Sasol saddled with fine for overpricing

A subsidiary of South African fuel and chemicals company Sasol has been found guilty of excessive pricing of purified propylene and polypropylene, earning it a R534-million fine as well as being required to implement remedies to bring prices down.

Sasol’s fine is substantial because it is a repeat offender, having previously been found guilty of anticompetitive practices both in South Africa and the European Union.

The Competition Tribunal announced its judgment in the long-running matter this week, stating that Sasol Chemical Industries’s propylene and polypropylene were overpriced by as much as 41.5% in certain markets, which caused “significant harm” to downstream manufacturers of plastic moulded goods such as brooms, buckets, storage containers, vehicle parts and water tanks.

In its judgment, the tribunal argued that Sasol’s pricing of propylene and polypropylene had “negative consequences” for South Africa’s emerging economy by causing local plastics manufacturers to be uncompetitive against imported plastic goods. This, in turn, had stunted an increase in manufacturing capacity and job creation, it found.

The tribunal said Sasol’s excessive prices had “resulted in a missed opportunity for innovation and development for the manufacture of downstream plastic goods”.

“Cheaper polypropylene prices for the 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[s],” said the tribunal.

Inflated prices
The tribunal found that purified tier 2 propylene was inflated by between 39.9% and 41.5% and tier 1 propylene was inflated by between 25.1% and 26.5%. The tiers refer to different grades of propylene.

Regarding polypropylene, the tribunal found that prices were inflated by between 26.9% and 36.5%.

The fine is broken up into two parts: R205.2-million for excessive pricing on purified propylene and R328.8-million for excessive pricing of polypropylene.

The tribunal has also imposed remedies that still need to be finalised and that will affect Sasol’s pricing of propylene and polypropylene in the future. The tribunal stated that these remedies “would see Sasol’s prices charged to local customers drop”.

It said Sasol had received significant state support up until, and after, it was privatised in 1979.

Historical context
Much of the tribunal’s judgment focused on the historical context within which Sasol was established, and the “significant state support and the protection that Sasol received over the years”, said the tribunal’s media statement.

The tribunal argued that Sasol’s position in the market is not the result of “risk-taking and innovation”, but rather “due to past exclusive or special rights, in particular very significant historical state support for a considerable period of time”.

This support included a stipulation that other oil companies had to buy Sasol’s fuel, a requirement that other oil companies had to cut back their own production capabilities when Sasol 3 came on stream, an agreement that petrol stations would market Sasol’s fuel for it, fuel levies that supported the commissioning and construction of the Sasol 2 and Sasol 3 plants, and the fact that Sasol is exempt from paying crude oil transport costs, with the costs being borne by motorists through a levy.

During the tribunal hearing, which ran from May 2013 to May 2014, former trade and industry director general Zavareh Rustomjee testified that, when Sasol was privatised in 1979, 70% of the company was sold in tranches to “selected institutions in what appears to have been primarily a move to support existing Afrikaans and English business interests”.

Sasol spokesperson Jacqui O’Sullivan told the Mail & Guardian on Thursday that the company is studying the judgment.

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Lloyd Gedye
Lloyd Gedye
Lloyd Gedye is a freelance journalist and one of the founders of The Con.

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