The Competition Commission of Pakistan (CCP) has issued show cause notice to Pakistan Vanaspati Manufacturers Association (PVMA) for engaging in collusive behaviour in the determination of the price of ghee or cooking oil and rate of the transportation of edible oils in violation of Section 4 of the Competition Act, 2010 and also discriminating its customers in violation of Section 3 of the Competition Commission Act, 2010.
CCP carried out a comprehensive study in the sector of ghee and cooking oil which identified vulnerabilities which may have object or effect to prevent, restrict or distort competition in the sector. Based on the observations in the study report and also information gathered from other sources, the CCP took suo moto action and initiated an enquiry. An Enquiry Committee comprising Director Ms Shaista Bano Gilani and Joint Director Ms Nadia Nabi was appointed to conduct an enquiry on suspected anticompetitive activities of ghee/cooking oil manufacturers and their association, the PVMA.
Based on the information available to it, the CCP also deemed it appropriate to search and inspect the offices of PVMA. Accordingly, two teams of officers were authorised by the CCP to search and inspect the aforementioned offices situated in Islamabad and Karachi in order to collect any evidence regarding the suspected violations of the Act. On culmination of an inquiry, a comprehensive enquiry report was submitted which revealed that ghee and cooking oil manufacturers appear to behave in a collective manner.
It is alleged that prices of the products are not determined in accordance with a change in the input prices. Price is immediately increased when the price of edible oils goes up in the international market but they fail to reduce prices in the wake of a decline in edible oil price in the international market. However, manufacturers easily lower prices when the government intervenes. For that forum of PVMA is used to take a collective decision and set the price uniformly at a pre-determined level for all brands of ghee/cooking oil as PVMA’s decisions are binding on its members.
Therefore, PVMA appears to be playing the lead role to negotiate and fix price with the government, prima facie, in violation of Section 4(1) and in particular 4(2) (a) of the Act. In terms of Enquiry Report, PVMA appears to have transgressed its mandate as an association and taken a lead role in business decision making process of its member mills. Instead of member mills having a direct business relationship with their suppliers, PVMA enters into negotiations with edible oil transporters and decides the transport rates for its member mills.
Such arrangements/agreements between PVMA and edible oil transporters to fix the transport rates for PVMA units, prima facie, prevents and restricts competition between transporters inter se in violation of Section 4(1) and Section 4(2)(a), in particular, of the Act. PVMA has been designated to extend the service of invoice verification for member mills and also commercial importers to facilitate Customs authorities which makes it the sole/dominant service provider for invoice verification. PVMA is currently charging its members Rs.04/M.
Ton and Non-PVMA members Rs.10/M. Ton for their invoice verification. Such price differentiation, prima facie, violates Section 3(3)(b) of the Act which prohibits price discrimination by charging different prices for the same services from different customers in the absence of objective justification that may justify different prices. Based on the findings of Enquiry Report, CCP issued show cause notice to PVMA for contravening Section 4(1), 4(2)(a) and also Section 3(3)(b) of the Act. The hearing has been scheduled for 17th May 2011 in Islamabad.
