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[2010] ZACT 57
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Competition Commission v Safripol (Pty) Ltd (48/CR/Aug10) [2010] ZACT 57; [2010] 2 CPLR 280 (CT) (25 August 2010)
COMPETITION
TRIBUNAL
REPUBLIC OF SOUTH
AFRICA
Case No: 48/CR/Aug10
In the matter between:
The
Competition Commission
….........................................................
Applicant
and
Safripol
(Pty) Ltd
…..............................................................................
Respondent
Panel
A
Wessels (Presiding Member), M Mokuena (Tribunal
Member) and T Orleyn
(Tribunal Member)
Heard
on
25
August 2010
Decided on : 25 August
2010
Order
The
Competition Tribunal hereby confirms the consent agreement entered
into between the above-mentioned parties, which is "Annexure
A"
hereto, as amended by the parties at the hearing of 25 August 2010 by
"Annexure
B"
hereto.
A
Wessels
Presiding Member
Concurring: M Mokuena
and T Orleyn
BEFORE
THE COMPETITION TRIBUNAL OF SOUTH AFRICA
(HELD IN PRETORIA)
Case
No: 48/CR/Aug10
CC
CASE NO.:2007NOV3338
In the matter between:
The
Competition Commission
…......................................................
Applicant
and
Safripol
(Pty) Ltd
…............................................................................
Respondent
CONSENT
AGREEMENT BETWEEN THE COMPETITION COMMISSION AND SAFRIPOL (PTY) LTD
REGARDING ALLEGED CONTRAVENTIONS OF SECTION 4(1
)(b)(l)
OF
THE
COMPETITION ACT NO 89 OF 1998
, AS AMENDED
The Competition
Commission and Safripol (Pty) Ltd hereby agree that application be
made to the Competition Tribunal for confirmation
of this Consent
Agreement as an order of the Tribunal in terms of
sections
58(1)(a)(iii)
,
58
(b) as read with
sections 59(1)(a)
,
59
(2) and
59
(3)
of the
Competition Act No.89 of 1998
, as amended, on the terms set
out below,
1. Definitions and
interpretation
In this Consent
Agreement, unless the context indicates otherwise, the following
definitions shall apply:
1.1.1.
'the
Act
means
the
Competition Act No. 89 of 1998
, as amended;
1.1.2
.
"Commission"
means
the Competition Commission of South Africa, a statutory body
established in terms of
section 19
of the Act as a juristic person,
with its principaf place of business at Building C, Mulayo Building,
DTI Campus, 77 Meintjies
Street, Sunnyside, Pretoria, South Africa;
1.1.3.
'Commissioner
means
the Commissioner of the Competition Commission appointed in terms of
section 22
of the Act;
1.1.4.
"Competition
Board"
means
the Competition Board, a statutory body established in terms of
Section 3(1) of the Maintenance and Promotion of Competition
Act,
1979;
1.1.5.
"Complaint'
means
the complaint initiated by the Commissioner in terms of section 49 B
of the Act against Safripol, Sasol, SANS Fibres (Ply)
Ltd ("SANS")
and HOSAF Fibres (Pty) Ltd ("HOSAF") under case number
2007Nov3338;
1.1.6.
"DTI"
means
the Department of Trade and Industry;
1.1.7.
"Pricing Formula"
means
the propylene price formula as set out in the Supply Agreement;
1.1.8.
"Safripot
means
Safripol (Pty) Ltd, a company duly incorporated and registered in
terms of the company laws of the Republic of South Africa
with
registration number: 2006/007270/07, with its principal place of
business situated at The Campus, Eden Gardens Building,
Corner Sloan
and Main Roads, Bryanston;
1.1.9
.
"SaSof
means Sasol Chemical Industries Ltd, a company duly incorporated and
registered in accordance with the laws of the
Republic of South
Africa, with its registered office situated at 22 Kent
Avenue,
Ferndale, Johannesburg, South Africa;
1.1.10.
"the Supply Agreement
means
the agreement between Sasol and Safripol for the supply of propylene
to Safripol by Sasol signed on 8 December 1994, as
amended.
1.1.11.
"Consent Agreement'
means
this Consent Agreement duly signed and concluded between the
Commission and Safripol;
1.1.12.
'Tribunal"
means
the Competition Tribunal of South Africa, a statutory body
established in terms of section 26 of the Act as a Tribunal of
record, with its principal place of business at Building C, Mulayo
Building, DTI Campus, 77 Meintjies Street, Sunnyside, Pretoria
2
Background
to the Commission's investigation
The Commission records
the background to its investigation as follows:
2.1
.
In
October 2007 the DTI requested the Commission to consider opening an
investigation against various firms operating in the polymers
industry. The DTl's request in this regard was based on its
observations in relation to polymer pricing, that an import parity
benchmark seemed to be the standard practice used for pricing
polymers in South Africa, including polypropylene.
2.2. The DTI alleged
that, as a result, consumers were being charged relatively high
prices, as if South Africa were a high cost
net importing country of
these products.
2.3. The Commission
consequently conducted a preliminary analysis into pricing practises
within the chemicals sector with specific
reference to polymers; and
subsequently initiated a complaint investigation in terms of section
49B (1) of the Act on 12 November
2007.
