ISLAMABAD: Competition Commission of Pakistan’s (CCP) teams on Thursday raided and searched the premises of Millat Tractors Ltd (MTL) in Lahore and Al-Ghazi Tractors Ltd (AGTL) in Karachi on suspicion of collectively making business decisions.
The CCP teams confiscated the relevant record, documents, minutes of meetings and computer- stored information including critical data. The two companies account for around 99 per cent of tractor market share in Pakistan — MTL at 70pc and AGTL at 29pc — making the industry more susceptible to collusive activities.
The initial investigations carried out by the CCP prior to the raid had revealed that the Provisional Booking Order Forms (PBOs) of Millat and Al-Ghazi also appear to be similar, unreasonable, and exploitative in terms of the Act and indicate the possibility of collusion.
At the same time the CCP is also investigating the possibility of Resale Price Maintenance (RPM) by one of these two companies.
Complainants allege ‘substandard’ farm machinery was resulting in frequent breakdowns
Through RPM, a supplier pressures a business not to sell products below a specific price; hence it is detrimental to competition.
The search inspections were carried out to see if the tractor manufacturers are involved in the alleged anti-competitive activities such as collusion and collective decision making with respect to price hike of tractors, undue shortage despite of excessive capacity, identical clauses in the PBOs of both companies and RPM.
The CCP is mandated under the Act to ensure free competition in all spheres of commercial and economic activity to enhance economic efficiency and protect consumers from anti-competitive behaviour.
The CCP initiated the inquiry upon receiving concerns through the Pakistan Citizen Portal about a drastic increase in the prices of tractors at different points in time despite subsidy relief given by the government on sales tax and a great extent of localisation in the tractors industry.
The complainants alleged that the tractors being manufactured were of substandard built quality resulting in a frequent breakdown.
The CCP’s preliminary investigation shows that both the tractor manufacturers sequentially increased their prices in 2021.
The CCP initial report highlighted that similar sequential price pattern was also observed from 2018 to 2020.
Millat tractors increased prices by 1pc to 5pc in October 2018, 7pc to 13pc in July 2019, 2pc to 3pc in March 2020, and 5pc to 7pc in July 2020.
Similarly, AGTL increased the prices of its various models by 3pc to 5pc in October-November 2018, 5pc to 10pc in August 2019, 1pc to 4pc in March 2020, and 5pc to 7pc in July 2020.
The CCP initial inquiry has highlighted that the tractor industry was over 90pc localised, and there is hardly any technological advancements by the tractor manufacturers.
“Thus, the price increases by the market leader, Millat Tractors, followed by the second biggest market player, Al-Ghazi Tractor, in close succession, and similar quantum indicate the possibility of price coordination between the tractor manufacturers,” the report added.
Published in Dawn, September 3rd, 2021