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TMI Blog2019 (12) TMI 1689X X X X Extracts X X X X X X X X Extracts X X X X ..... tava and Mr. Ankit Yadav, Advocates for VPT JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. In both the appeals as common order dated 11th July, 2018 passed by the 'Competition Commission of India' (hereinafter referred to as the 'Commission' for short) is under challenge, they were heard together and disposed of by this common judgment. 2. The brief facts of the case are that the information under Section 19(1)(a) of the Competition Act, 2002 (hereinafter referred to as the 'Act') was filed by the Respondent (Informant) - 'East India Petroleum Pvt. Ltd.' ('EIPL' for short) against 'South Asia LPG Company Pvt. Ltd.' ('SALPG', for short - Appellant in one of the appeals herein'), alleging, inter-alia, contravention of the provisions of Sections 3 and 4 of the Act. 3. The case concerned access to terminalling infrastructure operated by 'SALPG' at Visakhapatnam Port. Pursuant to the order dated 30th December, 2011 under Section 26(1) of the Act, the Commission directed the Director General ('DG', for short) to cause an investigation into the matter. After a detailed investigation, the DG submitted his Investigation Report before the Commission on 30th November, 2012. 4. During the inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -examination of the witnesses whose statements were recorded during investigation. The Commission granted the request and referred the matter back to the DG under Section 26(7) of the Act for conducting cross-examination. 7. The aforesaid order of the Commission for cross-examination of the witnesses under Section 27(7) of the Act was challenged before the High Court of Delhi which was dismissed and reached finality. 8. After completion of the cross-examination, the DG submitted the Supplementary Investigation Report on 30th March, 2015, which was forwarded to the parties for filing their replies/objections. 9. The Commission after hearing 'EIPL' (Informant) and 'SALPG' (Appellant herein) on 13th January, 2016 sought for further information from the parties, 'Oil Marketing Companies' (OMCs), 'Indian Oil Corporation Limited (IOCL), 'Bharat Petroleum Corporation Limited' (BPCL), 'Hindustan Petroleum Corporation Limited' (HPCL)' and 'Visakhapatnam Port Trust' on terminalling infrastructure, safety aspects, relevant market, feasibility of tap- in and tap-out and bypass of cavern and pricing of terminalling services. 'EIPL' (Informant) and 'SALPG' (Appellant herein) filed their respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat they can effectively compete in provision of terminalling services. Accordingly, the Commission orders the following remedies, which are considered necessary and proportionate to address the harm to competition flowing from the impugned abuses. 62. Effective access to the terminalling infrastructure should be granted immediately by any or all of the following options: (a) SALPG shall not insist mandatory use of its cavern and shall allow bypass of cavern for both pre-mixed and blended LPG, without any restrictions; and/or (b) SALPG shall allow access to its competitors, potential as well as existing, to the terminalling infrastructure at Visakhapatnam Port, subject to compliance with all safety integrity and other requirements under applicable laws and regulations framed thereunder. Such an access should avoid additional cost burden on SALPG, and the entity seeking access shall bear the cost, if any, towards necessary changes to the existing infrastructure. Under this option also, SALPG shall not insist on mandatory use of cavern and it shall allow bypass of cavern, without any restriction. SALPG shall extend full cooperation for the study/audit undertaken by VPT in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ass, they had to pay additional sum of Rs. 1340/- to 'SALPG' to avail the services of 'EIPL'. Thus, it was not economic sense for the 'Oil Manufacturing Companies' to avail the services from the 'EIPL' (Informant) and it was alleged that due to such abuse of dominance by 'SALPG', the 'EIPL' were almost out of business on account of such restrictions. 15. The 'EIPL' first proposed to use the blender of 'SALPG' and thereafter, take the output directly to 'HPCL' cross-country pipeline, bypassing the cavern. This was not agreeable to 'SALPG' which allowed bypass of cavern to the extent of 25% only to VLGC imports. As an alternate, the 'EIPL' proposed to install its own blender, for which it wanted a tap-out and tap-in from the ''Propane'' and ''Butane'' lines to discharge with blended LPG bypassing the cavern. By way of such arrangement 'EIPL' proposed to tap-out from ''Propane'' and ''Butane'' lines to take gases for mixing in its blender and, thereafter discharge the blended output back into the 'SALPG' pipelines through a tap-in. It was also not acceptable to 'SALPG'. In this background 'EIPL' had to offer another revised proposal seeking tap-out from the ''Propane'' and ''Butane'' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rated so that there is no chance of any accident. 