CCI introduces Leniency “Plus” regime in India- Will it suffice?
The Competition Commission of India (‘CCI’) on a complaint filed by Mohan Meakin Ltd. has directed yet another investigation into alleged unfair market practices leading to abuse of dominant position by GAIL (India) Ltd. (‘GAIL’), vide its latest order dated 17.07.2017. This order is the third order in a series of recent orders in which complaints filed against GAIL have been referred by CCI for a detailed investigation by the Director General (‘DG’) under Section 26(1) of the Competition Act,2002 (the Act) .
Previously, the Competition Appellate Tribunal vide its order dated 28.11.2016, had also directed the DG to investigate similar allegations of abusive conduct against GAIL made by Gujarat Industries Power Company Limited.
The primary allegations made by the Informants (who are all counter parties to the Gas Supply Agreement (‘GSA’) executed with GAIL) pertain to the incorporation of unfair terms in the GSA and the imposition of “take or pay” liability. The allegations made against GAIL pertain to the market for supply and distribution of natural gas (RLNG) in the relevant geographical area.
It is observed that the GSAs are long term gas distribution agreements for 15/25 years executed with GAIL for the supply of RLNG (Re-gassified Liquid Natural Gas) which are bought by GAIL from RasGas (Qatar). Despite the fact that the contractual relationship between the parties in the majority of the cases filed before the CCI existed much prior to 2015, the Informants have approached the CCI alleging unfair/abusive conditions in the GSA only from 2015 onward.
Therefore, it appears that the primary grouse of the Informants against GAIL is the imposition of the “Take or Pay Liability”. In addition to the Take or Pay Clause, other covenants of the GSA like the “Make Good Gas” clause, “Restoration Quantity”, “Recovery Period Gas” etc have also been alleged to have been unfair. Additionally, some of the informants have also identified conduct which may be termed as abusive.
Comments
GAIL is one of the largest energy companies in India and is vertically integrated in the market for supply of natural gas in India i.e. production, transmission and distribution. By its own admission (Annual Report for the FY 14-15), it has 60% market share in the supply of natural gas in India.
Combined with facts such as regulatory barriers, high cost of investment etc. it is almost certain that GAIL will be held dominant in the relevant market under investigation. All that remains to be seen is whether GAIL would be able to justify its conduct with respect to the allegations. There is a possibility that the clauses included by GAIL in the GSA for supply of RLNG reflect the clauses contained in the upstream contracts GAIL has executed with its suppliers. If that is the case, GAIL might be able to justify some of allegations levelled against it as per the decision of the CCI dated 03.07.2014 in Faridabad Industries Association v. M/s Adani Gas Limited, Case No. 71 of 2012.
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