1
COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 33/LM/Mar 12
(014795)
In the merger between:
GLENCORE INTERNATIONAL PLC PRIM ARY ACQUIRING FIRM
And
XSTRATA PLC PRIMARY TARGET FIRM
Panel : Norman Manoim (Presiding Member)
Andreas Wessels (Tribunal Member)
Merle Holden (Tribunal Member)
Heard on : 18 January 2013
Order issued on : 22 January 2013
Reasons issued on : 06 March 2013
Reasons for Decision
Conditional approval
[1] On 22 January 2013, the Competition Tribunal (“ Tribunal”), in terms of section
14A(1)(b) of the Competition Act of 1998
1, conditionally approved the merger
between Glencore International plc (“Glencore”) and Xstrata plc (“Glencore”).
[2] The reasons for conditionally approving the proposed transaction follow below.
1 Act No. 89 of 1998, as amended.
2
Background
[3] On 18 October 2012, the Competition Commission (“Commission”) referred the
above-mentioned proposed large merger to the Tribun al recommending the
approval of the merger subject to certain employmen t-related conditions. The
Commission however recommended no conditions in rel ation to any competition
issue to be placed on the approval of the transaction.
[4] During the Commission’s investigation, inter alia the National Union of
Mineworkers (“NUM”) and Eskom Holdings SOC Limited (“Eskom”) raised certain
concerns regarding the proposed merger. 2
[5] NUM raised concerns relating to the effects of the proposed merger on
employment inter alia the alleged non-disclosure by the merging parties of the
imminent retrenchment of 180 employees as a result of the proposed merger. 3
[6] Eskom raised concerns with regards to the post- merger supply by the merging
parties of thermal coal used in electricity generat ion and suggested that it would
be advantageous if certain coal supply-related unde rtakings could be obtained
from the merging parties (also see paragraph 11 below).4
[7] The Tribunal convened a pre-hearing on 30 Octob er 2012 at which the merging
parties and the Commission were present, as well as Eskom, NUM and the
National Union of Metalworkers of South Africa (“NU MSA”). A time table was
agreed upon between all parties concerned, includin g the provision that Eskom
could file an intervention application by 07 Novemb er 2012 and that NUM and
NUMSA could make further submissions to the Tribunal by 07 November 2012.
[8] Both Eskom and NUMSA (in support of Eskom) cons equently filed intervention
applications. The merging parties consented to thes e interventions, the scope of
which was agreed at a pre-hearing of 16 November 2012.
2 Although other domestic customers of Eskom raised concerns during the Commission’s investigation
they did not, despite an invitation from the Tribun al to do so, attend the first pre-hearing to consid er
objections raised to the merger by third parties.
3 See NUM’s submission to the Commission dated 15 August 2012.
4 See Eskom’s submission dated 05 May 2012 to the Co mmission and received by the Commission via
email on 10 May 2012.
3
[9] In relation to Eskom, we note that it is an imp ortant coal customer. The electricity
supply sector dominates the domestic coal consumpti on, with Eskom being the
largest domestic consumer of thermal coal. Eskom ge nerates approximately 95%
of the electricity used in South Africa, and subjec t to limited exceptions, power is
generated by coal-fired plants (presently, Eskom re lies on coal-fired power
stations to produce approximately 90% of its electr icity). 5 Eskom thus has a need
for competitively priced coal to run its coal-fired power stations effectively and to
produce reasonably priced electricity to the domest ic economy. Higher input
costs for Eskom would feed through into higher elec tricity prices (certainly over
the medium to longer term).
[10] Eskom raised a variety of competition-related concerns, which it claimed were
merger-specific, i.e. that the proposed merger was the cause of these concerns.
These concerns related to inter alia the post-merger supply of coal and its quality,
higher post-merger domestic coal prices and adverse post-merger effects on the
development of new mining projects and future produ ction of coal in South Africa
given the long-term nature of the industry. In Ms. Kiren Maharaj’s words (Eskom’s
factual witness, see paragraph 18 below) these conc erns were that “ Eskom
anticipates that the merger will result in Xstrata adopting a different and less
favourable pricing strategy towards its negotiation s with Eskom ”;6 and “ Glencore
may dictate that Xstrata not develop a mine that it would otherwise have
developed with Eskom .” 7
[11] Subsequent to Eskom being granted the right to intervene, it was required to file
a statement of proposed conditions that it believed should be contemplated to
address its competition concerns. Eskom at the time suggested that the following
conditions should be imposed on the merged entity t o address its concerns
regarding obtaining competitively priced coal in a timely and sufficient manner: (i)
regarding obtaining competitively priced coal in a timely and sufficient manner: (i)
maintaining the current ratio of tonnes supplied to Eskom compared to exports in
respect of the current and future mining operations of each of the merging
parties; (ii) new supply contracts, to keep the abo ve-mentioned ratio intact,
should be at least of medium term duration (i.e. mo re than five years); (iii) the
