PSEs poor performance: lack of competitive environment to blame, says Hafeez

Minister for Finance and Economic Affairs, Dr Abdul Hafeez Shaikh on Thursday said lack of competitive environment has resulted in poor performance of public sector entities such as power sector, Pakistan International Airlines and Pakistan Railways. The minister said the government has started developing new market structure so as to enable PSEs to compete with private sector and improve their efficiency.
Good competition law is vital to promote business environment and good regulatory framework to improve the economy, he added. He said in his inaugural address at the 2nd two-day international conference titled "Competition Enforcement Challenges and Consumer Welfare in Developing Countries" on Thursday. Competition Commission of Pakistan (CCP) in collaboration with Competitiveness Support Fund (USAID) has arranged the event. Around 50 competition experts from foreign countries are participating in the conference.
Hafeez said our exports are on continuous rise and remittances showing growth at a faster pace. "The positive economic indicators are pointing towards a new Pakistan keeping in view current trends of remittances, exports, revenue collection and other key indicators," he added.
He said the Federal Board of Revenue has shown 28 percent increase in the first five months (July-November) over the corresponding period of previous fiscal year. He observed that the FBR has collected Rs 640 billion during first five months (July-November) 2011-12 as compared to Rs 500 billion in the corresponding period last fiscal year, showing a growth of 28 percent.
He said due to prudent fiscal and economic policies of the PPP govt, the economy is now on the right track as both internal and external sectors of economy are resilient despite shocks such as floods and earthquake. He said it is for the first time in the history of Pakistan that the FBR has shown such an extraordinary growth during three months. "Currently we have historic figure of revenue collection," he claimed.
Hafeez said the government job was to ensure strong policies and regulatory framework for the private sector to promote national economy. "I am glad that Pakistan has good competition laws to promote business environment, competitiveness and protect the consumers rights," he added. Recalling the sluggish economy of previous government, the minister said that before 2008 the current account deficit was at 8 percent of the GDP. Similarly, fiscal deficit was at 7.3 percent with high inflation rate touching 28 percent.
He said the government has empowered provinces by allocating them additional amount of Rs 800 billion under the new National Finance Commission (NFC) Award to enhance provinces' spending on social sectors. He said for the better performance of economy, the government is targeting direct subsidy to poor for their social protection and Rs 60 billion have been allocated under the Benazir Income Support Programme (BISP). He said that media is free for comments and criticism in Pakistan. Judiciary is working independently while the office of Chief Accounting Officers or Public Accounts Committee is headed by the leader of the opposition.
Earlier, CCP Chairman Rahat Kaunain Hassan presented address of welcome. She said the conference will provide a rare opportunity to hear from internationally acclaimed experts on competition laws. She said the objective of this conference is to create awareness about the significance of a competition regime for Pak economy and highlighted some of the more critical challenges they face in their enforcement. They recognise that this is a mammoth task. Unlike developed regimes, however, they have had to struggle - for as basic a constituent as a 'statute' and the 'resources' funding the establishment of the CCP," she added.
She said that competition law is only a sub-set of competition policies, which simply are a set of pro-competitive economic measures taken by the government. The more robust these policies are; the better, the enforcement of law and higher the chances of enhancing economic efficiency. The consumers stand to gain the most from greater competition. Competitive markets encourage more trade, lower prices, provide greater choice and more employment.
She said the Ordinance did lapse but it was not the end. Government did extend due support from the highest level. The Ministry of Finance during all this time was reassuring and eventually the Competition Act, 2010 was passed. She said that there was timely and smooth succession of leadership, re-appointment and appointment of Commission's Members and a budget allocation was also achieved. The CCP despite being in its infancy has taken significant enforcement actions. "We have busted and fined cartels, which is expected to have a far-reaching impact on the economy. Industries that have been taken on and penalised which include banks (Rs 205 million), cement (Rs 6.3 billion), sugar (proposed max penalty), LPG (Rs 318 million), poultry (Rs 50 million), edible oil (Rs 50 million), jute mills (Rs 23 million), dredging (Rs 200 million) etc", she added.
Rahat said that they have initiated and taken decisive actions against undertakings in the power sector, shipping industry, stock exchanges, professional bodies such as ICAP, state owned entities including PIA and Pakistan Steel Mills and even media organisations thus establishing in a very short time not only our independence but also our even-handed approach in a fair and transparent manner.
Talking about the performance of CCP, she said that they have concluded 27 enquiries, and another 18 are in progress, 312 Show-Cause notices issued, carried out 11 searches and passed 46 decisions across various sectors of the economy. "Four pillars ie the prohibition on the abuse of dominance, cartelisation or prohibited agreements, mergers & acquisitions and prohibition on deceptive marketing practices continue to be rigorously enforced by us," she said. She said that seeking guidance from the developed regimes she considered it important to draw a road map for CCP.
Our priority remains to enforce the law in fair and transparent manner with the aim to provide for a level playing field. However, various aspects owing to their economic impact have been prioritised. These include: public procurement; concession agreements; expanding Office of Fair Trade (OFT) role to curb deceptive marketing; restricting associations to their mandate; and improving the legal framework. (Road map displayed on screen).
She shared that the legal battles that await us in the courts, with over a 100 cases pending, we have been very conscious of enhancing our enforcement pace. "We believe that the legal battle is part of the due process and CCP would resolutely respond to these legal challenges," she added.
She said the effectiveness of CCP can also be judged by other indicators like compliance achieved, eg so far, they have processed and granted 310 exemptions and over 260 merger NOCs (Pakistan being a mandatory regime). Number of complaints is on the rise, there has been 100 percent observance with respect to prohibiting deceptive marketing practices (where a compliance-oriented approach has been adopted) and increasingly businesses have been approaching us for advice.
Chairman said that it is the confidence that hard work and commitment to excellence that she submitted CCP for an independent evaluation by the 'Global Competition Review'. GCR is world's leading antitrust and competition law journal. This year, the 11th edition of 'Rating Enforcement' has been published. Out of over a hundred competition agencies around the world, only 35 were included. GCR has applauded CCP's inclusion in the rating as a testament to the fact that 'the commission has established itself as a truly effective enforcer in 2010.
Rahat said that in the recent International Conference on Competition Law in India, the celebrated guru of competition law, William Kavocic, a former Chairman and member of the USA Federal Trade Commission, and recipient of lifetime achievement award recognised among the top two performing competition agencies among those recently established. In fact one of the members of the CCI, Justice Dhingra, a counterpart in India, had no hesitation in acknowledging the proactive role of CCP and the fact that; CCI has yet to take off.
She said in the recently held Organisation of Islamic Countries (OIC) conference, she was informed that our performance was repeatedly acknowledged alongside Turkey and Egypt. "Securing financial autonomy is one major challenge we face. Our law provides for independent funding through tied sources ie 3 percent of fee and charges levied by the 5 other regulatory bodies which form part of the CCP Fund. As this has direct impact on our sustainability," she said. She said it is a matter of time not too distant - that all sector specific regulators will fully recognise and submit to the will and wisdom of the legislature and we will all work in tandem to enable Pakistan provide a business environment of choice.
The local panelists include representatives of the consumer right associations, business community, Competitiveness Support Fund, and the Government of Pakistan. The conference participants include senior management members of corporate firms from across all sectors of the economy, legal community, academia, autonomous bodies, state-owned enterprises, other public and private institutions and the Government of Pakistan.