Rating Enforcement 2017

Pakistan's Competition Commission

21 July 2017

The Competition Commission of Pakistan (CCP) expanded its resources yet remained on an even keel in its public output in 2016.

Star Rating:    
Performance:  
Head of Agency: Vadiyya Khalil

The agency added more people into its non-administrative competition staff last year and increased its budget, but both its self-reported numbers and views from antitrust observers indicate they had a year that was on par with 2015 - imposing a similar amount of competition-related fines and tackling a comparable number of mergers and investigations.

While the commission did reel in about €1 million more in fines - €2.7 million in total - in 2016 than the previous year, over half of that was from consumer protection and deceptive marketing. Multiple people familiar with the commission's activities pointed to consumer protection and deceptive marketing enforcement as the main areas of success in 2016.

A bright spot for the commission's antitrust function in 2016 came in the form of the appellate system in Pakistan. The competition appellate tribunal began hearing appeals against the commission's orders last year - and much the the delight of the CCP, the tribunal upheld many of its decisions. Of these, the authority scored a particular victory when the tribunal upheld a nearly €1 million fine against the Poultry Association.

"This shows that the judicial review process has started to become functional," a source said. "Delays in various courts have been the biggest challenge that the commission faces."

Indeed, in the previous edition of Rating Enforcement, one source noted that CCP often doled out massive fines to companies - sometimes billions of rupees - but a common tactic of the defendants was to get a court to stay the decision and to let the case "gather dust" in the court system.

This year, a Pakistani competition lawyer again highlighted the commission's struggles in recovering fines for breaching competition laws, and also put the blame largely on the court system. There seems to have been a growing consensus over the past few years that the commission remains hamstrung by issues elsewhere in the system that prevent it from accomplishing its mandate. The constitutionality of the 2010 Competition Act remains up for debate, along with the jurisdictional authority of the commission - two things that would make it hard for any agency to fire on all cylinders.

Collusion and abuse of market power - which do exist in Pakistan - have remained largely outside the competition enforcer's reach. Here again, an observer rested responsibility for the authority's failure to stop cartelists and dominant companies on its legal limits. The source said: "Cartels have become sophisticated in concealing their activities and the commission's powers of search-and-inspection are not enough to detect cartels." That same source indicated that it may not be entirely the CCP's fault, suggesting that "sooner or later, the government will have to consider giving the commission additional powers and tools for detection."

One Pakistani competition lawyer also highlighted the commission's struggles in recovering fines for breaching competition laws, and that lawyer rested the blame largely on the court system in Pakistan. There seems to have been a growing consensus over the past few years that the commission remains hamstrung by issues elsewhere in the system that prevent it from accomplishing its mandate. The constitutionality of the 2010 Competition Act remains up for debate along with the jurisdictional authority of the commission - two things that would make it hard for any agency to fire on all cylinders.

It's not all bad, however. Multiple sources said the commission does well at incorporating economics into its cases, and praised it for openness and transparency. However, the CCP might benefit from a more active relationship with the media. Updating journalists on the major enforcement and advocacy initiatives more frequently would earn the CCP greater media support and ultimately help it achieve its mission.

A lawyer also suggested that the commission home in more on purely competition matters, putting aside other potential aspects. "During antitrust proceedings, such as of abuse of dominant position, prohibited agreements or pre-merger approvals, the commission should only focus on the competitive aspects of the matter," the lawyer suggested.

An interesting area of last year's enforcement efforts for the CCP came in the abuse of dominance realm, where the authority was able to take on 10 new investigations and close a total of four. Despite the activity in the area - up slightly from the year before - the commission did not settle a single case with conditions, nor obtain a single rupee in fines. That said, the Commission was able to shorten the average length of an investigation from three-and-a-half months to just under three months.

At the end of the day, the commission touted its achievement from the perspective of its role as a market developer, not just a market regulator. It said an important aspect of its mission in which it succeeded is to communicate its role in the developing Pakistani economy. A 2015-2016 roadshow created relationships with businesses and the academic community - a step that could pay dividends for the CCP in the future.

Head of agency

Vadiyya Khalil

Previous employment

Member of the enforcer's commission from 2010 to 2013

Mandate expires

16 December 2017

Salary of head of agency

€64,200

Appointment of head of agency

Members of the commission are designated chairs by the federal government

Agency head reports to

The federal finance minister in matters pertaining to performance, achievements, and administrative matters. Otherwise the commission is functionally independent.

