The competition watchdog has, once again, questioned the practices of the Pakistan Vanaspati Manufacturers Association. However, it appears that CCPs show cause notice is not giving any dyspeptic feeling to the PVMA.
The association has been flagged for fixing transportation rates in consultation with transporters instead of letting separate players negotiate the terms individually.
But the CCP has perhaps overlooked the fact that the first evidence of consultations between the PVMA and the All Pakistan Oil Tankers Owners Association (APOTOA) dates back to the year 2000, when none other than the Pakistan Army brokered an arrangement between the two contesting parties and put an end to a 20-day strike by the transporters.
At present, APOTOA issues rate sheets in line with fuel price adjustments announced by Ogra. PVMA claims that these rates are announced independently by transporters, and the association or other stakeholders have no role to play in the determination of these rates.
"If any of the ghee or vegetable oil manufacturers do not agree to their rates, the tanker association simply halts all shipments, leaving manufacturers vulnerable to huge losses," asserts an industry representative.
In fact some industry insiders are now urging the CCP to take a closer look at "the transport mafia and their hegemony over the transport of goods in the country". Will the CCP be able to bell that cat, is another discussion altogether.
CCP also highlights that the association exclusively provides invoice verification for imports of palm oil. Members of PVMA are charged Rs5 per ton of imported palm oil for this service while non-members are charged Rs10 per ton for the same.
The CCP points out that the PVMA charges preferential rates to members, which not only puts non-members at a disadvantage, but the invoice verification process itself undermines competition. The CCP says that invoice verification reveals vital information about imports of each firm, including the price paid, consignment details and the quantum of imports.
Again, the CCP is reminded that the practise of verifying invoices through the association was introduced after an agreement was inked at the Customs House Karachi in January 2000 under the supervision of the then member customs. Under the terms, the PVMA "agreed to verify the invoices in respect of the imports made by its members. The same method will be applicable to commercial importers as well".
Customs officials and PVMA justify the procedure by highlighting that valuation should be done through a competent third party instead of direct valuation by the trading party or the regulator.
Further, while it is true that members are charged a lower rate for this service; they also pay an annual membership fee to PVMA. The association asserts that the net effect of these two charges puts members and non-members at a comparable footing in terms of expenses on invoice verification.
It should be noted that the stakeholders have agreed to share such information for the purpose of verification, knowing fully well the consequences of sharing information. Plus, the information is shared with the association and not any particular company, which doesn put any firm at a disadvantage to another.
There can be potentially a case of privileged access to such information if PVMA leaks the information to any of its registered companies. But the same has not been reported yet nor has been highlighted by the CCP.
Interestingly, the PVMA has itself repeatedly called on the government to create a separate association for commercial importers of palm oil as the same are not allowed in PVMA since it is meant only for manufacturers of ghee and vegetable oils.
The PVMA is also accused of collusion to fix prices, only to manoeuvre prices lower when the government intervenes. While the assessment of the collusion of prices is entirely up to the CCP, the lowering of prices in case of government intervention may have other reasons as well.
For instance, consider the deal between PVMA and the government of Punjab: the manufacturers surpass distributors and middlemen to sell their products directly at sasta bazaars established throughout the province. While collusion is obvious in this instance, it does not seem to be coupled with malicious intent.
PVMAs alleged failure to lower domestic prices, when global palm oil prices taper off is also contestable, given the price movements shown in the graph. More importantly, prices of ghee and vegetable oils appear a lot more dynamic at the wholesale level as compared to retail markets.
So, even though manufacturers appear to be adjusting their prices according to international prices of palm oil, wholesalers and middlemen seem much more content to hold rates, especially when international prices are falling.
These considerations do not necessarily exonerate the PVMA from the charges drawn by the CCP. But they do clear the PVMA of many of the allegations. At the same time, the dearth of data available on this industry, also calls into question the regulatory efficiency of the government.