The Competition Commission of Pakistan (CCP) has imposed penalties to the tune of Rs375 million on companies and an industry association for collusion in the fertilizer sector.
According to a press statement released on Tuesday, the CCP took decisive action against anti-competitive conduct in the fertilizer sector, imposing a penalty of Rs50 million each on six major urea manufacturers.
Moreover, the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC), a leading industry association, was fined Rs75 million.
The CCP bench—comprising Dr Kabir Ahmed Sidhu and Salam Amin—concluded that six urea manufacturing companies, i.e. Fatima Fertilizer Limited, Fauji Fertilizer Company Limited, Fauji Fertilizer Bin Qasim Limited, Fatima Fertilizer Company Limited, Engro Fertilizer Company Limited and Agritech Limited in coordination with their trade association, FMPAC, “under the guise of conducting an awareness campaign/advertisement, have effectively fixed the price of urea across the country”.
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“Such conduct goes beyond the bounds of lawful information dissemination and enters into the realm of anti-competitive behaviour” in violation of Section 4 of the Competition Act, 2010.
CCP said that despite claiming price independence, the manufacturers failed to justify their synchronised pricing strategy.
“The commission’s investigation uncovered that the conduct not only distorted competition, but also harmed farmers across Pakistan, especially during the critical Rabi and Kharif season, by artificially influencing fertilizer prices and limiting market choice,” said CCP.
The government body shared that the respondents’ attempt to claim protection under the ‘state action doctrine’ was also rejected, asserting that no formal government directive or compulsion existed to justify their collusive behaviour.
CCP noted that the respondents took advantage of a federal government directive regarding initiating an awareness campaign encouraging farmers regarding urea price and used it as a tool to fix the price in coordination among themselves and jointly announced the uniform price for the urea buyers/consumers.
The bench also held that such “actions, under the pretext of complying with government instructions, effectively undermined market forces and distorted competitive pricing mechanisms.”
CCP shared “with great concern” that despite significant variations in input costs, different economies of scale, size of the market, and different prices of gas, all respondents were charging an identical price for the size of the urea bag, i.e. Rs1,768 per bag.
The bench also noted that “in a market where each undertaking’s production capacity and market share are matters of common knowledge, such a coordinated disclosure cannot be viewed as incidental or competitively benign. Rather, the joint announcement constitutes an overt manifestation of concerted conduct.”
Moreover, repeated directions from the Fertilizer Review Committee (FRC) were given to the respondents to address their failure to manage supply imbalances.
CCP informed that it had issued warnings to the fertilizer manufacturers and FMPAC in 2010, 2012 and 2014, “which failed to produce any lasting change”.
