The Ministry of Production (MoP) is likely to move a summary to the Economic Co-ordination Committee (ECC) of the Cabinet for approval of barter trade of iron ore from Iran in lieu of Pakistani wheat, sources close to CEO Pakistan Steel Mills (PSM) told Business Recorder.
The sources said Ministry of National Food Security & Research has already conveyed its No Objection Certificate (NoC) if the PSM''s proposal on import of iron ore from Iran in exchange for wheat is accepted by the ECC. PSM has been procuring iron ore from Iran against long-term contracts since 2003. At present two long-term valid contracts are in place which are as follows: (i) M/s Iranian Central Iron Ore Company (ICIOC), working under Ministry of Mines and Minerals - 400,000 tons valid June 2013; and (ii) M/s Ehya Sepahan, a private company, 300,000 tons (F) and 110,000 tons(I) valid up to June 2014.
The sources said in view of sanctions imposed by the US, banks are hesitant to open LCs in respect of procurement of iron ore from Iran. The shipments against long-term contracts have not materialised on this account. According to sources, GoP has approved the proposal on sale of wheat under barter arrangements to Iran wherein Passco is planning to export 0.1 million tons of wheat @ $ 300 per metric ton at a cost of $ 30 million to Iran.
The sources said PSM has proposed to the federal government to allow import of iron ore from Iran in exchange for exported wheat as per barter agreement. PSM has assured the federal government that GTC Iran will make payment to ICIOC Iran based on indexation prices of iron ore to be mutually agreed between PSM and ICIOC. PSM has requested that payment to Passco equivalent to $ 30 million (if the entire amount is allocated to PSM) in rupees along with bank charges. Modalities of payment will be agreed between PSM and Passco.
A four-member delegation of PSM recently visited Iran and held discussions with GTC (Iran), IMIDRO and ICIOC on various subjects. PSM already owes $ 15 million as previous dues since September 2011 to ICIOC which has made it clear that it will not supply iron ore to PSM until old debt is cleared first.
The Chief Executive Officer (CEO) maintains that in order to balance requirements of paying outstanding dues to ICIOC and urgent resumption of supply of iron ore to PSM, the two issues may not be linked and be tackled simultaneously but separately as GoP has allocated sufficient funds to commence retirement of debt in instalments.
The Ministry of Commerce which is co-ordinating the possibility of barter between wheat and iron ore will form a committee to ensure that PSM commences payment of dues subject to government approval and concurrence by GTC; it can allocate $ 15 million out of barter of 100,000 tons of wheat to be provided by Passco as covering financial guarantee to satisfy auditors'' requirements against ICIOC/ IMIDRO. But PSM pays for all new shipments directly to ICIOC through its designated beneficiary in Pakistan.
Alternatively, allocation of $ 15 million where GTC pledges to pay ICIOC for iron ore shipments, PSM on receipt of iron ore would commit itself to pay to Passco Pakistani rupees along with bank charges (to be agreed mutually by Passco and PSM).
This proposed barter trade deal appears to be uncertain as the Ministry of National Food Security and Research has recently apprised to the ECC that the first consignment of 100,000 is ready for shipment, however, there are issues concerning mode of payment as barter trade in the existing geopolitical scenario was not possible. The ministry has been directed to submit a detailed report on this issue in the next ECC meeting.