5 Maharaj’s witness statement, paragraph 6.
6 Maharaj’s witness statement, paragraph 33.
7 Maharaj’s witness statement, paragraph 34.
4
merged entity must negotiate in the utmost good fai th to ensure that coal supply
projects are aligned with Eskom's requirements in t erms of timing, volume and
quality; (iv) the merged entity must negotiate in t he utmost good faith to establish
an equitable mechanism for the pricing of coal-supply to Eskom which will ensure
a “fair return” to Glencore and result in Eskom hav ing a transparent cost of coal
with a predictable medium term price path; (v) expo rt parity pricing shall not be
applied to domestic supply contracts, whether durin g the initial determination
thereof or by way of any pricing adjustment mechani sm, insofar as such pricing
would exceed pricing based on the cost of productio n together with a fair return;
(vi) that a certain minimum percentage of Eskom sup ply, being no less than the
current proportion of coal so supplied, be subjecte d to cost-based pricing,
together with a fair return; and (vii) that the Com mission be required to actively
exercise its advocacy role in general. 8
[12] NUMSA’s intervention application was based on retrenchments which had taken
place after the closure of Silicon Technology (Pty) Ltd (“Siltech”), a subsidiary of
Glencore, which retrenchments NUMSA claimed resulte d from the proposed
merger. 9 It also raised the concern that if the proposed merger adversely affected
the supply of coal to Eskom and the price thereof, it will have a negative effect on
the price of electricity charged to (energy-intensi ve) industry in South Africa. This
ultimately would impact negatively on employment in such industries. However,
NUMSA decided not to persist with the Siltech issue and to only support Eskom
in the concerns that it raised.
[13] NUM’s concerns related to the retrenchments specific to this merger and it opted
to stand by the submissions it had made to the Commission. 10
[14] At a pre-hearing of 16 November 2012 provision was further made for inter alia
[14] At a pre-hearing of 16 November 2012 provision was further made for inter alia
the filing of witness statements by the merging par ties, the Commission, Eskom
and NUMSA. The matter was set down for hearing from 10 to 14 December
2012.
8 See inter alia Maharaj’s witness statement, paragraph 5.
9 The merging parties did not include information on Siltech in the merger filing.
10 See NUM’s submission to the Tribunal of 08 November 2012.
5
[15] On 30 November 2012, Eskom filed the expert re port of Prof. Nicola Theron 11 of
Econex, an economic consultancy.
[16] On 06 December 2012, the merging parties filed the expert report of Dr. Jorge
Padilla 12 of Compass Lexecon, also an economic consultancy.
[17] On 06 December 2012 the Commission filed a sup plementary report which
specifically addressed the issues raised by Eskom as intervener and its economic
advisers Econex.
[18] However, despite Eskom having filed an expert report, it informed the Tribunal
that it did not intend calling its expert witness t o give evidence at the hearing.
Surprisingly, it also did not intend to call any fa ctual witnesses. The Tribunal then
directed that it wanted to hear evidence from an Es kom factual witness about its
coal procurement concerns as a result of the propos ed merger and to hear
evidence from its economic expert as well. Eskom ag reed thereto and on 07
December 2012 filed the factual witness statement o f Ms. Kiren Maharaj
(“Maharaj”), the Divisional Executive for the Prima ry Energy Division of Eskom.
Maharaj oversees Eskom’s procurement of coal.
[19] NUMSA, in support of Eskom, filed the factual witness statement of Mr. Stephen
Nhlapo, the National House Agreement and Eskom Sect or Coordinator of
NUMSA.
[20] At the Tribunal’s request, the merging parties agreed to make two executives
from the respective merging firms available to give evidence during the hearing.
On 10 January 2013 the merging parties filed the fa ctual witness statements of
respectively (i) Mr. Clinton Martin Ephron (“Ephron ”), a director of Glencore’s
coal-producing subsidiaries in South Africa; and (i i) Mr. Murray James Houston
(“Houston”), the Chief Operating Officer of Xstrata Coal South Africa.
[21] The hearing was scheduled to commence on 10 De cember 2012. As it
happened it did not and on that day the merging parties brought an application for
postponement and other procedural relief asking for a declaratory order regarding
postponement and other procedural relief asking for a declaratory order regarding
11 The authors of the report submitted also include Dr. Grove Steyn and Mr. Laurie Binge.
12 The authors of the report submitted also include Dr. Peter Davis and Dr. Urs Haegler.
6
issues raised in Maharaj’s statement which the merg ing parties argued travelled
beyond the initial request from the Tribunal. Altho ugh each side blamed the other
for the need for a postponement since both agreed t hat the mater could not
proceed in December 2012, we agreed that it should be postponed to the next
convenient dates which were in January 2013. At the same meeting, the Tribunal
was informed that NUM’s employment-related concerns might be settled by
means of proposed amended employment conditions.
[22] At the commencement of the Tribunal hearing on 18 January 2013, Eskom and
the merging parties advised the Tribunal that a con fidential private agreement
had been reached and that, as a result, Eskom was w ithdrawing as an intervener
in the merger proceedings. Thereafter, NUMSA also a nnounced its withdrawal,
given that it supported Eskom in the merger proceed ings. In the circumstances
NUMSA was of the view that it could provide no furt her assistance to the
Tribunal.
[23] Given that the private agreement between the m erging parties and Eskom was
claimed as confidential, the Tribunal directed that the fact of the agreement be
made known during a public part of the hearing. Dur ing the in-camera hearing,
the contents of the agreement were discussed with submissions made by Eskom,
the merging parties and the Commission.
