Are the 2017 PPPFA Regulations Misaligned? Can Competition Law Assist?

By Mitchell Brooks, AAT guest author

If one looks at the 2011 Preferential Procurement Policy Framework Act (PPPFA) Regulations, the Regulations provide two ratios to be used in determining a tender award. The two point systems are the 90/10 and the 80/20 ratios. The 90/10 ratio indicates that 90 out of 100 points are to be awarded based on the price of the bidder and 10 out of 100 points are to be awarded based on “special goals”[1]. Since the commencement of the 2011 PPPFA Regulations, special goals have primarily been allotted to BEE status levels.

slide_1Turning to the 2017 PPPFA Regulations, in which the above-mentioned ratios have been maintained, regulation 4 provides for pre-qualification criteria for preferential procurement. Interestingly, according to regulation 4(1)(a) of the 2017 Regulations, an organ of state may stipulate a minimum B-BBEE status level for tenderers. Furthermore, regulation 4(2) deems any tender in contravention of pre-qualification criteria unacceptable. In essence, the pool of bidders can be reduced significantly by requiring all bidders to possess as a B-BBEE Contribution level 1 despite primary legislation only allowing B-BBEE to be taken into account at a maximum threshold of 80/20. Therefore, it is hard to understand why the allocation of points to special goals is capped at 20 points whereas there is no maximum level allocated to the minimum pre-qualification criteria. Arguably, pre-qualification criteria in this regard are open to abuse in oligopolistic markets with few suppliers.

If one views this legal framework holistically, it may seem that the points allocation in the PPPFA is capable of being somewhat circumvented. In other words, the importance attached to a tenderer’s B-BBEE status level may be increased immensely if a level 1 or 2 B-BBEE status level is stipulated as a minimum pre-qualification criterion. On the other side of the coin, the significance of price may be undermined, rendering a competitive tendering process ineffective in securing value-for-money. This suggests the 2017 Regulations are misaligned in that the purpose of the 80/20 split is unclear when read with regulation 4.

In an effort to restrain pre-qualification criteria restricting a large pool of bidders, a bidder may ask whether a dominant public entity, for example, a monopolistic entity such as Eskom, would contravene section 8(c) of the Competition Act if the pre-qualification B-BBEE status level is set too high. Does it qualify as an exclusionary act which is likely to affect competition in the particular market? This falls part of a larger looming question, at what point does pre-qualification criteria by dominant parastatals become anticompetitive in terms of the Competition Act and how will Competition Law interact with procurement? Section 217 of the Constitution of South Africa does not provide a clear answer but it does suggest that competition may have an important role to play going forward.

[1] section 2(1)(e) of the Preferential Procurement Policy Framework Act Regulations 2011

[2] Competition Act 89 of 1998

A new era of antitrust in Zimbabwe: National Competition Policy moves ahead

Having recently hosted a national sensitisation workshop on COMESA competition policy in Harare, as we reported here, Zimbabwe is expected to enact a revised competition law.  The country’s Cabinet has reportedly approved the National Competition Policy.  One element of the NCP is to reduce the time it takes the Zimbabwean Competition and Tariff Commission (CTC) to review mergers and acquisitions from 90 to 60 days, thereby encouraging “brownfield” investments, according to a minister.

Zimbabwean Industry and Commerce Minister Dr. Mike Bimha spoke at the mentioned workshop, emphasising the need for “a level playing field”: “We are now working to ensure that we have a new Competition Law in place which will assist the CTC in dealing more effectively with matters related to abuse of dominant positions and cartels,” he said.

The NCP is part of a larger project to encourage investment and is closely linked with the country’s industrial and trade policies, known as Zimbabwe Agenda for Sustainable Socio-Economic Transformation (a.k.a. “Zim-ASSET”).

The Zimbabwean NCP is not merely domestically focussed, however.  Andreas Stargard, a competition-law practitioner, highlights the more international aspects that also form part of the revised competition bill awaiting enactment by the President:

Not only does the NCP contain the usual  focus of levelling the playing field among domestic competitors under its so-called Zim-ASSET programme.  It also undergirds the so-called ‘domestication’ of the broader regional COMESA competition rules, as well as the Ministry’s bilateral agreements.  For example, Zimbabwe recently entered into a Memorandum of Understanding with the Chinese government, designed to enhance cooperation on competition and consumer protection issues between Zimbabwe’s CTC and the PRC’s MOFCOM.

Namibia Competition Commission: New Franchise Laws to Address Anti-Competitive Concerns

By AAT Senior Contributor, Michael-James Currie

The CEO of the Namibian Competition Commission (NCC), Mr. Mihe Gaomab II, recently announced that the NCC has made submissions to the Minister of Trade and Industry in relation to proposed legislation which will regulate franchise models in Namibia.

