Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

The relevant merger control legislation in Pakistan is primarily the Competition Act, 2010 (the Act) and the Competition (Merger Control) Regulations 2016 (CMCR 2016). The Act is a piece of federal legislation (ie, an Act of Parliament) and succeeds the successive presidential ordinances (temporary legislation enacted in 2007, 2009 and 2010 by the President of Pakistan) on the subject of anticompetitive practices. The Act is enforced by the Competition Commission of Pakistan (CCP) - established by the Act as an independent regulator at the federal level. The CCP’s top tier consists of members (appointed by the federal government) from among whom one is appointed by the federal government as the chairman. Many substantive and procedural details of merger control are set forth in CMCR 2016, which has repealed the earlier Competition (Merger Control) Regulations 2007 (CMCR 2007) that were issued under a temporary legislation (under a presidential ordinance in 2007).

Scope of legislation

What kinds of mergers are caught?

The definition of ‘merger’ in the Act and CMCR 2016 covers mergers, acquisitions, amalgamations, combinations or joining of two or more undertakings or parts thereof. If a merger that meets or exceeds specified thresholds ‘substantially lessens competition by creating or strengthening a dominant position’, it is caught by the competition regime. Without prejudice to this, any merger that meets or exceeds thresholds specified by CMCR 2016 has to receive clearance from the CCP. This is a mandatory requirement.

What types of joint ventures are caught?

Joint ventures are covered within the definition of merger under the Pakistani competition law regime. However, joint ventures are only caught if (i) thresholds specified by CMCR 2016 are met, (ii) the joint venture results in the creation of a new entity by two or more collaborators, (iii) the new entity is subject to joint control, performing functions independently on a lasting basis, and (iv) results in substantial lessening of competition by creating or strengthening a dominant position. However, if conditions (i) to (ii) are met, then clearance has to be obtained for setting up a joint venture.

The CCP has generally made clear its view while granting clearances in the past that if two independent or even related companies collaborate on a particular (usually a one-off) project without creating a new entity, then with all other things being equal, no clearance would be required from the CCP.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

The primary legislation (ie, the Act) does not provide any definition of ‘control’. However, Regulation 3 of CMCR 2016 provides an ‘explanation’ regarding ‘control’. ‘Control’ can exist either in relation to assets, or composition, voting or decisions of an entity. This explanation sets out a fairly loose definition of control by defining it as influence capable of being exercised as a result of securities (being not less than 10 per cent of their market value), contracts or any combination thereof. For the purposes of determining control, securities shall mean shares in the share capital of an undertaking carrying voting rights and includes any other security that entitles the holder thereof to obtain or exercise voting rights. This influence, in the case of assets, covers ownership of, or the rights to use all or even a part of, the assets of an undertaking. Alternatively, control is defined as influence capable of being exercised by reason of rights or contracts that enable decisive influence to be exercised with regard to composition, voting or decisions of any organs of an entity. Hence, in the case of assets, control has not been defined in terms of decisive influence and under this broader definition any ownership or right to use even a part of the assets of an undertaking would be covered.

Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

If the thresholds laid down in CMCR 2016 are met, then filing a pre-merger clearance before the CCP is mandatory. Thresholds have been specified in relation to the value of gross assets of merging parties or their annual turnover linked with the value of the transaction or voting shares. Pre-merger clearance has to be obtained if the following thresholds are met:

  • the value of gross assets of the acquirer undertaking exceeds 300 million Pakistani rupees or the combined value of parties to the acquisition transaction or merging entities is 1 billion Pakistani rupees; or
  • the annual turnover of the acquirer in the preceding year was 500 million Pakistani rupees (or more) or the combined turnover of parties to the acquisition transaction or merging entities is 1 billion Pakistani rupees or more; and
  • the transaction relates to shares or assets of the value of 100 million Pakistani rupees or more (ie, value of transaction threshold); or
  • the acquisition results in the acquirer holding (post-merger) more than 10 per cent of the voting shares.

In a nutshell, if either one of the first two thresholds is met then the CCP examines whether either one of the third or fourth thresholds is met. Where this condition is satisfied, it becomes mandatory to file - provided one or both parties do business in Pakistan.

