Namibian Competition Commission Conducts Dawn Raid in the Oil & Gas sector

namibiaBy AAT Senior Contributor, Michael-James Currie.

Dawn raids are gaining significant traction throughout the African agencies following the Namibian Competition Commission (NaCC) very recent (16 September 2016), raid conducted at the operations at Puma Energy in Windhoek. The raid follows the NaCC having received numerous third party complaints alleging that Puma Energy was abusing its dominance by engaging in excessive pricing practices in the aviation fuel supply market.

The NaCC had recently published Guidelines in relation to Restrictive Practices. The Guidelines focus primarily on the NaCC’s investigative powers and in particular, search and seizure operations. Africanantitrust suspected that the Guidelines would result in a move by the agency to be more proactive in its efforts to detect, prosecute and ultimately combat anti-competitive practices.

Africanantitrust had noted that search and seizure operations by competition law agencies across Africa were on the rise. The South African Competition Commission has drastically increased its utilisation of dawn raids as an investigative tool in its arsenal. The SACC has, furthermore, provided guidance and training to a number of other African jurisdictions respective agencies on search and seizure operations and how to conduct effective dawn raids under the auspices of the African Competition Forum.  Says John Oxenham, competition practitioner with Pr1merio: “2016 saw Kenya conduct its first dawn raid in the fertiliser sector as well as Zambia increasing the number of dawn raids conducted.”

The South African Competition Commission’s advocacy efforts should be considered in light of the number of recently concluded Memoranda of Understanding which the SACC has entered into with other regional agencies as well, including the NaCC.

In terms of the MoU with Namibia, it is envisaged that there will be greater cooperation in relation to information exchanges and assistance with common investigations between the NaCC and the SACC.

The NaCC is yet to prosecute an abuse of dominance case and we will ensure that Africanantrust continues to monitor this case and provide our followers with timeous updates should any significant further developments take place.

Administrative Penalties & Behavioural Remedies – Two Sides of the Same Coin?

By AAT Senior Contributor, Michael-James Currie.

In the wake of the dust settling around the recent settlement agreement reached between ArcelorMittal (AMSA) and the South African Competition Commission (SACC), it may be an opportune time to consider the appropriateness of behavioural penalties levied in respect of firms engaging in cartel conduct or abuse of dominance practices.

AAT Header squareIn terms of the AMSA settlement agreement, AMSA admitted to contravening the cartel provisions contained in the Competition Act and agreed to pay a R1.5 billion (in instalments of no less than R300 million per annum for five years) administrative penalty. In addition to the administrative penalty, AMSA also agreed to invest approximately R4,6 Million into the South African economy for the next 5 years (provided the prevailing economic conditions render such investment feasible) by way of CAPEX obligations.

Furthermore, a pricing remedy was imposed on AMSA in terms of which AMSA undertook not to generate earnings before interest and tax of more than 10% for the next five years (which could be amended on good cause shown, but was capped, in any event, at 15%).

The nature of the settlement terms as agreed to by AMSA is not, however, a novel feature in settlements before the South African Competition Authorities. In 2010, the Competition Commission settled its investigation in relation to Pioneer Foods’ activities in the maize and wheat milling, baking, poultry and eggs industries (the settlement came after the Competition Tribunal had already imposed a R197 million administrative penalty against Pioneer in respect of its participation in a bread cartel).

In terms of the settlement agreement, Pioneer undertook to:

  • pay R250 million as an administrative penalty to National Revenue Fund;
  • pay R250 million to create an Agro-processing Competitiveness Fund to be administered by the Industrial Development Corporation (IDC);
  • increase its capital expenditure by R150 million over and above its currently approved capital expenditure (capex) budget; and
  • cooperate with the Competition Commission in the ongoing investigations and prosecutions of the cases that are the subject of this settlement; and stopping anti-competitive conduct and implementing a competition compliance programme.

Furthermore, and more recently, the consent agreement with edible fats producer Sime Darby Hudson Knight (“Sime Darby”), is a further example of a consent order which included financial undertakings in addition to paying an administrative penalty.

