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Cartel of 11 cement companies fined Rs. 6,307 Crore

The Economic Times, New Delhi

June 22, 2012


The competition regulator has imposed an unprecedented penalty of Rs 6,307 crore on 11 cement makers, including the Indian arms of global leaders Holcim and Lafarge, holding them guilty of manipulating supplies and prices to post huge profits at the cost of consumers and the economy.

The Competition Commission of India (CCI) has asked the cement companies to pay up the fine in 90 days, and told the Cement Manufacturers Association to stop collecting pricing data and circulating output and dispatch details to its members.

The order, first reported by ET NOW, is expected to hurt the profitability of cement makers, particularly smaller companies that may become takeover targets for bigger players, analysts said. Even if companies litigate, the order has hurt their ability to raise prices in the near future, they said.

The affected firms are Jaiprakash Associates, UltraTech, Ambuja, ACC, Lafarge India, Century Textiles, Madras Cements, Grasim Cements (now merged with UltraTech), India Cements, Binani Cement, JK Cement, and the Cement Manufacturers Association.

Companies to Challenge CCI Order

"The commission has also observed that the act of these cement companies in limiting and controlling supplies in the market and determining prices through an anticompetitive agreement is not only detrimental to the cause of the consumers, but also to the whole economy since cement is a crucial input in construction and infrastructure industry vital for economic development of the country," the order said.

Cement makers categorically denied this and said they would challenge the order.

"We have not indulged in any cartelisation. We will approach the Competition Appellate Tribunal and challenge the order," said OP Puranmalka, whole-time director of UltraTech and head of Aditya Birla Group's cement business.

Lafarge India Senior Vice-President for corporate affairs, Camille M Gonsalves, said the company had taken note of the CCI decision. "We are reviewing the detailed reports to take the suitable actions. Lafarge has a strict policy in place to fully comply with competition laws. All units operate under the group's code of business conduct," Gonsalves said.

Competition law experts said this was a first instance of the CCI imposing a fine based on the provision that allows a penalty of a maximum of three times the net profit of a firm. It imposed a fine of 0.5 per cent of the net profit in 2009-10 and 2010-11.

The order follows a wave of penalties imposed across the world in recent years against cement makers such as Holcim, Lafarge and a manufacturers' body in Korea, which have been held guilty of cartelisation. Korea, Pakistan, Europe, Romania, Taiwan and Argentina have penalised manufacturers.

"The cement industry has been a common target of competition authorities worldwide. Needless to say, this is a significant order imposing stringent fines, but as yet there is little guidance on how the quantum of penalties is to be determined in such cases... This trend of increasing cartel fines shows that the CCI views such practices as extreme violations of competition law which is consistent with the global approach," says Sonam Mathur of Dhall Law Chambers, a competition law specialist firm.

The CCI's order said companies raised prices after meetings of the Cement Manufacturers' Association, maintained low capacity utilisation, reduced production, which was not linked to market forces, and earned massive profits. Industry officials and lawyers say it would be very difficult to convincingly prove all this.

"I suppose most parties would argue against the magnitude of the fine first and then, if at all, whether there was in fact sufficient evidence to find these companies guilty and so penalise them," said Avaantika Kakkar, counsel with Khaitan & Co and a specialist in competition law.