AAT exclusive, consumer protection, Kenya

Let them eat bread: Consumer protection in Kenya

On May 24, 2021, the Competition Authority of Kenya (CAK or Authority) issued a notice to the manufacturers of bread on how to label the breads sold to consumers. The CAK claimed the producers were in contravention of Section 55 of the Competition Act 12 of 2012 (“Act”). Section 55(a)(i) of the Act states that “a person commits an offence when, in trade in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services, he— (a) falsely represents that— (i) goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use” . The This section found application in, inter alia,  relation to the labelling of FMCG such as bread sold to consumers.

The CAK’s first concern was that the labels on the bread were illegible, thereby denying the consumer sufficient information. Second, the producers were directed to adjust the information on the wrappers from “Best before” to “Sell by” to indicate the date of expiration. This adjustment will make this information clearer to the consumers, according to the Authority. Sources close to the investigation stated that bread manufacturers had taken liberties with proper labeling previously and had been ‘mischievous’ with labels, as they initially placed the expiration date on the disposable part of the wrapper, thereby depriving consumers of reliable information after opening the packaging. Thereafter, upon being directed by the regulator that the information should be on the actual bread wrapper, the manufacturers purportedly caused the printing of the information to be illegible.

Regarding the issue of weight and ingredients, the bread manufacturers now have an obligation to indicate the correct weight as well as the ingredients of their breads. It was found that some breads alleged to have milk or butter while in reality they did not. Such conduct by manufactures amount to false information. This is itself a breach of the law under both the Competition Act and the Standards Act.

The CAK has the overarching consumer protection mandate, as provided under the Constitution and the Competition Act of Kenya. While carrying out this consumer protection mandate, the Authority must consult with the Kenya Bureau of Standards in all matters involving definition and specification of goods and the grading of goods by quality. Indeed in 2016, the Authority entered into a memorandum of understanding (MOU) to enhance cooperation with Kenya Bureau of Standards. Section 60 (1) of the Competition Act also makes it an offence for any person to supply goods which do not meet the consumer information standards prescribed by law.

Ruth Mosoti, a competition and consumer protection attorney with Primerio Ltd. in Nairobi, notes that the Authority’s chief “essentially informed the producers that compliance with the law was not a pick-and-choose buffet style option. In this instance, the consumer information standard is defined under the Standards Act and that is why the bread manufacturers have been directed to comply as Authority head Mr. Wang’ombe Kariuki correctly put it.” Kariuki stated: “manufacturers have no latitude to elect which laws to adhere to”.  The specific standards in question refer to labeling.

The Authority has taken a soft enforcement approach with a focus on compliance rather than imposing the maximum penalty as prescribed by law. Contraventions of the consumer protection provisions attract a penalty of a maximum of ten million Shillings ($100,000) or imprisonment for a term not exceeding five years. One can only assume that the assertion by the Authority that no actual harm to consumers had been recorded yet as a result of the contraventions by the bread manufacturers must have influenced this soft-enforcement approach.

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buyer power, East Africa, Kenya

Kenyan Competition Law and the Enforcement of Buyer Power- a Step in the Right Direction?

By Jemma Muller and Keegan Sullivan

The Competition Tribunal (“Tribunal”) recently handed down a precedent-setting decision in the case of Majid Al Futtaim Hypermarkets Limited vs Competition Authority of Kenya and Orchards Limited which will not only set the scene on how the competition authorities will tackle the enforcement and assessment of buyer power in Kenya but will also have substantial consequences for retailers in Kenya.

In casu Orchards Limited (“Orchards”) alleged that Majid Al Futtaim Hypermarkets Limited (“Majid”) abused its buyer power. Majid is the operator of the supermarket “Carrefour”, which is supplied with probiotic yoghurts by Orchards. Majid was alleged to have abused its buyer power by: transferring commercial risks to Orchards; refusing to receive Orchards’ goods for reasons which could not be ascribed to Orchards; unilaterally terminating or de-listing the commercial relationship without notice and for no justified reason; applying rebates and listing fees marked as discounts; and requiring Orchards to deploy staff as its own cost.

