Landmark R534m fine pops Sasol’s bubble

IN A ground-breaking decision this week, the Competition Tribunal set out a possible blueprint for a regulatory assault on excessive pricing by powerful companies.

The tribunal hit Sasol with a R534million fine for charging local customers above the bar for propylene and polypropylene, the key ingredients in making plastic products.

But much more significant is the tribunal’s requirement that Sasol Chemical Industries (SCI) sell its propylene and polypropelyne at the same factory price to all customers.

This is likely to hit Sasol’s profit because it now sells those products to international customers at lower prices than it charges South Africans — a strategy slammed as iniquitous by companies that buy from it.

This is the latest in a string of adverse rulings against the petrochemical giant by competition watchdogs that raises awkward questions about the culture at the company.

In recent years, Sasol Nitro, Sasol Gas and Sasol Oil were all fined for contravening the Competition Act. In 2011, the European Commission described Sasol as the ringleader of a “paraffin mafia” in Europe, hitting the group with a R4.1-billion fine.

On Friday, Sasol said it was “reviewing” the decision and considering its options, “including engaging with the relevant stakeholders”.

Sasol, however, refused to quantify the financial impact of being forced to sell product on a non-discriminatory basis to all its customers.

While SCI contributed about 5% to Sasol’s operating profit in 2008, this dropped steadily in recent years. Last year, the unit made an operating loss.

During the competition hearings, local plastic manufacturers complained that Sasol’s pricing meant they struggled to compete against international companies that could buy products cheaper from Sasol.

Any reduction in the high price, the Competition Commission argued, would help boost local production.

Lionel October, director-general of the Department of Trade & Industry, which lodged the complaint in 2007, welcomed the tribunal’s ruling.

October said this would boost his department’s efforts to slash input pricing for local manufacturers.

“Because of the high input prices facing our manufacturers, we are uncompetitive. This ruling will help to improve our competitiveness.”

The problem is that Sasol isn’t the only offender applying what are known as “import parity prices”.

October said this was why the competition authorities needed to test the legality of this pricing strategy.

Competition commissioner Tembinkosi Bonakele described the tribunal’s ruling as “excellent”.

“Lawyers of domestic firms operating in similar conditions will have to read this ruling very closely,” he said.