South Africa’s Competition Tribunal on Thursday blocked the merger between Sasol — the country’s largest producer of refined white fuels and Engen, the country’s largest retailer of fuel products.
The merged entity would have enjoyed a near monopoly of refinery capacity and a considerable retail market share in the inland market, the tribunal said.
“A market structured in this manner immediately portends the prospect of input foreclosure on the part of the merged entity,” the watchdog added.
“That is, the prospect of the merged entity withholding supplies of the critical input-refined products — required by the retail arms of inland fuel marketers,” the tribunal said.
“It is our strongly held view that the merged entity’s power to foreclose will end, not necessarily in a massively increased retail market share but in a reconstituted cartel, under the clear leadership of the merged entity,” the watchdog noted.
“This new cartel will destroy the promise contained in further planned deregulation; Sasol competitors are themselves all vertically integrated, that is they have access to upstream product out of their own refineries,” the tribunal said.
“But these are all based at the coast, some considerable distance from the inland market. The weapon then in this foreclosure battle is logistical capacity, the capacity to convey refined product from the coast to the inland,” the watchdog stated.
The other oil companies opposed the merger and the core of their opposition rests on their contention that available logistical capacity was insufficient to prevent the merged entity from foreclosing the inland market.
“Sasol complains that in the absence of the merger it is condemned to permanent exclusion from the country’s retail markets. But this averment is clearly at odds with the facts,” the tribunal said.
In the few years since the end of the main supply agreement Sasol had made considerable inroads into both segments of the retail market, in the service station segment and in the commercial and industrial segment.
Sasol had achieved this by means of robust competition, including the discounting of the wholesale price.
“Critically, Sasol has the means to compete even more vigorously,” the tribunal said.
Sasol’s synthetic fuels division controlled a highly competitive feedstock, specially given the current massively inflated crude oil prices, the watchdog stated. – I-Net Bridge