18. Because of the state-of-the-art instrumentation, control and safety systems of the Cavern, various benefits have accrued to the OMCs. The pipeline from the ship to the Cavern can take gases at an unloading rate of up to 1,000 MT/hour as against the 'HPCL pipeline' which can take gases at an unloading rate of 200 to 250 MT/hour from the ships directly (when the Cavern is bypassed). The Cavern helped the OMCs to bring in large cargoes of ''Propane'' and ''Butane'' separately through very large gas carriers (VLGCs) which could be unloaded into the Cavern very quickly leading to substantial savings to them. 19. From 2010 onwards, the prices of ''Propane'' drastically fell. It was economical for the OMCs to import ''Propane'' and ''Butane'' separately and to mix it using the Appellant's facility to make LPG for further supply to its customers, the OMCs. 20. Sometime prior to 2010, 'IOCL' and 'BPCL' requested the Appellant for pumping 'pre-mixed LPG' and ''Butane'' directly into the HPCL pipeline bypassing the Cavern so that such 'pre-mixed LPG'/''Butane'' could be transported through tank trucks to reach end consumers. Such tank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he VLGCs into the Cavern happens, thus, resulting in huge demurrage costs to the OMCs because of ships being berthed for a longer time at the Vizag Port. 24. Learned counsel appearing on behalf of the Appellant also submitted that the Commission adjudicated on highly technical issues by directing the Appellant to provide the bypass of the Cavern for blended LPG on the presumption that it is safe to do so without admittedly having the technical expertise to do so. This is evident from a bare reading of Section 8 of the Act which sets out the qualifications of the members of the Commission. Further, the Commission failed to invoke -(i) Section 17 of the Act which allows it to engage technical experts having special knowledge and experience, if required for discharge of its functions; or (ii) Section 26(7) of the Act which allows the Commission to conduct further inquiry. The Commission should have sought technical views instead of adjudicating on highly technical issues itself without having the technical expertise to do so in the first place. 25. It was further submitted that the relevant geographical market is not the Vizag Port as it was demonstrated by OMC's planning chart that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act, the OMCs exert significant countervailing buying power on the Appellant which negates the purported dominance of the Appellant and therefore, the Appellant is not dominant even at the Vizag Port. As the Appellant is not dominant, the question of abuse does not arise. 28. Alternate submissions was also made that without prejudice to the above, even if the Appellant is assumed to be dominant, the denial of the use of bypass facility (i.e. piecemeal usage of the SALPG facility) does not amount to abuse of dominance for the following reasons: a. The bypass facility would result in direct pumping of the blended LPG into the HPCL pipeline and the said HPCL pipeline is not technically rated to transport the said blend as the technical requirement of receiving the said blend would require the HPCL pipeline to withstand (-)45 degree temperature (being the temperature at which an accidental supply of ''Propane'' could go through the HPCL pipeline) whereas the 'HPCL pipeline' is only rated to take LPG at +10 degree to + 40 degree and hence, there was no question of abuse of dominance. Moreover, the Appellant has never denied access to its facility in entirety and has in fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independent facilities catering to the needs of the three OMCs. 29. It was further contended that the Appellant's facility is not 'essential' in competition law parlance and therefore, the Appellant is not obliged to share its facility. One of the pre-requisites of essential facility doctrine is that it can be replicated at a reasonable time and cost. The Respondent has itself admitted that it is possible to replicate the unloading arms and pipeline at a cost of Rs. 20 Crores. When compared with an investment of Rs. 333 Crores which the Appellant made in its facility, an amount of Rs. 20 Crores is insignificant. Further, the Appellant took approx. 4 years to Commission a complicated facility like Cavern, the Respondent could have very well replicated a comparatively easier infrastructure in less than 4 years when it has admittedly received the requisite permissions and is in the process of laying their pipeline. It is also pertinent to highlight that the Respondent filed the complaint with the Commission in 2011 i.e. 8 years ago. In this much time, the Respondent could have replicated the facility twice over. Thus, the above clearly shows that the Respondent is seeking to free- ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any such action shall effectively dismantle the system in place and defeat the whole purpose of safety for which the whole facility has been put in place. 32. According to the learned counsel the impugned order violates principles of natural justice inasmuch as, neither HPCL was heard or issued notice to, by the Competition Commission, nor was it made a party to these proceedings, though the 'HPCL Pipeline' and 'SALPG', LPG import facility are owned and operated by 'HPCL' & 'SALPG', respectively. The issue at hand includes and affects the 'HPCL' pipeline which is owned and operated by this Appellant. It was submitted that merely seeking information and asking to fill out questionnaires from the Appellant during investigation cannot be termed as a sufficient opportunity to be heard. Therefore, it is submitted that the Commission has failed to implead 'HPCL', as a necessary party in the instant matter, despite being aware of issues relating to safety of 'HPCL pipeline' owned and operated by the Appellant. It is settled law that the fundamental right of a citizen guaranteed under Article 19 (1)(g) is not absolute and no person has a fundamental right to insist upon the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope of its jurisdiction, ignoring the security and safety aspect, enjoined with hazardous substances, such as LPG. 37. Ordinarily, ''Propane'' and ''Butane'' are imported separately in ships, being more cost effective with ''Butane'' and ''Propane'' being stored at -2 0 C to -5 °C and -45°C, respectively. Normally, during discharge ''Propane'' is pre-heated in the ship using the ship heater before being pumped out up to a temperature of (+) 5 0C, while ''Butane'' is pumped out without heating. 