2.4.
The complaint was initiated against Sasol, Safripol, SANS and HOSAF
in respect of alleged contraventions of Sections 4(1)(b)(i)
and
4(1)(b)(ii); Section 5(1) and Sections 8(a) and 9(1) of the Act,
through
inter
alia
the
following conduct:
2.4.1. excessive pricing
through import-parity pricing of polypropylene and polyvinylchioride
by Sasol;
2.4.2. excessive pricing
through import-parity pricing in polyethylene terephthalate by SANS
and Hosaf
2.4.3. horizontal and
vertical restrictive practices in the pricing of polypropylene by
Sasol and Safripol;
2.4.4. horizontal
restrictive practices in polyethylene terephthalate by SANS and
Hosaf; and
2.4.5. price
discrimination in polypropylene and polyvinylchioride by Sasol.
3
The
Commission's conclusions in respect of price fixing between Sasol
and Safripol
At the conclusion of its
investigation the Commission made the following findings:
3.1 Historic background
3.1.1. On 08 December
1994, Sasoi and Safripol entered into the Supply Agreement in terms
of which Saso! agreed to supply Safripol
with certain quantities of
propylene. The Supply Agreement was concluded pursuant to the
Competition Board's concerns with regards
to the AECl/Sasol merger
investigation, where AECI and Sasol sought to merge certain portions
of their chemical businesses in
Polifin Limited (the predecessor of
Sasol Chemical Industries Limited). The Competition Board, on the
basis of the undertakings
made by the merged entity to supply
Safripol/ Sentrachem with monomer feedstocks (including propylene)
on a non-discriminatory
basis, concluded that it was not necessary
to launch a forma! investigation into the proposed merger.
3.1.2. In terms of the
Supply Agreement, Sasol and Safripol agreed to a pricing formula
which entails, among other things, that
the price Safripol pays to
Sasol for propylene is based on the domestic polypropylene prices of
Sasol and Safripol, which prices
the parties share quarterly. The
price of propylene is derived by applying to the polypropylene
prices a ratio of the average
propylene prices to polypropylene
prices in North West Europe and the USA over the previous three
years. To this price is added
a percentage of the standard freight
charge for polypropylene from Rotterdam to Durban.
3.2
.
The
alleged contravention of the Act
3.2.1
.
At
the conclusion of its investigation into both Sasol and Safripol's
pricing practices, the Commission found
inter
alia
that
Safripol has acted in contravention of section 4(1) (b)(i), due to
the following conduct:
3.2.1.1
.
The
Pricing Formula and related provisions of the Supply Agreement and
its operation, has resulted in Sasoi and Safripol sharing
competitively sensitive information relating to the pricing of
polypropylene.
3.2.1.2
.
The
Pricing Formula and related provisions of the Supply Agreement and
its operation, amounts to the direct or indirect fixing
of the
selling price of polypropylene, with respect to which Sasol and
Safripol are in a horizontal relationship.
3.2.2
.
With
regard to the Pricing Formula and the related provisions of the
Supply Agreement, the Commission found that Safripol has
acted in
contravention of section 4(1)(b)(i) in that Safripoi's pricing of
polypropylene is characterised by the following:
3.2.2.1
.
Pricing
negotiations with polypropylene customers are made with reference to
Sasol's local pricing and the prices of imported
product that could
be landed in South Africa. This is despite the fact that South
Africa is a large net exporter of polypropylene.
3.2.2.2
.
As
a result of the Supply Agreement, Safripol is constrained in
sourcing its propylene inputs and hence in increasing its production
of polypropylene. This is due to the higher prices it has to pay for
propylene beyond 55 000 tonnes per annum, and that it cannot
increase its supply of propylene from Sasol beyond 100 000 tonnes
per annum. Safripol is constrained in not being able to offer
more
competitive polypropylene prices to achieve Increased iocal sales.
3.2.2.3
.
The
Pricing Formula incentivises Sasol and Safripol to closely follow
each other's price increases, since the increase of the
price of
polypropylene by one of them raises the price of propyfene to the
other, thereby reducing the margins of the firm that
does not follow
the price increase. Ultimately, the Pricing Formula incentivises
both Sasol and Safripol to charge the highest
possible prices for
polypropylene which, as a result of the lack of effective
competition between Sasol and Safripol, are at
levels set by
competition from imports.
3.2.2.4
.
The
Supply Agreement also removes any incentive Safripol might have
unilaterally to lower its prices for polypropylene. If it
were to do
so, then it would simply reduce its own margins, as the propylene
price is determined as a percentage of the average
polypropylene
selling prices of both Sasol and Safripol.
3.2.3. Safripol and
Sasol exchange information retrospectively on average quarterly
prices of polypropylene sales to the local
market.
3.2.4. The arrangements
have resulted in Safripoi's average prices for polypropylene (packed
and delivered, exchanged quarterly)
closely tracking Sasoi's average
prices for polypropylene.
4
.
