Case No. 12 of 2012. Case: All Odisha Steel Federation Vs Odisha Mining Corporation Limited. Competition Commision of India

Case Number:Case No. 12 of 2012
Party Name:All Odisha Steel Federation Vs Odisha Mining Corporation Limited
Counsel:For Appellant: Mr. Amit Gupta, Advocate
Judges:Ashok Chawla, Chairperson, H.C. Gupta, Member (G), R. Prasad, Member (R), P.N. Parashar, Member (P), Geeta Gouri, Member (GG), Anurag Goel, Member (AG), M.L. Tayal, Member (T) and Shiv Narayan Dhingra, Member (D)
Issue:Competition Act, 2002 - Sections 19(1)(a), 19(4), 2(h), 2(r), 2(s), 26(1), 4, 4 (2)(a)(i), 4(2)(a)(i), 4(2)(a)(ii)
Judgement Date:September 19, 2013
Court:Competition Commision of India

Order:

  1. The present information has been filed by All Odisha Steel Federation (hereinafter referred to as 'the Informant') against Odisha Mining Corporation Limited (hereinafter referred to as 'the Opposite Party' or 'OMC') under Section 19(1)(a) of the Competition Act, 2002 (hereinafter referred to as 'the Act') alleging that the Opposite Party has abused its dominant position in fixing the price of chrome ore. Parties to the Case

    1.1. The Informant is an association of steel manufacturers and related industries in Odisha. Approximately 69 (sixty nine) steel and related manufacturers from Odisha are the members of the Informant Association.

    1.2. The Opposite Party, OMC is a company registered under the Companies Act, 1956 and is a Public Sector Undertaking (PSU) under the Government of Odisha. It is engaged in the activities of raising, assembling and transportation of ore and other minerals in the state of Odisha. The major minerals mined by OMC are chrome, iron and manganese ore which cater to the requirements of mineral based industries such as steel, sponge iron, pig iron, ferro-manganese, ferro-chrome, etc.

  2. Facts of the Case, in Brief

    2.1 As per the information, in metallurgical industry, chrome ore is used for manufacturing low carbon and high carbon ferro chrome and charge chrome which in turn are used by the steel manufacturers as additives for making different quality of stainless steels and special alloy steel. It has been submitted that Odisha is the only state in India where chrome ore is available and nearly 98% of the chrome ore in Odisha is available in the Sukinda valley.

    2.2 The Informant has submitted that OMC has monopoly over the extraction of chrome ore in Odisha and almost all the mines are under its control, except some of the mines which have been allotted to private manufacturers such as Tata Steel Limited, India Metals and Ferro Alloys Limited (IMFA), Balasore Alloys and Ferro Alloys Corporation Limited, etc., for their captive use. The members of the Informant Association are entirely dependent upon the Opposite Party for chrome ore for running their business.

    2.3 The Informant has further submitted that its members have established steel manufacturing industries in Odisha based on the assurance and the representations given by the Government of Odisha to promote integrated steel plant by using rich natural deposits of the State. Therefore, the members of the Informant had a reasonable and legitimate expectation that they would be given the mines, or till such time, supplied iron ore and chrome ore in adequate quantity at a reasonable price so that their plants would be able to run successfully.

    2.4 It has also been submitted by the Informant that all the members of the Informant Association are registered/empanelled with OMC as a result of which they are given a regular allotment/quota of the chrome ore for lifting based on their production and selling capacity. By virtue of being empanelled, the members of the Informant Association are assured of a regular quantity of chrome ore even if they do not participate in the tender floated by OMC for determining the prices of chrome ore. It is stated in the information that the buyers of chrome ore who are outside the state of Odisha and are not empanelled cannot get any supply unless and until they participate in Price Setting Tenders (hereinafter referred to as 'PSTs') of OMC and only the entity making the highest bid gets the supply of chrome ore.

    2.5 As per the Informant, the Opposite Party has monopoly power over the extraction of chrome ore in the state of Odisha and has been abusing its dominant position by fixing arbitrary and highly unreasonable price of chrome ore. The Opposite Party is in a position of strength in India and more particularly in Odisha because of its control over almost all the chrome ore mines for non-captive use. Also, the Opposite Party has been able to operate independently of competitive forces in the market and has been dictating arbitrary and unfair terms for selling the chrome ore.

    2.6 It is the case of the Informant that up to the year 2007, OMC used to determine the price of chrome ore by considering the sale price of the state owned IFCAL (IDCOL Ferrochrome & Alloys Ltd.) or the purchase price of ferro chrome by Alloy Steel Plant of SAIL (Steel Authority of India Limited). However, from the year 2007, OMC has changed its method of deriving the price of the chrome ore by resorting to a Price Setting Tender in every quarter. As per the Informant, the price at which chrome ore is sold through the PST mechanism has no relation either to its fair market value or to the cost of production.

