A two member Bench of the Competition Commission of Pakistan (CCP) comprising of Mr. Khalid A. Mirza, Chairman of CCP and Ms. Rahat Kaunain Hassan, Member (Legal), passed an Order and imposed a penalty of Rs. 50 million each on M/s China Harbour Engineering Company Limited (CHEC), M/s Dredging International (DI), M/s Jan De Nul N.V (JDN) and M/s China International Water & Electric Corporation (CWE) and disposed of the show cause notices issued to them. 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 s 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. After hearing all the parties at length, it was observed by the Bench that CWE did not contest the alleged wrongful disqualification for the PQA Project, particularly when it maintains that its quoted price was much lower. More striking is its omission to provide the basic documents in the bid before PQA. If either of the facts are taken as true, such omission is too glaring and smacks of sheer lack of diligence in presenting the bid documents. No serious, diligent and responsible bidder can make such a fatal omission. Considered in the complete perspective of the case before us, and keeping the ultimate effect of the conduct and behaviour of CWE & CHEC, the Bench did not inclined to grant any benefit of doubt to both the parties as CWE & CHEC have failed to demonstrate any valid or prudent commercial basis for their conduct. Hence, the Bench was constrained to reach the conclusion that, there was a collusive arrangement inter se CHEC and CWE to divide territories i.e. KPT Project and PQA Project among themselves and to file cover bids in their respective territories, which has the object of restricting, reducing and distorting competition and is in violation of Section 4 (2) (b) & (e) read with Section 4 (1) of the Ordinance. Regarding the allegations against CHEC, DI and JDN, CCP relying on the precedents of mature jurisdictions observed that, the bidding consortia are to be treated on case to case basis applying the rule of reason and should not be treated as per se illegal i.e. agreements that always have anti-competitive objects and effects. CCP took into considerations all the justifications afforded by the parties concerned with respect to the non-availability of the equipment required for the PQA Project, it was observed that, CHEC, DI and JDN represented in their bid that the key equipments required by PQA under its tender documents, are available. This unambiguously belies the claim of non-availability of the equipment by the parties to the Consortium Agreement. With reference to the financial ability of CHEC, DI and JDN, it was observed by the Bench that, financial ability of DI and JDN were much better than the financial ability of M/s Van Oord (VOD), yet VOD filed an independent bid but DI and JDN filed a joint bid in collaboration with CHEC for the PQA Project. The Bench further observed that, it was beyond comprehension that VOD was not affected by the economic turmoil or reduced borrowing capacity of the banks despite its lesser financial ability, and submitted a bid independently and was even willing to perform the PQA Project on its own available resources. The only plausible reasoning for CHEC, DI and JDN to file a joint bid appears to be reducing their own cost and risks involved rather than improving the provision of efficient services to PQA for the PQA Project. The Bench further observed that, the present financial proposal of Rs. 16.058 billion of the Consortium is much higher almost 60% as compared to the previous proposal of Rs. 10.2 billion filed by CHEC. Although it has been claimed by the Consortium members that the same is due to (i) political turmoil in the country resulting into higher insurance and financing cost, (ii) unusual increase in fuel cost being a major part of the bidders total cost, and (iii) devaluation of about 30% of the Pakistan Rupee against the US Dollar, however given the peculiar facts of the matter it could very much be the outcome, due to lack of competition amongst competitors through collaboration under the Consortium Agreement. Therefore, it was held that, the Consortium Agreement falls within the purview of prohibited agreement and such collaboration has prevented restricted, reduced or distorted competition within the relevant market in terms 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 by the Bench 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. The Bench further cautioned PQA that in future consortium bidding be scrutinized carefully and/or to require such consortiums to seek exemption from CCP, in accordance with the Ordinance.
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