Competition Commission of Pakistan busts cement sector cartel

Companies’ profits soared up to 800%, did not pass benefit of duty cut on to consumers

Shahbaz Rana December 16, 2020
Domestic dispatches remain high, turnaround in exports witnessed. PHOTO: FILE


The Competition Commission of Pakistan (CCP) said on Tuesday that it found “hardcore evidence” of All Pakistan Cement Manufacturers Association (APCMA) acting as a cartel and its decision to fix cement prices through unlawful process led to 100% to 800% increase in gross profits.

Members of the CCP announced findings of an inquiry launched in May this year. The CCP inquiry revealed that the cement manufacturers collectively decided to increase prices in the range of Rs45 to Rs50 per bag, which forced consumers to pay an additional Rs40 billion in the past one year alone.

Prices were increased at a time when the cost of production had gone down significantly and the manufacturers also did not pass on the impact of 25% reduction in federal excise duty to consumers, according to the CCP.

It is the second time that the CCP has busted a cartel in the cement sector. It was also the second cartel that the CCP unearthed after recently revealing manipulation in the sugar sector by the industry barons.

“All Pakistan Cement Manufacturers Association as a frontrunner is taking collective decisions on behalf of its members on various economic aspects,” said members of the CCP in a background briefing to the media.

“Hardcore evidence of cartelisation has been unearthed in the APCMA and among its members,” stated senior CCP members.

The CCP announced findings of its inquiry on the basis of raids conducted at the APCMA office in the northern region as the Sindh High Court had again given a stay order in favour of cement manufacturers to the extent of southern region.

“Till the next date of hearing, defendants (CCP), its officials are restrained from using the material collected during the raid conducted on the plaintiffs’ premises on 19-11-2020 in any manner whatsoever,” according to an SHC decision. The court has fixed the case for hearing on December 22.

In the public interest, the inquiry committee recommends that the commission may consider initiating proceedings under Section 30 of the Act against the APCMA and its member undertakings, according to the inquiry committee report.

Under Section 30, the CCP has authority to issue show cause notices to the violators before slapping a fine of up to Rs75 million or 10% of the turnover.

The cement sector has a history of collusive activities and they have been penalised in the past a collective amount of more than Rs6.3 billion on account of forming a cartel and involvement in prohibited agreements in violation of Section 04, said the CCP.

In 2012, the commission again initiated an inquiry into cement companies, however, the same could not be concluded due to a stay order granted to the companies by the Lahore High Court.

The CCP said that the collective price increase by the cement manufacturing companies was also evident from the data obtained by the inquiry committee from the Pakistan Bureau of Statistics (PBS).

In yet another evidence of cartel, the cement companies located in the northern region were being directed not to distribute cement in the southern region apparently due to different price levels and quota arrangement, according to the CCP.

It said that the northern region was further divided into major cities and for each city some companies were designated as ‘premium brands’, which allowed them to sell at a higher maximum retail price whereas all ‘others’ sold at a price lower than the premium brands.

From the examination of data, it is noted that irrespective of the percentage of actual utilisation of each cement plant, the share of each plant remains equivalent to the installed capacity. The same is also confirmed through the impounded data pertaining to plant-wise dispatches and installed capacity for FY 2018-19 and FY 2019-20, it added.

The CCP said that from the assessment of impounded evidence, it was noted that the quota allocation agreed was implemented on a daily basis, as prescribed by the APCMA for manufacturers located in the northern region.

The CCP findings showed that the collective increase in prices, despite a reduction in cost, led to an abnormal increase in gross profits of the companies. Gross profit of two leading market players; Lucky Cement and Bestway Cement, jumped 179% and 263%, respectively during July-September period of current fiscal year compared with the same period of last year.

Similarly, DG Khan Cement’s gross profit increased 287%, Maple Leaf 600%, Fauji Cement 100%, Cherat Cement 484%, Kohat Cement 726% and Premier Cement 809%, according to the CCP.

Dispatch quantities were discussed and agreed upon either through the Whatsapp group or in meetings.

“The analysis of computer stored data on smartphone device (of a marketing department official of a cement company) highlighted the presence of a Whatsapp group named “APCMA Marketing Officials”, which was created on November 15, 2018 and was used as a medium to communicate and decide on the fixation of price in the north region,” according to the CCP.

The CCP said that 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, oil prices reduced considerably in the international and domestic markets. The interest rate was also cut to single digit by the State Bank of Pakistan.

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

Published in The Express Tribune, December 16th, 2020.

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