The Competition Commission of Pakistan (CCP) may initiate proceedings against Oil Companies Advisory Council (OCAC) for selection/award of Fuel Marketing Contract (FMC) without advertisement, procurement methodology and determining the price of Kerosene in violation of the Competition Act.
This has been recommended in the enquiry report of the CCP for initiating proceedings against the OCAC under section 30 of the Competition Act. The inquiry committee has made these recommendations in the said report to the CCP for necessary action.
OCAC has contended that all its decisions relating to the matter were directed and approved by the federal government. OCAC is essentially pleading the state compulsion defense i.e. that the state made the anti-competitive behaviour mandatory.
According to the inquiry report of the CCP, the commission had received a copy of a letter written by Transparency International addressed to Oil and Gas Regulatory Authority ('OGRA') chairperson alleging the award of Fuel Marking Contract by Oil Companies Advisory Council ('OCAC') was done without a competitive bidding process. The specific allegations were that the tender notice was not floated in any national newspaper; whole process was managed by OCAC; OCAC identified 6 companies who were given the prequalification and Expression of Interest ('EOI'); third party consultant was hired to develop Instructions to Bidders (TTB'); only 2 companies responded to the ITB; final bid was only submitted by one firm and the contract was awarded without a tender process, it was accused in the letter.
The CCP inquiry report said in view of the discussion, the decision by OCAC to select the FMC, for adopting a procuring method whereby no advertisement was published and determining the price of kerosene are decisions by an association of undertakings that have the object and effect of preventing, restricting, reducing, and distorting competition in the relevant market, which prima facie is in violation of Section 4(1) of the Competition Act. The decision also amounts to fix the purchase or selling price or imposing any other restrictive trading conditions with regard to the sale or distribution of any goods or the provision of any service which prima facie constitutes a violation in terms of Section 4(1) read with Section 4(2) (a) of the Competition Act.
The inquiry Committee noted that apart from the firms contacted by OCAC there are a number of other players providing the required services in the relevant market. By not publishing an advertisement the aforementioned players, some of which are considered as industry leaders, were unable to participate in the tender. The open competitive bidding ensures maximum participation which results in a good tender price or value for money.
The Enquiry Committee examined whether the selection of FMC, procurement methodology adopted, and determination of price can be considered as 'decisions' by OCAC and if so whether these decisions were a prima facie violation of Section 4 of the undertakings in terms of section 2(1 )(q) of the Competition Act being a representative body of the downstream oil industry whose members are undertakings engaged in refining, marketing and distribution of petroleum products.
Based on the findings, it appears that entire bidding process leading to selection of bidder was managed and controlled by the OCAC contrary to the decisions of meeting which called for all members of the technical committee (TC) to be taken on board throughout the process. Therefore, selection of the bidder is prima facie a decision by an association.
Based on the findings of inquiry committee, it appears that OCAC decided to adopt a procurement method that did not involve publishing an advertisement even though the decisions taken in the meeting held on 3rd December, 2016 call for the TC to finalize the bidding process and the selection of the FMC through advertisement.
Based on the findings, it is noted that all of the decisions by OCAC, including the selection of FMC and the procurement methodology adopted have a direct bearing on the final price of kerosene therefore; it appears that OCAC has taken a decision with regards to the price of kerosene.
Based on the findings, the relevant market appears to be the market for provision of fuel marking services in Pakistan.
Based on the findings, the decisions by OCAC to select the FMC, to adopt a procurement method whereby no advertisement is published and to fix the price of kerosene are a prima facie violation of Section 4(1) read with Sub-section (2) (a) of the Competition Act.
Similarly, OCAC cannot claim that it had no latitude at all regarding how to implement that government's decision. Foremost, OCAC was never individually authorized to take decisions, but ended up doing so on its own volition as is clear by the documents on record. OCAC, knowing that associations cannot take part in business decisions of its members, could have easily refused to get involved in the process of selecting the fuel marking company. Instead, it actively decided to solely go ahead with the process.
The enquiry report observed that a competitive bidding process is one where all interested parties may bid for the contract and an essential component of this process is informing all undertakings in the relevant market through publication of an advertisement. The decision by OCAC regarding the selection of FMC without advertisement has an impact on the relevant market as well as the allied market for SKO. As determined in the foregoing paragraphs OCAC made the decision to not publish a newspaper advertisement and instead sent the EOI to six companies only. This decision by OCAC foreclosed the market for other companies operating in the relevant market of fuel marking services. The decision also resulted in the receipt of response from only 2 firms and bid submission by only one firm which was subsequently selected.
The inquiry committee recommends that in view of the prima facie violation of Section 4 of the Act, the Commission may consider initiating proceedings against OCAC under Section 30 of the Competition Act, report of the CCP added.
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