ECC’s double game set the stage for sugar subsidy

ISLAMABAD: Who was pulling the strings of Usman Buzdar to get Rs3 billion subsidy for sugar industry approved, is not documented in official files but it is now clear that none else than the Economic Coordination Committee of the Cabinet (ECC) set the stage for sugar mill owners’ windfall.

Not only that the ECC’s decision was referred to byboth the Punjab food and finance departments as supportive to the subsidy option, the provincial government sources said that the ECC did not share with the province all important calculations of the then secretary commerce Younis Dhaga.

These calculations, which were part of the summary moved by the secretary commerce for the ECC’s consideration, had clearly concluded that there is no justification for any subsidy whether by the federal or provincial government.

The secretary commerce’s summary contained a dissenting note of the PM’s Adviser on Commerce Razak Dawood but the ECC had decided that the federal government would not give any subsidy on sugar. Although not highlighted before, it was Shahid Khaqan Abbasi’s government, which in 2017 decided that no sugar subsidy “shall” be given in future by the federal government.

What the ECC conveyed to the provinces will be discussed in the later part of the story but the following is the crux of what the Younis Dhaga conveyed to the ECC.

Informed official source though avoided sharing the copy of the summary moved by secretary commerce for the ECC, read it out for The News. According to the summary, the Minister for National Food Security and Research and Adviser to PM on Commerce, Industry, Textile and Investment held meetings with the representatives of Pakistan Sugar Mills Association and representative of Kissan Ittehad on 28-11-2018 and 29-11-2018 to resolve the issues facing the sugar industry so that sugar mills start their production at the earliest.

The ECC was told that during the meeting the representatives of PSMA presented the following demands:

i. Conditions for export of one million tons of sugar be relaxed. Moreover the exporters of sugar may also be allowed to sell additional one million tons of sugar in the local market without payment of sales tax on the pattern previously notified under FBR’s SRO 77(I)/2013 dated 07-02-2013. Furthermore, the export quota be enhanced by 0.1 MMT

ii. TCP may be directed to procure 250,000 tons from the sugar millers

iii. Federal government may immediately release Rs2 billion outstanding subsidy to SBP; and FBR may charge the sales tax on the prevailing ex-factory price instead of charging at a price of Rs60 per kg.

On the above, the secretary commerce pointed out in the summary that in the previous year freight support on export of sugar was given on sliding scale based on the differential between the domestic cost production of sugar, which was provided by the Ministry of Industries and Production, and the international price of sugar.

Then Younis Dhaga, while referring to the calculations submitted by the Ministry of Industries and Production, underlined that provision of freight support (subsidy) is not justified. These calculations were also annexed with the summary.

He added that the proposal of the sugar industry to sell additional one million tons of sugar in the local market without payment of sales tax would tantamount to payment of additional fixed subsidy of around Rs6.60/kg on export of sugar. The secretary commerce added that the ECC of the Cabinet in its decision dated 28.11.2017 on freight support for export of sugar had decided that the federal government shall not provide any freight subsidy after crushing season 2017-18.

As regards procurement of sugar by TCP, the summary mentioned that similar decision was taken by the ECC/Cabinet last year, which did not materialise.

Strangely, the ECC though agreed to what Younis Dhaga had recommended against subsidy, not only the cabinet body allowed sugar export of 1 and 0.1 million tons on the recommendation of Razak Dawood led Sugar Advisory Board but its compromising decision on subsidy was conveyed to the provinces.

The FIA inquiry report also raised the question how the export of sugar was allowed when, during the same ECC meeting, secretary National Food Security had raised the issue that the low production of sugarcane was expected in the upcoming season due to water shortage. “Despite that the export was recommended and without making it time bound,” the FIA report said.

However, what the FIA report missed was the compromising minutes of the ECC conveyed to the provinces and that too without all important input of Younis Dhaga against the subsidy.

While allowing export of sugar despite federal food secretary’s warning, the federal government conveyed the following ECC decision to the provinces.

“The ECC underscored the importance of providing relief to farmers by ensuring start of crushing by sugar mills at the earliest. It was also decided that since the entire issue of freight support arose due to varying procurement prices of sugarcane fixed by provincial governments, therefore, the freight support may be determined/paid by the respective provincial governments, if deemed appropriate.”

Sources in the Punjab finance department, which strongly opposed the subsidy despite the above decision of the ECC conveyed, confided to The News that if the ECC had conveyed the federal secretary commerce’s note it would have been impossible to allow Rs3 billion subsidy.

These sources said that Buzdar was just acting on the dictates of some influential, who were named by these sources but not being reflected here by the newspaper. These sources said that the role of ECC was no different from Usman Buzdar.