KUALA LUMPUR (Feb 15): The government is overpaying for the raw sugar, which could be as much as RM64 million, under the three-year contract at US$26 per 100 pounds, according to the DAP.

DAP national publicity secretary Tony Pua had on Wednesday queried the government’s decision to sign a three-year contract in January this year to import raw sugar for US$26 per 100 pounds.

He said the purchase price was higher than the last traded price in December 2011 at US$23.42 per 100 lbs or 10% below the government’s purchase price?

“Based on the fact that Malaysia imports approximately 1.24 million tonnes or 2.73 billion pounds of sugar per annum, Malaysia would have overpaid by RM64 million,” he said Pua, who is MP for Petaling Jaya Utara.

To recap, Minister of Domestic Trade, Consumerism and Cooperatives Datuk Ismail Sabri announced in early February the government had sealed a three-year contract to import raw sugar for US$26 per 100 lbs.

Ismail said the government had to increase the subsidies for sugar sold in the country from 20 sen to 54 sen per kg. Consequently, the government would now have to pay RM567 million for sugar subsidy this year compared to RM262.4 million last year.

Pua said the government had locked in the purchase of sugar at high prices when the global sugar prices have been trending downwards.

After hitting a peak of US$29.47 per 100lbs in July 2011, the price of sugar has fallen consistently every month – US$28.88 (August), US$26.64 (September), US$26.30 (October), US$24.52 (November) to US$23.42 (December) per 100lbs.

Pua said a news report had on Feb 5 cited Macquarie Group Ltd as claiming “sugar prices may fall to as low as 18 cents a pound this year as a forecast surplus for the 2011-12 season becomes available”.

The report, quoting trader Olam International Ltd, added sugar supplies were set to outpace demand by 9.0 million tonnes in the 2011-12 season that began in October,.

“If sugar prices does indeed hit US$18 per 100lbs, then Malaysia stands to lose approximately RM491 million per annum. Had we bought at lower prices, instead of having to increase subsidies, Malaysia could have further reduced sugar subsidies without having to increase the price of refined sugar,” he said.

Pua said Ismail said Ismail had to explain why it was the government which had to commit and pay for raw sugar import when it should be the Malaysian sugar duopoly – Malaysian Sugar Manufacturing Bhd and Tradewinds Bhd which should importing the raw sugar at the lowest possible prices.

“Shouldn’t these companies be forced to compete and not be sheltered by the government from market risks?” he asked.