Budget

€1.9 million

Amount spent on salary

€1.4 million

Percentage of budget spent on salary

75%

Staff working on competition enforcement

160

Non-administrative competition staff

49

Percentage who are lawyers

27%

Percentage who are economists

20%

Percentage who are others

53%

Other areas of focus

Business graduates, accountants and others

Average age of staff

33

Male/Female

59%/41%

Average tenure

4 years

No. of staff who left in 2016

1

No. of staff who retired

0

No. of staff who remained in civil service

0

No. of staff who joined in 2016

12

No. of staff who joined from the civil service

1

No. of staff who have spent at least 5 years in private practice

1

Percentage of staff who left

3%

Percentage who retired

0%

Percentage who remained in civil service

0%

Percentage who joined from civil service

8%

Percentage who joined in 2016

24%

Stand-alone bureau of economics

No

No. with PhDs in economics

0

Name of chief economist

Not applicable

Priorities

No. of staff working on mergers

8

No. of staff working on anti-cartel

6

No. of staff working on dominance-related issues

3

No. of staff working on other areas

32

Percentage of staff working on mergers

16%

Percentage of staff working on anti-cartel

12%

Percentage of staff working on dominance-related issues

6%

Percentage of staff working on other areas

65%

Sectoral priorities in 2016

Aviation, telecoms, pharmaceuticals, poultry, essential commodities (such as meat and sugar), procurement issues in the energy sector, energy studies in CNG, LPG and LNG, and consumer protection.

Sectoral priorities for 2017

Market studies in aviation, electricity, banking, pharmaceuticals, and telecoms. For cartel enforcement, the priority is developing a system to analyse bid rigging in public procurement in collaboration with the Pakistan's procurement regulator. Online and digital markets are a sectoral priority, especially in consumer protection work.

Internal performance assessment

Internal performance assessments have been institutionalised in the management information system, which requires all departments to submit to the chair and commission fortnightly reports containing targets, set at the beginning of every year in deliberations of the strategic planning committee, and achievements for review and corrective action.

External performance assessment

No external review was done in the last two years, but the commission will explore the possibility of another review by UNCTAD in 2018 (the first review was done in 2012), focusing on both competition and consumer protection.

Mergers

No. of mergers filed

69

No. of mergers that led to in-depth review

1

No. of filed mergers challenged

1

No. of challenged mergers blocked

0

No. of challenged mergers resolved with remedies

1

No. of challenged mergers abandoned by parties

0

Percentage of filed mergers that led to in-depth review

1%

Percentage of filed mergers challenged

1%

Percentage of challenged mergers blocked

0%

Percentage of challenged mergers resolved with remedies

100%

Percentage of challenged mergers abandoned by parties

0%

Average length of an in-depth merger review

Less than 90 days

Anti-cartel

No. of leniency applications

First-in: 0

Total: 0

No. of dawn raids

2

No. of cartel decisions

2

No. of cartel decisions concluded with fines

2

Total cartel fines in 2016

€1.2 million

Average fine per cartel

€600,000

Average length of cartel investigation

90 days

Fines collected by

Did not respond

Fines go to

Did not respond

Abuse of dominance

Highest no. of abuse of dominance cases under way in 2016

7 on average

No. of abuse of dominance investigations launched in 2016

10

No. rolled over

2

No. of files closed in 2016

4

Average length of investigation

90 days

Sum total of abuse of dominance fines

€0

No. of abuse cases settled with behavioural conditions

0

Longest-running investigation

Geo Television v cable operators on channel switching initiated 15 December 2015

Explanation for its duration

Complainant has not provided verifiable information. No mechanism/historical information on channel switching exists making it difficult to determine anticompetitive behaviour.

Criminal enforcement

Criminal enforcement track

No

Offences punishable by imprisonment

Not applicable

Individual sentences imposed

Not applicable

Longest prison sentence

Not applicable

2016 total prison time

Not applicable

Total fines

Total fines

€2.7 million

Imposed for

Cartels 43%

Abuse of dominance 0%

Other 57%; consumer protection/
deceptive marketing

Organisational change

Structural change

No

Leadership change

No

New powers or responsibilities

No

Budget change

5% increase

Advocacy

Percentage of budget dedicated to advocacy

10%

Stand-alone advocacy office

Yes

Appearances before congress/parliament

The National Assembly's finance committee invited the commission on to discuss its performance on 20 December 2016.

There were three meetings of the Senate's standing committee on Finance in 2016. The commission met the chair of the Senate on 5 October 2016 to review the commission's court cases.

The commission's chair met with the deputy speaker of the National Assembly to discuss the commission's performance and cases under judicial review on 19 February 2016.

