OUR STAFF REPORTER ISLAMABAD - A two-member Bench of the Competition Commission of Pakistan (CCP), comprising of its chairperson Rahat Kaunain Hassan and member Abdul Ghaffar, has passed an order, imposing a penalty of Rs50 million on Pakistan Vanaspati Manufacturers Association (PVMA) for violation of Section 4 of the Competition Act, 2010. In the detailed order issued on June 30, 2011, the CCP bench also directed PVMA to cease the practice of price discrimination between its members and commercial importers in contravention of Section 3(3)(b) of the Act. PVMA has been directed to submit its compliance report within a month of issuance of the order. Failure to comply with this direction shall make PVMA liable for a penalty in sum of Rs1 million for each day default. CCP had carried out a study in the sector of ghee and cooking oil which identified competition vulnerabilities which may have object or effect to prevent, restrict or distort competition in the sector. Following the observations in the Sector Study Report, prices of ghee and cooking oil were also closely watched which revealed that within a short period of 4 months (starting from December 2010 to February 2011) price hiked four times in a parallel manner in different categories and brands of ghee/cooking oil. It was also noticed that the price increase was often referred to a collective decision of all manufacturers or PVMA as their association, resulting in simultaneous increase in price. Based on the information available, CCP deemed it appropriate to search and inspect the offices of PVMA. During the search and inspection conducted on February 17, 2011 relevant documents were impounded by the duly authorized officers of CCP. Thereafter, to examine the impounded material and conduct a formal enquiry, CCP appointed Ms Shaista Bano Gilani, Director, and Ms Nadia Nabi, Joint Director, as enquiry officers to prepare a detailed enquiry report under Section 37 of the Act. The enquiry officers submitted their Enquiry Report on 25 April, 2011 which concluded that there is, prima facie, evidence of violation of Section 3 & 4 of the Act by PVMA. The Enquiry Report recommended that proceedings under Section 30 of the Act be initiated against PVMA. CCP issued a show-cause notice to PVMA on 27 April, 2011 directing it to submit a written reply within fourteen days, and to appear before the CCP to avail the opportunity of being heard. After hearing PVMA at length, it was observed by the bench that PVMA has played a significant role in fixing the price of ghee and cooking oil. Prices were regularly discussed in the meetings of PVMA. Costing was also prepared by PVMA and then active negotiations were made by PVMA with government to fix the price around its own costing. Once price was fixed, it was communicated to all of its members to follow the decision of PVMA. The bench also reiterated the view of CCP taken in number of its orders already passed that it is not the mandate of an association to deliberate on commercial sensitive information and engage into such activities of costing and taking decisions on pricing of commodities manufactured by its members. There is an ample proof that this has happened in the case of PVMA which demonstrates collusive behaviour of PVMA in violation of competition principles enshrined in Section 4 of the Act. Although the bench gave its observation on the conduct of the government that the government engaged PVMA instead of individual manufacturers to discuss price which may have repercussions on competition and cannot be condoned and maintained that government should not provide any patronage to measures that in effect promote and encourage any collusive behavior in any industry. However, the Bench held that there is nothing on record to prove involvement of government in price fixation in this case as has been portrayed by PVMA. The demand on behalf of government for reduction in price, in wake of decline in prices of edible oil used as raw material in manufacturing of ghee/cooking oil seemed legitimate. The bench emphasized that government did not fix the price rather urged the manufacturers to reduce the prices. In the case where price was suggested by the government, it was based on the costing prepared by PVMA itself. The bench also made it clear that PVMA cannot take the plea of the State Action Defense as nothing has been brought on record in this regard. The Bench also set aside this argument that PVMA is just a custodian of record. For that the bench referred to view given by CCP in its earlier provisional order passed against Pakistan Sugar Mills Association wherein it was stated that associations should not keep and exchange competitive sensitive information with members. In another argument taken by PVMA that it does not have any statutory backing, therefore, instructions communicated to members are mere recommendatory or advisory in nature, the bench made it categorically clear that decision of association falls afoul of Section 4 of the Act whether it be in the nature of rules, recommendations and even co-ordination of an association. Hence, it was held that PVMAs role in causing such price reduction/fixation on a collective basis, negotiating it for a specific time period and advising/recommending all its members implementation of such decisions, is in blatant violation of Section 4 of the Act and PVMA is liable to pay a penalty of PKR 50 millions. On the other issue of charging two different rates to manufacturers (PVMA members) and commercial importers (non-members) for invoice verification in respect of same product i.e. edible oil, the bench held that objective justification offered by PVMA for such discrimination is not satisfactory. Classification of customers on membership and non membership is misplaced. This justification could have been valid where the services provided were originally part of mandate of PVMA as an association. Whereas, the services in question are those allowed to PVMA by a third party i.e. Customs Authority. As a result of charging Rs 10 per M tonne to commercial importer and Rs.04 to manufacturer/PVMA member, six rupees differential per M. Tonne would inevitably increase the cost of business for importers who may pass on the cost to its buyers. Therefore, it was held that disparity of rates charged by PVMA from members and commercial importers importing the same product is in contravention of Section 3(3)(b) of the Act. PVMA has been directed to cease the practice of price discrimination between its members and commercial importers and report compliance within a period of 30 days of issuance of this Order. Failure to comply with this direction shall make PVMA liable to a penalty of PKR 1 million for each day default.