CCP asks CCA to ensure fuel farms, hydrant system opened to all market players at JIAP

ISLAMABAD: The Competition Commission of Pakistan (CCP) has directed the Civil Aviation Authority (CAA) to ensure that the operation and management of both fuel farms and the fuel hydrant system at the Jinnah International Airport, Karachi (JIAP) is opened for competition under a transparent, open, and inclusive process for all market players/petroleum companies.

According to an order issued by the CCP bench, the order shall dispose of the proceedings initiated pursuant to a show cause notice issued to the CAA and three petroleum companies, jointly referred to as the “respondents”, for prima facie violation of Section 4 of the Competition Act, 2010. The SCN’s were issued pursuant to the enquiry report initiated on the complaint of a petroleum company (complainant) alleging, inter alia, that the three petroleum companies have entered into agreements conferring exclusivity in violation of section 4 of the Act.

The complainant alleged that the respondent companies were engaged in anti-competitive activities in violation of the Act by not allowing the complainant to operate a fueling facility at the JIAP. It was further alleged that the CCA has granted exclusive rights, in respect to the use of the fuelling facility, to a consortium comprising three petroleum companies, due to which the consortium enjoys a favourable position at the cost of healthy competition within the industry.

It was further alleged that an Agreement of Sale (the ‘1994 Agreement’) in regard to the operational management of the fuel hydrant system was entered into by the CAA as the seller and three petroleum companies as the purchasers, on April 7, 1994. The agreement specifically refers to the underground hydrant lines connected from the depot to the fuelling bays where the aircrafts are parked. The agreement has been entered into by the referred parties for a period of 30 years and prohibits 3rd parties, besides three petroleum companies, from engaging in the supply of fuel through the fuel hydrant system at JIAP.

Prior to the construction and subsequent sale of the hydrant facility, fuel was being supplied as per the Eastern Joint Hydrant Agreement (the ‘1961 Agreement’), which allowed third parties access to the system upon payment of a throughput charge, at the discretion of the majority of the original contracting participants, which has been acquired by all provided that the hydrant system at the time has adequate capacity.

The CCP order revealed that while the exclusivity clauses in the foregoing agreements have been determined to be in contravention of the Act, the Bench does recognise the necessity of concession agreements in terms of mega-projects of national importance, for example concession agreements for port-terminals or airport fuelling facilities, as is the case in the present matter.

The Commission is of the view that exemptions under Section 5 or 8 of the Act should be applied for as soon as agreements (containing restrictive clauses) have been drafted on the promise that an executed version will also be provided to the Commission immediately upon execution of the agreement. It is pertinent to note that while the Commission allows for exemptions in respect of agreements which satisfy the criteria established by Section 9 of the Act, the regulation of such exempted agreements is of paramount importance for the diligent safeguard of public interest. That is to say that the underlying principle justifying the grant of an exemption to an agreement containing restrictive clauses is that pro-competitive effects which the agreement results in will outweigh any distortion to competition law brought about by the same and in turn the public at large will benefit.

The CCP Bench would also like to point out here that the complainant has been unable to convince us regarding the allocation of land to it by CAA. The lease of land to any entity is a matter solely under the purview of CAA as the national aviation regulator and the Commission does not wish to step into its shoes in this regard. The Commission’s sole mandate is to ensure and protect competition in the market and it will not step beyond the role assigned to it to benefit a particular competitor over another. The Complainant has failed to demonstrate how the provision of leased land at JIAP in the present circumstances would further competition in the relevant market.

Further, we note complainants previous lack of interest in competing for aviation fuel services as it did not compete for the fuel farm at the New Islamabad International Airport when the opportunity was available recently. Instead, it has approached the commission to obtain specific preferential treatment at JIAP, which cannot be granted.

The CCP Bench understands that establishing parallel fuel farms or fuel delivery systems (hydrant or bowsers) at airports may not be feasible commercially and it is important for business entities to aggressively compete whenever opportunities present themselves. Therefore, we are not inclined to consider the complainants request to order CAA to provide separate land for a fuel farm or fuel distribution system.

The CCP ordered that the parties to the 1961 and 1994 Agreement shall apply to the Commission for retrospective and prospective exemption under Section 5 of the Act as per applicable regulations no later than 30 days from the date of this Order, failing which the exclusivity clauses in the 1994 Agreement and the 1961 Agreement shall stand void as per Section 4(3) of the Act.

The CCP added that the CAA shall ensure that upon expiry of the 1994 Agreement on May 20, 2022, operation and management of both the fuel farm and the fuel hydrant system at JIAP, is opened for com°petition under a transparent, open, and inclusive process so that any market player willing to manage and operate these facilities is able to compete for it, the CCP order added.

Copyright Business Recorder, 2022