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May 23, 2020

Sugar Inquiry Commission report: CCP slammed on remaining silent spectator on cartelisation

National

May 23, 2020

ISLAMABAD: Lambasting over performance of Competition Commission of Pakistan (CCP), the Sugar Inquiry Commission has declared in its findings that the cartelisation exists but the CCP remained a silent spectator in last eleven years.

“Although there is clear indicators that cartelisation exists but the main regulators i.e. CCP has remained a silent spectator since its report on cartelisation in 2009,” the Sugar Inquiry Report stated in its findings.

The report states there are six groups including JDW group, RYK, Al Moiz Group, Tanidiwala Group, Omni Group and Sharif family group control about 51 percent of total production of sugar so they possessed the capacity to manipulate the market by joining hands for cartelisation.

“With just three groups controlling about 40 percent of sugar production in Pakistan, there is a good chance that they can assume the dominant position and behave like a cartel” the report pointed out.

The definition of cartelisation (prohibited agreements) and parameters that make CCP construe a collective act as cartelisation is given as: "Cartelisation (prohibited agreements) means that no undertaking or association of undertakings shall enter into any agreement or, in the case of an association of undertakings, shall make a decision in respect of the production, supply, distribution, acquisition or control of goods or the provision of services which have the object or effect of preventing, restricting, or reducing competition within the relevant market."

In Pakistan, six groups control about 51% of the production of sugar. These groups have the capacity to manipulate the market by joining hands for cartelisation and subsequent manipulation. “The control of so few, mostly with political background, of the sugar industry shows the strong influence they can exercise on policy and administration” the report added.

As defined in the Competition Act, 2010, dominant position of one undertaking or several undertakings in a relevant market shall be deemed to exist if such undertaking or undertakings have the ability to behave to an appreciable extent independently of competitors, customers, consumers and suppliers and the position of an undertaking shall be presumed to be dominant if its share of the relevant market exceeds forty per cent.

In case it is observed that any of the violations of cartelisation (prohibited agreements), abuse of dominance and deceptive market practices is being done by any undertaking, the CCP is empowered to initiate suo moto enforcement actions starting with calling of preliminary information, then conducting inquiries, entering and searching premises, exercising forcible entry, if needed, calling witnesses with record and evidences, issuing show cause notices, passing interim or/and final orders and imposing penalties. The purpose is to ensure to fulfillment of its objective to engender free competition in all spheres of commercial and economic activities, enhance economic efficiency, and to protect consumers from anti-competitive behaviour.

As has been observed in case of subsidy on sugar export, the PSMA holds negotiations with the government on the following agenda points:

I. Not starting crushing season unless the government agrees to their demand of export and subsidy, ii. Demand of same amount of subsidy for all the sugar mills; It is pertinent to note that although the cost of production of all sugar mills is different, the PSMA calculates and presents a uniform cost of production for all the mills. This is despite the fact that the cost of production varies from mill to mill.

II. The concrete evidence of cartelisation was collected in the past by The Competition Commission of Pakistan which took suo mow cognizance in 2009 of the possibility of collusive behaviour of sugar mills and conducted a search and inspection of the PSMA offices in the country to determine violation of the Competition Ordinance, 2007 (the Ordinance).

The inquiry report of the inspection dated October 21, 2009 concluded that there was extensive institutionalisation of collusive behaviour in the refined sugar industry. The sugar mills, rather than competing in the open market prefer a closed and protected market which is managed collusively and collectively by PSMA. PSMA apart from being in breach of its mandate appears to be acting in violation of Section 4(1) of the Ordnance by acting as a front runner for a rowel in the sugar industry.

The inspection report was quite categorical and put direct blame on the PSMA for manipulation and cartelisation. Consequently, the CCP initiated legal proceedings against the PSMA by issuing a show-cause notice dated October 23, 2009 under Section 30 of the Ordinance for collusive behaviour and price fixing. PSMA and the member sugar mills obtained a restraining order from the Sindh High Court which is still pending. No further action has been taken by CCP to check the cartelisation of this industry since then.

The Inquiry Commission in its findings stated that there is ample evidence of market manipulation for profiteering by certain sugar mills through forward contracting, non-lifting of sold sugar and facilitation to the selected brokers who indulge in "Sata”. Although there are clear indicators that cartelisation exists but the main regulators i.e. CCP has remained a silent spectator since its report on cartelisation in 2009.