Settlement
discussions
Shortly before the
referral of the Complaint to the Tribunal, Safripol met with the
Commission and the parties engaged in discussions
with a view to
settling the matter. This Consent Agreement is the outcome of those
discussions.
5
.
Admissions
Safripol admits that the
Supply Agreement, which contains restrictive terms regarding pricing
and volumes, and the implementation
of the Supply Agreement,
including the Pricing Formula, constrain the ability of Safripol to
compete effectively with Sasol in
the polypropylene market. Safripol
accordingly admits that the implementation of the Supply Agreement
amounts to the indirect
fixing of a price or trading condition in
contravention of section 4(1)(b)(i) of the Act.
6
.
Agreement
concerning future conduct
6.1
.
Safripol
agrees and undertakes:
6.1.1. to prepare and
circulate a statement summarising the content of this Consent
Agreement to its employees who are managers
and to its directors and
relevant corporate governance structures within 30 days of the date
of confirmation of this Consent
Agreement as an Order of the
Tribunal;
6.1.2. to develop and
implement a compliance programme incorporating corporate governance
designed to ensure that, subject to
clause 6.2, its employees,
management and directors do not engage in any conduct which
constitutes a prohibited practice in terms
of the Act, a copy of
which programme shall set out the parameters within which the Supply
Agreement shall continue to be applied,
and shall be submitted to
the Commission within ninety (90) days of the date of confirmation
of this Consent Agreement as an
order of the Tribunal;
6.1.3. save for the
implementation of the Supply Agreement strictly in accordance with
its terms and as contemplated in clause
6.2, to refrain from sharing
with Sasol competitively sensitive information relating to the
pricing of polypropylene;and
6.1.4. to use its best
endeavours to renegotiate, within 6 months from the date upon which
this Consent Agreement is made an order
of the Tribunal, or within
such longer period as the Commission may agree (provided that the
Commission shaii not withhold its
agreement on good cause shown) the
terms of the Supply Agreement, and in particular the Pricing Formula
and volume restrictions,
in a manner which will promote competition
and ensure that the implementation thereof will not result in a
contravention of the
Act.
6.2
.
The
Commission and Safripol recognise that the re-negotiation of the
terms of the Supply Agreement, and in particular, the Pricing
Formula and volume restrictions, cannot be unilaterally undertaken
or enforced by Safripol. Safripo! shall:
6.2.1. accordingly have
the right to continue to implement the terms of the Supply Agreement
and the Pricing Formula until conclusion
of the renegotiations
referred to in clause 6.1.3; and
6.2.2. notify the
Commission of any failure or refusal on the part of Sasol to engage
constructively with Safripol in the process
of re~negotiation of the
terms of the Supply Agreement.
7.
Co-operation
7.1. Safripol undertakes
to co-operate fully with the Commission in its prosecution of the
remaining Respondent in the complaint
referral.
7.2
.
This
co-operation includes, but is not limited to:
7.2.1. providing the
Commission with all relevant evidence available to it that might
assist the Commission in its prosecution
of the remaining
respondents in the Complaint referral;
7.2.2. ensuring that all
current Safripol employees, and where necessary, using its best
endeavours to procure that former employees,
who have knowledge of
the pricing practices between Sasol and Safripol referred to above,
are available to and co-operate with
the Commission, both for
purposes of consultation and to give evidence in proceedings before
the Tribunal.
8.
Administrative penalty
8.1. Safripol is liable
for an administrative penalty in terms of sections 58(i)(a)(Hi),
59(2) and (3) of the Act in the amount
of R16 474 573,11 (sixteen
million four hundred and seventy four thousand five hundred and
seventy three rand and eleven cents)).
The administrative penalty
represents 1,5% of Safripol's total annual turnover for its
financial year ending 2009 for turnover
derived from polypropylene
products.
8.2
.
The
administrative penalty will be paid by Safripol to the Commission
within ninety (90) days after the date of confirmation of
this
Consent Agreement as an Order of the Tribunal.
8.3
.
The
penalty will be paid over by the Commission to the National Revenue
Fund in accordance with the provisions of section 59(4)
of the Act.
9.
Full and final settlement
This Settlement
Agreement, upon confirmation thereof as a consent order by the
Tribunal, concludes all proceedings between the
Commission and
Safripol in relation to the contravention of section 4(1)(b)(i) and
Section 5(1) of the Act, investigated under
the Commission's case
number: 2007Nov3338.
DATED
at
Johannesburg
on
this the
27
t
h
day
o
f
J
ULY
2010.
Geoff Gaywood
Chief Operating
Officer
Duly authorised
signatory of Safripol
DATED
at
Johannesburg
on
this the
30
t
h
day
o
f
J
ULY
2010.
Shan Ramburuth
Commissioner,
Competition Commission
"Annexure
B" to the Consent Agreement entered into between the
Competition Commission and Safripol (Pty) Ltd
Annexure A is amended
as follows:
1.
In
Clause 6,1.3 of Annexure A the words "the pricing of
polypropylene" are
deleted and replaced by the words
"polypropylene, including
polypropylene prices and volumes".
2.
In
Clause 6.2.1 of Annexure A reference to clause "6.1.3" is
deleted and
replaced by "6.1.4".