ISLAMABAD: The Competition Commission of Pakistan (CCP) has decided to proceed against the All Pakistan Cement Manufacturers Association (APCMA) and its members for cartelisation in the North Region, after completing an inquiry showing hardcore evidence of cartel/collusive practices among the APCMA, and its member undertakings.
The CCP's enquiry report finalised here Tuesday also found massive profit taking due to cartelisation by the cement sector. The CCP enquiry report has input from the Federal Investigation Agency (FIA) regarding forensic audit of all the electronic evidence collected from the office of cement companies and the APCMA head office, Lahore.
While, the names of the owners of mobile numbers used in "WhatsApp" discussions etc was obtained from the Pakistan Telecommunication Authority (PTA). The CCP enquiry has suggested that there was evidence of cartelisation among the APCMA members related to production quota distribution based on installed capacity from the period 2014 to 2020.
The CCP started the inquiry in the cement sector in May 2020, and conducted raids on the offices of the APCMA, Lahore head office, the office of a member of APCMA Lahore in September 2020. During these raids, the CCP got the clues of collusion among cement manufacturers in the South Region as well and raided the offices of chairman and vice chairman of All Pakistan Cement Manufacturers Association (APCMA) located in Karachi in November 2020.
The CCP's search and inspections were challenged in the Sindh High Court (SHC), official sources said on Tuesday, "They wanted protection from the search inspections in the North and South Regions. However, [the] Sindh High Court has restricted itself to the search inspection that was conducted in South Region," informed the sources.
Under the injunctions of the SHC, the CCP is restrained from using the material collected during the raid conducted in the South Region. Sources said that on Tuesday, the CCP's Commission meeting was presented the inquiry report by the inquiry committee.
The inquiry report consists of "valuable and hardcore evidence" of cartelisation against the APCMA. The APCMA was operating as front runner and taking collective decisions on various economic aspects.
The CCP may soon issue show cause notices and start proceedings against the violators, sources said. Based on the directions of the SHC, "the Commission decided only to rely and submit the findings to the extent of the data collected from the companies and from the search and inspection in the North Region", sources in the CCP said.
There are evidence impounded from the North Region which indicates that collusive activities are taking place in the South as well. However, the CCP has not used any evidence impounded from the South Region due to court decision.
The evidence of the cartelisation among cement manufacturers is evident from the fact that even they collectively decided that how much benefit of the Federal Excise Duty (FED) reduction in cement prices would be passed on to the consumers.
There are also evidences of separate price fixation of premium brands as well as price fixation of ordinary brands under the umbrella of the APCMA. According to the CCP, it is in the public interest the Enquiry Committee recommends that the Commission may consider initiating proceedings under Section 30 of the Act against the APCMA, and its 12 member undertakings.
From the information gathered, it was revealed that during the months June-July 2019, a sharp increase in cement prices was recorded in Islamabad (Rs63/50 kg bag), Lahore (Rs101/50 kg bag), and Karachi (Rs32/50 kg bag) translating into a hike of 11.4 percent, 18.6 percent, and 5.0 percent respectively.
It was surprising to note that the increase in the price of cement came into effect at a time when global coal prices dropped due to excess supply and lower demand; oil prices reduced considerably in the international and domestic markets between April-May 2020 (petrol and diesel reduced by Rs15 and Rs27 respectively) and interest rates dropped to a single digit figure as the State Bank of Pakistan slashed the interest rates by 525 bps from 13.25 percent to eight percent during the FY 2019-20.
Based on the foregoing, the Commission on May 18, 2020 authorized an enquiry under Section 37(1) of the Act to ascertain whether there has been any prima facie violation of Section 3 and/or Section 4 of the Act on part of the cement manufacturers and submit a report in the matter.
The total production of cement in Pakistan during FY 2019-20 is 47.8 MMT (Local; and Export). Whereas, the per capita consumption of cement in Pakistan is 175kg which is lowest when compared with other countries such as: China 1,737kg, India 200kg, Afghanistan 200kg, and Thailand, 440kg.
The cement industry in Pakistan comprises total 19 companies of which 16 companies and 24 plants are operational and are divided into two regions - North and South. North region includes areas of the Punjab, KP, and the AJK, consisting of 18 cement manufacturing plants.
Installed capacity of North region in FY 2019-20 is 76 percent of the total capacity of cement manufactures in Pakistan. The highest concentration in the North region is due to the availability of raw material. South Region includes areas of Sindh and Balochistan, comprising six cement manufacturing plants having a share of 24 percent in the total capacity of the industry.
Analysis of the computer-stored data on smartphone device of Shoaib Ahmed (marketing department official of DG Khan Cement) highlighted the presence of a WhatsApp group named "APCMA Marketing Officials" which was created on 15th November, 2018 and was used as a medium to communicate and decide on the fixation of price in the North region.
Similarly, scrutiny and forensic analysis of the computer-stored information of the cement company and the APCMA representatives in the South region revealed that representatives of cement companies located in the South region exchanged information through WhatsApp and text messages, and emails regarding the fixation of cement price and its underlying cost factors, quota allocation, etc.
The collective price increase by the cement manufacturing companies is also evident from the data obtained by the by the Enquiry Committee from Pakistan Bureau of Statistics (PBS) which shows the per bag cement price increase between 16th April 2020 and 29th July 2020.
The rising trend of cement prices can also be verified from the data provided by the cement manufacturing companies to the Enquiry Committee, which shows an upward trend between April 2020 and August 2020, the CCP said.
The companies in the North discuss and decide upon the cost components of cement which include freight; axle load; fuel prices (petrol/diesel) and taxes and duties (FED/GST).
About fixing of dispatch quota, the CCP said that from the examination of the data it is noted that irrespective of the percentage of actual utilisation of each cement plant, the share of each plant remains equivalent to the installed capacity.
The same is also confirmed through the impounded data pertaining to plant-wise dispatches and installed capacity for FY 2018-19 and FY 2019-20. From the assessment of the impounded evidence, it is noted that quota allocation agreed is implemented on a daily basis as prescribed by the APCMA for manufacturers located in the North region.
Dispatch quantities are discussed and agreed upon either through the WhatsApp group or in meetings, the CCP said. It may be noted here that the production capacity of cement sector has increased from 44 million tons in 2014 to 69 million tons in 2020.
The losses incurred by the cement sector and increase in the price of cement in a similar time period raises suspicion of collective decision of the cement companies to recover losses incurred due to unutilised installed capacities.
The cement sector has history of collusive activities and they have been penalised in the past to an amount of collectively more than Rs6.3 billion on account of involvement in the prohibited agreements in violation of Section 04 of the Act.
In 2012, the Commission again initiated enquiry against cement companies, however, the same could not be proceeded further due to stay order granted to cement companies by the Lahore High Court (LHC).
Under Section 34 of the Act, the authorised officers of the Commission have access to any premises, place, accounts, documents and computers, including computer-stored information, on the premise and to impound, or make extracts or copies of, any document and account relating to any agreement made or decision taken, or to their implementation, by undertaking.
In case an undertaking refuses, without reasonable cause, to allow the authorised officers of Commission to exercise the aforesaid powers the Commission can make forcible entry.
The search was carried out to gather the evidence of possible communication, arrangement, agreement, or understanding between the cement producers pertaining to the violation of the provisions of the Competition Act, 2010.
Copyright Business Recorder, 2020
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