ECC meeting: Govt finally decides to buy 378,000 tons of sugar

Flood-affected rice millers and traders to get loan relief; Lahore to get a new dry port.

ISLAMABAD:

After dithering for months, the government on Tuesday finally decided to procure 378,000 metric tons of sugar at a cost of about Rs17.5 billion, or about Rs46.25 per kilogram, a move that is likely to come under sharp criticism since it pays the entire amount to the winning bidders upfront without requiring any immediate delivery.

The decision was taken in a meeting of the Economic Coordination Committee of the cabinet, headed by Finance Minister Abdul Hafeez Shaikh. Earlier, the ECC had turned down a proposal to procure sugar at Rs64 per kilogramme since the prevailing market prices at the time were between Rs49 and Rs50. At that time, the government had wanted to procure 170,000 to 200,000 metric tons sugar.

In response to a tender floated by the state-owned Trading Corporation of Pakistan, two companies (not identified yet) bid the lowest quote of Rs46.25 per kilogramme. The industries ministry had sought the ECC’s permission to negotiate with one of the other bidders to match the lowest bid, but the ECC refused to grant what would have been an exemption from the 2004 Public Procurement Rules. The ministry is now expected to take up its request in front of the full cabinet meeting on Wednesday (today).

The procurement decision is likely to be controversial since the government will make the entirety of its payment upfront while leaving the sugar in the stores of the sugar mills, according to a source in the finance ministry. While the mills would be subject to a penalty if they refused to deliver the goods on time, there is a precedent for sugar millers doing so.

In 2008, when sugar prices skyrocketed beyond the rate the government had paid, the sugar millers simply refused to deliver the sugar when the government sent in its requisition. Up to seven sugar mills still owe Rs2 billion to the government.

Loan relief

The ECC also decided to pay off 50% of the outstanding loans owed by all rice millers and traders from Balochistan and Sindh currently facing difficulties owing to the floods in 2011, an amount that comes to approximately Rs513 million.

The finance minister, fearful of the moral hazard problem, said that this assistance was a one-time occurrence and should not be cited as a precedent in the future for similar actions. The ECC then created a committee headed by Finance Secretary Waqar Masood to oversee the relief measures and ensure that it is made available only to millers who are eligible.

Dry port in Lahore

The ECC also approved the establishment of a dry port at the Prem Nagar Railway Station in Lahore. Federal Board of Revenue Chairman Salman Siddique informed the committee that private sector investments in the dry port totalled Rs1.2 billion while the government itself had put in about Rs4.9 billion. Siddique said the port is expected to generate revenues of up to Rs1 billion per year.

Railways procurement

One of the lengthiest debates in the committee was over the issue of the procurement of 75 locomotives by Pakistan Railways after the railways ministry ask for an exemption from the 2004 Public Procurement Rules after it had already violated government regulations by granting the contract to a company based in China. The ECC decided that the matter should be addressed by the full cabinet.

Sources said that the main issue was the implicit understanding that Pakistan had reached with China over the issue: Islamabad would ensure that the contract with the Chinese firm went ahead so long as Beijing withdrew its objections to the contract for 150 locomotives going to an American firm.

Published in The Express Tribune, January 4^th, 2012.