Generally, merger parties being asset management companies (AMCs) carrying out asset management services may not be required to make an application for clearance unless:

  • the merger results in a situation where post-merger the collective exposure of the AMC for itself and in all its collective investment schemes in a single entity is more than 25 per cent of total voting rights, then pre-merger clearance has to be obtained; or
  • if post-merger, the value of total assets under the management of the AMC will be 1 billion Pakistani rupees or more, then pre-merger clearance has to be obtained; and
  • the transaction relates to acquisition of shares or assets of the value of 100 million Pakistani rupees (or more); or
  • in case of acquisition of shares by an undertaking, if an acquirer acquires voting shares, which taken together with voting shares, if any, held by the acquirer shall entitle the acquirer to more than 10 per cent voting shares.

Therefore, in case of AMCs, the CCP examines whether the transaction meets either one of the first two thresholds and one of the third or fourth thresholds.

Furthermore, transactions that do not meet the prescribed thresholds will not be required to obtain pre-merger clearance. However, such transactions may still be subject to investigation in case they contravene any other provision of the Act.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

The filing is mandatory as per the Act and CMCR 2016. Exceptions exist in certain cases even if thresholds are met. The following exceptions are specified in CMCR 2016:

  • if a holding company increases its stake in a subsidiary;
  • if a holding company merges or enters into a joint venture with one or more of its subsidiaries or if the subsidiaries of a holding company merge with each other or enter into a joint venture with each other;
  • if a bank, insurance company or investment company engages in trading of shares for its own account for earning of dividend income with no intention of acquiring a controlling interest in the company it invests in;
  • if shares have devolved by inheritance or through a gift deed or a will;
  • voting shares acquired by securities underwriters;
  • voting shares pursuant to a right issue unless acquirer’s percentage share in outstanding voting securities increases directly or indirectly;
  • real property or goods acquired in the ordinary course of business as long as the acquirer does not hold on to ‘substantially all’ of the relevant assets; and
  • unexplored real resource property acquired for development or exploration purposes.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

The law catches all those transactions where the parties do business in Pakistan and meet the relevant thresholds. The way the CCP interprets ‘doing business in Pakistan’ is quite broad; direct sales as well as sales through a third party are covered. If foreign-to-foreign mergers meet the relevant thresholds and the merger can affect competition within Pakistan, then these have to be notified to the CCP. Usually, the CCP will only look to the effects on competition in the local market where foreign players have a local presence. A recent example of this is the merger between Nestlé SA (incorporated in Switzerland) and Pfizer (incorporated in Delaware, US), where Nestlé SA acquired Pfizer’s nutrition food business. Nestlé Pakistan Limited is a wholly owned subsidiary of Nestlé SA in Pakistan. Pfizer’s subsidiary also exists in Pakistan. As products of both companies are available in Pakistan and as both had a local presence, the CCP required parties to file a clearance application.

There is no specific local effects test laid down by the CCP. However, the Act covers all matters that occur and distort competition within Pakistan - this has been interpreted to mean that only the effects in the local market have to be seen, even if the origin is elsewhere.

Are there also rules on foreign investment, special sectors or other relevant approvals?

Foreign investors coming into Pakistan are advised to engage a law firm to approach the Board of Investment, which offers a one-window facility for all relevant approvals and documentation required by the federal and provincial governments. If a foreign company is setting up a place of business in Pakistan or incorporating a local subsidiary, it shall have to approach the Securities and Exchange Commission of Pakistan (SECP) for the relevant registration. The SECP will also require details of any foreign national directors of a local company or a foreign company setting up a branch office in Pakistan. The Ministry of the Interior coordinates with the Board of Investment in granting security clearance to foreign nationals who are directors of local companies or foreign companies entering Pakistan. Details of these procedures can be provided by local lawyers.

Sector-specific regulators exist, among others, for sectors such as banking, aviation, insurance companies, capital markets, non-banking finance companies, telecoms, media, oil and gas as well as the electricity or power sector. Depending on the type of activity, licences may be required and the details of these application and processing procedures should be sought from local law firms.

With the promulgation of the Companies Act 2017, a merger may also require approval from SECP. Advice should be sought from local law firms on ensuring compliance with provisions of this law, where it is applicable.

