ISLAMABAD: The Competition Commission of Pakistan (CCP), as part of an enquiry launched in May 2020 to investigate the possible anti-competitive practices by the cement manufacturers, carried out investigation of the All Pakistan Cement Manufacturers Association (APCMA) in Lahore today.
As a part of the inspection, two teams entered and searched the APCMA main office and the office of one of its member firms. The commission dedicated a team to investigate one of the member companies of APCMA because a senior employee of this company is also the office bearer of the APCMA’s executive committee, representing the northern region. Hence, an inspection of the premises of the member firm was essential to determine any signs of collusive arrangements for the purposes of the Competition Act, 2010.
The enquiry was initiated on the basis of the information gathered through various media reports, and concerns and complaints expressed regarding a concurrent increase in cement prices, particularly during the month of April 2020.
The reports indicated that an increase of Rs45-Rs55 per cement bag was apparently decided in a meeting of the cement manufacturers held under the umbrella of APCMA. Some of the media reports also quoted cement dealers saying that the leading cement companies in the northern region had collectively decided to increase the cement prices by Rs55 per bag.
From the analysis done by the CCP’s enquiry officers of the cement companies’ profitability trend, it transpired that due to the lower demand of cement in the first quarter of 2020, the companies had to undergo financial losses at variance, however, the increase in price was starkly parallel, raising concerns of collective decision-making and price-fixing by the cement manufacturers.
Some other players of the construction industry also hinted upon the cement cartel in the North region becoming active following price increase trend in the northern region.
The official data available with the CCP indicated that the prices of cement increased by 4 per cent in Islamabad, 10 per cent in Lahore, and 6 per cent in Peshawar from the second week of April 2020.
From the analysis of the information obtained from the news reports, price trends and facts gathered pertaining the same, it appears that the correlation between the increased prices of cement and grounds presented by the representatives of the cement industry needs to be assessed on an objective basis.
Sudden increase in price by the cement manufacturers at a time when there is low demand compared to the installed capacity of the manufactures and considering that input fuel cost (coal and oil), transportation and interest rate have declined raises suspicion of a collective rise in price by cement companies.
It may be noted here that the production capacity of cement sector has increased from 44 million tons in 2014 to 69 million tons in 2020. The losses incurred by the cement sector and an increase in the price of cement in a similar time period raises suspicion of a collective decision of the cement companies to recover losses incurred due to unutilized installed capacities.
It is pertinent to mention here that the cement sector has a history of collusive activities and they have been penalized in the past to an amount of collectively more than Rs6.3 billion on account of involvement in the uncompetitive practices that stand in violation of Section 04 of the Competition Act, 2010.
In 2012, the commission again initiated an enquiry against cement companies, however the same could not proceed further due to stay order granted to cement companies by the Lahore High Court.
Under Section 34 of the Act, the authorized officers of the commission have access to any premises, place, accounts, documents and computers, including computer-stored information, on the premise and to impound, or make extracts or copies of, any document and account relating to any agreement made or decision taken, or to their implementation, by undertaking. In case an undertaking refuses, without reasonable cause, to allow the authorized officers of commission to exercise the aforesaid powers the commission can make forcible entry.
The search has been carried out to gather the evidence of possible communication, arrangement, agreement, or understanding between the cement producers pertaining to the violation of the provisions of the act.
Job well done
Would the price of cement get lower in future?