LPG extraction: CCP wants new bidding after expiry of JJVL-SSGCL pact

Competition Commission of Pakistan (CCP) has decided to request the Lahore High Court to issue order against continuation of LPG extraction agreement inked between Jamshoro Joint Venture Limited (JJVL) and Sui Southern Gas Company Limited (SSGCL) after expiry of the contract on February 3, 2011.
"We want to draw attention of the court towards competitive bidding of the LPG extraction project after expiry of the contract between JJVL and SSGC to create healthy competition and are going to hire a lawyer to file a case in the court," Chairperson CCP Rahat Kaunain Hassan informed National Assembly Standing Committee on Petroleum and Natural Resources on Monday. MNA Sheikh Waqas Akram chaired the NA body meeting.
She said that CCP order against JJVL and LPG Association of Pakistan (LPGAP) was passed on December 14, 2009 that was challenged before the Lahore High Court and is pending adjudication. CCP chairperson said that JJVL had sought a stay from the court one year before.
CCP in its report submitted to NA body, revealed that the Honourable Court had suspended the operation of impugned Order passed by CCP on 11-02-2010. Last date of hearing was 10-01-2011 and adjournment was sought by the counsel of LPGAP, Atizaz Ahsan and the matter is again to be taken up in the third week of February. Sheikh Waqas assured to extend support to CCP and said "we want competitive bidding and will request the honourable judiciary to this effect."
CCP chairperson was asked to provide details about CCP order and information on the basis of which JJVL had sought stay order from the court in a meeting being held today (Tuesday). Sheikh said that they should not be allowed to continue agreement after its expiry and attention would be drawn to this issue during the meeting. A body will also take up the report on JJVL-SSGC LPG extraction contract and other LPG pricing issues in the meeting.
In its report CCP said that it had observed violation of Section 4 (1) read with Section 4(2)(a) of the Ordinance on part of LPGAP by taking a decision to fix LPG consumer prices. CCP observed that JJVL abused its dominant position by targeting to keep producer prices low in relation to Saudi CP which has had the effect of excluding importers like Progas from doing business and has restricted competition in the relevant market. Such actions are anti-competitive and violate Section 3(1) read with Sections 3(2) and 3(3) (f) & (g). On JJVL, a penalty amounting to 3.75 percent of last annual net turn-over ie Rs 278,087,448 and a penalty in the sum of Rs 40 million is imposed on LPGAP.
CCP further observed that "the very basis of JJVL's dominance appears to result, in large part, from JJVL's arrangement with SSGC. The GSA confers such a competitive advantage that JJVL can operate as a dominant undertaking notwithstanding its share in the relevant market.
"The GSA in and of itself is not a prohibited agreement; it has been the prime basis, in fact a trigger, for the behavioural violation of the law by JJVL. It provided a low-cost incentive which JJVL maintained and abused at the cost of restricting competition," report says. "For any extension of the subject GSA beyond 3rd February, 2011, the same shall be subject to an open and competitive bidding process before SSGCL enters into such a GSA with any another party including JJVL, which shall be subject to evaluation for Exemption under the Act," CCP report adds.
JJVL was directed to cease and desist from restricting competition through limit-pricing. Oil and Gas Regulatory Authority (Ogra) strongly recommended to review its policy and implementation regarding reasonable consumer price and directed to take necessary measures to ensure a level-playing field for all stakeholders and to ensure that no party including importers should either be excluded from the relevant market through anti-competitive measures or be allowed to create or maintain artificial entry barriers in the relevant market.
Commission did not impose the maximum (Rs 50 million) penalty keeping in view that LPGAP is not a repeat offender. Although, there were many aggravating factors including the nature and reach of the infringement, involvement of senior level management and implementation of retaliatory measures.