Presentation on competition issues relating to bio diesel policy

1. COMPETITION & BIO
DIESEL POLICY

2. BACKGROUND
• The complainant i.e. Royal Energy Ltd : the
manufacturers of bio diesel, an environment
friendly renewable fuel in Maharashtra.
• made from oils derived from plants like Palm,
Neem and Jatropha etc.
• Since it does not contain hydro carbon, it is
neither covered under Petroleum Act nor part of
the Essential Commodities Act.

3. FACTS
• Started manufacturing bio-diesel which according to him is
substitute for diesel in Maharashtra.
• Ministry directed the oil companies to purchase the bio diesel at
the price of Rs.25 per liter and stated that the above price
would be revised every 6 months
• After operation of the bio diesel plant when they approached
the oil companies requesting them to purchase the bio diesel in
2006, they informed that the declared price of bio diesel is
Rs.26.5 per liter and oil companies would purchase only at the
specified price of Rs.26.5 per liter whereas the complainant’s
manufacturing cost of bio diesel was Rs.30 per liter
• The factor which affected the cost was increase in vegetable
price since 2005 when the policy was formed

4. Facts continued:
• Major clients:
- Indian Railways
- BEST
- INS SHIVAJI
- Kirloskar
- Essar Steels
- Tirupati Industries
- Indian Biodiesel Association
- Relcon Infra Products
- Hindustan M-1 SWACO Ltd
- Adventures Chemicals Industries
- Abhimanyu Chemicals Ltd.
- Radhe Enterprise

5. FACTS Continued
• Since selling of bio diesel to oil companies was not found
profitable to the complainant, he started his own retail
outlet selling fuel directly to the consumer at a price of
Rs.32 per liter i.e. Rs.3 less than the price of the oil
companies for diesel.
• After a passage of 4-5 months operation of outlet, the oil
companies approached the Ministry to stop all bio diesel
plants and trade of bio diesel.
• The Ministry took out a circular in March, 2009 directing all
Chief Secretaries that since under clause 3(5) of the Motor
Spirit and High Speed Diesel (Regulation of Supply,
Distribution and Prevention of Malpractices) Order 2005
does not permit selling of fuel for transportation without
having marketing rights in terms of aforesaid Act, bio
diesel being marketed by unauthorized firms in the
States must be curbed i.e. illegal marketing of bio
diesel in the State must be stopped

6. • The complainant had approached the
Ministry of Consumer Affairs earlier for
providing the license under the Essential
Commodities Act for the sale of bio diesel
fuel. The Ministry of Consumer Affairs,
Food & Public Distribution held that there
is no provision for granting permit or
exemption from selling the blended bio
diesel/ diesel and issue of license by the
Department of Consumer Affairs.

7. • Similarly, Collector and Magistrate
Office, Raigad has informed the
complainant in response to the
complainant’s application seeking
permission for storage and selling of bio
diesel that bio diesel is not included in
the Essential Commodities Act and
Petroleum Act, 1934 and thus does not
require any permission for storage and
selling of bio diesel.

8. High Speed Diesel (Regulation of Supply,
Distribution and Prevention of Malpractices) Order
2005
• Order issued u/s 3 of Essential Commodities
Act,1955(Power to control production, supply,
distribution etc. of essential commodities)
• No person shall sell or agree to sell any petroleum
product or its mixture other than motor spirit or high
speed diesel or any other fuel authorized by the
Central Government in any form, under any name,
brand or nomenclature, which can be and is meant to
be used as fuel in any type of automobile vehicles
fitted with spark ignition engines or compression
ignition engines.

9. Bio diesel purchase policy
• Ministry of Petroleum, 2005
• Bio diesel: No sulphur, arromatic and environment
friendly fuel.
• Prepared from feed stock oil and fat.
• Proposal to launch National mission on bio diesel
involving blending of bio diesel in diesel
• Bio diesel purchase policy
-Creation of purchase centre
-Registration of manufacturer valid for one year.
- Standardisation of BD
- Oil marketing company to buy at a uniform price fixed
for 6 months to be revised subsequently.

10. • The complainant has highlighted that the oil companies
being in dominant position are abusing their dominant
position and avoiding competition as bio diesel
manufactured by the complainant has less market price
as compared to the price given by the oil companies thus
creating an entry barrier through Government
regulations.
• In the present case, under the Essential Commodities Act,
the Government has made an order under clause 3(v) which
is reproduced below:
• “No person shall or agree to sell petroleum product or its
mixture other than Motor spirit or High Speed Diesel, as
specified in schedule I, in any form, under any name, brand
or nomenclature, which can be and is meant to be used as
fuel in Spark Ignition Engines or Compression Ignition
Engines.”

11. COMPETITION PERSPECTIVE
• It is, thus, revealed that the Government policy is
resulting in denial of market access to the seller
of bio diesel under Section 4.1 read with 4(2)(c)
of the Competition Act, 2002 which reads as
under:
• “Abuse of dominant position:
• Section 4.2: There shall be an abuse of
dominant position (under sub-section(1), if an
enterprise or a group)
• (c) indulges in practice or practices
resulting in denial of market access (in any
manner).”

12. • Relevant product market: Fuel?
• Relevant geographic market: Maharashtra
• Competition assessment :
- Limits ability of supplier to market goods
- Sets procedure to the advantage of some producers
- Price fixing: Commercial function of Government?
- Administrative order not a policy decision if the quantum of price is
fixed.
- Regulations resulting in barrier having the effect of promoting oil
producing companies on the grounds of Essential Commodities Act
where the Preamble states that in the interest of general public,
production, supply and distribution of, and trade of commerce can
be controlled by the government.
- Margin squeeze:
- Enterprise means a department of Government who is engaged in
any activity relating to production, supply, distribution either directly
or through one or more of its unit or Division or subsidiary.

13. Public Sector Undertakings
• Balmer Lawrie & Co. Ltd.
• Bharat Petroleum Corporation Ltd.
• Biecco Lawrie Co. Ltd.
• Bongaigaon Refinery and Petro-Chemicals Ltd.
• Chennai Petroleum Corporation Limited
• Cochin Refineries Ltd.
• Engineers India Ltd.
• Gas Authority of India Ltd.
• Hindustan Petroleum Corporation Ltd.
• IBP Co. Ltd.
• Indian Oil Corporation Ltd.
• Numaligarh Refinery Ltd.
• Oil India Ltd
• Oil & Natural Gas Corporation Ltd

14. • It is suggested that we may request the
Ministry of Petroleum and Natural Gas to
justify/clarify the allegations made by the
complainant within the parameters of the
above Section of Competition Act. A letter
may be written to the Secretary, Ministry
of Petroleum and Natural Gas for their
view on the issue.