Sugar probe commission critical of key govt functionaries’ role in subsidy

Published May 23, 2020
Punjab CM did not remember meeting he chaired to allow subsidy to sugar mills in the province. —
Punjab CM did not remember meeting he chaired to allow subsidy to sugar mills in the province. —

ISLAMABAD: The shocking sugar inquiry commission’s report made public on Thursday was critical of the role of Planning and Development Minister Asad Umar, Adviser to the Prime Minister on Commerce and Industries Razak Daw­ood and Punjab Chief Minister Usman Buzdar on the issue of sugar export subsidy as they failed to satisfy the commission.

These three key government functionaries and former prime minister Shahid Khaqan Abbasi had appeared before the commission and recorded their statements on the issue of grant of sugar subsidy.

According to the report, Pakistan exported more than four million tonnes of sugar over the past five years and more than Rs29 billion had been given to sugar mills in terms of export subsidy. “Exporting sugar with subsidy means that we are exporting on international rates which are lower than the cost of production claimed by sugar mills and the differential cost is being paid from the taxpayers’ hard-earned money,” the report said.

The commission, which was formed to probe the recent sugar crisis in the country, observed that during 2017-18, Rs10.7 per kg subsidy was granted by the Economic Coordination Committee (ECC) of the cabinet only for export of two million tonnes of sugar (Sindh was granted additional subsidy of more than Rs4bn). A decrease of Re1 per kg of subsidy meant saving of more than Rs2bn. Even if observations of the Finance Division were to be ignored and only adjustments of Rs5.10 per kg considered, this would have saved more than Rs10bn. The major export subsidy was availed after January 2018. Therefore, timely intervention could have saved billions of rupees for the national exchequer.

Asad Umar

The report said Minister for Planning and Development Asad Umar (former finance minister) had informed the commission that the country was in dire need of foreign exchange at that time and since there were sufficient stocks of sugar available in the country, the decision to export the commodity was justified. He said the crushing season was about to start and, therefore, there was no apprehension of sugar shortage and that the increase in prices of sugar in 2019 could not be attributed to the shortage of sugar due to export as mentioned in an earlier report of the inquiry committee.

Punjab CM did not remember meeting he chaired to allow subsidy to sugar mills in the province

According to the report, when the minister was asked if there was any reliable mechanism to verify the figures of stocks and the strategic reserves that were given by the Pakistan Sugar Mills Association (PSMA), he said the figures were provided by the provincial governments to the industries ministry and, therefore, there was no reason to doubt their accuracy.

When the minister was asked why the decision to not allow any subsidy by the federal or provincial government in the first meeting was subsequently changed by allowing the provincial governments to decide the freight support (subsidy) on their own, if deemed appropriate, he said it had been discussed informally that after the 18th Constitution Amendment, the matter of such a subsidy was purely a provincial matter and, therefore, it was not the mandate of the federal government to take a decision on it.

Mr Umar said the increase in price was because of cartelisation and collusion between different players, producers of sugar and due to their collective market manipulation.

The report said: “The response of Asad Umar regarding the change of the ECC decision about the freight support (subsidy) by placing it on the discretion of the provinces was found not convincing by the commission. The reason cited by him was that the lack of legal purview of the federal government to decide a provincial matter of freight support was the reason for this change. But this reason was not reflected in the subsequent decision of the ECC at all and the reason of decision stated, therein, is completely different.

“Even if the explanation cited there that varying costs of sugarcane procurement in the provinces is the reason for the change of decision is considered, it was still not plausible as the cost of procurement of sugarcane was Rs180 and Rs182 in Punjab and Sindh, respectively, and that was a minor difference.”

The report said former prime minister Shahid Khaqan Abbasi and former defence minister Khurram Dastagir had made a voluntary appearance before the commission.

When Mr Abbasi was asked why the cost of production was calculated hurriedly despite the fact that this was an annual requirement and such calculations could be done by the experts, he said that during his tenure as prime minister, then commerce secretary Younus Dhaga was asked to prepare the cost of production and the calculation he made was far lower than the subsidy demanded by the PSMA.

He contended that the subsidy was not the main issue as regards to the price hike in wake of the export of sugar by the current government in 2018-19. According to him, the real issue was that the export was allowed by the government when the stocks were not sufficient and this resulted in profiteering by the mill owners who made profits in excess of Rs100bn by increasing prices. He also said he himself used to chair all ECC meetings.

However, the commission was of the view that the calculation of subsidy based on the cast of production in 2017-18 was not done with due diligence while approving the subsidy of Rs20bn and Mr Abbasi could not provide satisfactory answers or documentation to explain and justify the subsidy procedure.

Abdul Razak Dawood

According to the report, Razak Dawood told the commission that the country was in dire straits with very low level of foreign exchange available and since there were sufficient surplus stocks available, export of sugar was allowed. When asked if the stocks and strategic reserves position as stated by the PSMA could be relied upon, the PM’s adviser said all this data was provided by the cane commissioners in the meetings and, therefore, was reliable. “As regards the reasons for the increase in the price of sugar due to export and the shortage of stocks of sugar in the country, he contended that there was no shortage of sugar in the country at any point during the year and the stocks always remained sufficient and in fact, there were carry-over stocks available even at the end of the year. In his opinion, the linkage between exports and shortage of stocks with the increase in price was, therefore, not justified,” the report said.

The report said the response by Mr Dawood regarding the continuation of export of sugar despite the price hike was not found convincing by the commission. The decision to export sugar was followed by an increase in the price of sugar in the local market. “The commission has gathered enough evidence to establish that the export of sugar is one of the reasons for increase in price of sugar in the domestic market as well as other factors like market manipulation, hoarding, forward contracts and ‘satta’ by the sugar sector players,” it added.

Usman Buzdar

The report said that on Nov 27, 2018, Punjab Food Secretary Shoukat Ali had moved a summary to Chief Minister Usman Buzdar for approval of a supplementary grant of Rs2.961bn to pay off the pending claims of rebates on export of sugar till date on the scheme of 2017-18. This was demanded by the PSMA in its meeting with the chief minister to start off the crushing season. The summary was approved on Dec 1, 2018.

The report said CM Buzdar had briefed the commission on the grant of subsidy to the tune of Rs3bn by the Punjab government. He explained that the subsidy was discussed in a meeting of the cabinet committee on sugar sector on Dec 17, 2018, which recommended the subsidy which was approved by the cabinet in its meeting.

When asked about the minutes of the meeting that he had chaired on Dec 6, 2018, which clearly stated that an in-principle decision to allow subsidy to the sugar mills of Punjab at the rate of Rs5.35 per kg was made and the matter shall be placed before Cabinet Committee on Finance for a final decision, CM Buzdar said he did not remember this meeting at all.

The commission also found that the in-principle decision taken on Dec 6, 2018 was made even before the decision of the ECC meeting held on Dec 4, 2018, had been received by the Punjab government. The commission was of the view that the subsidy granted was unjustified. “The CM Punjab pleaded his case that the subsidy was granted by the cabinet and it was a collective decision. However, keeping in view the minutes of the meeting dated 06-12-2018, which the CM Punjab claims to have forgotten, clearly indicates otherwise,” the report revealed.

Published in Dawn, May 23rd, 2020


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