The Tribunal ultimately upheld the Competition Authority of Kenya’s (“CAK”) judgment in finding, inter alia, that Carrefour abused its buyer power in relation to Orchards. While the Tribunal’s decision brings much-needed clarity on various issues, in particular how it will conduct its assessment of buyer power, which represents an area in competition law that has historically been unregulated, the assessment itself appears to only brush the surface in an analysis which typically (and with regard to comparative jurisdictions) necessitates a robust and thorough analysis.

The Commission, in reaching its decision vis-à-vis the existence and abuse of buyer power, based its decision on the Competition Act No 12 (“Act”), the Buyer Power Guidelines under part III of the Act, and international best practice. Section 24(2B) of the Act stipulates that the authority, in determining buyer power, must take into consideration:

“a) the nature and determination of contract terms;

b) the payment requested for access to infrastructure; and

c) the price paid to suppliers”

Section 24(2D) of the Act stipulates that buyer power means:

“…the influence exerted by an undertaking or group of undertakings in the position of a purchaser of a product or service to obtain from a supplier more favorable terms, or to impose a long-term opportunity cost including harm or withheld benefit which, if carried out, would significantly be disproportionate to any resulting long-term cost to the undertaking or group of undertakings.”

Of particular concern is the Tribunal’s approach and rationale in determining whether Majid had buyer power and whether it had abused its buyer power. Importantly, the Tribunal appears to be jumping the gun so to speak in expressing that “…the influence of power of the buyer becomes evident when the buyer engages in the offending conductand therefore, “by engaging in conduct which amounts to abuse of buyer power, there’s buyer power”. (our emphasis)

According to the Tribunal, the Act defines buyer power by reference to its effects. In casu, “abuse” was evidenced by, inter alia, declining to renegotiate terms, onerous rebates and listing requirements, and the refusal to take delivery of products that were delivered. This represents a notable departure from traditional competition law assessments of buyer power in various respects. In South Africa, for example, the assessment first centres around the existence of buyer power (which requires the buyer to be dominant), followed by whether there has been an abuse of that buyer power. Michael-James Currie from the Primerio International team notes that the Tribunal has essentially put the cart before the horse and notes that astute competition law counselling requires these trends and policy shifts to be well considered.

By engaging in what appears to be an ex-post assessment, the Tribunal’s judgment does not provide much insight or guidance to parties on how to ensure their conduct is aligned with the relevant provisions or how to negotiate trading terms common to commercial practice without facing potential accusations of abuse of buyer power.

Precedent on “buyer power” is scarce and therefore the precedent set by the Tribunal on the matter is of considerable importance both in Kenya and throughout Africa. When viewed comparatively the legislative framework governing “buyer power” in South Africa differs from the Tribunal’s judgment mainly on the requirement of “dominance”.

Section 8(4)(a) of South Africa’s recently amended Competition Act provides;

“It is prohibited for a dominant firm in a sector designated by the Minister in terms of paragraph (d) to directly or indirectly, require from or impose on a supplier that is a small and medium business or a firm controlled or owned by historically disadvantaged persons, unfair:

(i) prices; or (ii) other trading conditions.”

Contrastingly, the Buyer Power Guidelines under Kenyan law state:

“It is not necessary for the buyer to have a dominant position in the market. Although the provisions of abuse of buyer power are included under the provisions of abuse of dominant position, when assessing conduct that amounts to abuse of buyer power, proof of dominance is not a mandatory criteria.”

Additionally, the Tribunal did not undertake a robust assessment of the relevant market, or an analysis of potential foreclosure concerns, consumer welfare or efficiency. Rather, and instead of focusing on anti-competitive effects (which jurisdictions such as South Africa undertake), the Tribunal appeared to be more concerned with fairness to suppliers.

What remains to be seen is how the Tribunal will distinguish between, inter alia, those buyers who extract favourable trading terms by virtue of being dominant in the market vs those buyers who are not, without first undertaking a comprehensive assessment of the buyer’s position in the market.