In terms of this consent agreement, Sime Darby undertook to invest and establish a warehouse for the distribution of its products into territories which it had previously not distributed its products into, due to the market allocation agreement which formed the basis of the complaint. Sime Darby also committed to contributing to funding the entry of a BEE distributor.

What is evident from the above three examples is that over and above the administrative penalty which may be imposed on a respondent, the financial impact of the additional behavioural and public interest related conditions may substantially exceed the administrative penalty itself.

It is, therefore, an important factor for respondents who find themselves in settlement negotiations with the Competition Commission to consider alternative terms of settling a matter as opposed to merely focussing on the administrative penalty itself.

From an agency’s perspective, the costs associated with behavioural conditions must be carefully weighed up as they also tend to require ongoing, and occasionally extensive oversight by the authorities. Furthermore, it is important to ensure that behavioural remedies are not abused, both by the authorities and by respondents.

south_africaWhile settlement negotiations are inherently flexible, it is important that agencies ensure an objective and a transparent methodology in the manner in which they approach the quantification of a settlement agreement. This has certainty been strived for by the Competition Commission when it elected to publish Guidelines on the Determination of the Calculation of Administrative Penalties (Guidelines). The objectives of the Guidelines, may however, be undermined in light of the broader behavioural and public interest related conditions imposed in recent cases.

A clear and objective point of departure would be favourable for both the agency itself and the relevant respondent in being able to conclude settlement negotiation expeditiously.

A further important consideration, which is particularly highlighted in the AMSA settlement agreement, is whether the remedies provide for an adequate deterrent factor and/or address the relevant harm.

Importantly, in the AMSA matter, AMSA’s R4.6 million CAPEX expenditure investment was as a result of a complaint into alleged abuse of dominance. In terms of the settlement agreement, AMSA did not admit liability for having engaged in abuse of dominance practices.

In light of the fact that the Competition Commission generally requires an admission of liability before concluding a consent order, it is not clear to us, at this stage, why the Commission elected not to demand an admission of liability in relation to the abuse of dominance complaint.

It may be that the Commission did not wish to spend the significant resources in prosecuting an abuse of dominance case, or that the Commission took the view that any abuse of dominance finding would likely only be in respect of the general prohibition against exclusionary conduct, as per Section 8(c) of the Competition Act, which carries no administrative liability for a first time offence.

Accordingly, it may have been a strategic weighing up of the ‘costs versus likely penalty’ which shaped the Commission’s strategic decision.

Whether or not such a strategic decision is justified is not a particular focus of this article. What we do wish to highlight, however, is that absent an admission of liability, a third party who seeks to pursue follow-on damages will be precluded from bringing a civil damages claim against AMSA. This was confirmed by the Supreme Court of Appeal in the Premier Foods matter in 2015.

The Media 24 Case

Shifting our train of thought to another issue, although not unrelated, is the question as to what exactly constitutes an administrative penalty?

The question was raised, although ultimately not decided by the Competition Tribunal in the recent Media 24 predatory pricing case.

After having been found guilty by the Competition Tribunal, in 2015, for contravening section 8(c) of the Competition Act (for engaging in ‘predatory pricing’), a separate hearing was held to determine the appropriate sanction. As mentioned above, an administrative penalty is not permissible for a first time offence of section 8(c) of the Act.

At the hearing the Competition Commission had proposed, as one of its remedies that Media 24 undertake to establish a R10 million development fund to fund a new entrant into the market.

Media 24 objected to the proposed remedy and raised the argument that the remedy proposed by the Commission would effectively be an administrative penalty, which is not a permissible sanction in terms of the Competition Act.

The Competition Tribunal elected to evaluate the remedy from a practical perspective, finding that the proposed remedy would not be suitable or effective, but deliberately kept open the legal question as to whether or not a remedy which requires any financial commitment from the respondent would effectively amount to an administrative penalty.

The question is rather vexing and may require clarification in due course.

