Pakistan’s Competition Commission has been making headlines for its landmark findings against exploitative and anti-competitive market practices across a broad spectrum of business and industry. The controversy reached its peak when Chairman Competition Commission of Pakistan (CCP) Khalid Mirza was arbitrarily removed after exposing Pakistan’s powerful cement cartel. The removal was cancelled ab initio but clearly illustrates the resistance the Commission faces in tackling manipulative market practices which have remained largely unquestioned.
Having gained renown for his courage and dynamism, Khalid Mirza shares his views with Blue Chip about the sugar crisis, the cement cartel issue and the complex challenges he faces in heading the CCP.
There has recently been a great deal of turmoil in the sugar industry with the ongoing sugar crisis. What are your views on this?
Khalid Mirza: “It reminds me of the Asian financial crisis which began with Finance One going under and then, of course, it snowballed within Thailand. There was trouble in the financial sector in Thailand and there was some contagion effect in the neighbouring countries, but it was really all controllable. The real financial crisis in Asia in 1997 was the IMF solution for that initial trouble and that is what caused the real crisis. Now, here too, there was a problem – sugar prices had hiked, so had other food items but that was not as much of a problem as the reaction of the authorities to what was happening. This whole business of raids, sealing of godowns, etc.is what appears to have caused the problem of creating a shortage of the commodity. Market forces have their effect on Pakistan – we are, after all, not isolated from the vagaries of supply and demand that affect the global economy – and if you see the region around us and the prevailing prices, you will note that in India, the price of sugar is Rs. 60 (Pakistan equivalent); in Afghanistan, they’re close to Rs. 70; and in the UAE, they’re about the same level.
In a global context, from a position of having plenty of sugar the year before, there’s now a nine million tonne shortage of sugar – a shortage arising from a decline in the production of sugar as compared to the previous year. India, which is the second largest producer and had produced 28 million tonnes of sugar last year and exported 5 million tonnes (being the largest exporter) has produced only 15 million tonnes this year and is importing around five million tones – thereby becoming the largest importer of sugar. The largest producer of sugar, Brazil, was at the level of about 31 million tonnes and they also came down to 28 million tonnes. Some sugar producers have either remained the same or have gone up a little, but the sugar situation is that there is a huge global shortage and a price hike just could not be avoided. I know that whenever there is a price hike, everyone thinks that it is due to unsavoury reasons. The government often believes that one way of handling the situation is to allow imports of that commodity – but that’s not the solution right now because global prices of sugar are actually higher. So, unless the government subsidises it heavily, that is not the solution. Also, there are historical reasons for the government to be a little nervous. There is a legacy that governments fall whenever there is a sugar crisis!
Overall, I would say that we may have overreacted. As to whether there has been a violation of the Competition Ordinance and as to whether people have acted in a manipulative manner or not is a different issue.”
Preceding the sugar crisis, there was similar turmoil surrounding the cement cartel which the Competition Commission took on. Please share your views on this issue as well.
KM: “We have already adjudicated on that and fined them. It was probably one of the largest fines in the regulatory history in Pakistan – although by global standards, the fine is quite low. I’m not talking in absolute terms because the fine is a proportion of revenue in terms of accepted global practice, and as a proportion of revenue, we fined 7.5% to each of the cartel members. In Europe, the fines are higher by proportion because what they do is that they first decide what the percentage fine on turnover basis should be – it could be up to 15% – and then they see how many years the cartel has been in existence. They then multiply the percentage by the number of years and that becomes the percentage of turnover imposed as the fine.
Here, it’s just on a one-year basis although we know from whatever record we have available to us that there has been a cartel in existence since 1992 when the Monopoly Control Authority (MCA), in fact, first moved against cartelisation in the cement sector. MCA has acted against collusive behaviour in cement three times. On the second occurrence, MCA appear to have had some solid evidence but the government intervened and compromised with the cement manufacturers and the MCA had to back down. The third time, the MCA passed a very badly formulated order which was reversed by the Lahore High Court (LHC) and I think, correctly so, as the order was not well conceived. The LHC very correctly said that it is not the business of the MCA to intervene in prices and that price control is the very antithesis of competition. Also, the MCA didn’t have the authority to carry out proper inspections. So, if the LHC had the required evidence (which the CCP had subsequently when they conducted this investigation) they might have come to a different conclusion.
