Business

Diesel cartel case the first of many

Lloyd Gedye

The Competition Commission's case against petrochemical producers for allegedly running a diesel cartel may be the beginning of the sector's troubles.

If companies agreed to fix the price of diesel, it would have a knock-on effect on crucial sectors such as transport and food. (Oupa Nkosi, M&G)

A source familiar with the commission's case told the Mail & Guardian this week that the diesel cartel case was only a test and, if successful, it was likely that the commission would institute cases for all products that don't have regulated prices.

These companies produce petrol, diesel, illuminating kerosene, heavy furnace oil, liquid petroleum gas and lubricants across various grades, so they could be facing a number of sanctions.

It is also possible that if the petrochemical producers lose the diesel cartel case, they will attempt to settle the other cases.

The commission's referral affidavit, which was submitted to the Competition Tribunal last week, states: "The commission is still investigating possible contraventions of the Competition Act by the respondents in other product categories."

According to the commission, Chevron, Engen, Shell, Total, BP and Sasol – and the South African Petroleum Industry Association – stand accused of dividing markets and indirectly fixing the selling price of diesel through "extensive exchanges of information".

"Cartel conduct is ... considered to be the most egregious form of anticompetitive conduct and its harm to competition is presumed," states the affidavit.

Concerted practice
"There is no doubt that the oil companies used the information to influence their decision-making in such a way that it dampened competition. The respondent oil companies engaged in an agreement, in particular an understanding, alternatively a concerted practice, in terms of which they divided markets by ensuring that they did not target one another's customers by the way of the above information."

Last week the industry association announced that it was "­considering its position" and "has been ­co-operating with the Competition Commission throughout its investigation".

Its executive director, Avhapfani Tshifularo, said the industry association had "a strong competition law compliance policy, which is vigorously enforced regarding its conduct and activities. However, it's important to note that the extent of permissible information exchange is still a largely untested area of South African competition law."

The commission says it initiated the investigation on January 12 2009 after certain corporate leniency applications triggered concerns.

"Unlike petrol, diesel is not subject to price regulation," states the commission's affidavit. "Firms should ordinarily compete on the price of diesel in order to attract customers to gain market share."

The department of minerals and energy publishes a maximum price for diesel, called the wholesale list selling price, which limits the scope for discounting diesel to gain market share to some extent.

Confidential economic information
"The respondent oil companies reached or had an understanding to use the list in determining the sale price for the diesel that they produced, marketed and distributed," states the commission's affidavit.

It contains individual sections to explain how each particular oil company allegedly violated the Act, but they have been blanked out in the public document because the companies maintain that these sections contain confidential economic information.

"High and rising diesel prices ... have contributed to high and rising prices in a range of sectors, including public transport and food – sectors in which the working class spend a significant portion of their income," said the Chemical, Energy, Paper, Printing, Wood and Allied Workers Union this week.

"Collusive behaviour by the oil companies undermines national development efforts, including our attempts to create jobs and reduce poverty. It enriches a few multinational and well-entrenched South African companies that grew fat under apartheid, leaving the working class and poor to pay."

The M&G attempted to get comment from the companies that allegedly took part in the cartel. Many chose not to comment and some companies refused to hand over email addresses for their communications staff.

Shell South Africa was the only oil company to respond and said that it had co-operated fully with the commission's three-year investigation.

"We are committed to conducting our business in a manner that is both fair and ethical. As a matter of policy, Shell prohibits anticompetitive conduct," it said.


Topics In This Section

Comments

blog comments powered by Disqus