Islamabad High Court (IHC) has dismissed writ petition filed by Fauji Fertiliser Company Limited (FFCL) against the conditional approval granted by the Competition Commission of Pakistan (CCP) to it for the acquisition of Agritech. It is learnt on Tuesday that IHC judge Riaz Ahmad, in a detailed order stated that CCP has the authority to "allow merger with conditions or without conditions."
The decision would be instrumental in prompting healthy competition in the fertiliser industry. When contacted, CCP Chairperson Rahat Kaunain Hassan told Business Recorder that it is very positive achievement for the commission. The decision of the court has strengthened the writ of the CCP as the court has upheld the order of the commission.
The CCP has been further strengthened for taking enforcement and other actions under the law following decisions of the courts. Presently, a number of cases are pending before courts and the decision of the IHC in favour of the commission also helps the CCP in taking actions against dominant undertakings. Such decisions would also create an impact about the accurate interpretation of law and implementation of the decisions of the CCP, she added.
Details revealed that Fauji Fertiliser Company Limited submitted its pre-merger application on August 2, 2010 for the acquisition of 75 % to 79.87 % shares of M/s Agritech Limited. The commission intimated FFC that it has decided to move the case to Phase-2 review, with the view to determine whether the merger situation is likely to substantially prevent or lessen competition in the market and to ascertain the probability that the merged entity in the post-merger market will behave competitively or co-operatively.
The CCP bench comprising of the Chairperson Rahat Kaunain Hassan and Member Vadiyya Khalil observed that the fertiliser industry in Pakistan (admittedly) a duopolistic market dominated by FFC and Engro, together having more than 80 percent of market share. The FFC has pre-merger market share of more than 50 percent in the relevant product market of urea and DAP before the proposed merger.
The bench further observed that notwithstanding the analytical problems apparent in the application of FFC the proposed acquisition/merger, if allowed, will not substantially lessen competition. Although, the pre-merger HHI for urea alone reflected a highly concentrated market (much greater than 2000 - a yardstick for measuring the high concentration level in the market) and any further consolidation would have further raised the concentration in the market, which could give rise to serious competition concerns.
The bench also observed that although there is no evidence of collusion in the fertiliser industry so far, but no empirical evidence was provided by FFC as to how mere expansion on part of Engro or Fatima is likely to result in rivalry. Nonetheless, the Commission took the claims made by FFC with respect to the positive impacts of this merger for the industry and the national economy on their face value and considered them as clearly stipulated conditions of the merger. The Commission issued its no objection to the bidding by FFC for the proposed merger of Agritech subject to the following conditions:
1. FFC shall maintain "tara" and "sona" brands separately for two years and there shall be a price cap on the price increase of "tara" product by FFC for a period of one year (although with efficiencies claimed it is expected that the price for 'tara' shall go down). The maintenance of the two brands shall be subject to review after a period of one year or any time later but prior to two years; provided the market share of urea acquired by FFC ie, 6 percent drops from the existing market share through distribution or redistribution amongst existing and upcoming players in the fertiliser sector.
2. FFC shall maintain transparency for any change in price in all its fertiliser products and shall for the period of three years intimate to the Commission any price escalation along with reasons for such price increase (if any) within seven days of such increase.
3. Subject to review of this decision as stipulated below, the Commission if deemed necessary may require FFC to divest a portion of shareholding in Hazara. 4. In terms of sub-section 11(b) of Section 11 this approval is subject to review within one year under sub-section 13 of the said section. For the purpose of review, the following shall be considered as a yardstick which may include but shall not be limited to the monitoring of unexplained escalation in price levels; tendency of price parallelism; changes in market share and levels of concentration; new investments made in Balancing Modernisation Replacement of the target firm by the acquirer leading to enhancement of production capacity and commitment to non-discriminatory behaviour.
In its order, the Islamabad High Court while referring to the Competition (Merger Control) Regulations, 2007, stated: "the powers of CCP cannot be curtailed by avoiding the regulations or by interpreting the law that would suit the petitioner only."
The IHC further added that object of the Competition Act 2010 is to provide for free competition in all spheres of commercial and economic activity to enhance economic efficiency and to protect consumers from anti-competitive behaviour. The object is that nobody should be permitted to create monopoly. For the achievement of the aforementioned objects, a Commission is established under the Competition Act, 2010. If two business concerns intend to merge their businesses they have to file an application for the proposed merge under Section 11(3) of the Competition Act, 2010. The Competition Commission will inquire into the matter and determine as to whether the proposed merger is not going to lessen the competition prevailing in the market and if comes to the conclusion that the said merger is not going to lessen the competition, may allow the merger, but if the Commission cannot come to the conclusion and requires further probe, then may enter into second phase of review and ask parties to provide such information as it considers necessary to enable the Commission to make necessary determination.
The CCP added that the order issued by the IHC in favour of the Competition Commission of Pakistan is highly significant for the promotion of a competitive economic milieu in Pakistan. The FFC was represented in the case by Syed Hasnain Ibrahim Kazmi and Imtiaz Rashid Siddiqui Advocate; CCP was represented by Amjad Hameed Ghauri Advocate while Ghulam Sabir Advocate represented Agritech.