Banks not ready to enhance credit lines to TCP
October 11, 2013
Banks are not ready to enhance the cash credit lines to the Trading Corporation of Pakistan (TCP) and insist on high mark-up margin subsequent to the latter”s failure to settle overdraft account as the subsidy was not released by Finance Ministry, it is reliably learnt.
Sources told Business Recorder that the TCP has completely utilised the approved credit lines of the consortium of banks due to non-releases of long outstanding subsidy by the Finance Ministry and delayed credit sale receipts from National Fertilizer Marketing Company (NFML) and Utility Stores Corporation (USC).
The issue was raised in last Economic Co-ordination Committee (ECC) of the Cabinet meeting after TCP was directed to import 0.5 million tons urea. The meeting was informed that as on July 31, 2013, the OD outstanding of banks stands at Rs 116.883 billion, of which subsidy claims of Rs 86 billion are due for release from the Ministry of Finance with Rs 62 billion receivables for urea and Rs 24 billion for sugar.
The TCP, in pursuance of the ECC decisions, buys urea from the international market and sugar from local mills on behalf of the Ministry of Industries and payment is made through OD facility from banks. The urea is sold on credit basis to the National Fertilizer Marketing Company (NFML) and sugar to USC. The OD account of the TCP with banks is periodically settled by release of subsidy by MoF and also from cash remittances by NFML and USC. The TCP added that in pursuance of the ECC decisions of June 27 and July 2013, various tenders with financial implications of around Rs 20 billion have been awarded and the payment against the Letters of Credit (L/Cs) for urea and sugar would be due within the next one month.
The TCP submitted that as per mutual agreement, NFML has to repay the due amount to TCP within one week of receiving urea. However, it generally takes around 30 to 45 days for such reimbursements despite the fact that NMFL sells urea to its distributors against cash advances. Additionally, TCP provides 50,000 MT of sugar per month to USC on cost basis, in lieu of which USC has to release Rs 500 million per week to TCP and claim costs that are over and above as subsidy from the Ministry of Finance through Ministry of Industries & Production.
However, despite the ongoing process of cash sales at USC stores, USC also remits the amount after a delay of 90 to 120 days. Furthermore, USC generally does not follow its aforementioned commitments of weekly payments. Consequently, the outstanding cash receivables against USC have now piled up to Rs 15 billion, thereby aggravating financial constraints of TCP besides incurring huge mark-up claims. After TCP Chairman”s briefing in the meeting of 15th August, 2013, the ECC desired that a summary be put up regarding aforementioned non-release of long overdue subsidy claims by the Ministry of Finance and delayed payments by NFML and USC.
The views/comments of the Finance Division and the Ministry of Industries & Productions were sought on the following proposals: (i) the long outstanding subsidy claims amounting to Rs 86 billion may be settled through issuance of bonds, as was done for subsidy claims up to June 2011. This way the immediate cash constraints and bank claims on TCP could be eased thereby providing cushion for forthcoming procurements and reducing markup burden; (ii) out of Rs 30 billion allocated for urea subsidy in the Budget 2013-14, the quarterly release of subsidy @ Rs 7.5 billion may be approved; (iii) in future, NFML may be directed to open local L/Cs in favour of TCP, after deducting their incidentals; (iv) the USC may be directed to immediately pay total outstanding of Rs 15 billion to TCP; and (v) in future, USC may also be directed to open local L/Cs of Rs 500 million every week, instead of paying through pay orders or bank drafts to ensure timely payments to TCP. Courtesy: Business Recorder
Published in ZaraiMedia.com