Cement cartels could influence Indian market

Cement cartels could influence Indian market
Published: 26 December 2007

News that the Indian regulatory offices have finally ruled of an illegal cartel in the cement sector back in the early 1990s has prompted Indian economist Mr Mehta Secretary of the Jaipur-based Consumer Unity & Trust Society (CUTS International), an Indian economic policy research group to comment on various cartels that have been exposed worldwide and to stress that in view of such activities India needs a new competition law to protect consumers.

To support his argument Mr Mehta notes that in 1994, the European Commission (EC) levied fines to the extent of Euro 248m on six companies and the cement manufacturers’ association, Cembureau. In judicial appeals, finally decided in January 2004, the fine was brought down by 140 million euros, and the fine on the trade association was nullified. These six included Lafarge and Holcim. Lafarge was then reportedly fined some 187 million euros by the EC in 2003 for participating in another industry cartel, the third largest fine ever levied for being a habitual offender.

In Taiwan, in December 2005, a fine of US$6.3 million was imposed on Cemex, one of 11 manufacturers along with 10 distributors for cartel activities.

In South Korea, September 2003, the competition authority levied surcharges (fixed fines) of $22 million on seven companies in addition to $428,000 on the Korea Cement Manufacturers Association.

In Argentina five cement companies operated a cartel during 1981-99, until caught and fined a whopping US$107 million, the largest fine levied by the country’s competition regulator.

In Romania, in 2005, three cement companies — Lafarge Romcim, Holcim and Heidelburg’s subsidiary Carpatcement — were fined 27 million euros or six per cent of their turnover. These three companies shared 98 per cent of Romania’s cement market. The probe found that they had inflated prices by as much as 38 per cent.

In December 2002, the price of cement had fallen to an exceptionally low E£125 a tonne in Egypt. The drop had caused serious worry among the cement producers. In response, almost all local cement producers met and set a price range for cement between E£167 and E£176 a tonne. There was an outcry, but no action could be taken, as Egypt did not have a competition law then. It has one, now, in spite of strong business opposition, but the same is yet to become fully operational.

In Pakistan, which had a law similar to India’s MRTPA, the authority did take action against cement cartels in October 1998. Cement manufacturers raised the price of cement in a collective action from Rs 135 a bag to Rs 235 a bag. Enquiry by the Monopoly Control Authority found that none of the input costs had gone up. The authority passed orders for reversion to the old prices and levied a fine. The order was stayed by the High Court. The Ministry of Commerce intervened and persuaded the MCA, despite the theoretical independence, to close the case. Now, even Pakistan has a new competition law.

Research in Philippines, which has no competition law, has shown that the cement industry has grown under heavy government protection. Collective price action has been seen for a long time. Analyses of cost structures show that in spite of differences, the selling price of individual producers is fairly uniform.