Pakistan on Monday approved to sign a government-to-government deal worth $112 million with a Russian state corporation for the import of 300,000 metric tons of wheat – the first state-level import deal in the past two years with Moscow.
However, the government remained unable to resolve the long outstanding issue of opening a bank revolving account to save the Chinese energy companies from the circular debt and came up with an interim solution to set up a mere Rs4 billion monthly fund.
The Economic Cooperation Committee (ECC) of the Cabinet took these decisions of procurement of wheat and opening an energy fund in place of a Revolving Bank Account.
Finance Minister Ishaq Dar chaired the ECC meeting hours before departing for China.
M/s Prodintorg – a state-owned company of the Russian government – has agreed to sell the 300,000 metric tons of wheat at $372 per metric ton – $1 less than the last contract that Pakistan signed with a private bidder. The wheat will cost $387 per ton or Rs89.2 per kilogram at a Pakistani port, which is slightly expensive than domestic production.
Earlier, in August this year, Pakistan had rejected Russia’s offer to supply 120,000 metric tons of wheat at a price of $399.50, demanding a further reduction of 2.4% in the rate due to the falling global commodity prices. That offer had also been made by Prodintorg under the government-to-government arrangements.
Last time, Pakistan had imported one million metric tons of wheat from Russia in July 2020 under the government-to-government deal.
M/s Prodintorg will supply the commodity from November 2022 to January 15, 2023. The Trading Corporation of Pakistan informed the ECC that M/s Prodintorg is not an internationally sanctioned entity. The West has excluded food exports by Russia from the banned items list, as Russia and Ukraine remain the two world’s leading wheat suppliers.
The ECC in May 2022 allowed the TCP to import 3 million tons of wheat. Later, public wheat stocks were verified and it was reported that the actual shortfall would be 2.6 million tons instead of 3 million tons.
This week, the ECC has also allowed importing of 800,000 tons of wheat through an open tender as well as through a government-to-government basis out of the remaining 1.6 million tons remaining quantity. The wheat has to be imported before harvesting the new crop.
Just three days ago, the Ministry of National Food Security had informed the ECC that efforts to import wheat from Russia under a G2G deal had remained fruitless.
Pakistan Agriculture Storage and Services Corporation (Passco) has wheat stocks of 3.5 million tons, which will turn negative if the additional demand of provinces is met without more imports.
So far, Pakistan has either signed contracts or allowed the import of 1.67 million tons of wheat and nearly one million tons of wheat has already arrived in the country.
The Ministry of Energy presented a summary in the ECC on Pakistan Energy Revolving Fund (PERF), said the finance ministry.
“The ECC after deliberation approved the opening of an assignment account under the title of Pakistan Energy Revolving Fund (PERF) to be opened with SBP Islamabad and operated by CPPA”, according to the finance ministry.
However, the sources said that the Fund was not an alternative to the revolving bank account under the CPEC Energy Project Cooperation Agreement. They said that the government was constrained due to limitations imposed by the International Monetary Fund.
Pakistan had committed to China that it will open a dedicated revolving account and keep in it money equal to 22% of the billed amount by the Chinese power producers.
The Pakistan Energy Revolving Fund has been allowed to be opened till such time the Revolving Account matter is mutually resolved, a senior official of the Ministry of Finance told The Express Tribune.
He said unlike ensuring a bank credit line or providing additional money from the budget for the revolving account, it has been decided that Rs50 billion from the already approved budget of the subsidies will be diverted towards the new energy fund.
A monthly limit of Rs4 billion has been imposed on the withdrawal from the energy fund, he added, saying the arrangement is not an alternative to the revolving account agreement. He said that a Rs50 billion supplementary grant has been approved to divert money from the subsidy grant.
Essentially, the arrangement will not benefit Chinese energy companies that in any case were getting some money from the Power Division out of the subsidy head, said an Energy Ministry official.
The Ministry of Energy presented another summary for amendment in the Power Purchase Agreement (PPA) for the commissioning of the designated project – CPEC – Thar Coal Block-I Generation Company, according to the finance ministry.
The ECC approved to amend the agreement to declare the project operational without achieving the financial close.
The ECC was informed that the project was 90% complete but the company was unable to achieve the Financial Close due to unforeseen events and reasons which led to delays in Sinosure and lenders' approvals. Therefore, the request was made to consider and permit the effectiveness of the PPA from the date of its execution i.e. 27-08-2019 and authorize CPPA to amend the PPA accordingly.
“The ECC after deliberation approved the summary and added that it must be ensured that there will be no impact on tariff through this decision and this summary is being approved due to exceptional situation”.
The Chinese insurance company was not giving a loan to the parent company of the project because of Pakistan’s failure to open Revolving Bank Account. But the project sponsors spent $2 billion from its equity and wanted to make the project operational by December this year.
The Ministry of Energy (Power Division) presented a summary on the revision of oil marketing companies (OMCs) margins on petroleum products. After comprehensive discussion, ECC approved the summary in principle and allowed the agreed revised margin at Rs6 per litre but its implementation will be subject to fiscal space in POL prices.
Effectively, the ECC has increased the OMCs margin by 63% or Rs2.32 per litre, which will be paid by the consumers.