CCP takes major enforcement actions during 2011

SOHAIL SARFRAZ

ISLAMABAD: The Competition Commission of Pakistan (CCP) took major enforcement actions during 2011 by exposing collusive bidding in public procurement in Pakistan and passed 16 orders against cartels and companies involved in anti-competitive behaviour, deceptive marketing practices, and violators of various provisions of the Competition Act 2010.

The one-year (2011) performance of the CCP indicated that one of the major achievements of the Commission was the passage of the Competition Act during the tenure of Ms Rahat Kaunain Hassan, Chairperson of the Commission. During this period, the representatives of all leading competition agencies gathered at a two-day international conference on the 'Competition Enforcement Challenges & Consumer Welfare in Developing Countries', jointly organised by the CCP and Competitive Support Fund (CSF) of the US Aid.

An important achievement was the completion of the structure of the Commission. The government re-appointed two members, and two new members during this period. So far, 46 orders have been passed against the cartels and companies involved in anti-competitive practices. Out of this, 16 orders were issued during last one year.

Sources said that the CCP had conducted search and inspections against 11 sectors, including six inspections, during 2011. The Commission also took action against 16 cartels, including seven during last one year. Similarly, the Commission concluded inquires in eight cases during 2011, taking total inquiries to 27.

A total of 312 show-cause notices have been issued to violators of Competition Act 2010 so far, with 92 show-cause notices having been issued during the period under review.

Major cases of section 4 violations under the Competition Act 2010 were banks cartel cases (Rs 205 million); ICAP (Rs 1 million); cement cartel (Rs 6.402 billion); dredging-collusive bidding (Rs 200 million); Pakistan Poultry Association (Rs 50 million); Pakistan Jute Mils Association (Rs 23 million) recovered and implementation agreement (EVTL & PQA) involving Rs.10 million.

The CCP has imposed total penalties of Rs 7.342 billion on different undertakings since the inception of the Commission. Out of total 322 exemptions issued, the CCP issued 148 exemptions to the undertakings during the last one year. Out of total 268 mergers/NOCs issued to the undertakings by the CCP, 104 mergers/NOCs were issued during 2011. The CCP also issued three policy notes during 2011 to different government departments including SECP and Karachi Stock Exchange (KSE).

Referring to one of the important cases made by the CCP in 2011, sources said that efficient and competitive public procurement is a building block of good governance. In Pakistan, discos, NTDC and Wapda procure power equipment worth billions of rupees every year and, in turn, billions of rupees are generated as revenue for power equipment manufacturers. As per their latest financials, the revenues of two leading power equipment manufacturers of Pakistan, for their power generation segments only, amounted to Rs 8 billion (PEL) and Rs 19 billion (Siemens); the supplies made by these two companies to discos were a major component of this revenue. As per an estimate, the procurement cost in one financial year for the switchgear, energy meters and transformers only is roughly estimated at Rs 100 billion. There are total 8 discos and, for Pesco alone, the procurement of these three products comes to around Rs 15 billion.

In view of the huge economic impact, the Commission took very serious notice of the information received from an informant about bid-rigging in power distribution sector. Accordingly, search and inspection of the premises of PEMA, FICO and PEL was authorised by the Commission. The impounded documents recovered, from the offices of these companies, showed cartelisation within the electric power equipment manufacturers. PEMA (Pakistan Electric Power Equipment Manufacturers Association) and its 22 members were found involved in bid-rigging through price fixing and share allocation. The Enquiry Report showed that the members not only colluded on price, share allocation, and delivery schedule. The important clauses of tender documents, including performance bond, performance guarantee, payment and sales tax & SED documents, were also mutually agreed.

As per inquiry report there were various forums, such as 'Switchgear Forum', 'Meter Forum', 'Distribution Transformers Forum' and 'LT CT Forum', where the members colluded in bid-rigging. The evidence impounded included SOPs, minutes of meetings, e-mails and letters exchanged among the manufacturers, tender documents and their comparative statements, etc.

At present, most of the companies have sought stay orders from various courts against the proceedings of the Commission, sources added.