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Mills blamed for sugar crisis: PAC forms probe committee

May 11, 2006

ISLAMABAD, May 10: The Public Accounts Committee constituted on Wednesday a committee to probe into what it termed wrongdoings of the sugar cartel, including profiteering and tax evasion by sugar mills on import of 400,000 tons of duty-free raw sugar.

The committee will also compile a report about purchases of sugarcane through middlemen and concealment of actual production figures by members of the Pakistan Sugar Mills Association.

“If this had happened in India, it would have by now blown up into a full-blown national scam,” observed PAC member Syed Qurban Ali Shah. His viewpoint was endorsed by other committee members.

Blaming the country’s higher per capita sugar consumption for soaring prices, PAC member belonging to the ruling party Ali Akbar Vaince said the only way to overcome the crisis was for people to stop consuming sugar for a few weeks.

Reacting to the comment, a member told Mr Vaince that the committee was discussing a serious problem.

Mr Vaince immediately walked out of the committee room in protest and was heard mumbling: “Who can provide cheap food to 160 million people.”

The PAC, headed by Malik Allahyar Khan, observed that the Economic Coordination Committee (ECC) had allowed 20 mills to import 400,000 tons of duty-free raw sugar to control runaway domestic prices, which had climbed to Rs42 per kg. When the raw sugar was purified by local mills, its cost was Rs21-22 per kg and the millers should have sold the commodity at reasonable rates.

Ironically, it noted, the millers not only sold the sugar at a price exceeding Rs42, but paid sales tax at the rate of Rs29 per kg. The millers’ move was against the spirit of the ECC decision that was aimed at providing relief to consumers.

The committee criticised the provincial government for their failure to check the sugar mills’ tendency to procure sugarcane through brokers and stopped publishing their fortnightly production reports from Feb 15 to keep the government in the dark about actual production figures.

Criticising the government, the PAC said that the mills’ unrecorded production of more than 400,000 tons was sold to non-registered buyers, adding that the millers had done this to avoid sales tax.

A CBR representative told the committee that the board was investigating various cases of sales tax evasion by millers, running into Rs326 million.

“Why did the consumers not benefit from import of raw sugar? Why were the rich and powerful (sugar) mill-owners allowed to pocket huge profits without any check?,” the committee asked the finance ministry’s adviser Dr Ashfaq Hassan and Secretary of the Ministry of Food, Agriculture and Livestock Ismael Qureshi.

Both the officials failed to provide any satisfactory answer after which the PAC observed: “This is the most dismal response from the government we have ever come across.”

The committee also criticised the secretary of the ministry of food for not having the actual figures about the mills’ current carry-over stock. The secretary said that the mills had a carry-over stock of 577,000 tons but the PAC said that the mills still had 891,000 tons of sugar in stock, adding that it meant that the millers concealed the record of 314,000 tons of sugar.

The committee said that last year, the Trading Corporation of Pakistan had procured 400,000 tons of sugar from various mills and the stock was still lying with the sugar mills. The committee, however, noted that when the crisis ensued, the mills had refused to hand the sugar over to the TCP despite the latter having paid the money a year ago.

The committee said that the millers had told the TCP that they would release sugar if all their bank loans were waived or if they were allowed to stop paying farmers.

The PAC also observed that the ban on construction of new sugar mills under the Sugar Factory Control Act 1950, was being openly flouted and said that even after the imposition of the ban, mills were set up in Rahimyar Khan, Khanpur, Jhang, Chishtian and Rajanpur districts.

“The cartel’s power is evident from the fact that even the National Accountability Bureau had to shelve its probe into the sugar crisis within three days of its initiation. They can increase prices, exploit farmers and break rules. They (members of the cartel) seem to be above the law,” the PAC observed.

The committee also pointed out that millers had procured sugarcane at an average price of Rs60 per 40kg and not Rs100 per 40kg as they had claimed. The millers, it said, had procured sugarcane at Rs100 per 40kg but for a very limited time.

Dr Ishfaq Hassan defended the importers and said that the landing price of sugar in Karachi was Rs38 per kg and the increase was because of the rise of sugar prices in the international market. Therefore, the importers could not sell sugar below Rs41-42 per kg.

The Minfal secretary told the committee that because of the millers’ persistent failure to pay farmers for their produce, they had switched to other crops. He said that the domestic sugarcane production in 2003-04 was 53 million tons, with sugar production of four million tons. By contrast, sugarcane production last year was only 43 million tons which produced only 3.5 million tons of sugar.

The secretary of food also resented the lack of powers of sugarcane commissioners and said: “They can’t enter sugar mills without the millers’ permission. How can they investigate anything?”

He also said that the government could not even press them to start sugar crushing in October, adding that they stared the crushing season in December when it suited them.