This judgment, being the Tribunal’s first in relation to the abuse of buyer power, will shape the way in which buyer power will be assessed in Kenya. As such, it is vital that the competition authorities provide comprehensive guidance and much needed certainty to businesses.

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AfCFTA, Big Picture, COMESA, COVID-19, East Africa, event, Ghana, Kenya, Nigeria

Podcast explores latest developments across Africa

The latest episode #122 of Sheppard Mullin’s popular NOTA BENE podcast features Primerio’s Andreas Stargard, exploring “Africa Q2 Check In: Economic Growth and Relevance.”

Africa continues to strive for economic growth through various trade partnerships and foreign investments, but long-standing challenges remain an impediment in certain respects. Is Twitter’s decision to open an African base in #Ghana any indication of the continent’s economic potential? We’re joined by #Africa competition and markets expert, Andreas Stargard, a co-founding senior member of Primerio Ltd., as he shares insights on Africa’s economic outlook in Q2 of 2021.

You can listen to it for free on all major ‘podcatchers,’ including here:

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cartels, collusion, COMESA, Kenya

Single Brush Stroke Stops Paints Cartel in its Tracks

Three years after an intricate East-African antitrust saga involving global European and Asian paint manufacturers, the industry is in the region’s competition-law news again.

Upon receiving allegations of cartel-like practices between paint makers and undisclosed distributors in 2018, the Competition Authority of Kenya (CAK) launched an investigation into the suspected companies. The investigations later uncovered that four firms, namely: Crown Paints, Basco Products Limited, Kansai Plascon and Galaxy Paints (Companies) were guilty of collusion and price fixing which subjected the purchaser to unreasonably high prices for various paint brands. The CAK has since revealed this to Parliament and handed down its finding on the alleged ant-competitive behavior.

Crown Paints has a flagship brand called DuraCoat, which includes paint products for both interior and exterior finishing (painting and waterproofing). Dura Brands’ exposed collusion with the other three companies sparked fears that consumers have been buying these products at largely inflated prices. This is particularly significant given that Crown Paints is listed on the Nairobi Securities Exchange and is a heavyweight in the local paints market, with subsidiaries in Uganda and Tanzania.

Ruth Mosoti, Primerio Ltd.’s Kenyan competition practitioner, notes that the “CAK ultimately found that all four companies were in direct contravention of section 31 of the Competition Act, which addresses restrictive trade practices that prohibit companies from colluding with one another in order to determine product prices, as well as control when and to whom they will offer pricing discounts. CAK alleges that these are all anti-competitive behaviors that are to the detriment of the consumer as well as other, outside competitors.”

The authority making preliminary findings that the parties were involved in anti-competitive agreements on price fixing, discount structure and transport charges.” – Stated by the CAK in its latest report tabled before parliament.

In line with section 36(c) and (d) of the Act, the CAK is entitled to impose financial penalties “to remedy or reverse the infringement or the effects thereof” which may span “up to ten percent of the immediately preceding year’s gross annual turnover in Kenya of the undertaking or undertakings in question”.

Of the four Companies, Basco Products Limited was the only company that did not challenge the CAK’s preliminary ruling and paid the penalty amount of Sh20.799 million for the infringement. The company further agreed to abstain from committing any similar breach in the future. While the other companies initially appealed the decision handed down by the CAK, AAT staff have now learned that up to 3 of the accused firms have opted to settle, having withdrawn their appeals.

COMESA

It is also pivotal to note that on the 25th of February 2021, the COMESA Competition Commission (Commission) issued a cautionary note specifically pertaining to the consequences of forming barriers to trade.

The Commission made reference to Article 16 of the Regulations which prohibits “all agreements between undertakings, decisions by associations of undertakings and concerted practices which: (a) may affect trade between Member States; and (b) have as their object or effect the prevention, restriction or distortion of competition within the Common Market”.

The abovementioned contravention is evident in the case at hand, with the Commission going on to state that it “…will work closely with the national competition authorities in the Member States to ensure that offenders are detected, investigated and punished”. Furthermore, there is particular focus on “hard enforcement through screening, detection, investigation and punishment of offenders”.

