• Approves $142m guarantee for Roosevelt Hotel
• Letter of comfort for PSO to raise Rs50bn loan

ISLAMABAD: In view of cheaper imports than local production, the government on Thursday increased by almost 25 per cent the Dealer Transfer Price (DTP) of imported urea to Rs2,150 per bag to ensure uniformity with locally manufactured fertiliser.

The decision was taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet which also approved a $142 million government guarantee for Roosevelt Hotel in New York and Rs50bn to Pakistan State Oil to honour Rs110bn worth of local and international liabilities. Finance Minister Miftah Ismail presided over the meeting.

Revision in imported urea price

The Ministry of Industry and Production (MoIP) informed the ECC that DTP for imported urea was fixed at Rs1,718 per 50kg bag, exclusive of Rs50 dealer margin, in February this year. However, the retail urea price increased to Rs1,950 per bag including a dealer margin of Rs145.

Since the price of imported urea stored in National Fertiliser Marketing Ltd (NFML) warehouses is lower than locally manufactured urea, the ECC on the proposal of MoIP decided to remove the disparity in prices by increasing DTP for imported fertiliser to Rs1,805 per bag by NFML (exclusive of Rs145 per bag dealer margin for stocks sold between June 23 and July 25 this year).

Further, the ECC also decided that the DTP of remaining stocks held by NFML further increased to Rs2,150 per bag (exclusive of dealer margin) with effect from July 26 onwards. The ECC further directed that the urea pricing and dealer margin be fixed in the future with prior approval of the ECC, instead of seeking ex-post facto approvals as fait accompli. The DTP revision would result in an increased recovery of Rs117 million to NFML on the remaining stocks.

The meeting was informed that local manufacturers had on June 28 this year increased retail prices of urea to Rs2,150 from Rs1,805. Over time, NFML had booked imported urea at Rs1,805 per bag and shipped 83,295 tonnes, leaving a balance of about 16,904 tonnes with NFML stocks till June 25.

Loan facility to PSO

The Ministry of Energy (Petroleum Division) presented a summary on the syndicated running finance facility for PSO and recalled that ECC had allowed a Rs30bn supplementary grant for foreign exchange losses besides payment of Rs32.8bn by the power sector in two installments by Aug 4 and Rs50bn government guaranteed loan. This arrangement was meant to ensure that PSO met its Rs110bn local and international liabilities during Aug 10–20 period.

The Petroleum Division reported that Habib Bank Ltd as the lead of the consortium — Allied Bank, National Bank of Pakistan, MCB Bank and United Bank — had arranged Rs50bn to PSO but conditioned it to a government guarantee as the banks had already stretched their SBP-imposed credit limits to PSO and hence could no longer fund PSO without GOP guarantee.

As the issuance of a guarantee will take time, the banks agreed to initiate the process of issuing a loan on the letter of comfort (LoC) from the Ministry of Finance. The petroleum division claimed that without the federal government’s LoC, the PSO would not be able to fulfill its payment obligations.

Therefore, the ECC approved the issuance of a letter of comfort in favour of PSO for raising a loan facility of Rs50 billion on an urgent basis. However, the ECC also decided that Finance Division would divert some other allocated guarantees to PSO without exceeding the Rs105bn domestic guarantee limit for the first quarter of the current fiscal year under the IMF programme.

Guarantee to Roosevelt Hotel

The ECC also approved GOP guarantee for a financing facility of $142m as a loan under the facility agreement signed between Roosevelt Hotel Corporation (RHC) and the National Bank of Pakistan (NBP) under a previous ECC decision of September 2020.

The September 2020 ECC decision required issuance of a GOP guarantee for $142m loan but was put on hold on the advice of the Attorney General of Pakistan given litigation with Tethyan Copper Company in Reko Diq case in British Virgin Islands court, where PIA-Investment Ltd is registered. Now that the two sides have signed a standstill agreement for suspension of litigation on Reko Diq till December this year, the ECC approved a $142m GOP guarantee.

Roosevelt Hotel Corporation (RHC), owned by PIA-IL, was shut down in December 2020 as the hotel business slowed down in the USA and around the world due to the Covid-19 pandemic.

OMC’s margin

The petroleum division did not seek approval of about a 63pc increase in margin to oil marketing companies on the sale of petroleum products to Rs6 per liter instead of Rs3.68 per liter. The matter was on the agenda but it was decided to take up the matter in a subsequent meeting of the ECC.

Published in Dawn, August 12th, 2022