Currently, there is no specific ‘franchise law’ in Namibia and moreover, franchisees are not required to apply to the Minister of Trade and Industry for registration of an ‘approval’ licences. Accordingly, there is minimal regulatory oversight in respect of franchise models.

While recognising the benefits of franchise models, the NCC is, however, concerned that there are a number of franchises in Namibia which may be anti-competitive in that the franchisor-franchisee relationship creates certain barriers to entry.

The NCC has specifically identified the practice, by way of an example, whereby certain franchisors deliberately ensure that there is a lack of competition between franchisees in the downstream market. The rationale behind this commercial strategy is allegedly so that the franchisor may extract greater royalties or franchise fees from the respective franchisees, as the franchisee is assured of a lack of competition.

The NCC views this practice as well as a various similar practices as potentially anti-competitive as the structure of certain franchise models may result in collusion between franchisees.

Unlike a number of jurisdictions, including South Africa, however, collusive conduct is not prohibited per se and a franchise agreement or model will, therefore, only amount to a contravention of the Namibia Competition Act if there is (or likely to be) an anti-competitive effect which cannot be justified or outweighed by other pro-competitive or efficiency arguments (i.e. rule of reason arguments).

The rule of reason analysis also extends to ‘minimum resale price maintenance’ (MRPM) under Namibian competition law. Again, unlike the position in South Africa, MRPM is not a per se prohibition (i.e. there is rule of reason defence available to a respondent). MRPM in terms of the South African Competition Act is a controversial topic as in many instances, the very success of a franchise model is dependent on uniformity in pricing across all franchisees. Furthermore, issues such as protecting brand reputation are also generally acceptable commercial practices which may amount to a contravention due to the strict application of the MRPM provisions under South African law.

In Namibia, franchisors therefore have somewhat more flexibility when recommending minimum resale prices than their South African counterparts. It should be noted, however, that the NCC is monitoring franchise models closely to ensure that franchisors do not overstep the mark by implementing a franchise model which has as its object or effect, the lessening of competition in the market.

Pan-African Antitrust Round-Up: Mauritius to Egypt & Tunisia (in)to COMESA

A spring smorgasbord of African competition-law developments

As AAT reported in late February, it is not only the COMESA Competition Commission (CCC), but also the the Egyptian antitrust authorities, which now have referred the heads of the Confederation of African Football (CAF) to the Egyptian Economic Court for competition-law violations relating to certain exclusive marketing & broadcasting rights.  In addition, it has been reported that the Egyptian Competition Authority (ECA) has also initiated prosecution of seven companies engaged in alleged government-contract bid rigging in the medical supply field, relating to hospital supplies.

Nigeria remains, for now, one of the few powerhouse African economies without any antitrust legislation (as AAT has reported on here, here, here and here).

But, notes Andreas Stargard, an antitrust attorney with Primerio Ltd., “this status quo is possibly about to change: still waiting for the country’s Senate approval and presidential sign-off, the so-called Federal Competition and Consumer Protection Bill of 2016 recently made it past the initial hurdle of receiving sufficient votes in the lower House of Representatives.  Especially in light of the Nigerian economy’s importance to trade in the West African sphere, swift enactment of the bill would be a welcome step in the right direction.”

The global trend in competition law towards granting immunity to cartel whistleblowers has now been embraced by the Competition Commission of Mauritius (CCM), but with a twist: in a departure from U.S. and EU models, which usually do not afford amnesty to the lead perpetrators of hard-core antitrust violations, the CCM will also grant temporary immunity (during the half-year period from March 1 until the end of August 2017) not only to repentant participants but also to lead initiators of cartels, under the country’s Leniency Programme.

The Executive Director of the CCM, Deshmuk Kowlessur, is quoted in the official agency statement as follows:

‘The policy worldwide including Mauritius, regarding leniency for cartel is that the initiators of cartel cannot benefit from leniency programmes and get immunity from or reduction in fines. The amnesty for cartel initiatorsis a one-off opportunity for cartel initiators to benefit from immunity or up to 100% reduction in fines as provided for under the CCM’s leniency programme. The amnesty is a real incentive for any enterprise to end its participation in a cartel. In many cases it is not clear for the cartel participant itself as to which participant is the initiator. The participants being unsure whether they are an initiator finds it too risky to disclose the cartel and apply for leniency. The amnesty provides this unique window of 6 months where such a cartel participant can apply and benefit from leniency without the risk of seeing its application rejected on ground of it being an initiator.’

 

COMESA Competition Commission logoFinally, COMESA will grow from 19 to 20 member states, welcoming Tunisia at the upcoming October 2017 summit: the official statement notes that “Tunisia first applied for observer status in COMESA in 2005 but the matter was not concluded. In February, 2016 the country formally wrote to the Secretary General making inquiries on joining COMESA. This set in motion the current process towards its admission. once successfully concluded, Tunisia will become the 20[th] member of COMESA.”

