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[2011] ZACT 9
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Competition Commission v Sasol Chemical Industries Ltd (48/CR/Aug10) [2011] ZACT 9 (24 February 2011)

NON-CONFIDENTIAL
VERSION
COMPETITION
TRIBUNAL
REPUBLIC
OF SOUTH AFRICA
Case No: 48/CR/Aug10
In the matter between:
The
Competition Commission
Applicant
and
Sasol
Chemical Industries Limited
Respondent
Panel
:
N
Manoim (Presiding Member), Y Carrim (Tribunal
Member),
and A Wessels (Tribunal Member)
Heard
on :
24
February 2011
Decided
on :
24
February 2011
Order
- NON-CONFIDENTIAL VERSION
The
Tribunal hereby confirms the attached consent order as agreed to and
proposed by the Competition Commission and the respondent
including
addendum thereto and the heads of agreement between Sasol Polymers
and Safripol (Pty) Ltd annexed thereto. (The latter
is excluded in
the non-confidential version because it constitutes confidential
information).
N Manoim
Presiding Member
Y Carrim
and A Wessels
THE
COMPETITION TRIBUNAL, OF SOUTH
(HELD IN
PRETORIA)
CT
CASH NO: 48/CR/Aug10
CC CASE
NO: 2007NOV3338
In the
matter between;
COMPETITION
COMMISSION
…..........................................................................................................
Applicant
and
SASOL
CHEMICAL INDUSTRIES
Limited
….....................................................................................
Respondent
In
re: CT Case No.: 48/CR/Aug1O
COMPETITION
COMMISSION
….........................................................................................................
.Applicant
and
SASOL
CHEMICAL IMDUSTREES LIMITED
….......................................................................
First
Respondent
And
SAFRIPOL
(PTY) LIMITED
…..............................................................................................
Second
Respondent
SETTLEMENT
AGREEMENT BETWEEN THE COMPET.T.ON COMMISSION AND SASOL CHEMICAL
IMDUSTRIES LIMITED, REGARDING ALLEGED CONTRAVENTION OF
SFCTION
4(1Kb)(i) OF THE COMPETITION ACT 89 OP 1998, AS AMENDED
The
Competition Commission and Sasol Chemical Industries Limited hereby
agree that application be made to the Competition Tribunal
for
confirmation of this Settlement Agreement as an order of the
Competition Tribunal, in terms of sections 5S(1)(a)(iii) as read
with
sections 59(1)(a)
p
59(2}
and 59(3} of the
Competition Act No. 89 of 1998
, as amended, on the
terms set out betow.
1.
Definitions and interpretation
In this
Settlement Agreement, unless the context indicates otherwise, the
following definidons shall apply:
1.1."the Act"
means
the
Competition Act 89 of 1998
,
as
amended;
1.2.
"Commission
”
means
the Competition Commission of South Africa, a statutory
body
established
tn terms of
section 19
of the Act
as
a
juristic
person,
with
its
principal place of business at Building C, Mulayo, Building,
DTI
Campus,
77 Meinijies Street, Sunnystde, Pretoria, South Africa;
1.3.
"Commissioner
3
'
means
the Commissioner of the Commission appointed in terms of section
22
of
the Act;
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;
1.5.
"Complaint"
means
the complaint initiated by the Commissioner
in
terms
of section 498 of the Act against Safripol, Sasol, SANS
Fibres
(Pty)
Ltd ("SANS") and HOSAF Fibres
(Pty)
Ltd
(“
HOSAP
”
)
under case number 2007Nov3338;
1.6.
"DTI"
means
the Department of Trade and Industry;
1.7.
"Pricing Formula"
means
the propylene price formula as set out In the Supply Agreement;
1.8.
"Safripol"
means
SafripoJ (Pty) Ltd, a company duly Incorporated and registered En
terms
of
the
company laws of the RepubJic 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 as also the said company's
predecessors-in
-title
as
parties
to
the
Supply
Agreement;
1.9.
"Sasol"
means
Sasol Chemical Industries limited, a company duly incorporated and
registered in accordance with the laws of the Republic
of South
Africa, with its registered office situated at 1 Sturdee Avenue,
Rosebank, South Africa;
1.10.
"Sasof Polymers"
means
Sasoi Polymers, a division of Saso! Chemical Industries Limited, with
its principal place of business at 58 Qrosvenor Street,
Bryanston,
South Africa:
1.11.
"Supply Agreem&nt"
means
the agreement between Saso! and Safripol for the supply of propylene
to Safripol by Sasol signed on
B
December
1994, as amended:
1.12.
"Settlement
Agreement"
means
this Settlement Agreement duly signed and concluded between the
Commission and Sasol; and
1.13
"Tribunal"
means
the Competition Tribunal of South Africa, a statutory body
established in terms of section 26 of the Act as s 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 DT! requested the Commission to consider opening an
investigation against various firms operating in the
polymers
industry. The OTPs request in this regard was based on its
observations in relation to polymer pricing, namely 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 analysts Into pricing
practices 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 Limited, Safripol, SANS and
HOSAF En respect of alleged contraventions of sections 4{1)(b)(i)
and
4{1){b)(fi); section 5(1) and sections 8(a) and 9(1) of the Act,
through
inter
alls
the
following conduct:
2.4.1.
excessive pricing through import-parity pricing of polypropylene and
poJyvinylchloride by Sasol Polymers;
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 and polyethylene by Sasol Polymers and Safripol;
2.4.4.
horizontal restrictive practices in polyethylene terephthaiate by
SANS and HOSAF; and
2.4.5.
price
discrimination in polypropylene and polyvinyclorlde by Sasol
Polymers.
3. The Commissions Investigations and Findings
At the
conclusion of its Investigation, the Commission made the following
findings:
3.1.
.
Historic
background
3.1.1.
On
8 December 1394, Polifin Limited ("Polifin") and the
company then Known as Safripol entered into the Supply Agreement
in
terms of which Polifin 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 AECI/Saso!
merger investigation, where AECI and Sasol sought to merge certain