Assuming that the proposed remedy in the Media 24 case would indeed amount to an administrative penalty, the question would naturally arise whether a CAPEX undertaking, as was the case in the AMSA matter discussed above, would also be considered a form of an administrative penalty. If so, then due consideration should be had as to whether the aggregation of the ‘stated administrative penalty’ (i.e. the R1.5 billion in AMSA’s case) together with the behavioural remedies imposed in AMSA (a minimum of R4.6 billion), should be calculated for purposes of determining whether the statutory cap of 10% of a firm’s turnover has been exceeded.

Alternatively, if the Competition tribunal ultimately decides that the proposed remedy in Media 24 is not an administrative penalty as contemplated in terms of the Competition Act, then effectively, we may see an entire new paradigm in the manner in which firms are sanctioned for contravening the Competition Act. For instance, those provisions of the Competition Act which do not cater for an administrative penalty for a first time offence (i.e., certain vertical, horizontal and abuse of dominance practices), may in any event result in respondents paying substantial ‘penalties’ for contravening these provisions.

Furthermore, respondents may not be afforded the protection which the statutory cap places on administrative penalties. As noted above, a firm may be subjected to an administrative penalty which does not exceed 10% of its annual turnover, but the net effect of the respondent’s financial liability may indeed exceed the cap.

While we do not pronounce our views on this issue, suffice it to say that firms engaging with the Competition Authorities with a view of concluding a settlement agreement are entering into a ‘new world’ and there are a number of options, avenues and risks associated in ultimately negotiating a settlement.

Accordingly, the issues raised above may be particularly useful in the manner in which firms embark on their settlement strategies.

 

 

CCC Begins Conduct Enforcement & Activates Its Exemption Regime for Potentially Anti-Competitive Agreements

Parties Start Discussing Business Practices with COMESA’s CCC

As AAT reported recently — see “Growing Pains: From One-Trick Pony to Full-Fledged Enforcer?” — the COMESA Competition Commission (CCC) has begun to move from being a pure merger-control administrator to becoming a full-fledged antitrust enforcer.  The CCC issued a Notice calling on firms to notify the CCC of any agreements (both historic and forward-looking) that may be anti-competitive, for the purpose of having such agreements ‘authorised’ or ‘exempted’ under Article 20 of the COMESA Competition Regulations.  (More details on that regime are in our June article, referenced above.)

Eveready products (sample)

Eveready products (sample)

AAT has now learned that several companies have taken the agency up on its Exemption proposal: Andreas Stargard, a competition practitioner with Primerio Ltd. observes that the CCC’s announced “leniency ‘window’ to incentivise firms to come forward and obtain an exemption” has closed at this point in time, although he expressed doubt that the relatively short one-month period was sufficient and will likely be extended.  Says Stargard: “We are seeing several parties, both global & local companies, who are beginning to take the CCC’s non-merger enforcement seriously.  These undertakings are considering to obtain advance clearance of their business practices under the Commission’s Notice procedure.”  One such example, he adds, is Kenya’s financially embattled Eveready East Africa: it has reportedly sought CCC approval of its agreements with international manufacturers for the importation and distribution within the COMESA common market of their diverse products, ranging from batteries to fountain pens to CloroCOMESA old flag colorx-brand chemicals.  The Commission has invited “general public and stakeholders” for comments according to its formal statement.

In light of these developments, Stargard advises that:
“multi-national firms operating within COMESA or jointly with a COMESA-based importer or other domestic business partner should consider engaging counsel to evaluate their practices, and if they may fall within Article 16 of the Regulations, consider approaching the CCC for an authorisation letter.”

 

Drastic price increase could be sign of collusion or dominance: Dangote in Nigeria

Close-knit trade group and dominant cement manufacturer prove to be (price-)explosive combination

 Our friends at Songhai Advisory, a business intelligence firm covering key parts of Africa, have released a brief market-intel note addressing the 44% price hike of cement in Nigeria, led by the country’s (and indeed soon also the continent’s) dominant manufacturer, the Dangote group.

