The Competition Tribunal has imposed a R534-million penalty on a subsidiary of Sasol for over-charging local customers for plastic products.
On Thursday the tribunal found Sasol Chemical Industries, a subsidiary of the chemicals giant, guilty of charging domestic customers excessive prices for purified propylene and polypropylene between January 2004 and December 2007 where the mark-up went up to 41% in some instances.
Purified propylene is an input in the production of polypropylene. Polypropylene is a key input for plastic converters who manufacture industrial and household plastic products. “Hence the price of both purified propylene and polypropylene, as intermediate products, would have significant relevance to the price of household plastic goods such as buckets, brooms, storage containers and industrial products such as motor car parts, water tanks and the like,” the Competition Tribunal said in a press release.
As a result a penalty of R205.2-million was imposed in the case of purified propylene and R328.8-million in respect of polypropylene.
The tribunal stated that the price Sasol Chemical Industries charged Safripol, its only external customer for purified propylene and a competitor of Sasol Chemical’s downstream, was to Safripol’s detriment and inhibited its ability to effectively compete with Sasol. In addition, the tribunal found the prices Sasol Chemical Industries charged locally for polypropylene prices have had a significant adverse effect on the local plastic converters and caused them harm during the complaint period.
The tribunal said it opted for a reduced monetary penalty together with a forward-looking remedy that would directly change Sasol Chemical Industries’ pricing behaviour and it imposed a method for determining the Sasol subsidiary’s future pricing of both purified propylene and polypropylene which, it said, see the prices of the products in question drop with regard to domestic customers.
The Manufacturing Circle, an industry body made up of South Africa’s leading manufacturing companies, welcomed the penalty. “We regret the monopolistic behaviour, as it clearly undermines the competitiveness of the manufacturing sector,” the organisation said in a statement. “It is simply not acceptable for any player to use its upstream dominance to shelter its downstream activities at the cost of economic growth, job creation and affordability to the consumer.”
The organisation noted however that it believes there are other areas such as in the pricing of natural piped gas in which the regulatory framework is too soft to ensure Sasol offers cost-reflective prices in an area where it has a monopoly.
The Competition Tribunal hearing ran for a year beginning in May 2013 with final submissions made in May this year.
A complaint from the Competition Commission alleged Sasol Chemical Industries was a dominant market player and had charged excessive prices for the two products, which is in contravention of the Competition Act and to the detriment of consumers. The Sasol subsidiary had denied the allegations.
During the proceedings the tribunal heard the evidence and testimony of 13 witnesses, including eight experts comprising industry, financial and economic experts on both sides.
Much of the tribunal’s judgment focused on the historical context within which Sasol was established, noting that it was not through risk-taking and innovation but through significant state support and protection which Sasol received over the years that allowed its subsidiary to become a low-cost producer of purified propylene and one of the lowest cost polypropylene producers in the world.
“The tribunal concluded that SCI’s exercise of market power and its excessive prices have resulted in a missed opportunity for innovation and development for the domestic manufacture of downstream plastic goods,” the release said.
“Cheaper polypropylene prices for local plastic converters could enhance local production thereby enabling them to compete more effectively with imported final plastic products, manufacture locally rather than overseas and introduce new products to South African consumers, adding to their choice of product through greater innovation.”
Sasol said they were studying the judgment and would respond in due course.