Background of the Case:

CCP, as part of its initiative to detect bid rigging in public procurement, sought information from many public procurement agencies, including Pakistan Agriculture Storage and Supply Corporation Limited PASSCO) regarding tenders and bidding in the last few years. Scrutiny of the information received from PASSCO revealed that the Jute Mills provided PASSCO jute bags at the same rates over the last three years, thus raising suspicion of bid rigging prohibited under Section 4 of the Competition Act. The Commission, taking suo moto notice of the information, initiated an enquiry and then on the recommendation of the Enquiry Officers and in view of the information on record, authorized its officers to conduct a search and inspection of PJMA’s office in Lahore under Section 34 of the Competition Act. As a result of the search and inspection conducted on 8 July 2010, important material was impounded for review.

CCP issued show cause notices to PJMA on 13 October 2010 and the Jute Mills on 21 October 2010. These Jute Mills included Thal Limited, Crescent Jute Products Limited, White Pearl Jute Mills Limited, Amin Fabrics Limited, Sargodha Jute Mills Limited, Pioneer Jute Mills Limited, Indus Jute Mills Limited, Suhail Jute Mills Limited, Madina Jute Mills Limited, Habib Jute Mills Limited. The principal issue in this case is whether PJMA has taken any decision, or the Jute Mills have entered into any agreement, with respect to production, pricing and tendering of Pakistan Grain Sacks (PGS) to public procurement agencies, in violation of Section 4 of the Competition Act, 2010.

For the purposes of its analysis, the Commission defined the product market as jute bags used for storage of grains in Pakistan and the relevant geographical market as that of Pakistan. Moreover, the Commission, inter alia, found emails etc that demonstrated the existing of an agreement regarding division of product and supply between the jute mills and was held to violate Section 4(1) read with Section 4(2)(a), (b), (c) and (e).

Similarly, in response to PJMA’s submission that discussion on tenders is not prohibited as long as price is not discussed, the Commission reiterated its earlier rulings providing that associations do not have the mandate to deliberate on, and take decision about, commercially sensitive information such as pricing, product and sale of goods and services undertaken by its members.

On the issue of mitigating circumstances put forward by the undertakings, the Commission was not convinced and, inter alia, provided that despite the peculiar circumstances governing the industry, there was no obligation or compulsion on the undertakings to act in accordance with or under the instruction of PPA.

The Bench’s Observation:

The CCP Bench appreciated the manner in which PJMA and Jute Mills have made a full disclosure of facts and have admitted their non-compliance although inadvertently. While it is hackneyed law that ignorance or inadvertence of such nature is no resolute defense, the candid and cooperative approach taken by the parties in identifying aspects that impede the development of a level playing field deserves due consideration. It is a stated objective of this Commission that it is implementing the applicable competition law and policy with the view of promoting business rather than disrupting, discrediting or discouraging it. PJMA and Jute Mills have demonstrated their commitment to inculcating and establishing an environment of compliance with the underlying theme of the competition law. Having come clean on this undertaking, the Commission is inclined to show some leniency in terms of the penalty that should be imposed for violations above noted. It may be added that the enactment of the Act, perhaps, embodies a most striking recognition that anti-competitive practices in fact exist and are pervasive across sectors of the state economy. The legislative mandate entrusted to this Commission is not limited to detection of anti-competitive practices and imposition of penalties on violators of the law. It is also about achieving corrective behavior so that an enabling environment for a free, fair and competitive market is established for the greater benefit of all, particularly the businesses and their consumers. Such an environment can only become a reality if businesses, relevant regulatory bodies, intermediary organizations and all others concerned espouse attitudes conducive to such environment. Considering that the PJMA and the Jute Mills have assured corrective behavior in the conduct of their respective businesses, the Commission welcomes this initiative and takes a lenient view, as prayed.

The Commission also issued various directives to PPAs to rectify their behavior and make the procurement process compliant with competition law relating to 1) entry barriers; 2) price competition, 3) timeline for acceptance or rejection of bids, 4) tender size, and 5) dealing with associations should be prohibited.

The Order:

Competition Commission of Pakistan (CCP) vide Order dated 03-02-2011 imposed a total penalty of PKR 23 million on Pakistan Jute Mills Association and 10 Jute Mills for engaging in collusive activities vis-à-vis production and supply of Jute Bags.

Keeping in view the front role played by PJMA which is nothing but a body comprising of all the Jute Mills as its members, it has been made liable to pay the penalty in the sum of PKR 5 million whereas all the Jute Mills, except Amin and Suhail, having acceded to the inadvertent violation, are hereby imposed a penalty in the sum of PKR 2 million each. Amin and Suhail, who have also acceded to inadvertent violation but are much smaller operations are hereby imposed PKR 1 million each, with the direction to all that the said penalty be deposited within forty five days of this order.

The Order has been complied with and penalty have been deposited in the public fund account of the Federal Govt.