Amid financial constraints, the government has decided to divert Rs15 billion allocated for sugar subsidy to finance the closure of Utility Stores Corporation (USC).
The Economic Coordination Committee (ECC) recently approved Rs30 billion for winding up USC.
Sources said the finance division flagged budgetary constraints in a recent ECC meeting as the closure cost was not budgeted. The ECC directed the Ministry of Industries & Production to rationalise the fund requirement through negotiations. It also decided that USC's assets, including properties, must be sold within the current fiscal year to cover costs through sale proceeds.
The ECC further decided that Rs15 billion from the current year's sugar subsidy allocation would be re-appropriated for USC closure. These funds will be released gradually, linked to asset disposal benchmarks, while any remaining requirement will be provided in the next fiscal year.
The Finance Division stressed that the spending was unbudgeted and must be approved as a Technical Supplementary Grant (TSG). It urged linking disbursements to proceeds from asset sales.
The Ministry of Industries and Production briefed that USC was established on September 3, 1971, as a government company to provide essential food items at subsidised rates and act as a market moderator. In 2007, its network was expanded to Union Councils, raising outlets from 1,023 to 5,557 and staff strength from 3,892 to 12,700 by 2009. This expansion required large subsidies. Despite support, USC has been running losses since 2013, with accumulated losses reaching Rs238 billion by June 2025.
On August 13, 2024, the federal Cabinet placed USC in Phase II of the privatisation list. Three days later, the government ended subsidies. To cut losses, the USC Board approved a rightsizing plan in December 2024, reducing outlets from 3,742 to 2,712 and staff from 11,614 to 7,710 by February 2025. Still, projected losses remained Rs8.315 billion annually.
On June 28, 2025, the issue was presented to the prime minister with two options: closure by July 31, 2025 or continuation until privatisation with a Rs1 billion grant. The prime minister approved closure by July 31, 2025, and formed a committee under the finance minister to oversee the process, early privatisation, and modalities for paying Voluntary Separation Scheme (VSS) benefits.
USC's Board also approved the closure. Between July 3rd and 14th, USC shut down 1,059 rented outlets and 1,230 franchises. But Collective Bargaining Agents (CBA) and unions staged a sit-in at USC headquarters in Islamabad, halting progress. To resolve the dispute, the prime minister formed a committee led by Special Assistant on Political Affairs Rana Sanaullah to negotiate. The sit-in ended after meetings on July 25th and 31st.
The industries' ministry informed ECC that the committee under the finance minister held four meetings in August 2025 to review the closure process. It finalised a layoff package costing Rs16-19.5 billion, including Rs13.225 billion in severance for regular employees. It also proposed Rs2.192-6.337 billion for contractual and daily wage staff, subject to union negotiations. In addition, Rs5.067 billion was earmarked for terminal dues and Rs684 million for widows' compensation under USC employment rules.
ECC was told USC ceased nationwide operations on July 31, 2025, and began shifting stocks to warehouses. It planned to lay off most staff by August 31. However, employees remain unpaid for June and half of April 2025 salaries. The committee directed USC to get valuations of its 21 properties to partially meet liabilities. Preliminary assessments by State Bank-approved surveyors estimated their value at Rs10-12.6 billion. Some titles have yet to be transferred from the Privatisation Commission, adding costs. Other properties face leasehold, commercialisation, and certification issues.
The ministry further informed that from September to November 2025, about 832 staff would be retained for audits, reconciliations, and auctions, costing Rs210 million per month. From December 2025 to June 2026, a reduced workforce of 325 will remain for property disposal and final tasks, costing Rs115 million monthly.
ECC was told that a detailed monthly cash flow plan was presented on August 22, 2025. The committee emphasised early disposal of USC assets and asked the Law & Justice Division to explore legal options for expediting sales under the Privatisation Commission Ordinance, 2000.
The ministry said USC's finances remain dire, with no funds to pay salaries, severance, or compensation. It sought ECC approval of Rs30.216 billion as a supplementary grant. This included Rs13.225 billion for severance, Rs5.751 billion for terminal dues and widow compensation, and Rs2.192-6.337 billion for one-time compensation to contractual and daily wagers.
Other expenditures included Rs1.467 billion for pending salaries and operations for July-August 2025, Rs630 million for 832 retained staff (Sep-Nov 2025), and Rs805 million for 326 staff (Dec 2025-Jun 2026). Vendor liabilities of Rs2 billion were also included, while Rs9.935 billion will be budgeted in FY 2026-27.
The Ministry sought ECC approval of the plan.
The ECC considered the proposal submitted by the Ministry of Industries and Production titled "Approval of Supplementary Grant for Smooth Closure of Operations of Utility Stores Corporation of Pakistan (Private) Limited" and approved it with the listed stipulations.
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