CCI introduces Leniency “Plus” regime in India- Will it suffice?
COMPAT by its order dated August 30, 2016 has upheld order of CCI which had dismissed allegations o
f abuse of dominance by OMC has been indulging in abusing its dominant position in fixing an arbitrary and highly unreasonable price for sale of chrome ore.
The Information, filed in CCI by All Odisha Steel Federation, alleged that the method of deriving the price of the chrome ore by resorting to a Price Setting Tender (PST) was unfair and resulted in an excessive price being determined for the sale of chrome ore. By this method a very small quantity is tendered for sale by OMC. As a result, a few unknown companies, whose lifting of Chrome Ore is less than 2% of OMC’s total sales, quote abnormally high price and become H-1 in the tender and such price becomes the benchmark for all plants including the members of the Informant’s Association. It was also alleged that in some instances, OMC did not even accept the highest bid price (H-1) and fixed an even higher price without regard to the prevailing market conditions.
During the investigation, the DG concluded that while the OMC was in a dominant position in the relevant market, there was no abuse of dominance. The CCI agreed with the DG Report and held that despite the dominant position in the relevant market of friable chrome ore in the State of Madhya Pradesh, OMC did not abuse its position and that it was entitled to protect its business interest by adopting any methodology of price setting depending on market conditions. Since chrome ore is a non-renewable natural resource, its pricing and supply cannot be determined by market forces; that chrome ore is not like any other commodity which can be supplied to any extent and price thereof cannot be determined on the free market economy principal.
COMPAT noted that the price setting tenders were floated by OMC primarily with the objective of discovering price and in accordance with clauses of the tender scheme, the offered price could be modified to capture market realities.
Further it also needs to be appropriated that chrome ore is a scarce natural resource its availability needs to be sustained for long term use. Mineral exploitation also requires ecological mitigation. These factors make calculation of economic value extremely difficult for calculation by a competition regulator. Therefore, willingness/ability to pay is a fair method for price discovery.
The COMPAT noted that even though the OMC has made good profits out of the sale of chrome ore, this alone cannot be read against OMC. There is no conclusive determination that OMC has tried to manipulate the market in order to draw excessive pricing advantage.
The COMPAT agreed with the opinion of DG which has been approved by the CCI that the allegation of abuse of dominance by OMC has not been established and the price charged by it is not unfair. The appeal has been dismissed accordingly.
(Source: Order dated August 30, 2016. For full text see COMPAT website)
Suggested Reading:
(i) CCI to investigate Mahyco Monsanto for abuse of dominance
(ii) CCI initiates investigation against Athletic Federation of India
(iii) CCI Order refusing interim relief against OLA Cabs in an ongoing investigation upheld by COMPAT
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