Cartel of electric manufacturers found fleecing government

Anti-trust watchdog collects evidence in raids on offices.

ISLAMABAD: The anti-trust watchdog has found substantive evidence that 22 manufacturers of electric power equipment have made a cartel to fleece the government in procurement contracts, estimated roughly at Rs100 billion.

“Based on documents seized from the offices of PEL, FICO and Pakistan Electric Manufacturers Association (PEMA), the inquiry committee finds evidence of cartelisation amongst manufacturers of electric power equipment,” said Competition Commission of Pakistan (CCP) chairperson Rahat Kaunain Hasan.

The CCP had carried out search and inspection of PEL, FICO and PEMA offices in June this year.

The Competition Act 2010 prohibits cartelisation in any industry and violation may result in a fine of Rs75 million or 10 per cent of annual sales, whichever is higher. However, so far despite some historical decisions taken by the CCP, various associations have managed to get stay orders from courts. So far, the CCP has imposed fines of over Rs7 billion but recovery stands at only Rs25 million.

Hasan said that PEMA, an informal association of manufacturers, and its 22 members have been involved in bid rigging through price fixation and share allocation.

She said that the inquiry report revealed that the members also colluded in delivery schedule, important clauses of tender documents including performance bond, performance guarantee, payment, sales tax and special excise duty documents.

Three relevant markets where cartelisation has been unveiled are switchgear, energy meters and transformers. The procurement cost in a single financial year for the three products mentioned is roughly estimated at Rs100 billion, said Hasan.

There are eight power distribution companies and for Peshawar power distribution company the procurement of these products came to around Rs15 billion, according to the CCP.

She said that existence of standard operating procedures or references PEMA members were to ensure implementation of decisions taken collectively. To maintain secrecy, PEMA members were addressed by codes, she said.

Published in The Express Tribune, September 21^st,  2011.