The Competition Commission of Pakistan (CCP) has issued show cause notice to M/s Engro Vopak Terminal Limited (EVTL) for prima facie abusing its dominant position by imposing unfair trading conditions and also employing constructive refusal to deal strategy with its customer in violation of Section 3 of the Competition Act, 2010. A formal complaint was lodged to CCP by M/s Lotte Pakistan PPTA Limited (Lotte Pakistan) against EVTL. In its Complaint, Lotte Pakistan has alleged that EVTL is abusing its dominant position by charging exorbitant price for its handling and storage facilities and services. The CCP conducted a comprehensive inquiry in the matter, which revealed that the EVTL has been granted exclusive rights for thirty years to handle and store all liquid chemicals entering the Port Qasim area through a concession agreement between EVTL and Port Qasim Authority. EVTL has also entered into a Storage Agreement with Lotte Pakistan to provide handling and storage facilities for Reception Storage and Delivery of Paraxylene and Acetic Acid. By virtue of its monopoly, EVTL appears to have been able to dictate its own terms and conditions to its customer. In terms of Enquiry Report, EVTL is charging exorbitant rate of tariff and has recovered US$ 133m from its customer, Lotte Pakistan, which amount is much more than the purported capital cost and even the total investment made to-date in terminal infrastructure. In the Financial Model submitted to PQA at the time of grant of concession, EVTL has provided the tariff structure to yield 18% IRR based on; Capital cost for required handling and storage, Nature of the product, Related operating cost and Product throughput and parcel size. However, the tariff structure given in Storage Agreement between the customer i.e. Lotte Pakistan and EVTL fails to reflect any aforementioned basis and consequently IRR% remains unascertained. On the other hand customer has no other readily available option in the relevant market to avail handling and storage. After conducting an Enquiry the findings affirm that rent seeking from a captured customer has, Prima facie, resulted into abuse of dominance by EVTL in form of imposing unfair trading conditions on the customer, thereby, violating Section 3(3)(a) of the Act. The Storage Agreement is going to expire in 2012, both parties have entered into negotiations for its renewal as per their contractual terms. The Complainant, Lotte Pakistan, has alleged that EVTL after having recovered the capital cost and even total investment in the project from Lotte Pakistan, EVTL is still demanding an exorbitant rate of tariff. As per the findings of the Enquiry Report such conduct of EVTL, prima facie, amounts to a constructive refusal to deal with its customer in contravention of Section 3(3)(h) of the Act. The CCP has already issued Show Cause Notices to EVTL and Port Qasim Authority for failure to seek exemption for the concessions agreement entered into between both parties which is a, prima facie, prohibited agreement within the ambit of Section 4 of Act. As two different violations under the Act have occurred in respect of same subject matter of concession agreement and also involve the same parties, the CCP may decide to consolidate the hearings in both matters.
The Competition Commission of Pakistan (CCP) has issued show cause notice to M/s Engro Vopak Terminal Limited (EVTL) for prima facie abusing its dominant position by imposing unfair trading conditions and also employing constructive refusal to deal strategy with its customer in violation of Section 3 of the Competition Act, 2010.
A formal complaint was lodged to CCP by M/s Lotte Pakistan PPTA Limited (Lotte Pakistan) against EVTL. In its Complaint, Lotte Pakistan has alleged that EVTL is abusing its dominant position by charging exorbitant price for its handling and storage facilities and services.
The CCP conducted a comprehensive inquiry in the matter, which revealed that the EVTL has been granted exclusive rights for thirty years to handle and store all liquid chemicals entering the Port Qasim area through a concession agreement between EVTL and Port Qasim Authority. EVTL has also entered into a Storage Agreement with Lotte Pakistan to provide handling and storage facilities for Reception Storage and Delivery of Paraxylene and Acetic Acid. By virtue of its monopoly, EVTL appears to have been able to dictate its own terms and conditions to its customer.
In terms of Enquiry Report, EVTL is charging exorbitant rate of tariff and has recovered US$ 133m from its customer, Lotte Pakistan, which amount is much more than the purported capital cost and even the total investment made to-date in terminal infrastructure. In the Financial Model submitted to PQA at the time of grant of concession, EVTL has provided the tariff structure to yield 18% IRR based on; Capital cost for required handling and storage, Nature of the product, Related operating cost and Product throughput and parcel size. However, the tariff structure given in Storage Agreement between the customer i.e. Lotte Pakistan and EVTL fails to reflect any aforementioned basis and consequently IRR% remains unascertained. On the other hand customer has no other readily available option in the relevant market to avail handling and storage. After conducting an Enquiry the findings affirm that rent seeking from a captured customer has, Prima facie, resulted into abuse of dominance by EVTL in form of imposing unfair trading conditions on the customer, thereby, violating Section 3(3)(a) of the Act.
The Storage Agreement is going to expire in 2012, both parties have entered into negotiations for its renewal as per their contractual terms. The Complainant, Lotte Pakistan, has alleged that EVTL after having recovered the capital cost and even total investment in the project from Lotte Pakistan, EVTL is still demanding an exorbitant rate of tariff. As per the findings of the Enquiry Report such conduct of EVTL, prima facie, amounts to a constructive refusal to deal with its customer in contravention of Section 3(3)(h) of the Act.
The CCP has already issued Show Cause Notices to EVTL and Port Qasim Authority for failure to seek exemption for the concessions agreement entered into between both parties which is a, prima facie, prohibited agreement within the ambit of Section 4 of Act. As two different violations under the Act have occurred in respect of same subject matter of concession agreement and also involve the same parties, the CCP may decide to consolidate the hearings in both matters.
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