GAIL comes under CCI scanner once again |

The Competition Commission of India (‘CCI’) on a complaint filed by Mohan Meakin Ltd. has directed yet another investigation into alleged unfair market practices leading to abuse of dominant position by GAIL (India) Ltd. (‘GAIL’), vide its latest order dated 17.07.2017. This order is the third order in a series of recent orders in which complaints filed against GAIL have been referred by CCI for a detailed investigation by the Director General (‘DG’) under Section 26(1) of the Competition Act,2002 (the Act) .

Previously, the Competition Appellate Tribunal vide its order dated 28.11.2016, had also directed the DG to investigate similar allegations of abusive conduct against GAIL made by Gujarat Industries Power Company Limited.

The primary allegations made by the Informants (who are all counter parties to the Gas Supply Agreement (‘GSA’) executed with GAIL) pertain to the incorporation of unfair terms in the GSA and the imposition of “take or pay” liability. The allegations made against GAIL pertain to the market for supply and distribution of natural gas (RLNG) in the relevant geographical area.

It is observed that the GSAs are long term gas distribution agreements for 15/25 years executed with GAIL for the supply of RLNG (Re-gassified Liquid Natural Gas) which are bought by GAIL from RasGas (Qatar). Despite the fact that the contractual relationship between the parties in the majority of the cases filed before the CCI existed much prior to 2015, the Informants have approached the CCI alleging unfair/abusive conditions in the GSA only from 2015 onward.

Therefore, it appears that the primary grouse of the Informants against GAIL is the imposition of the “Take or Pay Liability”. In addition to the Take or Pay Clause, other covenants of the GSA like the “Make Good Gas” clause, “Restoration Quantity”, “Recovery Period Gas” etc have also been alleged to have been unfair. Additionally, some of the informants have also identified conduct which may be termed as abusive.

Comments

GAIL is one of the largest energy companies in India and is vertically integrated in the market for supply of natural gas in India i.e. production, transmission and distribution. By its own admission (Annual Report for the FY 14-15), it has 60% market share in the supply of natural gas in India.

Combined with facts such as regulatory barriers, high cost of investment etc. it is almost certain that GAIL will be held dominant in the relevant market under investigation. All that remains to be seen is whether GAIL would be able to justify its conduct with respect to the allegations. There is a possibility that the clauses included by GAIL in the GSA for supply of RLNG reflect the clauses contained in the upstream contracts GAIL has executed with its suppliers. If that is the case, GAIL might be able to justify some of allegations levelled against it as per the decision of the CCI dated 03.07.2014 in Faridabad Industries Association v. M/s Adani Gas Limited, Case No. 71 of 2012.

About the author

M M SHARMA

 Comdt. (Retd.) M. M. Sharma heads the Competition Law & Policy team in VA since 2009 and has over 30 years’ experience as an Advocate of Delhi High Court and holds a Post Graduate Diploma in Economics of Competition Law from Kings College, London. He has worked in the Competition Commission of India (CCI) as Additional Registrar during 2006-2008 and was responsible for drafting the Implementing Regulations under the Competition Act, 2002. He has experience of working as Head-Legal /In-house Counsel for a large Corporate Group in the Steel and Power sector before joining VA in 2009. He has represented clients as an independent arguing Counsel in landmark cases decided by CCI, the Competition Appellate Tribunal (COMPAT) , High Courts and the Supreme Court. As a prolific writer, he contributes articles and is regularly quoted on competition issues in National Newspapers and interviewed by TV Channels. He also teaches as a visiting faculty in various Universities and Institutions and is widely regarded as a subject expert in various Committees of Apex Business Chambers, such as FICCI, CII, ASSOCHAM and PHD CCI.  Mr. Sharma has been mentioned as a “Notable Practitioner” in the “Competition/Antitrust” category of Chambers & Partners (Asia Pacific) Ranking of Leading Lawyers for Business in India for the year 2012 and 2013. VA’s competition law and policy team has also been awarded the Law Firm of the Year Award for “Competition/Antitrust Law” for 2013 by the Indian Business Law Journal. Included as a ‘Recognised Practitioner’ in Individual Lawyers’ranking by Chamber’s Asia Pacific Guide 2020 for Antitrust/Competition Law.