The detrimental consequences arising from the conduct of these firms is not only prejudicial towards the customer due to the fact that price-fixing also excludes rival organizations that do not agree to the collusive setting of prices from competing in the same market. Therefore, the steps taken by the CAK and COMESA are paving the way to a healthy and competitive marketplace.

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AAT exclusive, AfCFTA, COMESA, EAC, East Africa, ECOWAS, fraud/corruption, Kenya, Nigeria, Rwanda, South Africa, Telecoms

Common Markets & the Race for Power in Africa: a Podcast Interview

Africa is a continent of 1.2 billion people.  From a consumer potential standpoint it matches China or India.  Yet historically, it has suffered from the lingering shadows of its colonial past, in addition to its current fractures, hostility, and ever-present corruption.

The continent is emerging fast, however, and is quickly accelerating into the 21st Century marketplace both from an investment and growth opportunity. From the digital revolution and increased free trade, to innovation in various industries, Africa may be the next market frontier to unfold into accelerated multinational presence.

In this podcast episode (available gratis on Apple, Spotify, and Sheppard Mullin‘s web site), Michael P.A. Cohen is joined by Africa competition and markets expert, Andreas Stargard, as he shares his insight to help multinationals navigate the African landscape.

What we discuss in this Podcast episode:

  • What do the Africa markets look like from a multinational business opportunity perspective?
  • Which countries in Africa have established markets? Which ones have growth potential?
  • How and why has China’s investment and influence across Africa intensified over the last couple of decades?
  • What type of digital revolution is taking place in Africa?
  • Is there a huge opportunity for mobile money on the continent?
  • How is free trade shaping up across the African continent? How do the AfCFTA’s goals tie in?
  • What Free Trade cooperation agreements exist among the East, West and South African nations? Will they succeed?
  • Where is Africa leading innovations?
  • How will African wars and corruption impact its ability to grow a multinational marketplace?

Who’s speaking:

Michael Cohen is the creator of the Nota Bene podcast. He began his career as an Assistant Special Prosecutor, investigating and prosecuting organized crime involvement with the failure of local financial institutions in the early 1990s, and has since practiced globally at several top law firms. In 2015, Michael joined Sheppard Mullin’s storied antitrust practice with a goal of putting his 25 years experience to work to complement the firm’s longstanding antitrust litigation group, helping to bridge government antitrust enforcement in Washington, D.C. to the firm’s strengths in Brussels, San Francisco and Los Angeles.

A co-founding senior member of Primerio, a business advisory firm helping companies do business within Africa from a global perspective, Andreas Stargard is legal, strategic, and business advisor to companies and individuals across the globe.  He focuses on antitrust and competition advice, white-collar counseling, contract dispute and negotiation, and resolution of global business disputes, including cartel work, corruption allegations and internal investigations, intellectual property, and distribution matters.  He has written and spoken extensively on these topics and many others.  Andreas also advises clients on corporate compliance programmes that conform to local as well as global government standards, and has handled key strategic merger-notification questions, including evaluation of filing requirements, avoidance strategies, cross-jurisdictional cooperation, and the like.

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AAT exclusive, COMESA, COVID-19, East Africa, exemptions, Kenya, public-interest

Antitrust enforcer to allow self-assessment of competitor collaborations amidst pandemic

Following the (thus far rarely used) “Block Exemption” procedure under Section 30 (2) of the Kenyan Competition Act, the Competition Authority of Kenya (“CAK”) has proposed a new set of draft Guidelines as to competitor collaborations during the COVID-19 pandemic, so as to assist with the country’s economic recovery efforts. It specifies five (5) focus sectors, namely Manufacturing, Private Healthcare, Aviation, Travel & Hospitality, and Health Research. The Guidelines are ostensibly inapplicable to firms that engage in economic activity outside these five sectors.

In issuing its soon-to-be finalized guidance, the CAK wishes to provide “direction to undertakings in making a self-assessment as to whether the agreements, decisions or practices which they intend entering into will qualify for block exemption within the Covid-19 Economic Recovery Context without the need to seek the Authority’s intervention.” (A.(4))

A key aspect, in the view of antitrust litigator Andreas Stargard, is the renewed attention given to “public-interest factors” in competition law.

