|Food for thought|
|Wednesday, 25 April 2012 00:18|
Price rigging in govt tenders suggests a lot of fat
Given the size of Food Corporation of India’s purchases of Aluminium Phosphide tablets, used for preserving food—R40 crore a year—it is certain the three firms accused of price collusion by the Competition Commission of India (CCI) will contest the size of the penalty. As against the R40 crore of annual purchases the CCI’s report talks of, the penalty levied on Aluminium Phosphide purchases between 2002 and 2011 is a whopping R318 crore, based on 9% of their average turnover for three years of R3,533 crore. All three firms—Excel Crop Care, Sandhya Organics Chemicals and United Phosphorous—have said the charges of collusion are incorrect and have in some cases said the CCI cannot investigate some of the older charges as they relate to a period when the operative parts of the CCI Act that allow such investigation had not been notified! In one case where the CCI has said representatives of all three firms came to the FCI office at the same time and even signed the register together, the firms say it is standard practice for the receptionist to keep people waiting if they are coming for the same purpose. All such points will be tested at the appellate tribunal where the case is headed, but CCI has shown enough tenders where, despite production costs and factory locations being different, the three firms quoted the same price.
Given that the CCI is handing out big penalties—R630 crore to DLF and R55 crore for NSE—this should be a wake-up call for errant promoters, more so since CCI seems to be doing a good job of investigation. Reuters reported Tuesday that cement stocks have fallen on fear the CCI which is investigating some cement companies for cartelisation could impose similar fines. From the larger point of view of government procurement, there may be a case for some suo motu CCI investigations in select areas.