Notification and clearance timetable

Filing formalities

What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

The Act and CMCR 2016 lay down that pre-merger clearances have to be filed as soon as an agreement in principle for the merger takes place, or a non-binding letter of intent to proceed with the merger is signed.

Section 11(12) of the Act sets out that sanctions can be imposed where parties have consummated a merger without complying with the pre-merger clearance procedure. Sanctions include the CCP’s power to undo a merger or prohibit it altogether. However, this can only be done after issuance of a show-cause notice and opportunity of a hearing at the end of the Phase II review (if any). Penalties under the Act also include fines of up to 75 million Pakistani rupees or up to 10 per cent of the annual turnover of the undertaking or entity involved.

While the CCP has imposed heavy penalties in cases involving abuse of dominant position or prohibited agreements, it has never imposed a penalty for non-compliance with merger control provisions. In practice, where undertakings file for clearance with any delay, they also file an application for lenient treatment (note, not leniency) and condoning of the delay. These have up until 2014 been routinely granted.

Which parties are responsible for filing and are filing fees required?

Parties to the merger are equally responsible for the filing, although in practice the parties usually decide between themselves who should file the application. In the case of an acquisition of shares or assets, the acquiring party must be the notifying party to the merger application in accordance with section 11(2) of the Act. The party filing the application is supposed to issue a notice of filing to all other parties to the merger, with a copy of such notice to the CCP, stating that the application will be or has been made.

Filing fees are required and vary with turnover of parties to the merger or value of assets under management (the latter in case of AMCs). The minimum filing fee is 300,000 Pakistani rupees and depending upon the turnover of the parties to the transaction, can go up to 2.25 million Pakistani rupees.

What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

The CCP is bound under the Act and CMCR 2016 to decide pre-merger applications within a specified number of days. Initial filing begins in the Phase I review. No objection in 30 working days means, as per the law, that the CCP has no objection to the merger. Normally, the CCP will issue a clearance within 30 working days. If the CCP wants to take the merger application to a Phase II review, it shall take this decision within 30 working days of filing and communicate this to the parties. However, a Phase II review has only been initiated in eight cases since the CCP’s inception in 2007.

If and when a Phase II review is initiated by the CCP (and this happens very rarely) the CCP then has another 90 working days within which to conduct an extended review. If no decision is made within 90 working days of starting of the Phase II review, then as per the law the CCP shall be deemed to have had no objection and the proposed merger shall be deemed cleared.

Because the scheme of the law is that clearance has to be obtained before consummation of the merger, the CCP expects parties not to complete or implement the transaction until clearance has been granted. However, if the filing is late or if the parties satisfy the CCP that the matter will not go beyond a Phase I review, the transaction does not have to be suspended. If the parties have already completed the merger, it is good practice to place on record an application requesting the condoning of the delay without imposition of any penalties.

Where, after a Phase II review, the CCP wants to prohibit or undo a merger, it shall issue a notice after an inquiry report. Thereafter, a hearing is held (normally within 15 working days of the issuance of the notice) and, after a quasi-judicial proceeding, a final order is passed.

Pre-clearance closing

What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?

The sanctions applicable to closing before clearance will essentially be the same as sanctions for not filing. Closing or non-filing will both violate section 11(12) of the Act which, read with sections 38 and 31 of the Act, provides for the penalties mentioned above. However, as explained above, the CCP has never applied sanctions since its inception in 2007 for non-filing or closing before clearance. When it comes to mergers, its focus has been ensuring awareness and implementation of the law rather than its enforcement with penalties.

Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?

There are no examples of sanctions having been applied in foreign-to-foreign mergers.

What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

The law envisages asking for pre-merger clearance before closing. However, in practice the CCP has always condoned delays as long as parties seek clearance for the merger and give sufficient reasons with a request for condoning of the delay.

In practice, the CCP’s mergers department takes the position that there is no bar to a ‘hold-separate’ arrangement. However, this facilitative approach is different from the letter of the law, which requires pre-merger clearance. The safest way would be to notify the CCP of the merger and ensure requisite filing with the commitment that, until final clearance is given, the parties will put in place a ‘hold-separate’ arrangement.

Public takeovers

Are there any special merger control rules applicable to public takeover bids?