[24] After hearing these submissions, the Tribunal decided that notwithstanding the
private agreement, it still wished to hear from Esk om’s factual witness, Maharaj,
concerning Eskom’s coal procurement concerns. The r eason for that decision
was that the Tribunal is not bound by private arran gements and still has a
statutory duty to consider whether the proposed mer ger may be lead to anti-
competitive effects or raise substantial public interest concerns.
[25] At the hearing on 18 January 2013, the Tribuna l was further advised that the
merging parties and NUM had reached agreement on a set of employment-
merging parties and NUM had reached agreement on a set of employment-
related conditions which would regulate the employm ent loss that may come
about as a result of the merger. We shall below ela borate on the nature of these
employment-related conditions (see paragraphs 99 to 102 below).
7
Parties to transaction
Acquiring firm
[26] The primary acquiring firm is Glencore, a publ ic company listed on the London
and Hong Kong Security Exchanges. Given that Glenco re’s shares are widely
held by a number of shareholders, it is not directl y or indirectly controlled by any
one firm. Glencore, through its 100% subsidiary Gle ncore International AG
(“Glencore AG”), controls a number of subsidiaries and companies worldwide. 13
[27] Glencore provides services relating to natural resources. It has worldwide
activities in the mining, smelting, refining, proce ssing, marketing and trading of
metals and minerals, energy products and agricultur al products. It operates on a
global scale, marketing physical commodities that i t either produces itself using
its own industrial assets or purchases from third p arties for onward sale to
industrial consumers, such as those in the automoti ve, steel, power generation,
oil and food processing industries.
[28] Glencore’s marketing and trading activities in clude the sourcing of a diversified
range of physical commodities (comprising various m etal, energy and agricultural
commodity products) from third party suppliers and from industrial assets in
which Glencore has full or part ownership interests (including Xstrata). These
commodities are sold to a broad range of consumers and industrial commodity
end users. Glencore’s activities in this regard often include the provision of value-
added services to customers such as freight, insurance, financing and storage.
[29] Relevant to the assessment of this transaction is that Glencore owns shares in
firms which produce and sell thermal coal, as well as the fact that it is a trader of
thermal coal. The relevant coal mines are located in Mpumalanga a nd in
KwaZulu-Natal. Glencore currently already has a 33.65% shareholding in Xstrata.
Of further relevance are the following interests of Glencore in South Africa:
• a 49.99% shareholding interest in Shanduka Coal (P ty) Ltd (“Shanduka”). 14
• a 49.99% shareholding interest in Shanduka Coal (P ty) Ltd (“Shanduka”). 14
Glencore has joint control of Shanduka. Shanduka ow ns two operating
thermal coal mines in the Witbank coalfields (Midde lburg Townlands and
13 See Appendix “A” attached to Form CC4(1).
14 The remaining shares in Shanduka are held by Shanduka Resources (Pty) Ltd.
8
Graspan Colliery) and an anthracite mine in KwaZulu -Natal (Springlake).
Shanduka has a non-controlling interest in Kangra Coal (Pty) Ltd, which owns
a coal mine in Piet Retief. Shanduka currently has a total export allocation of
[...] Mtpa at the Richards Bay Coal Terminal (“RBCT”);
• joint control of Umcebo Mining (Pty) Ltd (“Umcebo” ) pursuant to Glencore’s
effective 43.66% shareholding in Umcebo and its dir ector nomination and
veto rights. Umcebo currently operates three coal mines: Klippan, Middelkraal
and Kleinfontein, together with a stand-alone coal beneficiation plant at
Strathrae. All these mines are located in Mpumalang a and in all cases the
coal mined is thermal coal. Umcebo has a total expo rt allocation of [...] Mtpa
at the RBCT; and
• an effective shareholding of 67.01% in Optimum Coa l Holdings (Pty) Ltd
(“Optimum”). Optimum operates two coal mines in the Mpumalanga province.
Optimum Collieries is a large opencast and undergro und coal mining
complex. The Koornfontein Mine is an underground co al mine held through a
wholly owned subsidiary of Optimum, Koornfontein Mi nes (Pty) Ltd. Optimum
has an export allocation of [...] Mtpa at the RBCT.15
Target firm
[30] The primary target firm is Xstrata. Xstrata is a public company listed on both the
London and Swiss Security Exchanges. Xstrata direct ly or indirectly controls a
number of subsidiaries and companies worldwide,
16 including its 100% subsidiary
Xstrata South Africa (Pty) Ltd (“Xstrata SA”).
[31] Xstrata is involved in the production of coal, ferrochrome, vanadium, copper,
nickel, cobalt and zinc. Relevant to the assessment of this transaction are its
activities in the production and sale of thermal co al. It has interests in operating
thermal and coking coal mines in South Africa, Aust ralia and Colombia, as well
as an exploration project in Canada.
