Facts
Findings
Show cause notices and leniency
On May 12 2011 the Competition Commission authorised a committee of inquiry to investigate alleged collusive bidding by manufacturers of electrical power equipment. On the committee's recommendation, the commission conducted an inspection of the offices of the Pakistan Electric Manufacturers Association. An inquiry report was issued on the basis of the documents seized and impounded during the inspection.
The committee identified 36 electrical power equipment manufacturers and recorded the methods that they used to collude in fixing prices and dividing the quantities of goods being procured in the switchgear and distribution transformer market. The committee concluded that certain manufacturers had violated Section 4 of the Competition Act 2010, which states:
"Prohibited agreements.
(1) No undertaking or association of undertakings shall enter into any agreement or, in the case of an association of undertakings, shall make a decision in respect of the production, supply, distribution, acquisition or control of goods or the provision of services which have the object or effect of preventing, restricting, reducing or distorting competition within the relevant market unless exempted under section 5 of this Ordinance.
(2) Sub-agreements include, but are not limited to:
(a) fixing the purchase or selling price or imposing any other restrictive trading conditions with regard to the sale or distribution of any goods or the provision of any service;
(b) dividing or sharing... markets for goods or services, whether by territories, by volume of sales or purchases, by type of goods or services sold or by any other means;
(c) fixing or setting the quantity of production, distribution or sale with regard to any goods or the manners or means of providing any service;
(d) limiting technical development or investment with regard to the production, distribution or sale of any goods or the provision of any service;
(e) collusive tendering or bidding for sale, purchase or procurement of any goods or service;
(f) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a disadvantage; or
(g) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
(3) Any agreement entered into in contravention of the provision in sub-section (1) shall be void."
The committee's findings were as follows:
- There was prima facie cartel activity in the market for electrical power equipment. The association facilitated collusion among its members by providing a forum in which to devise and discuss strategies for collusive bidding.
- Certain switchgear manufacturers had been involved in bid rigging, by the allocation of shares, in tenders floated by various electrical power distribution companies for the procurement of switchgear.
- Certain energy meter manufacturers had been involved in bid rigging, by fixing prices and dividing quantities, in tenders floated by various distribution companies for the procurement of different categories of meter.
- Certain distribution transformer manufacturers had been involved in bid rigging, by fixing prices and dividing quantities, in tenders floated by various distribution companies for the procurement of different categories of transformer.
- Low-tension current transformer manufacturers had been involved in bid rigging, by fixing prices and dividing quantities, in tenders floated by various distribution companies for the procurement of low-tension current transformers.
In each case the actions in question had violated Section 4(1) of the act (read with Sections 4(2)(a),(b) and (e)).
The committee recommended that proceedings be initiated against the association and the switchgear manufacturers, energy meter manufacturers, distribution transformer manufacturers and low-tension current transformer manufacturers for violations of the act.
Show cause notices and leniency
Pursuant to the committee's recommendations, the commission issued show cause notices to 25 undertakings in September 2011 for bid rigging and other collusive activities in tenders called by distribution companies to procure switchgear and transformers from the association's members, which included Siemens (Pakistan) Engineering Co Ltd.
In April 2012 the chairperson of the commission announced at a news conference that the commission had agreed to grant leniency to Siemens. Siemens is the first company to file for leniency with the commission under Regulation 3 or 4(1) of the Competition (Leniency) Regulations 2007. Regulation 3 empowers the commission to grant total immunity from financial penalties, whereas Regulation 4(1) allows for a reduction in fines of up to 100%. Siemens admitted that it was guilty of the offence alleged in the show cause notice and gave an undertaking that it had ceased to participate in the prohibited activity. Moreover, it submitted documentary evidence to assist in the dissolution of the association's cartel in respect of procurement quota and price fixing.
Describing the granting of leniency as a landmark decision, the chairperson stated that a leniency programme appears to be the most powerful tool for competition agencies in seeking to detect and dismantle cartels. Leniency may be granted to a cartel member that:
- admits to the contravention in question;
- provides critical evidence of the cartel conduct (whether alleged or otherwise) of its accomplices; and
- undertakes to abandon the offending behaviour.
Such collaboration allows the commission to break cartels and to deter, rectify and eliminate anti-competitive practices in Pakistan, to the overall benefit of the economy.
A detailed order has yet to be published.
For further information on this topic please contact Samiya Fikree or Ferzeen Bhadha at Vellani & Vellani by telephone (+92 21 3580 1000), fax (+92 21 3580 2120) or email ([email protected] or [email protected]).