Under the competition law regime, there are no special merger control rules applicable to public takeover bids. Generally, public takeovers are regulated by the SECP and the Pakistan Stock Exchange. The Securities Act, 2015 (Securities Act) and the Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Regulations 2008 (Take-Over Regulations) prescribe a separate procedure for offers to acquire shares of a public listed company. The Securities Act is a piece of federal legislation and repeals the previous Listed Companies (Substantial Acquisition of Voting Shares and Take-Overs) Ordinance 2002 (Repealed Take-Over Ordinance) which related to the substantial acquisition of voting shares and takeovers of listed companies. The Securities Act along with the Take-Over Regulations, made under the Repealed Take-Over Ordinance and validated by the Securities Act, regulate takeovers. This supplements and does not exclude the Act and CMCR 2016.

The Securities Act does not apply to, inter alia, mergers under any law for the time being in force except in cases of acquisition of voting shares in a listed company. The Securities Act prescribes thresholds regarding the aggregate percentage of shareholding to be acquired in a listed company, which if met, trigger disclosure requirements or obligations of making a public offer of the acquisition of voting shares, as the case may be.

Advice should be sought from local law firms on ensuring compliance with provisions of this law, where it is applicable.

If the thresholds are met, the CCP clears public takeover bids following the Act and CMCR 2016.

Documentation

What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?

Significant details go into preparation of a filing and local legal practitioners specialise in this field. The repealed CMCR 2007 carried a form (appearing in its Schedule) that was to be filled out along with supporting evidence. Although the CMCR 2016 refers to a form, the same has not been annexed to the CMCR 2016. Instead the official CCP website (www.cc.gov.pk) provides two forms (a short form and a long form) that must be filled out along with supporting evidence for purposes of a filing. While the long form can be used for all transactions, the short form may only be used for acquisition of shares on the capital markets, conglomerate mergers, or group re-structuring. The short form is a relatively new addition and, as there is still uncertainty regarding its applicability, in practice preference is given to the long form.

The long form is an 11-page document and the information that needs to go into a filing includes (but is not limited to):

  • an executive summary of the notified merger specifying (i) parties to the merger; (ii) the nature of the merger; (iii) the area of activities of the parties to the merger; (iv) the relevant product and geographic markets in which the merger is likely to have an impact; and (v) the excepted time frame for completion of various stages of the merger;
  • corporate information about the parties and their holding and subsidiary companies;
  • details of the transaction and consideration involved;
  • nature of the merger and the markets on which it will have an impact;
  • copies of all relevant agreements, analyses, reports provided to board of directors of relevant companies;
  • market shares (pre- and post-merger) along with details of sales, production, volumes as the case may be;
  • relevant market studies and anticipated changes in the market post-merger;
  • explanation of the relevant market (product-wise as well as geographical);
  • copies of business plans for the current year and the preceding five years;
  • cooperative effects of any joint ventures and justifications; and
  • any ancillary restraints being imposed or anticipated and their necessity.

On the other hand, the short form is a two-page document and the information that needs to be provided includes (but is not limited to):

  • corporate information about the parties and their holding and subsidiary companies;
  • nature and detail of the transaction;
  • relevant market studies and anticipated changes in the market post-merger;
  • explanation of the relevant market (product-wise as well as geographical); and
  • any ancillary restraints being imposed or anticipated and their necessity.

Furnishing false or misleading information or impeding the work of the CCP carries a penalty of up to 1 million Pakistani rupees.

Investigation phases and timetable

What are the typical steps and different phases of the investigation?

The statutory timetable for clearance is 30 working days for a Phase I review. This 30-working-day period begins from the date of filing the pre-merger clearance application. Most applications, unless they raise serious concerns, receive clearance within 30 working days of filing. Except for rare cases, most mergers are granted clearance after a Phase I review - within 30 working days. If a Phase II review begins in the wake of serious competition-related concerns, the time period (once the Phase II review begins) is 90 working days within which the CCP will make a decision. In practice, a decision is usually made within two to two-and-a-half months. The time frame also depends on how quickly parties respond to any queries by the CCP. Two worrying instances of slight delays in recent years involve applications by GlaxoSmithKline plc and Novartis AG. In GlaxoSmithKline’s case, the Phase II review began on 13 November 2014. Final clearance was given through an order dated 20 February 2015 - slightly longer than the statutory period of 90 working days. And in the case of application by Novartis AG, the clearance was sought through an application on 29 August 2014 but the final approval after a Phase II review was given on 9 February 2015. However, these two cases represent the exception rather than the rule.