15 Ephron’s witness statement, paragraphs 12 to 18.
16 See Appendix “B” attached to Form CC4(1).
9
[32] Xstrata SA has the following interests in firm s operating in the coal industry in
South Africa:
• a 100% share in Duiker Mining (Pty) Ltd, which own s and controls a number
of companies including Tavistock Collieries (Pty) L td and Duiker Coal (Pty)
Ltd (collectively “Duiker group”). Duiker group pri marily mines and sells
thermal coal;
• a 49% interest in the Goedgevonden Joint Venture ( “GGV”); 17
• a 49% interest in ARM Coal (Pty) Ltd (“ARM Coal”); 18
• a [...]% interest in Tweefontein Complex, which co nsists of five mines, namely
Tweefontein Underground, Tweefontein Opencut, Tavis tock Underground,
South Witbank Underground and Tavistock 5 Seam. The Tweefontein
Complex produces thermal coal in South Africa;
• a [...]% interest in the iMpunzi Mining Complex, w hich consists of three
opencast pits called the Arthur Taylor Colliery Ope ncast Mine (now called
Impunzi North Opencast), Arthur Taylor Colliery But terfly Opencast and
Impunzi East Opencast. The iMpunzi Complex produces thermal coal for the
export and domestic market. The new iMpunzi East pit was acquired from the
dissolution of the Douglas Tavistock Joint venture with BHP Billiton Energy
Coal; and
• an approximate 16.54% interest in the Richards Bay Coal Terminal Company
(Pty) Ltd. ARM Coal has a 3.52% interest in the Ric hards Bay Coal Terminal
Company (Pty) Ltd.19
[33] As stated above, Glencore AG is currently the largest shareholder in Xstrata
with a 33.65% shareholding.
17 ARM Coal (Pty) Ltd holds the other 51% in GGV.
18 The other 51% of ARM Coal is held by African Rainbow Minerals Limited.
19 Houston’s witness statement, paragraph 6.
10
Proposed transaction and rationale
[34] Glencore intends to acquire all the issued shares i n Xstrata which it does not
currently own. The proposed transaction will be imp lemented in terms of a
scheme of arrangement under the United Kingdom’s Co mpanies Act. Upon
implementation Xstrata will become a wholly owned subsidiary of Glencore.
[35] As rationale for the proposed transaction the merging parties submitted that the
transaction is a combination of two complementary businesses with long-standing
links. The combined group will benefit from enhance d scale and market positions
in the production and marketing of key commodities.20
Competition assessment
Horizontal overlap
[36] The activities of the merging parties horizont ally overlap in South Arica in
respect of the mining and sale of thermal coal.
[37] The Commission’s market investigation showed t hat coal is not a homogenous
product but is differentiated according to the stag e of development of the coal,
which effectively is the age of the coal. These sta ges are termed “ranks”. These
different coal ranks have different uses because th e coals have different
properties when they burn. Of importance to coal co nsumers is the calorific
content of the coal. The calorific value of the coa l determines its grade and
ultimately its price. The coal sold in South Africa ranges from exportable coal to
so-called “Eskom-grade” coal (also see paragraphs 56 and 57 below).
[38] The Commission summarised the potential unilat eral effects of the transaction
as follows: the proposed transaction may result in unilateral effects by virtue of
Glencore's shareholding in Optimum, Shanduka and Um cebo which are all
potentially in competition with Xstrata. The concer n was that post-merger the
merged entity might unilaterally increase coal pric es or restrict coal output by
diverting coal supplies to the export market or by changing from RB1 exports to
RB3 exports with the effect being a reduction in th e quality of the middlings sold
RB3 exports with the effect being a reduction in th e quality of the middlings sold
20 Commission’s merger record page 1152.
11
to Eskom (RB1 and RB3 coal and middlings are explai ned in paragraphs 56 and
57 below.) The Commission, however, ultimately conc luded that the proposed
merger raises no merger-specific competition concer ns and that no competition-
related conditions are warranted. It did, however, raise a broad sector-wide public
interest concern that was not merger-specific (see paragraphs 103 to 105 below).
[39] We note that we have found no evidence that th e proposed transaction would
lead to likely coordination or enhance any existing coordination in the coal
market(s) and we therefore do not deal with this aspect in these reasons.
Vertical dimension
[40] The proposed transaction also has a vertical d imension. The proposed merger
will bring together the specific marketing expertis e of Glencore and the mining
assets of Xstrata. Historically a marketing service s agreement existed between
Xstrata and Glencore for the Xstrata coal exports i nto the international market.
The proposed merger will enable Glencore to also un dertake the domestic
marketing of Xstrata’s coal.
Market delineation
[41] The Commission defined three distinct product markets for thermal coal,
namely the (i) tied domestic market; (ii) residual domestic market; and (iii) export
market. We shall discuss each of these segments bel ow. We note that Econex
disagreed with the Commission’s market delineation and suggested that there is
increased substitution between the tied, residual and export markets.
Tied domestic
[42] This relates to the sale of thermal coal throu gh long-term contracts, which
generally are entered into for a number of decades. The relevant coal customers
are Eskom and Sasol. Sasol however largely sources its coal supply from its own
coal mines.
[43] To understand the dynamics of this market segm ent, we provide some
information regarding the history thereof. Eskom ha s traditionally procured its
required coal supplies through long-term supply agr eements with coal mines
12
situated in close proximity to its power stations. The origin of the tied market
segment was that Eskom would build a power plant ca librated according to the
quality characteristics of the coal (or middlings) produced at a nearby or even
adjacent colliery which served as “base supplier” t o the specific power station.
Maharaj confirmed that “ Eskom power stations are typically configured to ac cept
a particular grade of coal with reference to its so urce, which is why power
stations are often tied to a mine in close proximit y ”.21 She further described the
relationship that existed between coal producers an d Eskom as symbiotic and
stated that the coal mines were tied to Eskom power stations and had Eskom as
their raison d’être .22 Often Eskom would have financed part or all of the capital
required for these coal mines. As quid pro quo where Eskom contributed to
financing a mine, or a negotiated outcome where Esk om did not contribute to
financing the mine, Eskom and the mine would sign a “life of mine” 23 contract for
a specific volume of coal.
