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April 6, 2020

Supplementary report on sugar scandal: Retail price kept low despite increased exports during previous govt

Top Story

April 6, 2020

ISLAMABAD: The Pakistan Muslim League-Nawaz (PML-N) regime exported more sugar compared to the quantity sold overseas by the Pakistan Tehreek-e-Insaf (PTI) government and gave export subsidy but kept its retail domestic price low, holds the supplementary report of the inquiry committee led by the Federal Investigation Agency (FIA) Director General Wajid Zia.

“As can be seen in the table [made part of the report], there is no impact of export of sugar on the retail price in the market [during 2017 and 2018],” the five-page additional report, which was ignored by all and sundry, who primarily focused on the main 26-page findings of the forum, said.

Among the principal beneficiaries of the export subsidy during 2015-2018, according to the additional report, RYK Group of Makhdum Omer Sheryar (relative of Federal Minister Makhdum Khusro Bakhtiar) stood on the top followed by the JWD Group of Jahangir Tareen. The Sharif family’s sugar mills figured on number five of the list.

While the inquiry committee was basically mandated to investigate the crisis that created a lot of hue and cry because of acute shortage of sugar and tremendous price escalation a few months back, Prime Minister Imran Khan, on March 27, ordered the forum to extend the probe to the 2015-2018 period of the PML-N government. The supplementary report was prepared in response to that.

The query sent to Wajid Zia by Imran Khan’s office was: “The prime minister has seen the report and pleased to observe that the inquiry committee has probed the export and related subsidy for the year 2018-2019. The report also reveals that in the past few years the production of sugar was historically more than the local requirements, therefore, it is imperative to probe and include this aspect related to export of sugar including any subsidy given, its impact on local sugar prices and eventually major beneficiaries of such export subsidies, if any.”

The supplementary report listed the major beneficiaries of the export subsidy during 2015-2018 and the list was no different from the main findings.

On number one stood the RYK Group, having four sugar mills, which is owned and controlled by Makhdum Omer Sheryar (relative of Federal Minister Makhdum Khusro Bakhtiar). They availed 15.83% of the total export subsidy amounting to Rs3,944.1 million. Chaudhry Munir and Monish Elahi are also partners in this group, according to the additional report.

On number two was the JWD Group, having six sugar mills, which is owned and controlled by Jahangir Tareen. It availed 12.28% of the total export subsidy amounting to Rs3,058.64 million. Makhdum Syed Ahmad Mehmud (leader of the Pakistan People’s Party) is also partner in this group.

In the supplementary report, Hunza Sugar Mills figured on number three, which availed 11.56% of the export subsidy amounting to Rs2,879 million. It is owned by Muhammad Waheed Chaudhry, Idrees Chaudhry and Saeed Chaudhry.

On number four was the Fatima Sugar Mills, which availed 9.27% of the total export subsidy of Rs2,309.8 million. It is owned by Faisal Ahmad Mukhtar and family.

The six mills owned by the Sharif family stood on number five, which availed 5.91% of the export subsidy amounting to Rs1,472.69 million. However, of this export subsidy, the two sugar mills owned by Shahbaz Sharif and Nawaz Sharif got Rs776 million, 3%, out of total funds allocated for the purpose.

Next is Al-Moiz Group with five sugar mills, which is owned and controlled by Shamim Ahmad Khan and Nouman Ahmad Khan (ex-President, Pakistan Sugar Mills Association). This group availed 5.83 % of the export subsidy of Rs1,451.75 million.

On number seven is the Omni Group, having eight sugar mills, which is owned and controlled by Anwar Majeed. It availed 3.62% of the subsidy amounting to Rs902.02 million.

The report said that the total subsidy paid by the federal and provincial governments for different sugar export subsidy schemes during 2015-2018 was Rs24,911.84 million. It stated that the sugar production in 2016-2017 and 2017-2018 was more than the estimated domestic consumption of Pakistan. Hence, the sugar was exported. The estimated domestic consumption is around 5.2 million metric tons (MMT) per year. In the year 2016-2017, Pakistan had a record 7.08 MMT sugar production while it was 6.63 MMT in 2017-2018.

In a graph, the report gave details of the sugarcane production and crushed and sugar production as per the data provided to the probe committee by the provincial governments and Federal Board of Revenue (FBR).

It noted the impact of sugar export on domestic retail price as the sugar production was historically more than the domestic requirement in the years 2016-2017 and 2017-2018.

