CCP unearths hardcore evidence of cartelization in cement manufacturing sector

ISLAMABAD, Dec 15 (APP): The Competition Commission of Pakistan (CCP) on Tuesday announced that the commission had found hardcore evidence of cartelization in cement manufacturing sector and also proven precedent for the involvement of All Pakistan Cement Manufacturers Association (APCMA) in anti-competitive activities.

The big players including Lucky Cement, Bestway Cement, D G Khan Cement, Attock Cement, Kohat Cement, Cherat Cement, Dewan Cement, Fecto Cement and Kohat Cement also were involved in cartelization to harm the consumer’s interest in the market, said a senior official while briefing to the media here.

He said the CCP would issue notices to the cement manufacturers for involvement in cartelization, market malpractices and market deception.

He said the CCP had started an inquiry against cements manufacturers on the bases of various media reports published between April and May 2020 regarding increase in the price of cement (50 kg bag) by cement manufacturers.

The media reports alleged that increase in price of cement by Rs45-55 per bag (50 kg) was due to cartelization by the manufacturers who held a meeting subsequent to which price increase was announced, he said.

He informed that in order to ascertain possible prima facie violation of Section 3 and 4 of the Competition Act, 2010, a probe was conducted.

He said from the information gathered, it was revealed that during the months June-July 2019, a sharp increase in cement prices was recorded in Islamabad Rs63/50 kg bag, Lahore Rs101/50 kg bag and Karachi Rs32/50 kg bag translating into a hike of 11.4%, 18.6% and 5.0% respectively.

The senior official said it was surprising to note that the increase in the price of cement came into effect at a time when Global coal prices dropped due to excess supply and lower demand.

He said as same oil prices reduced considerably in the international and domestic markets between April – May 2020 (Petrol and Diesel reduced by Rs15 and Rs27 respectively).

He said interest rates dropped to a single digit figure as State Bank of Pakistan slashed the interest rates by 525 bps from 13.25% to 8% during the fiscal year 2019-20.

The senior official said based on the foregoing, the commission on May 18, 2020 authorized an inquiry under Section 37(1) of the Act to ascertain whether there had been any prima facie violation of Section 3 and/or Section 4 of the Act on part of the cement manufacturers and submit a report in the matter.

He said to understand reasons behind cement price increase, the inquiry committee sought information from cement manufacturing companies vide letters dated May 20, 2020 and August 12, 2020 on the various aspects pricing, production, other important.

He said on 24th September 2020, the CCP had conducted search and inspection of the APCMA main office and the office of Senior Vice Chairman of the APCMA’s Executive Committee; a senior employee of a major cement company in Lahore.

Moreover, the impounded record, including Whatsapp messages and emails, warranted conducting search and inspection in the South Zone as well for obtaining evidence relating to anti-competitive practices, he informed.

He said the evidence suggests possibility of a cartel/collusive arrangement between the cement manufacturers.

It is pertinent to mention that various factors among others lower demand of cement in the first two quarters of 2020, and almost parallel increase in cement prices and data collected from Pakistan Bureau Statistics and the cement companies, became the basis of CCP’s inquiry and the earlier search, he added.

He briefed that sudden rise in price by the cement manufacturers at a time when there was low demand compared to the installed capacity of the manufactures and considering that input fuel cost (coal and oil), transportation and interest rate had declined raises suspicion of a collective rise in price by cement companies.

He said the cement sector had a history of collusive activities and it had been penalized in the past to an amount of collectively more than Rs6.3 billion on account of forming a cartel and involvement in the prohibited agreements in violation of Section 04 of the Act.

He further said in 2012 the commission again initiated inquiry against cement companies, however the same could not be preceded and concluded due to stay order granted to cement companies by the Lahore High Court.
The current inquiry was initiated in 2020.