This means that within 6 months of accession to the Common Market, Tunisia’s business community will be bound by the competition regulations (including merger control) enforced by the CCC.  Speaking of the CCC, the agency also recently entered into a Memorandum of Understanding with the Mauritian CCM on March 24, facilitating inter-agency coordination.  In addition, the Zimbabwean Competition and Tariff Commission (CTC) will host a national sensitisation workshop on COMESA competition policy on May 16, 2017 in Harare, purportedly as a result of “over 50 transactions involving cross-border mergers notified” to the CCC involving the Zimbabwean market.  “The main objective of the national workshop is to raise awareness among the key stakeholders and business community in Zimbabwe with regards to the provisions and implementation of COMEA competition law,” the CTC noted in a statement.

 

SOUTH AFRICA: ZUMA’S STATE OF THE NATION ADDRESS MAY BE HINT AT INTRODUCTION OF COMPLEX MONOPOLY PROVISIONS

While the media headlines are largely filled with the disruptions that took place at the State of the Nation Address (SONA) by President Jacob Zuma on 9 February 2017, the President made an important remark which, if true, may have a significant impact on competition law in South Africa, particular in relation to abuse of dominance cases.

In this regard, the President stated that:

During this year, the Department of Economic Development will bring legislation to Cabinet that will seek to amend the Competition Act. It will among others address the need to have a more inclusive economy and to de-concentrate the high levels of ownership and control we see in many sectors. We will then table the legislation for consideration by parliament.

In this way, we seek to open up the economy to new players, give black South Africans opportunities in the economy and indeed help to make the economy more dynamic, competitive and inclusive. This is our vision of radical economic transformation.”

Patel talksNeither the President nor Minister Patel have given any further clarity as to the proposed legislative amendments other than Patel’s remarks early in January 2017 in which he stated that:

The review covers areas such as the efficacy of the administration of the Competition Act, procedural aspects in the investigation and prosecution of offences, matters relating to abuse of dominance, more effective investigations against cartels and the current public interest provisions of the act.

Says John Oxenham, a competition attorney who has closely followed the legislative and policy developments, “despite the broad non-committal remarks by Minister Patel, it is clear that the Minister is zealous in having the ‘complex monopoly’ provisions brought into force to address in order to address, what the Minister perceives to be, significant abuse of dominance in certain concentrated markets.”

In terms of the provisions, as currently drafted, 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”).

white-collar-crimeDespite having been promulgated in 2009, the ‘complex monopoly’ provisions have not yet been brought into effect largely due to the concerns raised as to how these provisions will be enforced, says Primerio Ltd.’s Andreas Stargard: “It is noteworthy that the introduction of criminal liability for directors and persons with management authority who engage in cartel conduct was also promulgated in 2009, but surprised most (including the Competition Authorities) when it was quite unexpectedly brought into force in 2016.”

Minister Patel was no doubt a key driving force behind the introduction of criminal liability and it would, therefore, not be surprising if the complex monopoly provisions are brought into force with equal swiftness in 2017.

Kenya: Recent Amendments to the Act adds an Interesting Dimension to the Abuse of Dominance Provisions

Introduction of Abuse of ‘Buyer Power’ Provisions Muddies the Water

Ruth Mosoti

By Michael-James Currie and Ruth Mosoti

currie2

In November last year, the editors of Africanantitrust indicated that a number of amendments to the Kenya Competition Act of 2010 were being proposed by way of the Competition Amendment Bill (Amendment Bill) in the article Competition Amendment Bill to bring about Radical changes to the Act

The Amendment Bill was assented to by the President in December 2016 and the amendments are, therefore, effective.

Although most of the amendments which are particularly noteworthy were addressed in the above article, a particularly noteworthy amendment, and very much the focus of this article, is the newly introduced prohibition of an abuse of “buyer power”. In this regard, Section 24 of the Act, which deals with abuse of dominance generally, has been amended to also cater for an abuse of “buyer power.”

Section 24 of the Act was, even prior to the introduction of “buyer power” a particularly challenging provision to interpret and it has not been clear how the provisions relating to an abuse of dominance would ultimately be assessed.

By way of background, the definition of “dominance” in the Act, effectively states that a firm will be considered dominant if that firm has greater than 50% market share

The Act goes on to list, without being exhaustive, a number of practices which would typically constitute an abuse of dominance including:

  • imposing unfair purchasing or selling prices;
  • limiting or restricting output, market access or technological advancements;
  • tying and/or bundling as part of contractual terms; or
  • abusing intellectual property rights.

The Act does not provide further guidance as to what would precisely constitute an “abuse” of dominance and under what circumstances a purchasing or selling price would be deemed to be “unfair”.

