State oligarchy, politics & cartelisation

Huzaima Bukhari & Dr. Ikramul Haq

In July 2015, Business Recorder Research interviewed Chairman of Pakistan Sugar Mills Association (PSMA) and Director of Premier Sugar Mills (the first sugar mill set up in Pakistan in 1947).  He explained that at one million hectares, Pakistan was the fourth country in the world by sugarcane area, but by production and yield, “We are number 14”. Was this a simple story of an inefficient industry that has been thriving on exploitation of farmers and workers? The developments since then show that it is, in fact, story of robber barons, cartelisation and even mafia-like operations. We repeatedly hear that sugar industry has been making billions through favouratism and political influence but until today, not a single case of successful prosecution is available for citation.

The most recent story [PSMA manipulated sugar price hike with the help of JWD Group: CCP report, The Express Tribune, October 23, 2020] alleges on the basis of an inquiry conducted by the Competition Commission of Pakistan (CCP) that PSMA “is prima facie a cartel that manipulated the recent price hike with active coordination of a senior officer of JDW Sugar Mills Group, owned by Jahangir Khan Tareen. If true, this exposes the tall claims of the coalition Government of Pakistan Tehreek-i-Insaf (PTI) that it is “free of any corruption” and the personal judgement of the Prime Minister about someone who claims to be a “clean man” but presently is being targeted and victimized for his “quest to implement the manifesto of PTI”.

The details revealed in the story are not new to our ears. The CCP, it is claimed, “has concluded a 10-month long inquiry and unearthed that the PSMA was indulged in illegal activities…findings also showed that the millers managed a decision to influence the PTI government to allow export of 1.1 million tons of sugar, which also caused 48% increase in the prices”. The CCP “has again established that the PSMA violated the Competition Act of 2010”. It is the second time in the last 10 years that CCP has declared that the PSMA was a cartel but this time, the story claims, “the nature of ‘crime’ appears more serious”. As usual, the CCP will issue show cause notices to the PSMA, “giving it an opportunity to defend itself”.

In the past, PSMA and its members successfully blocked such actions by the CCP. It was restrained to pass any order. Now the Lahore High Court in a number of writs challenging the vires of Competition Ordinance, 2007, the Competition Ordinance, 2009, the Competition Ordinance, 2010 and the Competition Act, 2010 (“the Act) as well as the vires of sections 43, 44 and 62 of the Act for being unconstitutional decided the matter in its order [LPG Association v Federation of Pakistan], authored by honurable Justice Ayesha Malik holding as under:

“Para 77. In view of the aforesaid, for the reasons stated, this Writ Petition along with connected Writ Petitions are dismissed. Separate orders have been passed in the appeals.

78. Although the other two learned members of this Bench (Shahid Jamil Khan and Muhammad Sajid Mehmood Sethi, JJ.) have concurred with me on the issues of “Appellate jurisdiction of Supreme Court” and “Validation Clause in the Competition Act, 2010” but are not in agreement with me on the findings on “Federal and Provincial Legislative Competence” and “Parallel Judicial System” and have given their reasons through separate notes which are part of this judgment”.

For detailed judgement visit: https://sys.lhc.gov.pk/appjudgments/2020LHC2274.pdf

Allegations were also levelled against sugar mills by other agencies and commissions of enquiry. About these, the Premier said: “It is unprecedented in the country’s history that preliminary reports into sudden price hike of these commodities were released without alteration and action will be taken against those responsible for sugar and wheat price hike after receiving detailed forensic reports on April 25, 2020”. However, till todaythese are neither approved in any court of law nor the culprits taken to task as promised.

What happened after detailed forensic reports? Further price hike in sugar, with the government machinery at federal and provincial levels in a state of paralysis. The miseries faced by millions of Pakistanis in the wake of Covid-19 endemic, unprecedented price hike in items of daily use, eatables, utilities and medicines, especially many life-saving ones, confirm where the actual problem lies. The control of State Oligarchy on resources and abuse of robber barons of their position in power to fleece the masses and get extraordinary benefits have once again has rendered bare the cruel elitist structure of Pakistan where instead of improving overall governance, everyone is chasing “corruption”. Indeed, Pakistan is a classic example of a State where successive governments have been protecting and strengthening the exploitative system but none ever bothered to provide good governance, independent and effective institutions to counter rebt-seeking, as well as relief to the marginalised sections of society, and empowering local governments.   

