Looking for scapegoats | Pakistan Today

Looking for scapegoats

  • Explanations weaken government’s stand

The two reports by FIA regarding the sugar and wheat crises raise more questions than they answer. Despite this the government’s propaganda machinery wants the whole country to be grateful to the Prime Minister for displaying resolve to punish those responsible for price hikes regardless of their political affiliations.

A prominent PTI leader and co-industrialists have been accused of exporting sugar, benefitting from subsidies and profiteering from rise in the domestic price of sugar. Similar allegations have been leveled against those who exported wheat and received subsidies. The opposition had accused the government of giving a free hand to the mafia in its ranks. Facing a tough time from the opposition and trying to prove it had nothing to do with the export or the rise in prices, the government ordered the FIA to investigate the issue.

Neither sugar nor wheat could have been exported without the government’s permission. So why blame exporters? SAPM Firdous Ashiq Awan has conceded that the Prime Minister had allowed the export of surplus stocks of sugar to support sugarcane growers with a condition that there will be no shortage of the commodity. Earlier Mr Jahangir Tarin had told media that the decision to export surplus sugar was taken by a committee presided over by the then Finance Minister Asad Umar and that the rise in the sugar price was caused by the government’s populist decision to enhance the sugarcane rate beyond a reasonable limit. The sugar price being lower in the international market it could not have been exported without the government’s subsidy.

The FIA report has held the governments of all the four provinces and federal agency Passco responsible for failing to meet the wheat procurement targets, thus causing wheat shortage. Former Punjab Food Minster Samiullah Chaudhry maintains that the decision to export wheat despite the shortage was made at a high-level meeting chaired by then Federal Finance Minister Asad Umar. The decision was subsequently endorsed by the Punjab cabinet presided over by CM Usman Buzdar, overruling Mr Chaudhry who opposed it

Conclusion: The Prime Minister, his former Finance Minister and the Punjab Chief Minister have to blame themselves for the consequences of their own decisions instead of looking for scapegoats.



One Comment;

  1. samir sardana said:

    Risk in the sugar business ?

    Y is “Sugar Daddy Jehangir Tareen (SDJT)”, in the Sugar business ?

    The misconception.

    It is no risk business.The CEO of the mill can see his raw material in the fields,from his glass windows.The owner of the raw material is waiting to sell ,he has to sell – as there is no storage and storage is not possible, and he has to sell to the nearest mill (to save on freight and moisture)- at the quality and other specs of the mills,and then awsit payments for months. Can there be a better business ? dindooohindoo

    The users of the end product are in the billions.The user in Pakistan WILL NOT PAY beyond a certain price – and they voted in the govtt.If some sugar mills close down – by strategy – the govtt will fall and there will be a Tahrir,as sugar stock draw down from Govtt warehouses takes time – and in riots – no logistics is possible. Even imports will take months,and then it has to be evacuated from the ports.

    Tbe user price can’t fall below a certain floor,as then the mills will close down,and there will no cane purchases,and also no cane payments for old bills.This also ensures no large scale imports.The cane growers,are also in the millions,and are another vote bank.So there is a cap-collar option on sugarr prices – for the mill owner.If prices fall,the state has to offset the losses for the mill,and also waive interest and warehouse charges and offer compensation equal to the opportunity cost of capital employed in the operations.Hence,the cost of the cap-collar options is borne by the state.There is no other business like this in the world.

    Any business which relies on the state,for policies – dooms the industry.As a result, the Pakistani state has no clue of the actual operations of the sugar and cane supply chain and value chain – from costing to manufacturing to stock.That is also to the advantage of the businessmen – as the perception of unviable sugar units,ensures that the sugar units can inflate costs and hide stocks.This ensures that they keep getting subsidies.drawbacks,capital subsidies,soft loans,trade swaps, power export and wheeling incentives etc., and also,they can create shortages and price spikes, at will, in any part of Pakistan.

    A doomed sugar industry,also,is in the interest of the sugar tycoon – as they can close down the operations of any marginally viable or loss making or vulnerable unit,at will, by choking off working capital,or a truckers strike or diverting the raw material supplies of the unit.This is enough to cause panic and doom,in the sugar wholesale market.

