Case No.1/28 (C-97/2009/DGIR)

                                                                                                    

Filed by:    M/s Royal Energy Limited, New Era Mills Compound, Mogul Lane, Matunga         (W), Mumbai – 400016

Against:      Oil (Marketing) Companies (OMC)

Allegations:

It is observed that the said case was under investigation before the erstwhile office of DG&IR and after the repeal of the MRTP Act, the said complaint was transferred to CCI under Section 66 of the Act. The informant has alleged that the bio-diesel manufacturers have been restricted to supply bio-diesel only to authorized oil marketing companies (OMC) and thus sale in open market was prohibited by the Policy of Ministry of Petroleum & Natural Gas (P&NG). Further, the OMCs are fixing uniform purchase price of bio-diesel which is lower than the production cost to such manufacturers. It is therefore, alleged that such situation has created a monopsonic market wherein the OMCs are fixing price of bio-diesel in a concerted manner in violation of Section 3 and 4 of the Competition Act, 2002.

DG Report:

It is observed that there are only 13 bio-diesel manufacturers as submitted by Bio-Diesel Manufacturers Association and the total production is insignificant. It is observed that the National Policy of Bio-Diesel and the Bio-Diesel Purchase Policy of the Govt. of India has laid out the complete dynamics of operation of the production and marketing of the bio-diesel in India. The policy clearly lays down that the bio-diesel can be sold only to OMCs who are required to market by blending it with petroleum-diesel in prescribed ratio. Essentially the said policy prescribes the manner of manufacturing, storage, distribution and marketing and there every facet of this market is governed by the Policy decision of the Govt. the market analysis there shows that it is Govt. controlled where there is little scope of any market forces to operate independently in it. Investigation has found that there has been no sale or purchase of bio-diesel by the OMCs as far as the prices declared by them. Examination of the details of the price fixing shows that the price of bio-diesel has been fixed on the basis of the National Bio-Diesel Policy (NBP) and Bio-Diesel Purchase Policy (BPP). It is noticed that pare 4.2(vi) of BPP and para 5.11 and 5.12 of NBP has described the methodology of fixing purchase price of Bio-diesel by the OMCs.

The purchase price of Bio-diesel is fixed on the basis of ex-storage point price of High Speed Diesel (HSD) and since price of HSD is fixed by the Govt. the fixation of the bio-diesel price is done on similar lines by OMCs. Based on BPP, NBP, and executive statements of OMCs, it is learnt that purchase price of Bio-diesel are not independently determined and are essentially being fixed on the basis of guidelines / policies of the Ministry of P&NG (MoP&NG), and Ministry of New & Renewable Energy (MNRE), Govt. of India . It is primarily on this predetermined methodology of fixing diesel price as per the Govt. policy that the OMCs have declared uniform purchase price of bio-diesel in the relevant period in question. The OMCs have so far been acting as non-market entities as far as the procurement, blending and usage of bio-diesel are concerned as their activities have remained limited to declaring the purchase price of Bio-diesel at periodic intervals, in accordance with the policy decisions of the Govt. However, no sale / purchase of bio-diesel has ever taken place so far at prices declared by OMCs. Ministry of P&NG has also stated that the OMCs declare bio-diesel purchase price on a no-profit no-loss basis.

Conviction of DG:

Uniform purchase price of Bio-diesel by the OMCs cannot be construed as a cartel conduct is only in compliance to the provisions of BPP, NBP and Ministry of P&NG regarding the fixation of uniform ex-storage point price of HSD and retail selling price of diesel. Also the conduct does not result in unfair and discriminatory and hence there is no violation of Section 3(3) and 4 of the competition Act, 2002.

My views on the case:

The Bio-diesel Association of India (BAI) has submitted that MoP&NG and MNRE have recognized their association. It has also stated that not a single litre of bio-diesel (B100) has been sold to the respective OMCs as per their purchase policy of Rs.25/- a litre since 2006. It is submitted that the price Rs.26.50/- per litre is not at all viable for production of bio-diesel. At current prices of feedstock of vegetable oil price derivatives, the cost of production of bio-diesel is Rs.49/-per liter. At conservative minimum gross margin of 10%, the selling price will be Rs.54/-per litre. According to BAI there has been an investment of Rs.2300 crores by the industry in setting up of the bio-diesel processing facilities. At present the capacity utilization of bio-diesel manufacturers has been less than 5%.

Bio-diesel is diesel substitute. The specifications of bio-diesel are such that it can be mixed in any ratio with petroleum diesel fuel. It requires very little or no engine modifications up to 20% (B20) blend and minor modifications for higher percentage of blend. The committees on the development of bio-fuels observe that bio-diesel is a clean fuel and up to 20% blend can be used readily without engine modification and it helps in reducing emissions. The US has adopted B20 (using Soyabean), whereas EU has adopted B5-B15 blends (using sunflower and rapeseed). India has found Jatropha Curcas and Pongamia Pinnata (Honge or Karanja) plants to be suitable for the bio-diesel purposes.

