Cartelization: CCP imposes Rs 44b penalty on sugar mills

ISLAMABAD:  The Competition Commission of Pakistan (CCP) has imposed its highest-ever penalty of Rs44 billion at the sugar mills for cartelization, price-fixing, and market manipulations.

The penalty has been imposed on the calculation of turnover of 55 sugar mills for the financial year 2019, while the maximum penalty has been imposed at the Pakistan Sugar Mills Association (PSMA). These sugar mills are operating in Punjab, Sindh, and KPK.

The order issued by the CCP here Friday, imposed a five of Rs300 mn on the PSMA, as the maximum penalty of Rs75 million was imposed for each of four violations committee by the Association.

The CCP has directed the Pakistan Sugar Mills Association (PSMA) and sugar mills to discontinue and stop the violations highlighted in the order and deposit the penalty within 60 days.

On the other hand, the PSMA has issued a press release stating that the CCP decision was not a final order as two members did not adhere to the point of view of the Chairperson, and voted in favor of the sugar mills and the PSMA.

The PSMA has said that the chairperson of the CCP does not have the power to cast a second vote in the proceedings as per the Competition Act.

Meanwhile, the CCP order states that the sugar mills had collective decisions regarding the quantum of exports, eventually controlling the domestic supply of sugar in the relevant market during the period 2012 to 2020.

The CCP has said that the government lacks the means of cross-checking this information due to capacity constraints.

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

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“As a result, the policy-making is on questionable sources of information,” the CCP has said, adding, “Instead, policy decisions that affect the lives of all citizens are taken largely relying on the questionable input received directly from the relevant industry associations or groups of suppliers, wholesalers, or retailers who have a vested interest.

Besides a fixed penalty of Rs50 million has been imposed on each of 22 sugar mills for collusively participating in the tender issued by the Utility Stores in 2010.

The divided order has been passed by the full four Member Bench of the Commission, including the chairperson Rahat Kaunain Hassan and three members Mujtaba Ahmad Lodhi, ShaistaBano, and Bushra Naz Malik.

However, two members, ShaistaBano and Bushra Naz Malik recorded a dissent note over the order and after the deadlock situation, chairperson Rahat Kaunain decided to approve the order. This is also the first time the Commission has passed a split decision.

Earlier the CCP had approved a provisional order against the sugar sector in 2010, but the proceedings were stopped as the matter was still lying in the Sindh High Court. 

Earlier the CCP had issued Show Cause Notices to the PSMA and 84 sugar mills based on the findings of the Enquiry Report.

The hearings were held from January 7 2021 to May 26, 2021, for 80 mills while five mills decided not to appear or respond to the show-cause notices. The CCP has directed the mills that have not provided the turnover figures to provide it.

After the hearings, all the four members of the CCP agreed that the  PSMA and the Punjab sugar mills have been found to have shared commercially sensitive stock information amongst themselves.

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The CCP order highlighted that through discussion of supplies and stock of sugar, PSMA and sugar mills collectively pre-determined export quantities, as evidenced by the minutes of PSMA’s annual general meetings on record.

The order states that sugar stock information was a highly sensitive and critical subject, and it allowed mills to assess and coordinate on future sales volumes and pricing strategies, effectively distorting competition in an already highly regulated market.

“Punjab mills went even further to share and discuss the same between themselves through the establishment of zonal sub-committees and creation of a Whatsapp group,” the Order said.

With regard to the USC Tenders, the CCP order states that PSMA had gone beyond its role as an association and interfered in the award of the tenders by fixing quantities amongst certain member mills.

However the CCP took a lenient view for concerned mills in relation to the 2019 USC Tender as USC’s record showed that the tender was undersupplied and only awarded to 5 mills, who won the tender.

Whereas for the 2010 USC tender, the participating mills were found liable for collusive behavior as PSMA could not have acted without their consent/agreement.

“The Commission was of the view that protecting or promoting competition does not solely mean ‘having the lowest price’ and that the choice to participate in a competitive bid and the submission of bid rates are all independent commercial decisions to be made by each individual sugar mill,” the CCP order states.

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