[44] The Commission concluded that the geographic s cope of this market is local
where the feeder mine has a monopoly position and c ompetition takes place ex
ante . The Commission found that Eskom had the opportuni ty to play all potential
coal mines off against one another when negotiating the life of mine contract.
Eskom would then build a power station next to the winning bidder and grant
them monopoly rights and lock in the price. In such case that price would not be a
monopoly price because of the ex ante competition.
[45] These long-term contracts were however conclud ed when the Eskom power
stations were not operating at full capacity and th us required relatively lower
volumes of coal. The intention of the life of mine contracts was to have a power
station fully supplied by a feeder mine for the ent ire life of the mine. This has
however not been the case given the increased electricity demand in South Africa
however not been the case given the increased electricity demand in South Africa
and concomitantly Eskom's growing coal requirements.
[46] Whilst in the past nearly all of Eskom's coal was supplied on long-term
contracts, this has significantly declined in recen t years given Eskom’s increased
21 Maharaj’s witness statement, paragraph 35.
22 Maharaj’s witness statement, paragraph 8.
23 Based on the expected lifespan of a particular mine, typically between 20 and 30 years.
13
coal demand, while some of the long-term contracts with base suppliers are also
coming to an end. Due to this increased demand for coal, most of the Eskom
power stations today procure coal from more than one source.
[47] While the tied domestic market is per definiti on “tied” up with long-term coal
contracts, a coal producer with the ability to expo rt coal arguably has the
incentive to supply the bare minimum that it has to under these contracts given
that coal exports would increase revenues compared to the local tied sales (also
see paragraph 59 below).
Residual domestic
[48] This is the domestic sale of thermal coal to c ustomers, excluding the long-term
contracts in the tied domestic market. The residual market is possibly best
defined as the market for all coal after tied contr acts have been satisfied and
export capacity (see discussion below) has been rea ched. As such it is the most
sensitive market to potential export capacity expan sions as well as any potential
anti-competitive activity as a result of the proposed merger.
[49] The Commission found that thermal coal is not suitable for spot transactions
because coal is an input that requires more plannin g both by suppliers and
consumers than a simple ad hoc approach. The shortest term contracts that exist
are three month contracts. Eskom has a number of co ntracts with one to three
year durations and other customers, such as cement and paper producers, have
similar contract terms.
[50] As stated above, Eskom increasingly participat es in this market segment due to
its tied contracts being insufficient for its curre nt coal demand to produce
electricity. Eskom thus sources on the residual dom estic market for the coal
volumes that it requires over and above the volumes guaranteed in the long-term
agreements, as its demand for coal grows and its co al-fired power stations run at
full capacity. A significant proportion of Eskom's current overall coal requirement
is fulfilled by short-term contracts.
is fulfilled by short-term contracts.
24 Moreover, this trend of Eskom increasingly
procuring coal through short- and medium-term contracts, compared to traditional
24 See Commission’s supplementary report dated 03 December 2012, pages 31 and 32.
14
long-term contracts, is expected to continue into t he future. 25 This situation is
exacerbated by the fact that the local demand for c oal is expected to very
significantly rise over the next ten years. 26
[51] It is important to note that coal prices in th e residual domestic market are more
closely linked to export parity levels. Of the thre e identified market segments,
coal prices in the tied market, under the long-term contracts, are the lowest.
[52] The geographic scope of this market depends on the location of a specific coal
customer relative to the coal mine(s) in a specific geographic area. There is,
however, no need for us to in this case make a defi nitive finding on the exact
parameters of the relevant geographic market for re sidual coal sales since this
does not alter our ultimate conclusion. We have ass essed the competitive effects
of the proposed transaction from the perspective of the individual Eskom coal-
fired power stations supplied by both Glencore and Xstrata (see paragraphs 69 to
84 below).
Coal exports
[53] Most of South Africa's export coal is shipped through the RBCT, the world's
largest coal export terminal, and the balance is sh ipped out of Matola in
Mozambique and the Durban Harbour. The major shareh olders in the RBCT are
Anglo American, BHP Billiton and Xstrata but other shareholders include Eskom,
Total Coal, Sasol Mining, Kangra Coal and Exxaro Coal.
27
[54] Transnet Freight Rail (“Transnet”) owns and op erates a dedicated coal line
which runs between Witbank, Ermelo and Richards Bay on the east coast for the
transportation of export coal from the Witbank coal fields to the RBCT. Capacity
constraints of the Transnet rail system and at the RBCT put an upper limit on the
coal exports from South Africa. Transnet however is planning to upgrade its rail
line. Although the RBCT has a design capacity of 91 Mtpa, given the current
logistics bottlenecks, the last declared quarterly throughput rate (Q4 2011) was at
logistics bottlenecks, the last declared quarterly throughput rate (Q4 2011) was at
25 See inter alia pages 1 and 5 to 8 of the Econex Report for a quantification hereof.
26 Econex Report, page 6. Maharaj’s witness statement, paragraph 10.
27 Ephron’s witness statement, paragraph 25.
15
73 Mtpa. 28 According to the Richards Bay Coal Terminal Compan y (Pty) Ltd’s
submission, Transnet intends to achieve a rail capa city for the transportation of
coal exports of 81 Mtpa by 2015. 29 In other words, coal exporting capacity is
expanding, albeit gradually.
