Federal Government has extended rupees eight billion financial package to the sugar millers in lieu of verbal guarantee that price of sugar will not be increased in the domestic market, reveals official documents available with Business Recorder.
According to the documents, the Economic Co-ordination Committee of the Cabinet was informed on January 10, that the Chairman Pakistan Sugar Mills Association (PSMA), in his letter of November 29, 2012 requested the Prime Minister to take the following steps to help maintain the liquidity of sugar mills to enable them to make payments to the growers of sugarcane: (i) allow the sugar mills to export a total of 1.2 million tons of sugar, which will bring invaluable foreign exchange upto 600 million dollars; (ii) direct TCP to purchase 0.5 million tons of sugar to maintain its strategic reserve in accordance with the Cabinet decision; and (iii) allow sugar mills a rebate of Rs 5-6/per kg to be competitive in the international market, as this will allow them to off load the surplus sugar. A similar incentive was given to the cement industry. The impact of the rebate would be about Rs 5 billion. This financial benefit is in addition to Rs 3 billion under guise of freight subsidy.
The meeting was further informed that the ECC had already allowed the export of sugar by the sugar mills in view of the abundance of available sugar stocks. The PSMA has requested that in view of the low prices of sugar in the international market, sugar mills may be provided rebate in some form by the FBR enabling them to compete in the international market.
The contention of the PSMA is strengthened by the minutes of the meeting of the Committee constituted by the ECC of the Cabinet under the Special Assistant to Prime Minister on Agriculture (Convenor), which had observed as under: “Sugar is an internationally traded commodity and it is imperative to take prompt action in response to international demand, supply and prices. As a point of reference, in September, 2012 sugar prices peaked upto 800 dollars per MT and had we exported 1.2 million tons at that price, Pakistan would have earned a billion dollar as a bonus. Today the prices are hovering around 520 dollars per MT and appear to slide further as crushing season 2012 has begun in the northern Hemisphere (Southern part of Pakistan)”.
In the document presented before the ECC, FBR proposed to incentivize export of sugar by providing a reduced rate of Federal Excise Duty leviable on local supply of sugar at 0.5 percent instead of eight percent leviable on production and supply of sugar.
The reduced rate of duty shall only be applicable on the quantity of local sale of sugar equivalent to the quantity actually exported by the sugar manufacturers in accordance with the export quota allotted and shall be available on submission of proof of such export. The balance local supply shall continue to be subject to Federal Excise Duty (FED)at eight percent. During ensuing discussion, the ECC was further informed that there is a system of refund of customs duties to the manufacturers of exportable items like cement. However, no mechanism exists for refund of FED.
On a query, the ECC was informed that PSMA has given a verbal understanding to the effect that it will not increase the price of sugar in the domestic market. It was further stated that in the past sugar mills did not allow the TCP to lift the committed stocks of sugar when the prices went up. As such there should be some mechanism to ensure that prices in domestic market do not increase subsequent to export of sugar.
