Sugar export: government refuses to increase freight rebate

The federal government on Wednesday refused to increase freight rebate on sugar export from existing level of Rs 10.70 per kg, but consented to procure 0.3 million tons of sugar through Trading Corporation of Pakistan (TCP), well informed sources told Business Recorder. The decision was taken at a meeting held at the Prime Minister''s Office that was presided over by Prime Minister Shahid Khaqan Abbasi.
The Council of Common Interests (CCI) had allowed the export of surplus sugar of 1.5 million metric tons (MMT) during the current fiscal year with a freight subsidy of Rs 10.70 per kg. This decision was also endorsed by the Economic Coordination Committee (ECC) of the Cabinet.
The TCP, the principal trading arm of the government of Pakistan (GoP) recently informed the federal government that an allocation of Rs 6.238 billion is available under the Commodity Operation Finance (COF) for the current quarter ie from October to December 2017 which will be inadequate for procurement/ exporting 1.5 million tons of sugar. However, the federal government will have to provide additional funds for accomplishing the task.
The agency further stated that it has adequate capacity and experience for exporting commodities to international market and procuring sugar from local sugar mills. Recently, on the directives of federal government, TCP exported rice to Niger, Cuba, China and Sri Lanka. The TCP has also procured sugar from local sugar mills on various occasions.
The TCP, however, maintained that so far as sale of sugar in the international market is concerned, the comments/ views from Trade Development Authority of Pakistan (TDAP) may be obtained, being the relevant forum. The TCP further argued that it has bad experience of procuring surplus/ reserve stock of sugar proposing that only such quantity of sugar may be procured which can immediately be lifted and exported instantly against orders of importing countries readily available.
According to sources, the issue of freight rebate has been discussed in detail as Pakistan Sugar Mills Association (PSMA) was pressing hard for increase in freight rebate citing continuous decline in prices of commodity in the international market.
Recently, Economic Coordination Committee (ECC) of the Cabinet approved freight rebate of Rs 10.70 per kg to be equally shared by the federal and provincial governments. However, in addition to this, the government of Sindh also granted Rs 9.30 per kg totaling it to Rs 20 per kg. Meanwhile, sugar industry of Punjab and KPK also gave advertisements in the newspapers, seeking a freight rebate from provincial governments to equalise the amount of rebate at par with the government of Sindh.
"The meeting discussed sugar industry''s demand for increase in freight rebate. Some of the participants opposed any increase in already approved rebate and suggested that provincial governments could give further rebate from their resources," the sources added.
The meeting, however, decided that TCP would procure 0.3 million tons of sugar from mills and export it, besides it would also help sugar industry find sugar markets, the sources continued.
Official sources told Business Recorder that during the CCI meeting held on November 24, 2017, Chief Minister Sindh Syed Murad Ali Shah reiterated his demand to give a subsidy @ Rs 20 per kg as requested by PSMA. However, Ministry of Commerce was of the firm opinion that calculation of subsidy @ Rs 20 per kg was not justified as PSMA has not accounted for gains received through sale of baggase and molasses.
Minister for Commerce, Pervaiz Malik was of the view that the subsidy of Rs 10.70 per kg was already quite generous and it need not be revised upward and that too particularly in the context of Sindh where sucrose recovery was the highest as compared to Punjab and KPK. On the request of the chief minister Sindh, Secretary Commerce Younus Dagha offered to give him a list of Sindh sugar mills which exported sugar in the past even without subsidy.
The chief secretary Punjab proposed that subsidy amount may be kept floating and should be linked with the international prices. The Prime Minister was of the view that support price of sugarcane was fixed by the provinces while the sale price was neither fixed by the government nor the quantity produced is controlled. In simple terms the input was regulated while output was deregulated. He stated in clear terms that Federation has simply no role to play to subsidise the export of sugar.
According to Chairman PSMA Javed Kayani, production of sugar was 07 million metric ton (MMT) in 2016-17, which is the highest ever and during the current season PSMA is expecting 08 MMT production of sugar, adding that after deducting expected consumption of 5.1 MMT around 3 MMT sugar would be surplus. He proposed that keeping in view the expected production and available stock, 1.5 MMT of sugar may be allowed for export and SAB should further request TCP to purchase 1.5 MMT of sugar through an open public tender.
Moreover, he stressed that the mechanism of subsidy may be reviewed because in previous years the government gave a subsidy of Rs 10 per kg and then Rs 13 per kg whereas in the current year the subsidy is given to the tune of Rs 10.70 per kg which is not feasible.