Steep Interest Rates on TCP Loans Irritate the Ministry of Finance

Steep Interest Rates on TCP Loans Irritate the Ministry of Finance

The Trading Corporation of Pakistan (TCP) is facing scrutiny over its financial affairs, with a demand for a special audit by the Finance Ministry to determine the interest rates agreed on loans and the settlement of outstanding dues with commercial banks and key stakeholders.

The Ministry's call for a special audit comes as the TCP grapples with a total principal liability of Rs. 156.9 billion, of which Rs. 126 billion is related to urea procurement and the remainder to wheat. The TCP's total liability towards the Utility Stores Corporation (USC) stands at Rs. 24 billion, while the National Fertilizer Marketing Limited (NFML) owes Rs. 53 billion to TCP, with the federal government responsible for a Rs. 26 billion share.

In an effort to settle these liabilities, an additional Rs. 15 billion has been proposed for the next fiscal budget to settle the NFML's dues with TCP. Similarly, Rs. 5 billion is available in the current fiscal year, and Rs. 15 billion has been proposed for FY 2025-26 to settle the dues with USC. The government is also providing a subsidy of Rs. 18 billion to cover the remaining amount owed to TCP by USC.

The Committee has also directed TCP to submit a breakdown distinguishing between delays in subsidy disbursement and contractual execution flaws. This is a crucial step to ensure transparency and accountability in the TCP's operations.

The high interest rates on loans secured by TCP from commercial banks primarily reflect Pakistan’s overall high key interest rates (around 11%) set by the State Bank of Pakistan (SBP) and prevailing macroeconomic factors. Specific commercial bank pricing practices, credit risk, and operational considerations also contribute but are not detailed in the available information.

However, there is no evidence or official record of a special audit on TCP's loan interest rates from commercial banks in the current data. If further precise details are needed, checking official government audit reports or parliamentary oversight disclosures might provide confirmation about any special audits.

The National Assembly panel has rejected TCP's plea to challenge the demand for a special audit and advised TCP to address the matter directly with the Finance Ministry. The panel's decision underscores the importance of addressing financial accountability and transparency in state-owned enterprises like TCP.

Reconciliation among all relevant stakeholders is necessary before any payments or adjustments can be made. The Finance Division can only proceed with payments or adjustments after receiving reconciled data from the federal adjuster, urging federal and provincial departments to expedite the process. Disputes persist over markup calculations and interest accruals between TCP and commercial banks, adding another layer of complexity to the financial situation.

The TCP is tasked with procurement, including both principal and markup, while distribution responsibility lies with the provinces. This division of responsibilities highlights the need for effective communication and cooperation between the federal and provincial governments to ensure the timely and efficient resolution of financial obligations.

1. The Trading Corporation of Pakistan (TCP) is urged to provide a detailed breakdown of delays in subsidy disbursement and contractual execution flaws to ensure transparency and accountability in its operations.
2. The Finance Ministry's special audit is aimed at determining the interest rates agreed on loans by TCP and the settlement of outstanding dues with commercial banks and key stakeholders.
3. In an attempt to settle its liabilities, the TCP has proposed an additional Rs. 15 billion for the next fiscal budget to settle the dues with National Fertilizer Marketing Limited (NFML), and similar amounts for FY 2023-24 and FY 2025-26 to settle the dues with Utility Stores Corporation (USC).
4. High interest rates on loans secured by TCP from commercial banks primarily reflect Pakistan’s overall high interest rates, while credit risk, commercial bank pricing practices, and operational considerations also contribute.

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