Failure to make a decision within the relevant 30- or 90-working-day period has been deemed by law to mean that the CCP has no objection to the merger.

The only way of speeding up this process is to file a formal application before the CCP to expedite the process. Arrangements should also be made with lawyers to follow it up on the administrative side with the CCP.

What is the statutory timetable for clearance? Can it be speeded up?

The law prescribes a 30-working-day period for clearance of all Phase I applications. Most transactions are cleared in Phase I. The law specifically says that if the CCP does not raise any objection to a transaction within 30 working days of it being notified, then the transaction is deemed cleared. In practice, the CCP says that this 30-working-day period only begins to run from the time a complete application is submitted. This means that, in many cases, when you file an application before the CCP, it will usually write back to you within a week or two and demand more information. Once you furnish that, the CCP will say that the time is now running. There is no set timeline for how long it takes for a decision. In most cases, a decision is given within four weeks from the time of initial filing. In other cases, it has taken until six weeks, since the CCP cites an initially incomplete application. Very few cases involving mergers actually result in a formal investigation or inquiry, as most cases are cleared after a Phase I review. The inquiry or investigation for a Phase I review is largely informal in the sense that no formal reports are compiled and only final clearances are issued. Lawyers and representatives routinely meet officers of the CCP’s mergers department to explain their transactions after filing of formal clearance applications - although such meetings are not mandatory or necessary in each case. In the event the CCP feels the need for a detailed formal investigation or inquiry, the process involves the following steps:

  • appointment of inquiry officers by the CCP through a written authorisation;
  • gathering of preliminary information by an inquiry team - this information may have come into the possession of the inquiry team as a result of its independent efforts or by virtue of the CCP’s general powers to call on undertakings to furnish information on matters that may have an adverse impact on competition;
  • interviews with representatives of relevant undertakings. However, this is not a mandatory step, as the CCP interprets the law as not requiring any right of hearing at the investigation or inquiry stage. This view, it is submitted, is consistent with the letter and spirit of the law. However, at times the CCP will of its own accord interview representatives of relevant undertakings; and
  • once the inquiry is complete, the inquiry officers will make a recommendation - either for issuance of a show-cause notice and initiation of proceedings or closing the file because of insufficient evidence.

No penalty has been imposed by the CCP since its inception in 2007 on parties to a merger transaction.

The investigation procedure outlined herein would generally only take place if a third party files a formal complaint regarding the merger or if the CCP intends to proceed against merger parties for not notifying a merger that meets the thresholds.

Substantive assessment

Substantive test

What is the substantive test for clearance?

The substantive test for clearance is whether the merger will result in a substantial lessening of competition by creating or strengthening a dominant position of the undertaking in the relevant market. The term ‘relevant market’ has been defined by the Act in a way similar to the European jurisdiction with a focus on a product and a geographic market. Price, characteristics and intended uses are the criteria used to determine substitutability when defining the relevant market.

CMCR 2016 also sets out the factors to be considered by the CCP when determining whether there is likely to be substantial lessening of competition. These include but are not limited to:

  • actual and potential level of import competition in the market;
  • ease of entry into the market, including tariff and regulatory barriers;
  • level and trends of concentration and history of collusion in the market;
  • degree of countervailing power in the market;
  • dynamic characteristics of the market, including growth, innovation and product differentiation;
  • nature and extent of vertical integration in the market;
  • whether the business or part of the business of a merger party or merger has failed or is likely to fail; and
  • whether the merger situation will result in the removal of an effective competitor.

Even if the CCP determines after a Phase II review that a merger substantially lessens competition, it can still allow the merger if it can be shown that:

  • the merger contributes substantially to economic efficiencies related to production or distribution of goods or provision of services;
  • the said efficiency could not reasonably have been achieved by a less restrictive means of competition;
  • in a cost-benefit analysis, the benefits of such efficiency clearly outweigh adverse effects on competition; and
  • the undertaking adopted the least anticompetitive option for a failing undertaking’s assets when faced with actual or imminent financial failure.

Is there a special substantive test for joint ventures?

