/ 26 September 2014

Competition authorities’ legal power may get a boost

Competition Authorities' Legal Power May Get A Boost

Government is considering strengthening the Competition Act to give authorities a lot more power if firms dominating certain sectors do not “start playing ball” to create a more competitive environment. 

This was the message from Economic Development Minister Ebrahim Patel at the Eighth Annual Conference on Competition Law, Economics & Policy. 

He was referring to a scenario where a firm uses its dominance in a sector to price its key input artificially high, which has adverse effects on manufacturing downstream. 

This pricing strategy is referred to as “excessive pricing” and is facilitated by the lack of competition in that particular sector.

The new legislation could take the form of strengthening the Competition Act to enable legal instruments such as forced divestiture. This would allow the competition authorities to make a company sell off a business unit, division or subsidiary to weaken it’s dominance of the sector and strengthen competition.

The Competition Commission was recently given the powers to proceed with market enquiries and is currently conducting one into the healthcare sector.

The new legislation that Patel hinted at could also take the form of sectoral regulation of pricing through government departments.

Excessive pricing was at the heart of the Competition Commission’s recent case against Sasol, which was found guilty of excessive pricing in the polymers sector; the petrochemical giant was fined R534-million. 

It is in the process of taking the Competition Tribunal’s ruling on appeal.

ArcelorMittal’s position as the dominant supplier of steel has concerned government for some time. 

Two weeks ago, the Industrial Development Corporation said it would be signing a memorandum of understanding with China’s Hebei Iron & Steel Group, to develop a new, low-cost iron and steel facility.

Patel said at the time: “We need to increase the level of competition among local producers of steel, to help lower the prices of this critical input into industrialisation and avoid monopoly pricing.” 

At the conference Patel singled out the key input sectors of steel, polymers, fertiliser and infrastructure inputs as being of interest to the government because of their knock-on effect on downstream manufacturing and government and private infrastructure build.

“We don’t think that competition policy can do everything,” said Patel, adding that if the competition authorities’ toolbox needed to be strengthened then government was ready to do that.

Paul Coetser, the chairperson of the competition law committee of the Law Society of South Africa, said government’s industrial policy objectives should not be placed solely on the competition authorities’ shoulders, as it could damage their reputation. 

Companies needed to take the initiative themselves.

Speaking about abuse of dominance cases, Coetser said that in 15 years there had only been 13 cases in South Africa.

He added that of those 13, seven settled, so only six were litigated. “These cases take too long,” said Coetser.

Competition commissioner Tembinkosi Bonakele said that some abuse of dominance cases had taken up to 10 years to resolve and that there was a need to look at better regulation and an overall rethink on how to speed up the legal process. 

Bonakele recently spoke out strongly about Sasol’s appeal. 

“I can promise you this matter is not going to disappear,” Bonakele said. “Sasol is out of touch if it thinks it can win this matter on the basis of technical legal arguments. The solution to this situation lies not just in the courts but also in government’s policy response.”

It seems whether the impetus comes from government policy or competition enforcement, government is intent on stopping abuse from dominant firms.