portions of their chemical businesses in Polifin (the predecessor of
the Sasoi Polymers division 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 formal investigation
into the
proposed merger.
3.1.2.
in terms of the Supply Agreement, Polifin and Safrlpoi agreed to a
pricing formula which entails, among other things, that
the price
Safripol would
Polifin
for
propylene would be based on the domestic polypropylene prices of
Polifin and Safripoi, which prices were required to be shared

quarterly in terms of the Pricing Formula, The price of propylene
would be derived by applying to the polypropylene prices a ratio
of
the average propylene prices to polypropylene prices in Worth West
Europe and the USA over the previous three years. To this
price would
be added 25% of the standard freight charge for polypropylene from
Rotterdam to Durban.
3.1.3.
In March 2001 Polifin assigned all of its rights and obligations
under the Supply Agreement to Sasol Polymers with effect
from 1
September 2000. In July 2001 the company then called Safripol
likewise assigned all of Its rights and obligations under
the Supply
Agreement to Sentrachem. In December 2008, Sentrachem in turn
assigned all of its rights and obligations under the Supply
Agreement
to Main Street 415 (Pty) limited (which has since changed its name to
Safripol (Pty) limited).
3.2. The
alleged contravention of the Act
3.2.1.
At the conclusion of its Investigation into both Sasol Polymers and
Safripol's pricing practices, the Commission found Inter
alia that
the parties had acted in contravention of section 4(1)(b)(t), due to
the following conduct:
3.2.1.1.
the Pricing Formula, and related provisions of the Supply Agreement
and its operation, had resulted in Sasol Polymers and
Safripoi
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, including pricing and pricing of
volume tranches,
amount to the direct or indirect fixing of the selling price of
polypropylene, with respect to which Sasol Polymers
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 Sasol Polymers
and
Safripol had acted In contravention of section 4(i)(b)(i). by
Indirectly fixing prices and trading conditions, in that Sasol

Polymers' and Safripol's pricing of polypropylene is characterised
by
the
following:
3.2.2.1.
pricing negotiations with polypropylene customers are made with
reference to Safripol's historic 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; and
3.2.2.2.
as a result of the Supply Agreement, Safripo! is constrained in
sourctng its propylene inputs and hence in increasing its
production
of polypropylene. This is due to the higher prices Safripol has to
bay for propylene beyond 55 000 tonnes per annum
(volume tranche),
and, during the investigation period, it could not increase its
supply of propylene from Sasol beyond 100 000
tonnes per annum.
Safripol was constrained in not being able to offer more competitive
polypropylene prices to achieve increased
local sales;
3.2.2.3.
the Pricing Formula incentivizes Sasol Polymers and Safripol to
closely follow each other's price increases, since the
increase of
the price of propylene by one of them raises the price of propylene
to the other, thereby reducing the margins of the
firm that does not
follow the price
increase
Ultimately, t
he
pricing
formula
incentives
both
Sasol
and
Safripol
to charge the highest possible prices for polypropylene Which, as a
result of the tack 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 that Sasol or Safripo!
might have unilaterally to lower prices for polypropylene.
If they
were to do so, then they would simply reduce their own margins, as
the propylene price Is determined as a percentage of
the
averagepolypropylene selling prices
of
both
Sasol and Safripol;
3.2.2.5.
Safripol and Sasol exchanged information retrospectively on average
quarterly prices of polypropylene sales to the local
market up to
2000, after which Safripol continued to sand its prices to Sasol.
3.2.2.6.
The Pricing Formula resulted in Sasol Polymers and Safripot's average
prices for polypropylene (packed and delivered, exchanged
quarterly)
closely tracking each other,
3.2.3.
The Commission also concluded that Sasol had charged excessive prices
for polypropylene in contravention of section 8(a).
3.2.4.
On 12 August 2010, the Commission referred to the Tribunal the
section 4(1 )£b)(i) complaint against Sasoi and Safripol
and
the section 8(a) complaint against Sasol under Tribunal Case Number
48/CR/Aug2010.
4.
Settlement discussions
In
January 2010, Sasol approached the Commission with a view to
exploring the possibility of settling the matter. After the referral