The abuse of dominance provisions do not necessarily, therefore, appear to be directly linked to the promotion or maintenance of competition in the market. Once it is shown that a firm has more than 50% market share, firms are in treacherous terrain as the threshold for engaging in “abuse” of dominance is relatively low when compared to many other comparable jurisdictions which generally cater for a rule of reason defence or at least provide greater guidance as to what conduct would constitute a per se violation.

By way of an example, in terms of the South Africa Competition Act, a dominant firm is per se prohibited from charging an “excessive price”. The South African Competition Act does, however, define an “excessive price” as one which “bears no reasonable relation to the economic value thereof”. Despite this definition, further guidance has been sought but the competition authorities as to what, in turn, constitutes a “reasonable” and “economic value.”

Over and above certain identified acts of abuse of dominance, the South African Competition Act also includes for a “catch-all” abuse of dominance provision. However, the conduct will only amount to an “abuse” if there is an anti-competitive effect which cannot be justified by a rule of reason analysis.

The comparison with the South African Competition Act is useful as the Kenyan Competition Act does not provide for a similar assessment as does its South African counter-part. For instance, it is not clear how predatory pricing or excessive pricing would be evaluated under the Kenyan Act. Presumably this would fall under the preclusion of charging an “unfair” selling price, which leads one back to the question as to what constitutes an “unfair” price.

In addition to the above, the recent addition of “buyer power” to the abuse of dominance provisions has added to the complexity and risk to firms on the procurement side.

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

Furthermore, in considering whether a firm has “buyer power” the following factors will be considered:

  • the nature of the contractual terms;
  • the payment requested for access infrastructure; and
  • the price paid to suppliers.

Accordingly, the crux of the rather cumbersome definition is that an undertaking will only be considered to have “buying power” if that undertaking(s) has simultaneously actually abused its’ buying power. In other words, there is no distinction between what constitutes “buying power” and what constitutes an “abuse” of buying power. The Act’s definition of “buying power” is, therefore, all encompassing.

Although the above definition is somewhat unclear, it should be noted that the Competition Authority of Kenya, together with Parliament and other stakeholders intend developing rules which would hopefully clarify how these provisions will ultimately be evaluated.

A further important point to note is that it is not a requirement that a firm be ‘dominant’ in order to be considered to have “buying power”. Whether it was the intention of the legislator to require a firm to first be ‘dominant’ before it could be prosecuted for “abuse of buyer power” is not entirely clear. The definition of “buying power” is remarkably silent on this issue.

The fact that the preclusion of an abuse of buyer power necessitates that a firm be dominant could be inferred by the fact that provision is inserted under Section 24 (the abuse of dominance provisions).

However, the definition of “buyer power” caters for a situation where a group of undertakings, such as when a buying group, is formed, exert buyer power, the group commits an offence. Accordingly, it may have been that the legislator was contemplating a situation in which a group of undertakings, such as a buying group collectively meets the ‘dominance’ threshold (i.e. a greater than 50% market share).

Alternatively, it could have been the intention of the legislator that the abuse of buyer power has no direct link to dominance as such and that once a firm or group of firms satisfy the definition of “buyer power”, irrespective of their market shares, the provision is triggered.

In a number of developing countries such as Turkey, South Africa and Botswana have conducted market inquiries into the grocery retail sector. Although the focus of these inquiries are relatively broad, a common focus of all the market inquiries in this sector relates to the role that the large retailers play in the market. In particular, suppliers and competition agencies are often concerned with the buying power which large retailers could exert on suppliers and that the trading terms are unfair, particularly for smaller retailers who are not always in a position to pay for shelf space, access fees or offer the discounts demanded by the retailers.

In many instances, however, the large retailers are not ‘dominant’ and a complainant would need to demonstrate that the buying power exerted by the large retailer is in fact anti-competitive.

The Kenyan Competition Authority may have thought to pre-empt this challenge and therefore included the “abuse of dominance” provisions without requiring a firm to actually be dominant for the provision to be triggered. Furthermore, the definition of “buying power” and the absence of any requirement that the conduct must in fact be anti-competitive may have been an attempt by the legislator to lower the threshold in an effort to assist a complainant in cases where a purchaser, such as a large retailer, exerts “buyer power”, but is not “dominant” in the market.

The absence of any objective qualification to assess when a firm has exerted “buyer power” in an “unfair” manner may open the litigation floodgates. A further reason why it is important that the authorities publish rules to assist with the interpretation and implementation of the “abuse of buyer” power provisions.

In terms of enforcement, the Act was previously silent on the role of the Authority upon the conclusion of an abuse of dominance investigation and the only option lay on criminal prosecution of the offending undertaking. The recent amendments to the Act now allows the Authority to impose fines of up to 10% of the annual turnover of the offending undertaking(s).

