CCI PROBE OF OMCS - A FUTILE EXERCISE

By Geetanjali Kedia

Competition watchdog, the Competition Commission of India (CCI), is suo moto undertaking a probe over state-run oil marketing companies (OMCs), IOC, BPCL and HPCL, for possible cartelization in price fixation of petrol, a deregulated product.

CCI, as quoted on its website, was established with the goal is to create and sustain fair competition in the economy so as to provide level playing field to producers and make markets work for the welfare of consumers. Of late, it has been investigating companies across sectors, the ones grabbing highest limelight being realty, cement, coal, tyre manufacturers, either on receipt of complaints or on its own.

In realty, it had imposed a hefty penalty on DLF in relation to its Gurgaon project and has also been probing realtors in Mumbai, for possible practice of drafting one-sided agreements unfavourable to customers. In July this year, CCI gave a shocker to cement firms by imposing a whopping Rs 6,307 crore fine on 11 cement majors ACC, Ambuja Cements, UltraTech, India Cements, Binani Cement, Madras Cement, Shree Cement, JK Cement, Lafarge, Jaypee Cement and industry body CMA.

Again in July, it had imposed a Rs. 8 crore penalty on three entities of cable TV service operator Fast Way Group for abusing its dominant position in Punjab and Chandigarh at the rate of 6% of average turnover for last three financial years.

The regulator is also investigating automobile companies for not allowing their dealers to diversify with other brands, as well as about 17 foreign carmakers on an alleged anti-competitive practice of selling spare parts at higher prices to consumers. A probe is also underway whether Coal India has mis-used its dominant position in coal supply, pursuant to a complaint from Maharashtra State Electricity Board (MSEB), NTPC and Damodar Valley Corporation (DVC). Also, order on 5 big tyre majors such as Apollo Tyres, MRF and CEAT among other, for possible cartelisation, is expected to be released shortly.

While DLF was slapped the Rs 630 crore fine at the rate of 7% of average annual turnover of its last 3 years, cement firms were asked to pay a hefty fines for indulging in restrictive trade practices, at the rate of 50% of its profits for FY10 and FY11. For Jaiprakash Associates, this penalty crystallized to a stiff Rs. 1,324 crore, the highest among all the 11 cement firms. However, the basis of penalty was grossly flawed, as the computation was based on company’s annual net profit, which comprises results of several business such a power, engineering, construction and expressway, including sale of shares of subsidiary JP Infra, and not only its cement operations. These firms now have the option to appeal to the Competition Appellate Tribunal (COMPAT) and obtain a stay order.  

Now, the 3 OMCs are an addition to this long list of companies being probed by CCI!

CCI believes there is cartelization in increasing and decreasing prices of a deregulated commodity such as petrol by the 3 state OMCs. Logic warrants that cartelization is undertaken only with an objective to benefit. If the OMCs are losing money on every litre of petrol they sell, how can the alleged cartelization stand to fleece the consumers and benefit the companies? Under-recovery, in no language, stands for ‘gains’!

If the OMCs change prices of products simultaneously, on the same day, that is purely on the direction of the Oil Ministry, which clears the proposal of all the 3 firms at the same time. With every dollar rise in oil prices, Indian crude basket only becomes dearer to the exchequer, burden of which partly falls on these oil distribution companies. Retailing petrol, being uneconomical, has lead to private refiners – Reliance Industries and Essar Oil – to close down their fuel stations.

Earlier, OMCs used to revise petrol prices every fortnight i.e. on 1st and 16th of the month on the basis of average international oil prices and foreign exchange rate. However, since late July, this practice has been abandoned and rates are revised on random dates to deter petrol pump dealers building positions. If IOC, BPCL and HPCL are not to change petrol prices uniformly (both at the same time and by the same amount), consumers will flock to the cheapest dealer to only lead to more havoc and differences.

Thus, the purpose of this probe into OMCs being anti-competitive only seems futile and we see it as nothing more than a waste of time!