He believes that this concession to non-traditional competition-law theory is “necessitated by the broad economic havoc COVID-19 has wrought, including on historically peripheral-to-antitrust aspects such as overall employment, public health, en masse business closures, and the like, which would normally not be highly relevant factors in the strict sense of conducting a rigorous competition-law analysis.”

Stargard continues that “Condition III of the CAK’s so-called ‘Self-Assessment Principles‘ expressly highlights this element, namely forcing firms to evaluate whether their proposed collaboration with competitive entities is ‘in the public interest, such as creation of employment’,” citing para. 11(vii) of the draft Block Exemption Guidelines on Certain Covid-19 Economic Recovery Priority Sectors.

The CAK’s proposal thus strongly echoes what its regional sister authority, the COMESA Competition Commission (“CCC”) openly discussed as early as July of last year. As we wrote in our assessment of the official CCC staff’s thoughts on competition enforcement amidst the pandemic in 2020:

The concept of non-competition factors (i.e., the public-interest element) was also raised, as there is a “growing debate on whether the pandemic may necessitate changes in [the] substantive assessment of mergers, e.g., towards more lenient consideration of failing firms.”

As Andreas Stargard observes, “just as COVID-19 is truly global, Kenya and COMESA are likewise not alone in their quest to master the difficult balancing act between sufficiently enforcing their domestic or regional antitrust laws versus allowing reasonable accommodations to be made for necessary competitor collaborations in light of the pandemic’s impact. Indeed, other enforcers have also made accommodations for such unusual collaborative efforts, given the emergency nature of the pandemic.”

In the U.S., the federal antitrust agencies have issued analogous guidance for competitors, issuing a joint guidance document specifically on health-care providers collaborating on necessary public-health initiatives. What stands out is the agencies’ express invitation for health-care players to take advantage of the (now-expedited to 7 days’ turnaround time) business-review/opinion-letter procedures.   Mr. Stargard notes however that, unlike the Kenyan proposal of “self-assessment by the affected entities, the American approach still necessitates an affirmative approach of the enforcers by the parties, seeking official sanctioning of their proposed cooperation by submitting a detailed explanation of the planned conduct, together with its rationale and expected likely effects.

By way of further example, in Canada, as the OECD notes, the government “has developed a ‘whole-of-government action’ based on seven guiding principles including collaboration. This principle calls on all levels of government and stakeholders to work in partnership to generate an effective and coherent response. These principles build on lessons learned from past events, particularly the 2003 SARS outbreak, which led to dedicated legislation, plans, infrastructure, and resources to help ensure that the country would be well prepared to detect and respond to a future pandemic outbreak.”

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AAT exclusive, cartels, collusion, East Africa, Kenya, leniency, leniency / amnesty, Price fixing, Whistleblower reward

New Antitrust Whistleblower Reward Scheme: Are ‘Paltry’ Rewards & Anonymity Enough?

As of January 1st, 2021, Kenya’s competition-law enforcer, the Competition Authority of Kenya (CAK), started benefitting from its new “Informant Reward Scheme” (IRS). The IRS encourages “confidential informants” — often also referred to as “whistleblowers” — privy to inside information about antitrust offenses to come forward and report the illicit conduct to the Authority.

The IRS incentivizes informants with promises of anonymity as well as — rather modest, as we will see — monetary rewards: the CAK vows to maintain the confidentiality of the informant’s identity, and provides for up to Sh1,000,000 (approximately US$9,100 at today’s Fx rate).

Andreas Stargard, a competition lawyer active on the African continent, has delved more deeply into the CAK’s enabling “Guidelines” document, trying to ascertain the precise contours of the IRS program. He reports as follows:

AfricanAntitrust.com: “Who is eligible to participate in the IRS?”

