Govt allowed additional wheat exports of 500,000 tonnes
30 January, 2019
ISLAMABAD: The government on Tuesday allowed additional wheat exports of 500,000 tonnes and gave a go-ahead to raise Rs200 billion funds from Islamic banks for partial cash settlement of the circular debt now well above Rs1.415 trillion.
The decisions were taken at a meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by Finance Minister Asad Umar.
It rejected approval to the budget of National Telecommunication Corporation due to unsatisfactory explanations to various questions.
The ECC allowed the export of 500,000 tonnes of wheat — over and above 500,000 tonnes export approved on Nov 20, 2018 — on the basis of bids already received in view of good prices to save about one-month time required for fresh bidding. It was explained that the bidding process completed on Jan 11 received “competitive rates (highest at Rs32,759 per tonne) over and above the purchase price of Rs32,500 per tonne”.
Therefore, the meeting was requested by the national food security and research ministry to allow export of the remaining 500,000 tonnes surplus lying with the Pakistan Agricultural Storage and Services Corporation (Passco) in the shape of wheat or wheat products, including flour, suji and maida. Out of this, 400,000 tonnes would be exported through sea route and 100,000 tonnes through land route.
The ECC was also informed that the wheat season started with a total stock of 11.93m tonnes, including a carryover of 5.94m tonnes. At present about 7.436m tonnes stocks were available with the public sector, including the provinces. After accounting for local consumption, about 1.7m tonnes of wheat stocks were now considered surplus.
Passco had received bids for 255,000 tonnes wheat export against its tender of 100,000 tonnes floated last month. The highest bid was of $233 per tonne for 10,000 tonnes and would not require government subsidy.
On Nov 20, the ECC had allowed wheat export of 500,000 tonnes even though the ministry had demanded export of 3.1m tonnes. The ECC had allowed only 100,000 tonnes by Passco and 400,000 tonnes by the Punjab and Sindh governments, with a directive that the Centre would pick freight subsidy for Passco and the provincial governments should take care of their export costs.
The meeting also formally allowed the power division of the energy ministry to proceed with the raising of Rs200bn Syndicated Islamic Term Finance Facility from Islamic banks against already approved term sheets for cash settlement of the circular debt, including Rs47bn to provincial governments on account of net hydel profit. Khyber Pakhtunkhwa and Punjab would be paid Rs35bn and Rs12bn, respectively, as profit.
The funds to be raised through Islamic banks would be used to ease out liquidity crunch engulfing the entire energy sector, including oil and gas suppliers, distribution companies, the Water and Power Development Authority and power producers — wind, solar, etc.
The funds would be administered through a fresh assignment account of the Central Power Purchasing Agency to ensure biannual payments against loan servicing. The power division also stepped back from its commitment to generate Rs68bn through efficiency gains by improving recoveries and reducing losses to finance Rs3 per unit subsidy on Industrial Support Package (ISP). Therefore, a power division’s commitment made part of an earlier ECC decision was approved for deletion that said: “The funding (for ISP) will be met through the efficiency gains of power sector by improvement in recovery and reduction in losses.”
Power Secretary Irfan Ali reported to the ECC that total circular debt as of Dec 31, 2018 stood at Rs1.415tr. This included old stock of Rs607bn against which syndicated term finance facilities had already been executed on behalf of the Power Holding Company Ltd (an asset-less shell company of the power division), besides the remaining and fresh build-up payables of Rs808bn.
The finance ministry and a consortium of six banks have already finalised the funding arrangement and repayment mechanism. The consortium is led by Meezan Islamic Bank and comprises Bank Islami Pakistan, Faysal Bank Limited, MCB Islamic Bank, Dubai Islamic Bank and Al-Baraka Bank. The financing is statutory liquidity ratio (SLR) eligible product and assets of the distribution companies and generation companies would remain pledged with the banks as collateral, besides the government guarantee. The boards of generation and distribution companies are reported to have formally approved the funding and mortgage of assets.
The bond will have a 10-year maturity at a rental return of a base rate plus a margin of 100 basis points and Takaful cost. The base rate will be defined as six-month Karachi Interbank Offered Rate (Kibor) asking side prevailing on the base rate setting date, subject to a floor and cap.