Category: energy

Criminal cartels & dilapidated energy networks: Will South Africa act?

Posted on by Editor

A true challenge to the impartiality of the South African Competition Authority: Eskom and its Criminal Supplier Cartels — Let’s wait and see what SACC does now

By Joshua Eveleigh

Will South Africa’s antitrust watchdog, under the aegies of its relatively new head Doris Tshepe, investigate and prosecute flagrant cartel conduct, when it is practically presented on a sliver platter by one of the CEOs of the (willing?) victims of said illegality…? Andre De Ruyter, former CEO of South Africa’s recently-infamous Eskom, is no stranger to the limelight – this is particularly true, following his scandalous (but not so surprising) bombshell allegations of deep-rooted and systemic corruption within the State-Owned Enterprise, together with ‘senior politicians’.

Even more recently, De Ruyter tested the antitrust waters and emphasised the existence of at least four cartels amongst coal mines in Mpumalanga (the Presidential Cartel, the Mesh-Kings Cartel, the Legendaries Cartel, and the Chief Cartel, respectively) intent on defrauding Eskom by, amongst a myriad other means, engaging in collusive tendering, so as to ensure that one of the cartel’s participants would ultimately be appointed as a lucrative vendor.

While there may not be any definitive or public available evidence, as of yet, the mere allegations of such cartels by the SOEs former CEO should at least raise enough red flags for South Africa’s Competition Commission. In this respect, section 4(1)(b)(iii) of the Competition Act expressly prohibits collusive tendering, forming part of the ‘cartel conduct’ category, the most egregious form of competition law contraventions due to their unnecessary raising of prices – of which may be passed down to end-consumers.  Mr. De Ruyter noted that the mere reality that cartel chiefs had ceased posting personal jet set lifestyle photos on social media was evidence of their having been alerted to the risks attendant to flagrant antitrust violations.

Given the current state of load-shedding, Eskom’s R423 billion indebtedness (as of March 2023) and the prejudicial impact that these factors are having on both business and personal livelihoods, the South African Competition Commission – theoretically in charge of cartels in the country — must surely regard the energy sector as a priority.  In this regard, one would expect a similar sense of urgency and emphasis that the Competition Commission has recently placed on the retail and grocery sectors, for the focus to be on South Africa’s energy sector.  After all, says Primerio partner John Oxenham, “this sector impacts every facet of commerce and consumer welfare.  If this was the case, the South African public could expect to see the prosecution and sanctioning of numerous cartels, each allowing for a maximum administrative penalty of 10% of the cartelist’s locally derived turnover as well as the potential for subsequent civil follow-on damages claims as well as criminal prosecutions.”

Oxenham’s competition-law colleague, Michael Currie, opines that, “[i]n the event that the Competition Commission does not investigate and prosecute against the coal mine cartels, such a position would largely reinforce the notion that some of the most unscrupulous of cartels are immune from prosecution, further entrenching the existence of cartels in South Africa’s most sensitive sectors.”

Namibia: High Court declares Competition Commission’s search and seizure unlawful

Posted on by Editor

On 9 November 2018, the High Court in Namibia declared a dawn raid conducted by the Namibian Competition Commission (NaCC) in September 2016 to be unlawful. The NaCC raided the premises of PUMA Energy on the basis of alleged abuse of dominance conduct in relation to the sale of aviation fuel at two airports in Namibia.

namibiaPUMA Energy challenged the validity of the search warrant and successfully argued that there was no basis for granting the search warrant. Consequently, the NaCC is obliged to return all documents seized during the raid to PUMA Energies.

In June 2018, the South African Competition Commission also lost a High Court challenge where the validity of a search warrant was at issue. The Pietermaritzburg High Court set aside the search warrant on the basis that the SACC failed to demonstrate that there was a bona fide “reasonable belief” that a prohibited act had been engaged in by the respondents in that case.

Competition lawyer, Michael-James Currie says that the use of search and seizure operations as an enforcement tool is being increasingly used across a number of African jurisdictions. Dawn raids have recently been conducted in Egypt, Kenya and Zambia in addition to Namibia and South Africa.

Currie says while dawn raids have been used effectively by well-established antitrust agencies, search and seizure operations are particularly burdensome on the targets and should only be used in those instances were no other less intrusive investigative tools are available. If competition authorities’ powers are not kept in check there is a material risk that search and seizure powers may be used as “fishing expeditions”.