Andreas Stargard: “What we know from the implementing Guidelines, and also from Director General Kariuki‘s speech on the IRS, is that only third parties or those individuals playing merely a remote and peripheral role in relation to the anti-competitive conduct are eligible to benefit from the IRS. This means that a 3rd-party customer, or a non-executive employee such as a secretary or copy clerk of the offending company, may report wrongdoing under the IRS.”

AAT: “What about insiders with executive authority, then?”

Stargard: “Similar to Western countries’ antitrust regimes, those individuals can still report illicit conduct by their employers, but they would have to resort to the Kenyan leniency process as opposed to the Informant Reward Scheme.”

AAT: “Understood. Are there other, similar whistleblower schemes in existence?”

Stargard: “Yes. We recently held a very timely webinar with leading international and African experts on the topic of whistleblowing, which I moderated. A recording of it is available on the web. Whistleblowing has become an important piece of the enforcement puzzle for many governmental authorities around the globe, not only on competition issues. In Kenya, specifically, President Kenyatta recently doubled the rewards for tax-fraud whistleblowers, who are now entitled to receive up to Sh5,000,000 ($45,000), and the country’s revenue service implemented the so-called iWhistle portal to allow informants to report tax fraud anonymously.”

AAT: “Speaking of money, what is your take on the amount of the offered reward under the terms of the IRS?”

Stargard: “Frankly speaking, one million Kenyan shillings is a paltry sum. I cannot comprehend how reporting a competition-law violation such as a price-fixing cartel that may cost the Kenyan economy and its consumers billions in losses is deserving of 5-times less reward than an informant reporting an individual’s tax fraud to the revenue service, which may cause significantly less injury to the government purse than an international cartel of corporates…”

AAT: “Strong words.”

Stargard: “I’m serious. Compare and contrast the meager sum of not even US$10,000 maximum IRS reward with the potential 5-year prison sentence liability for executives convicted of collusion! There is simply no comparison…”

AAT: “In a perfect world, what would you change about the Kenyan whistleblower scheme?”

Stargard: “If I had had any input into the process of devising the IRS Guidelines, I would have ensured that the maximum reward amount be commensurate with the economic harm and financial damage done by cartels — in short, I would raise the IRS reward to an un-capped straight-up percentage portion of the fines recovered by the CAK. The more, the better for everyone.”

AAT: “Do you have any parting words or final observations on the IRS program for our readers?”

Stargard: “Well, for starters, it is not too late to implement changes to the regime. The CAK (and the legislature, to the extent necessary) can easily increase the maximum reward, as I proposed earlier. I am certain that it would yield better results than the current Sh1m cap, which can easily be ‘outbid’ by an already-corrupt employer, seeking to ‘buy’ its employees’ loyalty! So, Mr. Kariuki, if you’re reading this interview, I’d strongly suggest considering an increase in the reward.

Secondly, from our international experience, we know one thing about ‘secret’ informant schemes: One key element of any successful whistleblower regime (besides ensuring adequate rewards) is the strictest maintenance of confidentiality of the informant’s identity. I realize that section ‘F’ of the Guidelines assures the public that anonymity will be guaranteed and that the CAK will ‘take utmost care to ensure that the identity of the confidential informant is not disclosed.’ However, as an attorney, I can only say that the proof is in the pudding. We will have to wait for the first proceedings pursuant to IRS-provided reports, in order to determine whether or not the whistleblowers’ anonymity will indeed be preserved successfully in practice. That said, I look forward to advising clients on the many issues that are likely going to arise from the Scheme!”

AAT: “Thank you for your time and insights on this new development!”

CAK Director General Wang’ombe Kariuki
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ACF, COMESA, commissioners, Kenya

Kariuki gets World Bank advisor post

Competition Authority of Kenya (CAK) Director-General Francis Wang’ombe Kariuki, MBS, will serve on the panel and contribute to its annual publication, the “World Development Report” for the upcoming calendar year. An archive of the Bank’s prior Reports is available for review here.

