Cement under lens for building cartels
Economic Times

Allegations of cartelisation continue to swirl around the cement industry. India’s trade practices regulator MRTPC on Tuesday ordered a probe into the business practices of 14 leading cement manufacturers. These manufacturers colluded to hike prices, alleges a preliminary report by MRTPC’s investigative wing.

The panel issued notices of inquiry against these companies after its investigation wing — the Director General of Investigation and Registration (DGIR) — submitted its preliminary report. The companies have time time till October 25 to reply to the charges. The companies include Birla Corporation, Zuari Cement, Binani Industries, ACC, NCL Industries, Gujarat Ambuja Cement, Grasim Industries, Sanghi Industries, Saurashtra Cement, JK Cement, India Cement and Ultratech Cement.

ACC, Grasim and India Cement declined to comment. The CEO of a firm indicted by the panel told ET on condition of anonymity: “The charges are all baseless. How can you have cartels when there is a shortage of cement in the country?”

The DGIR analysed prices, demand, capacity utilisation and expansion in 2005 and 2006 to find if price increases were justified. The DGIR did not buy the argument that costlier raw materials and the tight demand-supply situation sparked the price rise. The DGIR concluded that price increases were for reasons other than higher production cost, which according to its calculations, came to about Rs 7 for 50 kg.

In contrast, between April 2005 and March 2006, the price of a 50 kg bag rose by over Rs 50 in the Delhi market. The increase in Mumbai was identical in the same period. The price rise thus far exceeded the increase in input cost, says DGIR.

The report also said that the Cement Manufacturers’ Association (CMA) served as a platform for discussing price-related issues. The body has various zonal marketing committees where top company executives are present. This gives them enough opportunity to meet and decide pricing and marketing strategies, says DGIR. The CMA managing committee held three meetings during 2005-06, when “exorbitant price increase” was noticed, the DGIR said.

CMA secretary general EN Murthy, however, denied the charges. “Cement manufacturers don’t discuss prices at CMA meetings. CMA’s policy is to discuss industry-related issues other than prices,” he told ET.

According to Ansal API marketing president Kunal Banerji, construction cost, which was about Rs 800 a sq ft two years back, has gone up to about Rs 1,300, partly because of costlier cement and demand for high-quality construction. Cement price is just one component, he said.

Cement production rose to 141.81 million tonnes in 2005-06 from 127.57 million tonnes a year ago, a growth of about 11% that exceeded the government’s target of 136 million tonnes.

The cement industry found itself at the centre of a political controversy earlier this year, when it came under pressure to hold prices. Industry minister Kamal Nath and finance minister P Chidambaram called for ‘moderating’ price increases.

The budget also imposed differential duty on cement depending on price, though it was modified later. Initially, for a 50 kg bag of cement priced below Rs 190 the proposed excise duty was Rs 350 per tonne, while the initial budget proposal was Rs 600 per tonne for bags priced above Rs 190.

Later, the higher duty was changed to 12% ad-valorem instead of Rs 600 per tonne. For bags priced below Rs 190 the duty remains Rs 350 per tonne. The FM has recently said that the government was not contemplating a price freeze.

EPFO needs to set its house in order
Economic Times

After months of dithering, the central board of trustees of the Employees Provident Fund (EPF) has finally taken a decision on the interest rate to be paid on PF balances for 2006-07. Interest will be paid at the same rate as in the previous year — 8.5%.

The decision ends months of uncertainty, especially for hundreds of employees who retired during the year and whose PF dues could not be settled pending a decision. That’s the only good that has come out of Monday’s meeting. Beyond that, the ills of the EPF remain. The organisation is a byword for all that is wrong with government departments, from inefficiency to corruption.

The interest rate on PF balances, moreover, is not market-determined but is rather the outcome of pulls and pressures from different interest groups and bears little relation to its earnings. The interest payout for 2006-07 will result in a deficit of Rs 450 crore, which the EPFO hopes to make good by resorting to the same tactics as in the past, dipping into its reserves.

In the present instance, accumulated balances in the interest suspense, contingency reserve and special reserve accounts will all suffer, leaving the EPFO with a paltry surplus of Rs 83 crore after setting aside Rs 57 crore in the special reserve fund. And though it would have been tough for the trustees to reduce the interest rate in a scenario of rising interest rates, it is only paying for past sins when it paid much above market rates.

It has also shown a singular reluctance to move with the times. It has refused to diversify its investments even though it is allowed to invest up to 5% of its corpus in the stock market, preferring to cling to excessively cautious investment avenues.

It would have been far better, then, if the Fund had used the opportunity of Monday’s meeting to discuss how best to set its house in order and act like a prudent fund manager. Instead, it has again ducked the issue. However, time is running out. Subscribers too are running out of patience.

If the EPFO does not pull itself up by its bootstraps, and soon, subscribers must be allowed to shift to fund managers appointed for the new pension scheme. There is no reason why they should be made to suffer for the ills of the EPFO.