CCI directs DG to investigate alleged unfair conditions by ONCC in its offshore service provider agreements*

On June 12, 2018, CCI passed an order under Section 26(1) of the Competition Act directing the DG to initiate an investigation into the alleged imposition of unfair and unreasonable terms of contract by the Oil and Natural Gas Company (‘ONGC’) in its charter hire agreements (‘CHAs’) for offshore support vessels (‘OSVs’).

The informant, the Indian National Shipowners’ Association, is an association of shipping companies which inter alia provides offshore oilfield services including OSVs.  ONGC is a Public Sector Undertaking (‘PSU’) of the Government of India.

The informant alleged that ONGC was the dominant enterprise in the market for hiring of OSVs in the Indian Exclusive Economic zone (‘EEZ’). It was alleged that ONGC, a vertically integrated PSU, hired the largest number of OSVs in the Indian EEZ i.e. 69 OSV’s out of 84 contractually committed/operational OSVs in India as on January 11, 2018, amounting to around 82% of the relevant market.  It was further alleged that ONGC had abused this position of dominance by imposing one sided and unreasonable terms of contract in its CHAs for OSVs, specifically, unilateral right of termination of contract, unilateral termination in case of force majeure, and appointment of arbitrators. It was alleged that ONGC used these clauses as a bargaining chip to demand a reduction in service charges by the members of the informant, and had invoked the unilateral termination clause to terminate service contracts of the several of the shipping companies.

CCI observed that to determine the relevant market and the dominance of ONGC within it, it was necessary to determine if the providers of OSVs could switch to alternate buyers/hirers of such services without much difficulty. CCI determined the relevant market to be the ‘market for charter hire of OSV’s in the Indian EEZ’, and given the number of OSVs hired by ONGC, held that it was prima facie dominant in this relevant market.

On the question of abuse, CCI opined that the unilateral right to terminate the contract was invoked by ONGC to pressurize the Informants into reducing the rates and was prima facie abuse of dominance. With respect to the force majeure and arbitration clauses, however, CCI observed there are sufficient safeguards to protect the interest of the informant, and thus they did not appear to be abusive. In light of above, CCI concluded that a prima facie case of abuse of dominant position within the meaning of Section 4(2)(a)(i) of the Competition Act had been made out against ONGC and directed an investigation by the DG.

*Case No. 1 of 2018.

Published In:Inter Alia Special Edition Competition Law September 2018 [ English
Date: September 13, 2018