The Business Competition Supervisory Commission (KPPU), a state-sanctioned antimonopoly agency, found cement maker PT Semen Gresik guilty on Wednesday of unfair business practices in breach of the Antimonopoly Law, and fined the company Rp 1 billion (US$108,695). Some months ago, the KPPU at its own initiative started an investigation into allegations of the existence of a cartel, secret agreements, limitations on cement distribution and price fixing involving the company and its distributors in East Java.
On Wednesday, Tadjoedin Noer Said, the chairman of the KPPU panel investigating the case, said that the country’s largest cement producer was guilty of price fixing and applying a "vertical marketing system", or VMS, under which the company’s distributors were allowed to supply cement to merchants and regular customers only for the purpose of restricting supply.
"The KPPU has ordered SG to delete the clause from its standard distribution agreements that prohibits its distributors from supplying cement to non-regular customers," Tadjoedin was quoted as saying by Antara .
The investigation found that the VMS had initially not worked out as well as expected, and resulted in regular customers looking for other distributors that offered lower prices. This led to a price war among distributors, which eventually hurt the company’s earnings.
Semen Gresik then established a consortium of distributors in Area 4 in East Java, comprising the cities of Blitar, Jombang, Kediri, Kertosono, Nganjuk, Pare, Treggalek and Tulugagung. The ten members of the consortium, which were prohibited from distributing cement from other producers, then agreed to adhere to the VMS, requiring them to sell cement at a fixed price. The consortium members were also required to share information with each other.
The consortium was made up of 10 distributors; PT Bina Bangun Putera, PT Varia Usaha, PT Waru Abadi, PT Perusahaan Perdagangan Indonesia, UD Mujiarto, TB LIma Mas, CVB Obor Baru, CV TIga Bhakti, CV Sura Raya Trading Coy and CV Bumi Gresik. The KPPU said that strict adherence to the VSM by the consortium members had resulted in unfair business competition among distributors, and prevented regular customers from purchasing cement from other distributors.
SG currently holds a 70 per cent share of the cement market in Area 4. Its competitors in the area are Semen Bosowa, Kujang and Tiga Roda.
The KPPU also ordered SG to disband the consortium and revoke the clause in its standard distribution agreement that prevented its distributors from selling cement from other producers. "The KPPU has also ordered SG to stop fixing prices," Tadjoedin said.
In its response, the company’s communications division manager, Saifudin Zuhri, told The Jakarta Post that his company was still studying the KPPU ruling. "We will discuss the individual points of the ruling with our lawyers first," he said.