NationalVOLUME 15 ISSUE # 20

Sugars mills’ crushing of farmers, consumers

The sugar crisis inquiry commission’s forensic report has pointed out how sugar mill owners thrive on the national exchequer, taxpayers and consumers. It also highlights the way sugar barons influence government policies, rob sugarcane growers, evade taxes and secure large subsidies and export rebates.

The report shows how a segment of the business community has captured the sugar industry, paralysed the system and passed the burden on the people. The government deserves credit for sharing the findings of the FIA-led inquiry commission with the public after conducting a forensic analysis of nine sugar companies, even though some key politicians and their close relatives linked to the government and its allies at the Centre and in the Punjab were involved in the scam. It also validates Prime Minister Imran Khan’s 22-year-old stance that if businessmen enter politics, they would make profits at the expense of the poor.

The report also indicates differences in the ranks of the government and its allies, otherwise an inquiry would not have been launched and its findings not shared with the public. It also exposes poor performance of national institution, which failed to check huge fraud and tax evasion. The inquiry commission has unravelled alleged fraudulent activities of the sugar millers, including fudging the production cost to claim subsidies, manipulating the market, underreporting their sales, committing fraud and exploiting farmers. According to the report, they raked in a “windfall profit” of Rs100 billion during the sugar crisis this year alone. The stakeholders in the mills involved in wrongdoing include PTI leader Jahangir Tareen, PML-Q’s Moonis Elahi, PML-N President Shahbaz Sharif’s son Salman Shahbaz, Federal Minister Khusro Bakhtiar’s relative Omar Shehryar and the Omni Group, linked to former President Asif Zardari.

The commission set up in the backdrop of skyrocketing prices of sugar from December 2018 to August 2019, during which the rates went up by 33pc, or Rs17 per kg, and the hike continued this year as well. The report discloses that sugar mill owners acted as cartels and six major groups held a 51pc share of the production supply. The sugar mill owners paid far less to growers than the support price fixed by the government and showed a higher price in their invoices. Their records show that they bought sugarcane from growers at a price less than Rs140 up till 2019, and then continued to buy it at cheaper rates when the government had fixed the price at Rs190.

To rob farmers of their due returns, almost all sugar mills determined the weight of the sugarcane at around 15pc to 30pc less than what it actually was. Some sugar mills also handed over handwritten, unofficial receipts to farmers instead of issuing a computerised payment receipts. In 2017-18, the sugar mills determined their cost of production at Rs51 per kg but the forensic report estimated it at Rs38 per kg. Similarly, the sugar mills associations determined the price at Rs52.6 per kg while the according to the report it should have been Rs40 per kg. In 2019-20, the price determined by the mills was Rs62 against the rate of Rs46.4 estimated by the commission.

After receiving delivery orders, the prices of sugar are manipulated through speculation, so that it could be sold at higher rates later. The report has estimated a Rs100 billion windfall profit in the ongoing year alone through speculation. The mill owners maintain double books. There is one account to show to the FBR, the SECP etc and another that is prepared for the owners to show them the actual profits. The major players in the market did not sell the commodity in their own names. They are using benami transactions instead to evade taxes. Besides, the sugar mills have increased their crushing capacity without approval.

In the last five years, the sugar industry was granted Rs29 billion in subsidies but they paid Rs22 billion in income tax and the refunds they claimed were Rs12 billion. Therefore, 88 sugar mills paid a net income tax of Rs10 billion only even though they were given Rs29 billion in subsidies. Even manipulation of one rupee in the cost of production generates a profit of Rs5.2 billion. In the last five years, the industry has been manipulating the cost by Rs10, Rs12 and Rs15 each year, which is besides the profit made by market manipulation.

An export subsidy of Rs6.5 billion was given to the mills in 2015, Rs6.5 billion in 2016 and Rs15.5 billion in 2018. The Sindh government gave an additional subsidy of Rs4.1 billion in 2018. In 2019, the Centre and Punjab collectively gave a subsidy of Rs15.5 billion while Sindh granted Rs9.3 billion. Sindh provided subsidy to benefit only the Omni Group. The group was already availing a subsidy of Rs11 per kg by the Centre and the Sindh government granted an additional Rs9.3 per kg.

The JDW Sugar Mills, in which PTI leader Jahangir Tareen owns shares, was involved in double booking, hiding its profits, over-invoicing and corporate fraud. According to the report, the mill under-invoiced sales from bagasse and molasses which resulted in a 25pc cost inflation. It is also involved in corporate fraud as money was transferred from its public limited company to its private company. Besides, it is also engaged in forward sales, market manipulation through speculation and benami transactions. The Al Arabiya Mills, owned by PML-N President Shahbaz Sharif’s son Salman Shahbaz, also committed fraud of around Rs400 million through informal receipts and market manipulation. The mill made an additional profit of Rs1.3 billion and Rs780 million in n 2017-18 and 2018-19 respectively. The Alliance Mills, which is owned by the RYK Group, in which Punjab Assembly Speaker Pervaiz Elahi’s son Moonis Elahi owns 34pc shares, under-reported sales for years and sold sugar to unnamed buyers. In addition, the mill systematically cut down payment to growers by 11pc to 14pc between 2014 and 2018, making a profit of Rs970 million. The owner of the group, Omar Shehryar, is a relative of Federal Minister Khusro Bakhtiar.

The commission has recommended that the ill-gained money should be recovered from the mill owners and returned to the farmers. The report is commendable but it fails to fix responsibility. Taking action against mill managers and other staff will not be enough. Strict action should be taken against owners and shareholders. The government should make sure the millers are not able to exploit it, farmers and consumers in future.