Any discussion of Nigeria — still Africa’s largest economy measured by GDP — in the competition-law context must begin with the surprising fact that the country’s political leadership still has failed to institute any antitrust regime.  Says Andreas Stargard, an attorney with Africa-focused Pr1merio law group:

“As the continent’s economic leader, Nigeria is a lone beacon of failure to police anti-competitive practices, whereas a multitude of significantly smaller African jurisdictions have had competition laws for years or even decades.  The recent price developments of Nigerian concrete are merely one example of the negative impact on consumers where there are no antitrust rules in effect.  Notably, an industry trade association also appears to be involved here, so from the competition point of view, we are dealing not only with one dominant entity (Dangote) but also an efficient and time-tested mechanism of information-sharing among direct competitors (trade groups).

 

The price increase covered the entire Nigerian cement market, according to Songhai and other media reports: cement prices of the members of the Cement Manufacturers Association of Nigeria (CMAN) rose over the course of a month by 44% from US$5 to $7 per 50kg.  Adds Stargard, “any competent antitrust enforcer would look into such a price hike.  Given the absence of competition law enforcement in Nigeria, it is likely that no investigation will take place, and civil suits are highly unlikely, in light of the lack of antitrust laws and the political connections at play here.”  In the words of Songhai’s reporting: “When Dangote decides to push its price up or down, others tend to follow.”  Yet, the researchers also quote a source at Sokoto Cement, one of Dangote’s main rivals, as describing power generation costs and foreign-exchange fluctuations as the actual drivers behind the drastic recent cement price increases.

 

 

COMESA sees slight uptick in merger notifications

Merger filings still dither, but YTD numbers now tentatively promise to exceed FY2015

Making sense of the COMESA Competition Commission’s merger notification site is no  easy undertaking.  The perplexing nature of its case-numbering system mirrors perhaps only the level of confusion surrounding the CCC’s original merger threshold and notification-fee guidelines (e.g., see here on that topic).

As we pointed out here, the merger statistics (as they had been released as of January 2016) for 2015 were disappointingly low.  In today’s post, please note that we are upgrading those numbers, however, to reflect additional material now made available on the official CCC web resource, reflecting 3 additional filings, bringing the year-end total for FY2015 to 18.  Three of those were “Phase 2” cases.  In addition, according to the CCC, there were 3 supplemental cases in which “Comfort Letters” were issued to the parties.

For year-to-date 2016 statistics, the numbers look analogous, albeit somewhat higher than the 2015 slump — that is to say, still diminished from the 2013-2014 height of COMESA ‘mergermania’, during which (mostly international) counsel took the confusion surrounding the CCC notification thresholds to heart and erred on the side of caution (and more fees), advising clients to notify rather than not to (65 in the 2 years), or to seek Comfort Letters, which also were issued in record numbers (19 total for the 2-year period)…   With that said, the agency is now up to 16 merger cases, with 2 Second-Phase matters on deck.

AAT 2016 September mergermania statistics

Number of merger notifications based on CCC-published notices (using educated inferences where the original CCC case numbers, dates and/or descriptions lack intelligibility; note that 2013-14 statistics only reflect actual filings made available online and not the official statistics issued by the CCC of 21 and 43, respectively)                                                                         (c) AfricanAntitrust.com

SOUTH AFRICA: RECORD-BREAKING FINE IMPOSED ON ARCELORMITTAL SOUTH AFRICA LIMITED

By AAT Senior Contributor, Michael-James Currie.

The Competition Commission and South African steel producer, ArcelorMittal South Africa Limited (ArcelorMittal), have agreed to settle six complaints against ArcelorMittal for R1.5 billion (approximately US$ 112 million), in what is the largest (agreed) administrative penalty imposed in South Africa.

The penalty (by consent order) represents just under 5% of ArcelorMittal total turnover (including chemicals) for 2015.

The allegations which were brought against ArcelorMittal included allegations of price fixing and market allocation in what was termed by the Competition Commission the “steel cartel”.

