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Deposition of PML-N leaders before sugar commission: Price escalation created Rs107 bn windfall for sugar barons

May 12, 2020

ISLAMABAD: The increase in sugar prices in the wake of decision to allow sugar export and subsidy created Rs107 billion in extra profits for sugar mill owners.

“The consumers have paid an extra Rs87 billion on sugar in the last 16 months from November 2018 to February 2020. In March and April 2020, with the price of sugar now at Rs80, citizens are expected to pay an extra Rs20 billion,” former prime minister and Pakistan Muslim League-Nawaz (PML-N) leader Shahid Khakan Abbasi and his party colleague Khurram Dastagir told the Commission of Inquiry on sugar scam headed by Federal Investigation Agency (FIA) Director General Wajid Zia.

Quoting from the earlier report of the inquiry committee led by the same official, the duo pinpointed that the sugar prices went up not because of decrease in production or increase in support price or market manipulation/cartelisation by sugar mills or cost of production or subsidy or hoarding at wholesale/retail level and within sugar mills or impact of tax on sugar prices at ex-mill/retail level.

A statement containing their deposition before the commission shared with The News said when the government devalued the currency by more than 40 percent, mill owners were already getting 40 percent more from their exports. For example, with the international sugar price of $350 per ton, rupee value of export is Rs36,750 per ton @ dollar value of Rs105; and rupee value of export is Rs52,500 per ton @ dollar value of Rs150.

It said that the government did not increase the support price for the farmers, so in real terms the price of sugarcane also decreased. For example, up to end-December 2017, the exchange rate was Rs105 per dollar, thus the sugarcane support price of Rs180 per 40 kg was thus equal to $1.71 per 40 kg.

During the first year of the present government when the exchange rate was devalued to Rs145 per dollar, the same support price of Rs180 became $1.24 per 40 kg and this season when the support price is Rs190 per 40 kg and exchange rate was Rs155, the support price became only $1.22, Abbasi and Khurram Dastagir said.

Thus, they said, the farmers are getting less in real terms and sugar manufacturers are getting much more in rupees. Hence the rationale for subsidy is non-existent. When production in 2018-19 was lower by 1.4 million tons compared to a year ago, what was the need or the rationale for exporting sugar and what was the need for the Punjab government to offer export subsidy of Rs5.5/kg for export plus Rs1 for inland freight charges, they asked.

They pointed out that the government first allowed export of 1 million tons of sugar in October 2018 and subsequently permitted another 100,000 tons of export in December 2018.

The PML-N leaders said the National Food Security Ministry secretary in December 2018 opposed sugar export but the Economic Coordination Committee (ECC) still gave go-ahead to export and the federal cabinet approved that decision both times. Why was the government in such a hurry to allow the approval of exports without even knowing what the season’s sugar production would be? they questioned.

They said the price of sugar was stable around Rs55 per kg but only when export started in January 2019 it began to go up and kept jumping up as sugar export kept increasing. During the whole of 2019, both the ECC and the cabinet knew that sugar price was moving up, yet they never stopped further exports. Even with sugar reaching Rs90 per kg and dollar reaching Rs166, the ECC didn’t allow sugar imports, they said.

The statement alleged that when the cabinet finally permitted sugar import, continuing collusion with the sugar industry led to imposition of fixed sales tax twice the international sugar price. This ensured that international sugar will not become competitive in Pakistan and thus not exert any downward pressure on the price of local sugar.

It said even in the aftermath of the coronavirus crisis, the ECC and the cabinet did not waive advance income tax on sugar, thus ensuring that no sugar comes in Pakistan and sugar mill owners continue to rob the people.

Abbasi and Khurram Dastagir opined that the sugar price was stable around Rs55/kg when the ECC allowed exports in November 2018. Since then, the price has skyrocketed. The average monthly price of sugar since then has been Rs68.21/kg. The excess sugar price thus is Rs68.21–Rs.55.47 (the price in November, 2018) or Rs12.74 per kg. The government intervention increased the price by Rs13.74/kg. Monthly sugar consumption of 417,000 tons means that the people of Pakistan are paying Rs5.7 billion per month extra to the sugar industry, they said.

According to the statement, the JDW group of Jahangir Tareen had sugar production of 711,093 tons last year. If the same production level is maintained this year the group’s total production [of these two years] comes to 1,422,186 tons. The Group is getting a minimum of Rs12.74 per kg more due to government policies. Since the price is now higher than the average price of Rs68.21, its excess profits in the next few months will be higher. But even assuming extra profits of Rs12.74 per kg, JDW Group’s extra profit comes to no less than Rs18.12 billion. This is the direct transfer from people to the conglomerate. Additionally, the Group got Rs560 million subsidy from the Punjab government. Its total excess profits thus come to no less than Rs18.68 billion.

The statement said that the RYK group had production of 470,071 tons per year. So its production in two years comes 940,142 tons. Extra profit at Rs12.74 per kg means that the group got Rs11.98bn extra profit at the expense of the Pakistani people. Plus it received Rs450 million as sugar export subsidy. So it got a total of Rs12.43bn.

The PML-N leaders also told the commission that the sugar committee’s report claimed that the Sharif family owns 9 mills and controls 4.5 percent of the sugar market. This is not true. The Sharif family owns only three mills - Arabian Sugar Mills, Ramazan Sugar Mills and Chaudary Sugar Mills. Of these, Chaudary sugar Mills has been closed for three years.

“The total rebates Sharif family mills received in the last seven years is only Rs310 million and they did not receive any subsidy this year as they did not export sugar. The other 6 mills, and not all of them are operational, belong to the members of the original Ittefaq group.”

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