Traders consider CCP soft fines on cement-makers high
September 27, 2009
LAHORE: The Competition Commission of Pakistan has slapped soft fines of Rs4.5 to Rs5 per bag of cement for forming a cartel over last year, though according to CCP investigations the illegal practice has been going on since May 2003.
The CCP has imposed only 50 per cent of the maximum fine it could slap on the cartel. Still many businessmen consider the cumulative fine of Rs6.35 billion imposed on cement mills and their representative body, the All Pakistan Cement Manufacturers Association (APCMA) very high because they consider manipulation of prices and production as a minor offence.
Had the CCP imposed a maximum fine on one year of cement production, it would have come to Rs12.70 billion. In case the fine was imposed since May 8, 2003 when the cartel was formed, the amount could exceed over Rs100 billion. The CCP has no powers to award prison terms to those who aided and abetted the formation of the cartel.
Cartelisation has been considered a criminal offence in the US and European Union and Australians have also amended laws declaring that serious cartel conduct will be viewed as criminal and will carry jail terms of up to 10 years and fines of $10 million or more.
In the US, numerous individuals have been sent to prison for forming cartels including more than three dozen foreign defendants, who have served or are serving prison sentences since May 1999, for participating in an international cartel or for obstructing investigation.
The CCP’s decision against cement units and their association is based on an agreement reached with APCMA members on May 8, 2003 and retrieved from the association’s computer hard disk which falls under the competition law regime.
According to the agreement, cement companies were allocated quotas for dispatches based on their existing capacities in 2003. On examining actual sales during the year, the CCP noted these closely matched with allocated quotas.
By using the same method of capacity-based allocation of quotas, year-wise cement dispatches of each member unit from 2003 to 2008 were analysed and it was found that the percentage share of each member in total cement dispatches very closely matched with the percentage share of the member in total production capacity demonstrating the fact that the agreement had been in existence and was being implemented effectively in the years under review.
It is interesting to note that cement cartels have caught the attention of anti-trust authorities the world over. In 2003, the European Commission levied a fine of 187 million euros on Lafarge, world’s biggest cement-maker, for participating in a cartel and for being a habitual offender. In Argentina, five cement companies operated a cartel during 1981-99, until caught and fined $107 million, the largest fine imposed by the country’s competition regulator.
In South Korea, in September 2003, the competition authority imposed a surcharge (fixed fine) of $22 million on seven companies in addition to $428,000 on the Korea Cement Manufacturers Association.
In 2003, the German cartel office imposed a combined fine on six cement firms in the sum of 660m euros after an inquiry into how prices were being set by them. Similarly, the same year in Romania, three cement companies viz Lafarge Romcim, Holcim and Heidelburg’s subsidiary Carpat were fined 27 million euros or six per cent of their turnover.
Cartelisation is one of the most egregious forms of anti-competitive practice and prosecuting cartels is a difficult task entrusted to competition agencies.
The problem in detecting cartels is collection of ‘incontrovertible evidence’ owing to its secretive nature. It is rare to find documented evidence, that too in the form of an executed agreement.
The ‘triple C factor’ — conspiracy amongst competitors against consumers — invariably exists in all such cartels.
The CCP has imposed only 50 per cent of the maximum fine it could slap on the cartel. Still many businessmen consider the cumulative fine of Rs6.35 billion imposed on cement mills and their representative body, the All Pakistan Cement Manufacturers Association (APCMA) very high because they consider manipulation of prices and production as a minor offence.
Had the CCP imposed a maximum fine on one year of cement production, it would have come to Rs12.70 billion. In case the fine was imposed since May 8, 2003 when the cartel was formed, the amount could exceed over Rs100 billion. The CCP has no powers to award prison terms to those who aided and abetted the formation of the cartel.
Cartelisation has been considered a criminal offence in the US and European Union and Australians have also amended laws declaring that serious cartel conduct will be viewed as criminal and will carry jail terms of up to 10 years and fines of $10 million or more.
In the US, numerous individuals have been sent to prison for forming cartels including more than three dozen foreign defendants, who have served or are serving prison sentences since May 1999, for participating in an international cartel or for obstructing investigation.
The CCP’s decision against cement units and their association is based on an agreement reached with APCMA members on May 8, 2003 and retrieved from the association’s computer hard disk which falls under the competition law regime.
According to the agreement, cement companies were allocated quotas for dispatches based on their existing capacities in 2003. On examining actual sales during the year, the CCP noted these closely matched with allocated quotas.
By using the same method of capacity-based allocation of quotas, year-wise cement dispatches of each member unit from 2003 to 2008 were analysed and it was found that the percentage share of each member in total cement dispatches very closely matched with the percentage share of the member in total production capacity demonstrating the fact that the agreement had been in existence and was being implemented effectively in the years under review.
It is interesting to note that cement cartels have caught the attention of anti-trust authorities the world over. In 2003, the European Commission levied a fine of 187 million euros on Lafarge, world’s biggest cement-maker, for participating in a cartel and for being a habitual offender. In Argentina, five cement companies operated a cartel during 1981-99, until caught and fined $107 million, the largest fine imposed by the country’s competition regulator.
In South Korea, in September 2003, the competition authority imposed a surcharge (fixed fine) of $22 million on seven companies in addition to $428,000 on the Korea Cement Manufacturers Association.
In 2003, the German cartel office imposed a combined fine on six cement firms in the sum of 660m euros after an inquiry into how prices were being set by them. Similarly, the same year in Romania, three cement companies viz Lafarge Romcim, Holcim and Heidelburg’s subsidiary Carpat were fined 27 million euros or six per cent of their turnover.
Cartelisation is one of the most egregious forms of anti-competitive practice and prosecuting cartels is a difficult task entrusted to competition agencies.
The problem in detecting cartels is collection of ‘incontrovertible evidence’ owing to its secretive nature. It is rare to find documented evidence, that too in the form of an executed agreement.
The ‘triple C factor’ — conspiracy amongst competitors against consumers — invariably exists in all such cartels.
