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CCI imposes penalty on South Asia LPG Company Ltd for abuse of dominant position- a classic case of denial of essential facility
The Competition Commission of India (CCI) by an order dated 11 July 2018, has imposed penalty of INR 19.2 Crore on South Asia LPG Company Ltd (‘SALPG’) , a joint venture between TOTAL , the French oil major and the Public Sector Oil Marketing Company (“OMC”) , Hindustan Petroleum Corporation Ltd. (“HPCL”) for denial of market access to a private terminal operator , East India Petroleum Pvt. Ltd (‘EIPL’) at Visakhapatnam port (‘Port’). It was held by the CCI that this denial of market access to EIPL amounted to SALPG abusing its dominant position in the ‘market for upstream terminalling services at Vishakhapatnam Port’.
Brief background
Both SALPG and EIPL are engaged in the business of providing terminalling services to oil marketing companies (‘OMCs’) for import of propane/butane/and pre-mixed LPG to OMCs at the Port. However, the infrastructure viz. unloading arms at the jetty, blender, heat exchanger and cavern was owned and operated by SALPG.
EIPL in its information filed before the CCI under Section 19(1)(a) of the Competition Act, 2002 (‘Act’) had alleged that SALPG does not permit use of its blender on a standalone basis and insists on the mandatory use of its cavern facility as well. This mandatory stipulation entailed payment of significant additional charges. As a result, OMCs were not finding the services offered by EIPL economically viable and were constrained to avail the terminalling services offered by SALPG only.
To address this, EIPL first proposed to use the blender of SALPG and thereafter, take the output directly to HPCL cross-country pipeline, bypassing the cavern. This was not agreeable to SALPG which allowed bypass of cavern for use by EIPL customers to the extent of 25 percent only.
As an alternate, EIPL proposed to install its own blender, for which it wanted a “tap-out and tap-in” from the propane and butane lines to discharge blended LPG, bypassing the cavern. Under this arrangement, EIPL proposed tap-out from propane and butane lines to take gases for mixing in its blender and thereafter, discharge the blended output back into the SALPG pipelines through a tap- in . This was also not acceptable to SALPG. Upon this, EIPL offered yet another proposal seeking tap-out from the propane and butane lines at jetty to its own blender and construction of its own infrastructure between its blender and storage facility. However, this was also not acceded to by SALPG. By imposing restrictions on bypass as well as by not accepting provision of tap out and/or tap in, SALPG is alleged to have denied market access to EIPL, thereby contravening Section 4 of the Act.
DG Investigation
This case saw perhaps one of the longest drawn investigation by the Director General (DG) , the investigating arm of CCI beginning from 2011 to 2016 . The DG in its main report of 2012 defined two relevant markets , upstream terminalling services market and downstream terminalling services markets and found that though SALPG was a monopoly in the upstream market yet it was not “dominant “in the relevant markets mainly due to the counter- vailing buying power of the customers, that is , the Public Sector OMCs. The DG also found that the Port had supply-side substitutability with the adjoining ports of Haldia and Ennore.
DG was of the view that SALPG has valid efficiency and business justification for denying the use of its blender facility, without using cavern, and not permitting hook up of EIPL’s blender to the propane and butane from the jetty owned by SALPG. The investigation noted that, it is not known whether the cavern functions only as a storage unit or also plays a necessary role in mixing and providing additional safety level. Further, the restriction that only 25% of the total volumes of VLGC can bypass the cavern was also found to be based on a valid business justification as SALPG has made significant investment in the cavern. Thus, as per the main report, no contravention of the provisions of Section 4 is established.
In the supplemental investigation report submitted by DG in 2015, after allowing cross -examination of witnesses etc. to both parties (after a short litigation round in the Delhi High Court), the DG reiterated its earlier findings.
EIPL accordingly raised serious objections before the CCI against the findings in the DG reports referring to the noted cases on ‘essential facility doctrine’ from International jurisprudence.
CCI’s findings
The CCI , agreeing with EIPL’s contentions , held that access to infrastructure operated by SALPG is indispensable to offer terminalling services at Vishakhapatnam Port for servicing the hinterland and therefore constitutes as an essential facility . The bypass restrictions and stipulation for mandatory use of cavern, imposed by SALPG have priced out EIPL and reduced its business volumes substantially. To overcome these, EIPL proposed provision of tap-out and/or tap-in to the butane and propane lines from the jetty. The proposals of EIPL were rejected by SALPG on unsubstantiated and unreasonable grounds.
The conduct of SALPG, being without reasonable grounds, was, therefore, held to be in the nature of exclusionary abuse of dominant position by SALPG, in contravention of Section 4 of the Act.
Order
It was further directed that:
- SALPG shall not insist mandatory use of its cavern and shall allow bypass of cavern for both pre-mixed and blended LPG, without any restrictions; and/or
- SALPG shall allow access to its competitors, potential as well as existing, to the terminalling infrastructure at Visakhapatnam Port, subject to compliance with all safety integrity and other requirements under applicable laws and regulations framed thereunder. Such an access should avoid additional cost burden on SALPG, and the entity seeking access shall bear the cost, if any, towards necessary changes to the existing infrastructure. Under this option also, SALPG shall not insist on mandatory use of cavern and it shall allow bypass of cavern, without any restriction. SALPG shall extend full cooperation for the study/audit undertaken by VPT in relation to the remedies ordered herein. Needless to say, SALPG shall not do anything raising rival’s cost.
On the question of penalty to be imposed, the CCI noted that denial of market access is one of the severe forms of abuse of dominant position. It was also observed that the abusive conduct of SALPG is primarily with a view to protect its commercial interest at the cost of competition.
Accordingly, the CCI imposed the maximum statutorily prescribed penalty on SALPG at the rate of 10 percent of their average annual turnover generated from the relevant market for upstream terminalling services at Visakhapatnam Port amounting to INR 19,20,70,000/-.
Comment:
This is a landmark case which illustrates the denial of an essential facility to a sole competitor by a super dominant enterprise without any objective justification. The SALPG was not able to prove that the restriction imposed by it on EIPL though efficiency enhancing was indispensable. Mr. MM Sharma and his team represented EIPL before the DG and CCI till just before the final date of hearing. SALPG was burdened with the highest penalty of ten percent of the average annual turnover of preceding three years .
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