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CADE fines cement cartel in BLR 3.1 billion

Cartel

The Council also determined the divestment of plants, and prohibition of carrying operations in the cement and concrete sector until 2019.
published: May 29, 2014 02:50 PM last modified: Apr 12, 2016 01:34 PM

The Administrative Council for Economic Defense – CADE condemned unanimously the so-called cement cartel, on 28 May (Administrative Proceeding no. 08012.011142/2006-79). The fines applied to six companies, six individuals, and three associations totalize BLR 3.1 billion. The Council also determined the divestment of plants, and prohibition of carrying operations in the cement and concrete sector until 2019.

The Commissioner Márcio de Oliveira Júnior, in his review vote, estimated the damages caused to several public constructions by cement’s price practiced by the cartel. “The cartel conduct ceased on the day the dawn raid was carried out, but its effects last until today, since there were no changes in the structure of the cement market”, he stated. 

The duplication of BR-101 Northeast highway, for example, may have had an overpricing higher than BRL 11 million, while the south and east sections of Rodoanel, in the state of São Paulo, may have cost additional BRL 7 million from the public coffers. Oliveira Júnior mentioned these constructions due to the existing evidence that the cartel members expressly agreed to operate in them.

The harmful effects of the cement cartel have also been highlighted in the vote of the Reporting Commissioner, Alessandro Octaviani, presented in January. Octaviani pointed out that the infringement caused, in 20 years, damages of at least BRL 28 million to the society.

The cartel – The Reporting Commissioner explained that the cartel acted in the Brazilian cement and concrete market by fixing prices and sales quantity, and by sharing regionally the market and the allocation of customers between the cartel members. The companies, managers and class associations condemned also acted to prevent the entry of new competitors in these segments.

The body of evidence includes emails, notes and several documents seized during the dawn raid carried out in 2007 and gathers “clear evidence of the functioning cartel”, stated Octaviani.

For example, there are notes in which the colluded members distribute customers and sales quotas among themselves and a cartel’s “common understanding” document, describing rights and obligations of the members. In this document, “common objectives” are also mentioned and expressions like “prices: will be agreed among the parties throughout time, aiming at harmonizing the maximization of results and avoid the entrance of new players”, as well as “efforts to the total output of the other players of the region”, and “previous agreement of these parts and further acknowledgement of other parts”.

In the cement market, the collusion controlled yet the inputs sources needed to manufacturing the product. Thus, it prevented other competitors to access the raw material and compete in the market with the cartel members.

The cartel started to act in the concrete market especially by the acquisition of concrete plants that was done according an offset logic. This means that companies traded assets among themselves to maintain their previously agreed participation in the market by an illegal agreement.

To exclude the competitors of the market, the cartel worked to change the rules established by the Brazilian Association of Norms Techniques (ABNT).  By the new rules, companies that were not part of the cartel did not abide to the norms. The Reporting Commissioner took as example the norm NBR 12655, which stipulates minimum volumes and specific characteristics of the cement used to prepare concrete and prohibited the use of additives in its preparation, among other demands.

Thus, the cement companies that commanded the changes guaranteed comparative advantages in regards to the independent competitors to their concrete plants (integrated to the cement plants), and eliminated the possibility of a concrete plant to turn into a milling plant by using additives, and that it would also be capable of competing offering cement. Therefore, the number of competitors was reduced.

Assets divestment -  Due to the integration between cement and concrete plants, which was used as basis to the cartel functioning and to market closure, CADE imposed the divestment of cement and concrete plants aiming at reducing the entrance of new competitors barrier and encourage rivalry in the sectors.

This decision is based in the Competition Law that determines that the agency is able to impose such remedies when the seriousness of facts or the public interests demand.

The cement companies must divest completely any shareholding interest, minority or not, and eventual corporate crossings made by the cartel’s cement and concrete companies.

CADE also imposed the divestment of 20% of the concrete production capacity in the regions in which the condemned companies own more than one concrete plant. These assets can be sold conjointly or separately to any buyer that did not have any participation in the collusion.

The 20% proportion was defined according to a technical analysis and it is believed to be a minimum participation percentage to be owned by a competitor to enable effective rivalry in one market. This percentage is adopted in antitrust analysis carried by other countries authorities and also in cases judged by CADE.

All the divested assets and shareholding interests are confidential in order not to harm their social and economic value.

Furthermore, the condemned companies are prevented from carrying operations between themselves in projects in the cement sectors and to acquire any asset in the concrete market for five years.

The assets divestment obligation, as set forth by law, is a new remedy in cartel condemnations by CADE, and it was suggested as a penalty in the Reporting Commissioner’s vote. All the Commissioners that voted in the case agreed with the need to apply a structural measure. However, the divestment criteria that prevailed in the Council’s decision, by majority, was the one suggested by the Commissioner Márcio de Oliveira Júnior in his review vote.