Sasol could be fined up to R350-million after its fertiliser business — Sasol Nitro, a division of subsidiary Sasol Chemicals — allegedly violated South Africa’s competition regulations.
But, in a worst case scenario, Sasol’s fine could increase to R5,2-billion say analysts, depending on investigations into the operations of its oil and gas businesses, which have forced Sasol to apply for leniency from competition authorities.
Sasol Nitro has been embroiled in two long-running investigations by the Competition Commission. One relates to trade in the phosphoric acid market and the other relates to complaints brought against it by Durban-based firm Nutri-Flo.
Sasol has entered into exploratory settlement discussions with the commission on both of these counts. But it is likely to face a hefty fine, albeit a reduced one should a settlement be reached.
The fine would be based on Sasol Nitro’s 2004/05 turnover figures, the financial year preceding the matter’s referral to the competition authorities.
Sasol announced earlier this week that after an internal compliance review of its businesses, it has also applied for leniency to the commission after possible irregular practices were found to exist in a further two of its subsidiaries, Sasol Gas and Sasol Oil.
In the case of Sasol Oil this has come as a surprise to observers as South Africa’s fuel industry — particularly petrol — is heavily regulated, as is the wholesale diesel market.
Investigations of anti-competitive practices along the entire petroleum and gas value chain are looming. Everything from liquid petroleum gas and kerosene to jet fuel and bitumen could come under the spotlight.
Investigations will draw in other large companies such as BP, Total and Shell, all members of the South African Petroleum Industry Association (Sapia).
If it cooperates fully with the commission’s investigations, Sasol may not be fined on the matter relating to the petroleum products and gas, according to chief economist at the commission, Simon Roberts.
However, immunity is confirmed only after the completion of prosecution of the case.
Should the commission decide that Sasol’s cooperation does not warrant leniency, in a worst-case scenario, Sasol could be fined as much as R5,2-billion, based on 10% of Sasol Oil’s 2008 turnover, said one analyst who did not wish to be named.
This is on the back of a R3,6-billion fine for anti-competitive conduct in the European paraffin wax market.
The company said that the Sasol Oil matter is at an early stage in the process and it is not in a position to disclose any additional information regarding the investigation.
Meanwhile, questions have arisen regarding the effect alleged cartel activity in the Sasol Nitro matter has had on the agricultural production chain and potentially local food prices.
Sasol Nitro operates at every level of the supply chain of fertilisers, including production, importation and marketing of fertilisers for retail and wholesale customers.
With Omnia Fertilisers and Yara South Africa, formerly Kynoch Fertiliser, Sasol stands accused of price-fixing, collusive tendering and dividing markets by allocating customers, suppliers or specific types of goods.
Fertilisers are among the most expensive input costs for commercial farmers and anti-competitive conduct that impacts on the agricultural production chain, which makes farming less profitable, ultimately affects food supply and pricing.
Omnia Holdings chief executive Rod Humphris said the company, which has been involved in the case for six years now, has not changed its view on the matter and does not believe it is guilty of any unlawful activity.
As to questions of whether cartel behaviour could impact on agricultural behaviour, he argued that this is not the case.
”The spike in the fertiliser price was chiefly due to the spike in oil prices as fertiliser is chiefly derived from an oil base,” said Humphris.
Furthermore, South Africa’s fertiliser market is open and anyone is free to import fertiliser to supply the local agricultural industry.
Other elements such as the rise of the use of biofuels and lower global grain stocks contributed to the spike in food prices, he said.
Similarly, Sasol group communications manager Jacqui O’Sullivan said that in the Sasol Nitro matter ”the activities under review ceased in 2004”.
”The global rise in food prices began in 2006 largely on the back of the surge in commodity prices,” she said. ”It would not be correct to relate current market realities to activities that came to an end four years earlier. Details of the investigation into this Sasol Nitro issue remain part of the ongoing discussions between Sasol and the Competition Commission, so it is difficult at this point to accurately comment on the impact of any activities.
”A large portion of South African fertilisers are imported. As such, Sasol and all other local players in the market are competing against global forces and are impacted by trends in the global commodities arena,” said O’Sullivan.
”The recent spate of steep increases in fertiliser prices has been as a direct consequence of the global surge in commodity prices.”
Business is as vrot as politics
I’ve been pretending to be an American even considering adding a twang to my accent so that I can more closely identify with its politics rather than our own.
On Tuesday night this extended to cooking a reasonably close version of the luncheon served to commemorate The Man’s inauguration. This was seafood stew with puff pastry, chicken with plum chutney, molasses, sweet potatoes and apple cake.
But, as uplifting as United States politics is right now, ours is depressing, characterised by both an absence of leadership and the fact that the ANC’s apparent first choice for the top job, Jacob Zuma, faces a criminal indictment some 800 charges long.
Our economy has its challenges, but is a shining star compared to those of major economies overseas.
A manifestation of how relatively unscathed we are is the fact that when Barclays bought Absa, it made up just 5% of its assets. The same stake now accounts for 40% of Barclays and is its largest single holding, according to Investec’s Brian Kantor.
But if our political leadership brings depression to our landscape, so too, sadly, does our business leadership.
The competition authorities have had their hands full, investigating everything from food to pharmaceuticals. You could easily have formed the impression that the way of South African business, particularly big business, is to make sure that the system is verneeked in some way to its advantage.
This week it was the turn of giant Sasol to fess up that it too had been less than fair in its business dealings in fuel, gas, chemicals and fertiliser.
As a prominent corporate citizen you’d think it would ensure that its business dealings are legitimate, but Sasol, with after-tax profits of R17-billion last year, has acknowledged it has been cheating.
It faces no fines for much of this behaviour as it is the first to rat to the authorities and so will get leniency. But it could well be fined for its activities in the fertiliser market, which were already under investigation.
So many high-profile South African companies in key sectors have been exposed for illegal behaviour that you have to think this is actually the norm rather than the exception.
It appears that business reckons too often that its job is to make money. How it does this is of less concern. Where laws get in the way, they are ignored, as in the case of Imperial, which flattened protected buildings in Richmond.
You can easily draw the conclusion that the private sector has somehow formed the impression that corruption is something the public sector does. It sees its job to bemoan state corruption while it merrily continues with illegal practices itself.
I would like to be able to draw a phrase from our leadership to suggest a better way, but with Zuma facing 800 charges, I can’t do this. So here’s a quote from Barack Obama’s inauguration speech. Read it with a twang.
”Our challenges are new. The instruments with which we meet them may be new. But those values on which our success depends — hard work and honesty, courage and fair play, tolerance and curiosity, loyalty and patriotism — these things are old.
”These things are true. They have been the quiet force of progress throughout our history. What is demanded then is a return to these truths.” — Kevin Davie
