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India – CCI Finds No Abuse By Odisha Mining Corporation.

22 October, 2013

 


CCI, in its order dated September 19, 2013, dismissed a case filed by an association of steel manufacturers and related industries, the All Odisha Steel Federation (‘AOSF’) against the state-run Odisha Mining Corporation Limited (‘OMC’) alleging abuse of dominance position. OMC is engaged in the business of raising, assembling and transporting ore and other minerals within the state of Odisha.


There were three main allegations against OMC. First, in its Price Setting Tenders (‘PST’) and e-auctions, OMC fixed unreasonably high prices for its chrome ore, amounting to unfair pricing. Second, the terms of the PSTs and the base price of the e-auction were arbitrary and unfair. Finally, OMC intentionally did not make its mines operational with a view to restrict supply and ensure high prices. On finding a prima facie case of abuse, CCI directed DG to investigate the practices of OMC. DG submitted its report in June 2013, findings of which were endorsed by CCI in its final order.


In its order, CCI identified three different variants of chrome ore on the basis of size and use. These were friable chrome ore, chrome concentrate and lumpy chrome. Since the members of the AOSF mostly procured friable chrome ore for their metallurgical industries, and given that the three categories were used for different purposes across different industries, CCI did not consider them substitutable or interchangeable with one another. Consequently, CCI identified the relevant market as the market of friable chrome ore in the state of Odisha.


While assessing OMC’s dominance, CCI noted that OMC was the sole domestic source for all ferro-chrome producers that did not have captive mines. CCI further identified OMC’s market share as 85.81% of the total sale in the domestic market, making it the largest state public sector unit in the mining industry. In terms of size and resource, unlike the other producers of chrome ore that also produced ferro-chrome, OMC only sold chrome ore, and accordingly, had the largest capacity and production for chrome ore in the market. As the largest source of chrome ore, CCI found consumers dependent on OMC. Moreover, owing to the gap between supply and demand of chrome ore, CCI noted that buyers exercised little to no countervailing buying power. CCI also found that OMC’s market power was strengthened on account of having been granted leases of 11 chromite mines by the Central Government. On this basis, CCI concluded that OMC was in a position of strength and was dominant in the identified relevant market.


In examining the allegations of unfair conditions imposed by OMC, CCI observed that clauses in the PST that allowed OMC to explore alternative price discovery systems (such as in-house committee decisions or e-auctions) appeared to be justifiable. On allegations of unfair or excessive prices, CCI observed that prices charged by OMC were not in fact unreasonable and were based on prevailing market conditions and the prices of ferro-chrome in the international market. CCI further opined that the differential price mechanism adopted by OMC in 2012, which led to lower prices of chrome ore and the exit of Tata Steel Ltd. from the market, negated allegations of excessive pricing. Against allegations of supply limitation by OMC, CCI held that this was on account of pending environmental clearances and was not intended by OMC. On the basis of these findings, CCI observed that although OMC was in a dominant position in the relevant market for chrome ore in Orissa, it did not contravene Section 4 of the Act.

 

AZB

 

For further information, please contact:

 

Zia Mody, AZB & Partners
zia.mody@azbpartners.com

 

Abhijit Joshi, AZB & Partners 
abhijit.joshi@azbpartners.com


Shuva Mandal, AZB & Partners 
shuva.mandal@azbpartners.com

 

Samir Gandhi, AZB & Partners
samir.gandhi@azbpartners.com


Percy Billimoria, AZB & Partners 
percy.billimoria@azbpartners.com

 

Aditya Bhat, AZB & Partners 
aditya.bhat@azbpartners.com

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