PSMA, 84 sugar mills issued notices for price manipulation

ISLAMABAD: The Competition Commission of Pakistan (CCP) on Tuesday issued show-cause notices to the Pakistan Sugar Mills Association (PSMA) and 84 member mills over alleged cartelisation in sugar pricing.

The show cause notices were issued after the CCP decided to initiate proceedings under Section 30 of the Competition Act on the recommendations of an inquiry into the anti-competitive activities in the sugar sector.

After the show cause the PSMA and 84 mills will individually respond to the allegations of the CCP team. The hearings will commence after two weeks’ time.

The CCP’s inquiry has found multiple instances where the PSMA is acting as a front-runner for cartelisation in the sugar industry.

The inquiry report noted that the PSMA has maintained cartels among its members not only to protect inefficient mills but also keep the commodity’s prices high.

Body operating as cartel, suspects CCP

The CCP report highlighted that the PSMA was maintaining an illegal balance between efficient sugar mills which have the production cost of around Rs43 per kilogram and those producing sugar at Rs78 per kg. The report said that the approach to maintain a balance was benefiting both the efficient mills and the inefficient ones which continue to remain in business on the basis of government subsidies and higher rates.

On its part, the PSMA rejected the CCP inquiry report.

Meanwhile, the CCP has said that the notices have been issued after evidences gathered during search and inspections conducted on the premises of PSMA and JDW Sugar Mills by the CCP teams, that suggested anti-competitive activities have continued since 2010.

The impounded data included exchange of emails between a senior official of one of the member mills and PSMA Punjab zone office bearers. The data included 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.

Prior to issuing the show cause notices, the CCP had conducted an analysis of the WhatsApp messages exchanged in a group of PSMA officials, the same senior official of the member mill was found to be in constant communication with regards 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.

The initial inquiry revealed that 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.

PSMA and all 84 sugar mills prima facie violated the Competition Act by collectively deciding to export sugar and thereby fixing the quantities of sugar to be supplied in Pakistan, the CCP maintains that sugar industry also violated the Act by reducing stocks of sugar through exports; hence collectively raised and maintained prices of sugar in Pakistan.

The show causes also contain queries related to the initial findings that 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 the quantity supplied in the market.

In Punjab, 45 sugar mills used PSMA’s platform to share business sensitive information with each other. The PSMA and the sugar mills have also been asked to respond to the accusation that they divided quantities of sugar in tenders issued by USC on various occasions.

The CCP found 19 mills in Punjab to have violated the Competition 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 CCP had also conducted an inquiry in the sugar industry in 2009 and 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.

The CCP inquiry had stated that 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.