At present price of diesel per litre is Rs.42/- approximately in Delhi. Price of Bio-diesel with 10% mark up to the manufacturers is Rs.54/- per litre. And if B20 is regularized, then;

                        80% of Petroleum diesel price per litre is                   Rs.33.6/-

                        20% of bio-diesel price per litre is                              Rs.10.8/-

Total                                                                            Rs.44.4/-

Given capacity utilization of less than 5%, the bio-diesel price is Rs.54/- per litre. At full capacity the price per litre of bio-diesel will be sufficiently low so that blended fuel (P80 + B20) will less than Rs.42/- is sufficient to make the Bio-diesel project to roll through the economy.

Opposite parties cannot be infringed for there seems to be no violation of Section 3 or 4 of the Competition Act, 2002. However, as a part of advocacy, CCI should recommend the MNRE and MoP&NG the benefits and importance of Bio-Diesel and help Bio-fuel industry flourish well. This will have international recognition for India, as this will be a milestone step towards addressing global warming, climate change and other environmental issues which contribute to sustainable development efforts by a developing country like India.

  

Case No.45/2010

                                                                                                                            

Filed by:         Reliance Media Works Ltd

Against:          The Karnataka Film Chamber of Commerce (KFCC)

Allegations:

KFCC enjoys the position of dominance in the area of exhibition of films in the State of Karnataka and has more than 4000 members who belong to various chains of film industry including producers, distributors and exhibitors. By virtue of dominance, KFCC makes it mandatory for every film exhibitor in the state to become its member and abide by its decisions and directions. It also imposes restrictions on the exhibitors and distributors of films from time to time.

It is alleged that earlier the opposite party imposed undue restrictions on the exhibition of the film ‘Raavana’ which were challenged before the Commission and aggrieved by that move of the informant, the opposite party has adopted further vindictive measures to stop the supply of print of films to the informant due to which the informant is not able to exhibit films in the state of Karnataka.

The informant has specifically alleged that by stopping the supply of films, seizure of prints and withholding the revenue share, the opposite party is abusing its dominant position which restricts and undermines and violates its fundamental rights to carry trade and profession. Further, the informant has stated that the opposite party has issued letters to various Kannada film distributors directing them to stop supply of Kannada films to the informant party.

DG Report:

Relevant product market in this case is the market of services rendered by exhibitors in exhibition of feature films in cinema halls and relevant geographic market is the state of Karnataka.

KFCC is an association of film producers, theatre owners and distributors in the State of Karnataka.  It is also a regulatory body so far as production, distribution and exhibition of films by its members in the territory of Karnataka is concerned. Nearly 95% of the films in Karnataka are being released in accordance with the norms of the KFCC. The Association has issued directives that a non-Kannada film can be released in all cinemas in Karnataka provided it is released two weeks after release in other film territories. The association is adopting discriminatory behavior with regard to the release of regional and non-regional films in the State of Karnataka. Investigation reveals that, in reality, the film distributors are not allowed to release their films in the State of Karnataka unless they are members of the Association. Association collectively decides not to have any dealing with a person who does not agree with the directions of the Association. It tantamount to restricting the supply of materials in the market through collective intent of all members of the association coming together on one platform, unless enterprises/persons dealing with members of the association accept the terms and conditions imposed by the association. The Association may collectively decide not to have any dealing with a person who does not agree with the directions of the Association. As per the agreement, no film can be distributed or exhibited without registering it with the KFCC or without the membership of KFCC. Report also concludes that denial of market access to the film distributor by the KFCC reduce competition in the market. Some clauses of MOA of KFCC restrict freedom of trade in the market and it does not bring any efficiency defense or any other defense for keeping such conditions in the MOA. These conditions do not favor either immediate consumer or the end consumer.

AAEC Findings of DG Report:

1                    Prohibiting its members to deal with non-members

2                    Forcing the provision of mandatory registration of each film in their territory

3                    Enforcing restriction on the number of cinema halls for non-Kannada films

4                    Enforcing restriction on the number of multiplexes for non-Kannada films

5                    Enforcing restriction of maximum 5 shows daily of all non-Kannada films

6                    Not allowing dubbing in Kannada language of other language movies

7                    Imposing ban/boycott against the producers, distributors and exhibitors

8               Issuing letters to the theatres to withhold the share amounts of the producers/distributors

DG’s Conviction on KFCC:

The conduct of KFCC is in violation of Section 3(1), 3(3)(b) and 3(4) of the Act

Response to DG Report:

1          KFCC has stated that the membership of the association is voluntary With reference to para 12.1 and 12.2 that membership of KFCC is necessary is not correct and the process of registration of films was started on the request of distributors because earlier stolen prints were released and that used to cause loss to the producers.

