Pakistan Steel Mills (PSM) is anxiously waiting for clearance of its barter trade proposal with Iran from the Economic Co-ordination Committee (ECC) of the Cabinet, official sources told Business Recorder. PSM wants to import iron ore in lieu of wheat to Iran under the barter deal but payment issue is still unresolved.
The sources said the Ministry of National Food Security and Research has already conveyed its no objection to import iron ore in exchange for wheat exports provided approval of this proposal (including payment modalities at $300 per ton of wheat to Passco) are worked out.
The PSM Management Executive Committee has already approved the proposal of barter trade deal accordingly Commercial Directorate of the mills prepared a summary for 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 of 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.
Official documents obtained from PSM Karachi, reveal that 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 payment to Passco equivalent to $30 million (the entire amount is allocated to PSM in rupees along with bank charges). Modalities of payment will be agreed between PSM and Passco.
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).
The ECC was informed recently that it had approved sale of 1.0 million tons of wheat to Iran under barter trade. However, no feedback on this score has been provided. It was stated that an agreement on the subject had since been reached under which 100,000 tons of wheat would be exported through the government, and 900,000 tons by the private sector.
“The first consignment of 100,000 tons is ready for shipment. However, there are issues concerning mode of payment as barter trade in the existing geo-political scenario was not possible,” sources quoted Ministry of Food Security and Research as saying in the meeting. The Finance Minister, however, directed that a detailed report on the subject might be presented in the next ECC meeting which is yet not scheduled. Ahmed Buksh Lehri, Secretary Ministry of Food Security and Research was not available for comments.