In terms of the settlement agreement, ArcelorMittal admitted to contravening section 4(1)(b) of the Competition Act and will pay not less than R300 million per annum for five years from 2017. Furthermore, ArcelorMittal has undertaken to invest approximately R4.6 million into the South African economy for the next 5 years (provided the prevailing economic conditions render such investment feasible). Interest will be charged on the outstanding amount, interest starting to run 17 months after the finalisation of the settlement agreement.

In addition to the cartel conduct, the Commission had also instituted a complaint alleging the dominant steel manufacturer had engaged in excessive pricing. Although ArcelorMittal did not admit to wrongdoing in relation to the abuse of dominance allegation, the parties nevertheless agree that ArcelorMittal would not generate earnings before interest and tax of over 10% for the next 5 years (subject to certain exceptions).

The Competition Commission’s press release states the following:

ArcelorMittal admits that it engaged in collusion with CISCO, Scaw and Cape Gate by fixing prices and discounts, allocating customers and sharing commercially sensitive information in the market for the manufacture of long steel products, in contravention of the Competition Act. ArcelorMittal also admits that it fixed the purchased price of scrap metal with Columbus Steel, Cape Gate and Scaw. In respect of the flat steel complaint and the Barnes Fencing complaints, ArcelorMittal admits the conduct as alleged by the Commission but does not admit that this conduct constituted a contravention of the Competition Act. In relation to the pricing complaint, ArcelorMittal does not admit that it acted in contravention of the Competition Act.

The investigation and settlement agreement follows a leniency application brought by another respondent, Scaw Metals.  There is little doubt that the Competition Commission’s corporate leniency policy has permitted the Commission to uncover and successfully prosecute a number of cartels.   As previously reported on AAT, the risk remains that the recent introduction of criminal liability (on directors or persons having management authority)  for engaging in cartel conduct, may dampen the use of the whistle-blower regime (absent any formal immunity from criminal prosecutions).

The settlement agreement does, however, bring finality to all six cases against ArcelorMittal.

In light of the very recent civil damages awarded in favour of Nationwide Airlines against South African Airways for abuse of dominance which led to loss of profits, it will be interesting to see whether any civil party elects to prosecute ArcelorMittal for the excessive pricing complaint. In terms of the South African Competition Act and a recent judgment by the Supreme Court of Appeal, it appears as if the door is closed on a civil litigant brining a civil damages claim against a respondent, based on a breach of the competition Act, if there has been no adverse finding made against such a respondent by the Competition Tribunal (or Competition Appeal Court) as per section 65 of the Competition Act.

The admission to having engaged in cartel conduct, may, however, expose ArcelorMittal to civil liability over and above the settlement agreement.

“The WRAP” — our monthly summary of antitrust developments across the continent

AAT Header square

Competition-Law Developments: a WRAP from the Comp-Corner

Issue 2 – August 2016

The editors and authors at AAT welcome you to the second edition of “The WRAP.”

We look at the most recent developments and updates in respect of competition law and enforcement which has taken place across the African continent in recent months.

As always, thank you for reading the WRAP, and remember to visit us at AAT for up-to-date competition-law news from the African continent.

         –Ed. (we wish to thank our contributors, especially Michael James Currie, for their support)

Billing the Billboard Bosses: Advertising trade association fixes prices, members pay fines

The Kenyan antitrust authority, CAK, recently closed its investigation into a classic price-fixing cartel involving the Outdoor Advertisers Association, resulting in a fine of Sh11.64 million (approx. $120,000) imposed on domestic advertising firms for fixing minimum prices of billboard space, reports the Kenya Gazette.  The affected companies include Magnate Ventures Limited (Sh5 million), A1 Outdoor Limited (Sh114,000), Live Ad Limited (Sh2.5 million) and Adsite Limited (Sh2.39 million), while four others had already settled with CAK previously (Consumer Link (Sh1.2 million), Look Media (Sh136,000), Firm Bridge Limited (Sh246,400) and Spellman Walkers Limited (Sh45,180)).  The remaining four trade association members will be fined forthwith.

kenyaNotes Andreas Stargard, a competition practitioner with Primerio Ltd., “[i]n this case — which really represents a classic minimum-price fixing arrangement among trade association members — the billboard owners agreed during a period of less than one year to set a minimum monthly price of Sh160,000 in large Kenyan markets, such as Nairobi.  Interestingly, they price-discriminated geographically within their cartel arrangement and fixed the corresponding fees in smaller markets at a slightly lower amount.”