[55] South African coal exports have approached 65m tons in recent years, with
2011 volumes reaching 65.5m tons. 30 The Commission concluded that the
geographic scope of the export market is international.
[56] From a demand-perspective, the Commission conc luded that export coal
customers’ quality requirements differ from those o f domestic coal customers.
Export coal is typically of two specifications, nam ely (i) RB1 (high quality) coal,
mainly exported to Europe; and (ii) and RB3 (mid-ra nge quality) coal with a
calorific value of 23.5 MJ/kg, exported specifically to India.
[57] To a large extent thermal coal mined in South African is not suitable for export in
its run of mine or “unwashed” state and requires wa shing to a higher calorific
value. Crushed coal produced by a colliery is sorte d in a primary wash to
separate out the export quality coal. A second wash of the coal then produces so-
called middlings coal as well as discard. “Eskom-gr ade” coal has traditionally
been supplied from the coal stream (the middlings) that remains after the run-of-
mine coal has been washed to yield RB1 coal. Histor ically only grade A coal and
some grade B coal (RB1 specification) were exported because this was what the
European power stations required. However, today ma ny power stations,
particularly in Asian markets, are designed to burn lower quality coal (specifically
RB3 grade). The introduction of coal washing, which increases the calorific value
of the coal, but at the same time decreases the per ton volume of the coal,
resulted in significant increases in the exportabil ity of the South African produced
coal.
[58] From a demand-perspective RB3 coal is only use d to a limited extent by
coal.
[58] From a demand-perspective RB3 coal is only use d to a limited extent by
domestic customers. The Commission however found th at Eskom does compete
28 Commission’s merger record, page 3014. Also see tr anscript pages 117 and 118, as well as Ephron’s
witness statement, paragraph 28.
29 Commission’s merger record, page 3016. Also see Ephron’s witness statement, paragraph 29.
30 Commission’s supplementary report, page 6.
16
for some RB3 specification coal since some of its p ower stations use coal with a
calorific value greater than 23.5 MJ/kg. 31
[59] We further note that the available evidence sh ows that the revenues generated
by export sales are significantly higher than that generated by local sales due to
higher export prices achieved compared to domestic coal prices. 32 Ephron
confirmed that “ [e]xport coal has historically secured better price s for the grades
exported when compared to the grades of coal suppli ed to the domestic market
and in particular to Eskom. As a result, Glencore, like most coal producing firms
in this country, generally utilises its full export allocation .”33
[60] Of importance to the assessment of the coal ma rket(s) are the supply-side
characteristics of coal exports, namely the possibi lities offered to coal mines (and
the merged entity) by coal washing and blending to configure the coal supply. We
describe these dynamics and recent shifts therein b elow. This is a key
consideration since the export-related competitive decisions of a coal miner can
impact the volume and quality of the coal supply to domestic customers such as
Eskom. This is also explained below.
[61] A coal mine can produce different coal streams of different grades from the
same run-of-mine coal stream in order to meet its s trategic objectives and
optimise its overall margins. This means that the r un-of-mine coal stream can be
beneficiated in order to supply different markets t hrough applying strategic
washing or blending with the aim of maximising reve nues. Of specific relevance
to the concerns raised by Eskom is that the export of coal with a RB3
specification has increased in recent years with in creased demand specifically
from India. The RBCT data of coal shipments indeed confirm that the eastern
markets, including India and China, have started re ceiving an increasing portion
of South Africa’s coal exports. 34 Thus whilst the total volume of coal exports from
of South Africa’s coal exports. 34 Thus whilst the total volume of coal exports from
South Africa is constrained, the composition of the se exports has meaningfully
changed over time.
31 Commission’s supplementary report, page 9.
32 See inter alia Commission’s recommendation, pages 32 and 33.
33 Ephron’s witness statement, paragraph 34.
34 Coal 2011: A Review of South Africa’s Coal Sector , page 6. Commission’s supplementary report,
page 36. Also see Houston’s witness statement, para graph 9; as well as Ephron’s witness statement,
paragraph 37.
17
[62] In simple terms, the issue from Eskom’s perspe ctive is how much of a coal
mine’s coal stream goes to the export market and ho w much is left to sell to
Eskom, i.e. (i) RB1 and its middlings; or (ii) RB3 with less and possibly lower
quality middlings, as explained below.
[63] Econex submitted that compared to washing for RB1 coal, the washing process
for RB3 coal would include a much larger amount of the material – that would
have been available as RB1 middlings (so-called “Es kom grade” coal) in the RB1
coal, with the result that: (i) there would be a smaller portion of middlings from the
run-of-mine stream available as “Eskom grade” coal, and (ii) there would be a
greater risk that it would be of a lower quality. 35
[64] To illustrate Eskom concerns about significant reductions in the quality of coal
procured as middlings when washing to a lower coal grade, we give the following
example: if a coal mine targets a float of RB1 spec ification coal then the
middlings will have a calorific value of 21 MJ/kg a nd if it targets a float of RB3
specification coal, then the middlings produced wil l have a calorific value of less
than 18.5 MJ/kg. 36 Thus if a coal mine washes to the RB3 coal specifi cation then
the middlings produced would be of insufficient cal orific value to supply certain of
Eskom’s power stations. Thus there is a relationshi p between RB3 coal supply
and the supply of middlings to Eskom. Maharaj testi fied that “ if the mining
industry continues to meet an RB3 specification, th e amount of reserves that are
available for Eskom to access in Mpumalanga for its long-term coal supply are
significantly diminished .”37
Conclusion
[65] One cannot take a static approach to market de lineation in the coal market(s).
