After releasing a report on sugar mills, the Competition Commission of Pakistan is now investigating the wheat sector, said chairperson Rahat Kaunain Hassan. CCP issued show cause notices to 84 sugar mills and Pakistan Sugar Mills Association on the charges of cartelisation.
CCP chairperson, Rahat Kaunain Hassan, said that currently an inquiry into the what sector is ongoing, similar to that in the sugar industry. Search and inspection have also been carried out. She added that CCP has also recommended measures to enhance economic efficiency and eliminate distortions in the wheat sector.
The Competition Commission of Pakistan (CCP) has issued show cause notices to Pakistan Sugar Mills Association (PSMA) and its 84 member mills on multiple instances of prima facie cartelization in violation of Section 4 of the Competition Act, 2010.
The show cause notices have been issued after the CCP decided to initiate proceedings under Section 30 of the Act on the recommendations of an enquiry into the anti-competitive activities in the sugar sector. The CCP’s enquiry has found multiple instances where the Pakistan Sugar Mills Association (PSMA) is acting as a front-runner for cartelization in the sugar industry. Evidence gathered during search and inspections conducted on the premises of PSMA and JDW Sugar Mills seems to suggest these anti-competitive activities have continued since 2010.
The impounded data included exchange of emails between a senior official of one of the Sugar Mill (Member of PSMA) and PSMA Punjab zone office bearers regarding 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.
Moreover, an analysis of the WhatsApp messages exchanged in a group of PSMA officials, the same senior official of that Sugar Mill was found to be in constant communication with regard 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.
Furthermore, 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 its members have been provided an opportunity of hearing to plead their case with reference to the prima facie specific violations indicated therein. PSMA and all 84 sugar mills prima facie violated the Act by collectively deciding to export sugar and thereby fixing the quantities of sugar to be supplied in Pakistan. Similarly, they also violated the Act by reducing stocks of sugar through exports; hence collectively raised and maintained prices of sugar in Pakistan.
Moreover, 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 quantity supplied in the market. In Punjab, 45 sugar mills used PSMA’s platform to share business sensitive information with each other.
Lastly, PSMA and sugar mills divided quantities of sugar in tenders issued by USC on various occasions. The CCP found 19 mills in Punjab to have violated the Act with reference to a tender dated 2019 whereas, 30 mills from all over Pakistan have been issued show cause for an earlier tender.
Cartels such as these have had indomitable strength in Pakistan, so much so that they disregarded Prime Minister Imran Khan’s warnings with regard to sugar and flour prices and instead hiked up prices significantly.
Getting encouragement from the government, the CCP conducted an inquiry report in which it was mentioned that Pakistan Sugar Mills Association – the representative body of the sugar barons, 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, revealed an official inquiry report. The 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 percent increase in the prices.
It was the second time in the last 10 years the CCP declared that the PSMA was a cartel but this time the nature of “crime” appeared more serious.
CCP Chairperson said that in her first term as member and chairperson the Commission imposed penalty of Rs 21.63 billion, whereas in the last seven years the Commission only witnessed imposition of penalty which was less than Rs 1 billion. She was of the view that imposition of penalty may not be the only criterion of effectiveness, but it surely reflects work done and enforcement actions taken. Chalking out any such plan of recovery requires clearance of the backlog of the cases. Subject to such judicial review, the mechanism of recovery of penalties is provided for within the legal framework of Competition Act, 2010. Nonetheless, I do strongly believe that pendency itself should not deter enforcement. While, the true impact of the decision may only be visible after judicial review, the Commission must carry on its work; what falls within its domain and what is due.
On the jurisdiction of CCP after 18 th amendment is in place, she said there seems to be some misconception in this understanding. It is CCP’s position that there can be no effective regulation of trade and commerce in Pakistan unless competition in trade and commerce throughout Pakistan is regulated. A free competitive market is at the heart of the concept of trade and commerce throughout Pakistan and its regulation in the interest of free competition is exactly what competition law aims at achieving. Hence, provincial autonomy is a distinct aspect, inter provincial trade and commerce remains a reality. Without judicial endorsement of federal power of regulated competition in trade and commerce throughout Pakistan; regulation of inter provincial trade and commerce would be rendered meaningless.
She pointed out the Federal Government will have to ensure payment to CCP of 3% of fee and charges levied by five other regulatory agencies that is long outstanding. The financial constraints result in resource constraints and are crucial for its effective performance. Ministry of Finance and Ministry of Law have been very supportive but so far it has not borne the desired result. The Commission continues to struggle with challenges.
Rahat said the governments need to recognize that they do not engage associations in negotiating prices or encouraging directly or indirectly any such practice which may subsequently be exploited by the associations for exchange of sensitive data. In the past Commission has cautioned on such aspect through its policy notes.