For level playing field: End state patronage to 3 public entities, says CCP

Watchdog highlights unfair advantage enjoyed by public construction firms

ISLAMABAD: The anti-trust watchdog has sought withdrawal of state protection extended to three public sector construction companies, including two business concerns of the armed forces, in a bid to provide level playing field to the private sector companies.

Frontier Works Organisation (FWO), National Logistics Cell (NLC) and National Construction Limited (NCL) are exempted from the requirements of submitting bank guarantees and performance bonds against mobilisation advances and earnest money.



These exemptions are giving cash flow advantages of up to 35% to these companies as compared to competitors from the private sector, according to the Policy Note issued by Competition Commission of Pakistan (CCP).

The FWO and NLC are the military’s business concerns. The FWO is administrated by the Ministry of Defence. The NLC is under the administrative control of Ministry of Planning but it is headed by a lieutenant general. The NCL is under the administrative control of Ministry of Housing and Works.

The CCP has recommended these ministries to withdraw exemptions granted to the public sector companies in the construction sector to create a level playing field in the bidding for and award of civil works’ projects.

“The commission estimates that the cost advantage in terms of contract cost to the FWO is 30%, the NCL 25% and the NLC is in the range of 30% to 35%”.

The construction sector’s share in the industrial sector was 11.5% and its contribution in overall size of the economy was 2.4% in fiscal year 2013-14.

Out of 144 registered companies in the construction sector, the majority are in the private sector except a few, including the FWO, NCL and NLC. In the categories of contractors and operators of projects, only public sector companies are availing these benefits, according to the CCP.

The CCP found out that the Ministry of Defence has exempted the FWO from furnishing a bank guarantee against performance security and mobilisation advance for services it renders to the federal and provincial governments.

Similarly, the NCL benefits from exemptions granted by the Ministry of Housing and Works. Accordingly, in the case of government works contracts, the NCL is not required to furnish a performance bond and cash deposit requirement/ bank guarantee against earnest money and bank guarantee for advance.

The Planning and Development Division exempted the NLC in contracts for government works, from providing a performance bond, bank guarantee for advances.

Due to these exemptions the private sector contractors cannot compete for the projects, which is affecting their growth and international competitiveness, said the anti-trust watchdog.

The CCP said the FWO, NLC and NCL do not face real competition from other construction companies, which they would face in the absence of these exemptions.

It argued that continuation of exemptions is not justified.

The CCP is of the view that the exemptions, being discriminatory in nature, create a barrier to entry the competition principles that envisage a level-playing field between all undertakings acting in a competitive market, regardless of whether they are government entities or privately owned, it observed.

Published in The Express Tribune, October 2^nd, 2014.