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Price offered by sugar mills: TCP given a free hand to judge reasonability

The government has given free hand to the Trading Corporation of Pakistan (TCP) to judge the reasonability of sugar price to be offered by the sugar mills in response to the tender to be opened on December 23, 2011, sources told Business Recorder .

A committee, headed by Secretary, Finance, Dr Waqar Masood, however, maintains that the price of sugar should not exceed Rs 53.73 per kg. Sugar sector analysts argue that top policymakers, including Secretary, Commerce, are trying their best to delay the procurement, aimed at putting pressure on the mills to sell sugar at close to domestic market rates.

According to official documents, the Economic Co-ordination Committee (ECC) of the Cabinet was informed on December 15, 2011 that the ECC in its last meeting held on December 12, 2011 had decided that the committee, headed by Secretary, Finance, Dr Waqar Masood, should undertake further discussions with representatives of sugar mills and persuade them to bring down the base line price.

It was also decided that the committee should submit its revised recommendations in the next ECC meeting. While formulating its recommendations, the committee will ensure that all codal formalities, including observance of Public Procurement Rules, are fully complied with.

The ECC was informed that in pursuance of its decision the committee headed by Finance Secretary held further negotiations with the sugar mills, which agreed to supply sugar to the government @ Rs 53.73/kg, including incidentals of Rs 1.23/kg. The committee has recommended the purchase of 200,000 tons sugar @ Rs 53.73/kg from domestic sugar mills with following modifications and relaxations: (i) 100 percent payment may be made; (ii) one-time exemption from deduction of withholding tax @ 3.5 percent may be granted to the suppliers by FBR.

However, regular taxes with returns would be paid as per rules; (iii) condition of replacement of existing sugar with new sugar may be withdrawn; (iv) price negotiations/re-negotiations may be regularised; (v) extension beyond period of validity may be approved; (vi) requirement of inner polythene lining in polypropylene bag of sugar may be done away with; (vii) condition of certificate from Cane Commissioner for release of balance payment to sugar mills may be done away with; (viii) the purchased sugar may be allowed to be stored with the sugar mills and 100 percent penalty may be imposed in case of default.

Besides, Performance Bond/Bank Guarantee be furnished by the suppliers as per tender terms; and (ix) each mill may be allowed to supply 5,000 tons of sugar, if they want to take this offer, except the mills which defaulted in previous tender and were black-listed by the ECC.

During the ensuing discussion it was stated that the situation had improved, price-wise. Besides, there is a need for taking an early decision, keeping in view the pressing need of the sugar industry and farming community in terms of funds/payments. However, it was agreed that it must be ensured that there is no violation of procurement rules.

It was also pointed out that the proposal involved too many exemptions/waivers in respect of Public Procurement Rules (8 in number); therefore, it would be appropriate to go for re-tendering process by incorporating necessary amendments in the tender document. This would provide level playing field to all stakeholders.

It was suggested that wholesale price may be made benchmark to judge reasonability of price quoted by the sugar mills. Another point made was that the present procurement of local sugar may not be viewed in isolation as it is more of a governance issue and present sugar procurement is just incidental to it. The exemptions/waivers need to be structured so that no undue criticism is faced by the government.

After detailed discussion and going through the pros and cons, the ECC had decided that fresh tender may be floated by December 16, 2011 after incorporating necessary amendments in the tender document. The tenders could be opened in one week's time after availing the permission of gallop tendering already in place.

The ECC also decided that TCP should incorporate following necessary amendments in the tender documents as under: (i) all sugar mills are allowed to participate without any conditionality of membership of PSMA; (ii) 100 percent payment will be made to the sugar mills/successful bidders at the time of agreement with TCP; (iii) defaulter sugar mills will be eligible to participate only after they clear their outstanding dues, including penalty; (iv) minimum and maximum quantity to be procured shall be 5,000 tons and 10,000 tons respectively; (v) a benchmark price of Rs 52,500 per ton (upper limit) shall be kept in view while making the fresh procurement at source; (vi) FBR will look into the possibility of issuing one-time exemption from upfront deduction of withholding tax by TCP and; (vii) TCP will decide the reasonability of price and award the contract(s) at its own level and inform the Cabinet Division accordingly. When contacted, an official told this scribe that none of the blacklisted sugar mills, collectively owing Rs 2 billion to TCP for not releasing contracted sugar, has submitted a bid.

Copyright Business Recorder, 2011