The Competition Commission of Pakistan bench comprising Khalid A Mirza, Chairman CCP and Ms Rahat Kaunain Hassan, Member (Legal), passed an order on July 23, 2010 in respect of the proceedings initiated against the fertiliser producers for abuse of dominance through the practice of tie-in.
According to a press release issued on Saturday, the bench observed that from the records made available to the Commission, no pattern emerges which establishes the tie-in of the sale of DAP linked with the sale of urea on part of the undertakings concerned.
The CCP had taken suo motu notice of information provided to the Commission by Secretary Agriculture, Government of Sindh expressing concern on the practice of tying the sale of DAP with urea and initiated an enquiry as to whether there was a violation of Section 3 of the Ordinance, which prohibits abuse of dominance.
On the recommendation of the Enquiry Report prepared by the enquiry officers appointed by the Commission in this behalf, Show Cause Notices were issued to Dawood Hercules Chemical Limited (DHCL); Engro Chemicals Pakistan Limited (Engro); and Fauji Fertiliser Company Limited (FFC), for contravention of Section 3 of the Competition Ordinance, 2010, which prohibits abuse of dominance through certain practices which include tie-in, unreasonable increase in prices or imposition of unfair trading conditions and supplementary obligations.
The fertiliser companies in the hearings and through written submissions denied that they held a dominant position due to the urea market in Pakistan being a captive market, the practice of tying the sale of urea with DAP and the imposition of any unfair trading conditions or supplementary obligations on their dealers. The undertakings were required by the Commission to provide their records relating to the sale of urea and DAP from 2007 to 2009.
The Order by the Appellate Bench holds that in general, a captive market subsists when due to paucity of choice, or other special circumstances, buyers are forced to meet their product or service requirements from a single supplier or a very small group of suppliers who consequently enjoy the economic power to be able to dictate terms.
The essential factors that seem to constitute captive market, in our understanding are where: (a) purchasers are obliged through lack of alternatives to buy a particular product; (b) there is lack or absence of price competition; (c) there is economic viability for the product irrespective of small market share and (d) the undertakings are in a position to dictate prices including other terms and conditions.
Keeping in mind: that there are limited number of suppliers in the urea fertiliser market, there appears to be no price competition amongst the Undertakings concerned, dictating prices is quite possible, there generally exists a commonality in the terms at which urea is being supplied to the dealers by the Undertakings and most importantly the fact that demand invariably exceeds the supply of the product in question while the imports remain on the increase; all this makes the Urea fertiliser market clearly captive.
However, the Bench held that in its considered view, the pre-requisites that need to be met in order to establish the practice of tie-in under Section 3 (3) (c) have not been satisfied. It is further held, the fact that the dealers have to pay in advance for any orders made but are liable to be charged prices prevalent on the day of invoice, that the undertakings have the authority to vary the price any time before the date of dispatch, that the producers/suppliers are not bound by any time period in respect of delivery of the fertilisers and may also cancel an order at any time before acceptance - are all terms that may individually appear to be commercial terms mutually agreed between the parties.
However, the clubbing of all these onerous provisions is rather peculiar, and suggests a situation of economic power being abused. The bench while referring to such provisions has observed that in the given facts, these may smell foul but these may not per se constitute abuse with competition concerns and would need to be examined further at the investigation level.-PR