New Zambian Settlement Guidelines: A Risky Reprieve

By AAT Senior Contributor, Michael-James Currie & Mweshi Mutuna, Pr1merio competition advocate (Zambia)

The Zambian Competition and Consumer Protection Commission (‘CCPC’) has recently published draft settlement guidelines (‘Draft Guidelines’) for respondents who have allegedly engaged in conduct in contravention of the domestic Competition and Consumer Protection Act (‘Act’).

zambiaThe Draft Guidelines have been published in addition to the ‘Leniency Programme’ as well as the ‘Fines Guidelines’ published earlier this year (as well as the 2015 Merger Guidelines), and essentially sets out a framework within which respondent parties may engage the CCPC for purposes of reaching a settlement agreement for alleged contraventions of the Act.

Notably, the Draft Guidelines will be binding on the CCPC which is an important aspect of ensuring a transparent and objective approach to settlement negotiations. Furthermore, the Draft Guidelines emphasise that respondents should be fully informed of the case against them prior to settling. In this regard, the Draft Guidelines provide for an initial stage of the settlement negotiations (essentially an expression of interest) which follows from a formal request by a firm expressing an interest to settle.

Should the CCPC decide to proceed with settlement negotiations, the CCPC must, within 21 days, provide the respondent party with information as to the nature of the case against the respondent. This includes disclosing the alleged facts and the classification of those facts, the gravity and duration of the alleged conduct, the attribution of liability (which we discuss further below) and the evidence relied on by the CCPC to support the complaint.

currie2

The authors, Mr. Currie & Ms. Mutuna

The purpose of disclosing these facts to a respondent is to afford a respondent the opportunity to meaningfully consider and evaluate the case against it in order to make an informed decision whether to settle or not.

Assuming that an expression of interest in settling the matter is established by both parties, the CCPC will then proceed by requesting that the respondent provide a formal “settlement submission” within 15 days of the CCPC’s request. Included in the settlement submission, must be a clear and unequivocal acknowledgement of liability (which includes a summary of the pertinent facts, duration and the respondent’s participation in the anticompetitive conduct) and the maximum settlement quantum which the respondent is prepared to pay by way of an administrative penalty.

Should the CCPC accept the settlement submission, the CCPC will then commence with drafting and ultimately publishing a statement of objections (‘SO’) which essentially captures the material terms of the settlement submission. This is largely a necessary procedural step although the respondent party may object to the SO should it not correctly record the terms of the settlement agreement.

Following the publication of the SO, the CCPC will, subject to any challenges to the SO, proceed formally to make the settlement agreement a final decision as required by the Act.

Risky Business?

The above framework appears to be relatively straightforward and balanced, assuming that the parties in fact do reach a settlement agreement. The position is somewhat different in the event that settlement negotiations breakdown, particularly if the negotiations are already at a relatively advanced stage.

Most notably, settlement negotiations in terms of the Draft Guidelines are not conduced on a “without prejudice” basis. To the contrary, the Draft Guidelines states that the CCPC has the right to adopt a SO which does not reflect the parties’ settlement submission. In this event, the normal procedures for investigating and prosecuting a complaint as set out in the Act will apply.

In the event that the CCPC elects not to accept a settlement submission submitted by a respondent, the Draft Guidelines specifically state that “the acknowledgements provided by the parties in the settlement submission shall not be withdrawn and the Commission reserves the right to use the information submitted for its investigation”.

This paragraph is controversial as it places a substantial risk on a party making a settlement submission with no guarantee that the settlement proffer will be accepted by the CCPC, while at the same time, the respondent party exposes itself by making admissions which may be used against it in the course of a normal complaint investigation and determination by the CCPC.

Whether or not the financial incentive to respondents would entice a respondent to, nonetheless, engage in settlement discussions in terms of the Draft Guidelines is sufficient, only time will tell. In this regard, however, the Draft Guidelines state that a firm who settles with the CCPC prior to the matter being referred to the Board will be limited to a maximum penalty of up to 4% of the firm’s annual turnover. Should the firm settle after the matter has been referred to the Board, the maximum penalty will be capped at 7% of the firm’s annual turnover.

Multi-Party Settlements: the More the Better?

A further interesting and rather novel aspect to the Draft Guidelines is the provision made for tripartite settlement negotiations. In this regard, the Draft Guidelines cater for a rather unusual mechanism by which multiple respondents in relation to the same investigation may approach the CCPC for purposes of reaching a settlement agreement.

Although referred to as “tripartite” negotiations, the Draft Guidelines state that when the CCPC initiates proceedings against two or more respondents, the CCPC will inform a respondent of the other respondents to the complaint. Should the respondent parties collectively wish to enter into settlement negotiations, the respondents should jointly appoint a duly authorised representative to act on their behalf. In the event that the respondent parties do settle with the CCPC, the fact that the respondents were represented by a jointly appointed representative will not prejudice them insofar as the CCPC making any finding as to the attribution of liability between the respondents is concerned.