The supplementary report said that there are a number of issues related to the export subsidy that need to be investigated at length and required detailed analysis by the Commission of Inquiry. These include, inter alia; the verification of physical exports to ascertain the judicious grant of subsidy and general sales tax exemption through cross verification of data of FBR and State Bank of Pakistan (SBP); the cost of production analysis that was done to calculate per kg subsidy and whether it was ascertained/verified properly.

In 2017 of the PML-N government, a total of 922,737 MMT of sugar was exported; in 2018, 1,535,035 MMT exported while in 2019 of the PTI administration, 744,375 MMT exported, according to the additional findings. During the months of Jan and June 2017, no sugar was exported. Similarly, nothing was exported during the months of Sep, Oct, Nov and Dec of 2018.

The details given in a graph show the controlled price during 2017 and 2018 despite increased exports and escalated price in 2019 despite less export.

According to the report, the retail price of sugar per kg in the domestic market during 2017 was: Rs65.2 in Jan; Rs63.6 in Feb; Rs60.8 in March; Rs60.7 in April; Rs59.3 in May; Rs57.3 in June; Rs56.2 in July; Rs60.1 in Aug; Rs56 in Sep; Rs55.4 in Oct; Rs54.3 in Nov; and Rs54.7 in Dec.

During 2018, the retail price per kg was: Rs54.1 in Jan; Rs52.2 in Feb; Rs51.7 in March; Rs53.4 in April; Rs53.3 in May; Rs57.3 in June; Rs55.4 in July; Rs55.9 in Aug; Rs55.9 in Sep; Rs55.5 in Oct; Rs55.4 in Nov; and Rs56.1 in Dec.

In 2019, the retail price per kg was: Rs59.5 in Jan; Rs59.5 in Feb; Rs61.1 in March; Rs65.2 in April; Rs67.5 in May; Rs71.6 in June; Rs71.9 in July; Rs75.1 in Aug; Rs75.4 in Sep; Rs74.5 in Oct; Rs73.3 in Nov; and Rs71.7 in Dec, according to the report.

An official, who has dealt with issues of sugar industry at close quarters, explained to The News that as per the standard procedure, the finance ministry in consultation with ministries of commerce, industries and statistics division and provincial governments reviews the price of commodity allowed to be exported on weekly basis. This stick is kept on the heads of sugar mills and exporters so that the moment price of sugar witnesses a surge in local market, the export will be banned, he said. He said that export of sugar or for that matter any commodity is a very well calibrated operation and it is not a one-time decision.

Record showed that the Economic Coordination Committee (ECC) of the federal cabinet, headed by then Finance Minister Asad Umar, had allowed export of one million tons of sugar to ease its surplus in Pakistan without giving any incentives (subsidy/rebate) on overseas sales.

After the refusal of the ECC to give export subsidy, the Punjab government had approved Rs3 billion for the same purpose. A letter written by the Punjab finance department to the State Bank of Pakistan (SBP) on Jan 31, 2019, a copy of which is available with The News, referred to the SBP letter FEOD/21518/sugar freight support-2019 dated Jan 1, 2019 about freight support against export of sugar and said that the matter regarding which subsidy scheme of sugar the funds amounting to Rs3 billion have been released was taken up with the Punjab food department, which informed that ECC of the federal cabinet in its meeting held on Dec 4, 2018 allowed export of 1.1 MMT of sugar and made the following decision with regard to payment of export rebate/freight subsidy: “The ECC underscored the importance of providing relief to the farmers by ensuring start of crushing of sugar mills at the earliest. It was also decided that since the entire issue of freight support arose due to varying procurement prices of sugarcane fixed by the provincial governments, therefore, the freight support may be determined/paid by the respective provincial government, if deemed appropriate.”

The provincial finance department’s letter further said that in the light of the ECC decision, the Punjab cabinet on Dec 29, 2018 decided freight support/export subsidy from the sugar mills in Punjab at the rate of Rs5.35/kg on a sliding scale of $383.80/MMT to $435/MMT subject to maximum limit of Rs3 billion. It further decided that total export from Punjab shall not exceed 52% of total export allowed of 1.1MMT (0.572 MMT). The subsidy is valid to the extent of export of sugar mills of Punjab only and federal government shall not share in the provision of subsidy/rebate and it is to be paid within FY 2018-19.