Govt launches investigations against several cement ‘cartels’
Mint

Investigation wing of corporate affairs ministry is examining alleged cartelization by 45 companies

The government has gone into an overdrive to track alleged cartelization in the cement industry.
Based on a complaint filed by the Builders Association of India (BAI), the office of the Director General of Investigations and Registration (DGIR), which comes under the ministry of corporate affairs (MCA), has initiated investigations against 45 cement companies for alleged cartelization.

This is over and above the six cases of cartelization that are already pending with the Monopolies and Restrictive Trade Practices Commission (MRTPC), also part of the ministry.
“We started work on this (investigation) in October 2006 and have brought 45 cement companies in the ambit of our investigation,” said a senior DGIR official who did not want to be named. The DGIR can initiate investigation on its own and also conduct them on behalf of the MRTPC.

Rajpal Arora, honorary secretary, BAI, said that the association took up the matter with DGIR when it realized that it observed a steep escalation in prices of cement. “Between December 2005 and April 2006, the price of a 50kg bag of cement, rose from anywhere between Rs125 and Rs145, to Rs200 plus. The input costs, however, had not risen in the same proportion.”
Cement comprises 13-15% of the cost component of any construction project. There are 130 large cement plants and 365 mini cement plants in the country. The installed capacity of large plants are 160mt (million tonnes) per annum and total production is around 140mt per annum.

MRTPC, in another case, on Tuesday, has issued notices of inquiry against 14 leading cement companies as well as the Cement Manufacturers Association (CMA) for price fixing and cartelization.
The inquiry is based on the preliminary report of the DGIR and according to the official, the case will have its first hearing on 25 October this year.

The notices were first reported by The Economic Times.
In another case, which has been pending before the MRTPC for 17 years (since 1990), hearings are still going on. “The hearing for this particular case, where the parties involved are DGIR and Cement Manufacturers Association, has been going on,” said an MRTPC official, who did not wish to be named. Yet another case, DGIR versus ACC, dates back to 1992.

Experts say delay in disposing off cases are both on account of archaic laws and difficulty is proving cartelization cases.
“Nevertheless, countries like Mexico, Romania and Germany have disposed off cases of such cartelization and I hope the MRTPC will also be able to finalize the pending cases,” said an expert in the area of restrictive trade practices, who did not wish to be identified.

He also added that big players such as Lafarge, Holcim and Heidelberg Cement have come under the scanner of governments in various countries.
O.P. Dua, senior advocate, who has been arguing the DGIR versus CMA case initiated in 1990, despite the difficulty in proving cartelization, is hopeful of winning the case. “The matter got delayed as there were 45 cement companies involved and each one took its own time to file affidavits etc. and besides, the matter was referred to the high court in between,” said Dua.
He added that in another case, which is also pending with the MRTPC, he has found clear evidence of price fixing by cement manufacturers in Madhya Pradesh.

The CMA is involved in more than half the cases that are pending before the MRTPC.

MRTPC issues notices to 14 cement firms
Business Standard

The country's anti-monopoly watchdog MRTPC has issued notices to 14 cement firms including Grasim, ACC and Ultratech, after its investigative arm DGIR pointed toward cartelisation and slammed Cement Manufacturers' Association for the "exorbitant" increase in prices.

The Director General of Investigations and Registration, in its 30-page report submitted to Monopolies and Restrictive Trade Practices Commission (MRTPC), said that industry body CMA was instrumental in fixing prices in the sector.

"Cement manufacturing companies have got a forum of CMA to meet together and discuss marketing strategies, including prices, so as to increase the prices without any fear of competition from other members of CMA," DGIR said in its preliminary investigation report. "It amounts to an informal agreement among the cement manufacturing companies on the terms and condition of sale of cement to consumers," DGIR said.

Admitting the report, MRTPC issued notice of enquiry to 14 companies, asking them to file replies within four weeks.

The companies include ACC, Binani Industries, Birla Corporation, Dalmia Cement, Grasim Industries, Gujarat Ambuja, J K Cement, Indian Cement Ltd, NCL Industries, OCL Industries, Saurastra Cement, Ultratech and Zuari Cement.

MRTPC's action is among a series of measures taken by the government and the Commission to rein in cement prices. In fact, Finance Minister P Chidambaram had in April admitted the presence of a cement cartel and its inability to deal with them without effective competition law in the country.

"There are well known cartels, especially in tyre and cement industry... I don't deny that there are many unseen cartels in India's economy," he said on April 24.

DGIR analysed prices of 2005-06 and found that cost of raw material such as limestone and bauxite rose marginally. But "due to exorbitant increase in price of cement during 2005-06 and marginal increase in cost of production, the cement companies have been able to earn maximum profits". "Even those cement companies which had incurred losses during the last couple of years made profits during the year 2005-06," it said.

