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MRTPC issues notices to 14 cement companies including ACC, India Cements, Ambuja for cartelisation; Aide says have got prima facie proof

Thursday, July 26, 2007

Allegations of cartelisation continue to swirl around the cement industry. India’s trade practices regulator MRTPC on Tuesday ordered a probe into the business practices of 14 leading cement manufacturers. These manufacturers colluded to hike prices, alleges a preliminary report by MRTPC’s investigative wing. Meanwhile NW 18 reports quoting a government aide that the probe has got a prima facie proof of cartel in cement price. He added that cement cartel case will come up for hearing Oct 25.

The panel issued notices of inquiry against these companies after its investigation wing — the Director General of Investigation and Registration (DGIR) — submitted its preliminary report. The companies have time time till October 25 to reply to the charges. The companies include Birla Corporation, Zuari Cement, Binani Industries, ACC, NCL Industries, Gujarat Ambuja Cement, Grasim Industries, Sanghi Industries, Saurashtra Cement, JK Cement, India Cement and Ultratech Cement.

ACC, Grasim and India Cement declined to comment. The CEO of a firm indicted by the panel told ET on condition of anonymity: “The charges are all baseless. How can you have cartels when there is a shortage of cement in the country?”

The DGIR analysed prices, demand, capacity utilisation and expansion in 2005 and 2006 to find if price increases were justified. The DGIR did not buy the argument that costlier raw materials and the tight demand-supply situation sparked the price rise. The DGIR concluded that price increases were for reasons other than higher production cost, which according to its calculations, came to about Rs 7 for 50 kg.

In contrast, between April 2005 and March 2006, the price of a 50 kg bag rose by over Rs 50 in the Delhi market. The increase in Mumbai was identical in the same period. The price rise thus far exceeded the increase in input cost, says DGIR.

The report also said that the Cement Manufacturers’ Association (CMA) served as a platform for discussing price-related issues. The body has various zonal marketing committees where top company executives are present. This gives them enough opportunity to meet and decide pricing and marketing strategies, says DGIR. The CMA managing committee held three meetings during 2005-06, when “exorbitant price increase” was noticed, the DGIR said.

CMA secretary general EN Murthy, however, denied the charges. “Cement manufacturers don’t discuss prices at CMA meetings. CMA’s policy is to discuss industry-related issues other than prices,” he told ET.

According to Ansal API marketing president Kunal Banerji, construction cost, which was about Rs 800 a sq ft two years back, has gone up to about Rs 1,300, partly because of costlier cement and demand for high-quality construction. Cement price is just one component, he said. Cement production rose to 141.81 million tonnes in 2005-06 from 127.57 million tonnes a year ago, a growth of about 11% that exceeded the government’s target of 136 million tonnes.

The cement industry found itself at the centre of a political controversy earlier this year, when it came under pressure to hold prices. Industry minister Kamal Nath and finance minister P Chidambaram called for ‘moderating’ price increases. The budget also imposed differential duty on cement depending on price, though it was modified later. Initially, for a 50 kg bag of cement priced below Rs 190 the proposed excise duty was Rs 350 per tonne, while the initial budget proposal was Rs 600 per tonne for bags priced above Rs 190.

Later, the higher duty was changed to 12% ad-valorem instead of Rs 600 per tonne. For bags priced below Rs 190 the duty remains Rs 350 per tonne. The FM has recently said that the government was not contemplating a price freeze.

Posted by FR at 5:40 AM  


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