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PSMA manipulated sugar price hike with help of JDW Group: CCP report

TheDarkKnight

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ISLAMABAD:
Pakistan Sugar Mills Association – 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 Jahangir Khan Tareen, revealed an official inquiry report.

The Competition Commission of Pakistan (CCP) – the entity responsible for ensuring fair play in the market, has concluded a 10-month long inquiry and unearthed that the PSMA was indulged in illegal activities, according to a briefing by the CCP and its official inquiry report.

The findings also showed that the millers managed a decision to influence the PTI government to allow export of 1.1 million tons of sugar, which also caused 48% increase in the prices.

The commission has again established that the PSMA violated the Competition Act of 2010. It was the second time in the last 10 years the CCP declared that the PSMA was a cartel but this time the nature of “crime” appeared more serious.

In the next stage, the CCP will issue show cause notices to the PSMA, giving it an opportunity to defend itself. After hearing the parties, the CCP will issue an order in the case.

“It appears that starting from 2012 to date, the conduct of PSMA and all its members vis-à-vis collective discussion on stock positions leading to a decision on the quantity to be exported is tantamount to fixing or setting/controlling supply within the relevant market has resulted in price hike that is not based on actual/available supply and demand,” showed the findings.

“It is prima facie violation of Section 4(1) read with Section 4(2)(c) of the Act”, according to the CCP.

“Mills have been found to coordinate their production and stock figures based on which decisions on export quantities are made.”

Export data obtained from FBR and price data from PBS showed that export decision had always resulted in a rise in domestic sugar price.

The exports always resulted in domestic price hike so much so that during 2019 only, the price hike was collectively Rs18 per kg, which was equal to 48% of the total increase in prices.

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

The 1.1 million metric tons sugar export decision was wrong, said the CCP spokesman.

The CCP in December 2019 authorised an inquiry into possible anti-competitive activities in the sugar industry.

Its terms of reference, revised last month, ascertained the state of competition in the sugar industry while taking into account various aspects, which include inter alia the cost of production of sugar.

The inquiry committee had requested 82 sugar mills to provide information about cost audit reports, quarterly sugar stock, average monthly ex-mill prices of sugar starting from the FY 2016-17 to date and audited financial statements for the last three years.

The sugar mills had been using the PSMA platform to take a collective decision to use exports as a means of sustaining or controlling prices or “keeping it stable” in the relevant market which raised serious competition concerns, according to the CCP.

It said that an increase in price by Rs 1 per kg results in gain of Rs450 million per month to the mills. The sugar witnessed an increase in price of Rs18 per kg during the period February to September 2019, which amounted to additional gain of Rs40 billion in revenue for sugar mills, according to the CCP.

JDW Group role

The inquiry report has mentioned the name of Muhammad Rafique, Group Director Finance of the JDW group, at least 18 times. The JDW Group is owned by PTI’s estranged leader Jahangir Khan Tareen who is currently residing in the United Kingdom.

The inquiry committee on examination of impounded data and record noted that Rafique was nominated by PSMA in its AGM dated October 21, 2012 as the focal person for coordinating sugar stock positions, with email records showing that he had been actively involved with sharing/receiving information in this regard, according to the inquiry report.

“His (Rafique’s) involvement in this role has continued at least till July 2020 as per evidence of his participation in the WhatsApp group,” according to the CCP.

“It appeared that Muhammad Rafique, an employee of JDW group, may possibly be in possession of further important information in this regard particularly on his computer including laptop, smartphone device and computer stored information,” said the CCP.

The CCP also found JDW group role in coordinating activities for the export and local stocks management.

A series of documents impounded from the premises of JDW group titled “Co-ordination Committee PSMA-Punjab Zone” indicated that these committees were formed for periodically coordinating stocks and sales positions.

The CCP raided the offices of the JDW Sugar Mills Group on September 25 and impounded valuable record, which established the role of Rafique in setting and controlling the sugar prices, the spokesman said.

The sugar industry of Pakistan consists of around 90 mills out of which 45 mills are located in the province of Punjab, 38 in Sindh and seven in Khyber Pakhtunkhwa.

