India Markets open in 3 hrs 5 mins

CCI rejects abuse of dominant position charge against ONGC

1 / 1

CCI rejects abuse of dominant position charge against ONGC

The Competition Commission of India (CCI) has rejected a complaint against the Oil and Natural Gas Corporation (ONGC) which alleged abuse of its dominant position concerning regarding certain contractual rules for employing offshore support vessels.

The fair trade regulator had in June 2018 ordered an investigation against ONGC after prima-facie finding that the oil major had violated competition rules. The Indian National Shipowners' Association (INSA) which is the representative body of various ship owners had filed the complaint.

To support its offshore exploration and production activities, ONGC requires offshore support vessels (OSV). In this regard, it issues tenders for OSV suppliers with detailed technical eligibility requirements and special contract conditions (SCC), among others, collectively referred to as CHA.

INSA had complained about the Charter Hire Agreement (CHA) of ONGC which had a particular clause that gave unilateral right to the state-owned firm to terminate the agreement. The said clause was one-sided and abusive in nature, INSA alleged.

Also Read: Moody's affirms Baa1 rating to ONGC with stable outlook on better oil prices

By terminating the agreement unilaterally, ONGC violated Section 4 of the Competition Act which pertains to abuse of dominant position in the relevant market, INSA alleged.

For the case, CCI considered "market for charter hire of OSVs in the Indian EEZ (Exclusive Economic Zone)" as the relevant one and found that ONGC was dominant in it.

The prevailing circumstances also need to be taken into consideration to establish whether the firm abused its dominant position or not, CCI said.

Also Read: Govt identifies ONGC, NTPC, GAIL as options for giving up direct control

It is an undisputed fact that the crude oil prices started falling drastically from mid-2014, from over $100 per barrel to under $30 per barrel by January 2016, which affected oil companies worldwide, including ONGC, the fair trade regulator said.

With drastic fall in oil prices, ONGC in April 2016 issued de-hiring notice to 27 vessels by invoking the unilateral termination clause.

Regarding invoking of the clause, CCI said that there was an objective necessity to bring down the costs in new market circumstances and the termination was driven solely by this necessity and obligation.

Besides, the clause was invoked by ONGC in an exceptional situation which was not an ordinary change of circumstance, it added.

Also Read: Maruti Suzuki's resale price maintenance under scanner, CCI orders probe

The clause "which gives unilateral right of termination without assigning any reasons to ONGC, in itself is not found abusive given the disproportionate risk that ONGC has to bear in case of such termination by the OSV, especially when the Commission has found, in the given facts and circumstances, that the invocation of such clause was not in bad-faith", CCI said in an order dated Aug 2.

The regulator further said that had it been found that ONGC invoked the clause frequently in order to make illegitimate gains at the expense of the other contracting party, the Commission may have had the occasion to look at this case differently.

No such situation seems to exist in the present case, it added.

Accordingly, the "Commission is of the considered view that in the present case the conduct of ONGC does not tantamount to an abuse of dominant position within the meaning of Section 4 of the Act", CCI said and directed the case to be closed.

(With inputs from PTI.)