Provincialisation of Discos: Either seek approval for pre-merger or grant exemption, CCP tells govt

ISLAMABAD: The Competition Commission of Pakistan (CCP) has advised the federal government to either seek its approval for pre-merger of power Distribution Companies (Discos) being provincialized or exempt it from CCP approval required under Section 54 of the Competition Act, 2010.

On April 7, 2023, Power Division wrote a letter to CCP wherein the former sought comments/input on the working paper and timelines on provincialisation of Discos.

According to the CCP it is entrusted with the mandate of providing free competition in all spheres of commercial and economic activities, to enhance economic efficiency and to protect consumers from anti-competitive behavior, ie, abuse of dominant position, prohibited agreements (cartelization), deceptive marketing practices and merger that substantially lessen competition in the market.

The CPP argues that obtaining Competition Commission’s “pre-merger approval” under section 11 of the Competition Commission Act, 2010 “section 11 of the Commission Act, 2010” outlines the procedures and criteria along with the timelines for approving mergers and acquisitions by the Commission. The timeline for clearing merger is 30 days in case of first phase review and 90 days in case of second phase review.

The Competition (Merger Control) Regulations, 2016 regulation stipulate that companies must inform the CCP before consummating a merger.

The notification thresholds, as outlined in Regulation 4, are determined by the value of assets, turnover and transaction value. Commenting on summary to amend the Competition Laws, Rules or Regulations to give exemption to the proposed transaction, CCP maintains that to resolve the issue of amending the Competition Laws, Rules or Regulation to give exemption to the proposed transaction, it is important to mention that Section 54 of the Competition Act, 2010 grants power to the Federal Government to exempt any undertaking or practice from the application of the Act or any of its provisions for a specified period through a notification in the official gazette. For ease of reference Section 54 is reproduced:

Power to exempt: the Federal Government may, by notification in the official gazette, exempt from application of this Act or any other provision thereof and for such period as it may specify in such notification (a) any clause of undertaking if such exemption is necessary in the interest of security of the State or public interest;(b) any practice or agreement arising out of and in accordance with any obligation assumed by Pakistan under any treaty, agreement or convention with any other State ; or (c) any undertaking which performs a sovereign function on behalf of the Federal Government or a Provincial Government.

CCP maintains that based on the facts, it can be concluded that provincialisation of DISCOs require a pre-merger approval of Commission.

However, the federal government can through Section 54 of the Competition Act, 2010 exempt the proposed transaction from the application of the Act rather than amending the Competition Laws, Rules or Regulations. Prime Minister, Shehbaz Sharif wants at least one Disco may be handed over to respective provinces.

The governments of Punjab, KPK and Sindh have shown their willingness take over Discos in their provinces with some incentives.

Copyright Business Recorder, 2023