Collusion: CCP imposes Rs 375 million fines on fertilizer companies/FMPAC

ISLAMABAD, June 03: The Competition Commission of Pakistan has taken decisive action against anti-competitive conduct in the fertilizer sector, imposing a penalty of PKR 50 million on each of the six major Urea Manufacturers, and also a penalty of PKR 75 million on a leading industry association/FMPAC, totaling Rs 375 million in fines.
Following a detailed inquiry initiated suo motu, the Commission’s Bench comprising Dr. Kabir Ahmed Sidhu and Mr. Salam Amin concluded that six urea manufacturing companies, i.e. M/s Fatima Fertilizer Limited, M/s Fauji Fertilizer Company Limited, M/s Fauji Fertilizer Bin Qasim Limited, M/s Fatima Fertilizer Company Limited , M/s Engro Fertilizer Company Limited and M/s Agritech Limited in coordination with their trade association, FMPAC, “under the guise of conducting an awareness campaign/advertisement, have effectively fixed the price of urea across the country. Such conduct goes beyond the bounds of lawful information dissemination and enters into the realm of anti-competitive behavior” in violation of Section 4 of the Competition Act, 2010.
Despite claiming price independence, the manufacturers failed to justify their synchronized pricing strategy. The Commission’s investigation uncovered that the conduct not only distorted competition, but also harmed farmers across Pakistan, especially during the critical Rabi and Kharif season, by artificially influencing fertilizer prices and limiting market choice.
The Respondents’ attempt to claim protection under the ‘state action doctrine’ was also rejected. The Bench held that no formal government directive or compulsion existed to justify their collusive behavior. Instead the Respondents took advantage of a Federal Government direction regarding initiating an awareness campaign encouraging farmers regarding urea price and used it as a tool to fix the price in due coordination among themselves and jointly announced the uniform price for the urea buyers/consumers. The Bench also held that such “actions, under the pretext of complying with government instructions, effectively undermined market forces and distorted competitive pricing mechanisms.”
It was also noted with great concern that despite significant variations in input costs, different economies of scales, size of the market, different prices of gas etcetera, all Respondents were charging an identical price for size of urea bag (i.e. Rs. 1768/- per bag). The Bench also noted that “in a market where each undertaking’s production capacity and market share are matters of common knowledge, such a coordinated disclosure cannot be viewed as incidental or competitively benign. Rather, the joint announcement constitutes an overt manifestation of concerted conduct.” Moreover, repeated directions from the Fertilizer Review Committee (FRC) were given to the Respondents to address their failure to manage supply imbalances.
Previously as well, warnings were issued by the Commission to the Fertilizer Manufacturers and FMPAC in the years 2010, 2012 and 2014 which failed to produce any lasting change.
The Chairman reiterated Commission’s message that associations across the country should not provide platform for sharing price sensitive information or exchange of views on prices.
The Commission reiterates its commitment to ensuring competitive markets, promoting consumer welfare, and holding undertakings accountable for practices that violate the law. Members of the public are encouraged to report cartelization or anticompetitive conduct by contacting CCP’s office at 0304-0875255 or via email at miu@cc.gov.pk.