Body uses power creatively in Sasol cartel case
THE South African competition authorities have been mandated with the task of the maintenance and promotion of competition within SA. To this end, the Competition Act, 1998, has been generous in the powers it gives to the authorities. While it makes provision for powers of referral, search and seizure, the ability to authorise or prohibit mergers, the ability to institute, investigate, adjudicate and impose remedies in instances of alleged contraventions of the act, it also confers a considerable discretion upon the authorities in question.
An example of this is highlighted in the Competition Commission’s ability to negotiate and agree upon the terms of a settlement agreement with a respondent (a firm against which a complaint of a prohibited practice has been initiated), thereby avoiding the need for contested litigation before the Competition Tribunal.
The legislation does not prescribe parameters regarding the content required prior to the confirmation of such an agreement — the discretion to confirm same as an order falls squarely within the tribunal’s discretion.
This discretion was recently highlighted in two complaints (which were initiated during 2003 and 2004) in the markets for the supply of fertiliser products and the supply of ammonia-based fertiliser products respectively.
The complaints alleged that Sasol Chemical Industries (Sasol) and others had, among other things, engaged in collusive conduct, price discrimination and exclusionary conduct. Ordinarily, contraventions of this nature would render a guilty firm liable to the imposition of an administrative penalty, in an amount determinable by the tribunal, but not exceeding 10% of the firm’s annual turnover in its immediately preceding financial year.
During May 2009, the tribunal confirmed a settlement agreement concluded between the commission and Sasol, in terms of which Sasol agreed to pay a fine exceeding R250m, as a result of its admission of involvement in cartel conduct (the “first consent agreement”).
Pursuant to the confirmation of the first consent agreement, the tribunal, on July 20, confirmed the contents of a second agreement to settle the outstanding abuse of dominance (exclusion) and price discrimination complaints (the “second consent agreement”).
Prior to the confirmation of the second consent agreement, two objections were raised. The first, by African Explosives (AE), resulted in Sasol and the commission augmenting the terms of the second consent agreement by the addition of an express term ensuring that Sasol’s ammonia supply obligations to AE would remain intact, notwithstanding the terms of the second consent agreement.
The second objection came from Omnia Fertiliser (Omnia), a competitor of Sasol. Omnia expressed the concern that, absent an express admission of liability contained therein, its ability to institute a claim for civil damages against Sasol would be negated. It therefore requested that the tribunal either oblige Sasol and the commission to insert into the second consent agreement an admission of guilt, insert such a clause mero motu or refuse to confirm the second consent agreement in its entirety.
The tribunal refused Omnia’s requests, saying that the acceptance of the second consent agreement absent an admission of liability could not deprive a person in the position of Omnia from instituting a claim for civil damages. Insertion of such an admission would not augment the effectiveness of the remedy, which was designed to address competition concerns in the relevant markets, and not to protect the competitors therein.
The second consent agreement does not subject Sasol to the imposition of an administrative penalty; instead, for the first time, it demands compliance with extensive undertakings, including the restructure of certain of its divisions, and withdrawal from various downstream operations, including a divestiture of five of its fertiliser blending facilities.
Further, Sasol is obliged to cease importation of ammonia on behalf of third parties for a stipulated period, and is subject to the imposition of restrictions on its ability to sell ammonium-based fertilisers.
These requirements will remain in force for a minimum period of 10 years after conclusion of the second consent agreement, and Sasol will be obliged to report on its compliance with the second consent agreement, at least annually.
It is clear that these structural remedies, fashioned by virtue of the competition authorities’ discretionary powers, are far more extensive (and effective) than the obligation to pay a once-off administrative penalty. As such, competition in this market will be promoted by ensuring greater participation therein, the assurance of better and more competitive prices for farmers, as well as the potential creation of new distribution opportunities.
It is clear that the confirmation by the tribunal of the second consent agreement focuses on achieving more effective competition within the relevant markets. The authorities appear to have utilised their discretion creatively, in a manner most likely to fulfil their mandate of achieving efficient and effective competition in the South African economy.
Amy van Buuren is a candidate attorney and Lee Mendelsohn is a director in the competition law department at ENS.