Cement Cartel Sabotaged Government Efforts to Boost Construction Sector - CCP - Android

The government’s efforts to boost the economy by offering an incentivized package to the construction industry and promoting ease of… Read More

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The government’s efforts to boost the economy by offering an incentivized package to the construction industry and promoting ease of doing business to uplift the socio-economic conditions have been thwarted as a result of collusion by the cement companies using the platform of All Pakistan Cement Manufacturers Association (APCMA).

According to the inquiry report of the Competition Commission of Pakistan (CCP) on the cement sector, the cement manufacturers, through their cartelization, have taken undue advantage of the situation and appear to have sabotaged efforts for the public good for their private gain.

Cement is a vital component in the construction industry, and an increase in the price of cement has a knock-on effect on construction and related industries such as steel, glass, timber, and wood. Lack of competition in the cement industry has resulted in higher prices to the detriment of consumers at large and the economy as a whole.

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Therefore, the Inquiry Committee recommends that it is in the public interest that the Commission may consider initiating proceedings under Section 30 of the Act against the APCMA and its member undertakings in terms of the findings of the inquiry report.

The report said that the cement industry of Pakistan has had a long history of cartelization dating back to 1992 when the erstwhile Monopoly Control Authority (‘MCA’) found that cement companies had formed a cartel to take advantage of the re-construction work that began after the devastating floods that year. This pattern of cartelization recurred in 1998, 2003, 2007, and 2009 when CCP imposed a penalty of Rs. 6.3 billion on account of involvement in the prohibited agreements in violation of Section 04 of the Competition Act.

In this matter, it appears that the same pattern of anti-competitive behavior has continued in the cement industry, with APCMA playing a lead role in organizing and facilitating collusive activity through its platform. Evidence points towards collusive behavior whereby cement companies have discussed and agreed upon prices and dispatches of cement unanimously using the platform of APCMA which is an act of blatant cartelization.

The prima facie violations of Section 04 committed, outlined by the inquiry report, come at a time when projects under the CPEC umbrella continue to gain momentum, and wide-ranging incentives have been announced by the government for the construction industry under the Naya Pakistan Housing Programme.

This programme is aimed at stimulating economic activity, which had been subdued due to the COVID-19 pandemic, and the provision of affordable housing for the common man. All these activities contribute to a rise in the demand for cement, with market sources estimating that cement constitutes approximately 15-20 percent of the construction cost of an average low-income home. Unfortunately, cement manufacturers, through their cartelization, have taken undue advantage of the situation.

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The CCP concluded that the decisions to increase MRP by the cartel in April 2020 alone resulted in an estimated increase of Rs. 50 per 50 kg bag of cement, collectively in Islamabad, Lahore, and Peshawar. If we multiply this increase with local dispatches for the year 2019-2020, the economic impact as a result of the price increase alone amounts to approximately Rs. 40 billion annually. The mentioned loss amount is computed by using a conservative approach and is based on the evidence of fixing Maximum Retail Price (MRP) alone.

If the price increase at each point in time and damages caused to the consumers as a result of price-fixing, quota fixation, division of markets, and other anti-competitive practices through concerted activities, i.e., cartelization, are taken into consideration then the damages would be much higher.

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