Paying the Price of Confronting Pakistan's Cement Cartels?

I am thankful to Salman Naveed Khan, CEO of One Tree Hill, an integrated solutions firm based in Lahore, for pointing out to the news about the recent judgment of the Competition Commission of Pakistan (CCP), which concluded that 20 cement companies had formed a cartel; a heavy $77m financial penalty was also imposed by the Commission on the guilty companies.

Almost immediately--and somewhat predictably--after the judgment was announced on 27 August 2009, the Chairman of the CCP, Khalid Mirza, was sacked. The Prime Minister himself has denied that the judgment itself was the reason for the ouster and in a fairly bizarre move, overturned the order of termination of Mr. Mirza's contract and restored him for one month. This is the second time that Mr. Mirza, an ex-World Bank senior manager, has been shown the door because of what appears to be a principled and professional stand; his stint as Chairman of the Securities & Exchange Commission of Pakistan was also cut short, despite improvements he brought about in the institution.

Without going into details of this flip-flop decision making, the incident does send a poor signal to the regulators and also reflects on the immense political influence that the business community wields. As indicated in the judgment (click here to download it or go to www.mca.gov.pk--makes very interesting reading on how the business operates to the detriment of consumers) the cement industry has been notorious for its tendency towards cartelisation and has been found guilt twice before: in 1992 when the CCP's predecessor, the Monopoly Control Authority (MCA) found that cement companies had formed a cartel in the wake of the post-floods reconstruction; and in 1998, when the MCA determined that a cartel was formed to hike the price of cement by nearly 100%. This history aside, the fact that the regulator was willing to confront the business community for engaging in uncompetitive practices was an act that needed to be backed by the government. I am willing to believe that by appointing a professional like Mr. Mirza, the intentions of the government were nobler than they might appear to be in the wake of the recent charade, but commitment requires appropriate action to give it credibility; when put to the test, the government seems to have balked. The government would also be bucking the global trend, which has witnessed regulators eschew liberal, unregulated-economy models for a more balanced, stronger regulatory regime.

If the government does indeed back down and the judgment is not enforced or a compromise arrived at with the cement industry, aside from Mr. Mirza, it is the consumer who will be paying the price of confrontation. Wonder if the government ever considers that when taking such politically motivated decisions?