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21 February 2019
By way of an 11 July 2018 order, the Competition Commission of India (CCI) has penalised South Asia LPG Company Ltd (SALPG), a joint venture between Total SA and Hindustan Petroleum Corporation Ltd (HPCL), for abusing its dominant position in the market for upstream terminaling services at the Visakhapatnam port.
The CCI held that SALPG had denied market access at the port to private terminal operator East India Petroleum Pvt Ltd (EIPL).
The CCI's inquiry was initiated on allegations that SALPG, which operated the port's infrastructure, including unloading arms at the jetty, blender, heat exchanger and cavern, prohibited competitors from using its blender facility on a standalone basis, while insisting on the use of its cavern facility. SALPG also required EIPL to pay significant additional charges. As a result, relevant oil marketing companies were forced to avail of only SALPG's terminaling services.
In order to avoid paying the additional charges to SALPG, EIPL first proposed to use SALPG's blender and thereafter take the output directly to the HPCL cross-country pipeline, bypassing the cavern. SALPG rejected the proposal, as only 25% of the total volumes of very large gas carriers could bypass the cavern.
EIPL then proposed to install its own blender which could be attached to the propane and butane lines in order to discharge blended liquid petroleum gas (LPG) and bypass the cavern. Under this arrangement, EIPL wanted to access the propane and butane lines in order to mix gases in its blender and then discharge the blended output back into the SALPG pipelines. SALPG also rejected this proposal.
Following SALPG's rejection, EIPL proposed yet another option, this time seeking to attach the propane and butane lines at the jetty to its own blender. It also proposed constructing its own infrastructure between its blender and storage facility. Again, SALPG rejected the proposal.
This case was one of the longest investigations by the director general on record, spanning from 2011 until 2016. In its main 2012 report, the director general determined the two relevant markets to be the upstream terminaling services market and the downstream terminaling services market. According to this report, SALPG had a monopoly in the upstream market, yet was not dominant in either market due to the countervailing buying power of customers (ie, public sector oil marketing companies). The director general also found that the port had supply-side substitutability with adjoining ports at Haldia and Ennore.
The director general was of the view that SALPG had provided a valid efficiency and business justification for denying the use of its blender facility without the use of the cavern and prohibiting EIPL from attaching its own blender to the propane and butane lines from SALPG's jetty. The director general also noted that it was unclear whether the cavern functioned only as a storage unit or also played a role in mixing or offered additional safety measures. Further, the restriction that only 25% of the total volumes of very large gas carriers could bypass the cavern was found to be based on a valid business justification, as SALPG had made significant investments in the cavern. Thus, the director general's main report found that Section 4 of the Competition Act had not been contravened.
In the 2015 supplementary investigation report summited by the director general following both parties cross-examining the witnesses (after a short litigation before the Delhi High Court), the director general reiterated its earlier findings.
EIPL accordingly raised serious objections to the director general's reports before the CCI, referring to international cases on the essential facilities doctrine.
The CCI ultimately found that SALPG's bypass restrictions and its requirement to use its cavern had priced EIPL out of the market and reduced its business substantially. According to the CCI, SALPG had rejected EIPL's proposals on unsubstantiated and unreasonable grounds. Therefore, the CCI found SALPG's conduct to contravene Section 4 of the act. The CCI also prescribed various behavioural remedies to prevent SALPG from abusing its dominant position:
These measures should avoid additional cost burdens on SALPG. According to the CCI, an entity seeking to use SALPG's infrastructure must bear the costs, if any, associated with changes to the existing infrastructure. Further, the CCI required SALPG to fully cooperate with the audit undertaken by the port in relation to the CCI's remedies. Needless to say, SALPG was prohibited from taking any actions which would raise competitors' costs.
The CCI noted that denial of market access is one of the most severe forms of abuse of a dominant position. It also observed that SALPG's abusive conduct had primarily been conducted in order to protect its commercial interests. Accordingly, the CCI imposed the maximum statutory penalty on SALPG at a rate of 10% of the company's average annual turnover generated from the upstream terminaling services market at the Visakhapatnam port. This penalty totalled Rs192,070,000.
This landmark case is a good example of a dominant enterprise denying an essential facility to a competitor without any objective justification. SALPG could not prove that the restrictions imposed on EIPL, although efficiency enhancing, were critical. As such, the CCI imposed the highest penalty allowed (ie, 10% of SALPG's average turnover for the preceding three years).
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4249 2525) or email (email@example.com). The Vaish Associates website can be accessed at www.vaishlaw.com.
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