The Kenyan WallStreet publication quotes Kariuki as saying:

“The appointment takes cognizance of the fact that competition law enforcement has a role to play in poverty alleviation and that data is a highly-prized asset among companies, which can be leveraged for [either] development or socioeconomic harm. … Private firms may use data to deter the entry of upcoming firms, thereby limiting or preventing competition to the detriment of the consumers, specifically eroding their purchasing power and choice.”

Kariuki is a former COMESA Competition Commission Board member and a founding member and first chairman of the African Competition Forum.

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Appellate Review, Kenya, mergers, Telecoms

Kenya’s Competition Tribunal: Airtel/Telkom merger generates first decision

By Ruth Mosoti, Esq. (Primerio Ltd. Kenya practice head)

On 4th May 2020, the Kenyan Competition Tribunal made its first decision after considering the application for review of the Airtel-Telkom merger where they contested 7 out of 8 the conditions imposed. The competition Act allows the tribunal to look at the merits of the Competition Authority’s (CAK) decision therefore and has power to confirm, modify or reverse any order issued either partially or wholly. In this particular decision the Tribunal did exercise all these powers.  The decision of the Tribunal was guided by whether CAK’s decision promoted or protected effective competition in the telecommunications sector, enhanced the welfare of the Kenyan people and prevented unfair and misleading conduct throughout Kenya among other things.

First, the Tribunal confirmed the condition set in relation to employment. This public interest consideration varies on a case by case basis hence the difference in its application. In some mergers CAK has limited the retention of employees to 12 months and in others it is limited to 3 years. In this particular case, it was limited to 2 years. The tribunal agreed that due to the specialized nature of the industry and the presence of only two players in that market post-merger, then the condition imposed in regard to employment was justified.

Ruth Mosoti (author)

Secondly, the 2 conditions in relation to spectrum licensing and management were varied in their entirety primarily because it was found that CAK had no basis to interfere with licensing conditions imposed by the Communications Authority. It was their view that the Communications Authority was the competent authority to govern the licensing terms and, in the event, that there are any competition concerns then, these two regulators would consult. The imposition of these two conditions were deemed to be unnecessary. It was emphasized that competition law is there to protect competition and not competitors.

Thirdly, the condition on restricting entering into any sale agreement was modified to bring clarity. As imposed by CAK any form of sale was prohibited which was found to be blanket, therefore unreasonable. The Tribunal clarified that the merged entity would be able to enter into sale agreements in the ordinary course of business however the merged undertaking cannot be sold for a period of 5 years. In addition to this, the condition of audit in case the merged undertaking became a failing firm was done away with because CAK failed to justify why it applied the “failing firm doctrine” post-merger. In any event should this happen, the Tribunal reasoned that this would require approval from CAK therefore an unnecessary condition at this point.

The conditions in relation to contracts managed by Telkom on behalf of the government were retained however the tribunal clarified that this was not to interfere with the freedom of contract between the Kenyan government and the merged entity. While it is unconceivable how the government would agree to preferential terms while entering into these contracts without offending the law (this would be to my understanding that you pay for a government service/product depending on who you are which would be outright discriminatory)

Lastly, imposing a requirement for annual reports to CAK with no time limit was not justified. The appellants asked for 2 years and the Tribunal obliged. This was based on the fact that most of the conditions imposed on the merged entity after the review would lapse after 2 years therefore the tribunal deemed two years to be a justifiable time frame to comply with the 8th condition.

The Tribunal’s take on the procedural issues raised by the appellants is quite interesting. On the issue as to what constituted a “fair administrative process”, it was of the opinion that CAK had accorded the appellants adequate notice and opportunity to respond. To contextualize this, the appellants received a notice of a proposed decision and had a meeting on 25th October 2019, the Appellants contested these conditions and on the same date after the meeting, CAK sent amended conditions. The appellants advocates asked for time to consult their clients on the amended conditions.  The CAK however went ahead to issue a notice of determination on 31st October 2019 which was 6 days later. CAK’s position on this was that the board having sat, the decision issued on 31st October 2019 was final. This being the case, the only avenue available to the Appellants was to challenge it before the tribunal. The position by the tribunal that the Appellants had been given adequate time to challenge procedural fairness bearing in mind that the 30 days were to lapse on 24th November 2019 is baffling at best.