There is no special test for joint ventures. The substantive assessment remains pegged to substantial lessening of competition by creating or strengthening a dominant position. In a nutshell, a joint venture would be caught by Pakistani competition law if:

  • thresholds specified by CMCR 2016 are met;
  • the joint venture results in creation of a new entity by two or more collaborators;
  • the new entity is subject to joint control, performing functions independently on a lasting basis; and
  • it results in substantial lessening of competition by creating or strengthening a dominant position.
Theories of harm

What are the ‘theories of harm’ that the authorities will investigate?

The substantive test expressly focuses on substantial lessening of competition by creating or strengthening a dominant position in the relevant market. This test, however, is slightly at odds with the rest of the Act, as section 3 of the Act (prohibition against abuse of dominant position) does not prohibit a dominant position per se but only its abuse. When it comes to mergers, a dominant position itself may not be prohibited but the focus is on whether the merger results in a substantial lessening of competition.

However, because its jurisprudential development under this relatively new law is a work in progress, it cannot be said with certainty that the CCP has closed itself off to any theories of harm. Any potential theory of harm that will allow the CCP to evaluate substantial lessening of competition will be used. This includes but is not limited to unilateral effects, coordinated effects, conglomerate effects, vertical foreclosure as well an evaluation of any likely horizontal effects, boycotts, predatory pricing, likelihood of tie-ins and refusal to deal, etc.

Non-competition issues

To what extent are non-competition issues relevant in the review process?

The CCP is largely motivated by public interest and makes significant efforts to be seen as an enforcement organisation or regulator that is receptive and responsive to the concerns of the market - particularly vulnerable market players such as consumers or smaller competitors. However, the focus on public interest has thankfully not been allowed to lead to a situation where some abstract standards have been developed while ignoring the law itself. The review and evaluation still largely focuses on the law and economics involved along with a healthy regard for the public interest.

Economic efficiencies

To what extent does the authority take into account economic efficiencies in the review process?

Economic efficiencies play an important role in the review process. This has been commanded by the Act itself and is reflected in the CCP’s practice. Even if the CCP determines after a Phase II review that a merger substantially lessens competition it can still allow the merger if it can be shown that:

  • the merger contributes substantially to economic efficiencies related to production or distribution of goods or provision of services;
  • the said efficiency could not reasonably have been achieved by a less restrictive means of competition;
  • in a cost-benefit analysis, the benefits of such efficiency clearly outweigh the adverse effects on competition; and
  • the undertaking adopted the least anticompetitive option for a failing undertaking’s assets when faced with actual or imminent financial failure.

Remedies and ancillary restraints

Regulatory powers

What powers do the authorities have to prohibit or otherwise interfere with a transaction?

If after a Phase II review the CCP feels that a merger will substantially lessen competition, it can, after issuance of a notice and hearing the parties, decide to:

  • prohibit the merger or unwind it;
  • approve it subject to conditions; or
  • approve it subject to undertakings regarding agreements that merging parties enter into contracts specified by the CCP.

It is also worth noting that while a Phase I or II review is under way and the CCP feels that there is a strong prima facie case of a substantial lessening of competition in the relevant market along with likelihood of immediate harm, it can also pass interim orders under the Act and CMCR 2016. However, to date this power to pass interim orders has not been exercised in cases involving clearances for mergers.

Remedies and conditions

Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?

Yes, the CCP is quite accommodating when it comes to listening to the merging parties about solutions that would allay the regulator’s concerns. Divestment undertakings as well as behavioural remedies can be suggested to the CCP to persuade it to grant clearance. However, these are likely to be necessary only after conclusion of a Phase II review where the CCP thinks the merger will substantially lessen competition.

What are the basic conditions and timing issues applicable to a divestment or other remedy?

If, during a Phase I review, the CCP raises concerns about the merger, then the parties or undertakings are free to approach the CCP with any suggestions for divestment. There are no strict conditions or timing issues applicable to a divestment or other remedy. Where a divestment is adopted as a remedy, the CCP is likely to pass an order saying that it shall occur within a specified time (and this may vary from case to case). As long as parties give an undertaking thereafter to comply with the CCP’s directions or address its concerns, the clearance is likely to be granted.

What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?