38. It is submitted that ''Propane'' is far more hazardous and volatile gas than ''Butane'', and hence imported at around -45 °C. Any leakage of 'Propane' produces intense localized chilling effect, resulting in low temperature embrittlement of a pipeline leading to its breakage and explosion. 39. With regard to the design and so far as pipeline are concerned, the learned counsel for the Appellant contended that as per Engineers India Limited, the designer of the HPCL cross-country pipeline and the HPCL Operative Manual, the recommended operating temperature of the HPCL cross-country pipeline is +10 °C to +40 °C, although the fault temperature or the minimum design ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly 'Liquefied Petroleum Gas' (LPG) receipt pipeline system facility connected to the LPG berth. HPCL-SALPG have set up the LPG-receipt facility on land leased from VPT. In fact VPT does not, in-principle, allow setting up of independent unloading facilities and insists that the single set of unloading arms be shared by all storage services providers at the port. The same is done by VPT for two reasons (1) The LPG Jetty can only accommodate one ship at a time; (2) Repositioning of the ship for multiple set of unloading arms is highly inefficient as it wastes significant amount of valuable time for each repositioning exercise. In this context, our attention was drawn towards the response of VPT dated 12 January 2017 to the Commission as quoted hereunder: "VPT has directed SALPG to give a tap out. As this has not been complied with for a long time by SALPG and they are not doing so and since EIPL was informing that they are out of business and the OMCs pointed out that business of the Port was also being affected, recently permissions have been given to EIPL to set up a second set of unloading arms. However, it is more efficient for both terminals (SALPG and EIPL) to operate throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -lessee, SALPG) to share its pipeline system with other users on reasonable terms as recommended by VPT (lessor). That the said arrangement was the very premise on which the lease was granted to HPCL. ANALYSIS OF FACTS IN LAW 50. The key objection of SALPG and HPCL is that the structural changes to its infrastructure may affect the safety integrity levels. Allowing the request made by EIPL may result into accidental release of refrigerated cargo into HPCL's pumps and cross-country pipeline leading to disastrous consequences. 51. The Commission deliberated the issue in detail and held that bypass restriction imposed by SALPG is primarily for commercial interest and the restrictions amounts to denial of market access. 52. The Vizag Port belongs to 'VPT'. 'VPT' allowed long term lease to HPCL for setting up of its infrastructure at the outer harbour of the 'Visakhapatnam Port'. The SALPG is a sub-lessee. As per Clause 24 the HPCL and its sub- lessee SALPG is required to share its pipeline system with other users on reasonable terms as recommended by 'VPT' (Lessor). 53. In furtherance of the above, when VPT gave the permission/lease to HPCL to setup the subject facility at the ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and explosion. It grants approval after satisfaction of criteria relating to, inter-alia, safety aspects, as prescribed under the aforementioned statutes. Pursuant to the aforesaid application of EIPL, PESO vide letter dated 5th August 2010 observed that the drawing showing EIPL's proposed blender facility at the Visakhapatnam port met the approval of PESO and the same was returned with duly endorsed token of approval subject to several conditions stipulated therein. These included demonstrations of safe operating procedures and emergency response measures, undertaking from VPT regarding responsibility on firefighting arrangements and a clear consent letter from the owners of the 'Propane' and 'Butane' pipelines authorising tap off for the purpose of using the proposed LPG blender. 58. Subsequently, the detailed statement and feasibility report submitted by 'EIPL', 'PESO', inter-alia, further directed 'EIPL' to give intimation 'once the facilities are fully ready along with detailed Site/Layout and P & I Diagram of entire area to arrange its inspection to consider granting permission for commissioning. 59. The Commission noticed that the 'PESO' had not found fault with the design ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of tap out from the jetty and the purported objections to tap out appears to be an afterthought. The terminalling infrastructure developed by 'SALPG' is purportedly a state-of-the art facility with an automated failsafe mechanism to address safety and emergency situations. For the said reason, the Commission rightly observed that under such circumstances, general objection to tap-in and tap-out, without specifics regards the potential safety outbreaks being demonstrated, is considered vague and sans merit. 