Background of Case:

CCP took notice of the news item appearing in the daily Business Recorder dated 04-05-2009, wherein it was reported that some international dredging companies have formed a cartel in order to qualify for the bids of dredging 45 kilometers long navigational channel of Port Qasim to the extent that it gets an all-weather 14-metre draught by 2010 (PQA Project), initiated an enquiry under section 37 of the Competition Ordinance, (Ordinance) by appointing enquiry officers to enquire into the allegation of collusive bidding, which is an offence under the provisions of sub-section (1) of Section 4 of the Ordinance read with clause (e) of the sub-section (2) of Section 4 of the Ordinance. CCP upon recommendation of the Enquiry Report issued show cause notices to CHEC, DI, JDN and CWE for contravention of the provisions of Section 4(1) read with Section 4(2)(b) & (e) of the Ordinance, which prohibits collusive tendering or bidding and dividing and sharing of markets.

As against CHEC and CWE it was alleged that CHEC quoted almost double the rates as compared to the rates of CWE for the dredging project at KPT (KPT Project) and CWE was awarded the project. However, CWE did not file any bid for the PQA project in its first round of bidding and filed a technically weak proposal in the second round of bidding for the PQA Project. Against CHEC, DI and JDN it was alleged that, they have entered into a Consortium Agreement and colluded together in order to create a win-win situation for themselves for the PQA Project and the Consortium have the effect of preventing, restricting reducing or distorting competition.

On the issue of whether the undertakings had divided territories and filed cover bids in collusion, the Commission first looked into the definition of the term cover bidding. It relied on various definitions including the OECD guidelines, namely, that it is a bid designed to appear genuine, but contains at least one of the following conditions: 1) a competitor agrees to submit a bid that is higher than the bid of the designated winner, 2) a competitor submits a bid that is known to be too high to be accepted, or 3) a competitor submits a bid that contains special terms that are known to be unacceptable to the purchaser. After conducting a hearing, the Commission found responses by the undertakings to be unsatisfactory and without any commercial justification. As such held that there was a collusive arrangement to divide territories.

On the issue of whether the consortium agreement constituted a prohibited agreement, the Commission analyzed international jurisprudence and noted that a bidding consortium is a cartel agreement if bidding separately would have been viable and rational business decision and if the agreement appreciably restricts competition. The Commission concluded against the undertakings.

The Order:

The Commission vide its Order dated 23-07-2010 observed that, all the undertakings i.e. CHEC, CWE, DJ and JDN have violated the provisions of Section 4(1) read with Section 4(2)(e) of the Ordinance. Accordingly, such prohibited agreements in the absence of exemption were declared void in terms of Section 4(3) of the Ordinance.

As for the quantum of penalty, it was observed that, all the parties in view of their sophisticated nature, international exposure and standing, it cannot even be assumed that undertakings of such stature are unaware or unfamiliar with the competition issues. Therefore, CCP imposed a penalty of Rs. 50 million each on the undertakings.

Current Status:

CHEC, DI and JDN have filed appeals in the Honorable Sindh High Court at Karachi.