The story, based on report of the CCP and statements by its spokesperson, reveals the following main points:

• “Mills have been found to coordinate their production and stock figures based on which decisions on export quantities are made.”
• Export data obtained from Federal Board of Revenue (FBR) and price data from Pakistan Bureau of Statistics (PBS) shows that export decision has always resulted in a rise in domestic sugar price, so that during 2019 only, the price hike was collectively Rs.18 per kg, which was equal to 48% of the total increase in prices.
• In February 2019, the price of sugar was Rs. 60 per kg, which increased to Rs. 98 per kg as of September 2019, showing an increase of Rs. 38 or 63%.
• The 1.1 million metric tons sugar export decision was wrong. The CCP in December 2019 authorised an inquiry into possible anti-competitive activities in the sugar industry.
• Its terms of reference, revised last month, ascertained the state of competition in the sugar industry while taking into account various aspects, which include inter alia the cost of production of sugar.
• The inquiry committee requested 82 sugar mills to provide information about cost audit reports, quarterly sugar stock, average monthly ex-mill prices of sugar starting from the FY 2016-17 to date and audited financial statements for the last three years.
• The sugar mills have been using the PSMA platform to take a collective decision to use exports as a means of sustaining or controlling prices or “keeping them stable” in the relevant market which has raised serious competition concerns.
• Increase in price by Rs. 1 per kg results in gain of Rs. 450 million per month to the mills. Sugar witnessed an increase in price of Rs. 18 per kg during the period February to September 2019, which amounted to additional gain of Rs. 40 billion in revenue for sugar mills.
• The inquiry report has mentioned the name of Muhammad Rafique, Group Director Finance of the JDW group, at least 18 times. The JDW Group is owned by PTI’s estranged leader Jahangir Khan Tareen who is currently residing in the United Kingdom.
• The inquiry committee on examination of impounded data and record noted that Rafique was nominated by PSMA in its Annual General Meeting (AGM) dated October 21, 2012 as the focal person for coordinating sugar stock positions, with email records showing that he had been actively involved with sharing/receiving information in this regard. His (Rafique’s) involvement in this role has continued at least till July 2020 as per evidence of his participation in the WhatsApp group.
• “It appeared that Muhammad Rafique, an employee of JDW group, may possibly be in possession of further important information in this regard particularly on his computer including laptop, smartphone device and computer stored information.
• The CCP also found JDW group role in coordinating activities for export and local stocks management.
• A series of documents impounded from the premises of JDW group titled “Co-ordination Committee PSMA-Punjab Zone” indicated that these committees were formed for periodically coordinating stocks and sales positions.
• The CCP raided the offices of the JDW Sugar Mills Group on September 25, 2020 and impounded valuable record, which established the role of Rafique in setting and controlling the sugar prices.
• The sugar industry of Pakistan consists of around 90 mills out of which 45 mills are located in the province of Punjab, 38 in Sindh and seven in Khyber Pakhtunkhwa. Out of these 90 mills, approximately 78 are currently operational. Share of sugar industry in national GDP is around 0.7% and it constitutes 4.2% of the manufacturing sector. Findings also show how inefficient mills were minting money at the expense of the consumer.
• “The PSMA seems to still actively pursue a policy of protectionism where even the most inefficient seems to get a due share in the production and sales.
• The analysis of cost of production of sugar for the year 2018-19 shows that within Punjab province, manufacturing cost varies between Rs. 43.61 per kg to Rs. 78.60. Yet the inefficient mills not only survived, but were selling expensive sugar.
• JDW group had the highest share in terms of production i.e. 16%, followed by Almoiz group which had a share of 7%, RYK group 6%, Tandlianwala and Shakarganj with a share of 5% each.
• No mill or group of companies hold a dominant position individually or collectively, so, they influence decision-making through the PSMA.
• The sugar mills had also stopped crushing during peak season for about two weeks. The CCP inquiry found that it was again a move originated from the platform of the PSMA.
• Apart from harming ordinary consumers, high sugar prices also adversely impact cost of production and competitiveness of industrial consumers i.e. pharmaceutical, beverages, confectionary and others.
• Despite the depressed picture of the industry portrayed by PSMA, financial statements of various companies suggested that they were making profits, the CCP said.

The story says that the CCP came to the conclusion that “starting from 2012 to date, the conduct of PSMA and all its members vis-à-vis collective discussion on stock positions leading to a decision on the quantity to be exported is tantamount to fixing or setting/controlling supply within the relevant market has resulted in price hike that is not based on actual/available supply and demand”.

The vital question is: what were the executive and judiciary doing to counter this alleged manipulation, allegedly taking place for the last many years? The CCP was sleeping or overlooking it, ignoring the matter due to negligence, incompetence or deliberately under external pressures. No answer is available to this effect in the report or story. We all know that the CCP will issue yet another show-cause notice alleging “violation of law” and standard phrase of a “prima facie” case! The nation is sick of this game of allegations, and counter claims of political victimisation!

