May 05, 2008	Monday	Rabi-us-Sani 28, 1429

THE reforms in the financial sector and the capital market paid rich dividends. Will the efforts of the Competition Commission of Pakistan to reform the market to minimise its imperfections be as successful?

“May be it will, if the commission is allowed to proceed with its mandate. Sadly, I do not see it going places with the type of opposition building up against it in most influential business quarters”, said an analyst closely watching the response of the private sector including overseas companies to the moves by the CCP.

The market delivers only under an environment of free competition. The market abuses, if checked, drive the economy towards efficiency and optimal utilisation of resources.

In Pakistan, like elsewhere, some businesses opt for short cuts. Using their clout or scale, they manipulate market that leads to distortions and ultimately results in under-utilisation of the country’s physical and human resources. Equality of opportunity is denied to all economic agents to grow and prosper.

In 2007, the Monopoly Control Authority was replaced by the Competition Commission of Pakistan to curb unfair trade practices. Last month the commission penalised seven commercial banks and their trade association on charges of colluding to manipulate the market.

The banks are perceived to be fleecing depositors. The average rate of return on deposits is depressingly low at 3-4 per cent. The banks’ lending rate averages well above 10 per cent. The banking spread is high at around 7.5 per cent. Most banks are making huge profits and are accused of not sharing these with the depositors.

The penalty slapped by the CCP was Rs25 million for each of the seven banks and Rs50 million for their association. The banks have lodged an appeal with the commission against its earlier decision.

Last week, the CCP targeted the powerful cement producers accusing them of providing it incredible data of their operations . A four-member team of the commission, including a lady officer, conducted a surprise raid at the office of All-Pakistan Cement Manufacturers Association in Lahore and seized some records.

Initially some resistance was reportedly put up by the staff of the association at the office and the record rooms were locked. Later, however, probably on advice of their legal advisor, the cement association allowed the CCP staff to conduct their search.

“We were allowed entry in office only after they moved some record from the scene”, told a member of the raiding staff of the CCP who wished anonymity.

The commission suspects a cartel in the cement sector for which investigations are in progress. “The association office was operating as the secretariat of the cartel ignoring our requests to provide relevant data. The Competition Law 2007 empowers us to get the record forcibly if requests are not honoured to the commission’s satisfaction”, an official of the commission told Dawn.

Eizaz Sheikh, Chairman All Pakistan Cement Manufacturers Association, when contacted by Dawn in Lahore, termed the raid as “confidence shattering and embarrassing for credible business houses”.

Pakistan’s high profile corporate citizens such as Nishat Group, Yunus Brothers, Saigols, Ghulam Mohammad, Dewan Group, etc. own big cement companies such as DG Khan Cement, Lucky Cement, Maple Leaf, Attock Cement, Fecto Cement, Dewan Cement. Two military organisations Askari and Fauji Foundation also own two units. Some foreign investors such as Bestway and La Farge Group also have sizeable stake in the sector.

“They could have said that CCP considers average cement price to be high and in its bid to provide relief to the lower end customers it has decided to proceed against cement manufacturers, and we would have understood. Instead they accused us of providing false data. This is not acceptable”, Sheikh said.

“This will not only hurt our reputation but has put in question credibility of all the government institutions dealing with us. Our data is acceptable to tax men, the ministries and all other bodies that regulate trade and business. The charges on the cement producers imply that all these government organisations were either too naïve and inefficient or were partners in promotion of an unethical business practice”, Mr Eizaz said.

He said the cement manufacturers were in the process of evolving a strategy. He confirmed that they were exploring the possibility of challenging the Competition Ordinance itself instead of contesting the charges, which in his words were, ‘cooked up’ against a sector serving the country well.

Khalid Mirza, head of the Competition Commission of Pakistan, said on phone from Islamabad, “I am doing my job under the law”. Referring to cement manufacturers, he said: “If they were not indulging in unethical commercial practices,they need not worry”.

“There is no limit on scale in the ordinance. In fact in Pakistan, economists think that companies should try to achieve scales to compete in a globalised world, but the misuse of dominant market position is not allowed under the law. And it is the duty of the CCP not to let anyone meddle by resorting to unfair practices flouting the concept of fairness in the market”, he added.

Earlier in January 2008, Pakistan Business Council (PBC), a think tank of the private sector, compiled a 20-page position paper on the Competition Ordinance 2007 listing their reservations. In a clinical manner, they have dissected the law article by article, raised objections and made recommendations to amend certain clauses.

From what one made out of the long document is that the PBC finds the Competition Law 2007 to be one sided making the CCP too powerful without checks and balances. It regrets that stake holders were not consulted while the ordinance was being drafted.

The PBC reckons that by not differentiating between horizontal and vertical integration, the ordinance might discourage much needed consolidation in industry. It raised objection to a share of the commission in funds raised through penalties imposed on wrongdoers, as it, the PBC says, could create a vested interest in CCP to fine more.

A business leader from Karachi told Dawn that the commission had flouted its own rules by employing people without right experience for certain posts.

The Overseas Chamber of Commerce and Industry (OICCI) had also drafted its position on the Competition Law 2007. However, no one was available for any comment.

Khalid Mirza was confident that responsible and rational elements in the business community who operate on the strength of their business acumen would support Competition Ordinance 2007.

Some market watchers felt that the commission needed support of the intended beneficiaries of an even playing field and closer interaction with business groupings. “The private sector has a huge role in development of the country. The reforms must not hurt the investment sentiments”, they said.

Mirza, however, felt that more transparency in the market would attract entrepreneurs aspiring to prove their mettle in the world of business but were currently discouraged by extra market practices.

The Competition Ordinance 2007 seeks “to provide for free competition in all spheres of commercial and economic activity, to enhance economic efficiency, and to protect consumers from anti-competitive behaviour”.