The head of the CAK, Director-GeneralWang’ombe Kariuki, lamented that a trade group was being used to manipulate an otherwise competitive process of market forces yielding market prices, which he believed are approximately 20 to 25% lower than the fixed rates, based on post-investigation pricing.  Says Stargard:
“It is interesting to see that the CAK has  already followed up on this matter and has noticed an arguably direct empirical result, yielding a beneficial effect of a not insignificant price reduction in advertising costs in Nairobi.”

South African Taxi Industry: Who gets hurt the most?

By Senior AAT Correspondent, Michael-James Currie

Currently, the South African Competition Commission is investigating Uber in relation to alleged anti-competitive practices. The crux of the complaint against Uber, which was brought by the SA Taxi Meter Association, is that Uber has engaged in predatory pricing in contravention of the South African Competition Act.

This is not the first complaint Uber has faced before the competition agencies. The authorities in the US, Kenya and India have all investigated the company for anti-competitive practices.

The confrontation between metered taxis and Uber culminated in a number of violent protests this year, to the extent that Uber drivers were reluctant to pick-up or drop-off passengers near certain popular venues so as to avoid physical conflict with metered taxi drivers.

Without engaging fully on the merits of the complaint brought against Uber, there are a number of important hurdles which a complainant needs to overcome in order to successfully prosecute a case of predatory pricing (this is one of the listed grounds in the Competition Act relating to abuse of dominance).

The author has previously, and exclusively for Africanantitrust, published a paper which comprehensively evaluates the Media24 case, which is the most recent case of predatory pricing successfully prosecuted by the Competition Commission before the Competition Tribunal.  The paper clearly sets out the challenges in formulating a predatory pricing case against a respondent and adducing sufficient evidence to prove such a case.

Apart from having to prove that Uber is in fact dominant in a particular market (which may be challenging considering Uber does not own any vehicles), and that Uber’s pricing amounted to predation (i.e. proving that the respondent supplied its services below its marginal cost or average variable cost), the Competition Tribunal will also have to be satisfied that the conduct does not have efficiency or pro-competitive effects which outweigh any anti-competitive effects.

It is in respect of the last point which, at least at face value, appears to be a major hurdle in respect of Uber’s complainants. Uber’s rapid success, not only in South Africa but across a multitude of jurisdictions, is largely as a result of providing customers with a new innovative, cost effective service. It appears to be the very essence and objectives of competition which resulted in Uber’s success, to the detriment of metered taxis.

As, Primerio director, Andreas Stargard stated in a previous article on africanantitrust:

The pro-competitive notion of innovation-plus-price competition is perhaps best understood by looking at the views of two leading antitrust agencies, the FTC and the European Commission.   Both have articulated simple and sound arguments for striking the right balance between regulatory limits for the protection of passengers, as well as allowing innovative technologies to enhance the competitive landscape and thereby increasing transportation options for riders.  In antitrust law, more options usually equal better outcomes.

In particular, Stargard points to the following statement made by the FTC in relation to a similar complaint brought against Uber in U.S, some three years ago:

Competition and consumer protection naturally complement and mutually reinforce each other, to the benefit of consumers. Consumers benefit from market competition, which creates incentives for producers to be innovative and responsive to consumer preferences with respect to price, quality, and other product and service characteristics. As the U.S. Supreme Court has recognized, the benefits of competition go beyond lower prices: ‘The assumption that competition is the best method of allocating resources in a free market recognizes that all elements of a bargain – quality, service, safety, and durability – and not just the immediate cost, are favorably affected by the free opportunity to select among alternative offers.”