If the CCP feels that foreign-to-foreign mergers will produce effects in Pakistan, then it can require remedies. A recent example of this is the acquisition of Pfizer’s nutrition business by Nestlé, which resulted in the CCP demanding an undertaking from Nestlé to the effect that Pfizer’s products will continue to be available to consumers in Pakistan for three years. By way of background it is submitted that the CCP’s central concern was that a foreign-to-foreign merger should not result in a situation where choices available to consumers in Pakistan are immediately eliminated.

Ancillary restrictions

In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?

The sample clearance applications (both the short and long form) being used for applications under CMCR 2016 clearly expect parties to inform the CCP in relation to any ancillary restraints. The long form specifically requires parties to set out and justify any ancillary restraints along with an explanation as to why any less restrictive means could not have been adopted. Therefore, as per general practice, if an undertaking (and its lawyers) are detail-oriented and take the care to set out related arrangements and explain how these are linked to the clearance requested, then the clearance decision will cover ancillary restrictions.

As has been the case in the recent past, if any ancillary restrictions or arrangements are part of the merger application, the CCP’s merger clearance order becomes conditional upon the merger parties seeking an exemption in accordance with section 5 of the Act.

Involvement of other parties or authorities

Third-party involvement and rights

Are customers and competitors involved in the review process and what rights do complainants have?

When conducting an assessment, the CCP will take a holistic view and will factor in the views of customers and competitors. However, this will not always be done by the CCP and this practice is more likely to be followed where there is some doubt as to whether clearance should be granted after a Phase I review.

A formal complaint can be filed as per the detailed formalities laid down in CMCR 2016 and the CCP’s General Enforcement Regulations 2007. A complainant has a right to be heard during the hearing and make formal representation through a lawyer or other experts.

Publicity and confidentiality

What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?

Unless the merger involves large companies with a very public profile, the process is not given and does not receive a lot of publicity. However, each merger clearance is notified on the CCP’s website, which is regularly updated.

Both the Act and CMCR 2016 expressly envisage protection of commercial information including business secrets. Any confidential information must be so identified when being provided to the CCP, if the applicant fails to specify any part thereof as confidential, the CCP may treat the application as non-confidential. An explanation as to why the information is confidential is also required.

Cross-border regulatory cooperation

Do the authorities cooperate with antitrust authorities in other jurisdictions?

The CCP cooperates with antitrust authorities in the South Asian region as well as globally. However, this cooperation has largely focused on capacity building rather than working together on particular cases.

Judicial review

Available avenues

What are the opportunities for appeal or judicial review?

Dealing with statutory appeal first, if an adverse order is passed by a single member of the CCP, an appeal lies within 30 working days of passing of the order before the Appellate Bench of the CCP. If an order is passed by two or more members of the CCP then the appeal lies within 60 days of communication of the order before the Competition Appellate Tribunal (CAT). Appeals against decisions of the CAT can be filed before the Supreme Court within 60 days of the order.

The CAT is distinct from the CCP. It has only recently become functional again as the federal government has finally appointed new members to it.

As a matter of general practice, the CCP ensures that two or more members pass all orders. This is a reaction to the criticism of the CCP that its members sitting on the Appellate Bench of the CCP hear appeals from decisions made by their colleagues and therefore are likely to be biased.

Judicial review petitions before a High Court can be filed under article 199 of the Constitution of Islamic Republic of Pakistan, 1973. A direct petition can also be made under article 184(3) to the apex court of the land (ie, the Honourable Supreme Court of Pakistan). In practice, it is usually more convenient and common to first approach one of the High Courts. The constitutionality of the Act is currently under challenge in various High Courts in the country. Undertakings from the sugar, cement and telecoms sectors (among others) have challenged this law. One major argument is that the Federation cannot enact a law such as the Act in exercise of its power to regulate inter-provincial trade and commerce. The other argument relates to the exercise of judicial power by members of the CCP as well as members of the CAT, as they are not a formal part of the judicial system as laid down by Pakistan’s Constitution. The petitions are currently pending before the Islamabad and Sindh High Courts. The Lahore High Court initially reserved judgment on the cases argued before it; however, it has now asked the counsel to re-argue the matter.

Time frame

What is the usual time frame for appeal or judicial review?