Primerio director, John Oxenham, points out that the evidentiary threshold required in order to obtain a search warrant is relatively low. It is, therefore, concerning if enforcement agencies subject respondent parties to such an intrusive and resource intensive investigative tool without satisfying the requirements for obtaining a search warrant.

Despite these recent challenges to search warrants, Andreas Stargard, also a partner at Primerio, corroborates Oxenham and Currie’s view that the South African and Namibian competition agencies will continue utilising dawn raids as an investigative tool and in light of the increasingly robust enforcement activities, particularly by the younger competition agencies, companies should ensure that they are well prepared to handle a dawn raid should they be subjected to such an investigation.

 

Merger Control: Public Interest & SINOPEC/Chevron

Posted on by Editor

When the Stick is Greater than the Carrot

While China Petroleum & Chemical Corporation (Sinopec), and global commodities trader and miner Glencore are the front runners in a bid to buy Chevron’s South African Business (Chevron SA), it appears that Sinopec has managed to edge ahead after the Chinese firm has agreed to a number of public interest conditions in an effort to placate the South African Minister of Economic Development, Ebrahim Patel (Patel) and avoid ministerial intervention before the Competition Tribunal’s (the agency responsible for approving the merger) hearing.

PublicInterestpic.jpgThe South African Competition Commission (SACC), responsible for investigating and making recommendations to the Tribunal, recently published its recommendation in relation to the proposed Sinopec-Chevron deal. Unsurprisingly, consistent with large mergers (particularly by foreign acquiring firms) – the SACC’s recommendations contain a number of non-merger specific public interest conditions. A feature of South African merger control which has become increasingly prevalent in recent years (refer to the AB-InBev/SAB or the SAB/Coca-Cola mergers) – largely as a result of Minister Patel’s ‘direct’ involvement in the merger control process.

It is not yet cast in stone that Sinopec will in fact be the acquiring entity as the minority shareholders in Chevron SA enjoy a right to first refusal. Regardless of the entity who is ultimately successful in acquiring Chevron SA (Chevron has confirmed that the proposed deal with Glencore is also currently before the SACC), the South African government has set its price for investing in South Africa, as confirmed by Minister Patel’s following statement:

“Government will not choose to whom Chevron sells control of Chevron South Africa, but we will ensure that proper public interest conditions, in line with the Competition Act, should apply to whoever is the successful bidder,”

Apart from the significant Ministerial intervention and the direct influence this has on the SACC’s independent investigation and review of a merger, a particularly contentious issue in relation to the imposition of public interest conditions relates to the Minister’s comment that the public interest conditions are “in line with the Competition Act”.

Although conditions regarding employment falls within the scope of section 12A(3) of the South African Competition Act, the remainder of the recommendations made by the SACC in casu goes beyond what was envisaged by the legislature in Section 12A(3) of the Competition Act. In this regard, the conditions recommended by the SACC include inter alia the following:

  • Sinopec must set up its head office in South Africa in order for it to co-ordinate and oversee its operations in South Africa and to use South Africa as the platform to oversee its operations throughout Africa;
  • Sinopec undertakes not to retrench any of its employees, in perpetuity;
  • Sinopec agrees to invest further in Chevron’s Cape Town refinery;
  • Sinopec undertakes to make a significant investment over and above the current investment plans of Chevron South Africa;
  • Sinopec must upgrade Chevron South Africa’s operations and expand its refinery capacity in South Africa;
  • Sinopec undertakes to maintain Chevron SA’s current baseline number of independently owned petrol stations;
  • Where independently owned petrol stations are to be established, Sinopec must ensure that Chevron SA will give preference to small businesses, especially black-owned businesses;
  • Sinopec must ensure that Chevron will favour small businesses in granting rights in respect of any new retailer owned petrol stations.
  • Sinopec must also ensure that Chevron will increase its level of supplies of (liquefied petroleum gas) to black-owned businesses, following the expiration of current contractual arrangements; and
  • Sinopec must promote the export and sale of South African manufactured products for sale in China through its service stations network in China.

More specifically, Minister Patel requires that Sinopec makes a R6bn Capex investment, commits to increasing the level of BEE ownership in Chevron SA from 25% to 29% and, an all-time favourite condition, establish a development fund worth R200m.

As John Oxenham, Director of Primerio notes, the absence of merger specificity together with the imposition of public interest conditions which go far beyond the specified grounds listed in the Competition Act has been consistently criticised for resulting in uncertainty, delays and costs in the merger review process. It also sends a message to entities that South Africa is open to business… on condition (at a time when our economy could do with every bit of foreign direct investment).

