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Pakistan regulator finds ‘hardcore’ evidence of cartelisation by cement manufacturers

Says they colluded in production, market division and price fixation

SAMAA | - Posted: Dec 16, 2020 | Last Updated: 4 months ago
SAMAA |
Posted: Dec 16, 2020 | Last Updated: 4 months ago
Pakistan regulator finds ‘hardcore’ evidence of cartelisation by cement manufacturers

Photo: AFP FILE

The Competition Commission of Pakistan has found “hardcore” evidence against cement companies of colluding in the North region. Company officials exchanged information through WhatsApp, text messages and emails about fixation of cement price and its underlying cost factors, quota and allocation, it says.

The CCP concluded on Wednesday its enquiry relating to the violation of the Section 4 (Prohibited Agreements) of the Competition Act, 2010 by the All Pakistan Cement Manufacturers Association and its members.

The enquiry was initiated based on the information gathered through various media reports, concerns and complaints regarding an increase in cement prices, particularly from April to June 2020.

The reports indicated that an increase of Rs45-55 per cement bag was apparently decided by the manufacturers under the umbrella of APCMA.

The information revealed that during the months of June and July 2019, a sharp increase in cement prices was recorded in Islamabad (Rs63/50kg bag), Lahore (Rs101/50kg bag) and Karachi (Rs32/50kg bag), which translated into a hike of 11.4%, 18.6% and 5.0%, respectively.

Lower demand for cement among various factors in the first two quarters of 2020, a parallel increase in cement prices, and the data collected from the Pakistan Bureau Statistics and cement companies became the basis of the CCP enquiry.

A sudden rise in the price by cement manufacturers at a time when there was low demand and the input cost and interest rate had declined raised suspicion of a collective rise in prices by cement companies.

On September 24, the CCP conducted search and inspection of the offices of APCMA and senior vice-chairman of its executive committee, who is a senior employee of a major cement company in Lahore. The evidence suggested possibility of a cartel and collusive arrangement between cement manufacturers.

Evidence gathered during the raids on the premises of APCMA and DG Khan Cement demonstrates active participation in collusive decisions by all major companies, including the DG Khan Cement, Askari Cement, Fauji Cement, Lucky Cement, Cherat Cement, Pioneer, Fecto and Bestway.

Decisions were taken at the highest forums i.e. CEOs, chairpersons, senior executives and directors with orders for strict compliance and adherence of the same.

The CCP’s search and inspections were challenged in the Sindh High Court in which the petitioners wanted protection from inspections both in the North and South regions.

The court restrained the CCP from using the material collected during the November 19 raid on the premises of the plaintiffs in the South region.

In compliance, the commission has refrained from relying on the evidence from the search and inspection conducted in the South region till the next hearing on December 22.

The enquiry report said that hardcore evidence of cartelization in cement industry and collusive behaviour in respect of production, division of markets by territory, fixing of dispatch quota and price fixation was found in documents recovered during the search and inspection in the North region. The data highlighted the presence of a WhatsApp group named “APCMA Marketing Officials” which was created on November 15, 2018. It was used as a means to communicate and decide the fixation of price.

The companies in the North region have also been found discussing and deciding on the cost components of cement, including freight, axle load, fuel prices, taxes and duties.

It was observed that cement companies located in the North region were being directed not to distribute cement in the South region apparently due to different price levels and quota arrangement. The North region was further divided into major cities and zones and for each city and zone some companies were designated as “premium brands” which allows them to sell at a higher retail price whereas all others sell at a lower price.

From the examination of the dispatch data, it was noted that irrespective of the actual production, the share of each cement plant in total dispatches remains equivalent to its share (as per quota) in the total installed capacity in the North region. From the assessment of the impounded evidence, it was noted that the agreed quota allocation was implemented on a daily basis as prescribed by APCMA for manufacturers in the North region. Dispatch quantities were discussed and agreed upon either through the WhatsApp group or in meetings.

The enquiry committee recommended the CCP to consider initiating proceedings against cement companies. On Wednesday, most of the cement company stocks struggled and the sector lost 516 points.

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