Cartel claims rock the cement industry

08 May 2011

By Kathleen Barrington

It is almost a quarter of a century since Olivia O’Leary presented a Today Tonight documentary on RTE about the cement market. The programme highlighted how cement giant CRH had reacted to competition.

A long line of businessmen recounted how CRH had allegedly secretly photographed their operations to identify their customers; how it had sought to cut off their supplies of cement from abroad; and how it had even sought to engage in discussions about operating a cement cartel.

CRH admitted to some of the practices, but strenuously denied that it operated a cartel. One of the businessmen who featured in the documentary was Sean Quinn, who complained that CRH had leaned on his bankers in an alleged effort to thwart his attempts to enter the cement market.

Quinn subsequently became a billionaire through his successes in the cement, construction and insurance markets, before losing control of his businesses over the last year due to having billions of euro worth of unpaid debts.

The documentary was broadcast in 1987, a time when the building industry was also under considerable pressure. The businessmen complained the effect of CRH’s alleged practices was to keep the cost of cement in the Republic higher than in Northern Ireland, though CRH defended itself against the allegations arguing that companies were dumping cement at below cost north of the border.

The Construction Industry Federation complained about certain practices prevalent at the time, including a condition that local authorities could only use Irish-certified cement, which the federation described as a ploy enabling CRH to preserve its monopolistic position.

The businessmen said prices in the Republic were about 25 per cent higher than in the North, which resulted in higher construction and housing costs in the Republic, even though the economy was on its knees.

Some of the restrictive practices about which the businessmen complained have since been discontinued, partly under pressure from the European Commission.

But, watching a copy of the 1987 documentary last week, I was struck by the fact that the allegations that CRH continues to abuse a dominant position in the Irish market haven’t gone away.

Earlier this year, Goode Concrete managing director Peter Goode failed in his attempt to secure a High Court injunction restraining CRH and Kilsaran Group from selling concrete at what he claimed was below cost.

Goode alleged that CRH and Kilsaran had lowered their prices to a point where they had recently been submitting bids of €52 per cubic metre - and, in some cases, €50 - for concrete.

Goode said his own costs during 2010 amounted to approximately €65 per cubic metre, and that it was difficult to see how his competitors’ costs could be materially lower. He also alleged that Kilsaran was secretly controlled by CRH.

CRH and Kilsaran strenuously denied the allegations. Mr Justice John Cooke noted that Goode’s case placed reliance on the transcript of one conversation which director Barry Goode said he had on April 27, 2010 with a director of Kilsaran which, ‘‘while rich in expletives, is said to corroborate the proposition that Kilsaran intended to eliminate the plaintiff from the market by reducing prices to uneconomic levels.’’

The judge noted that the defendants categorically denied the allegations. He refused to grant the injunction for a number of reasons, including lack of adequate proof that any commercial loss suffered by Goode could not be adequately compensated by an award of damages at the trial.

Goode said that his company, which once employed 200 people, had ceased trading since February this year.

He plans to continue his case in the High Court, but claims that his efforts are being hampered because CRH and Kilsaran are seeking security of costs in the amount of €1.5 million, which he doesn’t have.

Now Goode has written to Taoiseach Enda Kenny, highlighting what he claims are anti-competitive practices in the cement and concrete market.

He said that his father had started in business in 1969 and had been in the concrete business since 1977, and that since that time had been subjected to anticompetitive behaviour by the dominant firm in the market, CRH.

In the letter, Goode asked Kenny to ensure that the state complies with EU competition law.

He also noted that the EU and the IMF, which have bailed out the country, attached significant weight to the importance of competition in driving down the costs of doing business.

The Goode allegations of anticompetitive practices have yet to be tested in a court of law. But the fact that the allegations are being made at a time when the EU and IMF are effectively running the country could mean there is a greater-than-usual chance that the Irish authorities might separately investigate the issue of alleged cartels in the cement sector, given the importance that the EU and IMF attach to competition policy.

The operations of Irish cement producers have been investigated by some foreign competition authorities. Two years ago, CRH was fined €25 million by Poland’s competition watchdog. CRH has appealed the decision.

Separately, the Quinn Group and CRH were among five companies found to have been operating a price-fixing agreement in the Northern Ireland market between 1985 and 1992. The European Commission also fined CRH in the mid-1990s for being part of a European price-fixing cartel.

If the Irish Competition Authority were to mount a successful case against CRH, it could result in a fine of up to 10 per cent of the company’s €17 billion turnover.

That’s €1.7 billion which could come in very handy for a government that is strapped for cash, not to mention the possibility that busting a cartel - if one existed - would reduce the cost both to the taxpayer and the private sector of construction projects in the future. Is this a risk that shareholders in CRH need to consider?