A public accounts committee meeting took place on 28 September 2016.

Two meetings with the attorney general of Pakistan took place in 2016 to discuss ways and means of expediting the judicial review of the commission's cases pending in various courts.

Other contact with lawmakers and government officials

The commission sends the finance minister a performance report every six months, detailing its key activities and achievements. The commission has regular interaction with finance ministry officials on non-case related matters.

In 2016, the commission sent performance reports to the National Assembly speaker, the committee on finance, and the Senate's standing committee on finance, every six months.

The commission responds to questions raised by parliamentarians and senators on matters as necessary.

Legal changes proposed/enacted

None

Other results

The commission revised its leniency regulations for the third time in 2016 to bring them in line with international practices. Merger regulations were revised and notified in 2016. This was the second revision since their initial notification in 2007.

A compliance cell has been established in the registrar's office to better track the status of implementation of the commission's decisions where remedies have been imposed.

An online merger application system was developed and launched to facilitate filing of applications by parties, to speed up the commission's initial assessments.

Numerous results were achieved under the commission's advocacy activities in 2016, such as a memorandum of understanding with the public procurement regulator; issuing guidelines on abuse of dominance and prohibited agreements; publishing guidance on competition compliance to help the private sector; training law firms in Islamabad on merger control; complaint boxes were placed in various chambers in Pakistan; an opinion leading Pakistan's Civil Aviation Authority revising a tender; finalising a market study in the meat sector; policy notes issued - two dealing with discriminatory tax measures, and one with telecoms policy.

Priority setting

Setting goals and priorities

A substantial portion of the commission's work is mandatory and non-discretionary, and our work is understandably characterised by a degree of uncertainty. There are many factors beyond our control. This can include fluctuations in work which we are bound by law to undertake, such as cartel investigations, merger control and appeals.

While all complaints are carefully considered, the commission's role is to focus on circumstances that harm the competitive process or result in widespread consumer harm. The commission therefore exercises its discretion to direct resources to the investigation and resolution of matters that provide the greatest overall benefit for competition and consumers.

The Commission established a strategic planning committee to review departmental goals, output and outcomes and develop priorities accordingly. The prioritisation principles or criteria help the commission determine the relative importance of particular activities in light of its overall portfolio and resources.

Allocation of resources

The Commission's resource allocation remains focused on its core work of enforcement, advocacy, and research, but it is often highly dependent on economic requirements at any given moment or matters referred to it by the federal government, and it must allocate resources accordingly.

In 2016, the commission continued providing technical input for the pricing mechanism of essential food commodities, as per the request of the federal minister for finance. For example, the commission was asked to investigate a hike in private airlines' ticket prices when the state-owned carrier's pilots went on strike.

The commission is also part of the government's financial inclusion strategy deliberations as well as in the development of the country's e-commerce strategy. It plays in important role in the committee tasked for the formulation of Pakistan's Hajj policy, ensuring that competition is encouraged and consumers are protected for the important religious obligation that sees almost 200,000 pilgrims travel to Saudi Arabia every year.

Long-term strategy and training

Evaluation methods

The Commission applies lessons learned and experience gained during enforcement. Heads of departments report on the work they are doing and highlight problems and issues that they face, either internally or externally. The strategic planning committee deliberates upon these issues and creative solutions to problems are devised and shared. It is important that the commission can see and address challenges arising from global innovation and dynamic markets and exchange of information is a way of ensuring this.

Ensuring stability

The Commission's stability derives from setting targets and achieving them.

The Commission assigns personnel in areas of competition and consumer protection where they can have the most impact. This also helps in the retention of institutional memory.

The Commission established an internal training cell to develop skills of junior to mid-level managers. The internal training curriculum includes the module on economics and competition law, developed with the help of King's College London.

The commission's officers have participated in training workshops organised by the OECD's Korea Policy Centre. The US FTC has also conducted training events for the Commission.

Results

Key achievements

The commission developed the guidance on Competition Compliance in December 2016 for our stakeholders. The guidance explains the dos and don'ts of compliance in an easy-to--understand manner and we plan to help businesses develop internal capacity through compliance workshops in 2017.

Academia is an important area and our module on economics of competition law, prepared with the help of King's College, London, was launched as an elective course at a major national university in early 2016. This module links economics with the application of competition law and has specific examples of the commission's enforcement work. We are taking this module to 33 other universities under our academia drive, that began in November 2016, for inclusion as an elective in their management, law and economics curricula and the response so far has been overwhelmingly positive.

