The Competition Commission of Pakistan (CCP), once considered a toothless entity, has now sharpened its bite, taking on powerful business barons involved in deceptive practices.
Recently, decisive actions have been taken against several corrupt entities, including notorious fertilizer tycoons and Unilever Pakistan, both of whom have been exploiting consumers for personal gain.
In April 2013, the Competition Commission of Pakistan (CCP) imposed a hefty penalty of Rs8.6 billion on the country’s two largest fertilizer manufacturers, Fauji Fertilizer and Engro Fertilizers.
These giants had allegedly pocketed billions from farmers through questionable practices. Yet, years later, the public remains in the dark about whether these fines were ever paid.
This isn’t the first time the CCP has slapped multi-billion rupee fines on corporations, only to face setbacks due to stay orders granted by the courts.
However, a new chapter seems to be unfolding as the commission has begun recovering fines from those guilty of malpractice. For consumers, this represents a glimmer of hope.
Experts argue that the CCP should expand its scope, targeting not only the fertilizer industry but also other powerful players like Unilever Pakistan, to crack down on anti-competitive practices and provide much-needed relief to the public.
CCP imposes Fine on Unilever Pakistan
CCP has imposed a fine of Rs 60 million penalty on a multinational for deceptive marketing for airing deceptive claims through television commercials for its hygiene and cleansing products, ‘Lifebuoy (Care and Protect) Soap’ and ‘Lifebuoy Hand Wash’.
The Commission’s bench has disposed of proceedings pertaining to a show cause notice issued to Unilever Pakistan for prima facie violations of Section 10 of the Competition Act of 2010 that prevents businesses from engaging in deceptive marketing tactics based on misleading information or false claims.
Enforcing prohibition against deceptive marketing is one of the core mandates of CCP. The Commission protects consumers from misleading information and safeguard competitors from anti-competitive behaviour that could harm business interests of undertakings.
Based on a complaint submitted by Reckitt Benckiser about products namely Lifebuoy Soap and hand wash. CCP conducted an inquiry into Unilever Pakistan Limited’s absolute claims regarding its products, such as “100% guaranteed protection from germs”, “World’s No. 1 germ protection soap”, and “99.9% germ protection in 10 seconds.” The disclaimers about these claims were printed in tiny fonts and were hardly noticeable.
Unilever Pakistan Limited was found to be misleading consumers and harming other businesses by making false claims about their products. The Commission’s Order observed five distinct violations of Section 10 of the Competition Act. The claims related to health and safety were not substantiated by reliable scientific evidence. The Order also cited that Unilever continued to engage in deceptive practices despite issuance of a Show Cause Notice.
The Order further noted that Unilever’s deceptive practices varied by region, with different wording for the same product in countries such as Saudi Arabia, the UK, and Bangladesh. The most severe deceptions were found in Pakistan, which the Commission deemed unacceptable.
While imposing a penalty of PKR 60 million on Unilever for deceptive marketing practices, CCP additionally directed Unilever to submit a compliance report to the Registrar of CCP within 30 days of issuance of order.
CCP strives for a fair market environment that offers customers fair prices, high-quality products, more choices, and a level playing field for businesses to thrive.
Options International deposits PKR 6 Million Penalty into national treasury
Following the Supreme Court of Pakistan dismissing its appeal, M/s Options International deposited the PKR 6 million penalty under Section 40(8) of the Competition Act 2010 into the national treasury.
This Supreme Court decision marks the end of a comprehensive legal battle that began with a formal complaint from STARBUCKS leading to an investigation and enforcement action by the Competition Commission of Pakistan (CCP). In June 2024, the Competition Appellate Tribunal (CAT) dismissed Options International’s appeal, increasing the primary penalty from PKR 5 million to PKR 6 million and prohibiting the company from illegally using the Starbucks brand name and logo.
M/s Options International has filed an appeal to the Supreme Court of Pakistan against the CAT’s order, which the court dismissed. The Supreme Court ruled that “Options International,” put itself forward by selling its products under the international brand name Starbucks and by using its logo, which amounts to deceptive marketing.
Since the new management has taken over, CCP has effectively recovered fines of PKR 38 million, demonstrating substantial progress in its fight against cartel conduct.
Actions against Fertilizer Manufacturers
In 2023, the CCP imposed a hefty fine on fertilizer manufacturers for deceptive practices.
It has again started a fresh probe against them and recommended legal action against fertilizer manufacturers following an inquiry that revealed their involvement in misappropriating billions of rupees through subsidized gas supplies.
The inquiry committee, which advocates for proceedings against leading fertilizer companies, investigated the profitability, cost structures, subsidies, and their effects on urea prices for farmers. The probe highlighted critical issues regarding the pricing strategies employed by urea manufacturers.
The fertilizer sector consumes 266,796 million cubic feet of gas annually, with 83% used as feedstock and the remaining 17% as fuel stock. The government subsidizes feedstock gas by approximately Rs152 billion annually to keep urea prices affordable for farmers. Yet, despite this substantial subsidy, urea prices have continued to rise, benefiting the producers.
In 2021, Fauji Fertiliser Company (FFC) reported a gross profit margin of 35.78%, a net profit margin of 20.15%, and a return on equity (ROE) of 46.08%. Engro Fertilisers reported similar figures, with a gross profit margin of 33.3%, a net profit margin of 15.9%, and an ROE of 44.97% for the year. Notably, their ROE surpasses the capped 20% return on equity observed in the Indian urea industry.
A coordinated approach to price adjustments was evident, with all urea manufacturers in Layyah district raising prices by Rs482 per 50kg bag, or 27.26%, between February 2022 and November 2022. Price changes were synchronized across companies, suggesting a deliberate pricing strategy.
In response to these findings, the CCP issued show-cause notices to the urea producers, seeking explanations for what appeared to be a coordinated price-fixing strategy. The investigation highlights the need to ensure fair competition and safeguard consumer interests in the fertilizer industry. The CCP’s inquiry report noted that prices in Layyah district increased by Rs51 per bag from January 2021 to November 2021 and by Rs482 per bag, or 27.26%, from February 2022 to November 2022. The agriculture sector, contributing 22.7% to Pakistan’s GDP, relies heavily on fertilizer, which accounts for about 17% of total crop costs. The decision by the Fertiliser Manufacturers of Pakistan Advisory Council (FMPAC) to raise the price of urea by Rs48—from Rs1,720 to Rs1,768 per bag—resulted in gains of Rs1.8 billion during the Rabi sowing season from October 2021 to January 2022. This price adjustment was noted in the Economic Survey of Pakistan 2021-22.
For the Rabi season from October 2021 to March 2022, the total urea demand was 3.19 million tons. With the price set at Rs1,768 per bag for four months, the total impact of the Rs48 price increase is estimated at Rs1.8 billion.
FFC’s profit before tax in 2021 was Rs30.3 billion, Engro’s earnings were Rs29.8 billion, and Fatima Fertiliser earned Rs28.2 billion. Agritech Limited was the only company to post a loss, amounting to Rs4 million.
The CCP’s decisive actions underscore its dedication to protecting consumer interests and fostering integrity in Pakistan’s agricultural sector.This is a ray of hope for the consumers.
