TaxTMI 
TaxTMI 
2019 (12) TMI 1689
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....a Petroleum Pvt. Ltd. Mr. Anshuman Srivastava 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 ....
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.... meantime, 'EIPL' (Informant) filed an application for cross-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. '....
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....a meaningful access to the terminalling infrastructure at Vishakhapatnam Port, so that 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, wit....
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....g Rs. 200/- to 'SALPG' as bypass charges and Rs. 105/- for use of 'HPCL' - cross-country pipeline, but without bypass, 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'.....
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.... it is imperative that any pipeline which has the likelihood of getting ''Propane'' at low temperature should be 'Propane' 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 bypassin....
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....ive for the OMCs as the unloading rate is 200 to 250MT/hour as against the unloading rate of up to 1,000 MT/hour when unloading from the 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....
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....es are negotiated with the OMCs and are approved by the Ministry of Finance for the purposes of deciding subsidy. In fact, since the last 10 years, the Appellant has not received the full payment for providing its services to the OMCs. As per Section 19(4)(i) 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'' ....
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....risks involved in handling hazardous gases, terminal operators at other ports have end to end facilities for handling LPG. For example, (i) at the Mangalore port, HPCL and Total have established separate independent facilities at the same LPG jetty and (ii) at the Haldia port, there are 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....
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....ted that the piece meal access is contrary to the terms of the Lease, and that 'SALPG' Facility and the 'HPCL Pipeline' have to be used conjointly. Further, 'EIPL' has sought to either, (i) bypass the 'SALPG' Cavern, or (ii) Puncture the unloading arms of 'SALPG' at the jetty. It is submitted that 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 ....
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....ellant the Commission has directed 'SALPG' not to insist mandatory use of its Cavern facility and to allow bypass of Cavern. With respect, it is submitted that, while considering the complaint filed by the Respondent on the issue of dominance and abuse thereof, the Commission has issued certain directions, which are beyond the 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 a....
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....se reads as under: "(24) That the Lessee or the sub-lessee shall share the Cavern Facility-pipeline system with other users, on reasonable terms, as recommended by the Lessor." 43. There is only one berth in Vishakhapatnam Port where LPG can be handled. This berth has been constructed and paid for by Vishakhapatnam Port Trust (VPT). Only '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 f....
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....lated and has not complianced the long term lease dated 6th December, 2003 pursuant to which they are running business. It was submitted that HPCL has been granted a long term lease dated 6th December, 2003 for setting up its infrastructure at the outer harbour of the Vizag Port. The said lease came with an obligation under Clause 24 which required HPCL (or its sub-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 it....
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.... but to use the SALPG's, cavern which is impermissible. 57. EIPL had sought approval of the 'Petroleum and Explosives Safety Organisation' (PESO) for setting up of LPG blender in 2010. PESO administers Explosives Act, 1884, Petroleum Act, 1934 and Inflammable Substances Act, 1952 and the authority responsible for ensuring safety and security of public and property from fire 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, th....
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....om the unloading arms to the Informant but objected to tap in back into the pipeline system. VPT, in its meeting held on 16th March, 2013, also required 'SALPG' to provide tap off. 'VPT' again issued a letter dated 6th April, 2015 to SALPG to provide a tap off. Later on, 'SALPG' vide letter dated 10th June, 2015 refused to provide even tap out. 65. The Commission while noticed observed that the possibility 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 ....
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....)5 degree centigrade. The 'Butane' with (-)5 degree centigrade, after going through heater it is sent through 'Butane' with approximately (-) 3 degree centigrade, which used to be the temperature of the pre-mixed product. Both 'Propane' through 'propane arm' at approximately (+)5 degree centigrade and the 'Butane' through 'butane arm' at approximately (-)3 degree centigrade are unloaded in the existing SALPG arms 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 accep....
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....d by SALPG, the Oil Marketing Companies (OMCs) have estimated to have loss of around Rs. 325 Crores. The cavern has only one receptacle and it is not possible to route different 'Propane' and 'Butane' mixes through the 'cavern' at the same time. On the other hand, EIL's storage capacity as three storage spheres and it is possible to route LPG of different mixes through these spheres. 76. The aforesaid fact was confirmed by 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 c....
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....3,056 IOCL 3,62,045 3,11,190 3,72,965 3,15,642 13,61,842 SHV ENE. 17,320 17,320 A. Total 10,28,183 10,22,726 11,04,149 9,46,970 41,02,028 Butane BPCL 25,468 97,270 1,47,857 1,29,684 4,00,279 HPCL 4,400 2,78,528 3,13,196 2,99,244 8,95,098 IOCL 23,450 2,15,952 2,47,859 1,61,747 6,49,008 B. Total 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) ....
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....ncement of LPG import operations. One such importer- SHV Energy Pvt. Ltd.- has vide its letter dated 06.10.2018 requested the VPT to revive its business operations through the Vishakhapatnam Port. b. Further, even IOCL has vide its letter dated 25.10.2018 stressed upon the usage of EIPL terminal inasmuch as the utilisation of the same is almost nil and the same results in OMCs incurring higher terminalling charges which are payable to SALPG. (ii) Revenue losses suffered by VPT a. VPT being the port trust is entitled to 'Vessel Management Charges' (VMC) from the OMCs for its services rendered for the management of vessels at the port. It is submitted that the estimated revenue of VPT for a 30000 GRT vessel with a parcel of 24000IS is Rs. 170 per tonne. As duly noted by the Commission in para 54.37 of the impugned order, only 34% - 45% of the total capacity of the LPG berth was utilized between 2010-11 and 2016-17. That the same eventually leads to a loss of several crores to the VPT. It may be mentioned here that as per the calculations of VPT, in the year 2017-18 alone, VPT has suffered estimated revenue loss of approximately Re. 41 crores on account non - optimum usag....