Karachi, May 12, 2020: The Competition Commission of Pakistan (CCP) has issued a Policy Note recommending that the Securities & Exchange Commission of Pakistan (SECP) restore the requirement of cost audit of five sectors in particular, and all other sectors in general, for facilitating policy interventions and promoting competition.
The CCP’s specific recommendation is the immediate reinstatement of a regular cost audit of Cement, Sugar, Vegetable Ghee/Cooking Oil, Fertilizer, and Wheat flour industries as these sectors directly affect the lives of Pakistani consumers.
The Policy Note stated that the resumption of cost audit would ensure transparency and facilitate access to readily available and credible cost information in these sectors, thus enabling the pertinent government bodies to make informed and independent decisions in the larger public interest. These sectors in particular are subject to government interventions such as subsidies, support price and price controls.
The CCP noted that under the Companies Ordinance, 1984 the SECP was empowered to carry out the cost audit of companies. However, with the enactment of the Companies Act 2017, the requirement of yearly cost audit is linked with the recommendations made by the sector regulator. Since there is no sector regulator in the abovementioned sectors, a regular cost audit in these sectors will not be possible.
Any limitation placed on cost audits may promote anti-competitive practices. The government’s reliance on industry associations for cost information could inadvertently legitimize the exchange of commercially sensitive information at the association’s platform, thus potentially enabling associations to engage in anti-competitive practices, such as cartelisation and price fixing.
The CCP through its orders and policy tools, has always discouraged the usage of an association’s platform to agree on matters of a commercially sensitive nature, and the legitimization of the same, by any government body.
The Policy Note has been issued under Section 29 of the Competition Act, 2010, which empowers CCP to review policy frameworks to foster competition in all spheres of economic and commercial activity and to recommend appropriate remedies to the Federal and Provincial Governments.
