February 06, 2014
Economic Co-ordination Committee (ECC) of the Cabinet has altered 0.6 million tons sugar procurement plan 2014, that was jointly prepared by the Ministry of Industries and Production and Trading Corporation of Pakistan (TCP), a subsidiary of Commerce Ministry, sources close to Commerce Minister told Business Recorder.
The sources said, the ECC in its meeting held on December 11, 2013 had directed the Ministry of Industries and Production to examine the financial impact, including carrying cost of the proposed procurement of sugar, in advance, on the basis of a professionally worked out financial model; and resubmit the proposal accordingly by December 26, 2013 for consideration of the ECC.
The ECC committee, presided over by Finance Minister Ishaq Dar on January 28, 2014, was further informed that a joint exercise to assess the financial impact including carrying cost was carried out by the Ministry of Industries and Production and TCP. A summary for the purchase and financial costs, sugar stock position, financial implications, carrying cost as well as determination of financial cost was presented in tabulated form.
As a result of the said exercise, following two options were made for allowing procurement of sugar by the TCP: Option 1 – 150,000 tons of sugar every three months starting from January 2014, and Option II – 200,000 tons of sugar in January and April 2014 and 100,000 tons in July and October 2014.
As the financial implications of option I&II worked out to be Rs 32.30 billion and Rs 32.04 billion respectively, it was suggested that TCP should plan its procurement in accordance with the price of sugar in the market as per option II as, in this case, the financial impact on federal government was likely to be lower by Rs 0.26 billion as compared to option-I.
The meeting observed that sufficient stock of sugar was available in the country; prices were stable and the crushing season was already going well. However, TCP should replenish its stock substantially to ensure un-interrupted supply of sugar to USC and other agencies.
After detailed discussion, the ECC decided to procure 0.6 million tons of sugar from mills through TCP, of which 75,000 tons will be procured in February and 50,000 tons every month. TCP has floated tenders for procurement of 75,000 tons a day a couple of days earlier.
According to earlier option II, financial implications of 200,000 tons sugar during the first quarter (January- March 2014) had been worked out at Rs 9.98 billion, of which Rs 9.80 billion will be purchasing cost and Rs 0.18 billion will be finance cost. During the second quarter, (April-June 2014), total cost of 200,000 tons (Rs 50,470 per ton) will be Rs 10.41 billion of which purchase cost will be Rs 10.09 billion and finance cost Rs 0.32 billion. During the third quarter, total cost of 100,000 tons of sugar (at Rs 52.993 per ton) has been estimated at Rs 5.30 billion and finance cost of Rs 0.31 billion; and during the fourth quarter total financial implications of 100,000 tons would be a total of Rs 5.73 billion and finance cost Rs 0.31 billion.
The ECC, however, altered the procurement plan and decided to procure 225,000 tons sugar for first quarter and 150,000 tons in subsequent quarters till December 2014. The sources said the market price of last week of December 2013 had been taken as a purchase cost for the procurement of sugar in December 2013. The price is assumed to increase by three percent, five percent and eight percent in March, June and September 2014 quarters respectively, based on past trends of sugar prices.
The incidental cost/carrying cost of sugar remains constant for all quarters which are based on present actual cost. The current Mucaddam charges are Rs 9,800 per mill per month which are valid till August 2014, and are assumed to remain at the same level till December, 2014, the sources maintained.
According to sources, there will be no impact of inland insurance cost on the pattern of procurement of sugar as the company obtained an annual insurance policy of Rs 20.4 billion (sum insured) to cover its stock. The sources said ECC had recently been informed that some of the sugar millers were reluctant to allow the USC to lift the procured sugar however, now that issue was settled.
Courtesy Business Recorder