PSMA rejects inquiry commission's report

Pakistan Sugar Mills Association (PSMA) has rejected the findings, conclusions and recommendations of the report by the Sugar Inquiry Commission (Commission) and termed it a "premeditated exercise to malign a lawful and taxpaying industry that has an enormous social and economic contribution in Pakistan."

According to Aslam Faruque, chairman PSMA, the association also strongly objected to the "unnecessary" publicity being given to the report for "extraneous" and "dubious" reasons and ensuing "media trial" of the entire sugar industry.

He blamed the Commission for repeating the mistakes of the earlier Committee and targeting a whole industry with generalized and unsubstantiated aspersions and allegations. They attributed it to the same members from initial Committee leading the Commission again.

He said the report is "farcical" and "deliberately twisting the facts to suit the pre- conceived conclusions of the Commission." All written submissions of the PSMA were completely ignored by the Commission, which continued to demonstrate the same basic ignorance as the Committee regarding commodity markets in general and sugar sector in specific.

"Glaring, elementary and conceptual errors have been committed by the Commission, including the following:

(1) The Commission has incorrectly alleged, without any proof or evidence, that difference between sugarcane produced and sugarcane crushed is due to "off-the-books" purchase. In fact, as also acknowledged by the Commission, a significant portion of the difference is due to production of "Gurr" which is not documented/verifiable. Furthermore, at least 10% of sugarcane production is retained as seed, fodder and other miscellaneous purposes and never sold to mills."

Expounding further on one of the biggest fallacies in the report, PSMA called the costing exercise carried out by the Commission as completely "nonsensical" and "fictitious". It added that even finance costs which constitute almost a one-third of the cost of the sugar industry after sugar cane payments have been excluded by the Commission with no plausible reason or "justification". It questioned how an industry that has to pay for raw material in three months and sell its end product over 12 months can work without finance costs.

"The primary intent behind the Commission's approach seems to be to calculate an artificially low cost of production has then been used as a basis to substantiate and reiterate the incorrect allegations earlier raised against the sugar mills in the Committee Report of March 24, 2020" said Aslam Faruque.

"No business can survive on the production cost model like the Commission suggests, and even that was calculated entirely wrong. The technical and accounting incompetence of this exercise is mind boggling". He challenged the Commission to justify/prove its treatment of by-products and exclusion of genuine costs in the costing model before any competent accounting forum.

He also strongly criticized the "attempts" of the Commission to cast suspicion on declared and genuine sales and advances from buyers and reclassify them as "benami" and "satta" transactions without any proof or evidence. "Having failed to find any concrete evidence of wrongdoing by the mills in the forensic audit, this seems like a desperate measure to vilify the sugar mills. With the same intent, the Commission has also veered off into irrelevant and extraneous topics which have no nexus with its mandate". PSMA reiterated that sugar mills are not (and cannot be held) responsible and blamed for prevailing transaction modalities and systemic issues and shortcomings in the downstream sugar sector.

Furthermore, the Commission has "shockingly" labeled each and every government and private institution in Pakistan as incompetent, unreliable or corrupt in its working. It has questioned the authenticity of business activities that were supervised / regulated by FBR, SECP, Cane Commissioners, District Governments, Industries Department (Punjab), Federal Ministry of Industries, Competition Commission, Chartered Accounting Firms, State Bank of Pakistan and even at times IB, Special Branch and FIA. "Are all the officers of these institutions supervising their relevant activities across Pakistan wrong and unable to catch errors in 82 mills across Pakistan? What image are we giving? of our country and will all involved be equally investigated along with sugar mills in the aftermath of the report?" the chairman asked.

The Chairman claimed that the genuine issues faced by sugar mills were also not given any due consideration. The Provincial Sugar Factories Control Act, 1950 is being applied in a piecemeal and unfair manner, whereby only a minimum support price of sugarcane is notified annually with no cap on price for sugar cane in seasons where there is increased competition for cane. "As stated earlier by PSMA, either the fixation of minimum support price of sugar cane under the Provincial Sugar Factories Control Act, 1950 should be discontinued, or a price of sugar commensurate to the minimum support price of cane be also set when announcing the cane support price. Liquidity problems on account of delayed payments by the government agencies of energy purchase charges, tax refunds and export subsidies, etc., should also be resolved. Instead of recognizing that prevailing issues were actually caused by flawed and defective regulatory policies of the Government(s), the Commission has in fact recommended even more impractical and unrealistic regulatory proposals which are unprecedented for any business sector and, if implemented, will bring the sugar industry to a standstill," he said.

He said the PSMA has strongly refuted the allegations of widespread "mistreatment" of growers and questioned why and how, if the growers were not being paid their dues fully and on time, sugarcane cultivation continued to grow year on years in the country for so many years. Furthermore, the increased yearly production of sugar was greatly enhanced by increasing grower productivity which was directly attributable to the hard work of the farmers and the technical and financial cooperation and assistance of the sugar mills with them.

Aslam Faruque questioned the entire premise of the exercise that was carried out, saying that there was never any shortage of sugar. "Before the export policy of the PTI government, sugar mills were going out of business and sugarcane growers were in desperate straits. This government should take the credit that it has brought balance back to the sugarcane economy with exports. An investment of Rs.3 billion by the Punjab Government to facilitate exports not only earned approximately Rs.50 billion foreign exchange for the country in a time of desperate need but also the farmers got roughly Rs 60 billion more than the minimum support price from the sugar mills in 2019-20 season.

According to him, "these were only initial remarks" adding that the association would share a more detailed response to the contents of the report in due course.