A Tale of Two Cartels
Making cement is the least glamourous business to be in, with the possible exception of making manure, or fertilizer if you wish to call it that. But this unsexiest of the businesses gives you a chance of perfecting the art of running a cartel. And Narayanaswami Srinivasan has so far successfully deployed the lessons learnt in running his family enterprise India Cements in the cricket arena.
Richard Whish, a professor of Law at London’s King’s College, and a leading antitrust expert once remarked: “The first thing for any new competition regulator is to go out and find the cement cartel. Because my experience of this subject is, it is always there, somewhere. The only countries in which I had been unable to find the cement cartel is where there is a national state-owned monopoly for cement.”
Not surprisingly, the Competition Commission of India (CCI) in 2012 imposed a whopping Rs 6037-crore penalty on the country’s 11 big cement manufacturers including Srinivasan’s India Cements. In addition, the industry’s lobby outfit Cement Manufacturers Association (CMA) was fined Rs 72 lakh. This was the biggest ever penalty imposed by the CCI since inception in 2008. The companies were found violating the provisions of the Competition Act, 2002 which deals with anti-competitive agreements, including cartels. On May 17, 2013, the Competition Appellate Tribunal asked the cartel to pay up Rs 630 crores, or roughly 10 per cent of the penalty within a month. The matter comes up for a final hearing in August.
The charge against the cement companies is that they deliberately, and in concert, run their factories at sub-optimal capacity utilization levels in order to keep cement supply dear. This act would force consumers to pay more, and increase profits for the companies.
India Cements’ capacity utilisation levels declined to 77% and 72% in March 2010 and Mar 2011 respectively, from being at 103% in Mar 2008. Srinivasan defends that by pointing to an economy in the doldrums which has flattened demand. “I only produce what I can sell, and I think that is good management,” he told the Hindu in an interview earlier this year.
Crossholding, or a firm holding a substantial equity stake in a rival, in the cement industry is rampant. The Swiss cement maker Holcim has controlling stakes in two large Indian firms ACC and Ambuja Cement. Srinivasan’s India Cement’s had shares worth Rs 95.32 crore in YS Jagan Reddy-promoted Bharathi Cement which it sold in 2010-11. In fact, Srinivasan’s questionable financial relationship with the late YS Rajashekar Reddy family is well documented. India Cement still has equity shares in two Reddy family firms Jagathi Publications (worth Rs 40 crore) and Carmel Asia Holdings (Rs 5 crore). According to India Cements’ 2011 annual report, the company held shares worth Rs 46 lakh in another Jagan Reddy firm Pullivendula Polymers.
Its next year’s annual report has no mention of Pullivendula shares or proceeds from its divestment. Srinivasan was questioned by the CBI last year during its probe into Jagan Reddy’s financial misdemeanours. CBI DIG H. Venkatesh reportedly said in his status report to Supreme Court: “India Cements made illegal quid pro quo investments to the tune of Rs 140 crore into the group companies of Y.S. Jagan Mohan Reddy and had received several benefits in the form of permission granted for utilisation of additional quantity of water from Kagna and Krishna rivers and lease of land.”
A CCI research paper pointed out that such crossholdings increases suspicion of collusive behaviour between firms.
The involvement of cement makers such as Ambuja and Ultratech has noticeably gone up in cricket during Srinivasan’s BCCI reign. At a time when the demand is so poor that companies are running at 60-70 per cent of their capacity, how come there is a boom in cement advertising in cricket? At an Indian cricket stadium turn anywhere and you’ll either encounter an Ambuja sight screen or an Ultratech boundary sponge. Is this Srinivasan’s way of keeping fellow constituents of the cement cartel happy? This is merely anecdotal. However, the chances of establishing a quid pro quo are pretty slim.
BCCI’s books are not open for scrutiny and therefore it is difficult to ascertain whether the cement advertisers paid full price or were generously accommodated. In several interviews, including one to me in 2008 during the course of research for my book ‘Cricket and Commerce: IPL An inside Story’, Srinivasan made no bones about using the Chennai Super Kings purely as a means to further his business interests. Being known as the ‘Dhoni wala’ cement would give India Cements instant recognition in north Indian markets where it was foraying. That clear sightedness compared to the attitude of several other IPL franchisees who had little idea of what to do with a cricket venture, seemed admirable. How can we be sure Srinivasan would put the interests of BCCI and Indian cricket above his business?
Not unlike the cement industry, Indian cricket is a cartel and conflict of interest issues abound. The two major political parties are well represented. There’s very little of the political acrimony you find in Parliament. In fact, it’s a model of bi-partisan co-operation. The BCCI Santa Claus distributes gifts to everyone who is well behaved.
Arun Jaitley, the leader of opposition in Rajya Sabha heads the Delhi and Districts Cricket Association. His party, the BJP called for Rajiv Shukla’s resignation when the minister of state of Parliamentary affairs directed the speaker to adjourn Rajya Sabha proceedings during the Coalgate debate. But Jaitley and Shukla present a united front when it comes to the affairs of BCCI. Anurag Thakur is the Himachal cricket bossman while Rahul Gandhi’s chief statistician CP Joshi controls Rajasthan cricket. Narendra Modi is the president of Gujarat Cricket Association while Farooq Abdullah develops his own non-conventional sources of power thanks to J&K CA. Chattisgarh CM Raman Singh’s reward in an election year, for being in the good books of those who matter in BJP and BCCI was two IPL matches in Raipur. You can only assume that St Nick will visit Jyotiraditya Scindia (MP cricket chief) sometime very soon.
That Srinivasan helmed such cartel so well for so many years is a tribute to his acumen. Not for a minute did he bother about conflict of interest questions. It was all going swimmingly well for him until the trail of spot-fixing reached his son-in-law Gurunath Meiyappan’s doorstep. For a man of Meiyappan’s antecedents and means, winning a few crores in spot-fixing deals ought to have been chump change. Did he think he could get away with murder because he was married to the daughter of the most powerful man in Indian cricket?
Like the cement business, BCCI’s politics too follows a cyclical pattern. A few years ago talking about the palace coup against Lalit Modi, Gideon Haigh, the greatest living cricket writer, told me in an interview that Modi obviously outran the degree of political cover Pawar and Bindra could provide, and left himself exposed. “Modi had gone out a long way on a limb – it was only a matter of time before someone sawed it off behind him. Voltaire said that the English used to execute one of their admirals occasionally ‘to encourage the others’; the BCCI obviously has a similar attitude…”
It’s hubris that eventually causes the downfall of those who seem invincible.
Views expressed by the author are personal. He tweets as @trvivek