Sugar inquiry report- the salient features of forensic audit

Billions of rupees earned by sugar mill owners through malpractices

Sugar cartels

The forensic audit report has confirmed the existence of sugar cartels. The report has revealed that six major sugar mill groups were acting as "cartels". "They hold 51 per cent of the total supply." JDW owned by Jahangir Tareen has 20% (the biggest share), RYK 12%, Al Moiz Group 6.8%, Tanliawal Group 5%, Sharifs Group 4.5% and Omni Group 1.6%.

Sharp increase in sugar prices

The sugar mill owners increased the sugar price from December 2018 to August 2019, where prices were hiked up to 33%, which, in rupee terms, translates to Rs 17 per kg. It was done to earn maximum profits. The consumers were forced to pay extra money to buy expensive sugar. The probe further revealed that for every rupee (Rs1) overcharged by the sugar mill owners, it resulted in Rs5bn more for sugar mills owners. It means sugar mill owners earned extra Rs 110 billion in one year. 

Subsidy paid to profit making mills

The government paid Rs29bn in subsidies to sugar mill owners in last five years. Rounded off, the government was actually paying Rs20bn to mill owners to run their already profitable sugar mills.

Manipulation of cost of production

In 2017-18, sugar mills determined the cost of production at Rs51 per kilo whereas the report gave an estimate of Rs38 instead, a difference of Rs 13 per kg.

In 2018-19, sugar mills calculated cost price at Rs 52.60 while the report gave an estimate of Rs40, a difference of Rs 12 per kg.

In 2019-20 sugar mill price determination before taxation is Rs62, whereas the price determined by commission is Rs40.04 — a very clear difference of Rs 22 per kg.

Billions of rupees were amassed by sugar mill owners through the manipulation of cost of production.

Farmers exploited and looted

Sugar mills systematically paid extremely low prices-lower than even the support prices to farmers.

A support price set by the government at Rs 190; the farmers were only paid Rs140 all through 2019.

Almost all mills cut down sugarcane weight by 15-30%, which directly impacts the farmers, because by purposefully weighing it lower, the gain goes to the sugar mill owners.

It was found that some mills had a system whereby rough receipts were used. Instead of a CPR (computerised payment receipt), farmers are given unofficial receipts which are lower than Rs140. While purchasing, commission agents are used (as middlemen) which allows for sugarcane to be purchased from farmers at an even lower price.

Malpractices

The report has laid bare some startling revelations about how the price of sugar is fixed, how exports of the commodity are faked to avail rebates on sales taxes, and how billions of rupees were overcharged by sugar mills owners.

Many Sugar mill owners for years under reported the sale of sugar and sold the commodity to unnamed buyers and had committed violations under the Pakistan Penal Code.

Another anomaly discovered by the sugar inquiry commission was that though mill owners are supposed to sell sugar to brokers and receive payment in return, but brokers were not only sold sugar, they were also paid by sugar mill owners. 

It is believed that many times, sugar brokers were sugar mills' own front men and not regulated individuals who come under the tax net. The commission alleges that in this exchange of money, many illegal activities, such as money laundering, was being facilitated by the sugar brokers.

The report named Shahbaz Sharif's family, Jahangir Tareen, Khusro Bakhtiar and Moonis Elahi as major beneficiaries of sugar industry. The company owned by Shahbaz Sharif's family engaged in "double reporting". In 2017-18, the company raked in additional profits of Rs1.3bn and when 2018-19, they earned Rs780 million.

The sugar mills belonging to Jahangir Tareen's group were found guilty of "double billing" and "over-invoicing" as well as "corporate fraud".

The Alliance sugar mill which is owned by the RYK Group was also involved in under-reported sugar sales "for years" and sold the commodity to unnamed buyers. Moonis Elahi has 34% ownership of the group.

This sugar mill was also involved in systematic cut in sugarcane weight between 2014 to 2018,in which farmers faced an 11-14pc systematic cut, which translated into Rs 970 million.

Political connection

The report clearly exposed the close political connection between sugar industry and big political families. All the powerful political families in Punjab have interests in sugar industry. The powerful political families protect the interests of sugar industry and implement policies that help the sugar industry to earn extra billions of rupees every year.

The report named Shahbaz Sharif's family, Jahangir Tareen, Khusro Bakhtiar and Moonis Elahi as major beneficiaries of sugar industry.

Over stating exports

The report mentions in depth how the amount of sugar exported to Afghanistan is routinely inflated to show as if 75 tonnes of the commodity are being exported per truck. But in reality, a truck cannot take more than 30 tonnes of sugar. The inflated exports were shown to get export subsidy and to get tax rebates.  

For one, billions of rupees in subsidy are received from the government for the exports. Secondly, the higher the exports showed on paper, the higher the sales tax rebate a sugar mill owner can claim.

Tax rebates

Another important finding highlighted in the report is that sugar mills paid an estimated Rs22bn in taxes to the Government of Pakistan, but out of that total amount, Rs12bn was reclaimed in rebates. Hence, the net contribution was close to around Rs10bn.

                                                            Khalid Bhatti