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. Last Updated: 07/27/2016

Watchdog Raps Cement Maker

EurocementEurocement risks being broken up by the state if it does not lower prices.
Russia's largest cement maker Eurocement risks being broken up by the anti-monopoly authority if it refuses to lower prices, a Federal Anti-Monopoly Service official said Wednesday.

Eurocement has violated competition law by raising prices without approval, the agency's deputy chief Andrei Tsyganov said.

Eurocement said the service's claims were unwarranted.

The service's statement comes just months after Eurocement's acquisition of cement companies from Inteko, owned by Moscow Mayor Yury Luzhkov's wife, Yelena Baturina.

"On average Eurocement prices have risen by 60 percent," Tsyganov said by telephone.

The increased prices, introduced after Eurocement's purchase of Inteko's assets, have resulted in a stream of complaints from construction companies, Tsyganov said. The service approved the deal with Inteko earlier this year.

"When we approved the acquisition deal, there was a requirement to coordinate the price rise with us, which was not done. It is blatant violation of the anti-monopoly legislation," he said.

At the time of the takeover, the service estimated Eurocement's share of the Russian cement market at 35 percent.

Now, the service estimates the company's market share is as high as 55 percent in five out of seven federal districts where the firm is active.

The company could be broken up if it does not lower its prices to a fair level by Nov. 1 and pass on the profits derived from the increased price level to the federal budget, the service said.

The service said it would decide what was considered fair next week.

Eurocement is ready to dispute the decision in court, said company spokesman Sergei Meshcheryakov.

"In May, we increased our prices by 20 percent on last year," Me-shcheryakov said. "The 60 percent figure is fabrication."

Eurocement argues the high level of cement prices is partly caused by the payments made to mediatory traders operating in the construction industry.

Citing state statistics from earlier this year, Meshcheryakov said for every 1,650 rubles spent on a ton of cement around 400 rubles went straight into the pockets of one of the middlemen.

Eurocement's efforts earlier this year to reach agreements with construction companies that bypass middlemen's surcharges came to very little, with only one construction company agreeing to its proposed terms.

Eurocement argues that action by the anti-monopoly service could be detrimental to the entire industry, forcing the company to cut its $560 million investment program.

The service's actions could also lead to a shortage of cement, possibly derailing a government program aimed at making affordable housing available, Eurocement said.

Under that program, cement output is expected to reach 90 million tons per year by 2010.

"If the agency's decision is implemented, the industry won't be able to meet those numbers," Meshcheryakov said.

The industry is expected to produce 50 million tons of cement this year.

Russia has 2.8 billion square meters of housing.

With 4.5 million families on the waiting list for social housing, the current housing shortfall is estimated at 1.5 billion square meters.