PSMA, 84 mills served show-cause notices

The Competition Commission of Pakistan (CCP) has served show-cause notices to the Pakistan Sugar Mills Association (PSMA) and 84 mills, owned by influential political families, over allegations of manipulating price of the commodity and minting billions of rupees in undue profit.

The notices have been issued after the CCP decided to initiate proceedings under Section 30 of the Act on the recommendations of an inquiry into the anti-competitive activities in the sugar industry, according to a handout issued by the CCP on Tuesday.

The notices had been served last Wednesday – two days before Jahangir Khan Tareen returned to Pakistan after staying for about seven months in the United Kingdom.

The CCP inquiry report has accused Tareen’s JDW group of playing a leading role in price manipulation.

“The CCP’s inquiry has found multiple instances where the PSMA is acting as a front-runner for cartelisation in the sugar industry,” according to the statement.

The PSMA is called upon to show cause in writing within 14 days and to appear and place before the commission, facts and material in support of the contentions and to avail the opportunity being heard on November 20 and to explain as to why an appropriate order under Section 31 of the Act may not be assessed for committing violations and penalties not be imposed for each violation, reads the show-cause notice.

“Evidence gathered during search and inspections conducted on the premises of PSMA and JDW Sugar Mills seems to suggest that these anti-competitive activities have continued since 2010,” according to the CCP inquiry.
Among the 84 sugar mills are Chaudhry Sugar Mills Ltd, JDW-I Sugar Mills Ltd, I, II and III, RYK Sugar Mills Ltd, Army Welfare Sugar Mills Ltd and others.

The CCP said that the JDW group had the highest share in terms of production ie 16%, followed by Almoiz group which had a share of 7%, RYK group 6%, Tandlianwala and Shakarganj with a share of 5% each.

The PSMA – the representative body of the sugar barons – is prima facie a “cartel” that manipulated the recent price hike with active coordination of a senior officer of JDW Sugar Mills Group, owned by Tareen, revealed an official inquiry report.

Tareen had denied the allegations and instead said on his return he would help the federal government control soaring prices.
The CCP findings also showed that the millers managed a decision to influence the government to allow export of 1.1 million tonnes of sugar, which also caused a 48% increase in the prices.

The exports always resulted in domestic price hike.

In February 2019, the price of sugar was Rs60 per kilo, which according to the CCP increased to Rs98 per kilo as of September, showing an increase of Rs38 or 63%.

It said that an increase in price by Re1 per kilo results in a gain of Rs450 million per month for the mills. The price of sugar witnessed an increase of Rs18 per kilo during the period from February to September 2019, which amounted to an additional gain of Rs40 billion in revenue for the sugar mills, according to the CCP.

The CCP on Tuesday said that the impounded data from JDW Sugar Mills included exchange of emails between a senior official of one of the sugar mills and PSMA Punjab zone office bearers regarding sensitive commercial information such as mill-wise, district-wise sugar stock position, and even the quantity of cane crushed, sugar produced, recovery percentage, carry forward old/raw sugar, total sugar, quantity sold, balance and sold percentage.

Moreover, an analysis of the WhatsApp messages exchanged in a group of PSMA officials, the same senior official of that sugar mill was found to be in constant communication with regard to price and stock-related data of sugar mills, according to the CCP.

The impounded data indicated the senior official’s continued involvement in sharing/receiving sensitive information regarding sugar industry since 2012 when he was nominated as the focal person for coordinating the sugar stock position by the PSMA.

The CCP said that the PSMA’s platform was also being used by member sugar mills to collectively make commercially sensitive decisions such as reduction in domestic stocks/supplies of sugar, which led to an increase in or maintenance of desired price levels in the relevant market.

The PSMA and all 84 sugar mills prima facie violated the Act by collectively deciding to export sugar and thereby fixing the quantities of sugar to be supplied in Pakistan. Similarly, they also violated the Act by reducing stocks of sugar through exports; hence collectively raised and maintained prices of sugar in Pakistan, said the CCP.