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Oil regulator dismisses charges of cartelisation by oil PSUs

Last Updated: Thursday, July 5, 2012 - 20:30

New Delhi: Oil regulator PNGRB has dismissed private fuel retailers Reliance Industries, Shell and Essar Oil's allegations of "cartelisation and predatory pricing" by PSU oil firms in pricing petrol and diesel below cost saying market pricing of fuel would jeopardise consumer interest.

Petroleum and Natural Gas Regulatory Board (PNGRB) in its July 2 order imposed a cost of Rs 100,000 on the three private fuel retailers who filed a complaint against Indian Oil, Bharat Petroleum and Hindustan Petroleum for indulging in "restrictive and unfair trade practices and cartelisation".

"It is our view that if fostering competition by allowing prices to rise to levels of import parity as prayed for by the complainants will, instead of promoting consumer interests, actually jeopardise it," a two-member bench of PNGRB said.

While the government had freed petrol and diesel price from its control from April 2002, the fuel have not been priced at their imported cost since May 2004 as international oil rates rose.

Price was once again decontrolled in June 2010 but rarely did its price move in tandem with cost. Diesel on the other hand continued to be subsidised with current retail rates about Rs 10 a litre lower than its cost.

"The mandate of the Board is to protect consumer interest by promoting competitive markets... Consumer interest will not be served by mandating that domestic prices should be benchmarked to import party," PNGRB said.

Observing that the government subsidies to state retailers for selling fuel below cost had resulted in loss of market share for private firms, the Board, however, said allegations of restrictive trade practice, cartelisation, collusion and monopolistic behaviour had no basis.

"Even if a monopolistic situation has emerged as an unintended consequence, in order to establish monopolistic behaviours through collusion, cartelisation, predatory pricing etc, the complainants will have to establish that the respondents raised fuel prices beyond what a competitive market would have allowed," PNGRB order said.

It said that to establish that IOC, BPCL and HPCL engaged in anti-competitive behaviour, the pecuniary advantage accruing from such action will have to be established. "That has not been done."

Stating that there was no merit in contentions that state-owned oil firms indulged in monopolistic or anti- competitive behaviour, PNGRB said, "any anti-competitive outcomes that have emerged as a result of the pricing policies of PSU oil marketing companies are not their own making, but have been in unintended consequence of pricing policies thrust upon them by the government".

PNGRB said predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market or create barriers to entry for potential new competitors. The predatory merchant then becomes a de facto monopoly and makes abnormal profits by raising prices.

"Not only have PSU oil marketing companies not raised prices, but they have been repeatedly and consistently making under-recoveries and from time to time, even cash losses that threaten their viability. The charge of predatory pricing therefore can be deemed baseless," it said.


First Published: Thursday, July 5, 2012 - 20:30
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