The market dynamics of the coal market(s) will continue changing as the demand
for domestic produced coal and electricity demand i ncreases and market forces
react. What is evident is that there is a relations hip between certain of the
react. What is evident is that there is a relations hip between certain of the
Commission’s identified coal market segments and th at supply-side competitive
decisions in one sub-market may affect the supply o f coal, specifically the
35 Econex Report, page 16.
36 Commission’s supplementary report, page 8.
37 Transcript page 83.
18
volumes and quality of supply, in another sub-marke t. We specifically note the
following trends: (i) Eskom is increasingly procuri ng coal in the residual market to
satisfy its increasing electricity demand; (ii) the proportion of coal volumes
supplied to Eskom through long-term contracts in the tied market is declining; and
(iii) from a supply-side perspective the South Afri can coal producers increasingly
export RB3 coal and this affects the volumes and qu ality of the domestic coal
supply to Eskom.
[66] However, there is no need for us to in this ca se take a definitive view on market
delineation. Whether one defines three separate pro duct markets as the
Commission did or one broad product market as argue d by Econex 38 , this does
not alter our ultimate conclusion on the competitiv e effects of this particular
merger.
Central supply basin and market shares
[67] Glencore and Xstrata both have interests in va rious coal mines located in the
so-called central coal basin, i.e. the greater Witb ank coalfields (which includes
the Highveld, Witbank and Ermelo coalfields), where nine of the ten largest coal
mines in South Africa are located. All the other la rge mining companies, including
Anglo Coal, BHP Billiton and Exxaro Coal, as well a s most of the other significant
junior coal mining firms, have mines situated withi n the Witbank coalfields, within
a range of approximately 50-100 km. The central coa l basin produces 84% of
South Africa's saleable coal. Other operations incl ude two mines in Limpopo, two
collieries in the Free State and six anthracite ope rations in KwaZulu-Natal.
39 The
Witbank coalfields have a well-established infrastr ucture for the transportation of
coal within the region. 40
38 To test the Commission’s market delineation, Econe x did certain price tests on a few price series
from the Commission’s three identified sub-markets. Econex concluded as follows on this price
from the Commission’s three identified sub-markets. Econex concluded as follows on this price
correlation analysis: “ It seems that Eskom’s tied market prices (cost plus and fixed price) do not have a
significant correlation over the sample period with either residual market prices (ST/MT) or our serie s
for exports prices (PPI exports or Exports). This w ould indicate that they do not move together
sufficiently to be included in the same market .” Econex further found that stationarity analysis tests
might point to the residual and tied markets being related over the longer term. It however found no
evidence of a link between the domestic markets (re sidual and tied) and the export markets. See pages
20 to 22 of the Econex Report.
39 Commission’s recommendation, pages 22 and 23.
40 Commission’s merger record, page 30. Also see Ephron’s witness statement, paragraph 21.
19
[68] The national market positions of the merged en tity in each of the markets
identified by the Commission are as follows: in the tied market [10-20]%, in the
residual market [20-30]% and in the export market [ 20-30]%. In an overall coal
market in South Africa the merged entity’s national market share would be [10-
20]%. Competitors in each of these markets include Anglo, Exxaro and BHP
Billiton. We below deal with our assessment at a local/regional level.
Assessment at power station level
[69] The important issue from an Eskom perspective is where it would be able to turn
to for coal supplies after the proposed merger in t he face of a SSNIP
41 . Should a
need for additional coal supplies arise, Eskom woul d usually approach its main
coal supplier to that particular power station as a first option. If this fails, any coal
miner who is in close vicinity to the power station with the required coal quality at
an acceptable price and logistical facilities would be the next best alternative. In a
situation where an Eskom power station is linked to a feeder mine, the proposed
merger thus might have a negative competitive effec t if one of the merging
parties owns the feeder mine to that power station and the other merging party
owns the mine that is the next best alternative to Eskom. In such a scenario
Eskom’s bargaining position would be reduced post-m erger. We therefore
focussed our competition assessment on those Eskom power stations where one
of the merging parties is the current (main) coal s upplier (i.e. the feeder mine)
and the other merging party is the (potential) next best alternative. This is the
best way of uncovering the potential competition ef fects of the proposed
transaction given the historic features of the tied domestic market and how
Eskom would go about sourcing additional coal supplies.
[70] Our assessment targets the three Eskom power s tations as identified as
problematic by Econex, namely the Majuba, Komati and Hendrina power stations.
problematic by Econex, namely the Majuba, Komati and Hendrina power stations.
Econex submitted that at these three power stations there were not enough
equally favourable options to the merging parties f or Eskom, post-merger. It is for
this reason that we required Eskom to put up a fact ual witness to address the
issue of coal procurement at a power station level. Below we assess the likely
competitive effects at each of the above-mentioned three power stations.
41 A small but significant and non-transitory increase in price.
20
Majuba power station
[71] Maharaj confirmed that Majuba does not have a tied mine as supplier. She
explained that this is due to historical reasons si nce when Majuba was
constructed, there was an adjacent mine selected to supply the power station.
