Sasol awaits fate in plastics probe

Sasol is accused of selling plastic more cheaply abroad than in South Africa. (Safin Hamed/AFP)

Sasol is accused of selling plastic more cheaply abroad than in South Africa. (Safin Hamed/AFP)

At the same time as the department of trade and industry turned its attention to boosting the struggling plastics sector, Sasol was selling a key ingredient used for plastic projects to China at 23% less than South African companies were paying.

This is according to the Competition Commission, which said the larger proportion of Sasol's polymer exports are to China.

This week the closing argument in a case before the Competition Tribunal was presented.

It is alleged that Sasol has been charging local companies too much for propylene and polypropylene.

Polypropylene is essential to everyday life and is used to produce a range of items from garden furniture to plastic bottles.

Some South African companies testified that they were struggling to pay Sasol's prices.

Room to compete
This left them little room to compete with international suppliers, of which China is a prime example.

The commission says that Sasol is selling polypropylene locally for about 30% more than it is selling it internationally — something Sasol has denied.

On the international front Sasol is facing an anti-dumping investigation in Brazil for allegedly supplying the products too cheaply there.

The commission said Sasol Chemical Industries enjoyed an "astonishing" return on capital of about 162% annually in the 2004 to 2008 period under review.

The commission believes that Sasol is still overcharging for its products.

It asked the tribunal to order the petrochemical company to sell polypropylene and propylene "without discriminating in price between customers on the basis of their location".

Final argument
It has also called for an administrative penalty of 10% of Sasol's 2009 turnover, which was R22-billion, to be levied.

Final argument in the hearings came as it was announced that Sasol's chief executive David Constable had received a 68% wage increase, giving him a total package of R53.7-million for the financial year to June 2013 — his second year in the job.

His increase puts him in the league of chief executives like those heading BHP Billion and Exxon Mobil.

Sasol told the tribunal that its success and profits were due to its innovation and good business planning.

It denied that it had enjoyed an undue advantage from the government when it was set up — one that it had exploited — making it difficult for new companies to enter the market.

It argued that there was sufficient international competition in South Africa to warrant charging import parity prices.

Little choice
Companies SA Leisure and Usabco testified that they had little choice but to use Sasol products because "there was no substitute for polypropylene finished plastic projects".

And since polypropylene is the single-largest cost, it made it difficult to produce products cheaply enough to compete with "cheaper imports".

SA Leisure chief executive Miriam Jacob said: "When the rand is at a certain rate and as we get more expensive in South Africa, especially [in our] manufacturing overheads like labour, electricity and the rest of the costs, there is a tendency to try to find replacements for our products in international markets ... in the last few years we have seen a surge of replacement products that are competing with us directly and it's been stronger in recent years."

According to data presented by the commission, imports increased fourfold between 2000 and 2011, while the local plastic sector lost more than 25% of its jobs.

Sasol has rejected the figures, saying the commission had worked on the assumption that Sasol's feedstock, a by-product of producing fuel, is 30% cheaper than that of firms in Europe or the United States.

This meant that foreign prices were revised down, as feedstock is the most expensive component. It's estimated that feedstock comprises about 85% of polypropylene costs.

Competition Act
Sasol said the Competition Act was never intended to prevent companies from making a profit or looking for a competitive advantage and some companies were battling with constraints other than the price of polypropylene.

It also said it was unfair of the commission not to consider replacement plant costs and their impact on pricing.
The commission argued that the plants are all still relatively new.

Representing the commission, Simon Roberts said the "labour intensive plastics sector had stagnated in terms of its output, in value added terms, [but] the upstream basic chemicals sector, which includes Sasol Chemical Industries operations, had grown relatively strongly".

Sasol has continued to show a strong performance. Turnover for the 2011-2012 financial year was R169.4-billion, up from R142.4-billion the year before, and earnings are expected to rise 20% to 30% for the 2012-2013 financial year.

There has been some discussion about regulating the polymer price, in the same way as that of fuel and gas.

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