CCP carried out a search inspection of the All Pakistan Cement Manufacturers Association which unearthed the evidence that had eluded the MCA. Despite the fact that they resisted the inspection – they even corrupted the computer, if I understand it correctly, and somebody on a motorcycle spirited away with a file. It was all very dramatic! But eventually, the inspection team managed to recover a marketing agreement. This always happens in a cartel situation. What people do if there’s an inspection or a raid is that first, they resist and try to remove all the important papers and then they think they’re safe and allow the inspection. Nonetheless, almost invariably, but something is left somewhere – which is what happened in this case as well. We got some other pieces of evidence as well that then unravelled the whole basis of the cartel. They could have come to us for leniency and I’m very surprised that they didn’t. Any cement company could have come to us but that didn’t happen. They didn’t come and play ball with us and didn’t come clean. Had they come to us and said, ‘okay, we made a mistake. We’ve done this for several years and we’re not going to do this again’, we might have had to take a completely different view. Instead, they went to town against us, both in the press and in the courts. Eventually, we prevailed and concluded our proceedings. However, now they’re going to the Supreme Court. If the Supreme Court rules in their favour, then so be it. We have done what we had to do.
What we say is well reasoned and we have done our best to be fair and just. We are not against anyone nor are we trying to get anyone. We are only trying to implement the competition law. The whole purpose is to act positively in favour of the economy because what this law does is that it tries to bring all the economic agents in the country to work and interact with each other, to compete with each other on a level playing field, and this brings about productive efficiency, better quality goods and greater quantity of goods as there is a higher level of production, and there’s technological innovation because everyone’s competing. And, all the positive consequences that come from all this including more jobs, better welfare and a bigger cake to be distributed amongst everyone. This is the primary purpose of the Competition Ordinance. The second purpose, which is a corollary really, is to protect the consumer from anticompetitive behaviour and from being exploited from any sort of an action by a producer or a supplier that is egregious. When we talk about the consumer, I don’t simply mean you and I at the retail level. I’m talking about the consumers up and down the supply chain because every business house is not only a supplier or a producer but is also a consumer and a buyer, so it helps everyone. The competition law is really for the business community because it supports the business community and it protects them from people who are exploitative or predatory; both above or below them in the supply chain.”
Would you consider the imposition of the fine against the cement cartel a landmark achievement in light of the vigorous resistance you’ve faced?
KM: “We’ve taken a number of steps which have been, in some ways, quite groundbreaking. Talking about this from a global standpoint, we’ve even dealt with cartel cases pertaining to professional bodies and we have also had the occasion to rule against them for abuse of dominance. This includes ICAP and the stock exchanges for fixing the floor. We have taken action against banks for having cartelised, the All Pakistan Newspaper Society (APNS) for having colluded together with the Akhbar Firosh Union on newspaper pricing. I have to say the newspapers were very responsible because they came to us and admitted to their mistake. They gave the necessary affidavits and undertakings, a consent order was issued and they were not fined. Newspaper pricing is now on a competitive basis. The newspapers acted very well and in their own interest and the interest of the economy as a whole and deserve to be commended, but not the banks. The banks continue to insist that what they did was right and they continue to raise all kinds of defenses. We have also proceeded against a university, where, for example they were forcing laptops down the throats of students at the time of admission. Students had to buy them from the university, at the prices fixed by the university and if they didn’t have the money, then on loan terms determined by the university, so we had to act there and put a stop to that. Also, there was a case where two fertiliser companies owned by the Army were acting like one and we had to separate them. We made sure they had separate boards, independent board members, separate chief executives, so that they were incentivised to act as individual companies and compete. Then, there were the mobile service providers where one, in particular, was doing this business of tying their sales of Blackberry handsets with their own telephony services. We ordered that the SIMs be unlocked within a year and that they disclose in their ads that these things are all tied up so that the consumers know what they are getting into up front and not be told later.
