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Sugar mills face cartelisation heat

CCI investigation finds proof of collusion in selling ethanol to oil marketing companies

Shreya Jai & Deepak Patel  |  New Delhi 

Sugar mills face cartelisation heat

The Ethanol Blending Programme of the Centre to cut its fuel import bill is in trouble, with the competition watchdog's investigation wing finding evidence of "cartelisation" in the sale of the chemical through bidding.

The report of the primary investigation - conducted by the Competition Commission of India (CCI) director general's (DG's) office (its investigation wing) - says it has found sugar companies held meetings, through their representative association, to decide on a common bid price for selling ethanol and the quantity to be supplied. The price agreed upon was allegedly higher than the market rate.

Business Standard has reviewed the report. If the accusations are proven, it could be a major setback for the sugar industry.

Players in the chemical industry have filed several cases in the past against the Ethanol Blending Programme (EBP), alleging cartelisation, rigging of bids or predetermining prices.

This is, however, the first time that the CCI DG's office has claimed to have found evidence of cartelisation.

The report states: "Sufficient evidences of joint meetings and telephonic conversations among the bidders and also with that of the officers of ISMA [Indian Sugar Mills Association]… have been detected to conclude that there was regular interaction between the parties during the period of tender submission."

The investigation has also found that the "parties were acting in a concerted manner by quoting identical or near-identical prices in the past tenders of 2006-07 and 2009 as well."

A decision in the matter will be taken only after all parties are heard by the CCI. Ethanol procurers - three state-run oil marketing companies (OMCs) - have been let off the hook. However, private companies associated with the ISMA, the apex industry representative, and Ethanol Manufacturers' Association of India (EMAI) have been accused. ISMA and EMAI have 256 and 120 member companies, respectively.

Among the private companies named in the report are Bajaj Hindustan, the largest sugar producer of the country, Balrampur Chini Mills, The Simbhaoli Sugar Mills, Triveni Engineering & Industries, along with Uttar Pradesh-based Dhampur Sugar Mills and Dalmia Sugar.

Separate cases, now viewed as one by the CCI, were filed by Indian Glycols, Ester India Chemicals, Wave Distilleries & Breweries, AB Sugar and Lords Distillery Limited in 2013.

The complainants did not respond to queries, as the hearing in the case has started, nor did the ISMA DG Abinash Verma. A spokesperson of Bajaj Hindustan said in a text, "As the matter is sub-judice, we won't be able to comment."

In November 2012, the Cabinet Committee on Economic Affairs approved a mandatory five per cent ethanol blending in motor spirit or gasoline, to cut the fuel import bill. The committee also directed that the ethanol price would be decided by the buyers and sellers.

The OMCs came out with the first tranche of tenders in January 2013. In December that year, the complainants went to CCI alleging that the sugar mills were rigging the bids to sell the chemical to the oil companies. The competition watchdog had issued a show cause notice to the sugar mills, asking them to "furnish the details of each activity in chronological order in respect of the joint tender issued by OMCs."

While the supply from the first tender was purchased in the price band of Rs 39-42 per litre, the OMCs decided in January 2014 that they would procure ethanol from only those bidders who match their bench mark price of Rs 44 per litre.

The CCI report said: "Ethanol suppliers used ISMA to collectively arrive at the supply price of ethanol. Considering the facts and circumstances mentioned above, it is held that ISMA violated provisions of Section 3(3)(a) and 3(3)(b) [of the Competition Act]." EMAI has also been found guilty of violating section 3(3)(a).

These sections restrict any anti-competitive agreement between enterprises or associations engaged in identical or similar trade of goods.

The report said not only the basic prices but the net delivered cost up to two decimal figures were exactly identical. It also said the quantities quoted by the bidders matched with quantities the OMCs required.

The first hearing after the submission of the report was held on October 6. In the meeting, the sugar industry pleaded to cross examine witnesses.

CCI could arrive at a decision in three months. Experts, however, said if the case went back to DG for cross-examination, it could take more than six months. "Even if the CCI finds collusion, it will be up to the government to take a retrospective decision of cancelling the procurement process," said a competition lawyer.

The annual ethanol production of the sugar industry in 2.5 billion litre, of which the demand by oil industry is 2.3 billion litre. The demand of the chemical industry, which has filed the case, is close to 900 million litre every year, 60 per cent of which is met by domestic sources.

  • 2012: Cabinet approved 5% ethanol blending in automobile fuel
  • Jan 2013: Three state-run oil marketing companies float joint tender to procure 1.4 billion litres ethanol
  • Jul 2013: Second tender for 1.3 billion litres of ethanol
  • Nov 2013: Chemical industry moves CCI, alleging the bids for ethanol procurement were rigged by oil and sugar companies
  • Dec 2013: CCI issues showcause notices to sugar mills for details of the bid process
  • Jan 2014: Oil companies set benchmark price of Rs 44 a litre for ethanol procurement
  • Jul 2015: CCI gives report citing cartelisation by sugar industry and ethanol manufacturers; oil firms let off
  • Oct 2015: First hearing: Sugar industry asks for cross-examination of witnesses. Sugar mills and ethanol makers accused of entering into anti-competitive agreements over required quantities and bid pricing

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First Published: Mon, October 19 2015. 00:58 IST