ISLAMABAD - In a major development, the Competition Commission of Pakistan (CCP) has issued show cause notices to Pakistan Sugar Mills Association (PSMA) and its 84 member mills on multiple instances of prima facie cartelization.

The CCP has issued show cause notices to PSMA on multiple instances of prima facie cartelization in violation of Section 4 of the Competition Act, 2010. The CCP in its enquiry had found the sugar sector continuously behaving on pattern of cartelisation and using lobbying for manipulating stock position and getting export permission. The PSMA and its members had hiked the prices in domestic market to gain Rs70 billion extra profit after exporting it. Calculations show that the benefit accrued to mills on account of the rise in domestic prices due to exports alone was approximately Rs 40 billion in revenue during the period Feb-19 to Sep-19.

It would be relevant to add that an amount Rs 29.22 billion was also paid as subsidy. After the decision of allowing export of sugar during the PTI-led government, the price of sugar escalated by 48 percent or Rs18 per kg in domestic market so two-third price surge was pocketed by sugar barons with this sole decision.

The show cause notices have been issued after the CCP decided to initiate proceedings under Section 30 of the Act on the recommendations of an enquiry into the anti-competitive activities in the sugar sector. The CCP’s enquiry has found multiple instances where the PSMA is acting as a front-runner for cartelization in the sugar industry.

The evidence, gathered during search and inspections conducted on the premises of PSMA and JDW Sugar Mills seems to suggest these anti-competitive activities have continued since 2010. The impounded data included exchange of emails between a senior official of one of the Sugar Mill (Member of PSMA) 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. 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 PSMA.

Furthermore, 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 its members have been provided an opportunity of hearing to plead their case with reference to the prima facie specific violations indicated therein. 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.

Moreover, in the crushing season 2019-20, 15 sugar mills in Punjab under the auspices of PSMA, collectively decided to delay crushing of sugarcane leading to reduction in quantity supplied in the market. In Punjab, 45 sugar mills used PSMA’s platform to share business sensitive information with each other.

Lastly, PSMA and sugar mills divided quantities of sugar in tenders issued by USC on various occasions. The CCP found 19 mills in Punjab to have violated the Act with reference to a tender dated 2019 whereas, 30 mills from all over Pakistan have been issued show cause for an earlier tender.

The findings of CCP’s previous sugar enquiry report in 2009 had found that PSMA and its members had engaged in fixing of prices and collusion in the purchase of sugarcane, production of sugar, and sale or trade of sugar. In the instant matter it appears that PSMA and its member mills sought to keep prices stable, inter alia, by controlling supply of sugar available in the domestic market.