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Inquiry update: Sugar mills ripped off farmers, taxpayers Rs300b

SAMAA | - Posted: May 27, 2020 | Last Updated: 1 month ago
Posted: May 27, 2020 | Last Updated: 1 month ago
Inquiry update: Sugar mills ripped off farmers, taxpayers Rs300b

Art: SAMAA Digital

The evidence collected by the Inquiry Commission clearly shows sugar mill owners in Pakistan booked Rs300 billion in profit in one year, which came from the pockets of farmers and taxpayers, the government said Wednesday.

Special assistant to the prime minister on accountability, Shahzad Akbar, gave a second press conference on the inquiry’s findings. The profit the mills made, he said, came from export subsidies and katoti or underpaying farmers.

The PM’s assistant said all sugar mill owners procured sugarcane at Rs140 per 40kg as opposed to the support or official price of Rs180. By underpaying farmers, sugar mills saved Rs40 on every 40kg. Similarly, they inflated the cost of production to claim a subsidy on exports, which was financed by taxpayers.

In the press conference, Akbar mainly talked about the Rs26.6 billion worth of export subsidies given by the former PML-N government’s Shahid Khaqan Abbasi. But he barely touched upon the Rs2.4 billion subsidy or the sugar crisis, which occurred during his own government under the PTI, and which became the basis of the entire inquiry.
He did share details of the Rs4.12 billion subsidy given by the Sindh government (PPP) and that it was designed to benefit the Omni Group, which alone availed more than a quarter of that pie.

Defying economics
When a commodity sells at a high price, manufacturers tend to increase supply to benefit from a high price, says the law of supply. However, the sugar lobby and the government ministries that deal with it seem to have done the opposite. This is what the sugar commission’s revelations tell us.

In March 2017, international sugar prices were high at $577 per ton and the country had more than 2.5 million. Former Prime Minister Shahid Khaqan Abbasi allowed exports of only 400,000 tons, said Akbar. They exported small quantities because it didn’t qualify for a subsidy because of high international prices. If higher quantities were exported at that time, sugar mills would have made a decent profit regardless of how inflated their costs of production were. The country would also earn foreign exchange. But instead, they permitted only a small quantity for exports because otherwise they would not have been entitled to a subsidy.

“This was a criminal act,” Akbar said.
Giving another example, he said international sugar prices had still been high in July and the Economic Coordination Committee had received a recommendation to permit the export of 600,000 tons of sugar. But at the time Abbasi, who used to supervise the ECC, permitted only half the quantity for export for the same reason.

International sugar prices were still high and there was no change in the cost of production for mill owners between July and September of 2017, yet the decision to export without a subsidy was changed. A subsidy of Rs5 billion was allocated in the first instance and another Rs15 billion later on, Akbar said. This subsidy was given without any due diligence to check the cost of production, which is the very basis upon which it is decided if an export subsidy should be given in the first place.

The government asked a Grade 17 officer (22 is the highest) to calculate the cost of production in less than 24 hours, which is simply not enough time. As a result, the calculation was superficial, the data was not verified, and a third-party validation was not undertaken to date, Akbar said.

He went on to accuse former PM Abbasi of acting on the behest of Suleman Shehbaz of the Sharif family. This anomaly was first pointed out by the Finance division in Abbasi’s own government, he said. The finance division had raised serious objections over how the cost of production was calculated superficially and without any independent checks. This cost the exchequer Rs7 billion and this is why they asked for an inquiry and legal action.

Akbar said subsidies worth Rs25 billion could have been avoided had the cost of production been calculated with due diligence and the data been verified. He did not, however, touch upon the Rs2.4 billion in subsidies given under the PTI government on untimely exports that sent local sugar prices skyrocketing and created a crisis at home.

The PM’s assistant made sure to share the details of the Rs4.12 billion subsidy given by the Sindh government. It allowed this subsidy at a time when there was no justification for it, he said and added that even the Sindh Cabinet had not been in favor of it as the minutes of its meeting prove.

Sugar mills inflated the cost of production by Rs14 per kg, some by Rs17, yet the Center gave them a subsidy of Rs10.7 per kg. They gave another Rs9.3 per kg on top of that, which was not justified. Moreover, the subsidy was not given on the basis of first-come-first-served, he said.

No mill could claim a subsidy for more than 20,000 tons regardless of their production or export capacity, Akbar said. This policy was designed to benefit the Omni Group, which has the highest number of sugar mills in the province. Of the total subsidy, Rs1.3 billion or more than a quarter went to the Omni Group.

Responding to the criticism for his own party, the PTI, whose key figures were the main beneficiaries of the export subsidy, Akbar said they addressed this issue beyond party lines. We have already made public details of whoever from the PTI benefited from the export subsidy and are going to take corrective measures, he said. “You will see action against all who benefited.”

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