We have also issued show cause notices and are proceeding against the Karachi Steel Mills in the matter of discriminatory sales to only one party, against KPT for collusive tendering, and against one of the local airlines for their cancellations policy on which they deduct on a percentage basis rather than doing it on a fee basis, which is a global practice.
These are also cases of abuse of dominance and in some of these we have already moved and others are under way. It’s quite possible that during the course of proceedings these people come out with arguments and material that shows that they were not culpable, in which case, they will be let off.”
How do you think monopolistic behaviour can be pre-empted through policies?
KM: “The best way to prevent a monopolistic position being abused, or what we call, dominance, is if there is vigorous application of the competition law. If the competition law is applied fairly and justly and with some degree of focus, then the signalling is right and all the economic agents within the country adhere to it. They become cognisant of it and they are then careful not to abuse their dominance. It is different from the old monopolies law where if you had a bigger control of a market, i.e. more than 33%, then you were a monopolist and you had to go below 33%. So, 32.5% was okay but 33% was bad! Under the new law, which is essentially based on Articles 81 and 82 of the Treaty of Rome, if you are big, it’s good and there’s nothing wrong with you. In fact, the whole purpose of doing business and competing is to become big and to compete out all the others and become a market leader. However, if you have a large chunk of the market share, you must not abuse your dominance. Once you’re above the magic number, which is 40% in Pakistan because you’re deemed to be dominant after that, then you must act responsibly. You must not engage in any exclusionary conduct or bar entry of other people, you must not do any predatory pricing and you must not do bundling and tying, i.e. if you’re selling one product and enforcing the sale of another with it which was the case with Microsoft and their Internet browser. So, as long as you’re not doing any of the above, then it’s perfectly fine to be the market leader.
The Competition Ordinance 2007 is a state-of-the-art law and is the accumulation of the best of wisdom over the ages in relation to both antitrust and competition. The first antitrust law was the Sherman Antitrust Act of the US in 1890, which was over 100 years ago and our law incorporates the most accepted wisdom in this area. It was the World Bank that helped the Government of Pakistan frame this law and a fair amount of consultation was done within our business community, sector regulators and other relevant chambers. I have solicited comments from a number people globally on this law and the one negative comment which I received is that our penalties are too low. Although I think the penalties are adequate, I do appreciate what the UK Competition Commission Chairman advised when he said that we should have the ability to bar people who are involved in anticompetitive conduct from holding board seats and becoming board members – I believe this is a valid comment, and if we were to include that recommendation, it would most certainly strengthen our law.
The government deserves to be commended for appointing a good commission consisting of the addition of four members that were dedicated and well qualified to implement this law. Recently, I was in Geneva attending a conference and after sharing our progress, no less than eight or nine jurisdictions gave fulsome praise for what we, as a commission, have managed to achieve and subsequently, several people approached us for technical assistance as well.”
What sort of challenges do you face?
KM: “The business community in Pakistan has ‘vested interests’, if I can use that expression, and takes a very narrow view of what it considers profit. Profit for them is what you can earn out of a distortion. Some parties look upon this law as some kind of a threat and others are trying to have this law done away with entirely, or otherwise completely disfigure it in some way by weakening the Commission, i.e. appoint people in this Commission who will be feeble and won’t implement the law. They have already tried to do this and I wouldn’t be surprised to learn that my aborted removal 3-4 weeks ago was a part of that effort. Additionally, we received an order earlier appointing an individual as a member of the Commission where this person had no experience and was totally unqualified for the job – I had to resist that order and was managed accordingly.
Our biggest challenge is how do we remain intact with our current law and commission while we have very powerful forces aligned against us? As I’ve mentioned earlier, we’ve taken on the stock exchanges, banks, chartered accountants, the army and the steel mills. But we have looked only at the culpability and not at who the owner is or how powerful that owner is or what political implications may arise from what we are doing. I am very glad to say that over the course of the two years that this law has been in place, we’ve developed a degree of moral authority which has even been recognised within the courts.”
