Excessive prices ‘not justified’ by the risks
THE Competition Commission’s view that Sasol Chemical Industries’s excessive prices were not justified by risks taken by the company or its innovations is supported by the findings from Zav Rustomjee, a consultant to the Department of Trade and Industry.
Included in his lengthy submission to the commission is the following: The Windfall Tax Task Team in 2007 correctly found that the price set when Sasol was privatised in 1980 was deeply discounted and so ended up being favourable to the private shareholders of the transaction. This, he argued, constituted windfall gains, which could justify the imposition of a windfall tax on Sasol shareholders.
“In essence, the government surrendered control of the company, foregoing the profit streams associated with the divested shares and foregoing the technology ownership, whilst retaining virtually all the risk associated with the business of the company.”
The factors that influenced this conclusion included:
The absence of the payment of a premium price for the loss of 100% control;
The fact that interest-free loans were given to Sasol Two and Three through the state-owned Industrial Development Corporation/Konoil;
The downside on Sasol Two and Three for the company was limited to R100-million;
All the technology and patents within Sasol were valued at only R2;
Commitments were given by the government at the time that private shareholders would be protected from future oil price risks through continued tariff protection and regulation.
The precedent of imposing a windfall tax was reinforced by the precedent set in 1997, when the UK government levied a windfall tax on shareholders of privatised utilities including British Airways, British Telecom, British Energy, Centrica, National Power, PowerGen, the regional electricity companies and the water and sewerage companies for similar reasons.