Cylinder makers colluded to rig IOC tender, finds CCI probe
New Delhi   25-May-2011


RS Butola, IOC Chairman

State-run IndianOil (IOC) which seeks billions of dollars every year as oil subsidy, seems to be a victim of not only price controls, but also of unscrupulous elements which systematically rigged competitive bids invited by the fuel retailer.

The investigation wing of the Competition Commission of India (CCI) has found that 50 LPG cylinder manufacturers had colluded to rig the bids called by IOC for supply of 105 lakh cylinders in 2010-11. The anti-competitive practice, punishable if proven under the Competition Act, jacked up the procurement cost of India's largest commercial enterprise.

IOC procures empty LPG cylinders from private vendors through competitive bidding. These are then filled at the company's facilities before being despatched for retailing.

In its report, CCI's director general (DG) of investigation said that these manufacturers had quoted identical or near identical rates for supplying cylinders and engaged in territorial division of markets across the country .The DG has recommended penalty on these manufacturers under Section 27 of the Competition Act. The full bench of the Commission will now take a final view on the matter. The CCI probe, however, has not found any wrongdoing by IOC.

IOC could not comment on the issue and sought more time to respond to a questionnaire from FE.

Those who collude in bid rigging share information to avoid undercutting one another and quote prices in such a way that each of them are assured of some part of the market.

The probe found that 50 out of the total 63 manufacturers who had submitted bids were old bidders and had colluded on the final rates. The detailed report has examined various processes of tendering, technical and financial evaluation, analysis of bid data and conduct of manufacturers during tendering.

"The investigation clearly suggests that there was definitely a meeting of minds and sharing of information on bid rates," said a person privy to the development. The CCI took up the probe suo moto and directed its DG to conduct a thorough investigation, the source said. The source said CCI would soon deliberate on the findings and pass the final order after giving a hearing to the parties involved.

"Rigging almost always results in economic harm to the agency seeking the bids and to the public, which bears the costs as taxpayers or consumers," the source said.

The DG also unearthed similar patterns among bidders for various states. What further intrigued the investigators was the similarity in bid rates despite factories and offices of these manufacturers being located in different places." In normal cases, cylinder manufacturers would have different rates depending on their location," said the source. A supplier in Himachal Pradesh would supply at a different rate to the North East than one in Karnataka owing to higher transport costs. Here, the parties involved have quoted identical rates despite being located far from each other.

For instance, Rs. 1,240 was quoted for the North East and rates of Rs. 1,151, Rs. 1,127 and Rs. 1,100 were quoted collectively for Kerala, Tamil Nadu and Maharashtra respectively. In almost all states, the bidders quoted identical rates collectively in a group and also bagged the contract together. The only exception was Andaman and Nicobar Islands.

The CCI investigators collected statements from the 50 bidders but failed to get a satisfactory explanation of the identical rates. Some answers were vague while others attributed it to coincidence, while there were no comments to other questions.

"Despite the difference in cost inputs, identical bid rates have been quoted by them. In the absence of any logical explanation, it can be safely concluded that some collusion has taken place among the bidders to manipulate the bid," the investigation report says. Investigators established the `meeting of minds' by the colluding suppliers, by referring to a conference of LPG cylinder makers held a day before the last date of submission of bids.