Dismantling ‘sweet’ cartels

Besides punishing culprits in line with due process of law, we need a free, fair and well-regulated open-markets and end of protectionism

“It is unprecedented in the country’s history for preliminary reports into sudden price hike of these commodities to be released without an alteration. Action will be taken against those responsible for sugar and wheat price hike after receiving detailed forensic reports on April 25, 2020” —Prime Minister, Imran Khan

Matthew Parker, in his book The Sugar Barons: Family, Corruption, Empire, and War in the West Indies, used the rise and fall of the sugar dynasties of the West Indies as a framework for the intertwined histories of sugar, slavery, industrial revolution, and Britain’s American colonies.

The story narrated by him portrays a horrifying situation and the period of worst exploitation during the colonial period. Unfortunately, glimpses of similar conduct can still be seen in post-colonial era in many countries, including Pakistan. The only difference is that colonial masters have now been replaced by sugar barons, many of whom, in our case, are famous politicians.

For businessmen-turned politicians and landed aristocracy spending millions to win elections has been a rewarding investment — as conceded by Imran Khan in 2018: “We need electables to come into power”. This class knows everything about protecting and expanding their business interests once they capture the state apparatus. This conflict of interests is an ugly facet of our politics — holding public office to make policies for promoting personal business empires.

According to a report titled PM, DG FIA Being Threatened By Sugar Mafia, (The News, March 5, 2020), “the sugar mafia has threatened Prime Minister Imran Khan as well as FIA Director General and Chairman of the Inquiry Commission Wajid Zia to immediately stop the probe into the sugar scam. Otherwise, the country will see a severe shortage of the commodity and its price may hit Rs 110 a kilogram”.

This report highlights a laudable effort by the prime minister as under: “In a rare but bold move, Prime Minister Imran Khan…. made the report on wheat and sugar scandals public. There are strong indications that some major administrative actions may follow in the coming days. Informed sources said that not only will heads will from within the bureaucracy but Prime Minister Imran Khan is also considering removing some of his key ministers from the cabinet besides expelling Jehangir Tareen from the PTI.”

It is not for the first time that abuse of power and market manipulation by producers of ‘white gold’ have surfaced. The phenomenon has been highlighted in many judicial decisions in recent years, most notably in the Lahore High Court judgment of in the JDW Sugar Mills Ltd etc versus Province of Punjab etc (2017 PLD Lahore 68). [Details can be seen in our article, White gold’ wars, TNS, Political Economy, October 23, 2016.]

It may be recalled that after a sudden raise in the prices of sugar and wheat flour, the prime minister had constituted two high-powered committees headed by the FIA DG. An officer each was also included from the Intelligence Bureau and the Directorate General of the Anti-Corruption Establishment, Punjab.

In its 32-page report, the committee on sugar price-hike has described the decision of the PTI government to allow export of sugar as the main cause for a 30 percent increase in its price. In the light of recommendations of the committee, a Sugar Inquiry Commission has been established under Commission of Inquiry Act of 2017 to file a report by April 25, for appropriate action against the culprits. The Commission has already started checking the ledgers, bank reports, export details, markets sales etc of the sugar mills.

The News report also says that the number one beneficiary of export subsidy and price hike was “JDW Group (mainly owned by Jahangir Khan Tareen) by availing 22 percent of total subsidy (Rs 561 million). The second beneficiary was RYK Group run by Makhdoom Omer Sheheryar Khan (brother of Khusro Bakhtiar, (including ownership by Chaudhry Munir and Moonis Elahi) availing 18 percent of subsidy (Rs452 million) and the third highest beneficiary was Shamim Ahmed Khan (Al Moiz Group) availing 16 percent (Rs 406 million).

When big names in power corridors are involved, why does the NAB have to wait for a forensic report? The premier keeps on reiterating, “I believe in the rule of law!” It is a great test for him now to let the relevant institutions proceed as per law.