There is no limitation period for judicial review. Decisions can take anywhere between a couple of weeks, months or years, depending on the complexity of the case.

Appeals before the Appellate Bench of the CCP have traditionally been decided within two to four months. Appeals before the CAT have generally been decided within three months. The CAT has recently become functional - earlier it did not have the requisite number of members. There is a powerful criticism of the CAT that, because the appointments to it are purely within the domain of the Executive, its existence therefore violates constitutional guarantees of due process, a fair trial and independence of the judiciary.

Enforcement practice and future developments

Enforcement record

What is the recent enforcement record and what are the current enforcement concerns of the authorities?

The CCP has taken the position that as long as a foreign-to-foreign merger is likely to affect competition within Pakistan and the transaction falls within the jurisdictional thresholds for merger clearance, then pre-merger clearance should be obtained. However, the CCP is bound by the requirement of the law that one or both parties should be doing business in Pakistan. In practice, the CCP will only act regarding foreign-to-foreign mergers if merging undertakings have a local presence - whether through branch offices, subsidiaries or operations.

No penalty has ever been imposed because a foreign-to-foreign merger was consummated without first receiving complete clearance from the CCP.

Recently, the CCP approved M/s Alipay (Hong Kong) Holding Limited’s (an affiliate of Alibaba Group) acquisition of 45 per cent shareholding in M/s Telenor Microfinance Bank Limited. In 2013, Alipay overtook PayPal as the world’s largest mobile payment platform; therefore, the said acquisition will result in the world’s largest mobile payment platform’s entry into Pakistan.

Further, since January 2018, the CCP has approved 66 mergers, acquisitions and joint ventures, in sectors such as automotive, power generation, information technology, oil & gas, and food. The major transactions, inter alia, include:

  • the acquisition of Daraz.com by Alibaba Singapore Holding;
  • the acquisition of OMV (Pakistan) Exploration GMBH by Dragon Prime Hong Kong Limited;
  • the joint venture between Riaz Bottlers (Private) Limited and Lotte Chilsung Beverages Co Limited;
  • the acquisition of shareholding in Total PARCO Marketing Limited by Pak-Arab Refinery Limited; and
  • the acquisition of Marshall Gas (Private) Limited’s Liquefied Petroleum Gas plant by Hascol Petroleum Limited.

The current federal government in Pakistan has made clear its agenda regarding the privatisation of state-owned enterprises. The current enforcement concerns of the authorities significantly revolve around the market power that will be created or strengthened as a result of privatisation as large local and foreign entities compete for entry into the aviation, oil and gas, electricity distribution, railway and other sectors. The role of the CCP in clearing acquisitions or mergers as a result of privatisation is significant, but one cannot be sure how well it will perform. There are legitimate fears that the CCP is understaffed and needs to improve its capacity to perform better. The vision of its leadership will also make a big difference.

Reform proposals

Are there current proposals to change the legislation?

None has been made public by the federal government.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?

On 4 October 2018, the current federal cabinet terminated the appointment of CCP chairperson Vadiya Khalil with immediate effect along with the appointments of CCP members, Dr Shahzad Ansar and Dr Mohammad Saleem, on the grounds that the chairperson and the members had been appointed by the former finance minister, Ishaq Dar, in violation of the laid-down procedures. This resulted in great uncertainty regarding how the CCP would be administered after removal of its chairperson and members; including, how the applications and inquiries that were pending before the CCP would be decided. Subsequently, the chairperson and the two members filed a writ petition in the Islamabad High Court (IHC) against their termination, pursuant to which, on 3 November 2018, the IHC granted interim injunctive relief to the aggrieved parties. After the order of the IHC, the CCP chairperson and the two members resumed their duties. However, at the time of this submission, the CCP chairperson and the two members named above continue to serve on the basis of an injunctive order in their favour and the fate of their appointment will finally be determined once their petitions are decided by Islamabad High Court.

Further, in 2019, the federal government appointed two new female CCP members, namely, Shaista Bano Gilani and Bushra Naz Malik, for a three-year term. Both members have taken charge of their offices. At present, the CCP consists of five members (as stipulated in section 14 Competition Act, 2010) including Chairperson Vadiyya Khalil, Dr Shahzad Ansar and Dr Muhammad Saleem.