While joint representation may be suitable in the case of merger-related offences (which may have been what was envisaged by the drafters hence the reference to “tripartite” negotiations), we believe that it is hard to imagine that the drafters anticipated that, should respondents to a cartel be invited to settle the complaint against them, the cartelists would then be required to embark on further collaborative efforts: this time to engage collectively in formulating a settlement strategy and decide how they are ultimately going to ‘split the bill’ should a settlement agreement be reached.

The issue of a multi-party settlement submission is further complicated in the event that a settlement proffer is not accepted by the CCPC following a multiparty settlement submission. As mentioned above, the settlement submission must contain an admission of liability which, in the case of cartel conduct, would invariably amount to the parties to the settlement proposal admitting to engaging in cartel conduct by fixing prices or allocating markets, by way of example, between each other.

Although, the Draft Guidelines is a welcome endeavour to provide respondents with a transparent and objective framework to utilise when engaging with the CCPC for purposes of reaching a settlement, the uncertainty and risk which flows from a rejection of the settlement proffer may prove to be an impediment in achieving the very objectives of the Draft Guidelines.

In this regard, we understand that the CCPC is currently considering revised guidelines which hopefully address the concerns raised above.

 

Kenya: Competition Amendment Bill to bring about Radical changes to the Act

kenyaThe Competition Authority of Kenya (CAK) has recently announced that a number of proposed amendments to the Competition Act are currently pending before the National Assembly for consideration and approval.

The proposed amendments are generally aimed at increasing sanctions and CAK’s authority to detect and prosecute anti-competitive behaviour as well as to ensure that parties provide the CAK with adequate and correct information to properly assess merger notifications.

  • Anti-competitive conduct

Importantly, the amendments seek to introduce a financial threshold for respondents who are found to have engaged in abuse of dominance practices. Currently, there is no administrative penalty for a abuse of dominance.

The amendments further include an administrative cap of 10% for engaging in cartel conduct.

Interestingly, the amendments also seek to introduce measures to protect suppliers from buying groups. Unlike the South African Competition Act which specifically precludes competitors from entering into an agreement or concerted practice which amounts to the fixing of a purchase price or trading condition, Kenya’s Competition Act does not have a similar express prohibition.

It is also not clear, at this stage, what the anti competitive effect of buying groups is having in Kenya. The CAK has, however, indicated that suppliers are often left short-changed as a result of buying groups not paying the suppliers. Whether this has or may have a foreclosure effect on suppliers is noy yet apparent.

In any event, the proposed solution is likely to be resolved through the development of guidelines rather than an amendment to the Act.

  • Mergers

A clear indication that the CAK is increasing its efforts to ensure that they are not merely a regulatory body which rubber stamps merger approvals is the proposed introduction of penalties for merging parties who submit incorrect information to the CAK during a merger filing.

In addition, in terms of Section 47 of the Competition Act, the CAK may revoke their decision to approve or conditionally approve a merger if the merger approval was granted based on materially incorrect or false information provided during the notification and/or the merger is implemented in contravention of any merger approval related conditions.  In terms of the amendments, the CAK is proposing the introduction of criminal liability for merging parties who implement a merger despite the CAK having revoked the merger.

Merging parties will, therefore, need to ensure that they adequately prepare and submit comprehensive merger filings.

As to the definition of what constitutes a “merger” for purposes of the Competition Act, the proposed amendments seek to clarify that a change of control can take place by the acquisition of assets.

  • Market inquiries

Section 18 of the Act is also to be amended to place an obligation on parties to provide the CAK with information during market inquiries.

We have not yet seen the CAK conduct a full blown market inquiry as has been the case in South Africa. In light, however, of the CAK and the South African Competition Commission’s (SACC) advocacy initiatives (readers wlll recall that the CAK and the SACC recently concluded a Memorandum of Understanding), the CAK may soon launch a market inquiry into priority sectors such as grocery retail and agro-processing.

 

 

Namibia: NaCC issues Guidelines on Restrictive Practices

By Michael-James Currie

In April 2016, the Namibian Competition Commission (NaCC) finalised its guidelines on restrictive practices (Guidelines) in terms of chapter three of the Namibian Competition Act. The Guidelines focus in particular on the investigatory powers and procedures to be utilised by the NaCC during its investigations into restrictive practices.

The Namibian Competition Act contains most of the traditional antitrust prohibitions in relation to restrictive conduct. These include ‘agreements’ or ‘concerted practices’ between firms in a horizontal or vertical relationship which have the “object” or “effect” of substantially lessening competition in the market.

The Competition Act does not, from a plain reading of the language, impose a per se prohibition for ‘hardcore’ cartel conduct. The Guidelines, however, confirm that certain practices such as ‘hardcore cartel conduct’ and ‘minimum resale price maintenance’ will be considered per se to be anticompetitive. It is unclear, however, whether this per se contravention should rather serve as a presumption that the conduct is anti-competitive which may affect the onus of proof, rather, as in the South African context where the Act makes it clear that the effect of hardcore cartel conduct is irrelevant.