Regardless of the criticism levelled against the role of public interest conditions in merger control proceedings, the prevalence of public interest conditions is set to play and even greater role in merger control (and competition enforcement more generally) should the Competition Amendment Bill be brought into effect.

John Oxenham further notes: “The Competition Amendment Bill has broadens the scope of the SACC’s powers with regards to public interest, to include the ability of small businesses to enter into, participate in and expand within the relevant market and the promotion of a greater spread of ownership.”

Practising competition law attorney, Michael-James Currie states: “The Bill has clearly sought to strengthen and codify the role of public interest conditions in merger control and expressly elevates public interest considerations to the same status as pure competition issues – the fact that the Bill specifically broadens the scope and role of public interest conditions brings into question whether the proposed conditions in the Chevron deal are in fact “in line with the (current) Competition Act”.

Competition law enforcement in South Africa is set for a significant shake-up to the extent that the Amendment Act is brought into effect – which is likely to occur in 2018. For further insight and commentary to the Amendment Bill, please see an AAT exclusive article here.

One message which business is desperately shouting across at the South African Government at the moment is “policy certainty!”  However, the SACC’s recommendation in casu and the proposed changes to the Competition Act is a move in the opposite direction as it seeks to place a great deal of discretion in the hands of a few key policy decision makers (namely the Minister of the Department of Economic Development and the SACC’s Commissioner). Discretion, exercised in a subjective manner, runs very much contrary to policy certainty – which, in light of an imminent cabinet reshuffle under new ANC President Cyril Ramaphosa’s leadership, may be of particular concern.

Although the Tribunal ultimately needs to approve the merger, the Tribunal is reluctant to intervene in proceedings which are uncontested – which Minister Patel knows all too well. Accordingly, as a crafty negotiator, Minister Patel is well aware that parties in the position of Sinopec have one of two options, agree to the public interest conditions and expedite the merger review or proceed with a contested hearing which will most likely be opposed by the Minister.

Despite calls for a more consistent, certain and transparent application of competition law in South Africa, however, there seems to be a move away from international best practice and competition law enforcement in South Africa and once the Amendment Act is brought into effect, there is a material risk that political influence will undermine the independence, impartiality and effective enforcement of competition law in South Africa to subjective, unqualified and discretion based enforcement.

[The ATT editors wish to thank Charl van Merwe for his assistance with drafting this article]

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

Posted on by Editor

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.

Second market inquiry focuses on energy sector (LPG)

Posted on by Editor

south_africa

“Highly regulated” liquefied petroleum gas at center of second sectoral Commission inquiry

According to the South African Competition Commission, the agency has issued “Terms of Reference for the market inquiry into the Liquefied Petroleum Gas sector”:

The Commission has today issued the Terms of Reference (ToR) for the LPG market inquiry. The ToR formally launches and outlines the scope of the inquiry.
The Commission is initiating the inquiry because it has reason to believe that there may be features of the sector that prevent, distort or restrict competition. The Commission hopes that the inquiry will assist in understanding the state of competition in the LPG sector.

It comes on the heels of the first market inquiry into private healthcare, on which AAT has reported extensively.

The full Terms of Reference are available online here.  The market inquiry is expected to begin this month and is expected to be completed by October 2015.

According to the Terms of Reference, the objectives of the market inquiry include:

  • Analyzing the current regulatory pricing framework with the aim of determining whether regulation could be improved in order to limit the exercise of substantial market power by market participants;
  • Examining whether the supply bottlenecks in the liquefied petroleum gas industry may serve to create circumstances or incentives that serve to distort, prevent or lessen competition;
  • Determining whether features currently prevalent in the market increase costs of switching to a prohibitive level when customers seek to switch between resellers of liquefied petroleum gas;
  • Assessing the extent of the barriers to entry and general competition dynamics at various levels of the supply chain within the industry; and
  • Making recommendations that may serve to improve the state of competition.

The Commission has identified the participants in the market inquiry process as including business enterprises within the liquefied petroleum gas chain, such as manufacturers, wholesalers, distributors and retailers, other related enterprises, end-users, government departments, public entities, regulatory authorities, industry associations and any other stakeholders that may be able to provide information relevant to the market inquiry.

BDLive reports that approximately “300,000 tons of LPG is manufactured in SA annually, generating turnover of about R1.5bn. Six refineries, Sapref, Sasol Synfuels, PetroSA Synfuels, Enref, Chevref and Natref produce and supply LPG.