    Holding stocks of cane,bagasse and sugar for 8-9 months and delays in payment of power exports – has a number to it – in terms of working capital cost.It is not a risk,and is part of the Business Model of a sugar unit,and the cost of working capital,can also be waived off – as interest subsidy or CDR/OTS,as the State has an interest in keeping the polity in power.The fact that,at the time of making the procurement of material,the price of the end product 9 months ahead,is nor known – is also,not a risk,and is,instead an opportunity,as all costs are a pass-through to the state.

    Since cane is no brain business,there will always be excess cane production and excess sugar stocks,and since the state has to fix the purchase prices of cane and sale prices,in the open market – and also, the terms of loans and incentives to units – the state will always goof it up.

    When they goof – prices will spike – and that is when the mill owners sell the unaccounted sugar stocks.When there is a reverse goof,id.est,large stocks and working capital shortage – the mill owners push the state to export.At that time,the inflated cost sheets and perceptions of poor manufacturing operations and yields and storage losses,ensures the highest inflated cost.Highest inflated cost ensures maximum subsidy and also maximum ad valorem drawback.

    Drawback is refund of non vatable taxes acros the supply and value chain,and subsidy is the export price differential (on landed cost basis in a target market).

    Hence,the state is a PE co-investor in the sugar mill,with a sweat equity stake,and no voting rights and no dividend.What is better than that ? The cane growers are bankers to the mill who give clean credit for 8-9 months and accept all the deductions made by the mill.The Politicians are the “reverse fee clients”to the Consultants (mill owners), WHO PAU THE MILL (IN TERMS OF SOPS AND SUBSIDIES),FOR THE CONSULTING advice, given by the mill owners.

    In essence,the sugar mill is used by the polity,to make transfer payments to voters in agri areas – as an NGO – except that the NGO makes a CERTAIN INFINTE PROFIT % ON CAPITAL EMPLOUED

    Sugar mills get project loans at a 4:1 Debt.Equity Ratio,with capital and interest subsidies.If the project cost is inflated by 30% by using a mix of news and used machines, and 5% is paid to bankers and netas – then the equity is nil or negative.

    The mill owner has 2 income streams – Profit and Bonus.Bonus is selling unaccounted stocks,in price spikes,and earnings on export subsidies and drawbacks (on inflated costs and hawala exports and bogus exports).Profit is the cash profit earned,as the book profit is all bogus,as costs are inflated.A Sugar mill profit has not to be assessed quarterly or yearly,but when the entire supply and value chain of a crushing season,is conclusively liquidated and realised – net of all working capital costs.
    This makes the ROE,financially incalculable.

    WW3 or N-War or Covid – U need sugar.A human cannot eat palm oil or wheat or rice – as such – but can live on just sugar for some time.There is no business like sugar..Which is Y “Sugar Daddy Jehangir Tareen (SDJT)”,is in the Sugar business. He has found buyers in the Taliban ? Sugar and Nuts = Ideal food for the mujahid.

    Bumper cane crop = good news for neta,as farmers happy and cane rates not hiked much for mill owner,and the netas are sure that retail rates are low.Disaster is for the state treasury,as large stock pile will be eaten by rats,or dumped in Kabul,with huge subsidy payments.Neta is happiest

    Bad Cane Crop = doom for neta and retail and economy.Imports will take time and the state will goof up,and retail will price in hike,3-4 months before import orders are placed.Marginal cane mills are also doomed – farners will just die.But mill owners who have plantations (as all karge units have – on principles of Strategic sourcing and backward integration into plantations) will thrive,as they will have captive supply,and will engineer farm riots and suicides,to rig up cane prices – which is a pass-through to the state – on marginal and imputed costs.Then SDJT will tell media – “How do I gain by increased sugar prices” with a non=plussed expression – only for the cameras.

    A sugar mill is a power plant,which also,incidentally makes sugar,and the price of the raw material,is a pass-through (to the state – on a loaded marginal and opportunity cost) and the by-product (sugar) supply chain,can be choked at any time,by the mill owners.

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