Oil Companies: Evidence of cartelisation

Print edition : March 08, 2013

A SUO MOTU investigation initiated by the Competition Commission of India (CCI) has found incriminating evidence to suggest a coordinated fixing of the price of petrol by the three major state-owned oil marketing companies (OMCs)—Indian Oil, Bharat Petroleum, and Hindustan Petroleum. The probe was initiated in September 2012 on the basis of prima facie evidence of market players abusing their position of dominance in violation of Section 3 of the Competition Act, which prohibits anti-competitive measures.

The report states that from November 2010 to June 2012, the three state-owned OMCs increased or decreased the prices of petrol in tandem. It cites other instances of coordinated action by the companies which points to the formation of a cartel.

The report uses data provided by the Petroleum Planning and Analysis Cell (PPAC) to point out that they used a similar price build-up. The report states that the three companies have used similar cost of distribution and the same margin to determine the price to charge the dealer. A senior official told Frontline: “This is very serious evidence of anti-competitive practice. This indicates that the companies have been exchanging information on costs of production.”

After the deregulation of the price of petrol, the domestic prices are indexed to the international prices. However, the report observes that there is no consistency in the change in petrol prices when compared with the international crude price data provided by the PPAC. This proves that the OMCs have not been following the established procedure for fixing prices.

Speaking to Frontline, a senior official with the CCI said, “The CCI does not have the brief to challenge government policy. But the purpose of deregulation of the cost of petrol was also to encourage competition through a market-based mechanism which would ideally bring down costs and help consumers. The OMCs are expected to compete with each other, and thus price-fixing is a matter of grave concern.”

Sagnik Dutta