Do you feel that other national institutions need to be strengthened?
KM: “I met Moeen Qureshi in Washington about two years ago just as I was taking charge of this Commission and he said something to me which I thought was very perceptive. I respect Mr. Qureshi tremendously and maintain a great admiration for him – if there is one development professional in Pakistan who is world class; it’s him. He said to me that if Pakistan wants to rely on the private sector as the engine for growth and on the market system to make the economy work and grow, there are three key institutions that must be strengthened and it is necessary that the government facilitate and ensure that these institutions work well and are successful. The first is the State Bank of Pakistan for the banking system, which is the lifeblood of the economy. The second is the Securities and Exchange Commission of Pakistan, which encompasses the corporate sector. The third is the Competition Commission of Pakistan, which should ensure that all market players compete on a fair and level playing field. Usually, when a country develops these three key institutions and allows them to function independently and competently, subsequently, institutional arrangements for the economy to grow are in place.”
How is Pakistan benchmarked against other developing countries in terms of its competition law and the regulatory environment?
KM: “Insofar as the law is concerned, we are first class and that is also the general consensus around the globe. We have only received praise from all concerned with what we have managed to achieve in the short period of our existence – so much so that a member of the Federal Trade Commission, which is our equivalent in the US, said quite openly that we are probably the best competition agency outside the OECD. It cannot get more satisfactory than that.
In terms of advocacy, we have done a fair amount to bring about a culture of competition. I’m perfectly satisfied with what we’ve managed to achieve thus far. What is remarkable is that we have accomplished this on a shoestring budget because the amount of resources that have been made available to us is sadly, almost pathetic. I am not saying that we’ve starved – but we’ve had insufficient human resources and very little support from other agencies of the government. I suppose there has been a great deal of luck also and there’s been some low hanging fruit that we’ve caught hold of. However, our strength is that we haven’t flinched.”
What are your views on the kind of resistance you faced at the point when you were removed from your position as the Chairman of the CCP?
KM: “It came as a huge surprise as I did not have a clue. I was attending an iftar at my sister’s home and I received a phone call saying that a ticker tape was running on television stating that the Chairman of the CCP has been removed and replaced. I thought there must have been some mistake as I’d received no indication from anyone. I received a call from my Member Legal and she said the same thing and when we made inquiries, we found that it was indeed true.
Just a few hours earlier, I had given an interview that evening on Aaj Kamran Khan Kay Saath and while it was being aired, there was a ticker tape running simultaneously declaring my removal! I called the Finance Minister to inquire and even he hadn’t heard about it at all and thought it was a joke. When I told him the order was issued by the establishment, he told me to take a stand and that he would speak to the Prime Minister about it. It was amazing what happened in the next few hours because much to my own surprise, the electronic media picked up the issue and refused to let it go – I thought they hated me! Another thing that happened which was very heartwarming and gratifying was that the Commission stood like a rock behind me. They met that very night and passed resolutions condemning the illegality of the removal stating that they would go to court with this. Then, there was also the civil society who began calling and stating their support. At midnight, the PM announced that there had been some confusion and if this was a tenure job, which indeed it was, I would complete my tenure. Shortly thereafter, the establishment cancelled the illegal notification ab initio and all of this happened within the space of 24 hours – I didn’t know what to make of it.
Why did it happen? There are potentially two theories. Theory number one is that there are lots of people that the government had to post – 50 promotions – and it was due to a policy decision taken by the government stating that anyone on a contract basis should be dismissed. They must have thought that I too was on a contract basis and therefore somebody else could be put in my place. This is the kindly explanation and the one that I have accepted graciously.
The other theory, which is not a kindly explanation and is more conspiratorial, is that some of the parties that the Commission had acted against, which were very powerful with both money and influence, had somehow organised and arranged this. The intention was to weaken the Commission and to do away with the law. Quite honestly, I don’t know what exactly happened but the whole thing has turned out to be quite rewarding because that is when I learned for certain that the civil society, the media and the Commission’s support is truly behind me.”
