ISLAMABAD: The edible oil industry has asked the State Bank of Pakistan (SBP) and Ministry of Finance to direct the commercial banks to honor its request for opening Letters of Credit (LCs) to avoid crisis and actuate shortage of ghee and cooking oil.
In a communication to the Finance Ministry and the SBP, Sheikh Abdul Razzaq, Chairman Pakistan Vanaspati Manufacturers Association (PVMA) said on Thursday that commercial banks are conveying to the importers-cum-manufacturers of edible oil that with immediate effect the edible oil has been excluded from the list of “Essential Items” and hence turning down the requests for opening of LCs/retirement of documents.
Over 90 percent edible oil is import dependent to meet the national requirement of over 4.5 million metric tons per annum. The industry’s existing domestic stocks are sufficient to meet the demand for only 3-4 weeks, therefore, unhindered opening of LCs/ retirement of documents is inevitable and must be given priority as accorded by the SBP earlier vide EPD circular letter no. 20 of 2022 dated 27th December 2022.
He said that the said issue must be addressed by the SBP immediately to set aside the likely panic in the market, which may translate into price hike, hoarding or retarded imports resulting into shortages.
‘Pakistan should promote edible oil production’
The industry is experiencing a unique and unprecedented kind of challenge wherein despite of sufficient stocks discharged in customs bonded warehouses at Karachi, the industry is unable to lift them due to refusal by banks to retire the documents.
The phenomena continuing since couple of weeks is resulting into negative market sentiments and drying up of supply-chain from staple food products of ghee and cooking oil.
In this backdrop, the industry has requested the SBP to direct the “commercial banks” to honor its requests for LCs and further inform the general public through electronic/print media.
Talking to Business Recorder here on Thursday, Abdul Waheed, industry expert and former chairman PVMA informed that since November 2022, the lifting of edible oil from customs bonded warehouses is retarded, which has come to grinding halt since last couple of weeks. The default in the retirement of LCs in favour of Foreign Suppliers is attracting late payment surcharges and demurrage.
On the other hand, the Pak rupee value is also witnessing huge blow and have surged to over Rs 227 against US dollar in interbank exchange.
All the said factors may result into price hike of ghee and cooking oil by Rs 15 to 20 per Kg in coming days, Abdul Waheed added.
Industry expert said that instant retirement of documents by the commercial banks for release of cargoes lying in customs bonded warehouses. There shall be no restrictions on opening of LCs. It takes almost two months from the day of signing Commercial Contracts with foreign suppliers and arrival of cargos in ports of Pakistan. Any delay now in opening of LCs will have ramifications after two months.
The situation is, indeed, very alarming as the importers are not getting their LCs materialised due to non-availability of foreign exchange. The Pakistani importers are losing their credibility in the international market as they are unable to make the payments in time. If this situation continues then there will be an acute shortage of raw materials for essential commodities like ghee and cooking oil. This is slowly dragging us towards a serious upcoming crisis, Abdul Waheed added.
Copyright Business Recorder, 2023
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