Major resellers such as Afrox, Easigas, BPSA and Total Gas distribute it bulk or in a repackaged form. Afrox, Easigas and Sapref also imported at least 6,100 tons of LPG through facilities in Richards Bay, Port Elizabeth and Durban.”

How a BRICS country defeats EU Commission & the rule of law

Posted on by andreasstargard

South Stream pipeline
South Stream pipeline

According to various reports, the European Commission (specifically, its top management in the energy DG [Oettinger] and its president [Barroso], as well as others) has caved to the Russian energy powerhouse GAZPROM.

N.B.: (1) Yes, this relates to Africa.  (2) And yes, this relates to competition.

It relates to competition because the pending antitrust investigation by Mr. Almunia, already hamstrung, is clearly hampered by this development from its adjacent energy DG.  One Commissioner has caved, and another (a lame duck by now, who has already announced his retirement from the entire realm of politics) will not even bring a conclusion to his DG’s investigation into GAZPROM.  Putin and his friends at the gas giant have (now successfully) challenged the European energy and competition ministers, effectively saying to them: “We will break your laws, and there isn’t a thing you can do about it.”

It relates to Africa, because this is the story of how a BRICS country state-owned enterprise (or at least de facto SOE) is fully capable of defeating the “rule of law” that European proponents of the superiority of Western legal systems often tout.  Is EU law hard and fast?  Unbreakable?  Strictly enforced?  Without exceptions, for special friends (or powerful foes)?  All the common criticisms that are levied by eurocrats against developing African judicial systems are brought to the fore by this abject failure of the EU to uphold its own laws vis-a-vis a stronger opponent.

Banana Republic Brussels

The answer to the rhetorical questions posed above is – quite clearly as of today at least – a resounding “no“:

The EU has caved.  EU laws can be broken.  Without any consequences.

Until recently, the GAZPROM contracts with EU member states for its (63 billion cubic metres of gas per year) “South Stream” Project violated EU law, according to prior statements of the relevant EU Commissioners and their spokespeople.  The main concerns (here from the energy perspective, not the competition issues) were:

  • ownership unbundling rules violated by Gazprom being both a producer and a supplier of gas that owns simultaneously production capacity and its own transmission network
  • 3d-party non-discriminatory access endangered by Gazprom being exclusive shipper
  • South Stream’s pricing structure violates EU energy tariff rules

Yet, after some diplomatic prodding and economic threats, the Commission now has changed its tune and is literally giving GAZPROM a “get-out-of-jail-free card.”

“Gunther Oettinger, the European Commissioner for Energy, told Vedomosti newspaper that Moscow and Brussels will find a solution to honor previous intergovernmental agreements Gazprom has made with European transit countries.” (Source: Vedomosti newspaper, as quoted by rt.com)

Contrast this with what Mr. Oettinger said back in 2011 (note that he also (1) called South Stream a “phantom project” and essentially didn’t believe the Russians would go ahead with its construction in 2012, and (2) was quite clear in his understanding of how market participants operate: “money talks,” baby!):

I understand that certain EU Member States entered into bilateral agreements with the Russian Federation which may partially contradict these principles. If this is true, these Member States will nevertheless have to apply the internal market rules and they are under an obligation to bring their IGAs in line with the EU legislation. (Source: His own speech)

Even more tellingly, contrast the green light now given to the project with Mr. Oettinger’s spokespersons’ statements from December 2013 and even August 2013:

“The Commission has looked into these intergovernmental agreements and came to the conclusion that none of the agreements is in compliance with EU law,” Borchardt said.

“That is the reason why we have told these states that they are under the obligation, either coming from the EU treaties, or from the Energy Community treaty, that they have to ask for re-negotiation with Russia, to bring the intergovernmental agreements in line with EU law,” he added.  (Source: EurActiv)

Lesson (not) learned

How to wrap up a piece that essentially sounds the death knell of the rule of law in the EU, especially in Brussels?  Well, since this is an AfricanAntitrust.com post (this could arguably be published anywhere), the focus should be on EU lessons learned on the African continent.  The key take-away here may be this:

Very simply put: any African (or other BRICS or BRICS-like country) negotiator dealing with an official EU delegate as his or her counterparty should keep the “GAZPROM incident” in mind when faced with a lecture on the superiority and objectivity of EU law over whichever domestic judicial system may be at issue.