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CCI's Rs 6300 Cr Bombshell!

Published on Sat, Jun 23,2012 | 11:24, Updated at Sat, Jun 23 at 11:34Source : Moneycontrol.com |   Watch Video :

In 2009, the European Union had penalized Intel 1.06 billion euros for abusing its dominance in the computer chip market. That amount set the record of highest penalty levied by any competition authority. This week, the Competition Commission of India came a close second. It penalized 11 cement companies over Rs 6,000 cr for indulging in cartelization. Payaswini Upadhyay has that story.

Simultaneous Price increases
Price increases right after association meetings
Dispatch parallelism
Reduced capacity utilization & production not linked to market forces
And super normal profits earned by companies

- based on this circumstantial evidence, the Competition Commission of India has found 11 cement manufactures guilty of cartelization under Section 3 of the Competition Act. Former CCI DG Amitabh Kumar is not convinced by CCI’s analysis.

Amitabh Kumar
Partner, JSA
Former DG, CCI

“When you have only circumstantial evidence on an allegation of cartelisation, you have to show that the outcome in the market cannot be explained by any other analysis or any other economic factor. And as long as you’re able to do that and show that what the parties were doing could not have been explained by anything but a kind of tacit agreement, then perhaps that analysis will hold; not otherwise.”

Kaushal Sharma
Member, Research Partnership Platform, UNCTAD  
Former DG, CCI


“It has been mentioned in parts of this order that producers could not bring any evidence on record to show that the prices are based on market forces. Now this is asking for too much. They cannot maintain a documentation which is not required by law. They say that the price was decided centrally by every manufacturer. That may be a policy of that particular manufacturer. They are not under legal obligation maintain a detailed record. So this was the job of the CCI and the DG to have found out to say that these prices are not based on market forces. So reverse should have been true instead of alleging that they did not have any evidence to show.”

CCI has concluded that the simultaneous price increases and dispatch amounts were arrived upon at CMA (Cement Manufacturer’s Association) meetings. CCI’s order says the Cement Manufacturers Association of India provided a platform to cement companies to share price, production and dispatch information – and an opportunity to fix prices in those meetings. CMAI argued that the meetings were held only to collect information. But the regulator relied on price increases immediately after CMAI meetings in January and February last year, to make its point.

Amitabh Kumar
Partner, JSA
Former DG, CCI

“These are good evidences and as I said earlier the analysis has to demonstrate very clearly that there is no other plausible explanation for these outcomes unless there is a tacit understanding because the market can behave in the same way - there can be price parallelism is any oligopoly because of interdependence of firms. So one watches the other and takes an intelligent guess about pricing. If you look at that data, it will also demonstrate price parallelism.”

Besides deductive analysis CCI has no other evidence of cartelization. It alludes to phone calls and emails that may have been used to coordinate price movements but offers no record of them

This lack of any direct evidence of cartelization, experts say, could weaken the Commission’s case at the Tribunal stage. 

Kaushal Sharma
Member, Research Partnership Platform, UNCTAD  
Former DG, CCI

“In March 2012, Lafarge which is party number 12 in this order, its parent body has been penalized ZAR149m in SA. They have come ahead and accepted this penalty and said yes, they were a part of this cartel. They took help of leniency programme of South African Competition Commission. They did it because they had enough evidence in terms of exchange of mails. Cartels being penal in nature and the penalties are huge- normally courts will insist on stringer evidence than just by saying if the demand pull is there, then prices should have been passed on to the consumer. There was a possibility to collect more evidence. Our DG has the power to search and if you just go to the residency of these executives who attended the meetings, their email exchanges will show everything.”

11 companies and a penalty that is 0.5 times their net profit for 2009 and 2010- works out to be a huge sum of Rs 6,300 crores. But this settles only one of the two cases of cartelization in the cement industry that the CCI has been investigating. Another case of 2006 is yet to reach fruition- and that involves 42 odd companies. As for this order, it’s not going to be an easy win for the regulator. Boggled by the amounts most cement companies will head to the Competition Appellate Tribunal. This story is far from over!

In Mumbai, Payaswini Upadhyay

 

 
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