ISLAMABAD: The caretaker government on Tuesday asked the provincial governments to take administrative measures to keep a check on profiteering by the market players and to maintain a reasonable gap between wholesale and retail prices of essential food items and consumer products.

The decision was taken at a meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by caretaker finance minister Dr Shamshad Akhtar which also approved payment of salaries of remaining employees of the Pakistan Steel Mills on a monthly basis for six months.

The meeting, however, did not immediately clear a Power Division’s proposal for transitioning its electricity contracts to the Secured Overnight Financing Rate (SOFR) based on interest calculations from the London Interbank Offer Rate (Libor) that came to an end on June 30 in the international financial markets.

Approves salaries of PSM staff, delays decision on SOFR

Planning Minister Sami Saeed, Commerce Minister Gohar Ejaz, Communication Minister Shahid Ashraf Tarar, Energy Minister Muhammad Ali, IT and Telecom Minister Umar Saif, Adviser to PM on Finance Dr Waqar Masood, Governor SBP, Chairman SECP and senior government officials attended the meeting.

During a briefing on economic indicators and price trends of essential food items, the finance minister recalled that she had asked the Ministry of Food Security and National Research (MNFSR) to provide regular reports on stocks, supplies, prices and consumption of all staple items and sought its presentation. It was, however, noted that officials concerned from the food security ministry were not in attendance.

Therefore, she again directed MNFSR to prepare and submit regular reports on the availability of stocks, consumption, and pricing of all staple items especially wheat and sugar to the ECC to enable it to monitor the availability and pricing of these important commodities.

“The ECC also directed the Ministry of Planning, Development & Special Initiatives to ensure control on undue profiteering and to maintain the gap between wholesale and retail prices of the essential food items and consumer products through respective chief secretaries”, an official statement said.

The ECC considered a summary of the Ministry of Industries and Production seeking Rs1.244bn disbursement for payment of salaries to PSM employees. The meeting was told that owing to growing losses the government had already retrenched 5,680 employees of the closed entity and 3,100 employees were still on the payroll. As a result, the salary bill was reduced to Rs104 million per month from Rs360m. In addition, the PSM management had already started the retrenchment process for halving the remaining staff.

The ECC authorised payment of Rs104m per month salaries for the first six months of 2023-24 to be disbursed to the PSM employees from an already approved budgetary allocation of Rs10bn.

Transition to SOFR

The meeting also took up a summary of the Ministry of Energy regarding the transition of Libor to SOFR. “The ECC, after discussion, directed the Ministry of Energy to prepare a detailed analysis of the financial implications of this decision and bring it in the next ECC meeting for approval.”

Under a decision of the UK’s Financial Conduct Authority (FCA) the Libor system of benchmarking financial transactions has already expired on June 30 and replaced with the SOFR system with the approval of the Federal Reserve’s Alternative Reference Rate Committee (ARRC). The Power Division had contracts with foreign private contractors which required to be transitioned to the new system but Chinese investors wanted some adjustments.

To resolve the issue and select appropriate benchmarking for all stakeholders, a committee was earlier constituted involving representatives from the ministries of finance and economic affairs, the State Bank of Pakistan, Nepra, CPPA and PPIB.

The committee concluded that negotiating Credit Adjustment Spread (CAS) is not feasible keeping in view the cost and benefit and hence no need for hiring a consultant to negotiate the CAS. Therefore, the Power Division has proposed that project lenders of independent power producers and independent transmission companies should be allowed to adopt SOFR as a replacement for USD Libor on the basis of term SOFR plus applicable CAS and daily SOFR plus applicable CAS.

The ECC agreed that it would have to allow adaptation to SOFR but at least there should be a comparative analysis involving different options and pros and cons so that the next meeting could deliberate on the issue in detail.

Published in Dawn, September 20th, 2023