Pakistan – At the Mercy of Cartels and SROs

Big businesses usually rely on direct dealing with lynchpins in Pakistan's important ministries as well as those who are key to decision-making. And the most common tool for extracting benefits is Statutory Regulatory Order.

Posted on 04/9/20
By Imtiaz Gul | Via Daily Times

The FIA report on sugar and wheat flour crisis came as no surprise. Surprising, nevertheless, was another round of finger-pointing among the three mainstream parties, PML-N, PPP and PTI.

This accusatory mode suits all the vested interest i.e sugar producers because it easily masks the sinister cobweb of mighty cartels that operate across the country as a well-knit entity – regardless of political affiliations of the mills’ owners. That is why like many other countries, developing ones in particular, various mafias various rule Pakistan too. Sugar, cement, pharmaceuticals, wheat flour, automobiles, textiles, petroleum products, fertilizers, independent power producers, and poultry cartels, just to name a few.

They suck the blood out of public kitty as well as the public itself in two ways; subsidies, and price increases.

For this, these cartels draw on: Indirect Political influence within the incumbent government (Jehangir Tareen, Haroon Akhtar for example), Direct Political influence – when they occupy important government positions (Khusro Bakhtiar, Razzaq Dawood, Moonis Elahi, Hamayun Akhtar, for example).

Collusion with bureaucracy (within the ministry of food and agriculture, ministry of finance). Big businesses usually rely on direct dealing with lynchpins in these ministries as well as those who are key to decision-making.

And the most common tool for extracting benefits is Statutory Regulatory Order (SRO).

A detailed study of losses caused by SRO for the Indus Consortium reckons that the cumulative losses because SROs (exemptions, non-taxation of benefits given to elites) during the last four decades could come up to over Rs. 100 trillion.

At one stage in 2013, about two dozen SROs were in force, largely to suit civilian and military-owned enterprise under various pretexts, a subject Dr Ikramul Haq has constantly raised in his columns to underline how the these SROs have been used as one of the instruments of the elite capture.

Sugar exports at what cost?

The trajectory of exports of items such as sugar in the last three decades shows that major beneficiaries of price hikes and subsidies under various governments were the mill owners close to their respective patrons i.e. political parties and the military. But mostly they would have their way regardless of which party they were close to.

The fact that family concerns of Jahangir Tareen ( six sugar mills) and Khusro Bakhtiar ( four sugar mills) together pocketed nearly 29 percent of subsidies ( almost Rs.7 billion) between 2015-2018 abundantly explains that both families remain well entrenched – regardless who is ruling the centre and the provinces.

Also evident is the total Rs.25 billion subsidy that went out to the sugar cartel, including to the units of the Sharif family (ca six percent) between 2015-18 during the PML-N government.

The aforementioned families have been the major beneficiaries of the latest sugar scam as well – sharing as much as 56 percent of total subsidies among themselves.

Back in 1999 the then Sharif government had paid sugar exporting mills a rebate of Rs. 5000 per ton. Then Finance Minister Ishaq Dar During instantly flared up and lunged into a furious response when I asked him to name the sugar mills that had received the bulk of this rebate for half a million ton sugar.

Are you suggesting we paid the rebate to our sugar mills, he hit back at me.

Successive PMs and their finance ministers in this country have also used special permits for sugar/wheat flour/ fuel and edible oil exports to Afghanistan for quick bucks.

Back in 2008-09, one such sugar export permit yielded a net profit of Rs.50 million.

One can imagine who would have made how much money off such special permits all these years!

The oversight through its Action by the Financial Action Task Force (FATF) in a way has come as a blessing in disguise for this hapless country where the unholy nexus of cartels comprising politicians, generals, bureaucrats, industrialists has milked country’s resources to the hilt.

Why does the bureaucracy and sugar cartels, for example, stick to the 42 percent regulatory duty on imported sugar which is considerably cheaper than the local product? Probably because they will lose a) monopoly, and b) subsides (both local and export).

Arshad Abbasi, a water and power expert, reckons that by heavily subsidizing the sugar industry, the state of Pakistan is actually allowing massive abuse of the country’s water resources.

“Exporting sugar means exporting water and this may one day be used against us during our water fight with India,” Abbasi said. But the manipulative power of the system – cartels, SROs and Special Permits – is probably much more entrenched than the FATF Action Plan or Prime Minister Imran Khan’s resolve against them. Khan rode into power on the back of some of these beneficiaries of the status quo who hold personal interests much more dearer than those of common people and Pakistan.

This article first appeared in Daily Times. Click here to go to the original.

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