Sugar mills, PSMA fined Rs44 billion for anti-competitive conduct

Web DeskWeb Editor

13th Aug, 2021. 11:37 pm
Sugar Mills

LAHORE: The Competition Commission of Pakistan on Friday imposed a hefty fine of Rs44 billion on the Pakistan Sugar Mills Association (PSMA) and 81 member mills for violations of the Competition Act 2010.

The PSMA has been imposed with the maximum fixed penalty of Rs75 million each for four contraventions, amounting to a total of Rs300 million.

As per the full bench of the CCP, the PSMA and sugar mills were found persistently and actively at the forefront of collusive anti-competitive practice, collectively deciding the quantum of exports invariably affecting/controlling the domestic supply and sharing and discussing sensitive commercial stock information.

A fixed penalty of Rs50 million has been imposed on each of the 22 participating members’ undertakings in Utility Stores Corporation (USC) tender issued in 2010.

The commission initiated an inquiry to analyse the “possible anti-competitive activities in the sugar industry”. To gather evidence, search and inspections were carried out at two premises of the PSMA and one of the sugar mills. The penalty imposed, the highest to-date, was based on the calculation of 55 mills’ 2019 turnover figures, including consolidated turnover figures for the same group of mills.

A full four-member bench of the CCP, comprising its chairperson Rahat Kaunain Hassan, Shaista Bano, Bushra Naz Malik and Mujtaba Ahmad Lodhi arrived at a consensus on the background facts, formulation of issues, determination of preliminary/technical objections, the determination of the relevant market and the spill-over effect.

However, Shaista Bano and Bushra Naz Malik recorded a different opinion on other issues; thus, the commission faced a deadlock situation.

The chairperson exercised her second and casting vote as envisaged under the act to break the deadlock. This is the first time the Competition Commission of Pakistan has passed a split decision.

As per the CCP majority decision, the PSMA and the Punjab sugar mills have been found to have shared commercially sensitive stock information among themselves in violation of the act. Such information would allow mills to assess and coordinate on future sales volumes and pricing strategies, effectively distorting competition in an already highly regulated market.

Nothing on record showed that the government/SAB required the PSMA to collect the same. The mills of Punjab went even further to share and discuss the same between themselves through the establishment of zonal sub-committees and creation of a WhatsApp group.

The commission also found that such information was not ‘publicly available’ given that it was mill-specific, shared frequently and in real-time/on fortnightly basis.

The majority decision of the commission held that through discussion of supplies and stock of sugar, the PSMA and sugar mills collectively predetermined the export quantities, as evidenced by the minutes of the PSMA’s annual general meetings on record, in violation of the act.

Although no violation was alleged on account of lobbying in the SCNs, the commission has recognised that lobbying activities may be a mere guise for conducting anti-competitive activities; whereas in the instant matter, the PSMA is clearly lobbying as a mechanism to pursue a favourable decision regarding quantum of exports and; thereby, controlling the domestic supply of sugar that is likely to have a resultant impact on prices.

The minutes of the SAB meetings evidenced that the PSMA asserts an estimate for exportable surplus, which is based on higher estimates of stock available or sugar production figures. Regarding the USC tenders, it found that the PSMA has gone beyond its role as an association and interfered in the award of the tenders by fixing quantities among certain member mills in violation of the act.

The commission took a lenient view for the mills concerned in relation to the 2019 USC tender, as the USC’s record showed that the tender was undersupplied and only awarded to five mills, who won the tender.

However, for the 2010 USC tender, the participating mills were found liable, as the PSMA could not have acted without their consent/agreement.

The commission was of the view that protecting or promoting competition does not solely mean ‘having the lowest price’ and that the choice to participate in a competitive bid and the submission of bid rates are all independent commercial decisions to be made by each individual sugar mill. With regard to stoppage of crushing in the crushing season 2019/20 by 15 Punjab mills on call of the PSMA, the commission, unanimously, found insufficient evidence to establish a contravention of the act.

Three mills were also found not liable for any contravention during the period under review on account of their non-participation or being non-members of the PSMA.

The commission said: “The mills turnover figures were not available to provide the same. The registrar should issue SCNs to all mills located in Sindh and KP for contraventions on account of sharing commercially sensitive information.

Meanwhile, the PSMA has rejected the CCP decision, terming it against the relevant clauses of the act.

In a statement issued on Friday, the association said that it was neither a majority nor a consensus decision. It was a split decision with two members each on the opposite sides.

Keeping in view the sensitivity of the issue, the chairperson should have not cast her vote. The PSMA believed that the use of casting vote was allowed only in administrative meetings and not in the CCP proceedings and seemingly the chairperson was unaware of this fact.

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