CCP raids APCMA premises, cement unit

Tuesday, 17 January 2012 10:30

SOHAIL SARFRAZ

ISLAMABAD: The Competition Commission of Pakistan (CCP) conducted search and inspection of All Pakistan Cement Manufacturers Association (APCMA) along with an individual cement manufacturer's office in Lahore and impounded documentary proofs of suspected cartelisation in cement sector.

Sources told Business Recorder here on Monday that this is for the second time that the CCP has carried out search and inspection of the cement sector for alleged cartelisation. The CCP analysis has apparently supported evidence of the alleged cartelisation based on the steep increase in prices of cement over the year (2011). The average price per bag of cement was Rs 330 in January 2011, Rs 345 in February, Rs 360 in March, Rs 385 in April, Rs 385 in May, Rs 395 in June, Rs 410 in July, Rs 415 in August, Rs 450 in September, Rs 425 in October and the average price per bag of cement in November and December 2011 was Rs 425.

The CCP has analysed that the cement manufacturers are increasing the prices despite reduction in sales tax and Federal Excise Duty (FED) by 1 percent and Rs. 200 per ton respectively along with removal of 2.5 percent Special Excise Duty (SED) as announced in the federal budget (2011-12). This has rendered into savings of Rs 22-23 per bag, which has been completely absorbed by the producers depriving the end users of the taxation benefit announced by the government. By eating the FED benefit, the manufacturers had reportedly raised the prices by Rs 35 per Rs 50-kg bag after budget 2011-12 announcement without any fear.

A team of CCP comprising seven officers conducted search and inspection of APCMA premises and the office of Kohat Cement Ltd and collected documents for alleged cartelisation in the cement sector. It is suspected that documents obtained from the premises of these offices may confirm collusive activities in the cement sector.

Details revealed that the CCP had obtained information from an informant that contained copies of certain e-mails, which were sent by the Secretary of APCMA to cement manufacturers. The contents of the e-mails provided by the informant revealed that the cement manufactures have prima facie collectively devised a vigilance plan through which the cement dispatches at one cement production unit are monitored by a team of another unit and vice versa. The contents of the e-mails provided by the informant revealed that the cement manufactures have collectively devised a vigilance plan by which the cement dispatches at one cement production unit are monitored by a team of another unit and vice versa. Such monitoring of cement dispatches was previously unveiled as the integral part of a collusive arrangement among the cement manufacturers. To ensure compliance with the pre-determined production quotas fixed under the said arrangement a firm of chartered accountants was hired to monitor dispatches at each cement production unit. CCP through its Order dated 27-08-2009 declared such arrangement to be in violation of Section 4 of the Competition Act, 2010 (the 'Act') and imposed a penalty of Rs. 6.3 Billion on APCMA and its member undertakings ie cement manufacturers.

It prima facie appears from the contents of the e-mails supplied by the informant that the cement manufacturers have again formed a collusive arrangement and to ensure compliance the monitoring function is being performed by cement manufacturers themselves under the auspices of APCMA.

According to the CCP, such monitoring of cement dispatches was previously unveiled as the integral part of a collusive arrangement among the cement manufacturers and it is important to note that CCP through its Order dated 27 August 2009 had declared such arrangement to be in violation of Section 4 of the Competition Act, 2010 and imposed a penalty of Rs. 6.3 Billion on APCMA and its member undertakings i.e. Cement manufacturers. This matter has been taken to court and pending since then.

The fresh probe by CCP was based on separate set of facts, which suggested that prima facie the cement manufacturers have again formed a collusive arrangement and to ensure compliance the monitoring function is being performed by cement manufacturers themselves under the auspices of APCMA. Based on the documentary proofs including emails, it appeared that the monitoring arrangement has been formulated under the auspices of APCMA, as the Secretary APCMA appears to co-ordinate the activities under the arrangement and the Chairman is responsible for rotating the monitoring teams.

The CCP search and inspection team, when arrived at the APCMA premises, discovered that the APCMA secretary was not present in the office and all the record was locked. However, after initial hesitation, the office assistant present in the APCMA office allowed access to the data. When the CCP officials asked them to provide access to an APCMA email, which according to the informant, was used to co-ordinate the collusive activities of APCMA members, the APCMA secretary denied existence of any such email and refused to provide access to it. The search and inspection of the office of APCMA President, who is the Chief Executive of Kohat Cement, was also carried out to obtain proofs of his suspected role in rotating the monitoring teams, CCP said.

Various media reports and people associated with the construction industry have constantly alleged cartelisation in the cement sector owing to exorbitant rise in cement prices during current year. The allegations are supported by the facts and figures pertaining to cement prices being steeply increased over the year starting with Rs. 330/- in the month of January 2010 and reaching up to Rs. 425/- in November and December 2010.

The cement manufacturers have continued to increase the prices despite the reduction in sales tax and Federal Excise Duty (FED) by 1 percent and Rs. 200 per ton respectively along with removal of 2.5 percent Special Excise Duty (SED) as announced in the Federal Budget of Fiscal Year 2011-12. This has rendered into savings of Rs 22-23 per bag, which has been completely absorbed by the producers depriving the end users of the taxation benefit announced by the government.