ISLAMABAD (May 18 2009): The Pakistan Sugar Mills Association (PSMA) is being pressured by the State Bank of Pakistan (SBP) to settle the loans and advances, while it has not been able to get an appointment with Commerce Minister Amin Fahim after requesting a meeting almost three weeks ago, sources told Business Recorder.

The SBP has claimed that sugar mills are hoarding sugar, but the association has categorically denied this allegation. "Functioning of sugar mills is based on four-month production cycle, and clearance of stocks in one year, generating Rs 120 billion, from which payments are made to farmers and banks. Hence, sugar stocks cannot be cleared at any one time on urgent basis to meet the SBP condition," the Association\'s General Secretary K Ali Qazalbash said in a letter to the Commerce Ministry.

The PSMA also said in the letter that due to economic recession during the past six months average consumption of sugar had come down to 307,853 tons, against usual consumption of 350,000 tons. This reduction of 40,000 tons in sugar consumption cannot be termed hoarding, it said.

Qazilbash further argued that sugar inventory held on April 1, 2009 was 2.55 million tons. These stocks were sufficient to meet domestic consumption up to the beginning of the new crushing season and hence, instead of importing sugar, TCP must be directed to buy at least 500,000 tons sugar from domestic mills to help the mills pay back loans and the balance to growers.

"We hope that in a short meeting, requested with you, we would be able to explain our viewpoint to win your support and favourable decision," he wrote to the Commerce Minister.

The SBP, in its BPRD Circular No-2 of February 9, 2009 titled "margin restrictions for financing against the security of sugar stock (both raw and refined)," had clarified that the cash margin requirement imposed was not applicable to financing facilities given for cane procurement for the ongoing crushing season.

As SBP is concerned with the rising trend in the price of sugar, PSMA has claims to have provided documentary proof that sugar prices rose due to (i) high cost of sugarcane ie Rs 130/40 kg (70 percent of the sugar production cost is the cost of sugarcane), and (ii) high interest rates.