The net sum of the Uber analogy is that Uber is widely regarded as beneficial to consumers and until evidence comes to light which contradicts this, it is difficult to come to any other conclusion. John Oxenham notes that the Competition Commission of India, had this to say about the complaint against Uber:

the allegations made are opposed to the basic tenets of competition law.

“Inability of the existing players or new entrants to match the innovative technology or app developed by any player or the model created for operating in a particular industry cannot be said to be creating entry barriers in itself,”

While the South African Competition Commission has not yet pronounced on whether it will initiate a complaint against Uber, the complaint has brought into focus an industry which to date, has received very little attention from the competition authorities.

In this regard, we note that Mr David Lipton of the International Monetary Fund, recently stated that “Tariffs on poultry imports also came under fire because of their effect on poor consumers as did SA’s “taxi and bus cartels. This he said “prevented transport markets from competitiveness”. Mr Lipton highlighted the need for greater competitiveness within the South African markets and highlighted that regulatory requirements often served as a significant barrier to entry.

We note that in respect of the taxi industry, it is perhaps the under enforcement of regulatory provisions such as the Competition Act, which has an equally deleterious effect on competition.

It is regularly reported that the “taxi and bus” industry is riddled with collusive behaviour. In light of the fact that most of South Africa’s indigent are fully dependent on taxis for transportation in South Africa and spend a significant portion of their disposal income on taxi fees, this is an issue which needs to be addressed urgently by the competition agencies by acting “without fear, favour or prejudice”.

In this regard, the following extract from the daily maverick highlights the negative state of play which exists in the taxi industry:

With the birth of this industry also came problems, of course. South Africa was always bad at protecting lives and property, especially if you were black. In such an environment, it was little wonder that legitimate measures to protect their own property soon extended to underhanded and sometimes violent means to quash competition.

This, however, is not an argument against the taxi industry, but against a government that is unable to enforce laws that prevent intimidation and violence to protect the business interests of commercial cartels.

The iron-fisted rule of the taxi associations, the firm grip they have on routes, and the short shrift they give to rivals, is a troubling feature of the industry. It limits competition, which reduces capital investment and keeps prices fixed.

Passengers are well aware of this, and would gladly choose alternatives, if they’re perceived to be cheaper, faster or safer.

Unfortunately, instead of enforcing laws that would enable free-market competition to meet this desire, the state is heading the other way. It is building alternative public transport options, and pouring taxpayer billions into them.”

In Minister Ebrahim Patel’s budget speech in April 2016, the Minister, who in his opening remarks stated that “Economies are about people, not simply numbers and policies” went on to quote the following extract from a recent World Bank study on competition in South Africa:

In the case of four cartels in maize, wheat, poultry and pharmaceuticals – products which make up 15.6% of the consumption basket of the poorest 10 percent – conservative estimates indicate that around 200 000 people stood to be lifted above the poverty line by tackling cartel overcharges”.

Given that there are approximately 250 000 taxis on the road transporting approximately 15 million passengers per day, and that these passengers include those “within the poorest 10%”, it is surprising that, in light of the findings of the IMF, public transport, particularly insofar as taxis and buses is concerned, has not been identified by the Competition Commission as a “priority sector” nor investigated with the same gusto as that which corporate entities, to date, have received.

SACC Investigates Port Operator for Monopolisation & Excessive Pricing

Abuse of Dominance & Excessive Pricing in South Africa: Transnet under Unvestigation

south_africaBy AAT Senior Contributor, Michael-James Currie.

On 7 July 2016, the South African Competition Commission (SACC) announced that it has initiated an investigation against Transnet SOC Ltd (Transnet), for abusing its dominance by allegedly engaging in excessive pricing in contravention of the in section 8(a) of the Competition Act as well as for engaging in exclusionary practices in contravention of section 8(c) of the Competition Act in relation to the provision of port services.

The SACC investigation is allegedly based on information received indicating that South Africa’s port charges are excessive relative to global standards. A recent port tariff benchmarking report by the regulator determined that Transnet’s terminal handling charges for the period 2015-2016 were 56% above the global average. Transnet maintains that it is “comfortable and confident that its processes are fair, just, and in line with relevant legal requirements.