It is pertinent to recall that after initial report of commission, in a TV interview, Mr. Jahangir Tareen, who left the country, said: “I developed differences with PM’s Principal Secretary Azam Khan nearly six months ago”. He claimed that his advice to the Premier “to establish a “strategic resource unit” to “transform the country”, where the bureaucracy’s role is reduced to “execution of policies” was opposed by Azam Khan who allegedly said, “We run the government and there cannot be an alternate system”. Mr. Tareen said that the Prime Minister “tried his best but his Principal Secretary did not budge”. Mr. Tareen reconfirmed in the interview: “After losing 2013 elections…I told Imran Khan that we would have to bring in our fold ‘electables’ as 60% members in the Punjab Assembly belong to this class”. He took credit of PTI’s victory in 2018 through ‘electables’, whereas the Opposition calls Imran Khan, “selected Prime Minister”!

In the wake of sugar and wheat inquiry reports, nothing worthwhile has happened. There were only cosmetic changes, some adjustments in the Cabinet and team of advisers. This proves the existence of an unholy anti-people alliance of law-makers, law-keepers and law-breakers that is the root cause of failure of democracy and dominance of State Oligarchy. The nation was asked to wait till April 25, 2020 for “suitable action” against the culprits after forensic audit. Since then we have witnessed further price hikes leading to increasing the miseries of the less-privileged and no concrete action against the accused. We heard the same kind of promise in the case of a real estate tycoon, who later not only escaped punishment but was allowed to pay proceeds of crimes in easy instalments. This is the reality of much-trumpeted accountability process in the Land of Pure.

The common people, though highly frustrated due to apathy of successive rulers, military and civilian alike, are not coming out on the streets or willing to become part of rallies of Pakistan Democratic Movement (PDM). They are fully aware of their agenda, past conduct and unprecedented plunder and loot of the country during their years in power. The majority of masses is struggling to meet the rising cost of life and there in no national political party that can mobilise them for becoming a mass movement to change the existing oppressive, pro-rich and elitist state structure.

In these bleak days, the indomitable State Oligarchy is totally indifferent to the miseries of millions and is enjoying as in the past unprecedented tax-free perquisites. The powerful in the Land of Pure live in palatial homes with free utilities, servants, subsidized facilities of golf and clubs, rest houses etc—just to mention a few; while they are living lavishly at the expense of taxpayers’ money. In short, the sufferings of the poor are increasing with each passing day.

On almost daily basis, the higher judiciary criticises the government for not doing enough for the citizens and reprimands all institutions, especially National Accountability Bureau (NAB) for being inefficient. However, the fact remains that over two million cases are pending in various courts and tribunals (see details in Reforming judicial system, Business Recorder, October 23, 2020). They show great sympathy for the downtrodden, but never mention the unprecedented perquisites and benefits they get while serving and even after retirement, which are all exempt under clause (56), Part I, Second Schedule to the Income Tax Ordinance, 2001.

Even, the so-called powerful media cannot dare to expose the predatory elites for fear of persecution. The unholy alliance between State Oligarchy and politicians and unscrupulous businesspersons is the root cause of our many ills—undue subsidies to the rich, politically-motivated loan write-offs, tax evasions and then amnesties etc. Billions are lost annually due to this unholy alliance and now during extremely testing times, they are asking citizens to give more taxes for their benefit.

For businessmen-turned politicians and landed aristocracy, spending millions to win elections has been a rewarding investment—as conceded by even Premier Imran Khan back in 2018: “We need electables to come into power”. This class knows how to protect/expand their business interests after capturing state apparatus. This conflict of interest presents an ugly facet of our politics—holding public office to make policies for promoting own business empires. Sugar barons have been allegedly using money power as a weapon to become indomitable and render toothless those very institutions meant to safeguard public interest, enforce rule of law and act as watchdogs against wrongdoings of all. Such office holders engaged in self-aggrandisement, monopolisation and cartelisation feel that they are above law and institutions are their handmaids.

The rich and mighty tax evaders after getting two asset-whitening schemes in 2018 and 2019, given by PMLN and PTI, respectively, are enjoying another one, i.e. invest in real estate/construction by December 31, 2020 and no question would be asked about the source. However, the rich developers/contractors are not made bound to provide social security/health insurance to the workers as quid pro quo of extraordinary benefits. The people voted for PTI as it promised to take the powerful, greedy predatory elites and rent-seekers to task. Now they are disillusioned and wondering, why Imran Khan, contrary to his tall claims, is succumbing to money power. The Opposition is also not their choice—so for them a lesser evil is the only option!   

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The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).