ISLAMABAD: The Ministry of Industries and Production is likely to face a tough time at the Lahore High Court (LHC) on fixation of sugar price on allegedly made-up numbers.
During the crushing season, the Pakistan Sugar Mills Association (PSMA), Punjab chapter wrote a letter to the chief secretary Punjab on November 28, to ensure that the sugarcane is supplied to the mills at the support price, so that the government could be justified to fix the price of sugar.
The PSMA Centre also raised a similar issue with the then Industries Minister, Hammad Azhar, and in response, Mohammad Yasir Iqbal, on behalf of the minister wrote "it is clarified that the notified sugarcane price of Rs200 per 40kg announced by the provincial government is the minimum price, however, the actual price is determined by the forces of supply and demand."
On the one hand, the government stance was based on market mechanism but on the contrary soon after the crushing season was over, the federal government sent a letter on March 29, 2021 to the secretary ICI&SD department, government of the Punjab with a copy to the secretary to the prime minister, Prime Minister Office, Islamabad to fix a price in Punjab giving them allegedly distorted figures to arrive at either ex-mill price of Rs74.38 per kg with the expected retail price of Rs79.38 or an ex-mill price of Rs80.42 per kg with the expected retail price of Rs85.42 per kg and resultantly, government of the Punjab notified it on April 2, 2021 on the pretext of higher sugar prices.
The concern about the sugar price was never raised during the crushing season as the government did not want to intervene in the price of sugarcane, which was being paid to the growers as per response of the federal minister to appease the rural vote bank.
The cost of producing sugar remained far higher during the crushing season 2020-2021, wherein, sugarcane was purchased as high as 390/40kg in Punjab and about Rs435/40kg in Sindh.
Prior to issuance of the notification for fixation of price, chief secretary Punjab also held a meeting with the members of PSMA, Punjab asking them to provide 20,000 tons of sugar for Ramzan Bazaars at Rs60 per kg.
The chief secretary was informed that only the component of sugarcane in the price of sugar was about Rs72/kg and thus, it was not possible to fulfill the desire of the government as the component of sugar recovery also remained very low in Punjab as mills were forced to commence crushing through an ordinance of the government of Punjab, wherein, a penalty of Rs5 million was imposed on each day delayed violating the orders of the Punjab government.
Sugarcane crop had not achieved maturity by the time crushing was ordered to be resumed grossly impacting the average sucrose recovery.
The notification was challenged in the High Court and the court ordered to hold a consultation with the stakeholders; therefore, a meeting was held in the committee room of the chief secretary under the chairmanship of Additional Chief Secretary Punjab, wherein there was disagreement on two points, which was adopted by the Government of Punjab on the advice of the federal government.
The government had assumed the sale price of molasses at Rs40,000 per ton.
When the source of the molasses price figure was confronted, it was informed by the additional secretary industries present in the meeting to be taken from the internet, whereas, the PSMA requested to follow the data of Annex Cof the FBR to ascertain price of molasses.
The PSMA was of the view that the sale price of molasses was not more than Rs20,000 per ton.
The overheads were worked out as Rs9.012, whereas, the Ministry of Industries and Production (MoI&P) had itself given a figure of Rs12.90 to the JIT investigating sugar price hike as mentioned in para e(23) of the JIT report.
There was an overall difference of Rs13.52/kg of sugar relating these two components which remained disputed.
The LHC in its order dated 07.04.2021 WP 22977 has observed at para 4 as "before this court the petitioner side has not disputed the information and data used for price fixation except impact of the molasses and value of overhead charges".
During the court hearing on the same day i.e. April 07, 2021, the Government of Punjab being respondent was asking for the sugar under the pretext of Ramzan, wherein, the advocate representing the PSMA offered 20,000 tons on the impugned fixed price of Rs80 per kg as a gesture of goodwill; however, the respondent side submitted that requirement of supply to end consumer in Ramazan was not less than 155,000 tons.
The court directed for reconciliation and streamlining the relevant law for fixation of essential commodities price.
The court order was only meant to the extent of 155,000 tons at Rs80 per kg adopted by the government of Punjab.
The sugar industry of Punjab suffered a loss of about Rs2billion by selling at the government fixed price.
After the month of Ramzan, the government let the market flow at the market rates and suddenly in the Finance Act sugar was included in the third schedule, which created confusion thereby sugar price increase by three to four rupees.
The government in view of this increase has again issued a new advice on July 16, 2021 to fix the ex-mill price as Rs83.24 per kg with a maximum retail price of Rs88.24 per kg.
This time, the government is giving a new formula based on sugar sold in the country from December 2020 to May 2021 as declared in sales tax returns.
This again has been challenged in the court, which in its judgement of July 23, 2021 directed the federal government to convene a meeting on July 27, 2021 and advised that price should be fixed by following the same criteria (per MoI&P letter of March 29, 2021, wherein annex 1(B) was adopted).
The MoI&P had issued a letter to all mills asking for various components of the sugar cost, which comprised 15 questions including: sugar produced, crushing in tons, recovery rate, average cost of sugarcane, recovery rate of molasses, molasses produced, average sale price of molasses from December 20 to May 20, baggasse available after crushing, market rate of baggasse, recovery of mud in percentage, recovery of mud in tons, sale rate of mud, factory overheads, average profit and average sale price ex-mill.
The data was discussed at length in the presence of Secretary Industries, Additional Secretary Industries, Joint Secretary of Industries, and Deputy Attorney General besides members of the PSMA executive committee and a number of Zoom participants.
The government now has a clear picture to arrive at a correct costing but the government side is now deviating from the recovery adopted as per annex 1(B), which was 9.39 percent and now relying on the allegedly fudged field recovery of Cane Commissioner, Punjab which is being shown as 10.41 percent.
The sources said there are about two percent mills losses and it should be taken as 8.41 at best.
The PSMA has argued its case well and gave a cost of Rs105.76 per kg according to annex 1(B) of the government following the same criteria as per court directions.
Currently, sugar price is Rs97 per kg ex-mill, which according to millers is still far from averaging to break even during the financial year.
Now let the actual price of sugar be determined by forces of supply and demand as per MoI&P letter of November 20, 2020.
Copyright Business Recorder, 2021