sell the 300,000 tons at $372 per ton.

Wheat will cost $387 per ton, or Rs89.2 per kilogramme, at a Pakistani port, which is slightly expensive than the domestic production. The government of Pakistan is arranging wheat supplies to build reserves following crop losses in recent floods. Heavy rains and deluge have caused damage to the wheat stock at government warehouses. Owing to the current situation, food security risks may spark concerns in the coming months.

Also, high prices of urea, electricity and other inputs have discouraged farmers from planting wheat crops. A wheat crisis erupted during the tenure of previous Pakistan Tehreeke-Insaf (PTI) government when the middlemen and hoarders stocked up the commodity to inflate its prices. Widespread smuggling to Afghanistan was another reason, which resulted in the disappearance of wheat flour from the domestic market.

Keeping in view the situation faced in the past, the government has been working on building strategic reserves to address any shortage in the future. Prime Minister Shehbaz Sharif has announced a Kissan package for farmers, who will be charged a low electricity tariff. However, discussions with them revealed that they were paying high taxes of Rs30 per unit in electricity bills, which the government did not waive.

On the other side, the government is importing wheat at higher prices, which is discouraging farmers from cultivating the key crop. Moreover, cotton ginning factories have refused to buy the cotton harvest from farmers, who now have no money to invest in wheat cultivation. This may cause a food security crisis in the country due to lower production of wheat.