of the Complaint to the Tribunal, the parties engaged fn discussions
with a view to settling the section 4(i)(b)(i) aspect of the

complaint, Independent of the section 8(a) matter. This Settlement
Agreement is the outcome of those discussions.
5.
Admissions
Sasol
admits that the Pricing Formula and related provisions of the Supply
Agreement, which contains restrictive terms regarding
pricing and the
pricing of volume tranches, and its implementation, amounted to the
indirect fixing of a price or trading condition,
in contravention of
section 4(1)(b)(j) of the Act.
6.
Agreement concerning future conduct
6.1.
Sasol
agrees and undertakes:
6.1.1.
to prepare and circulate a statement summarising the content of this
Settlement Agreement to the employees of Sasol Polymers
and to Its
directors and relevant corporate governance structures within 30
(thirty) days of the date of confirmation of this Settlement

Agreement as an Order of the Tribunal. Sasol confirms that it
implemented a revised competition law compliance programme in 2009,
a
copy of which programme was submitted to the Commission in August
2009.
6.1.2.
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 Safripol competitively sensitive
information relating to polypropylene, including polypropylene prices

and volumes;
6.1.3.
to use its best endeavours to reach agreement with Safripol regarding
the amendment of the pricing and volume restriction
provisions
contained in the Supply Agreement within four (4) months from the
date upon which this Settlement Agreement is made
an Order of the
Tribunal, or within such longer period as the Commission may agree
(provided the commission shall not withhold
its agreement on good
cause shown) so as to ensure that the Supply Agreement, as amended,
does not result in a contravention of
the Act. Sasol undertakes to
use its best endeavours to ensure that the terms of the Supply
Agreement will be amended to'ensure
the following:
6.2.3.1.
the price of propylene wilt be set independently from that of
polypropylene and remove any requirement to exchange any
Information
relating to polypropylene prices and volumes; and
6.2.3.2.
the second tranche of propylene purchased by Safripol for the
domestic market will no longer be sold at a higher price.
6.1.3.3.
For the avoidance of doubt this agreement does not prevent
differential pricing in respect of volumes destined for export,
6.2.
The
Commission and Sasol recognize that the amendment of the Supply
Agreement, in particular, the Pricing Formula and related provisions,

cannot be unilaterally undertaken or enforced by Sasoi or Sasol
Polymers; and that Safripol has concluded a consent agreement fn

which it similarly undertook to renegotiate with Sasol the terms of
the Supply Agreement relating to pricing and volumes. Accordingly,

Sasol Polymers shall:
6.2.1.
have the right to continue to Implement the terms of the Supply
Agreement, and to apply the Pricing Formula, until reaching
an
agreement with Safripol regarding the amendments of the Supply
Agreement contemplated in clause 6,1.3;
6.2.2.
notify the Commission of any failure or refusal on the part of
Safripol to engage constructively with Sasol In the process
of
reaching an agreement regarding the amendment of the terms of the
Supply Agreement;
6.2.3.
upon reaching agreement with Safripol, forward the Supply Agreement,
as amended, to the Commission in order to confirm that
the provisions
of the Supply Agreement, which the Commission has identified as
contravening section 4 of the Act, have been suitably
amended.
6.2.4.
in the event that Sasol Polymers and Safripol are unable to reach
agreement on a mutually acceptable pricing Formula within
the
four-month period envisaged in clause 6.1.3, then:
6.2.4.1.
The
parties shall agree to jointly appoint an independent mediator to
facilitate an agreement on an alternative pricing mechanism
to the
current contractual formulation.
6.2.4.2,
The
independent mediator's mandate shall be jointly determined by Sasol
Polymers and Safripol on the basis that neither party should
be
materially disadvantaged by the outcome of the mediation (with
reference to the existing pricing formula) and that the new pricing

