WILL millions of dollars being spent on importing large quantities of cement and sugar bring down prices? The answer, in a single word, is: hardly. Food imports from India prove this point. It might come as a shock to Prime Minister Shaukat Aziz and all his good intentions to help the consumers. Millions of dollars may be spent on cement and sugar imports.
But, does he have an effective machinery to ensure imported supplies reach their ultimate destination—the consumers, at reasonable prices? The answer, again, is “no”. Who, in the federal government, is minding the store on the price and supplies front? None, except the feeble Monopoly Control Authority (MCA).
It was created under Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970, signed by General A.M.Yahya Khan, President and Chief Martial Law Administrator.
“MCA is toothless, staff-less, and support-less.” It lacks competent staff. It has no experts ranging from competition law to cost accounting. This is the impression one comes back with from MCA office on Islamabad’s Fazle Haq Road.
Can MCA’s new Chairman, Syed Bilal Ahmed, determined as he is, put teeth into this basically pro-consumer watchdog? For starters, he inherited 160 pending cases mainly involving violation of the law by cement and sugar industries, when he took over as Chairman on June 1, this year.
The fact is that MCA in 2005 is not even a shadow of what it was on creation and what it was supposed to do. I broke the news in February 1970 that two strong watchdogs and regulators will be established to mend the economy: Security and Exchange Authority of Pakistan (SEAP) and Monopoly Control Authority (MCA).
Just the scare of the good job that the two were mandated to do, brought more than five dozen artificially high valued shares at the Karachi Stock Exchange crashing down to their real worth. The two institutions commanded respect for credibility, transparency and people-friendly attitude and they had teeth.
Prime Minister’s Z.A. Bhutto’s 1973 nationalization of 32 basic industries reduced the role of these two bodies, but today’s world of greed-dominated business needs restoration of their original role-and an enlarged mandate.
Government’s good intentions going astray at the implementation level is illustrated by recent experience. Take several months of duty and tax free sugar imports. No quantitative bar. No restriction on source of sugar or its origin or country. Imports are allowed even from India, so that supplies arrive at Wagah or Karachi within 30 days—or less. Imports from Brazil and countries can arrive in 45 days.
Did sugar prices crash? Small cuts, yes, miracles, no. Where did the sugar go? In third week of August, wholesale prices for imported sugar ranged between Rs24.90 and Rs25.80 a kg, while domestic sugar ranged between Rs26.35 to Rs26.60.
The provincial governments haven’t moved their little finger as massive hoarding goes on. The have failed to flush out the stocks from the hoarders’ godowns, where Indian vegetables lie, too, for charging abnormal market prices and defeat the Prime Minister. Who are the hoarders of imported sugar? The sugar mill owners and big speculators. They were also mopping up sales and releases by Trading Corporation of Pakistan (TCP), until Islamabad decided TCP will sell only in small lots of 50 to 100 tons. There are sharks all around in the provincial capitals and big business centres. I am dwelling a bit on sugar, because, most likely, import of cement-—and for that matter of other essential items — will meet the same fate in future, thwarting official price-cutting plans, and providing a relief to the harried consumers.
A good deal of the cement and sugar problem is the ruling party, and present and former rulers themselves. A large number of sugar mills and several cement factories are owned by them. Who, as such, can touch them?
In case of cement, its larger and cheaper availability, the prime minister is fond of saying, will promote a construction boom. These hopes are stymied because of cement cartelization.
Action now is urgently needed both by the government and the MCA to bring down cement and sugar prices. But, a whittled down MCA is shackled by its governing law.
Hearing against 18 cement factories for a 2003 price hike and cartelization has now been completed. A senior MCA official says, “this matter is now part of history.”
This is because MCA took nearly two years to act. Orders should now be coming out although at present, the country is going through yet another massive price hike that beats all previous records.
Cement is currently selling in Islamabad at Rs290 to Rs300 a bag. It went up from Rs250 before the budget to the present level, although there was no change in the tax structure, and no increase in input costs. The prices in India, China and Iran are reportedly half of this level. These cheap imports, aided by government’s withdrawal of 25 per cent customs duty and six per cent withholding tax-Prime Minister Shaukat Aziz ordered on Sept one, should bring in large quantities of cement. Will it call the domestic manufacturers bluff off?
Was sugar import policy leaked? Reports not denied are: it was. Several large importers placed orders even before the new tax-free-sugar policy was announced. They benefited by booking imports at $256 a ton. Press reports, also not refuted, allege the policy was leaked by two federal ministers, several days before its official announcement. So much for some of the ministers love for the consumers.
MCA issued notices to 70 sugar mills following the massive price hike. Hearings have been completed. MCA also asked TCP about the sugar situation, although all government bodies are outside the purview of MCA. To keep them out is another mistake. It encourages mismanagement and irresponsibility in public sector which ought to behave in a more disciplined manner.
Now MCA plans to issue its orders on sugar investigation next week. These hearings, release of government stocks and imports have led to a decline in retail sugar prices. This week it is selling at Rs30 in retail, down from Rs32 a kg three weeks ago. Tenders technical: One projection of domestic consumption this year is 3.6 million tonnes, against a production of 3.1-3.2 million tonnes. The government abolished duty on raw and refined sugar to fill the supply-demand gap and to check domestic prices.
The lowest price for imported raw sugar was $256 and the highest $265 per tonne C&F. Imports are projected at 500,000 tons. TCP reportedly accepted offer of 25,000 tonnes sugar at $390 in August while the reported prevailing price was $360 a tonne, or even less. India was offering at $360-370 per tonne at Wagah, within 30 days. TCP also had substantial stocks which could have been sold to bring prices down.
This being the mess, MCA needs a muscle. MCA’s new move, a new Competition Authority Act 2005, holds some hope for the government to rein-in the greedy industrialists, businessmen, speculators and hoarders. The present law moves around the principle “do this, and don’t do that.” It does not provide for speedy MCA action against violators. The draft of the new act may be go to the Law Ministry in two weeks. Some of its proposed key features: *It will be preventive. It will ensure competition, and not wait just for monopolies to get built, and then curb them. *It will ensure a quick response to any market distortion in terms of prices, supplies and hoarding. The Authority will act within a matter of days, and violators will be punished within 10 days or so. The present MCA law does not cover business misdeeds like hoarding and supply holds up. * The existing penalty under section 19 of the MCA Law is Rs100,000 for violation of the authority’s order. The penalty for its subsequent non-implementation is Rs10,000 a day. Penalty will be very substantially enhanced. * The penalty now imposed by MCA is recoverable as “arrears of land revenue.” It will be changed to recovery of the new, bigger, penalty as provided in the income tax law. * It will bring to book not only individual factories and their owners, but will have an industry-wide applicability. The entire industry and their registered associations will now be arraigned for violations. At present, for instance, various cement factories have a small price differential among them, to claim, their prices are not fixed by a cartel.
The new law will provide “more force, more speed, and heavier punishment,” and greater authority for MCA, in line with modern competition laws in the world.
Good for consumers, and the government if it cares for its citizens.