Syria struggles to tap frozen funds for food tenders

By Maha El Dahan and Michael Hogan

ABU DHABI/HAMBURG |(Reuters) - Syria's efforts to step up food purchases are being thwarted by sellers unwilling to risk delays in payments from frozen foreign bank accounts.

Civil war and a deepening humanitarian crisis have prompted the government of President Bashar al-Assad to issue a series of tenders for sugar, wheat, flour and rice in recent weeks.

The country needs to import around 2 million metric tons of wheat this year as civil war has sliced its crop to a near-30 year low at 1.5 million metric tons, less than half the pre-conflict average.
State buyers said payment for purchases via tenders would be made from the government's frozen accounts abroad with waivers obtained from countries that have imposed financial sanctions.
But international traders are showing little enthusiasm for the proposed payment system.
"This is too much of a big risk. The process of getting funds from the frozen accounts is too slow and complex to enable a rapid offer in a grain tender," one European trader told Reuters.
Food is not covered by international sanctions, but banking restrictions and asset freezes imposed by Washington and Europe, as well as civil war have made it difficult for some trading houses to do business with Damascus.
Seller reluctance was plain in Tuesday's wheat tender by Syria's General Establishment for Cereal Processing and Trade, or Hoboob, seeking 200,000 metric tons of wheat. Hoboob failed to make any purchase after receiving just two offers that it said did not meet specifications.
A sugar tender announced by Syria's state-owned General Foreign Trade Organisation (GFTO) for 276,000 metric tons of white sugar also closed on July 16 without a purchase.
The GFTO then announced another tender for the same amount which closed on August 13 in which payment could be made using frozen funds but only one offer was made. The organization is still looking into whether or not it will take the only offer made or cancel the tender.
BURDEN FOR TRADERS
Part of the problem with the new system, traders said, is that the government is putting responsibility for obtaining payment through frozen funds mostly on them.
Any release of payments through that method would require a series of permissions including the country in which the frozen bank account is located.
"That would involve too much of a headache for the seller and then the grains would end up being priced higher for the Syrian government," a Lebanese grain trader who does business with Damascus said.
Compounding the problem is the fact that terms for state tenders have not been revised to reflect the increasing political risk of dealing with Syria.
In Hoboob's recent tender for wheat, the organization was asking for a bid bond, or deposit, of 5 percent of the volume or a maximum of 1 million euros with offers expected to be valid for 7 days.
If traders had any later difficulties getting payment from frozen bank accounts and could not deliver the wheat, they would still face a payment of 1 million euros to Syria because of the bid bond, a risk seen as too large to take by some companies.
"The Syrians are still demanding the terms given to premium grains buyers rather than a country with among the highest levels of political risk in international trade. They have not relaxed their tender terms to reflect this," a second European trader said.
Some traders said they were waiting to find out how well the frozen funds payment system would work for others. Others said it was easier to trade in the private sector.
"It is much simpler, there are some problems that arise now of course in terms of getting the goods delivered because of the situation on the ground and we deal only in euros but it is easier to do business with the private sector rather than the government," the Lebanese trader said.
Should this method of payment fail to take off, Assad's government will need to find another way of securing the country's urgent food needs.
The United Nations Food and Agriculture Organisation (FAO) said last month that a fifth of Syria's population was unable to produce or buy enough food, and farmers were short of the seed and fertilizers needed to plant the next crop.
(Additional reporting by Sybille de la Hamaide in Paris; Writing by Maha El Dahan; editing by Veronica Brown and Keiron Henderson)