In conclusion, this decision being the first of has accorded practitioners an insight as to how CAK arrive at its decisions as well as the considerations of the tribunal in case of appeals. We now look forward to its determination of the other appeals in relation to RTPs before it.

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AAT, East Africa, Kenya, mergers, Uncategorized

KENYA: AIRTEL//TELKOM KENYA MERGER CONDITIONS TAKEN ON APPEAL

By Ruth Mosoti

In December 2019, the CAK approved the merger between two Kenyan telecom firms, Airtel and Telkom Kenya, subject to a number of wide ranging conditions.

The merging parties, however, were not satisfied with the conditions and have decided to take the CAK’S decision on review to the Competition Tribunal. Kenya’s Competition Tribunal was fully constituted and became operational in May 2019 after four members were appointed to the panel.

In terms of  the Kenyan Competition Act, any party aggrieved by a decision of the CAK in relation to a merger has 30 days to file for a review of that merger before the Tribunal. The 30 days period commences from the date the CAK’s decision is published in the gazette. Accordingly, although the merger was formally approved in October 2019, the merging parties had to wait until December 2019 for the gazette, containing the CAK’s decision, to be published before a notice for review could be filed.

The Tribunal has a broad range of powers and may overturn, amend or confirm the decision of the CAK. The Tribunal may also, if it considers it appropriate to do so, refer the matter back to the CAK for reconsideration of certain issues.

Turning to the conditions themselves, one of the contentious conditions relates to having the spectrum revert back to the government upon expiry of the merging parties’ license.

This is concerning as it is the Communications Authority of Kenya that issues and renews licences. The spectrum allocation by Communication Authority is an asset in the hands of the holder. Assuming that the spectrum is being utilized in accordance with the licence, ordinarily renewal is guaranteed.

The CAK’s decision that the license must revert back to the government is concerning as it seems to overlap with the Communications Authority’s mandate. John Oxenham, a director of Primerio, says that the interplay and conflict between the roles of competition and communications agencies are not unique to Kenya. In South Africa there have also been a number of issues which have raised as to which agency is best suited to assess ‘competition law matters’. A memorandum of understanding between the South African Competition Commission and the Independent Communications Authority of South Africa (ICASA) has been concluded in an effort to ensure consistency and enhanced collaboration between the two agencies in this regard.

The CAK’s conditions in this merger seem to be at odds with the CAK’s approach adopted in previous matters. For instance, when Yui exited the Kenyan market, both Airtel and Safaricom acquired Yu’s assets (including licenses). Although Safaricom had a larger chunk of the 2G spectrum, the CAK did not seem to take Safaricom’s market size into account when these assets were acquired. Perhaps the CAK appreciates that there was a missed opportunity.

This is will be the Tribunal’s first opportunity to review the CAK’s decision relating to a  merger and it will be interesting to see how robustly the Tribunal scrutinizes the CAK’s decision with reference to economic evidence. As competition lawyer Michael-James Currie points out, unfortunately, the CAK does not publish detailed reasons which underpin its decisions and it is, therefore, often difficult to fully appreciate the CAK’s reasoning or assess whether the CAK’s decision is sufficiently supported by the underlying evidence. Hopefully the Tribunal’s reasons in this matter will be more comprehensive, thereby contributing positively to creating precedent.

Currie also points out that the CAK imposed a public interest condition relating to a moratorium of any merger specific retrenchments for a two year period. The merging parties are appealing this condition as well and have proposed that the moratorium be reduced to 12 months. The role of public interest factors in merger control has been materially influenced by the South African merger control regime where employment related conditions are a common feature in merger conditions. Moreover, two year moratoriums is usually the ‘benchmark’ standard although moratoriums ranging from 3-5 years have also been imposed on parties in South Africa. It will be interesting to gauge the Tribunal’s approach to public interest factors and whether we will see a unique approach to the assessment of such conditions or whether the Tribunal is likely to follow the South African approach.

[Ruth is a Primerio competition law practitioner based in Nairobi, Kenya.]

 

 

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