Report on the cartelization of the Indian cement industry

Swiss giant Holcim’s units in India and more than a dozen other cement makers colluded to jack up prices and restrict supplies for years, including regular inspections of each other to make sure deals weren’t broken, according to reports. a federal antitrust investigation.

The investigations arm of the Competition Commission of India (CCI) has found the heads of units of Holcim ACC and Ambuja, market leader UltraTech, responsible for antitrust violations. and 17 other companies such as Shree Cement and Dalmia Cement.

The investigation report, published last month and seen by Reuters, is the penultimate but most significant stage of the ICC investigation that began in 2019. The report, which is not public, will now be reviewed by the three top ICC officials. the ICC, who have powers to impose fines, and will give companies one last chance to defend themselves.

Potentially, the cement giants could be fined millions of dollars. Together, the 20 companies control more than three-quarters of the more than 500 million tons of installed cement capacity in India, the world’s second largest producer after China.

The report says company executives discussed the coordinated price hikes on Zoom calls and in-person meetings at company guesthouses, and that some officials used personal mail to communicate with rivals. WhatsApp messaging was also widely used.

The WhatsApp message from a company official cited in the report said that a “forum” of companies had agreed to gradually increase cement prices in some regions by between 5 and 10 rupees (6-12 US cents). Senior executives, including those from ACC and Holcim’s UltraTech, were assigned as “coordinators” for various states.

“The price will go up each week by the same amount,” the message said.

The message did not give details, but the cement is normally sold in 50kg bags to retail consumers, and the cost ranges from 350-450 rupees ($4-6) per bag, depending on the location and grade of cement.

The ICC did not respond to a request for comment.

Holcim (HOLN.S) said in a statement that “Indian companies are handling this matter responsibly and we expect them to continue to do so.”

ACC (ACC.NS), Ambuja (ABUJ.NS) and UltraTech Cement (ULTC.NS) declined to comment, while Shree Cement (SHCM.NS) and Dalmia Cement did not respond.

India’s Adani group, which signed a $10.5 billion deal with Holcim in May to acquire its India businesses, also did not respond.

Cement production is a lucrative business in India’s booming economy, with high demand, especially from rural housing and infrastructure companies.

An official from the Paver and Block Manufacturers Association, whose members sell concrete pavers, told Reuters price hikes by cement companies in recent years were coordinated, leaving no room to cut costs by switching suppliers.

Report says company executives discussed coordinated price hikes on Zoom calls

“Sometimes we pass on the higher cost to consumers,” said the official, who declined to be named as he does 50,000 bags worth of business with cement companies a month and was concerned about retaliation.

Overall, the ICC investigation report concludes that cement companies colluded in 13 states in eastern and southern India, with more than 50 industry executives involved in “cartelization” activities in a “highly organized” manner. .

The ICC report stated that the Cement Manufacturers Association, an industry body, “facilitated and penetrated the cartel’s anti-competitive conduct” by collating and sharing price details between companies. The group did not respond to questions from Reuters.

Cement companies have been accused of price fixing for more than a decade. In 2016, the ICC fined 10 companies $800 million for price fixing, including units of Holcim and UltraTech, but the decision has since been challenged in the High Court.

In the 2016 ruling, the ICC had said the manufacturers’ association was helping companies collude, and ordered it to “disengage and stop collecting” prices or details related to production.

Although cement prices vary across India, the ICC report showed that they moved in the same direction.

In Calcutta and Patna in eastern India, for example, the prices of bags of cement fell for several months until January 2021, reaching Rs 300 and Rs 350, respectively. They then rose in parallel for four months to reach 360 rupees in Calcutta and 390 in Patna, before falling again, according to the ICC.

In southern India, UltraTech and many other smaller companies controlled cement production and supply through informal “kiln shutdown” agreements on a mutually agreed schedule, according to the report.

The objective, according to the ICC, was to coordinate production, restrict the supply of cement and increase prices.

To ensure compliance with the informal agreement, a verification system was designed, according to the report. Investigators found a sheet listing the names of the companies and the location of their plants, and assigning a rival company the task of visiting and verifying production stoppages, according to the report.

ICC investigation report concludes cement companies colluded in 13 states in eastern and southern India

The sheet indicated that the team of the visiting “invited” company must have a four-wheel vehicle and a driver during the inspections, which must be carried out at least twice a week.

The “host” company — the one being inspected — must “provide in-person access for all guests to all oven platforms,” ​​the sheet said.

“The evidence reaffirms the fact that the cartel developed an elaborate mechanism to verify and report the operation/closing of the furnaces…according to the agreement reached,” the ICC report said.

The CCI report states that executives in the cement sector decided on price increase plans down to the district level of each state, dividing companies into categories such as “Group A” for large companies, and recommending lower prices. for the little ones of «Group B».

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The report contained a price chart which it said was shared in January 2020 by Shailesh Ambastha, director of sales and marketing for the Holcim unit. It detailed the current and projected ‘Group B’ prices for 42 districts in the eastern state of Bihar.

The report said that “Ambastha distributed among its competitors charts with the prices agreed by state and meetings were held to guide officials in their application.”

The ICC said that Ambastha wrote in a message: “Try to be more than 10 from your current level. This is what everyone tries.”

In another, he wrote: “Why are you supplying the non-commercial (segment) at 220 when everyone is supplying at 230?”

The ICC report says that Ambastha “submitted evasive responses” saying she did not recall the communication. Ambastha did not respond to Reuters requests for comment.

executives of the cement sector decided on price increase plans down to the district level of each state

Some executives, such as Anil Kaushik, Shree Cement’s joint vice president of marketing, “confessed,” according to the report, admitting under questioning to sharing price data with a rival for “mutual benefit.” Kaushik declined to comment to Reuters.

But the report says he told investigators: “In the cement sector, no company can raise prices in isolation and survive.”

Article republished from The Wire as part of an agreement between both parties to share content. Link to original article:https://thewire.in/business/the-cartelisation-of-the-indian-cement-industry-antitrust-report