HOW SASOL RIPPED OFF SOUTH AFRICA
Crackdown | Tribunal in bid to rein in excessive pricing practices among the big players, writes Ann Crotty
“INDUSTRIAL policy by stealth” was one description of the Competition Tribunal’s decision this week to effectively impose a new pricing policy on Sasol Chemical Industries (SCI).
This is not the first time the tribunal has issued a pricing remedy, but its dramatic ruling has implications for other dominant players in South Africa’s economy who have used their positions to secure high profits at the expense of broader industrial growth.
As one industrial analyst put it: “If the Sasol ruling is upheld it can’t be too long before Mittal is hauled back before the competition authorities on charges of excessive pricing.”
The decision, if not overturned on appeal, will lead to Sasol’s South African customers paying a lot less for their polypropylene and also less than SCI’s international customers.
This effectively means the competition authorities are extending their oversight role beyond competition issues and into industrial policy. That clearly pleased those who have been buying Sasol’s product — and paying over the bar for it.
Coenraad Bezuidenhout of the Manufacturing Circle said: “We obviously welcome the tribunal’s ruling as Sasol’s overpricing has been undermining the downstream activities of the manufacturers we represent.”
Bezuidenhout urged the regulators to look at other areas where Sasol was abusing its dominant position to secure high profits at the expense of downstream manufacturers.
If government wants them to change their behaviour, they’ll have to look at regulation or nationalisation
However, using competition authorities as a tool in industrial policy is likely to raise concern in some circles — although this is not without international precedent and, given the persistent market failure involved, it may be the most effective way of ensuring an efficient and depoliticised outcome.
For years the government tried in vain to persuade high-profile JSE-listed groups such as Arcelor Mittal, Telkom and Sasol to adopt pricing policies that would support industrial development in South Africa.
In his book Thieves at the Dinner Table , David Lewis describes how government was reduced “to the rather undignified role of the humble supplicant, attempting, without the slightest modicum or prospect of success, to persuade Mittal’s majority shareholder to provide South African manufacturers with a ‘developmental price’ for steel to strengthen downstream metal fabrication”.
Similar approaches were reportedly made to Telkom and Sasol with the same results.
But, as one JSE analyst argued,
MAKING A MEAL OF IT: David Lewis these companies have shareholders who expect management to focus on nothing more complicated than short-term profit maximisation.
“If government wants them to change their behaviour, they’ll have to look at regulation or nationalisation,” remarked the analyst, pointing out the worst offenders were all former government-owned entities.
Apart from pointless attempts at persuasion, the government did have a number of options for influencing Sasol’s pricing policy. Its control over the price of fuel could have been extended to cover propylene and polypropylene, which are simply byproducts of fuel. Or it could have used the Mineral Resources Development Act, which stipulates that there should be no price discrimination.
Instead, the Department of Trade and Industry decided to take its fight for something close to “developmental prices” to the competition authorities. In 2008, it lodged a complaint of excessive pricing with the commission. Then, after a probe, that body referred the complaint to the tribunal for prosecution.
The department’s decision to use competition authorities to achieve “developmental pricing” can be seen as an endorsement of the success achieved by the commission and tribunal since they were set up in 1999. It is also an indictment of government’s inability to implement a coherent economic development policy.
It doesn’t help that the biggest inflationary threat is from administered prices such as electricity and toll roads.
One leading competition lawyer said the department was stymied by conflicting interests within government, particularly when dealing with a powerful entity like Sasol.
He said that as a shareholder the ostensibly government-aligned PIC might not be happy about moves to curtail the profits of its investments.
“Using the competition authorities does help to depoliticise the issue, and there’s the added advantage that competition authorities in the UK and Europe have enforced price cuts on dominant companies, so this isn’t new territory,” he said. It also helps that the workings of the competition body are transparent.