Sugar millers cry foul over molasses export duty, say it benefits ethanol cartel

LAHORE: The sugar millers have urged the government to scrap a 15 percent duty on molasses exports, saying it hurts their competitiveness and benefits a small group of ethanol producers.

"We request that the already imposed 15 percent regulatory duty on exports of molasses be withdrawn and that consultation with all stakeholders for exploring a way forward be done with a view to carefully considering the rights of all parties in a fair and equitable manner," the Pakistan Sugar Mills Association (PSMA), Punjab Zone, said in a letter to the commerce and industry minister on Saturday.

The PSMA said "unlawful anticipated restrictions on the export of molasses" will be detrimental to the sugar industry as certain sugar mills have invested heavily in ethanol production distilleries.

"The members of this distinct group are represented by Pakistan Ethanol Manufacturers Association (PEMA), who desire to procure and consume inexpensive sugarcane molasses as basic raw material for conversion into Ethanol, export the same and earn substantial profits," the letter said. "However, the majority of sugar mills lack such an infrastructure. They thus, directly export the molasses to fetch valuable income in foreign exchange which augments and supports their sugar production operations and sugarcane payments.

In recent years, ethanol production and export by PEMA members has shown a healthy increase. These producers ostensibly have a growing appetite for inexpensive locally produced sugarcane molasses. "It was under their influence that the regulatory duty on export of sugarcane molasses was initially imposed at 10 percent which was then increased to 15 percent. Now, once again, there is a move by these units to seek either a total ban or an increase in regulatory duty to an astounding rate of 50 percent."

The latter said the entire objective of these PEMA members is to procure sugarcane molasses at cheaper rates within Pakistan so as to facilitate their ethanol production and export. "The stated objective sought to be achieved is in utter negation of free and fair competition for such sugar mills that do not have these distilleries and merely export sugarcane molasses."

"One dimension of this move is a recent representation made before the ministry of Commerce and Industry by PEMA. This has culminated in proceedings before the National Tariff Commission, which is now deliberating on the suggestions of PEMA."

Non-distillery sugar mills/members of PSMA-Punjab Zone held a meeting where they expressed their dismay and anxiety on the issue as molasses is a major by-product of the sugar industry and its annual production is almost half of the total quantity of sugar produced in the country.

"Export of molasses had been a source of cash generation for the mills for timely payment to its growers while its local consumption used to be only 5 percent of its total production and the remaining 95 percent was directly or indirectly exported by sugar mills."

By discouraging molasses export, PSMA believes, cartel buying of molasses by the distilleries will be encouraged causing heavy losses to the non-distillery sugar mills. "Overall impact of value addition of molasses into ethanol is hardly around 8 per cent. Currently, exporting molasses directly fetches more foreign exchange compared to converting into ethanol and then exporting it. In case of surplus molasses production in the country and unfavorable international ethanol prices, the non-distillery sugar mills will not be able to dispose of their molasses and will suffer heavy losses."

PEMA members have the option to obtain molasses from international markets or incentivize local procurement by offering competitive international rates to the domestic producers. However, molasses exporters/sugar mills cannot be coerced by an abuse of statutory powers to facilitate PEMA members with cheap and affordable sugarcane molasses; the entire exercise will surely be bad in law, the letter said.