Competition expert finds case against SCI ‘peculiar’

THE Competition Commission’s excessive pricing case against Sasol Chemical Industries (SCI) is “peculiar, unique and unusual” as it goes against international practices in excessive pricing cases, SCI’s first witness, Jorge Padilla, told the Competition Tribunal yesterday.

“The commission’s economic experts fail to recognise it is a common feature globally that domestic prices are higher than export prices. Producers of polypropylene tend to sell domestically as much as they can, and export using their residual capacity,” he said.

Mr Padilla heads Compass Lexecon, a consulting firm specialising in anticompetitive matters. He testified that the European Union Commission rejected the notion that an excessive price was a price above cost price as there are many reasons why a firm can charge way above cost.

Mr Padilla said the South African commission’s theory of harm was “convoluted” and was not grounded in economic theory.

The commission did not want SCI to charge import parity prices in the domestic market, because of its low input costs and the fact that it was exporting at prices below domestic prices, he said.

“There would have been no case (before the Competition Tribunal) if SCI’s costs were higher or if it did not export.… It is not in the public’s interest to penalise a firm simply because of its low cost,” Mr Padilla said. He called the remedy sought against SCI “peculiar”.

A remedy for excessive prices was supposed to be lower prices, yet the commission was asking for nondiscriminatory pricing whereas SCI asks customers in SA, China, South

The commission (fails) to recognise it is common globally that domestic prices are higher than export prices

Korea and Brazil the same price.

SCI buys its feedstock propylene from Sasol Synfuels and therefore has a low-cost advantage to potential competitors that do not have access to Sasol Synfuels feedstock.

Mr Padilla said the commission’s view that SCI (as a dominant firm) should price at the cost of production — and that any price above cost could be excessive and any price below cost could be predatory — would make it impossible to comply.

The commission referred the case to the tribunal after investigating SCI’s conduct in the market for propylene and polypropylene and found that it was a dominant firm that charged excessive prices to the detriment of its customers during 2004-07.

It is a contravention of the Competition Act for a dominant firm to charge excessive prices.