We took steps to implement an OECD recommendation dealing with role clarity and signed a memorandum of understanding with Pakistan's public procurement authority in early 2017 to share data that would help tackle the problem of bid rigging in public procurement. The Korean Fair Trade Commission has been asked to help us establish their renowned Bid Rigging Indicator Analysis System (BRIAS) system in Pakistan.

To complement the work of other consumer, regulatory, and enforcement authorities, and act as a trusted competition advisor across government, we have reached approvals with the state bank of Pakistan and the Federal Board of Revenue for MOUs with them. We are also in discussion with the telecom, media, and oil and gas regulators for similar MOUs.

Our opinion on procurement issues in the power sector, based on an open hearing that we held in early 2015, resulted in the Commission receiving an honourable mention in the 2016 World Bank - International Competition Network's advocacy contest.

Appeals success

The competition appellate tribunal became operational with all three members on board. In 2016, the CAT heard seven appeals against the commission's orders. Two were dismissed for non-prosecution. A third one was also dismissed for non-prosecution but the undertaking has filed an appeal with the CAT to restart the process. Importantly, three Orders were upheld and two of these have filed appeals in the Supreme Court of Pakistan.

The Tribunal upheld the Commission's order of 2015 imposing a penalty of 100 million rupees on the Pakistan Poultry Association for cartelisation. The Tribunal also upheld a consumer protection order in a matter of copycat labelling and packaging, albeit reducing the penalty by 50% to 10 million rupees on the infringing party. A third order imposing a penalty on a paint manufacturer was also upheld when their appeal was not filed in the given period but the Tribunal will allow them an opportunity to present their case.

Judicial review is an important counterbalance to the commission's independence and an accountability instrument to help us rationalise our decisions when it comes to the penalties we impose. 2016 is the first year since its establishment (2007) where the commission's orders were reviewed on merits of the particular case and not on the constitutionality of the competition law, the easiest way to delay matters in the courts. It is heartening for our orders to be deliberated at the appropriate forum and be upheld on their merits as there is no better indicator of our fairness and transparency.

How do you rate yourself?

The Commission must be not only a market regulator, but also a market developer; it was important in 2016 to sustain the momentum created in 2015. This requires a balanced approach to enforcement and compliance-oriented advocacy so that competition benefits the consumer.

The Commission worked to communicate its role, and we worked to ensure that consumers and businesses are sufficiently well-informed to benefit from, and stimulate, effective competition. Meeting compliance requirements without the right tools to foster a compliance culture is challenging for businesses, and we felt it was important to help where necessary but also continue enforcement.

In 2016, we established a framework of sustainable engagement with two important stakeholders - businesses, through our national road show in 2015-2016 and our guidance booklet, and academia, with our module on economics and competition law. As a result of this engagement, the volume of interaction with and complaints to the Commission has tripled. The guidance on competition compliance explains the dos and don'ts of compliance in an easy to understand manner, and we plan to help businesses develop internal capacity through compliance workshops in 2017. An academic module developed with King's College London is being introduced in more than 30 universities in Pakistan.

Our partnership with businesses and academia puts us at two critical junctures in the supply chain of compliance-oriented professionals, and we hope that the dividends from this partnership become obvious in a few years as a critical mass of human resources with familiarity with competition law and compliance enters the workforce. This will even allow the Commission to combine staff with different professional and organisational backgrounds into effective multidisciplinary teams, leading to institutional development and strengthening the concept of competition and compliance in the economy.

All that was in addition to our enforcement work, which saw 21 inquiries completed in both competition and consumer protection cases. The commission held 28 hearings on 27 different cases. Seven orders were issued and 48 possible anticompetitive agreements were granted exemptions after careful review. The commission also cleared 69 merger cases, and our Phase II review of a telecom merger case was quite extensive.

This year, we saw our interaction with the government and parliament increase considerably. The commission provided valuable recommendations to them to promote competition - more importantly, our recommendations were adopted. This demonstrates the impact of our voice.

Last year's Rating Enforcement said the Commission "remained constrained by systemic pressures." This year, a critical systemic pressure in the judicial review process was alleviated. The Competition Appellate Tribunal started listening to appeals against our orders. Of the three members of the tribunal, two are former justices of provincial high courts and well versed with the appeals process. A non-functional tribunal has been a serious impediment in the commission's enforcement efforts.

The Commission has established itself as an important regulator. It was peer reviewed by UNCTAD in 2012 and received a three-star rating by GCR in 2016. It is my hope to strengthen the foundation of an effective and important regulator - and even more so, that its voice and impact continue to be heard and felt.

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