Furthermore, there is no express provision which deals with ‘rule of reason’ defences, however, the Guidelines confirm that efficiency or pro-competitive features of the alleged anti-competitive conduct, may outweigh any anti-competitive effect. It should be noted, however, that even if there was no anti-competitive effect, if the objective of the conduct was to engage in an anti-competitive agreement or concerted practice, a respondent may still be liable. Accordingly, conduct must not only be shown not to have an anti-competitive effect, but must also be properly ‘characterised’ as not being anti-competitive, in order to avoid liability.

The Namibian Competition Act also prohibits abuse of dominance conduct. The Act does not contain thresholds or criteria for deterring when a firm would be considered ‘dominant’, however, in term of the Competition Commission’s Rules, a firm:

  • will be considered dominant if it has above a 45% market share;
  • will be presumed dominant if it has between 35-45% market share (unless it can show it does not have market power); or
  • has a market share of less than 35%, but has market power.

Although the abuse of dominant provision is intended to prohibit a broad range of potential anti-competitive conduct, the Act in particular, notes the following conduct which, if a firm is dominant, is restricted:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
  • limiting or restricting production, market outlets or market access, investment, technical development or technological progress;
  • applying dissimilar conditions to equivalent transactions with other trading parties; and
  • making the conclusion of contracts subject to acceptance by other parties of supplementary conditions which by their nature or according to commercial usage have no connection with the subject-matter of the contracts.”

Importantly, the Namibian Competition Act does not state that the conduct identified above must lead to a substantial-lessening of competition in the market. Furthermore, in terms of the Guidelines, the NaCC not only considers the conduct of and individual firm, but also considers the conduct of a “number of connected undertakings acting collectively” for purposes of considering whether there has been an “abuse of dominance”.

It should be noted that the Namibian Competition Act does cater for exemptions from the application of Chapter 3 (i.e. restrictive practices) and sets out in some detail the requirements and terms upon which an exemption may be granted.

As noted above, however, the most elements contained in the Guidelines relate to the NaCC’s investigatory powers.

In terms of the Namibian Competition Act, the NaCC may initiate a complaint or may elect to investigate a third party complaint.

The NaCC‘s investigatory powers include the power to conduct search and seizure operations. Importantly, the NaCC may take into possession any evidence which, in its opinion, will assist in the investigation. This is so even if such evidence would not be admissible as evidence in a court of law. For purposes of obtaining witness statements, however, a witness has the same rights and privileges as a witness before a court of law.

The Guidelines also confirm that the NaCC is not entitled to peruse or seize “legally privileged” documents unless privilege is waived. Interestingly, the Guidelines do not appear to protect communication between in-house legal and the firm and refers to legally privileged communication as that between “lawyer and client” only.

Search and seizure operations must be conducted in terms of a valid search warrant.

The Guidelines also contains further guidance on various topics and caters for a number of procedural aspects which must be adhered to (as well as the prescribed forms which should be utilised in certain circumstances) in relation to, inter alia the following:

  • initiating complaint;
  • applying for an exemption;
  • requesting an advisory opinion;
  • handling and the use of ‘confidential information’;

The Guidelines is no doubt a stern indication that the NaCC is preparing to heighten its intensity in terms of investigating and prosecuting restrictive practices. Since inception, the NaCC has dealt with over 450 merger cases, but has only handled approximately 40 restrictive practice complaints.

Furthermore, and in line with the NaCC’s newly adopted 5 year ‘Strategic Plan (2015-2020), the NaCC is growing in confidence and competence and firms should be aware that the NaCC will look to utilise the dawn raids provisions when necessary.

More Criminal Anti-Cartel Enforcement in Africa? Some Thoughts on Nigeria

By AAT guest author, Osayomwanbor Bob Enofe, Sutherland School of Law Doctoral Scholar, UCD.

We recently wrote about the landmark enactment of the new South African competition legislation that makes hard-core price-fixing a criminal offence, subjecting cartelists to up to 10 years imprisonment.  Nigeria is usually not on the radar of antitrust practitioners, however, and certainly not in the criminal sense, either.  As regular readers of AAT know, the Republic of Nigeria has featured occasionally in our posts despite not having a functioning antitrust regime, yet.  As editor and Pr1merio director Andreas Stargard wrote in an article entitled “Nigerian antitrust?“, scholars and political activists alike have promoted the idea of establishing an antitrust regime in West Africa’s dominant economy: ‘Today, AfricanAntitrust adds its voice to the steady, though infrequent, discussion surrounding the possibility of a Nigerian competition-law regime.  In our opinion, it is not a question of “if” but “when”, and perhaps more importantly, “how“?’

Today, contributing author Bob Enofe adds his voice to the mix, and we are publishing one of his articles that originally appeared on Robert Connolly’s cartel capers blog.

