A (not-so) sweet affair

April 4, 2021

Sugar industry giants have historically been disturbingly close to politics. Power, patronage, and profit goals need to be factored in whenever market conditions go awry

Just how embedded is the ‘sugar mafia’ within the power elite in Pakistan can be gauged from the fact that in 2018 while interacting with a salesperson at a groceries store, I asked him what party he will vote for he told me that belonging to rural Rahim Yar Khan, his entire community will vote on the orders of our sardar. When I asked which candidate his sardar would support, he said that whosoever promised to give him a good rate for the sugarcane crop – the lifeline for the whole community.

His answer will not shock anyone who understands the Pakistani sugar industry. In Pakistan, a majority of sugar barons are either politicians themselves or enjoy their patronage. The who’s who includes the Sharif brothers, Asif Ali Zardari, Chauhdrys of Gujrat, the Makhdooms, Jahangir Tareen and Humayun Akhtar. All these political leaders are major stakeholders in sugar industry. The PTI government, which came into power with slogans of accountability and transparency, enjoyed full support of Jahangir Tareen, the biggest stakeholder in sugar industry. The family of Khusro Bakhtiar, the federal minister for economic affairs, is another major stakeholder in sugar industry.

Prime Minister Imran Khan has admitted on numerous occasions that the price hike is a major challenge for his government. But it’s a known fact that sugar was the first commodity the price of which sky-rocketed during his tenure and that it was mainly because of the government’s own blunder.

Jahangir Tareen, once the PM’s close aide and election campaign sponsor, and other stakeholders of the sugar industry have blamed the higher General Sales Tax rate for the price hike. However, the inquiry report, prepared under the supervision of Wajid Zia, the Federal Investigation Agency (FIA) director general, rejects this reasoning. According to the report, the biggest spike in sugar prices came between January to June in 2019, when retail price went up from Rs 55 per kg to Rs 71 per kg. During this period, the GST rate was 8 percent for income tax return filers and 11 percent for non-filers. After the GST rate was raised to 17 percent across the board in this financial year, the retail price of sugar rose nominally from Rs 71 to 74.64 per kg.

The inquiry report concluded that the government decision to allow export was the major contributing factor in the price hike. In September 2018, the Sugar Advisory Board headed by Abdul Razak Dawood, the prime minister’s advisor for Commerce and Industry allowed the export of 1 million tonnes. Later this amount was enhanced by one hundred-thousand tonnes on the advice of Ministry of National Food Security.

Asad Umer, who was finance minister then, refused to provide subsidy for the export. When Umer resigned, there were strong rumours that Jahangir Tareen was behind his removal.

On the refusal of the Finance Ministry, the All Pakistan Sugar Mills Association took this matter to the Punjab government. They said that if they weren’t given a subsidy, they would not be in a position to buy the new crop of sugarcane from the farmers. Succumbing to the pressure from the sugar mill owners, Usman Buzdar, the chief minister, approved a Rs 3 billion subsidy. Jahangir Tareen -owner of JDW and JK (Colony-II) sugar mills received the lion’s share of Rs 561.1 million (22.7 percent of the total subsidy). RYK Mills, Etihad Sugar Mills and Two Star Industries owned by Khusro Bakhtiar’s brother Makhdum Omer Sheryar got 18 percent (Rs 452.3 million). It may be noted here that Moonis Elahi and Chaudhry Munir are also shareholders in these sugar mills.

Ashraf Malkham, a senior journalist says that in 1985, Ziaul Haq “lured the politicians by giving them incentives to establish sugar mills”.

In a recent development, the Federal Investigation Agency (FIA) has called the sugar dealers, who are allegedly linked with the artificial hike in the commodity prices. The FIA Lahore chapter has summoned the list of all personal and business bank accounts besides list of all anonymous accounts. The dealers have also been instructed to provide lists of all family/ benami assets disclosed in amnesty schemes. They have also been ordered to bring a list of all Telegraphic Transfers (TTs) at home and abroad over the year. In the event of absence or non-cooperation they may be arrested.

Sheikh Amir Waheed, the Chaudhry Sugar Group, bookkeeper, has been summoned on April 1; Mustansir Gogi of Ramadan and Al Arabiya Sugar Group on March 31; Malik Ibad of JDW Sugar Group on March 30; Malik Majid of (JDW Sugar Group) on March 31; Asad Bhaya of (RYK Sugar Group) on April 2; Aslam Bhalli of (Sharif/Shamim/Kanjuani Sugar Group) on March 30.

The FIA investigators have detected deposits of what they are calling satta money” of Rs70 billion in over 400 accounts allegedly linked to sugar dealers, mills owners and their front-men.

The sugar mills cartel managed this fraudulent escalation in prices amidst a hoax of impending sugar shortages with adequate sugar stocks lying in sugar mills and godowns.

“It has also been discovered that they were laundering the crime proceeds through various fake/benami/third party accounts and assets,” the FIA official says.

The FIA Karachi have meanwhile arrested seven people and registered cases against them, under the Money Laundering Act (MLA). A four-day remand was obtained by the FIA, which stated in the court that the accused were involved in creating an artificial sugar crisis. The bank accounts of the accused have been seized. The FIA Lahore team, which earlier took the lead in the sugar investigation, had asked the FIA Karachi team to start a crackdown against mills owners, their front-men and satta dealers and collect more evidence against them, an FIA official said.

Iskander M Khan, the president of All-Pakistan Sugar Mills Association (PSMA) has urged the government to “stop harassing the sugar mill owners and dealers because such measures will further aggravate the situation and may force sugar mills to stop production”.

“In the past, whenever law enforcement agencies have initiated a crackdown against sugar mill owners, it has failed miserably; and instead of a reduction, it has jacked-up prices through short supply,” he says.

He says that instead of addressing issues in supply chain and paying heed to the appeal of the APSMA, which has put genuine issues pertaining to sugar supply among others before the concerned ministries, the government is shattering the confidence of sugar industry.

“Sugar prices may jump up to Rs 110 per kg in the coming days if the government fails to ensure sugar supply in the country,” he observes. He denies that politicians are the major stakeholders in the sugar industry.

Ashraf Malkham, a senior journalist, says that in 1985 the military dictator Ziaul Haq “lured the politicians by giving them incentives to establish sugar mills”.

In the past, suo motu actions of judiciary and penalties of Competition Commission of Pakistan (CCP) have failed to tame sugar mill owners.

“All the major political parties and politicians have cashed the opportunity. In Pakistan’s politics money from the sugar industry plays a pivotal role in reaching the corridors of power,” he says.

“No government can stop them because they have representation in all the governments,” he adds.

The author is a freelance analyst

A (not-so) sweet affair