state-owned carrier South African Airways (SAA), which has had a R45-million fine imposed by the Competition Commission after it engaged in restrictive practices against competitor Nationwide. The fine’s deadline for payment is this week.
Some of the country’s biggest companies and best-known brands find themselves at odds with the government as it pushes ahead with economic reforms designed to boost growth through increasing efficiency and competition. Both South African and multinational companies have felt the chillier wind blowing from Pretoria.
Minister of Finance Trevor Manuel, releasing his medium term budget in November last year, gave notice that the government sees some unacceptable business behaviour requiring reform.
“There are aspects of pricing and market conduct that need attention in several sectors,” he said, adding these “are under review”.
Reparations to be paid by the life industry include Liberty Life (R550-million to R600-million), Old Mutual (R515-million to R635-million), Sanlam (R500-million),
Momentum (R225-million to R250-million) and Metropolitan (R120-million).
The agreement by the life industry to make such large payments is unprecedented in South Africa. An industry that demands trust as its cornerstone has in effect admitted that it has been short-changing its clients.
The payments it will now make are for policies cashed in since 2001 where less than 65% of the fund value at maturity was paid to the client.
All fuel majors — Sasol, Shell, BP, Caltex and Total — were unable to meet fuel demand last month as refineries began the change-over to lead-free fuel, even though these companies receive 3,8c a litre from motorists to keep 25 days’ supply stockpiled.
Minister of Minerals and Energy Lindiwe Hendricks has set up an investigation and mooted the possibility of fuel companies paying at least one month of the levy — about R60-million — as a penalty back to motorists.
As with Mittal, Sasol is in discussion with the government over the import parity pricing of its products. This is the practice of using a dominant market position to price its products as though they had been imported, including shipping, transport and related costs. Import parity pricing means that local industry often has to pay significantly in excess of world prices.
The Competition Commission ruling on the six companies in the motor sector — General Motors (R12-milion), DaimlerChrysler (R8-million), Nissan (R6-million), Volkswagen (R5-million), Subaru (R500 000) and Citroën (R150 000), follows a similar R12-million settlement agreed by Toyota in 2004. The commission is negotiating with BMW and says it will prosecute if agreement is not reached by the end of this month.
SAA has to pay a R45-million fine this week for contravening the Competition Act. This is after it withdrew an appeal against a ruling that it had abused its dominant position in the domestic airline market by inducing travel agents not to deal with its competitors. The case, brought by Nationwide, goes back to 2001.
Other industries under the scrutiny of the Competition Commission include the banking sector. This follows a report commissioned by the government which found that the country’s leading banks may be acting as a “complex monopoly”.
In December, Manuel and the long-term insurance industry released a statement of intent whereby the industry agreed to make reparations of between R2,6-billion and R3-billion.
The statement followed a string of findings against the industry by Pensions Fund adjudicator Vuyani Ngalwana.
Key problem areas highlighted by Ngalwana include a lack of transparency of costs and charges and high penalties for the early cessation of policies.
The statement was agreed as part of the government’s continuing attempts to promote a culture of savings in the country to be able to fund greater investment and higher growth and to encourage households to make adequate provision for retirement.
“The key elements include an agreement to meet minimum fund values of 65% going back to January 1 2001 for cases of early premium termination and premium reductions with respect to retirement annuity fund member policies and other savings products, such as endowment policies, that remain on the books of the insurers,” the finance ministry said.
“Following further consultation on, and finalisation of, revised commission regulations, these minimum standards will be increased to at least 70% of fund value.”
The ministry said it considers the statement of intent to be a great step forward. “We are of the view that it provides a measure of restorative justice, a bulwark against systemic risk, sufficient incentive to ensure people remain policyholders and simultaneously will encourage savings in the future.
“We will need to take this matter forward to ensure higher levels of certainty.”
The South African Institute for Corporate Fraud Management (SAICFM) has asked the Scorpions investigate whether there was a case of fraud relating to the recent fuel shortages.
Fuel companies are paid 3,8c a litre to stockpile fuel. “If the companies received payment to stockpile and had not done so, there was a clear-cut case of fraud,” SAICFM president Bart Henderson told the Mail & Guardian.
Hendricks has initiated an inquiry into the fuel shortages headed by advocate Marumo Moerane.
Minerals and energy chief director: hydrocarbons, Henry Gumede, says the department will not support a separate inquiry by the Scorpions into the issue. “I believe this investigation will not affect the department’s investigation but it might be affected by our study.”
Gumede said it should be noted that the industry had been aware since 2002 that it needed to ready itself for cleaner fuels. “The lead time for this has been reported by the industry to be at least two years. They had more than the specified time to plan for the transition.”
In December, Mittal, the world’s most profitable steel-maker, announced steel pricing benefits of R1,3-billion. These include R600-million for value-added exports and contractual discounts worth R450-million for the automotive, appliance, packaging and construction industries.
It also dropped the minimum tonnage for direct purchases from 350 to 120 tons. Mittal’s offer was largely dismissed by the Department of Trade and Industry, which said the price rebates were already in effect and the minimum tonnage was a reversal of an earlier policy.
New benefits offered by Mittal included a R250-million fund to develop small business and discounts for steel used in government housing projects.
The government is expected to announce a new policy on import parity pricing early this year, which will strengthen competition policy, reassess import tariffs, incentivise downstream beneficiation and target firms that engage in monopolistic behaviour.