Sugar inquiry report: a damning indictment of regulators

Updated 06 Jun 2020

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What is passed off as aid for farmers inevitably ends up lining the pockets of mill owners. — AFP/File
What is passed off as aid for farmers inevitably ends up lining the pockets of mill owners. — AFP/File

IN an exhaustive report, the sugar inquiry commission has delivered a damning indictment of the country’s sugar industry. Governments of the past and the present are coerced by the sugar lobby and any decision taken to support the mills through subsidy or export allowance is entirely reliant upon rigged and unverified data supplied by the mills themselves.

What is passed off as aid for farmers inevitably ends up lining the pockets of mill owners.

The commission did what it called a forensic analysis of the accounts of the mills under investigation. Finding the accounts inaccurate, it proceeded to construct numbers which reflected better the actual state of play.

The recovery ratio of sugar from cane is manipulated by the mills. In Punjab, there is a 30 per cent difference between sugarcane recorded as produced by farmers and the sugarcane reported as crushed by mills.

The actual production of sugar is underreported by mills whilst speculative forward sale contracts are facilitated by them.

A murky world of hoarding and profiteering on the basis of delivery orders issued by mills in favour of fictitious buyers allows hoarders to drive up the price of sugar whilst using the mills as a storage spot. The commodity never moves whilst being traded between speculators.

Even though there is a fixed crushing season, cartelisation ensures the price varies inexplicably through the year.

According to the report, the sugar industry regulators fail to prevent illegal activities. The Sugar Factories Control Act is violated with impunity.

The rules framed are similarly disregarded. There exists a ban upon expansion of crushing capacity in Punjab since 2006, but mills have expanded nevertheless.

The SECP needs to review and monitor the sugar mills’ accounting practices, acquisitions and inter-company transactions. According to the report, it has failed miserably

The Sugar Advisory Board should monitor and address the industry to protect the farmers’ interests. It acts instead as an extended lobbying arm of the mills, interested only in securing their subsidies and export quotas.

The cane commissioner should independently monitor the quantity and timeliness of amounts paid for sugarcane and the recovery ratio of sugar from the cane, as well as the capacity use by mills. None of this happens. The cane commissioners’ offices, situated in urban centres, are completely reliant upon data provided by mills regarding purchases and recovery ratios.

The FBR functions as a silent spectator, relying on mill-supplied data for the compilation of sugar costs, which do not properly exclude the revenues made from ethanol manufacture out of crushed sugarcane. It fails to catch billions in benami transactions.

Since Jan 2015, the mills have received over 29 billion rupees as subsidy whilst the tax demand is under half that amount. They are a strain upon public resources, a loss to the exchequer.

This analysis has been rejected by mill owners like Jahangir Tareen, whose family owns a majority share in the JDW group’s sugar mills. According to Tareen, the estimates of actual earnings, as reported by the commission, will not stand the test of an independent scrutiny.

The report puts emphasis on the Punjab government’s “unjustifiable’ sanction of three billion rupees as freight support subsidy. It blames the chief minister for signing off on the subsidy, highlighting in para 246 that he now claims no memory of having done so.

The decision to forward the freight support decision to the provinces was taken by the ECC. As such, the then head of the ECC and its commerce adviser, Asad Umar and Razzaq Dawood, have been politely accused of telling untruths.

What they left to the province after allowing sugar export for ‘relief of the farmers’ (as mills had threatened to not start the sugar crushing season otherwise) was stated thus:

“The ECC underscored the importance of providing relief to farmers by ensuring the start of crushing season at the earliest. It was also decided that since the entire issue of freight support arose due to varying procurement prices of sugarcane fixed by provincial governments, the freight support may be determined/paid by the provincial governments.”

Punjab argues that the decision to export sugar had already been made by the Centre, and it was only acting on a directive to determine whether a quantum of freight support would assist the ECC decision.

The ECC advises the cabinet, which is the ultimate decision-maker. If Usman Buzdar can be ridiculed for signing off on subsidy without recollection, why is the report silent on the federal government’s actions. This opened the door to the Punjab subsidy in the first place.

Is the prime minister not answerable for the same lack of oversight which has made such a mockery of his chosen chief minister?

Jahangir Tareen is free to dispute arbitrary calculations, but he will have a hard time rebutting other allegations in the report.

The commission interviewed Amir Waris, a ‘cashier and rider’ who works for Tareen’s JDW group. According to the company record, since 2017 he withdrew Rs2.54bn from public limited mills.

On being queried by the commission, JDW tried to pass them off as meant for ‘centralised expenses such as statutory payments, utilities, import clearance costs, salaries and wages’.

No statement regarding any single cash payment was provided.

The cashier then deposited Rs1.299bn into accounts of private companies and individuals, mostly related to or members of the Tareen family.

Such a bleeding of a publicly owned company for the benefit of its majority shareholders is the dictionary definition of embezzlement. It amounts to siphoning off a public company’s resources for the benefit of influential private parties.

Princely jets

In the table of cash deposits, there is a payment to a Pakistani chartered airline, called Princely Jets (Pvt) Ltd. The payment relates to the period under inquiry and includes the run-up to the 2018 general election.

It is a substantial amount — Rs 54.5 million, to be precise.

To qualify as a legal payment, it would have to be one made in pursuit of the mill’s own business. In which case it would be made through formal banking channels. Why was it made in cash?

Whose flights were these cash payments being made for? Why did a cashier from Jahangir Tareen’s publicly listed mills allegedly pay Rs54.5m to a private charter service for a period which covers the 2018 elections?

Who was flying around the whole country in such a glamorous style at the time?

In a country where a PM has been disqualified because he had not withdrawn receivables in a privately owned company which he failed to declare, while another PM has suffered months in jail without charge at NAB’s hands, those princely flight manifests are well worth publishing.

Published in Dawn, June 6th, 2020