CCI cautions against cartelisation, warns of severe penalty

ACC , Ambuja Cements Limited, Grasim Cement now merged with Ultratech Cement , JK Cement , India Cement , Madras Cement , Century Cement , Binani Cement , Lafarge India and Jaypee Cements include the list of cement manufacturers upon whom the penalty has been imposed.

In an interview with CNBC-TV18, R Prasad, Member of CCI said that the cement companies will have to cease and desist from cartelisation. Their behaviour in the next few months will decide whether they are involved in cartelisation or not. He also warns cement companies may face severe penalties, in the event of further indulgence in cartelisation.

Below is the edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: The order on cement cartelisation still has not been uploaded on the website. All we know right now is that 11 companies have been found guilty. Their penalty works out to be Rs 6300 crore, computed at 50% of their profits in FY10. Can you corroborate for us, is that what is correct?

A: Yes that is correct, 50% of one year's profit.

Q: The competition lawyer said that the Competition Act actually permits 10% of your profits, but in this case we have seen 50%. So is it a case where you have clubbed together cartelisations spread over 5 years into one order? Is that what has happened?

A: No, it's not like that. If you read the act for a cartel, the provision is different. For a cartel, the maximum is three times the profit for the entire period of cartelisation that you see. If the cartelisation is for 5 years, then 5 years profit has to be taken. But we have taken only 50% and cartelisation is just for a period of nearly 2 years.

Q: But you are only penalizing them for one year. The other thing that I wanted to ask you is in that order have you directed these companies to perhaps cut their prices or increase their utilisation?

A: Yes that is also there.

Q: Can you give us details please?

A: They don't have to cut the prices. What they have to do is, they have to cease and desist from this practice of cartelising. That is what we have ordered.

Q: How will you implement this cease and desists? Are you going to be saying increase your utilisation, is that part of the order?

A: We are nobody to tell them how to utilise your assets. Utilise it whichever way you do, but don't cartelise.

Q: How exactly are you going to implement this cease and desist order? Are you going to ask for an undertaking from these companies, how are you going to make sure that there is no further cartelisation? What do they have to do to prove to you that these companies will not be indulging in cartelisation?

A: Their behaviour in subsequent months will show whether they are still in cartelisation or not. That way we can investigate them again.

Q: Because this is very important news for the street you are telling us that these 11 companies or these cement companies do not have to cut their prices?

A: What I am saying is, pricing is their problem. Our problem is that they should not cartelise. That's all. Pricing and how much capacity to use is their problem, but they cannot sit down together and decide that we will cut down production and will look to increase the prices.

But there can be many other constraints. The reasons could be a strike, a lockout or maybe a breakdown. We cannot say how they don't cut down their production, production is their look out, price is also their lookout. They are doing business. Where there is no a restriction on a business, it's unfair business, which has to be stopped, nothing else.