Sugar millers yet to deposit Rs44bn penalty

Islamabad: The Pakistan Sugar Mills Association (PSMA) and its 81 member sugar mills have not yet deposited the cumulative penalty of Rs44 billion imposed on them by the Competition Commission of Pakistan (CCP) on August 31, 2021. When contacted, the PSMA spokesperson said, "We are going to challenge the CCP order in the high court within 60 days from the date of the issuance of this biased order".

The sugar mills cannot file their appeal/petition with the Competition Appellate Tribunal as the tribunal is still not fully functional due to an incomplete bench. The CCP's majority decision had found the PSMA and its 81 members guilty of certain prohibited cartel-like behaviour/conduct and causing "by object restriction" on competition in the sugar industry.

As a result of months long litigation at the CCP, the PSMA and its member sugar mills were slapped with the highest ever penalty of the CCP's history. Under the Competition Act, 2010, the CCP's orders are can be challenged within 60 days in the Competition Appellate Tribunal, which is dysfunctional at the moment. In August 2021, a summary was sent to the federal cabinet for appointment of a Technical Member in CAT; however, the agenda item was deferred.

Largest penalty ever of Rs44bn imposed on sugar mills, PSMA

As per sources, the PSMA is considering to challenge the order in a higher court through a writ petition. However, it is not yet known as what the 81 sugar mills are thinking about the order. It is worth noting that the CCP's order was a split decision as two of the commission's members recorded a different opinion on certain issues, thus, the commission was faced with a deadlock like situation.

Therefore, having duly considered the overall purpose and intent of the act, the attending public policy framework and consideration and the general public interest that the Act seeks to protect and enforce, the chairperson exercised her second and casting vote as envisaged under the act to break the deadlock. This is the first time the commission has passed a split decision.

The CCP's majority decision was premised on the principle that the competition law penalises certain conduct that has the object or effect of preventing, restricting, reducing and/or distorting competition in a specified market.

The two are distinct and not inter-related. Where a conduct is by object anti-competitive, there is no need to go into an effect-based analysis. This "by object restriction" on competition in the sugar industry is the ultimate conclusion reached in the majority decision of the commission concerning certain prohibited cartel-like behaviour/conduct by the PSMA and the sugar mills. It is important to note that the focus of the order is not on the increase in sugar retail prices.

Despite the misconception held by many, the commission does not regulate prices of commodities but instead, its mandate is to provide for free competition in all spheres of commercial and economic activity, to enhance economic efficiency and to protect consumers from anti-competitive behaviour.

List of sugar mills penalised by CCP unveiled

The first violation made out against the PSMA and mills in Punjab in contravention of Section 4 of the Competition Act 2010 (the "Act") is for sharing and discussing commercially sensitive stock information.

The stock information shared was mill-specific, frequent and shared on a real-time/fortnightly basis. What made such information commercially sensitive is the very dynamics of the sugar industry: the national demand for sugar has remained relatively constant, the product is homogenous, i.e., of the same kind, and it is an essential commodity, and sugar production happens only during three months out of the whole year, hence, supply of sugar for the remaining year is based on sugar stocks in the country.

As per economic theory, prices are generally set/ influenced by market forces of demand and supply. Against the above sugar industry backdrop, the stock position, itself, is highly sensitive and can be considered to be critical information as the availability/non-availability of stock leads to a rise/decrease of price levels in the market.

Even the perception of shortage of sugar in the market sends different market signals, affecting not only the availability of the product, but the price trends, as well. As stated above, demand/national consumption of sugar is fairly constant considering consumption data over the past couple of years; hence, it is the supply situation, which actually affects price of sugar in the market. Supply is the stock of sugar available for sale and since more sugar cannot be produced, sugar stock figures are determinants of future prices.

Copyright Business Recorder, 2021