Facts CCI decision COMPAT appeal Comment
By way of an August 30 2016 order, the Competition Appellate Tribunal (COMPAT) upheld a Competition Commission of India (CCI) order which dismissed allegations against Orissa Mining Corporation (OMC) for abuse of its dominant position by fixing an arbitrary and highly unreasonable price for the sale of chrome ore.(1)
All Odisha Steel Federation filed information with the CCI, alleging that OMC's method for determining its price for chrome ore – that is, through price-setting tenders – was unfair and resulted in an unreasonably excessive price for chrome ore. Through this tender process, only a small quantity of chrome ore was tendered for sale by OMC. As a result, a few unknown companies, whose lifting of chrome ore was less than 2% of OMC's total sales, quoted abnormally high prices and became the highest tenderer. This unreasonable price became the benchmark for all plants, including those that were members of the informant's association. It was also alleged that, in some instances, OMC refused the highest bid price, and instead fixed an even higher price without regard to prevailing market conditions.
During the investigation, the director general concluded that while OMC was in a dominant position in the relevant market, there was no abuse of dominance.
The CCI agreed with the director general's report, holding that despite OMC's dominant position in the relevant market (ie, friable chrome ore in Madhya Pradesh), it did not abuse its position and was entitled to protect its business interest by adopting any methodology of price setting that it sees fit, based on market conditions. Since chrome ore is a non-renewable natural resource, its pricing and supply cannot be determined by market forces. According to the CCI, because chrome ore is unlike other commodities which can be supplied freely, the price cannot be determined based on the free market economy principle.
COMPAT noted that the price-setting tenders were floated by OMC primarily to establish the price for chrome ore. In addition, in accordance with clauses of the tender scheme, the offered price could be modified to capture market realities.
Further, as chrome ore is a scarce natural resource, its availability must be sustained for long-term use. Mineral exploitation also requires ecological mitigation. These factors make calculating economic value extremely difficult for a competition regulator. Therefore, willingness and ability to pay is a fair method for price discovery.
COMPAT noted that even though OMC made substantial profits out of the sale of chrome ore, this alone cannot be held against OMC. There is no conclusive determination that OMC tried to manipulate the market in order to draw excessive pricing advantage.
COMPAT agreed with the opinion of the director general and the CCI that the allegation of abuse of dominance had not been substantiated and the price charged by it was not unfair. The appeal was dismissed accordingly.
In this case, COMPAT seems to have accepted the CCI's view that a dominant firm's conduct – even if apparently exploitative – may not amount to an abuse of its dominant position, if the firm can present an objective justification for the same. This is in line with one of the three tests laid down by the European Court of Justice in Re Oscar Bronner GmbH Co KG v Mediaprint(2) when assessing an abuse of market power on account of refusal to supply.
For further information on this topic please contact MM Sharma at Vaish Associates by telephone (+91 11 4929 2525) or email ([email protected]). The Vaish Associates website can be accessed at www.vaishlaw.com.
Endnotes
(1) COMPAT order of August 30 2016. For full text see COMPAT's website.
(2) [1998] ECR I-7791, [1999] 4 CMLR 112.
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