66. Learned counsel for the 'SALPG' and 'HPCL' given much stressed on temperature of 'Propane' and 'Butane'. Their main contention was that when 'Propane' and 'Butane' used to be unloaded from the ship there was no difficulty because of temperature used to be about (-) 5 degree. According to them, since the supply of 'Propane' and 'Butane' are now met separately, at different temperature that is 'Propane' at (-) 45 degree C and 'Butane' at (-) 5 degree C, in absence of proper mechanism of bring it down it may affect the pipeline and therefore, now after blending it required to be sent through 'cavern'. For proper appreciation, parties have filed the 'Process Flow Diagram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms and then moves to EIPL LPG Blender through SALPG Jetty pipeline. Then it moves to the SALPG blender and at this stage mixed temperature is typically (+)5 degree centigrade and above and thereafter, it further goes to the heat exchanger where it adds (+)22 degree centigrade and some of it goes directly both to SALPG 'cavern' and 'bypass', in the SALPG cavern design temperature is (+)2 degree centigrade whereas mixed product temperature goes directly through(+)5 degree centigrade. On bare perusal of the 'Process Flow Diagram', which is produced by the parties and accepted by all, it is clear that the 'Propane', the LPG vessels is (-)45 degree centigrade, after unloading of arm going through on board heater and blenders, the temperature do not go below such position, to accept the stand taken by the 'SALPG' or 'HPCL' that will affect the safety integrity level and will not meet the relevant requirement and may cause accidental release of refrigerated cargo into HPCL's pumps. 70. The Commission consists of 'expert body' and has taken into consideration other expert's report including the stand taken by the representative of the SALPG in its meeting held on 8th November, 2010 who in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the witness of the 'IOCL' in the cross-examination by EIPL, which reveals that the efficiency at the Visakhapatnam Port shall increase if Informant - EIPL is allowed to compete with SALPG. The continued reluctance of SALPG to provide a hook up or bypass is not the result of 'cavern' being under-utilised but that of erosion of monopolistic profits. 77. As regards 'VGLC imports', the 'cavern in itself is not responsible for facilitating VGLC imports at 'Visakhapatnam Port' as the port jetty has been designed and built to berth VLGCs. The witness of VPT in his cross- examination by SALPG also confirmed the aforesaid fact. The ports at Ennore, Haldia and Kandla have storage capacities of 30,000 MT, 30,000 MT and 15,000 MT respectively, which is much below the cavern of SALPG. Yet, they import LPG through VLGCs. The Oil Manufacturing companies (OMC including the Indian Oil company etc. ) is free to decide whether to avail the services of EIPL and SALPG. Therefore, it is rightly contended on behalf of the Informant (EIPL) that SALPG cannot dictate to have the mix product through its 'cavern'. 78. The Commission rightly held that protection of commercial interest by a dominant enterpr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53,318 5,91,480 7,08,912 5,90,675 19,44,385 Propane BPCL 15,600 78,590 1,24,687 1,07,071 3,25,948 HPCL 13,600 2,52,482 2,86,909 2,84,253 8,37,244 IOCL 19,152 1,89,729 2,21,851 1,46,190 5,76,922 C. Total 48,352 5,20,801 6,33,447 5,37,514 17,40,114 Grand Total (A+B+C) 10,28,183 10,22,726 11,04, 149 10,48,640 11,12,281 13,42,359 11,28,189 77,86,527 Source: Response dated 12ª January, 2017 Table : data regarding, No. of days, the LPG jetty was occupied by vessels carrying LPG/Propane/Butane during 2010-16 on year- wise basis: YEAR (Total no. of Days Occupied) Salled On 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Total Jan 12.66 12.65 7.23 13.69 5.68 12.14 64.05 Feb 11.14 12.51 10.64 8.73 12.94 9.92 65.88 Mar 9.81 8.61 6.99 10.88 10.00 9.44 55.73 Apr 8.61 11.33 14.96 11.96 11.57 8.69 11.39 78.50 May 11.05 12.21 9.45 8.78 9.78 10.29 11.37 72.94 &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calculations of VPT, in the year 2017-18 alone, VPT has suffered estimated revenue loss of approximately Re. 41 crores on account non - optimum usage of the LPG berth. 82. However, we are not inclined to give any finding as to loss, if any, suffered by VPT or manufacturing companies though it is open to the Informant (EIPL) to claim loss as claimed. 83. We, therefore, hold that bypass restriction imposed by SALPG is primary with a view to protect its commercial interest at a cost competition and the plea taken before the Commission was an after-thought. The Commission rightly held that 'SALPG' requiring users to necessarily use the cavern and pay higher charges is an unfair imposition in provision of terminalling services; and is likely to discourage imports and restrict the services otherwise offered by the Informant. The impugned restriction on bypass of the cavern facility are in contravention of Section 4(1) read with Section 4(2)(a)(i), Section 4(2)(a)(ii) and Section 4(2)(b)(i) of the Act. The bypass restrictions restricted the business of 'EIPL' was unreasonable which denied the Informant market access, in contravention of Section 4(2)(c) of the Act. 84. As we have hear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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