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Urea transportation and other charges: NFML likely to get separate credit line




  • The government is likely to give a separate credit line to National Fertilizer Marketing Limited (NFML) for urea transportation and other charges to avoid dispute on reconciliation with TCP, sources close to Chairman TCP told Business Recorder. Minister for Industries and Production (MoI&P) recently suspended five officials of NFML due to their alleged involvement in corrupt practices. 

    However, the MoI&P has not started a formal inquiry against them. Another influential, who claims to have paid the officers of the MoI&L, has been transferred from NFML to NFC. TCP, the principal commodity trading arm of the government, makes procurements of important commodities, with the objective of price stabilisation, on the direction of the ECC. TCP imports urea from the international market and procures sugar from local sugar mills, on behalf of the Ministry of Industries & Production, against payments through Overdraft Facility (OD) from commercial banks. Therefore, urea and sugar are sold on credit basis to the NFML and Utility Stores Corporation (USC), respectively. 

    As on December 19, 2013, cash credit limits of commercial banks stand utilised. This limit stands at Rs 118.216 billion out of which Rs 20.250 billion is the mark-up component due to the non-release of long outstanding subsidy and delay in the receipt of sales proceeds from NFML and USC. The sources said mark-up on OD accounts of TCP is settled on a quarterly basis from the relevant OD accounts of each commodity. The average amount of mark-up is around Rs 40 million per day and Rs 15 billion per annum on utilisation of cash limit of Rs 118.216 billion. 

    Since 2004-05, TCP has paid mark-up to the tune of Rs 29.518 billion on urea OD accounts, out of a total mark-up of Rs 90.177 billion in overall commodity financing, the sources continued. According to sources, urea OD account of TCP has incurred a loss of Rs 5.102 billion on account of mark-up due to the price differential (retained by NFML) in sale price. 

    The sale price of Rs 538/- per bag to NFML was fixed by the defunct Ministry of Food Agriculture & Livestock (MINFAL), in July 2008. However, sale prices were gradually increased by NFML unilaterally upto Rs 1300/- per bag by July, 2011 without intimation to TCP. Thus, NFML earned mark up on retained amount and while TCP paid a huge mark-up to banks on OD accounts. NFML remitted Rs 

    9 586 billion out of Rs 13.265 billion on account of price differential to TCP on the directions of Ministry of Finance after deducting its incidents. Had NFML not retained Rs 13.265 billion, the mark-up to the tune of Rs 5.102 billion would not have accrued. 

    TCP imports urea on the directives of the ECC while NFML acts as a distributor of the imported urea. NFML is responsible for lifting and transportation of urea from discharge ports to NFML’s warehouses. 

    It receives advance payment against the approved quantity of urea to be imported from its commission agents/ registered distributors/ retailers. NFML remits the invoiced amount to TCP at the rate already approved by the Federal Government after deducting its incidental charges ie (i) transport cost from Gwadar to Karachi and further inland, (ii) cost of woven polypropylene (WPP) bags, (iii) urea dealer margin, NFML administrative cost, warehouses, etc. These deductions are indirectly claimed by TCP as a subsidy from the federal government after reconciliation with NFML which takes considerable time and statutory audit. As per decision of Ministry of Finance, NFML is supposed to remit the invoiced amount to the TCP within seven days period. However, NFML has been taking upto 147 days in remitting the invoiced amount to TCP and this delay has further contributed by the accumulation of mark-up payable by TCP to commercial banks. 

    TCP has submitted following proposals to the government: (i) separate credit line may be given to NFML by Ministry of Finance on the lines of TCP. By this arrangement, the issues of reconciliation between TCP and NFML will be resolved and the financial cost of mark-up will also be reduced; and (ii) on the pattern of State Trading Corporation (STC), India, advance payment from urea commission agents may be directly deposited to urea OD account of TCP and TCP in turn will provide the particulars of registered commission agents with NFML, for distribution of urea. This arrangement will reduce GOP’s borrowing from commercial banks, which in turn will substantially reduce financial cost for public exchequer on account of urea subsidy. 

    Copyright Business Recorder, 2014

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