Allegations of bid rigging in Discos’ tenders: CCP starts probe against suspected steel cartel

ISLAMABAD: The Competition Commission of Pakistan (CCP) has launched an investigation against a suspected cartel of steel manufacturers that is allegedly involved in bid rigging or collusive bidding in supplying steel structures to the power distribution companies (DISCOs) across Pakistan.

Bid rigging or collusive bidding is uncompetitive tender processes that can result in organisations paying higher prices or receiving lower quality goods or services.

Businesses that are the victims of bid rigging can pass on extra costs or reduced quality to consumers and other businesses in the supply chain.

Whereas, when the government agency pays an inflated price for services provided by tender, these additional costs or reduced quality are eventually passed on to taxpayers.

The DISCOs float tenders worth billions of rupees to procure the different components of power distribution systems. In a normal course, the companies would compete to win the tenders, but in certain instances such as the one that the CCP is investigating, firms find it profitable to be taking turns at winning tenders or sharing the contracts by value.

According to the CCP, as part of an ongoing investigation into the prima facie violations of Section 4 of the Competition Act 2010, it carried out search and inspection of the offices of three companies (undertakings) based in Lahore, engaged in the supply of steel structures to DISCOs across Pakistan, on the suspicion of facilitating a possible bid-rigging/ cartelisation in the procurement of steel structures by various DISCOs.

Three different teams of duly authorized officers of the CCP entered and searched the premises of the respective undertakings and seized pertinent information.

The search and inspections were carried out under Section 34 of the Act during which the offices of the undertakings fully cooperated with the CCP’s search teams by handing over the documents and computer-stored information relating to the suspected role of the respective undertakings in the alleged anti-competitive activities.

During the investigation, the enquiry committee analyzed the five years (2015 – 2020) tender documents provided by the DISCOs which revealed that only a few companies participated in the bidding process of steel structures floated by DISCOs, apparently in a collusive manner which may constitute prima facie contravention of Section 4(2)(e) of the Act.

Data available with the enquiry committee also indicated that the companies quoted identical or near identical rates with other parties in the bidding and in some instances purchased the bidding document but did not participate in the respective tenders, raising suspicion of collusion.

Given the importance of the power sector in Pakistan’s economy, the CCP has been keeping a close check on the sector to enforce the prohibition of the anti-competitive practices, especially the instances of bid-rigging in the tenders floated by DISCOs. In 2012, the CCP issued a landmark decision by granting leniency to an undertaking to break the cartel in the switchgear and transformer markets.

This became the basis of a subsequent administrative investigation by the World Bank into corrupt, fraudulent, collusive, and coercive practices in World Bank-funded power projects in Pakistan, which was only recently concluded and that led to the blacklisting of several businesses involved.

Similarly, in 2020, the CCP in an enquiry report prima facie detected another cartel in the power sector, involved in bid-rigging in the tenders floated by the power distribution companies for procurement of fifty line-hardware products worth billions of rupees.

According to an estimate, Pakistan spends around 30 percent of its GDP on public procurement. Therefore, gains of a good public procurement framework make available additional resources for development and lead to better outcomes of expenditure by assigning the tasks to the best possible service provider. This eventually has a positive bearing on service delivery.

The CCP is mandated under the Act to ensure free competition in all spheres of commercial and economic activity, to enhance economic efficiency and to protect consumers from anti-competitive practices, including fixation of prices of various goods and services.

Copyright Business Recorder, 2022