April 25, 2013

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CCI Against Anti-Competition

- Shardul Thacker, Partner [ Mulla & Mulla & Craigie Blunt & Caroe ]
- Priyanka Khimani, Associate [ Mulla & Mulla & Craigie Blunt & Caroe ]

Shardul & Priyanka

As the anti-competition watchdog takes its role seriously, sectors wake up to a new hope of institutionalised regulation of competition, a reformed public sector and fair trade in the country

The Competition Commission of India (CCI) is on its way to soon becoming the anti-competition watchdog of India and rightly so. The CCI, which has imposed a penalty of over `7,354 crore in 14 cases for anti-competitive practices and passed cease and desist orders in another 14 cases in the last three years alone, has rapidly earned itself the reputation of being India's fair trade regulator.

CCI Chairman, Ashok Chawla, stated that the CCI has dealt with around 340 cases related to anti-competitive agreements and abuse of dominant position in the market through the Director General of the CCI, which is the investigating arm of the fair trade regulator. Noting that the Commission has responded to cases within a reasonable timeframe, Mr. Chawla said the amount of information being received by it has increased in the last few months.

The Commission has so far dealt with around 116 cases with regard to mergers and acquisitions (M&As). None of them required phase II investigations, which pertain to market issues post transaction. Taking its role as a fair trade regulator seriously, the CCI has spread itself across every sector - from probing into the alleged fixing of petrol prices by cartelisation among oil marketing companies (OMCs) to investigating the abuse of dominant position by Yashraj Films, a leading Bollywood Producer to finding an all India grouping of chemists and druggists guilty of indulging in unfair trade practices that influenced the prices of medicines and restricted supplies into the market.

The Competition Commission of India (CCI), which keeps tabs on anti-competitive practices across these sectors among many others, slapped a penalty of `47.41 lakhs on the All India Organisation of Chemists & Druggists (AIOCD) and directed it to pay the same within 60 days by its order dated 19th February, 2013. The Competition Commission of India (CCI) has also imposed a penalty of `52.24 crore on the Board of Control for Cricket in India (BCCI) for irregularities while conducting Indian Premier League (IPL) tournaments and using its dominant position to restrict competition.

After taking on corporates, production houses and even the BCCI, the CCI has now turned the heat on the world’s largest coal miner Coal India Ltd (CIL). The CCI in its most recent endeavour at curbing anti-competitive practices at the level of the State, initiated investigation into the State-owned coal monopoly - CIL, that has been abusing its monopoly to arm-twist customers.

In a rare case of a giant state monopoly facing the heat for bullying buyers, the competition watchdog has given Coal India four weeks to respond to the charges after issuing notices to CIL subsidiaries in two separate cases for discriminating in fuel supply agreements and abuse of dominance, practices which are looked down upon as being unfair and anti-competitive.

The investigation was launched at the instance of the Maharashtra State Power Generation Company (Mahagenco) and Gujarat State Electricity Corporation (GSEC), who first complained against CIL and its subsidiaries, Mahanadi Coalfields (MCL) and Western Coalfields (WCL) for alleged abuse of their dominant position.

Mahagenco stated that CIL supplied coal in an ad hoc manner, misrepresented the grade and quality of coal and insisted on one-sided supply pacts, while the Gujarat utility said that even if it rejected poor quality coal, the state monopoly would regard it as a case of deemed delivery and declare that the customer was liable to pay.

Following close on the heels of Mahagenco and GSEC's complaint were the allegations made by the power industry lobby, alleging discrimination in favour of public sector companies in the reworked format of fuel supply agreements (FSAs). These allegations are focussed around several issues including CIL's unilateral right to terminate supplies, security deposit and the mechanism for settlement of disputes between the supplier and the buyer as also varying basis of having different FSAs for independent power producers (IPPs) and public sector companies, clearly putting the former at an unfair disadvantage.

State-run miner Coal India Limited has supplied 309.70 million tonnes of coal to state power utilities during this fiscal year up to February 2013. In the fiscal year 2011-12, the world's biggest coal miner supplied 312 million tonnes of coal to power utilities, achieving 95 per cent of its target. Coal India accounts for about 80 per cent of the total coal output in India. However, unfortunately, in a country where more than 50 percent of power is generated through burning coal, its production has failed to keep pace with capacity growth in the power sector.

Having turned the heat on Coal India, a state owned monopoly, and refusing to bow down to any external pressure in cracking open its arm twisting methods, the CCI sure gives you reasons to be hopeful!

As a consequence, energy output falls far short of the demands of a fast-growing economy, Asia's third largest, and an increasingly affluent population. Last August, India faced one of the world's worst-ever blackouts, when three of its five transmission grids collapsed, cutting power to states which are home to some 670 million people, more than half of the country's population.

It is in the light of these facts and following the complaint made by the Mahagenco and the GSEC, that the CCI decided to investigate into the arm-twisting methods of Coal India, which allegedly made erratic and poor quality supplies. The CCI investigation further revealed that the terms and conditions of the FSAs have been drafted unilaterally and there is no consultation process with other parties at any stage. Prior to 2009, the FSAs for public and private sector generating stations were the same. However, the introduction of differential FSAs in respect of IPPs affords CIL the unilateral right to terminate supplies in the event of non-consensus during a review after five years of supply; while the same clause in the FSA with public sector companies provides for referring the matter to the government.

The CCI, however, not being one to bow down to the miner's monopoly status, has remained undeterred from conducting a fair investigation. "The whole coal sector is state-controlled. The state has a monopoly. We will be looking at those cases where parties have made out a case of abuse of dominance in terms of the fuel supply agreement, which are one-sided and they are not getting any relief and they have nowhere else to go to," commented CCI chairman Ashok Chawla, reminding market players once again about just how serious the CCI is in living up to its role as the watchdog of unfair trade practices and monopolies.

In a meeting of utilities, power firms and Coal India, it has been decided that CIL will now have to pay a penal surcharge for buying electricity from power generators if it supplies inferior grade of coal mixed with stones. It has been further decided by an independent committee comprising representatives from all stakeholders that the CIL should adhere to the grade it promises from April 1, or else pay penalty on the power it buys from utilities and power companies.

In case CIL continues to supply stones with coal beyond April 1, 2013, this committee will take up the issue with the regulators and impose upon the surcharge on CIL. Central Electricity Authority (CEA) and Central Electricity Regulatory Commission (CERC), who also attended the said meeting and comprise the independent committee, have also agreed to the concept of CIL paying a surcharge in case of grade slippage. If there is a slippage after April 1, the committee will appeal to the regulator for imposing the penalty on CIL.

This is a first when any Government company has been held guilty of unfair trade practices and the investigations and directions of the CCI certainly come as a much-needed and long-awaited relief to other players in the power-sector that is severely ailing today. It represents the first step of what could pick up speed into a great leap forward for three things: institutionalised regulation of competition and fair trade in the country, the power sector and public sector reform.

But the biggest potential gain would be ending state monopoly in coal and liberating Indian coal from the thrall of inefficiency, scarcity, theft and corruption that leave 50,000 MW of power generation capacity lying idle for want of fuel.

Disclaimer-The views expressed in this article are the personal views of the author and are purely informative in nature.

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