ISLAMABAD: The government’s efforts to boost the economy by offering incentivised package to the construction industry and promoting ease of doing business in order to uplift the socioeconomic conditions, have been thwarted as a result of collusion by the cement companies using the platform of the All Pakistan Cement Manufacturers Association (APCMA).
According to the inquiry report of the Competition Commission of Pakistan (CCP) on cement sector issued here on Wednesday, the cement manufacturers through their cartelization have taken undue advantage of the Covid situation and appeared to have sabotaged efforts for the wider public good for their private gain.
The cement is one of the most important components in the construction industry, and any increase in the price of cement has a knock on effect on construction and related industries such as steel, glass, timber, and wood.
Lack of competition in the cement industry has resulted in higher prices to the detriment of the consumers at large and the economy as a whole.
Therefore, 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 member undertakings in terms of the findings of the enquiry report.
The report said that the cement industry of Pakistan has had a long history of cartelization dating back to 1992, when the erstwhile Monopoly Control Authority (‘MCA’) found that the cement companies had formed a cartel to take advantage of the re-construction work that began after the devastating floods that year.
This pattern of cartelization recurred in 1998, 2003, 2007, and in 2009, when the CCP fined a total of Rs6.3 billion on account of involvement in the prohibited agreements in violation of Section 04 of the Competition Act.
In the instant matter, it appears that the same pattern of anti-competitive behavior has continued in the cement industry with the APCMA playing a lead role in organizing and facilitating collusive activity through its platform.
In the instant matter, evidence points towards collusive behavior, whereby, the cement companies have discussed and agreed upon prices and dispatches of cement, unanimously using the platform of the APCMA, which is an act of blatant cartelization.
The prima facie violations of Section 4 made out in this enquiry report come at a time when projects under the CPEC umbrella continue to gain momentum, and wide-ranging incentives have been announced by the government for the construction industry under the Naya Pakistan Housing Programme.
This programme is aimed at stimulating economic activity, which had been subdued due to the Covid-19 pandemic, and the provision of affordable housing for the common man.
All these activities contribute to a rise in the demand for cement with market sources estimating that cement constitutes approximately 15-20 percent of the construction cost of an average low-income home.
Unfortunately, cement manufacturers through their cartelization have taken undue advantage of the situation and appeared to have sabotaged efforts for the wider public good for their private gain.
The CCP concluded that the decisions to increase the MRP by the cartel in April 2020 alone resulted in an estimated increase in price per bag (50kg) of cement of Rs50 (collectively in Islamabad, Lahore, and Peshawar).
If we multiply this increase with the local dispatches for the year 2019-2020, the economic impact as a result of price increase alone amounts to approximately Rs40 billion annually.
The mentioned loss amount is computed by using a conservative approach and is based on the evidence of fixing the Maximum Retail Price (MRP) alone.
If we take into account price increase at each point in time and damages borne by consumers as a result of price fixing, quota fixation, division of markets, and other anti-competitive practices through concerted activities i.e. cartelization would be much higher.
The loss to the consumer is the gain for the cartel members, generally the key reason, why companies begin cooperating and hurting competition.
Copyright Business Recorder, 2020
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