Criminal Antitrust in Nigeria?

nigeriaThe Federal Republic of Nigeria is currently in the process of enacting a competition law, including to criminalise cartel activity amongst competitors. While such is in line with moves made by various other jurisdictions and theories of ‘rational actor’, sanction and deterrence, on ground realities suggest that criminalisation where transplanted might be seriously flawed.

From the late 1990s, and particularly in the year 2000, the Federal Government of Nigeria commenced moves to enact a Competition Law. Under such law, business cartel activity defined as agreements between competitors, aimed at distorting the process of competition and generating monopolistic rents, would be criminalised. The ‘Federal Competition Bill, 2002’, an executive bill drafted by the Nigerian Bureau of Public Enterprises (BPE), was titled: “a Bill for an Act to provide necessary conditions for market competition and to stimulate creative business activities, protect consumers, and promote the balanced development of the natural economy, by prohibiting restrictive contracts and business practices that substantially lessened competition”. It was also to be a Bill to regulate “possible abuses of dominant positions by businesses, and anti-competitive combines, and to establish the Federal Competition Commission, for effective implementation and enforcement of all the provisions of the bill”.  According to relevant sections of the bill, cartel agreements amongst competitors, including price fixing, bid rigging and market division, were also to be expressly criminalised. Clearly a robust and comprehensive bill, 16 years after introduction to the Nigerian National Assembly, the bill remains to be passed into law. Several amendments have since been presented, together with other bills presented by lawmakers. In every case, such bills have either stalled at first reading stage, or in certain cases disappeared from the legislative process. In one of such instances, an amendment of the above bill (The Federal Trade and Competition Commission Bill, 2006) was “vehemently” objected to by distinguished Senators, prompting governmental withdrawal. Amongst reasons advanced for the reception accorded the bill included that there was no need for a distinct ‘competition commission’, in the face of an already existent consumer protection council in Nigeria; other legislators simply complained about a proliferation of “too many commissions” in the country. Commentators have alluded to overt ignorance and lack of particular inclination for the subject, on the part of Nigerian Senators, as in reality underlining the reception accorded the bill.

In a paper recently presented at the #SLSA2016, ‘Developing Countries, Nigeria, and Cartel Criminalisation: of Transplantation and Desirability’ I had outlined how Nigeria’s attempt to introduce a competition law, and in particular criminalise cartel activity, reveals a (marked) lack of societal inclination towards competition law and prior poor advocacy on the part of government. Social norms are crucial to the effectiveness of law reform. Desirable social norms ensures amongst other things that prohibited conduct will be reported and discovered, even without direct enforcement or investigativeBob Enofe intervention, thereby complementing stretched law enforcement efforts.[1] Such also imply that prosecutors will be willing to enforce and vigorously police provisions of the law where passed, and in the case of the judiciary, stringent sentences will also be applied—or at least not deliberately avoided—so as to facilitate the deterrence potential of the applicable law. Perhaps most crucially for Nigeria, existence of such norms also mean that law makers are incentivised to support reform efforts, while the chances of ‘hijack’ by private interests will be slim. Absent such norms the chances of Nigeria’s competition and cartel criminalisation law, even when passed, could be (remarkably) marginal.

Heightened advocacy, together with a careful selection of test cases once the law is enacted is advanced as capable of remedying the above situation. In the face of sub-par institutions characteristic of the Nigerian context however (including severe limitations in the operation of the rule of law), abilities to so ‘guide’ social norms will be in reality seriously limited. An online petition regarding corruption amongst Nigerian senators, for example, reflect in part difficulties that could frustrate transplantation of cartel criminalisation, absent independent, effective, anti-corruption reforms in the country.

Neoliberal theories of rational actors, sanction and deterrence, imply to large extents a similar existence of contexts as have underlined effectiveness in western societies. In many cases, on the ground realities suggest that theories where transplanted, could be seriously flawed.

As I have argued in another paper currently under review (details to be communicated soon, hopefully!), one size cannot fit all- with developing countries and cartel criminalisation, the point gains extra force. To the extent that fines and other administrative means of enforcement are limited in ability to effectively curtail cartel practices, suggests a need for continuation of relevant research. Criminalisation hardly represents the ‘Golden Fleece’.

Footnote:

[1] See Stephan, Andreas, ‘Cartel laws undermined: Corruption, social norms, and collectivist business cultures’ (2010) Journal of Law and Society 345-367, See Maher, Imelda, The Institutional Structure of Competition Law, in Dowdle, Gillespie and Maher (eds) Asian Capitalism and the Regulation of Competition: Towards a Regulatory Geography of Global Competition Law (Cambridge University Press, 2013) 55, See Gal, Michal  ‘The Ecology of Antitrust: Preconditions for Competition Law Enforcement in Developing Countries.’ (2004) Competition, Competitiveness and Development 20-38.