ISLAMABAD: The Competition Commission of Pakistan (CCP) issued on Wednesday a ‘policy note’ to the government on exemptions granted to certain public-sector construction companies, saying they restrict level-playing field for other players.

The policy note, which recommends withdrawal of such exemptions, has been forwarded to Planning and Development Division, the Ministry of Housing and Works and the Ministry of Defence.

“Under these exemptions, the entities concerned are not required to furnish performance bond and bank guarantee against earnest money, and bank guarantee for advances in the case of government works contracts,” the CCP said.

It pointed out that exemptions have been extended even in the award of contracts for civic works to Frontier Works Organisation (FWO), National Construc­tion Limited (NCL), and National Logistic Cell (NLC).

As per practice, the Pak­istan Engineering Council (PEC) issues licences permitting a licensee to construct or operate projects, whether in the private or public sector, for a category and period specified in the licence.

Out of 144 registered companies, the majority are in the private sector except a few, including FWO, NCL and NLC. In the categories of contractors and operators of projects, only public-sector companies are availing these exemptions.

The CCP has said the Ministry of Defence has exempted FWO from furnishing a bank guarantee against performance security and mobilisation advance for services it renders to the federal and provincial governments.

Similarly, NCL benefits from exemptions granted by the Ministry of Housing and Works. Accordingly, in the case of government works contracts, NCL is not required to furnish a performance bond in relaxation of Rule 276-GFR (Pt-I); and cash deposit requirement/ bank guarantee against earnest money and bank guarantee for advance, if any, provided under the contract agreements.

These exemptions are applicable in the case of services provided by the NCL to the federal as well as provincial governments.

Likewise, the Planning and Development Division exempted NLC in contracts for government works from providing a performance bond, bank guarantee for advances, if any, provided under the contract agreement, and release/adjustment of retention money.

The CCP noted that the clients of various construction projects undertaken by the FWO, NCL and NLC have remained the federal and provincial governments. Private sector contractors cannot compete for such projects due to these exemptions. In the long run, this affects their growth and international competitiveness.

As the private sector contractors cannot participate in national-level construction projects, they cannot develop, strengthen and upgrade the technical expertise that is required of global players. The undertakings listed above do not face real competition from other construction companies, which they would face in the absence of these exemptions.

The CCP observed that FWO, NCL and NLC have grown stronger and no longer need protection in the form of ‘exemptions’ as illustrated by the strong financials of NCL and FWO and their ability to compete abroad.

“Hence, the infant industry argument is no longer valid, therefore, continuation of exemptions is not justified,” the CCP said.

The Commission estimates that the cost advantage in terms of contract cost to FWO, NCL, NLC is 30 per cent, 22-25pc and 30-35pc, respectively.

Published in Dawn, October 2nd , 2014