The case on the violation by OJSC «EVROCEMENT Group» of the antimonopoly legislation

1. In the second quarter of 2005 the Federal Antimonopoly Service of the Russian Federation (FAS Russia) received a number of appeals from the authorities of the executive power of the Subjects of the Russian Federation, economic entities, economic associations, public organizations concerning the significant increase of prices for cement in May, 2005. All the appeals contained the information that the prices for cement that was set by the OJSC «EVROCEMENT Group» in May, 2005 exceed the prices existed in April, 2005 by 50-70%. The appeals requested to consider the actions of the OJSC «EVROCEMENT Group» for pursuance to antimonopoly legislation.



FAS Russia has analyzed the data on the condition of the competition environment in cement market and acknowledged it to be sufficient for initiation of a case on the signs of violation by OJSC «EVROCEMENT Group» of the Article 5 of the Law «On Competition…» in the part of setting monopoly high prices.



2. In order to reveal the fact of the setting of the monopoly high price the FAS Russia, in accordance with the Order of the holding of analysis and evaluation of the condition of competition environment that had been adopted by MAP Russia Decree of December 20, 1996 № 169 (hereinafter - the Decree № 169), has conducted the analysis and evaluation of the competition environment in the cement market.



In the result of the analysis it was revealed that the product market boarders are the cement market as a whole, in this market the cement brands are interchangeable for consumers. The geographic market borders are administrative borders of Central, North-West, Privolzhskij, South and Ural federal districts.



The end consumers of cement are: plants that produce prefabricated ferroconcrete elements and commodities, commercial concrete, construction mortars, asbestos-concrete elements, house-building centers, construction organizations and population.



The sellers in the market of cement are: plants-producers of cement and sellers-mediators. The wholesale market of cement was considered within the frameworks of this case.



I. The largest group of persons consists of the OJSC «EVROCEMENT Group» and 13 cement plants directly controlled by the Company. Other participants of the market control from 1 to 3 enterprises.



Total capacity of 13 plants which belong to the OJSC «EVROCEMENT Group» constitutes to 28,2 mln. tons. So, the OJSC «EVROCEMENT Group» possesses 40,75 of the acting capacities on production of cement in the Russian Federation.



The share of the OJSC «EVROCEMENT Group» in the market in the fixed borders constituted to 55% in 2004. This allows to recognize its position in the market as dominant.



In accordance with Article 4 of the Law «On Competition…» the dominant position of the OJSC «EVROCEMENT Group» is based on the following facts:



1) The market share of the OJSC «EVROCEMENT Group» is rather large in compare with its major competitors: 13 plants that are included into the structure of the OJSC «EVROCEMENT Group» had the share 55% in 2004. At the same time, the closest competitor possesses only 8% of the market.



2) Gross share in the market of the cement plants which are included into the group of persons of the OJSC «EVROCEMENT Group» as well as relative size of shares that belong to competitors are characterized by the stability.



3) The possibility of the access to the market by possible competitors is limited by high entry barriers.



4) As a result of the dominant position of the OJSC «EVROCEMENT Group» the cement market of 5 federal districts has moved from the condition of the middle concentration to the condition of high concentration. The Gerfindal-Girshman Index (HHI, the sum of squares of market shares) was less than 1500 in 2004, in 2005 it constituted to 3300.



5) The OJSC «EVROCEMENT Group» doesn't have any competitors that are equal to it by the coverage of the cement realization territory. Loading of cement is carried out in the places where cement plants are situated and they are situated in the whole European part of the Russian Federation. The realization of cement is carried out through the developed branch network which allows to replace the supply of cement from one plant by supplies from other plants.



6) The OJSC «EVROCEMENT Group» had a key influence upon the conditions of the commodity circulation by increasing prices by 50-70% from May 1. The major part of its competitors increased the prices by 10-30% in May. Only in June, when the key influence of the OJSC «EVROCEMENT Group» on the market became evident, the majority of cement plant increased prices till the level of the OJSC «EVROCEMENT Group». Thus, the OJSC «EVROCEMENT Group» played the role of the price leader that is possible only in presence of the dominant position.



II. In order to prove the abuse of dominant position by OJSC «EVROCEMENT Group» the analysis of its production costs was conducted. It showed that increase of prices by 50-70% in May 2005 was not caused by the increase of the cement prime costs. The growth of basic cost in 2005 was lower significantly. In compare with 2004 the costs of the production of cement by the OJSC «EVROCEMENT Group» increased less than by 30% and prices - nearly by 65%.



According to the definition of the monopoly high price, that is given in the Article 4 of the Law «On Competition…», it is necessary to compare actual prices of the OJSC «EVROCEMENT Group» with the prices that exist or could exist in the same conditions or in the conditions of competition. These conditions have been existed during recent six years because the competition among a number of relatively large enterprises was in the market.



The price rise, which could exist in competition conditions, would correspond to the average during 2000 - 2005 increase of price for cement in the second quarter. Besides, the OJSC «EVROCEMENT Group» should have compensated the decrease of prices for its own commodity in the forth quarter of 2004 - first quarter of 2005.



Thus, the OJSC «EVROCEMENT Group» has violated point 1 of the Article 5 of the Law «On Competition…» by setting the monopoly high prices for cement from May 1, 2005 that was the damage for the interests of the cement consumers.



In the result of the violation of the antimonopoly legislation the OJSC «EVROCEMENT Group» has received the income that in accordance with the Article 12 of the Law «On Competition…» is the subject for transfer to federal budget. The income, received by the OJSC»EVROCEMENT Group» in the result of the violation of the antimonopoly legislation, is calculated as an additional earnings received in consequence of exceeding of actual price over the price that could exist in competition conditions from every sold ton of cement starting from May 1, 2005. The volume of the declared income for May - September 2005 is:



Income = 4,9*(-96)+3,5*312+6,7*193 = 1914,7 mln. rubles



The FAS Russia' Commission on the consideration of the case on violation of the antimonopoly legislation has decided:


1. To recognize the OJSC «EVROCEMENT Group» as the infringer of the point 1 of the Article 5 of the Law «On Competition…» in the part of setting the monopoly high price for cement.



2. To issue to the OJSC «EVROCEMENT Group» the prescription on the elimination of the violations of the antimonopoly legislation.



3. The corresponding divisions of FAS Russia have to consider the opportunity of compulsory division of the OJSC «EVROCEMENT Group» in accordance with the provisions of Article 19 of the Law «On Competition…».



The OJSC «EVROCEMENT Group» applied to Arbitrage Court with the petition on nullifying the FAS Russia' Decision and Prescription. On January 10, 2006 the Arbitrage Court of Moscow leaves in force FAS Russia' Decision and Prescription with respect to OJSC «EVROCEMENT Group». But on April 7, 2006 the 9th Arbitrage Court of Appeal declared invalid these Decision and Prescription.



On June 30, 2006 the Agreement on settlement between FAS Russia and the OJSC «EVROCEMENT Group» was reached. At present this Agreement on settlement is being approved by the Federal Arbitrage Court of the Moscow Region.