Competition watchdog bites Rs 6,300 cr off cement firms

10 companies and industry body penalised for cartelisation, likely to take legal recourse

In a first-of-its kind order, the competition watchdog on Thursday imposed a penalty of Rs 6,307.32 crore on 10 top cement companies, accusing them of creating a cartel. Those penalised include ACC, Ambuja Cements, UltraTech and industry body Cement Manufacturers Association (CMA).

“The Competition Commission of India (CCI) has found cement manufacturers in violation of the provisions of the Competition Act, 2002, which deals with anti-competitive agreements, including cartels,” the Ministry of Corporate Affairs said in a statement.

Grasim Cements (now merged with UltraTech Cements), Lafarge India, JK Cement, India Cements, Madras Cements, Century Cements and Binani Cement are among the others found guilty and penalised. According to the statement, each of the 10 firms will have to pay a fine amounting to 50 per cent of their profit during 2009-10 and 2010-11, within 90 days.

 

PRICES CEMENTED TOGETHER?

• Cartelisation probe begins in 2010
• SFIO investigates first
• SFIO points towards cartelisation
• Corporate affairs ministry asks CCI to probe further
• 10 firms get fines at 50% of their profit during FY10 & FY11
• Penalty notices due in 60 days, fines must be paid within 90 days

The penalty would go to a consolidated government fund, CCI member R Prasad said. The commission found the companies had not used the available capacity to keep supplies artificially low and raised prices when demand was higher.

“... the Commission finds that the opposite parties have institutionalised the system of sharing the prices, capacities and production among each other using the platform of the CMA to limit the production and supplies and determine the prices of cement in the market,” the order says.

The order notes a written agreement is not necessary to substantiate such cartelisation. The CCI has directed companies to ‘cease and desist’ from any activity related to an agreement, understanding or arrangement on prices, production and supply.

However, the order does not talk about any mechanism to avoid such cartelisation in future.

“If these companies are found creating cartels in future, the cases can be investigated again and a heavier penalty levied,” Prasad said. The cement industry, which has always denied such charges, is expected to take legal recourse.

The order is based on an investigation carried out on 39 companies by the Director General of Investigation, following a complaint from realtors’ body Builders Association of India (BAI).

The BAI had alleged cement manufacturers formed a cartel to fix retail prices and reduced production to inflate prices.

HOW MUCH THE PENALTY WOULD EAT INTO PROFITS
Entity	Net profit (Rs  cr)			Stock price (Rs )		Penalty (Rs cr)
	FY11	FY12	% chg	21-Jun	% chg*
JP Associates	1,792.82	632.92	-64.70	14-Mar	4.48	1,323.60
UltraTech Cem.	1,367.35	2,403.26	75.76	1,463.55	2.31	1,175.49
Ambuja Cem.	1,262.97	1,227.74	-2.79	171.60	-2.19	1,163.91
ACC	1,077.53	1,300.80	20.72	1,256.00	-1.19	1,147.59
Lafarge India	-	-	-	-	-	480.01
Century Textiles	237.49	22.13	-90.68	296.85	2.86	274.02
Madras Cements	210.98	385.11	82.53	156.05	2.13	258.63
India Cements	65.30	271.46	315.71	84.4	-1.11	187.48
Binani Cement	90.51	48.40	-46.53	-	-	167.32
JK Cement	62.62	174.57	178.78	146.5	1.52	128.54
#CMA	-	-	-	-	-	0.73
* Over the previous close; #Cement Manufacturers Association; Data for CMA and Lafarge India not available Compiled by BS Research Bureau                                                                         Source: Capitaline

The case had also been investigated by the Serious Fraud Investigation Office (SFIO). The SFIO’s report pointed towards cartelisation among big players in the cement industry.