NationalVOLUME 15 ISSUE # 17

Sugar millers’ double-edged sword

Long-awaited inquiry reports on recent sugar and wheat crises in the country have identified flaws in the system, which favours the rich at the cost of the poor.

The reports also point out the fact that powerful lobbies always remain in power in every government in Pakistan and extracts benefits from it. They expose ruling Pakistan Tehreek-i-Insaf’s former Secretary General and a close aide to Prime Minister Imran Khan, Jahangir Tareen, Federal Minister Khusro Bakhtiar, Moonis Elahi of the PML-Q, the Sharif family and the Omni Group, which is closely linked to former President Asif Zardari.

The report on sugar revealed that two main groups had obtained maximum benefit during the crisis; one of the groups, JWD Group, belonging to Jahangir Tareen, which has six sugar mills, obtained 12.28pc of the total export subsidy amounting to Rs3.058 billion during 2015-18. Makhdoom Ahmed Mehmood, the former Punjab Governor and PPP leader, is a partner in the group.

According to the investigation report, the production of sugar in 2016-17 and 2017-18 was more than the estimated domestic consumption, hence, it was exported. The estimated domestic consumption of Pakistan is around 5.2 million metric tonne (mmt) per year. In 2016-17, Pakistan had a record 7.08mmt production of sugar while the production in 2017-18 was 6.63mmt.

The report also questioned the Pakistan Tehreek-e-Insaf government’s decision to allow the export of sugar which caused the shortage of the commodity in the country and its prices increased by 30pc. “The exporters of sugar gained benefit in two ways: first they were able to gain subsidy and secondly, they made profit from the increasing sugar prices in the local market,” the inquiry committee observed.

It revealed that PTI’s Jahangir Khan Tareen and Federal Minister Khusro Bakhtiar were among the main beneficiaries. They received Rs1.03 billion subsidy on the export of sugar, paid out from the taxpayer money, which was equal to 41pc of the total subsidy the Punjab government paid to sugar barons. “Sugar mill owners, who availed maximum subsidy, had political clout and influence in decision-making and they tried to gain maximum benefit in a very limited time,” the report revealed.

The PTI government’s decision to allow the export of sugar led to the increase in the retail price. The federal and provincial governments ignored the warnings of low sugar stocks and increase in prices. Before the decision to allow the export of 1 million metric tonne sugar, the per kilo sugar price was Rs55 in December 2018, that jumped to Rs71.44 per kg in June 2019 – an increase of Rs16.47 per kg or 30pc, according to the findings.

The report said that despite the clear calculations of the stock position after deducting the strategic reserves, the Sugar Advisory Board in its meeting of June 2019, did not ban its export. There were signs of “cartelization and manipulation” by sugar mills and the ex-mill sugar price determination formula was also “unfair.” For concrete evidence, the inquiry committee recommended forensic audit of the mills.

Six groups account for about 51pc of the production of sugar in Pakistan. JDW Group of Jahangir Tareen accounts for 19.97pc production, RYK Group of Khusro Bakhtiar, 12.24pc, Al-Moiz Group 6.8pc, Tandlianwala Group 4.9pc, Omni Group 1.7pc and the Sharif family 4.5pc.

The inquiry noted that many policies are conveyed to the sugar mills from the platform of the Pakistan Sugar Mills Association. A strike call the sugar mills gave to bring sugarcane prices down was observed by the mills owned by Jahangir Tareen, the Sharif family and Khusro Bakhtiar’s sugar mills along with others. The increase in the sales tax rate from 8pc for filers and 11pc for non-filers to 17pc did not contribute much to the ex-mill price increase, which was largely made before the budget. To the shock of the inquiry committee, neither the provincial nor the federal government had any clue how the ex-factory price of sugar was calculated. It added that the ex-mill pricing formula was faulty and “unfair”. The assumptions to set the ex-mill price were also wrong.

The committee also found fault with the federal government’s permission to build the GST into the ex-mill price. “The calculation of the ex-mill price provided by the PSMA cannot be relied upon unless all determinants of the ex-mill price are calculated in a financial audit,” it noted.

The Punjab government gave Rs3 billion subsidy on the export of sugar at Rs5.35 per kg to the millers. The sugar mills owned by Jahangir Tareen availed Rs561 million subsidy, which was equal to 22pc of the total subsidy. The sugar mills owned by Khusro Bakhtiar availed Rs452.3 million subsidy, which was 18.3pc of the subsidy. “The Punjab government was providing the subsidy for the export of sugar at a time when the price of sugar was increasing in the domestic market,” the inquiry observed.

The committee said it was of the considered opinion based on documentary evidence that the export of sugar was not justified as the sugarcane production was expected to be low in the upcoming harvesting season. It observed that despite 2.7pc reduction in the cultivation area this year the sugarcane production increased 1pc till February 5. The crushing season continued in March as well. It noted that the sugar millers had purchased off the books sugarcane and its production was also kept off the books to evade the general sales tax. The committee also found that the Rs190 per 40 kg sugarcane support price was sufficient but the price increase was delayed, depriving the farmers of making a better decision. The committee found that sugarcane was purchased at about 15pc higher than the support price but it observed that the mill owners were also “larger growers” of sugarcane, which could “potentially be a reason for higher than the support price buying of sugarcane”.

The opposition is trying to mislead the nation on the inquiry report. It has singled out Jahangir Tareen. It is silent even on Khusro Bakhtiar, because a PPP leader is his partner. It also has no issue with Moonis Elahi. Pakistan Muslim League-Nawaz and Pakistan Peoples Party (PPP) leaders are behaving as if they are not involved in benefiting from the subsidy. PML-N President Shahbaz Sharif demanded exemplary punishment for all involved, without telling the nation that the sugar mills of the Sharif family have also benefited from it.

The inquiry was ordered and its report was made public, it is to the credit of Prime Minister Imran Khan. It has happened for the first time in Pakistan’s history that the most power lobby faced a probe and its findings were made public. It also shows Prime Minister Imran Khan’s rising confidence in running the affairs of the country. His action after the forensic audit will fortify his position.