The Commission has also indicated “overall collusion of sugar mills and wholesale dealers behind this scam”. Total subsidy given to sugar mills over the last five years came to Rs 25 billion. Out of this R s 3 billion was given in 2019. According to consolidated data, “RYK group is the single largest beneficiary with total subsidy of Rs 4 billion, JDW over Rs 3 billion, Hunza Group at Rs 2.8 billion, Fatima Group at Rs 2.3 billion, Sharif Group at Rs 1.4 billion and Omni at Rs 901 million”.

The inquiry report says that despite clear calculations of the stock position after deducting the strategic reserves, Sugar Advisory Board in its meeting of June 2019 did not ban the export of sugar and hinted at clear signs of “cartelisation” and “manipulation” as “the ex-mill sugar price determination formula was also unfair”. A forensic audit recommended in the report is currently under way.

One aspect not highlighted in the media is the finding that the sugar mills allegedly purchased sugarcane off the books. Thus sugar production was also kept off the books to evade sales tax. The committee observed that it was the responsibility of the Cane Commissioner to record full sugarcane production and the Federal Board of Revenue (FBR) was responsible for monitoring sugar production.

When a few months back, businessmen asked the prime minister that the FBR, and not the NAB, should probe their tax affairs, he accepted their demand. So now it is the FBR which should take action for tax evasion/fraud, retrieval of tax evaded along with default surcharge and penalty as well as register FIRs and prosecute the tax cheats through a special judge as required under the law. They need not wait for the approval of the PM or for April 25. The auditors’ subservience to sugar barons is well-established as a leading audit firm, whose chief also became an FBR Chairman, was the auditor for the JWD.

The nation has now been asked to wait until April 25. This goes against the PM’s own complaint that those in power get the chance to influence inquiries.

In the case of public officeholders, the NAB should proceed under its own law. It did against citizens like Mir Shakil even in the absence of concrete evidence (for which it has been repeatedly reprimanded by superior courts). When big names in power corridors are involved, why should the NAB wait for a forensic report? The premier keeps on reiterating, “I believe in the rule of law!” It is a great test for him now to let the relevant institutions proceed as per law.

It is a matter of record that sugar barons have been pocketing unprecedented profits, both through domestic and international markets. Way back in 2010, according to a report, the Competition Commission of Pakistan (CCP) in an order levied a penalty of Rs 75 million or 10 percent of the annual turnover, “whichever is higher”, after holding that the members of Pakistan Sugar Mills Association (PSMA) had made a three-tier cartel in the industry. However, the CCP could not make its order public as the PSMA obtained a stay order from the Sindh High Court.

In March 2016, they managed to secure an extension in the deadline for exporting 500,000 tonnes of sugar and received a subsidy at the cost of taxpayers to the tune of Rs 13 per kg. The Economic Coordination Committee on March 29, 2016, granted permission till March 31, 2016, for which there was no justification as the prices were escalating in the international market.

Besides punishing the culprit in accordance with due process of law, we need free, fair and well-regulated open-markets, and end to protectionism. Let the consumers benefit from lower prices in local or international markets. We can dismantle monopolies/cartels and get rid of political clouts of businessmen in power through fundamental reform.

At the time of writing these lines, the price of sugar in international market is just Rs 47 per kg whereas the poorest of the poor hit by Covid-19 pandemic lockout are buying it for Rs 70 per kg at Utility Stores, where available, and at Rs 80-90 in the open market.

Despite the setting of a support price, growers of sugarcane are being exploited by the mill owners who do not pay in time and routinely under-weigh their sugarcane. Tragically, the shift to growing more sugarcane has led to excess production giving an excuse to mill owners to export and receive more subsidy. On the other hand, reduction in cotton production forced the textile industry, our major exporter, to import six million bales this year.

Successive governments have never thought of giving even a tenth of the subsidy given to sugar barons to farmers as incentive to produce high quality cotton.

The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore  University of    Management Sciences (LUMS)

Dismantling ‘sweet’ cartels in Pakistan