Petrochemical giant Sasol is facing two important challenges to its pricing policy and general conduct, which are alleged to be strangling South Africa’s fertilizer and plastic industries. The outcome is seen by trade unions as critical to developing the growth and job-creating potential of the chemical sector.
In the first case, Sasol and two other companies are being taken to the Competition Tribunal by fertilizer company Nutri-Flo over accusations that they are abusing their market dominance and effectively running a cartel.
Later this year, at the chemical sector summit, the company will be challenged on its import pricing practice for the supply of polymers to the plastic industry.
The practice — involving charging South African business international prices — is accused of strangling downstream industry. The complaint is similar to that levelled at steel giant Iscor’s pricing policy by mining houses Harmony Gold and Durban Roodeport Deep (“Iscor’s iron price law”, Mail & Guardian, May 7).
Nutri-Flo’s argument that Sasol abuses its dominance of the fertilizer business revolves around the supply of a key fertilizer ingredient, ammonium nitrate. Sasol produces ammonia, first as a by-product of its production process in Secunda but also in Sasolburg. It supplies the chemical to African Explosives Limited (AEL) and Omnia, which convert it into ammonium nitrate, which is used in explosives.
However, both AEL and Omnia supply ammonium nitrate to Kynoch and Nitrochem respectively, under special arrangements, for use in the manufacture of fertilizers. Kynoch is a former African Explosive subsidiary, hence the exclusivity arrangement, while Nitrochem is wholly owned by Omnia.
Sasol also produces its own ammonium nitrate for resale and the base product, ammonia, at import parity pricing level. As a result, other companies say they have no option but to buy from Sasol or import the strategic substances. The problem is compounded by the fact that Sasol and Omnia also participate in the retail trade in fertilizers, the former through agents and the latter through a subsidiary — meaning they can undercut competitors. Sasol, Kynoch and Omnia now control 80% of the retail fertilizer market, with the remaining 20% falling to a handful of firms, including Nutri-Flo.
Bruce Lyle, senior manager at Nutri-Flo, confirmed to the M&G this week that his company’s central goal was to remove Sasol and Omnia from the wholesale and retail legs of the business.
At the end of March Nutri-Flo secured a Competition Tribunal ruling giving it access to sections of Sasol’s response to the tribunal, which had been deemed confidential. Both parties are now awaiting a date for the final hearing.
In December last year the tribunal approved the change in ownership of another fertilizer firm, Profert, which stated in an internal memorandum that “the South African fertilizer industry has succeeded for many years in keeping the business within a privileged few…” Profert further claimed that its entry into the industry was seen as a threat by the established players because competition had been introduced. “Local fertilizer prices have fallen by 10%, a saving of R500-million to the farming industry,” it pointed out.
The firm claimed that “three main competitors have positioned themselves to … taking Profert out of business” — a veiled reference to Sasol, Kynoch and Nitrochem. Profert is described as having emerged as a maverick, operating “independent of the cartel” by resisting merger or buyout attempts.
Sasol communications manager Johann Van Rheede declined to comment, as the matter was the subject of a legal process. At the same time, the Congress of South African Trade Unions (Cosatu) is preparing a challenge to Sasol’s pricing policy on polymers used by the plastics industry.
Tanya van Meelis, Cosatu’s trade and industry coordinator, said a priority of the planned chemical sector summit is to look at ways of growing downstream sectors, as “upstream investments create very few jobs and are export-oriented”.
Van Meelis confirmed that import parity pricing has been identified as an obstacle to growth. Van Meelis added that Sasol was part of a summit research group on polypropylene, but that the “issue of import parity pricing had not yet been broached. We have not yet made demands on pricing, but [if the need arises] we will push for a change,” she said.
Van Rheede confirmed that polymers are priced on the international market. Earlier this year, prices were raised “in line with international norms” after not having been adjusted for about two years.