Anti-trust: Sugar lobby slapped with maximum fine

ISLAMABAD: The Pakistan Sugar Mills Association has been found guilty of anti-competitive behaviour and collusive activity that hurt consumers and restricted new entrants into the market and has been fined the maximum penalty of Rs75 million by the Competition Commission of Pakistan.

A provisional inquiry report by the CCP, made available to The Express Tribune, discloses that the PSMA – a group of 81 sugar mills – has been involved in preventing, restricting and reducing competition in the sugar industry.

The PSMA was also found indulging in bid rigging and influencing the government to restrict the entry of new players in the market.

Under the Competition Act of 2010, the CCP can impose a maximum penalty of Rs 75 million or ten per cent of the annual revenues of a company. The act prohibits businesses from entering into agreements that restrict competition in the market.

The CCP’s provisional report states, however, “in this provisional order, no order in respect of penalty is being passed and the same shall be decided by the Commission upon disposal of the case or if earlier permitted/directed by the Honourable High Court of Sindh or the August Supreme Court of Pakistan”.

The CCP has been restrained by the Sindh High Court and Supreme Court of Pakistan from issuing its final order after the PSMA sued the CCP and obtained a stay order. The courts allowed the CCP to conclude proceedings but restrained it from issuing a final order. The CCP has requested the SHC to vacate the stay and the SHC is taking up the case again on Tuesday.

The findings show that PSMA documents, confiscated by the CCP, indicated extensive institutionalisation of collusive behaviour in the refined sugar industry. The collusive behaviour appears so extensive that the forum of the collusion, the PSMA, can no longer be called just a representative of the sugar mill sector but it seems to be functioning as a business decision making body for the industry as whole.

“The association, by the approval of its members, has exceeded the mandate that an association normally enjoys and it has almost morphed into an equivalent of the business trusts of the United States back in the late 19th century,” said the enquiry report, alluding to the infamous “Robber Barons”.

The CCP states that sugar mills under the banner of the PSMA engaged in setting sugar cane prices, territorial division for sugar cane procurement, bid rigging in TCP tenders, establishing entry barriers by advocating restrictions on the opening new mills, setting sugar prices by making estimates and indulging in collective targeted and desired price negotiations.

The confiscated documents indicated that the sugar mills, rather than competing in the open market prefer a closed and protected market which is managed collusively and collectively by PSMA. “The PSMA apart from being in breach of its mandate appears to be acting in violation of Section 4(1) of the Ordinance by acting as a front for a cartel in the sugar industry.”

The documents show that the PSMA and its members shared information on current costs as well as prices and then worked out the future price of refined sugar as well as possible future cost of purchasing.

Though the PSMA has obtained a stay order from the courts, when the enquiry first began, it had initially intended to seek leniency – seen by some as an indirect admission of guilt.

“On November 16, 2009 the PSMA showed the intention to seek leniency and reposed full confidence on the CCP. The intention was shown by former Chairman PSMA, the incumbent one and Vice Chairman of Punjab zone.”

TCP gets tough

Other government agencies are also taking action against the sugar industry, seen by some observers as politically well-connected.

On Monday, the Trading Corporation of Pakistan – the government’s commodity trading house – is set to initiate legal proceedings against six sugar mills for defaulting on sugar deliveries despite receiving full payments.

In fiscal year 2009, the TCP bought sugar from various mills but eight of them defaulted supplying on 85,000 metric tons. Out of the eight, two sugar mills cleared their dues by the Thursday deadline set by the TCP.

“The TCP will file cases against the respective sugar mills for materialising the recovery,” said TCP Chairman Sheikh Anjum Bashir.

source: tribune