ECC okays Russia wheat imports

Pakistan on Monday agreed to sign a government-to-government contract worth $112 million with a Russian state enterprise for the purchase of 300,000 metric tonnes of wheat — the first state-level import transaction in the previous two years with Moscow russia.

However, the russia government was unable to settle the long unresolved problem of creating a bank revolving account to free the Chinese energy businesses from the circular debt and came up with a temporary solution to put up a modest Rs4 billion monthly fund.

The Economic Cooperation Committee (ECC) of the Cabinet adopted these choices of acquisition of wheat and established an energy fund in place of a Revolving Bank Account.

Finance Minister Ishaq Dar led the ECC meeting hours before flying for China.

M/s Prodintorg – a state-owned firm of the Russian government – has agreed to sell the 300,000 metric tonnes of wheat for $372 per metric tonne – $1 less than the last contract that Pakistan made with a private bidder. The wheat would cost $387 per tonne or Rs89.2 per kilogramme at a Pakistani port, which is somewhat pricier than domestic output.

Earlier, in August this year, Pakistan had rejected Russia’s offer to deliver 120,000 metric tonnes of wheat at a price of $399.50, asking a further decrease of 2.4% in the cost owing to the declining global commodity prices. That offer had also been made by Prodintorg under the government-to-government agreements.

Last time, Pakistan had bought one million metric tonnes of wheat from Russia in July 2020 under the government-to-government contract.

M/s Prodintorg will provide the commodities from November 2022 to January 15, 2023. The Trading Corporation of Pakistan advised the ECC that M/s Prodintorg is not an internationally sanctioned organisation. The West has omitted grain exports by Russia from the prohibited products list, since Russia and Ukraine remain the two world’s top wheat suppliers.

The ECC in May 2022 permitted the TCP to import 3 million tonnes of wheat. Later, public wheat supplies were confirmed and it was announced that the real shortage would be 2.6 million tonnes instead of 3 million tonnes.

This week, the ECC has also permitted importing of 800,000 tonnes of wheat through an open tender as well as through a government-to-government basis out of the remaining 1.6 million tonnes remaining quantity. The wheat has to be imported before harvesting the fresh crop.

Just three days prior, the Ministry of National Food Security had told the ECC that efforts to acquire wheat from Russia under a G2G arrangement had remained unproductive.

Pakistan Agriculture Storage and Services Corporation (Passco) has wheat inventories of 3.5 million tonnes, which will become negative if the increased demand of provinces is fulfilled without new imports.

So far, Pakistan has either signed contracts or permitted the import of 1.67 million tonnes of russia wheat and about one million tonnes of wheat has already arrived in the nation.

Energy fund

The Ministry of Energy submitted a brief at the ECC on Pakistan Energy Revolving Fund (PERF), said the finance ministry.

“The ECC after consideration approved the creation of an assignment account under the title of Pakistan Energy Revolving Fund (PERF) to be created with SBP Islamabad and maintained by CPPA”, according to the finance ministry.

However, the sources noted that the Fund was not a replacement to the revolving bank account under the CPEC Energy Project Cooperation Agreement. They stated that the government was hampered owing to constraints imposed by the International Monetary Fund.

Pakistan has pledged to China that it will construct a special revolving account and maintain in it money equal to 22% of the billed amount by the Chinese power producers.

The Pakistan Energy Revolving Fund has been permitted to be created till such time the Revolving Account question is amicably resolved, a top official of the Ministry of Finance told.

He said unlike establishing a bank credit line or giving additional money from the budget for the revolving account, it has been agreed that Rs50 billion from the previously authorised budget of the subsidies will be transferred towards the new energy fund.

A monthly restriction of Rs4 billion has been set on the withdrawal from the energy fund, he noted, noting the arrangement is not a replacement to the revolving account agreement. He claimed that a Rs50 billion supplemental grant has been approved to syphon money from the subsidy grant.

Essentially, the arrangement would not assist Chinese energy businesses 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 provided another summary for change 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 authorised to change the agreement to declare the project operational without obtaining the financial closure.

The ECC was notified that the project was 90% complete but the firm was unable to achieve the Financial Close owing to unanticipated events and circumstances which resulted to delays in Sinosure and lenders’ clearances. Therefore, the request was made to evaluate and permit the effectiveness of the PPA from the date of its execution i.e. 27-08-2019 and empower CPPA to change the PPA appropriately.

“The ECC after consideration accepted the summary and noted that it must be guaranteed that there will be no influence on tariff through this decision and this summary is being allowed due to unusual situation”.

The Chinese insurance business was not extending a loan to the parent company of the project because of Pakistan’s failure to create Revolving Bank Account. But the project sponsors invested $2 billion from its stock and intended to get the facility operational by December this year.

The Ministry of Energy (Power Division) delivered a report on the modification of oil marketing companies (OMCs) margins on petroleum products. After lengthy debate, ECC approved the summary in principle and permitted the agreed amended margin at Rs6 per litre but its implementation would be subject to fiscal space in POL pricing.

Effectively, the ECC has increased the OMCs margin by 63% or Rs2.32 per litre, which would be paid by the customers.