Out of these 90 mills, approximately 78 are currently operational. Its share in national GDP is around 0.7% and it constitutes 4.2% of the manufacturing sector.

The findings also showed how inefficient mills were minting money at the expense of the consumer.

“The PSMA seems to still actively pursue a policy of protectionism where even the most inefficient seems to get a due share in the production and sales,” it added.

The analysis of cost of production of sugar for the year 2018-19 showed that within Punjab province, the manufacturing cost varies between Rs43.61 per kg to Rs78.60. Yet the inefficient mills not only survived but were selling expensive sugar.

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

The CCP concluded that no mill or group of companies held a dominant position individually or collectively, so, they influenced the decision-making through the PSMA.

The sugar mills had also stopped crushing during peak season for about two weeks. The CCP inquiry found that it was again a move originated from the platform of the PSMA.

Apart from the harm to ordinary consumers, high sugar prices also adversely impact cost of production and competitiveness of industrial consumers i.e. beverages, confectionary and others.

Despite the depressed picture of the industry portrayed by PSMA, financial statements of various companies suggested that they were making profits, the CCP said.

A massive scandal as can be seen; overall 40bln rupees were stolen from the public unfairly due to price manipulation. They all deserve the punishment, and it looks like progress is still being made in the case although slowly - which is not surprising as the cartel is massive and so is the scale of the crime. Now the question is once their crime has been proven in courts what kind of punishment can be given to them ? Fines? Jail terms ? Nationalization of the factories? Further the article says even inefficient mills are being run due to protectionism? How can we get rid of this mafia and make all players play fairly?

I know people will have political opinions about JT so let me clarify before the usual attacks start - Jahangir Tareen does seem like one of the main heads of this cartel and him along with all players need to be made example. The fact that this case and reports are getting published in PTIs own govt shows that govt is genuinely serious in curbing the cartel as per the law ( for those saying why only PMLN and PPP leaders are being held accountable ).
 
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TheDarkKnight

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"The 1.1 million metric tons sugar export decision was wrong", said the CCP spokesman.

Who decided this export?? What action suggested against them??
From what I could understand the decision is based on data, and that data was provided by PSMA - the cartel and then they run other schemes to cause shortage and hike the price. These guys are thugs period - they even rip off the poor farmers by weighing canes after they have dried - so the canes weight is reduced and they have to pay less to the farmers.
 

muhammadhafeezmalik

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JDW, 16%
Khusro's RYK 6%
Humayun Akhtar Khan's Tandlianwala 5%
Crescent Group's Shakarganj 5%
An unknown KP Family 7%

40 billion through manipulation between Feb19 and Sep19.
From what I could understand the decision is based on data, and that data was provided by PSMA - the cartel and then they run other schemes to cause shortage and hike the price. These guys are thugs period - they even rip off the poor farmers by weighing canes after they have dried - so the canes weight is reduced and they have to pay less to the farmers.
Not only this they use crushed cane (Bagass) for steel re-rolling and power generation. When PSMA shows production cost it shows the production cost of ailing mills which is Rs 78/kg but most of the mills produce at Rs 43/Kg. So they manipulate the figures in this regard too.
 
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muhammadhafeezmalik

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From what I could understand the decision is based on data, and that data was provided by PSMA - the cartel and then they run other schemes to cause shortage and hike the price. These guys are thugs period - they even rip off the poor farmers by weighing canes after they have dried - so the canes weight is reduced and they have to pay less to the farmers.
This is not a valid excuse.
 

Falcon26

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The same corrupt mentality exists in other sectors in Pakistan: auto, media, industry, political parties and military. Every group wants to entrench its loot and exploit existing governance dysfunctions.
 

muhammadhafeezmalik

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The same corrupt mentality exists in other sectors in Pakistan: auto, media, industry, political parties and military. Every group wants to entrench its loot and exploit existing governance dysfunctions.
Based on wrong figures by corrupt bureaucracy.
This is same in the world, this is the sole reason we need public representatives, we empower them to punish on behalf of us. If the public representatives are performing deliberately or lack the ability they should be replaced. Public representatives should be the mot powerful force so thay can safeguard the interests of public.
 

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