2          There are six language films compete in limited number of theatres. Karnataka Films have miniscule presence and if the process of regulating the number of theatres is not done, the Kannada Film Industry will suffer. 

3          It is as per the Article of Association that the Members of KFCC will not deal with any non Members is their voluntary Decision and KFCC is just abiding and passing instructions to remind them of such obligation.

4          Any person who is not a member of the KFCC cannot insist that every member of the KFCC must necessarily deal with him. 

5          The KFCC has also stated that it has received several complaints against the Informant (Big Cinemas) that they do not give shares to the distributors/producers, it suddenly terminates good running Kannada cinema, encourages non member dealings, demands money in cash as advance from dealers etc.

6          KFCC has never indulged in the anti competitive practices as charged under para 12.16. Further para 12.19, 12.20, 12.21 are factually incorrect.

7          In para 12.16 the DG has sought to support its conclusions on the interim orders passed by this Commission and such attempt by DG is unsustainable in law.

8          In para 12.29, KFCC deny that they have ever acted in violation of Orders of the Commission.

My views on the Case:

If Kannada films are competing with other non-Kannada films, this has to be under free market set up. Free market best decides what it wants. All the films should have equal opportunity for exhibition. There should not be any restrictions on number of screens, shows per day, forced delayed exhibition of non-Kannada films etc. Every exhibitor / distributor should be free to enter into individual agreements with any producers of films.

Protecting Kannada films from competition is in way accepting that they are incompetent. Under the threats of competition (free entry of non-Kannada films) and under the fear of exiting the market, Kannada film industry will be forced to be competent enough to compete and this will help the industry perform better in the years to come. This will provide a golden opportunity to Kannada film businesses to come out of glitches of incompetent way of movie making.

A language such as Kannada, having the most ‘Jnanpit Award’, the highest literary award in India, does not require films to protect it.

Allowing dubbing of non-Kannada films into Kannada language can be explored as an alternative as it serves one, more films will be in Kannada language; two, some of the best films beyond geographic boundaries-languages are made available in Kannada language.

          Telugu and Tamil Movies

In Andhra Pradesh, for instance, Telugu films compete with Tamil films; yet Telugu film industry is still coming out with lot of blockbusters. Similarly Tamil films also compete with Telugu films in Tamil Nadu. In fact, often, most of blockbuster films of both Telugu and Tamil are dubbed into their own language before releasing them in their respective states. Often most movies are bi-lingual or tri-lingual from the starting vertical chain of movie making.    

KFCC is a trade association composing members who are themselves enterprises and decisions taken at KFCC level has huge implications and ramifications for film businesses in Karnataka. Since no other competing platform such as KFCC is available for film businesses to operate, KFCC has to be taken as a single and dominant enterprise. KFCC is acting as a ‘Regulator’ by itself and hence has been resulting in anti-competitive conducts by a privately created regulator for film businesses.

In order for what is produced to reach the end consumers in the vertical chain of production- distribution-exhibition, the KFCC plays the role of sole platform (privately created) without which what is produced is left unconsumed given the fact that the product has less shelf-life.

KFCC, acting as a Regulator has presumed its terms and conditions to be revered and deviations from which results in expulsion of members, de-notification of films, ban / boycott of films for exhibition, non-supply of Kannada and non-Kannada movies to the non-member or non-compliant member. Hence the nature of violation attracts more of Section 4 than Section 3 of the Act.

The conducts of KFCC have violated the following Sections of the Act: 4(2)(i), 4(2)(b)(i), 4(2)(c) and 4(2)(d).

Circumstances under which conducts of KFCC can be justified:

Protecting Kannada films from competition is in a way accepting that they are incompetent. Providing level playing field for both Kannada and non-Kannada films, if deemed necessary and prudent, should be a function of the State, i.e., the Government of Karnataka and not KFCC.

Infant Industry Argument is applied on economies for the sake of correcting the distortions of short lived nature. According to this argument, the government protection to the industry holds good for a certain period of time and after that the market force is allowed to be in existence. The main motive behind Infant Industry Argument is to create a level playing field between a backdated industry and a highly advanced industry producing similar commodities. This argument has been observed to be followed more often by the developing or the under-developed countries which possess comparatively backdated and traditional industries. In such cases, if these industries are subjected to the international markets then their products would not be able to compete with the price offered by the highly mechanized and advanced industries producing the same output and probably better quality too. Keeping all these aspects and factors into mind, two economists named Alexander Hamilton and Friedrich List proposed an argument that came to be known as "Infant Industry Argument". They argued that in such uneven playing fields, the domestic, traditional, and backward industry would require government protection and backing either through tariff protection on a temporary basis or forwarding subsidy towards these industries.