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ISLAMABAD: The Competition Commission of Pakistan (CCP) has "unearthed" a cartel in the sugar industry through an extensive enquiry, which concluded that the Pakistan Sugar Mills Association (PSMA) has been acting as a front runner for cartelisation in the sugar industry since 2010.

According to the CCP's enquiry report issued Wednesday, the report concluded while determining the causes behind the sugar shortage/crisis and price hike that the sugar mills were using the PSMA platform to take a collective decision to use exports as a means of sustaining or controlling prices or "keeping it stable".

The enquiry has concluded that the recent hike in sugar prices appears to be the direct result of misreporting in sugar stock positions (of which PSMA was aware of) that led to a decision to delay sugar imports.

The enquiry report observed that the decision not to import in a timely manner caused a rise in sugar prices between, July to September 2020 by Rs11.6 per kg.

The CCP has the evidence that indicates that in 2019 only, the domestic price of sugar hiked by Rs18/kg due to the commodity's export, while the sugar barons made an additional gain of Rs40 billion in revenue in addition to payment of Rs29.22 billion as subsidy to them.

The enquiry report said that evidence gathered during raids on the premises of the PSMA and the JDW Sugar Mills seems to suggest these anti-competitive activities have continued since 2010.

It appears that starting from 2012 to date, the conduct of PSMA and 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, which is a prima facie violation of the Competition Act. Furthermore, this reduction in domestic stocks/supplies leads to an increase in or maintenance at desired price level in the relevant market, as admitted by the PSMA through evidence available, which constitutes a prima facie violation of Section 4(2)(a) of the Act by the PSMA members.

The enquiry report said that from the evidence available, it appears that since 2017 PSMA Punjab Zone has created zonal divisions for the purposes of coordination among respective mills on local sales as the phrase "Sales committee comprising of one member from each zone to meet periodically" indicates. Share of each zone versus total production in Punjab is mapped out, which shows that the coordination in sales is based on share in production. Stock positions of each mill, in each zone are mapped out on a monthly basis, while mills are also coordinating for start of crushing activity in the respective zones.

"This zonal division and coordination on sales, stock positions and production quota appears to be none other than monitoring the position with respect to each mill to control local sales and quantity to be sold," the enquiry said.

It further revealed that from as far back as 2012 to July 2020 there has been continuous involvement of the PSMA in collection and coordination of stock positions among its member mills to control supply and price of sugar in the market.

The coordination of stock positions is also used to influence policy decisions regarding exports and import. The price of any commodity is a function of demand and supply, and typically, a cartel can increase or maintain price levels by controlling supplies.

From the evidence available, it appears that since 2012, the platform of the PSMA is being used by its member mills in Punjab Zone to share stock information among themselves, which is considered as sensitive commercial information and such information having a direct bearing on the current and future price of sugar, thereby, used to control prices and restrict and distort competition in the relevant market.

The enquiry has further revealed that for tender of 20,000 MT of sugar (closing date of which was 28th March 2019) it appears that mills of PSMA Punjab Zone took a collective decision to fix and divide the quantity of sale, among the members mills who participated in the tender, thus, prima facie violating Section 4(1) read with Section 4(2)(c) of the Act.

For tender dated March 20, 2010 for 100,000 tons of sugar, it appears that vide its letters, dated 26th and 29th March 2010, to USC, PSMA, and its members have taken a collective decision on dividing and sharing quantity to be supplied, which is a prima facie violation of Section 4(1) read with Section 4(2)(c) of the Act.

From the evidence available, it appears that during the crushing season 2019-2020, the PSMA Punjab Zone ceased to crush sugar from 30th December 2019 to 11th January 2020.

It is evident from the data received from the Cane Commissioner Punjab, this closure was a collective decision on part of the PSMA Punjab, wherein, 15 mills appear to have ceased crushing on the call of the association. Evidence impounded from the PSMA indicates that during this period, the PSMA Punjab held back to back meetings with the agenda of sugarcane procurement.

The purpose of holding these meetings appears none other than to coordinate on taking decision on crushing and procurement of sugar cane as merely procurement is a commercial decision and does not appear to hold relevance for collective deliberation using the association platform.

Therefore, prima facie PSMA Punjab Zone particularly the 15 units named by the Cane Commissioner Punjab, are taking a collective decision on procurement. Based on the evidence available with CCP, the enquiry report has concluded that the PSMA and its member mills are engaged in collusive practices and recommended issuance of show cause notices to the PSMA and its member mills, the report added.

Copyright Business Recorder, 2020