MUSHTAQ GHUMMAN

ISLAMABAD: Raising red flags over the high interest rates on loans secured by the Trading Corporation of Pakistan (TCP) from commercial banks, the Finance Ministry has called for a special audit to determine the rates agreed by TCP and whether more competitive terms were available at the time, sources told Business Recorder.

According to TCP, of the total liability of Rs. 156.9 billion, Rs. 126 billion relates to urea procurement, while the remainder pertains to wheat. While progress has been made in reconciling the principal amounts, disputes persist over markup calculations and interest accruals.

During a meeting of a National Assembly panel, officials from the Finance Division informed the committee that a total of Rs. 24 billion is required from the Utility Stores Corporation (USC) to settle dues with TCP. USC has committed to paying Rs. 6 billion, while the remaining Rs. 18 billion is to be covered by the government as a subsidy.

Of the total, Rs. 5 billion is available in the current fiscal year, while Rs. 15 billion has been proposed in the budget for FY 2025-26. This arrangement would allow for the complete Rs. 24 billion payment by USC, against a total principal liability of Rs. 93 billion.

The Finance Division further stated that National Fertilizer Marketing Limited (NFML) owes Rs. 53 billion to TCP, to be settled on a 50:50 cost-sharing basis between the federal and provincial governments. Of the federal share of Rs. 26 billion, Rs. 10 billion is available for disbursement in the current fiscal year. However, the Ministry of Commerce has yet to move the necessary summary, and the Finance Division confirmed that no such summary has been submitted. An additional Rs. 15 billion has been proposed in the ‘next fiscal budget.

Finance officials emphasized that reconciliation among all relevant stakeholders is necessary before any payments or adjustments can be made. The Division clarified it could only proceed after the federal adjuster reconciled data is received, urging federal and provincial departments to expedite the process.

TCP noted that prior to 2018, the reconciliation process was not institutionalized. Since then, however, all agreements with NFML have been documented. The Ministry of Industries and NFML, in coordination with provincial governments, are responsible for distributing urea procured by the federal government. TCP is tasked with procurement, including both principal and markup, while distribution responsibility lies with the provinces. The Ministry of Industries is required to obtain budgetary allocations from the Finance Division to settle the liabilities.

Delays in these processes have contributed to accumulating interest. TCP stated that the agreed principal liabilities stand at Rs. 24 billion for USC and Rs. 53 billion for NFML. An additional Rs. 2.9 billion in markup has been agreed with USC, bringing its total payable to Rs. 26.8 billion.

The National Assembly panel expressed concern over the uncapped accumulation of interest, pointing out that the Economic Coordination Committee (ECC) had made no specific provision for markup payments. TCP, however, argued that ECC-approved summaries covered both cash and credit arrangements, processed through the State Bank with full awareness that interest would apply. TCP clarified that markup arose due to staggered disbursements rather than any mismanagement.

The Committee directed TCP to submit a breakdown distinguishing between delays in subsidy disbursement and contractual execution flaws. TCP explained that its commercial agreements with banks did not allow for renegotiation of interest rates, and therefore, markup liabilities could not be capped.

The Finance Division acknowledged the constraints posed by the current Extended Fund Facility (EFF) with the International Monetary Fund (IMF), but confirmed that Rs. 15 billion each from USC and NFML—totalling Rs. 30 billion—had been proposed for FY 2025–26 andRs. 15 billion has already been released to TCP.

Sources said TCP tried to challenge the Finance Division’s demand for a special audit, but the National Assembly panel rejected the plea, advising TCP to address the matter directly with the Finance Ministry.