Breaking Rs 36 billion transformers cartel

Competition Commission of Pakistan

ISLAMABAD: In a landmark decision, the Competition Commission of Pakistan (CCP) has announced leniency to Siemens by granting it total immunity from financial penalties and reduction in the amount of penalty up to 100 percent as the German firm claimed leniency from the commission.

The leniency has been granted to Siemens to break cartels of Rs 36 billion in the annual switchgear and distribution transformer market mainly procured by the public sector.Addressing a news conference on Tuesday, CCP Chairperson Rahat Kaunain Hassan termed it a landmark decision that will help break the cartelisation in procurement quota and price fixing operated by the members of Pakistan Electrical Power Equipments Manufacturers Association (PEMA). German electric giant becomes the first firm to file for leniency with the commission to disclose all evidence to break the cartel.

She said that the extra-ordinance evidence against PEMA cartelisation provided by Siemens, which submitted in total 233 documents, after the show-cause notice, will help break the cartel, as it contains all the evidence of cartelisation by PEMA in one of the most important areas of the public sector procurement. Siemens claimed leniency under the leniency regulations, which empowers CCP to grant total immunity from financial penalties and CCP may grant reduction in the amount of penalty up to 100 percent to the German firm.

Giving reasons for granting leniency to Siemens, she said cartels are termed as a major drain on the world’s economy and leniency programme seems to be the single most important tool to be used by the competition agencies to detect and dismantle cartels. It is a concession granted to a cartel member who admits the contravention and also provides critical evidence of the alleged or otherwise cartel conduct of the accomplices and commits to abandon such behaviour.

Siemens holds 29.3 percent share in the sector, followed by Pakistani firm PEL that has 28.2 percent share while the remaining all the manufacturers have 42 percent share. During the last fiscal year the procurement of switchgear and power transformers amounted to Rs 36 billion, out of which Siemens had a share of Rs 11 billion.The CCP chairperson said just after the issuance of show-cause notice to PEMA, there has been a decline of 12 to 18 percent in the prices of distribution transformers as assessment made by the commission shows a single power distribution company (DISCO) made a saving of Rs 35 billion.

The prices of power transformers declined by Rs 10 billion while that of three-phase transformers declined by Rs 1.5 billion. On the average, a DISCO procures 10,000 transformers of different types during a fiscal year.Invoking of leniency provision by Siemens is to be viewed as a stepping-stone and endorsement of commission’s hardcore labour for the daunting tasks undertaken and accomplished against powerful lobbies and vested interests – to deter, rectify and eliminate the anticompetitive practices in the country, she said.

However, she regretted that the other regulatory authorities are not paying their 3.0 percent share in their annual income to CCP, which is hampering the work of the commission that is surviving on the partly granted by the government.The Securities and Exchange Commission of Pakistan has to pay Rs 209 million, Pakistan Telecommunication Authority Rs 738 million, Oil and Gas Regulatory Authority Rs 46 million and Pakistan Electronic Media Regulatory Authority Rs 13 million to CCP.

Summary of CCP’s order: CCP chairperson said CCP is one of the 110 competition agencies all over the world, which has leniency programme in place. CCP announces its decision in its first leniency application filed by Siemens (Pakistan) Engineering Co Limited (Siemens) to seek leniency in respect of show-cause Notice No 27 issued for, prima facie, bid rigging and collusive activities in the tenders called by DISCOs to procure switchgear and transformers from the members of Pakistan Electrical Power Equipments Manufacturers Association (PEMA).

The chairperson emphasised that one must recognise the importance of leniency programme as cartel is the virus and leniency is the anti-virus to detect and prevent the harm. This is a landmark and historical decision, which is most likely to be pivotal in shaping the landscape as to how cartel players may react and will serve as an incentive to insiders to come forward, thus strengthening CCP to break the cartel which is beneficial for the economy.

Leniency granted by CCP to Siemens: Siemens claimed leniency under Regulation 3 or 4(1) of the Leniency Regulations. Regulation 3 empowers CCP to grant total immunity from financial penalties whereas under Regulation 4(1) CCP may grant reduction in the amount of penalty up to 100 percent. Regulation 3 operates as an effective tool to investigate by offering incentives to uncover the conspiracy and come forward to admit and implicate co-conspirators and collect evidence more quickly and at a lower cost. Regulation 4 operates as an encouragement for parties to break ranks with the cartel members even after the relation is found out or established. Corroborative evidence provided under Regulation 4 substantiates and strengthens the cartel proceedings initiated by CCP on leading to an efficacious resolution of case. – Dailytimes