Roads paved with gold

If the government is struggling to maintain roads, one reason may be the price of a key ingredient—bitumen—allegedly kept artificially high by an oil company cartel.

The Southern African Bitumen Association (Sabita), Chevron SA, Engen, Shell SA, Total SA, Sasol, Tosas and Masana Petroleum Solution, which is partly owned by BP, are all accused of being part of the cartel and of enriching themselves at the expense of the government, allegedly for 10 years.

Sasol and its subsidiary, Tosas, spilt the beans on the cartel and have been granted immunity from prosecution under the Competition Commission’s corporate leniency policy.
The commission is seeking a 10% fine on annual turnover for all the others alleged to be involved. Together it could amount to billions of rands worth of fines.

Masana has agreed to settle with the commission—it will admit guilt and pay a R13-million fine. The commission referred its case against the oil suppliers to the Competition Tribunal last week.

Its affidavit details the meetings between and agreements reached by the oil companies. The affidavit alleges that the cartel was run through Sabita between September 2000 and December 2009.

The price-fixing model was introduced and approved during meetings convened by Sabita between the primary producers. The commission’s complaint involves the wholesale list selling price (WLSP), which the oil companies used to calculate prices in conjunction with each other.

‘By its nature, the use of WLSP was anti-competitive as it involved fixing a selling price of a commodity between competitors in a horizontal relationship,” says the affidavit.

The government promulgated a prohibition against horizontal price collusion in May 1986. After that, the oil companies applied for and were granted many exemptions, which covered the period May 1986 to August 2000 and allowed them to continue price-fixing.

The commission’s affidavit argues that the exemptions were meant to afford the industry an opportunity to take the necessary steps to comply with the legislation.

‘This period of 14 years of exemption was sufficient to enable the respondents to comply with the act,” says the affidavit. Once the exemptions fell away, the oil companies were expected to comply with the Competition Act in full. But the commission alleges they did not, and continued price-fixing.

‘Despite the lack of application for exemption, the respondents continued with their prohibited conduct in order to unfairly enrich themselves at the expense of the final bitumen customers, 90% of which are government departments and agencies as well as municipalities,” says the affidavit.

It alleges that the oil companies relied on a statement by Michael Zacharias of Shell SA that he had a legal opinion that the producer’s price-fixing was not a contravention of the act.

‘This legal opinion was not circulated in the meeting and consequently none of the representatives of the respondents satisfied themselves as to its contents,” says the affidavit.

The cartel is also accused by the commission of intending to create a ‘false impression” that it had discontinued price-fixing by removing information regarding pricing and market volumes from the Sabita website because it could be construed as anti-competitive.

Shell SA says anti-competitive behaviour is not tolerated in its organisation. ‘The activities which are the subject of the commission’s investigation do not reflect our values,” says a Shell SA statement.

Engen’s Tania Landsberg says they are co-operating with the commission and have launched their own investigation into the allegations.

Chevron SA’s Miranda Anthony says it believes the commission was incorrect to include it as a respondent. ‘We will present our case to the tribunal and do not believe that an adverse ruling will be made against us,” Anthony says.

Masana says it takes full responsibility in respect of its activities and there was no malicious intent to transgress or undermine South Africa’s laws.

Total SA, according to a statement, is serious about complying with the country’s laws, including the competition legislation.

‘We confirm that the Competition Commission served documents to our attorneys and that the matter is being reviewed in preparation for the tribunal hearing,” reads the statement.

Sasol says that although it regrets the contravention of the Act, it believes it was of a technical nature and was not secretive.

According to Fay Hoosain, Sasol’s group chief legal adviser for competition law: ‘Any infringement of any laws is not tolerated within Sasol and thus a finding of any breach, whether technical or otherwise, is of concern and great disappointment to our organisation.”

Saied Solomons, Sabita’s chief executive officer, says the wholesale pricing mechanism was intended to bring about transparency between contractors and client bodies to deal with input-cost fluctuations and was never meant to flout competition law.

Lloyd Gedye

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