The DGIR said companies were in position to decide the terms and condition of sale of cement including the increase in prices of per bag of cement at the retail level during the course of meeting of CMA marketing committee. "Cement companies used the forum of Zonal Marketing Committees of CMA to decide the terms and condition of sale including prices," the DGIR report said. The report said even CMA in its annual report of 2005-06 has said cost of production of cement industry increased by Rs 6.81 per bag of 50 kg and they charged higher than that. "The increase in price as compared to the increase in the cost of production is disproportionate... Since the price of cement have been increased by the respondents (cement companies) without taking into consideration the quantum of increase in cost of production, they made huge profits during 2005-06," the report mentioned. DGIR found that in Delhi the price of a cement bag was Rs 152 in April 2005, which rose to Rs 208 in March 2006. Similarly, in Mumbai, the price shot up to Rs 231 from Rs 181.

First phase of largest NH project may get nod today
Indian Express

The Union Cabinet on Thursday is expected to discuss and clear the first phase of the largest national highway development programme of the UPA Government—NHDP-IV.

NHDP-IV envisages upgradation of 20,000 km of existing single-lane and two-lane national highways across the country to two-lane national highways with paved shoulders. Under the Government’s plans, this entire programme will be split into four phases with the Union Cabinet expected to take up the first phase, or NHDP-IV A, which entails upgradation of 5,000 km of such national highways.

Sources said unlike some of the other NHDP programmes such as the Golden Quadrilateral, the north-south, east-west corridors, the upgradation of GQ to six-laning, highways under NHDP- VI, NHDP-IV has several stretches that do not have the required traffic flow and therefore cannot be undertaken through the build-own-transfer toll route.
In that regard, almost 20 per cent of the projects under NHDP-IV on an average (including the first phase) would be undertaken through the annuity route.

Unlike project undertaken through toll route where the concessionaire recovers investments through tolls, in annuity projects, the concessionaire recovers its investments through annuities paid by NHAI annually. Sources said the entire first phase of the project is expected to cost Rs 6,500 crore. Unlike the other NHDP programmes where the upgradation is to at least four-laning of existing national highways, the average per km cost for NHDP-IV works out to be Rs 1.3 crore.

In all, there are seven phases of the NHDP with the GQ and the north-south, east-west corridors being part of NHDP-I and NHDP-II. If the Union Cabinet approves the first part of the NHDP-IV on Thursday, then the only other programme that still needs Cabinet approval would be NHDP-VII.

NHAI woos private players with high risk-high freedom model
Indian Express

Taking private participation in road projects a step further, implementing agencies like National Highways Authority of India (NHAI) have now started transferring more project-related risks to private players. A number of projects currently up for bidding are set to come up on the Design-Build-Finance-Operate (DBFO) pattern — one that assigns more responsibility and risk to the concessionaire by giving him more freedom.

“We have decided to award 12,000 km of four-laning, 6,500 km of six-laning and 1,000 km of expressways under the DBFO format,” said a senior official at NHAI. Prominent among these are a number of stretches of national highways under the National Highway Development Programme’s (NHDP) Phase V, where existing four-laned roads are to be expanded to six-laned ones. These include a 180 km stretch of the Delhi-Agra Highway, a 230 km section connecting Gurgaon and Jaipur, stretches connecting Delhi to Hapur and Chennai to Tada, as well as ambitious projects like the 300 km stretch of NH-1 that connects Panipat to Jalandhar.

NHAI also recently invited consultancy services for the preparation of feasibility and preliminary design work for four- and six-laning of selected stretches of national highways, to be executed under this new format. While a DBFO format is an offshoot of the standard Build-Operate-Transfer (Toll) pattern, which has so far been in vogue, it grants the developer much more freedom in terms of design.

According to DS Constructions general manager Rafi Khan: “In BOT projects, a detailed design is prepared by NHAI and both input and output parameters are defined. In DBFO, only the output is defined and the developer is given the freedom to experiment with new technologies and methods to achieve that output standard.”

What this means is that while the end product has to adhere to prescribed parameters of, for instance, smoothness of the road surface or tensile strength of cement, the means used to achieve this can be variable. Unlike BOT (Toll) projects, which encompass provisions to extend the concession period if the developer is unable to recover his costs through toll collections over the lease period, the DBFO pattern has no such riders.

According to Khan, this translates into a higher risk for the developer. “Projects taken up under this format would have to be on a high-density route where there is a good measure of assurance on toll collections. Since risk is higher, we expect that the rate of interest at which finance would be available would also be slightly more.”

Despite the higher risk, most developers are keen to bid for such projects due to the flexibility it offers. “We are keen on bidding for these projects. Since the design work is left to us, we can use the best technologies at our disposal and also manage our resources better,” said Soma Enterprises chairman and managing director R P Maganti. “It would help in lowering construction costs.”