Antimonopoly service sends claim to Eurocement

Antimonopoly service sends claim to Eurocement
Published: 17 October 2005

The Federal Antimonopoly Service (FAS) has reportedly sent an invoice to the Eurocement Group for one billion roubles (US$35m)as part of negotiations over claims of excessive profiteering and what it sees as its unacceptable monopolistic position in the markets, particularly the Moscow region.
Eurocement Group controls 15 plants with capacity of 33Mt of cement a year. In 2005, the company plans to produce about 20Mt of cement. The group is controlled by Filaret Galchev and partners. According to SPARK-Interfax, in 2004 sales revenue of Eurocement Group totaled 7.8 billion roubles (about $275m). 
Eurocement Group became the leader of the cement industry in spring 2005, when it bought cement plants from Inteco and SU-155 group. Galchev’s company reportedly then behaved rather aggressivly: it refused to supply its products without payment in advance and announced raising of cement prices by 20 per cent. Less than a month later prices grew again to 2100 roubles per tonne (approx US$74/t) previously cement was sold at 1150 roubles per tonne approx US$40/t). The company explained the need to raise prices by the wear and tear of production facilities and growth in gas and electricity tariffs. Construction firms were, however, not satisfied with this explanation. They announced that Galchev was trying to raqpidly pay back the expenditures on acquisition of the plants and complained to the FAS. 
On October 11, the FAS issued a resolution stating that Eurocement Group breached the antimonopoly law and obliged the company to lower the price to the level of competitive prices until November 1, as well as to pay the income from the 60 per cent raising of prices to the budget. Otherwise the FAS promised to break-up Galchev’s company.  According to Director of the FAS Igor Artemyev, the FAS demands Eurocement to pay 1 billion roubles. Officials of the FAS did not explain how this sum was calculated.
Evaluating the losses of Moscow-based developers from raising cement prices curator of the Moscow construction industry, Vladimir Resin, mentioned a sum of 1 billion roubles. A source in the Moscow Mayor’s Office is convinced that the whole profit of Eurocement from increase of prices was much bigger because it supplied cement not only to the Moscow Region. This is not the only sum that Eurocement will have to pay if its guilt is proven by the court. In this case, consumers of its products will have the right to appeal to the court and to enforce damages on the cement company, reports a representative of the FAS.
On the contrary, Eurocement thinks that the penalty is too big. Representatives of Eurocement noted, "The sum is excessive and we will appeal against it to the court. We would like to receive explanation from the FAS to finally determine our position." 
Market players doubt that the authorities will be able to enforce the penalty on Eurocement Group, at least at the size of 1 billion roubles. For example, the FAS fined the latest large culprit, United Trading Company, 20 million roubles. The probability of invalidation of the new resolution of the FAS is high especially because the sum of the fine is unprecedented for Russia. Denis Balakin, General Director of the legal company Corpus Juris, also added that the FAS more often looses than wins. According to Balakin, even in the worst-case scenario Eurocement Group may idle for six months before lowering its cement prices.
A top manager of a Russian construction company said, "We will insist that Eurocement compensate us for the difference." Alexei Dobashin, General Director of construction corporation Krost, is also convinced, "The cement producer will probably be forced to lower the price by not more than US$10-18/t."