Cement cartel

When Chief Minister Sarbanda Sonowal reviewed high cement prices in Assam last month, he had called for cases to be filed against cement companies at the Competition Commission, the anti-trust watchdog. The Assam Real Estate & Infrastructure Developer’s Association (AREIDA) approached the commission against three top cement majors. And now the commission has agreed that prima facie, there is indeed a case that these cement majors were gaming the market by forming a cartel, fixing prices in tandem and employing unfair business practices. This by itself is significant, as the six-year old, understaffed and consequently overburdened commission nowadays has a tougher criteria of what constitutes anti-trust behavior — and so takes up far fewer cases. But the AREIDA has tried to put up a strong case by collecting cement price receipts from places like Kolkata, Pat and Ranchi to show how cement prices in Assam and other NE states are the highest in the country. A bag of cement manufactured in Assam and selling at Rs 360 in Guwahati goes for Rs 250 in Siliguri, despite the cost of transporting that bag there over a distance of 500 kms. To add insult to injury, the companies producing cement here get a plethora of subsidies. Complete exemption from income tax, exemption from excise duty and 99 percent VAT, subsidies for transporting raw materials as well as manufactured cement, 30 percent capital subsidy, interest subsidy on working capital, manpower subsidy, power subsidy and even a genset subsidy — all these and much facilities to produce cement here. Such is the extent of government largesse for manufacturers when consumers here pay through their noses for cement.

All this smacks of a ruthless determition to fleece consumers of the last possible rupee, even while squeezing out maximum government support through taxpayers’ money. Market experts have long pointed out the lopsided ture of the cement industry — how nearly three-fifth of it is tightly controlled by eight big players, while the rest remains fragmented between medium and small-sized, mostly uneconomic companies. Keeping a sharp eye on raw material availability, costs of production and tax breaks from the government, the cement majors have put up factories in different states. There have been frequent complaints of deliberate under-production much below installed capacity, as well as additiol cutting down on production from time to time in surprisingly coordited manner. The reason?  Real estate developers believe such practices are adopted to maintain a permanent artificial scarcity of cement in the market. In 2010, the Builders Association of India filed a case in the Competition Commission against the Cement Manufacturers of India (CMA). The commission in 2012 slapped a pelty of Rs 6,714 crore pelty on 11 cement companies for forming a cartel. They in turn appealed to the Competition Appellate Tribul (COMPAT) against the commission’s ruling. On September 1 this year, the commission stood by its 2012 ruling and directed the companies to pay the pelty. Some of the companies have already declared they will approach the COMPAT again, so the last has not been heard on this matter as of yet.

But the commission’s fil ruling exposes how cement companies are blatantly flouting the Competition Act of 2002 by forming a cartel and using the CMA platform to share ‘details relating to prices, capacity utilization, production and dispatch and thereby restricted production and supplies in the market’. Thus, by colluding to manipulate the market and charging higher price from consumers, the cement companies and CMA worked not only to the detriment of the interests of consumers but also to the country’s economy, the ruling noted. This is because cement is the critical input in the mega-bucks construction and infrastructure industry, in a country critically short of housing. Central and state governments keep talking of affordable housing for the lower economic classes. Yet cement majors keep thumbing their noses at the government and getting away with abnormal profiteering. Even if the Competition Commission rules against them and imposes pelties, market experts point out that a mere Rs 10 increase in price per bag puts hundreds of crores in a cement manufacturer’s kitty. So pelties don’t deter them; and they have enough legal firepower to keep cases dragging for years. Still, the government and the Competition Commission must make cement manufacturers toe the reasoble price line, at least in the interest of controlling inflation. There is a crying need for a regulator over cement companies, for which real estate developer bodies have been petitioning parliament members for years.