ONGC Tender: Did These 3 Cement Companies Form a Cartel to Rig the Tender?

Synopsis: India’s competition watchdog has found evidence suggesting that several cement manufacturers may have colluded to rig tenders issued by ONGC over more than a decade. The probe, triggered by identical bids in a 2018 tender, points to coordinated pricing, supply allocation, and attempts to block foreign bidders in oil-well cement contracts.

India’s cement industry has come under regulatory scrutiny after an investigation by the Competition Commission of India (CCI) uncovered evidence of alleged bid rigging in tenders issued by Oil and Natural Gas Corporation (ONGC). The probe, which began after identical price quotes were submitted in a 2018 cement tender, suggests that multiple companies may have coordinated bids for more than a decade. The findings highlight concerns over cartelisation and competition practices in public procurement contracts.

Suspicious Bids Trigger Investigation

India’s competition regulator, the Competition Commission of India (CCI), has found evidence of cement manufacturers engaging in a bidding conspiracy in the bidding processes of the Oil and Natural Gas Corporation (ONGC). The case was triggered by the Oil and Natural Gas Corporation’s observations of similar pricing by competing firms in the bidding processes for oil well cement.

As per a report by Reuters, the case was first flagged in the bidding process for the supply of 170,000 tonnes of cement in 2018, when several firms quoted the exact price of Rs 7,000 per tonne of cement. The similar bids by the firms were seen as suspicious and not the result of independent pricing. When questioned by the ONGC, India Cements justified their bid by stating that the prices were in line with global market trends and referred to the “numerology factor of 7” as the number is considered lucky.

Cartel Allegedly Operated for 12 Years

According to the Reuters report, the investigation carried out by the CCI revealed that the cartel allegedly operated for over a decade between 2007 and 2018. Some of the companies that have been identified in the cartel case include Dalmia Bharat through Dalmia Cement Bharat, Shree Digvijay Cement, and India Cements.

The report indicates that Dalmia Cement Bharat and Shree Digvijay Cement allegedly operated throughout the period of the cartel. India Cements allegedly joined the cartel in 2017 and 2018. The investigation involved substantial evidence from emails, messages, meetings, and documents from the companies. The documents allegedly revealed that the companies discussed the pricing strategy and the bids before submitting the bids in the ONGC tenders.

The investigation identified eight top officials allegedly involved in the cartel case. Some of the officials identified in the case include Y.H. Dalmia, the chairman of Dalmia Bharat, and N. Srinivasan, the former managing director of India Cements. According to the testimonies, the same pricing strategy was allegedly used to ensure that the orders and the income earned were almost equal.

Coordination in Pricing and Supply

The investigators have revealed that the companies allegedly coordinated in pricing and supply strategies before they made their bids. For example, the companies allegedly calculated the cost of logistics, including the rail freight distances from their plants to the ONGC delivery locations.

Based on these calculations, the companies allegedly divided the territories and the quantities they would supply, thereby eliminating competition in the bidding process. In fact, in some cases, the executives of the rival companies collaborated with each other while preparing their bids. For example, the report indicates that a senior executive from Shree Digvijay visited the office of the rival company in order to help them prepare their bid documents. The investigators have also revealed that the companies used Excel sheets and internal data comparisons in order to establish how they would share the orders.

Attempts to Block Foreign Competition

According to Reuters, the investigation also revealed that the companies had attempted to block foreign competition in ONGC tenders. The companies had raised concerns with the relevant authorities over the certification and compliance requirements of foreign companies bidding in ONGC tenders.

The foreign companies mentioned in the investigation are SLB, formerly known as Schlumberger, and other foreign companies that had participated in ONGC tenders. The cement companies had attempted to devise strategies to deter ONGC from giving contracts to foreign companies. For instance, the cement companies had attempted to restrict the supply of cement to ONGC with an aim to pressure ONGC not to give contracts to foreign companies bidding in ONGC tenders. If proven true, this could be a violation of competition laws in India.

The CCI has circulated the investigation report to the parties involved and requested them to respond accordingly, after which the final order will be issued. In case the parties are found guilty, the authority has the right to impose penalties of up to three times the profits earned by the parties or 10% of the parties’ respective turnovers for the years of infringement.

The case is a reflection of the authority’s growing emphasis on the issue of cartels and competition in public procurement in sectors associated with critical infrastructure and government-owned assets.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.

The post ONGC Tender: Did These 3 Cement Companies Form a Cartel to Rig the Tender? appeared first on Trade Brains.