formula complies with clauses 6,1.3.1. 6.1.3.2, and 6.1,3-3 above.
The mediation shall take place as soon as reasonably practicable

after the parties have reached an impasse and It shaft be competed
within two (2) months from the end of the four-month negotiation

process envisaged in this clause 6.1.3.
6.2.4.3.
Upon
completion of the mediation process me parties shall forward the
Supply Agreement, as amended, to the Commission in order to
confirm
that the provisions of the Supply Agreement, which the Commission has
identified as contravening section 4 of the Act,
have been suitably
amended.
6.2.4.4.
In
the event that the mediation process is not successful, then Sasoi
Polymers shall supply propylene to Safripol at a price which
it
determines is a reasonable price, having regard to prevailing market
conditions. Safripoi shall be entitled to approach the
Competition
Tribunal on an urgent basis to obtain any relief it deems appropriate
in t
he
circumstances.
7.
Administrative penalty
7.1.
Sasol Polymers is liable for and has agreed to an administrative
penalty, in terms of sections 58<1)(a)(iii), 59(2) and
(3) of the
Act, in the amount of R 111 690 000.00 (one hundred and eleven
million six hundred and ninety thousand rand). The administrative

penalty represents 3% of Sasol Polymers' total annual turnover, for
its financial year ending 2009, for turnover derived from its
sale of
polypropylene products.
7.2. The
administrative penalty will be paid by Sasol Polymers to the
Commission within sixty (60) days after the date of confirmation
of
this Settlement Agreement as an Order of the Tribunal, Sasol shall
pay the administrative penalty into the Commission's bank
account
with the following details;
NAME:
THE
COMPETITION
COMMISSION FEE ACCOUNT
BANK;
ABSA
BANK, PRETORIA
ACCOUMT
NUMBER; 4050778576
BRANCH
CODE:
323
345
7.3.
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.
8. Full
arid final settlement
8.1.
This
Settlement Agreement, upon confirmation thereof as a consent order by
the Tribunal, is in full and final settlement, between
the Commission
and Sasol, of all proceedings relating to section 4 and section 6(1)
of the Act Investigated under the Commission's
case number;
2Q07Nov333S.
8.2.
This
Settlement Agreement does not include any allegations and the
Commission's findings relating to the contravention of section
8(a),
investigated under case 2007Nov3336, which allegations are the
subject of ongoing proceedings.
Dated at
Dusseldorf , DE on 13 December 2010.
Andre
tie Ruyter
Senior
Group Executive
Duly
authorised signatory of Sasol Chemical Industries Limited
Dated at
Pretoria on 10 December 2010.
Shan
Ramburuth
Commissioner
Competition
Commission
Addendum
to the Settlement Agreement between The Competition Commission of
South Africa and Sasol Chemical industries Limited
1. This
addendum amends the settlement agreement concluded between the
parties on 10 December 2010.
2. it is
recorded that;
2.1. on
17 February 2011, Sasol and Safripol concluded binding Heads of
Agreement, annexed hereto marked "A";
2.2. as
more fully set out in clause 3 of the Heads of Agreement, the Heads
will bind the parties thereto if the formal agreement
contemplated in
the Heads is not concluded;
2.3.
the Commission is satisfied that the Heads ensure
that
the
supply agreement has been amended to comply with the principles set
out in clauses 6.1.3.1 to 6.1.3.3 of the settlement agreement
It is
accordingly agreed that clauses 6.1.3 and 6.2 of the settlement
agreement are hereby deleted.
Sasol
undertakes that any amendment of the supply agreement or any
substituted agreement will comply with the following principles;
4.1. the
price of propylene will be set independently from that of
polypropylene sold in Southern Africa and will not contain any

requirement to exchange any information relating to polypropylene
prices and volumes sold in Southern Africa;
4.2
excluding volumes referred to in clauses 4.5.1.2 and 4.6 of the Heads
of Agreement; propylene purchased by Safripol for the
domestic market
will be sold in accordance with a uniform pricing formula; and
4.3 for
the avoidance of doubt this agreement does not prevent differential
pricing in respect of volumes destined for export.
5 Sasol
undertakes further that forthwith on any amendment to the supply
agreement and/or the Heads of Agreement concluded during
a three year
period following the signing of this addendum, it shall forward such
amendment to the Commission for information.
6. The
parties agree that in the third line of clause 3.2.2.3 of the
settlement agreement, the word "propylene" where
it first
appears should read "polypropylene".
Dated at
Pretoria on 24 February 2010.
Shan
Ramburuth
Commissioner
Competition
Commission