Appeals by PSMA, member mills: CAT remands case to CCP for fresh hearing

ISLAMABAD: The Competition Appellate Tribunal (CAT), while deciding the appeals filed by the Pakistan Sugar Mills Association (PSMA) and its member mills, has remanded the case to the Competition Commission of Pakistan (CCP) for a fresh hearing in the case of cartelisation, price fixing and market manipulation.

In its short order on Friday, the Tribunal directed that the matter be reheard by either the Chairperson or any other member of the Commission who was not a signatory to either of the earlier conflicting opinions, and that a final decision be issued preferably within 90 days.

After the fresh hearing, the decision of the Chairperson or the assigned member will settle the matter and determine the violations of competition law by PSMA and its member sugar mills.

The CCP’s original 2021 order was issued by a four-member bench that was evenly split in its opinion. Two members, including former Chairperson Ms Rahat Kaunain Hassan and Member Mujatba Lodhi, supported the imposition of the penalty, while the remaining two members including Ms Bushra Naz Malik and Shaista Bano issued a dissenting opinion.

To break the deadlock, the then Chairperson Rahat Kaunain exercised a casting vote under Subsection 5 of Section 24 of the Competition Act, 2010, through a note dated August 13, 2021—effectively converting the stalemate into a majority ruling that upheld the penalty.

The legality of this casting vote became the central issue in the appeals. The Tribunal has now ruled that the Chairperson has no authority to exercise a casting vote in quasi-judicial proceedings under the Competition Act, 2010. As a result, the Chairperson’s opinion based on the casting vote has been set aside.

In its 2021 order, the CCP stated that the sugar mills were found to be collectively deciding the quantum of exports, eventually controlling the domestic supply of sugar in the relevant market during the period 2012 to 2020.

The order said, “It has been observed that there was an absence of independent, timely, and accurate information-gathering framework to provide quantitative support in the government’s price controls mechanisms for essential commodities.”

In August, 2021, the CCP imposed the highest-ever penalty of Rs 44 billion on PSMA and its member sugar mills for cartelisation, price fixing and market manipulation. The penalty has been imposed on the calculation of turnover of 55 sugar mills for the financial year 2019, with the PSMA facing a maximum penalty of Rs 300 million. For each of the four violations committed by the association, a penalty of Rs 75 million was imposed, resulting in a total of Rs 300 million.

Meanwhile, a fixed penalty of Rs 50 million has been imposed on each of 22 sugar mills for collusively participating in the tender issued by the Utility Stores Corporation (USC) in 2010.

The Commission initiated an enquiry into alleged cartelization and price in sugar industry in December 2019, which found that PSMA and its members were controlling domestic sugar supplies by coordinating on sales, stock positions, production quotas, and sharing sensitive commercial information.

The CCP also found that certain mills used PSMA’s platform to collectively decide on sugar supply for government tenders and even decided to cease crushing activities in a coordinated manner. The CCP conducted raids at PSMA offices and the premises of certain sugar mills, and impounded a number of evidentiary material including smart phones, computers, documents and files.

The enquiry committee on examination of impounded data found that PSMA and its member mills were actively involved in discussions related to cartelization, collusive activities, and future planning to keep sugar supply limited. The Commission also found that PSMA Punjab Zone, particularly 16 sugar mills were indulged in collective decisions pertaining to purchase of sugarcane, production of sugar and sale or trade of sugar, which have restricted competition in the relevant market.

Evidence available with the CCP showed that from 2012 to 2021, PSMA devised a collective strategy to reduce domestic sugar stocks through exports with the purpose to achieving desired domestic price levels. Whenever exports were allowed, price of sugar in the market increased. This is especially notable in the consecutive four months from March to June 2019 when as a consequence of sizeable export volumes, per kg price of sugar increased by Rs3/kg each month. Overall, during 2019 the cumulative price hike was Rs18/kg.

Further evidence revealed that PSMA and its member mills were cognizant that exports would lead to two pronged benefits for them, export earnings and subsidy payments, and achieving desired price levels in the domestic market.

Meanwhile, price data suggested that whenever the exports were made, domestic prices faced an upward pressure. Calculations showed that the benefit accrued to mills on account of rise in domestic prices due to exports alone was approximately Rs 40 billion in revenue during the period Feb-19 to Sep-19. It would relevant to add that an amount Rs 29.22 billion was also paid as subsidy.

According to the CCP enquiry report, despite the depressed picture of the industry portrayed by PSMA financial statements of various companies suggested that they were making profits. Published accounts of a sample of 16 sugar mills, from 2017 to 2019, revealed that the sugar mills were earning profits from their operations. Average gross profit margins were 11%, 8% and 13% in 2017, 2018 and 2019 respectively. Average net profit margins were 2.8%, 0.4% and 2.4% respectively.

It is worth mentioning that the CCP has been giving policy level recommendations time and again for a better, more efficient and competitive sugar sector in Pakistan. In its policy notes issued in 2009, 2012, and 2021, the CCP recommended the federal and provincial governments to deregulate the sugar sector, abolish minimum support, allow market forces to determine prices, and lifting restrictions on the establishment or expansion of sugar mills to encourage competition.

Copyright Business Recorder, 2025