The SACC also indicated that it had received information indicating that Transnet is allegedly giving preferential treatment to certain customers to the exclusion of others, in the form of preferential berthing windows, capped export capacity, minimum export tonnage requirements and preferential lease agreements.

Patel talksThe SACC, as well as the Minister of Economic Development, Mr Patel, as expressly stated that, as part of the SACC’s policy, it will target firms who may be abusing their dominance in the market.

While most respondents in South Africa’s abuse of dominant cases thus far, have been firms who have previously been state owned and, therefore, as far as the SACC is concerned, obtained their significant market share as a result of previously having received state support.  It is thus noteworthy that Transnet is a ‘State Owned Entity’.

Despite having brought a number of abuse of dominance cases against various respondents, however, the SACC has found prosecuting respondents for abusing their dominance challenging.

In relation to excessive pricing, the SACC has found it particularly challenging to successfully prosecute a firm for a contravening section 8(a) of the Competition Act. This is largely due to the definition of ‘excessive pricing’ which is essentially defined in the Competition Act as “a price for a good or service which bears no reasonable relation to the economic value of the good or service”.

What constitutes an ‘excessive price’ was fully dealt with in the recent Sasol Polymers case in which the South African Competition Appeal Court (CAC) overturned a R500 million rand penalty imposed on Sasol by the Competition Tribunal for excessive pricing.

Although the outcome of the Sasol case before the CAC turn largely on a lack of evidence, the case highlighted the difficulties in determining what the ‘economic value’ of a product is. In this regard, however, and as a general starting point, the CAC indicated that the economic value “is the notional price of the respective “good” or “service” under assumed conditions of long-run competitive equilibrium”.

If the price charged for a product exceeds the ‘economic value’, then the inquiry shifts to the second part of the definition – i.e. whether the price charged is reasonably related to the ‘economic value’. Although the CAC in Sasol indicated that this is a subjective inquiry, the CAC indicated that in instances where the actual price charged is not more than 20% of the economic value, it is unlikely that the price charged will be considered ‘unreasonable’.

John Oxenham and the author co-published a paper on excessive pricing, which was presented at the American Bar Association Fall Forum in 2015, providing a comprehensive evaluation of the Sasol case and the legal landscape of excessive pricing in South Africa.

After the Sasol case, Minister Patel has further expressed his intentions to broaden and strengthen the SACC’s powers to prosecute firms who abuse their dominance.

In this regard, Minister Patel had previously made similar averments in relation to combatting cartel conduct, which ultimately materialized in the Minister bring into effect criminal liability for directors or persons with management authority who have engaged in cartel conduct. The criminal liability provisions were enacted in 2009, but were not brought into effect due to numerous concerns regarding the constitutionality and jurisdictional concerns regarding the enforcement of these provisions. Despite the concerns raised, the criminal liability provisions were nevertheless brought into effect from 1 May 2016 without any amendments having been made.

The significance of the Minister Patel’s decision to implement criminal liability provisions should be particularly concerning to firms to have a substantial market share, as the Minister has also indicated that he intends bring into effect the “complex monopoly” provisions as contained din the Competition Amendment Act.

Much like the criminal-liability provisions, the complex-monopoly provisions have also been enacted since 2009, but not brought into effect yet due to various concerns raised as to the how this provision would be enforced.

In terms of the complex monopoly provisions, where five or less firms have 75% market share in the same market, a firm could be found to have engaged in prohibited conduct if any two or more of those firms collectively act in a parallel manner which has the effect of lessening competition in the market (i.e. by creating barriers to entry, charging excessive prices or exclusive dealing and “other market characteristics which indicate coordinated behavior”).

Although the introduction of complex monopoly provisions may appear far off, we would caution firms who operate in a concentrated market that Minister Patel’s efforts to combat abuse of dominance may see result in the expeditious implementation of the complex-monopoly provisions.