    2.7 Further, the Informant has stated that based on PST method a very small quantity, which is not representative of the overall production, is tendered for sale. As a result, a few unknown companies, whose lifting of chrome ore is less than 2% of OMC's total sale, quote abnormally high price and become H1 in the tender and such price becomes the benchmark for all plants including the members of the Informant Association who account for around 70% of the OMC's total sales volume of chrome ore. The Informant has submitted that the price bid for a meager amount of chrome ore made by industries located in states such as Jammu & Kashmir where the power tariff, water cess, tax, etc. are substantially low and by chemical industries located outside the state whose need for quantity and grade of chrome ore is different, cannot become the price for its members who require a major chunk of the chrome ore produced by OMC.

    2.8 Also, in several cases the highest bidder didn't even lift the quantity/tonnage allotted to them but the H1 price quoted by them would remain the benchmark. It has also been submitted that if some party would bid very high price in certain grade, the price increase percentage was made applicable by OMC even for other grades of the chrome ore. It has further submitted that in case the quoted price in the tender was less than previous quarter price, OMC would fix its price as per the previous quarter higher price, which defeated the very purpose of the tender. It has also been alleged that in some instances OMC didn't even accept the H1 and fixed higher price without regard to the prevailing market conditions.

    2.9 The Informant has submitted that OMC on 24.05.2012 issued a notice for e-auction of chrome ore and chrome concentrate through the Metal & Scrap Trading Corporation Ltd. (MSTC). The e-auction was held on 26.06.2012 for certain grades of chrome ore. The Informant has alleged that the reserved price fixed by OMC for various grades of chrome ore in the aforesaid auction were substantially high and has no co-relation with the cost of production. However, the e-auction was cancelled due to some administrative reasons and again the same was held in July 2012 wherein OMC had further increased the base price by about 17%. It is the case of the Informant that OMC has not been making all of its chrome ore mines operational with a view to restrict the supply and to ensure higher prices for chrome ore.

    2.10 As per the Informant, the said actions of the Opposite Party are at the behest of certain vested interests who stand to gain by artificially high price of the chrome ore and are thus, anti-competitive.

    2.11 As per the Informant, the procedure of empanelling certain buyers of chrome ore by OMC is wrong and illegal. The empanelled buyers are given a regular allotment/quota of the iron ore and chrome ore based on their production and selling capacity, even if they do not participate in the tender. Whereas, a buyer of chrome ore who is not empanelled cannot get any supply unless and until it participates in PST and makes the highest bid.

    2.12 As per the Informant, PST process followed by the Opposite Party is a clear abuse of the dominant position because the quantity which is tendered for sale in PST is not representative of the overall production of OMC. Further, the tender call notice contains several clauses that indicate that the entire process is a sham exercise only to give an impression that the Opposite Party is selling the chrome ore at a market determined price.

    2.13 The Informant has also alleged that the reserve prices fixed by the Opposite Party for various grades of chrome ore are on the higher side, having no co-relation with the cost of production of chrome ore and that the reserve price were determined in an ad-hoc manner without using any formula or rational basis. The Informant has submitted that the price fixed by the Opposite Party cannot be justified by any methodology. The prices of chrome ore has increased by over 200% in the last three years solely because of abuse of dominant position by the Opposite Party.

    2.14 Based on the above information the Informant has alleged that, being the dominant enterprise, the conducts of the Opposite Party are abusive in terms of the provisions of Section 4(2)(a)(i) and 4(2)(a)(ii) of the Act.

  3. Relief Sought by the Informant

    3.1 The Informant has prayed to the Commission to:

    3.1.1 Make an enquiry into the alleged actions of the Opposite Party;

    3.1.2 Direct the Opposite Party not to abuse its dominant position by imposing unfair and discriminatory price for selling chrome ore through PST mechanism in each quarter and direct it to sale chrome ore at a price which has some relation with its audit certified raising cost;

    3.1.3 Direct the Opposite Party to sale the chrome ore by calculating the price on the basis of the sale price of the state owned Industrial Development Corporation of Odisha Limited (IDCOL) or the purchase price of ferro chrome by the Alloy Steel Plant of SAIL.

    3.1.4 The Informant also prayed for interim relief.

  4. The Commission, upon examination of the facts of the information, passed an order under Section 26(1) of the Act, on June 18, 2012 recording its opinion that there exists a prima facie case, and directed the...

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