LAHORE: The committee constituted by Prime Minister Imran Khan for calculation of cost of production of sugar estimated that average cost of production of sugar in ongoing crushing season is Rs59.77 per kg and for 2018-19 crushing season was Rs52.58 per kg on the basis of the sugar mills, Pakistan Sugar Mills Association and Punjab Cane Commissioner data.
The prime minister on February 27 constituted a committee consisted of Secretary Competition Commission of Pakistan (CCP) Shahzad Hussain, Assistant Director CCP Salman Khan, Management Executive CCP Azizullah, Chief Internal Auditor-NFC Khadija Chaudhry, Deputy Secretary (regulation) Industries and Production Division Abdus Samad and Cane Commissioner Punjab. The committee was assigned to carry out an exercise through independent experts on actual cost of sugar production. Interestingly, the committee relied on the data available with the PSMA, sugar mills and Punjab Cane Commission office, besides visiting Corporate office of Jamaldin Wali Sugar Mills (JDW) – owned by Jahangir Khan Tareen, and Baba Farid Sugar Mill, and corporate office of Thal Industries – owned by PSMA Punjab Chairman Naumn Ahmed Khan to get actual data about all their associated companies as well as their sugar mills Baba Farid, Layyah, Safina and Al-Moiz. The two are the major beneficiary of sugar export from Pakistan. The report mentioned that the “JDW has three operational units and two subsidiaries namely, JK Sugar Mills and Dherki Sugar Mills. During the visit, the committee not only obtained actual data about all the five sugar plants for the crushing season 2019-20, but also verified some of the figures, on sample basis, from their original books of entry and audited financial statements of the companies.” According to the report, “the committee made a concerted effort to verify the reported figures of cost of production of sugar by their different plants. Documentary evidence, including sales tax invoices, CPRs, stock reports etc were also collected.”
The committee also visited the Punjab Cane Commissioner office to get the official data available with the Punjab government. However, the alarming situation is that out of total 76 sugar mills of Punjab and Sindh, only 35 responded to the committee constituted by the prime minister for the data request made by the CCP. Out of total 45 sugar mills of Punjab, only 18 responded and out of total 35 sugar mills of Sindh, only 17 responded to the committee.
The committee reported estimated cost of sugar production for ongoing crushing season of 2019-20 as under:
The price of sugarcane in Punjab is Rs210 for 40kg for Sindh and 208 for Punjab, sales of molasses for Sindh is Rs29.016 per 40kg, and 26.76/40kg for Punjab, sales value of Bagasse is Rs4.365/40kg both for Sindh and Punjab, sales value of Mud is Rs0.756 /40kg both for Sindh and Punjab. The net cost of raw material is Rs175.86/40kg for Sindh and 176.119/40kg for Punjab, the development cess for Punjab and Sindh is Rs1.50/40kg, market committee fee is Rs0.40/40kg both for Punjab and Sindh, freight per 40kg is Rs2 both for Punjab and Sindh. The total cost of raw material is estimated at Rs179.763/40kg for Sindh and Rs180.019/40kg for Punjab.
Sugar obtained from 40kg sugarcane is 4.196kg in Sindh and 4.044kg in Punjab, cost of raw material per kg of sugar is estimated at Rs48.842 in Sindh and Rs44.515 in Punjab, processing cost and other overheads Rs16.17 per kg in Sindh and Rs16.016 per kg in Punjab. The total manufacturing cost is estimated at Rs59.012 per kg in Sindh and Rs60.531 per kg in Punjab. The sugar recovery percentage in Sindh is estimated at 10.79 percent and 10.31 percent in Punjab, Molasses recovery percentage is 4.5 percent both for Sindh and Punjab, bagasse recovery is 2.91 percent both for Punjab and Sindh, Mud recovery is 3 percent for both province mills, sales value of bagasse is Rs3.75 per kg, sales value of molasses is Rs15.55 per kg and sales of mud is Rs0.63 per kg.
The committee calculated the sugar cost of production for the crushing season 2019-20, Rs59.77 per kg from the data collected from the sugar mills and on assumption that the sale price of molasses, based on its current market price for the Fiscal Year 2019-20 calculated at Rs15.55 per kg for Sindh and Rs15.50 per kg for Punjab, as reported by the sugar mills. Miscellaneous charges i.e. Road Development Cess, marketing fee and freight are based on government notified rates are, Road Development Cess at the rate of Rs1.50 per 40 kg, market committee fee Rs0.40 per 40 kg, freight Rs2 per 40 kg. Sugar recovery percentage and Molasses Recovery Percentage are based on the estimated average of recovery percentages for Sindh and Punjab. Processing cost and other overheads have been increased by 10 percent for year on year inflation.
The committee members admitted that they were unable to calculate some of factors which were never documented included purchase of sugarcane below the minimum purchase price as the number of mills in Punjab started crushing season before the minimum sugarcane price was notified. The Punjab government delayed the announcement of the minimum sugarcane price this year as the crushing was started which given opportunities to the sugar mills to purchase sugarcane lower than the minimum purchase price. Further, the sugar millers claimed that they purchased the sugarcane at Rs230 to 250 per 40kg but unable to substantiate with the CPRs record. Further, they also admitted that there was no mechanism to cross check data provided by the millers to the committee. The misreporting of the sugar mills sales data is already under investigation in Federal Board of Revenue (FBR) which exposed that Sugar Mills and PSMA data could not be trusted. According to the committee report, ‘on the request of Ministry of Industries and Production (MOI&P), the Competition Commission of Pakistan carried out a similar exercise, to validate cost calculations of the cost of production of sugar, for the crushing year 2016-17. Furthermore, the CCP had already started the exercise of collecting actual data relating to costs and stocks of sugar for the financial years 2017-18 and 2018-19 respectively. In this regard, letters were written to all 84 operational sugar mills, requiring that they submit audited financial statements for the FY 2017-18 and 2018-19, cost audit reports for the FY 2017-18 and 2018-19 and other information relating to cost of production of sugar. The committee decided to use the data, already provided by the sugar mills, for calculating the actual cost of sugar production for the crushing season 2018-19 and projecting the cost of sugar production for the current crushing season’, the report stated.