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TCP, EAD lock horns over ITFC conditions




  • Trading Corporation of Pakistan (TCP) has reportedly locked horns with Economic Affairs Division (EAD) over accepting “stringent conditions” for $50 million from Islamic Trade Finance Corporation (ITFC) for the import of urea, sources close to Chairman TCP told Business Recorder. The sources said, on the advice of Finance Division, ITFC was requested for a Murabaha financing facility of $50 million for the import of urea. 

    The term sheet and the final draft agreement were agreed with ITFC upon concurrence by Finance Division and TCP. Accordingly, ITFC forwarded Commodity Murabaha agreement for signing by Government of Pakistan and TCP on November 4, 2013. However, the signing of the agreement is still pending at TCP that has contended that approval of ECC is required through a summary for import of urea using the subject financing. 

    As per understanding of EAD, a summary for the import of urea for Rabi-20l3-14 moved by Ministry of Industries & Production, during September, 2013 catered for an amount of urea to be imported through subject financing. However, TCP has during a meeting with EAD contended that the process for the import of urea for Rabi 2013-14 has already been completed and now urea would be required for Kharif 2014 for which a new summary needs to be moved. 

    EAD maintains that a loan agreement signed by ITFC has been lying with Government of Pakistan for almost 2 months now. ITFC has been requesting the Government of Pakistan from time to time for signing and execution of the said facility which stands committed by ITFC resources since the initial request from Government of Pakistan in 2012. The last communication was received from ITFC on 23rd December, 2013 in which ITFC once again requested to resolve the pending issues. 

    ” I have been directed to seek guidance from the MoI&P as to the requirement of the subject facility from ITFC along with the timeline of the loan agreement signing,” the sources quoted an officer of EAD as writing to the Commerce Ministry. EAD has stated that the agreement requires one month for effectiveness of the agreement and another month for opening of the first L/C and the entire financing amount is to be consumed within three months from the date of opening of first L/C as per the clauses of the agreement. Thus, the cumulative timeline available from signing till the opening of last L/C is of 4.5 to 5 months. EAD has also requested that the requisite approval process from competent forum for the import of urea may be completed before signing of the agreement.

    Commerce Ministry maintains that as per the contract, EAD, TCP being executing agency and IITFC have to sign the financing agreement. EAD, MoI&P, Ministry of Finance (External Wing) and TCP held several meetings on the issue of utilisation of Murabaha facility of $50 million for import of urea by TCP. The loan facility of ITFC is a regular feature and is being utilised by Pak Arab Refinery Limited Company (PARCO), Pakistan State Oil (PSO), and National Refinery Limited etc. 

    As per clause 6.7 of proposed finance agreement, TCP is required to open an L/C within one month of effective date of the agreement, otherwise ITFC may issue notice to terminate the subject agreement. However, TCP considers that this condition is quite stringent keeping in view the PPR 2004, as the responsive time for international tendering is 30 days, after which the process of L/C follows. Therefore, unless clear-cut instructions from MoI&P, Ministry of Foreign Affairs and ECC regarding urea import are communicated to TCP through Commerce Division, TCP would not be able to sign the agreement, issue tender and open L/C within one month of effective date of financing agreement, the sources continued. Keeping in view the foregoing, the TCP has submitted the following two options for signing the Murabaha Finance Agreement. 

    Option-I: since clause 6.7 of the proposed agreement is quite stringent and the procurement process requires considerable time; therefore, it will not be possible to open the L/C in 30 days under PPR 2004. Therefore, instead of 30 days, 75 days are proposed for the opening of L/C after the effective date, so that approval of the ECC of the Cabinet and tendering process including opening of L/C could be carried out in this time frame. 

    Option-II: If it is not possible to amend clause 6.7 of the proposed Murabaha Finance Agreement, then it is proposed that MoI&P may be requested to immediately place a summary for the import of urea before the ECC using $50 million financing. Once approved by the ECC of the Cabinet, TCP may immediately float the international tender under PPR 2004. The government may sign the agreement on the day of the opening of the bids, so that TCP gets enough time to complete the L/C formalities within 30 days as mentioned in clause 6.7 of the Agreement or the government may sign the contract, which will be effective from the date of opening of the bids. 

    Copyright Business Recorder, 2014

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