However, due to geological problems that mine could not be operated.
42
[72] She went on to explain that Eskom therefore ha d to source coal from other
suppliers and that there were no suppliers of suita ble quality (given the plant
configuration) available in the direct vicinity of Majuba. Hence at the moment coal
is transported from the Witbank area to Majuba. 43 Majuba is on average about
150 kilometres distant from the heart of the Mpumalanga coalfields. 44 This means
that all coal destined for Majuba has to be transpo rted a long distance and
Eskom has no option but to engage these logistics.
[73] Maharaj confirmed that the current suppliers t o Majuba include Glencore and
Xstrata. The Glencore supply is from the Shanduka C olliery, i.e. Graspan
Colliery, and the Xstrata supply is from Goedgevond en. Goedgevonden supplies
approximately [...] Mt of coal per annum to Eskom ( the “GGV contract”). 45 The
GGV contract provides for the supply of coal to Maj uba. Maharaj confirmed that
Eskom has the option to divert some of the GGV quan tities of coal to other power
stations. 46
[74] Maharaj further confirmed that the long-term c ontract with Xstrata’s
Goedgevonden to supply Majuba runs till 2026. 47 She also confirmed that the
two sources of supply that are provided by Glencore -controlled companies are
“life of mine” arrangements. 48
[75] Under cross-examination, Maharaj conceded that there were two significant coal
suppliers to Majuba other than the merging parties, as well as a number of other
42 Transcript page 70.
43 Transcript page 71.
44 Transcript page 91.
45 Houston’s witness statement, paragraph 10.2.
46 Transcript pages 98 and 99.
47 Transcript page 89.
46 Transcript pages 98 and 99.
47 Transcript page 89.
48 Transcript page 90.
21
sources supplying smaller quantities of coal at thi s stage.49 Thus there appear to
be alternative coal suppliers to Majuba, specifical ly when the current rail
constraints from the central coal basin are lifted in approximately three to five
years. 50
Komati power station
[76] There is currently also no feeder / tied mine for the Komati power station.
Maharaj explained that the Komati power station was mothballed in the 1990’s
when Eskom found itself in an excess capacity situa tion, but in the early 2000’s it
started to re-commission Komati when the looming ca pacity shortages became
far more obvious and the need to address them were imminent. When Komati
was mothballed it had a tied colliery, i.e. the Koo rnfontein Colliery. Through
agreements between Eskom and the then owners at the time, the colliery was
sold off to another entity to mine for the export market.
51
[77] When Komati was re-commissioned the then owner s of the Koornfontein
Colliery (not Glencore at the time) indicated that their coal was being exported
but there was a small portion of coal that could st ill be offered to Eskom for sale.
Eskom thus entered into a short-term supply arrangement with the then owners. 52
Currently Koornfontein (now owned by Optimum in whi ch Glencore has a share),
supplies [...] Mt to the Komati power station. This contract is up for renegotiation
in 20[...]. 53
[78] Given the proximity of the Koornfontein coal m ine to Komati, it remains a
potential conveyor solution for Komati. The merging parties, however, argued that
as matters stand at the moment if no further invest ment is made in Koornfontein,
then it has about two years to run. 54 Maharaj agreed that the life of this mine
could be extended but in order for this to happen b oth Eskom and the merging
parties would have to negotiate a new agreement so that the investment in the
49 Transcript pages 92 to 94. Also see Econex Report, Table 14, page 42. Specifically see Econex’s
conclusion that two suppliers other than the mergin g parties “ seem to be important suppliers to Majuba
and could be viable alternatives to the merging parties ” (pages 42 and 43 of report).
50 Transcript pages 86, 90, 91 and 97.
51 Transcript pages 75 and 76.
52 Transcript pages 76,102 and 103.
53 See inter alia page 30 of Econex Report.
54 Transcript page 104.
22
mine would be worth it for the merging parties. 55 She also conceded that
Koornfontein’s export capacity is going to be filled by Glencore and nothing about
the merger is going to change that because of the p remiums available in the
export market. 56
[79] Maharaj further explained that given the limit ed supply volumes from
Koornfontein, Eskom had to start buying coal from other sources but this coal has
had to be transported by road to Komati. Despite th e added transport costs from
these sources it was still cheaper for Eskom to do this than to buy more from
Koornfontein at an export parity related price.57
[80] Maharaj went on to explain that one of the oth er coal sources is the
Goedgevonden contract (see paragraphs 73 and 74 abo ve) signed for Majuba.
She again confirmed that in the case of Goedgevonde n Eskom has security of
supply until 2026. 58 This was consistent with Houston’s evidence, who i n his
witness statement indicated that Xstrata does not h ave a contract to supply coal
to Komati. 59 Maharaj confirmed that Eskom is taking coal to Kom ati under the
BECSA Duvha 60 contract and under the GGV contract. 61
[81] Furthermore, three other coal suppliers (other than the merging parties) also
supply Komati, two of which supply very significant coal volumes to Komati. 62
Hendrina power station
[82] Maharaj testified that the Hendrina power stat ion is one of the oldest power
stations in the Eskom fleet and that at the time it was commissioned, it was
commissioned with a tied colliery, the Optimum Coll iery, which is adjacent to the
power station.
63 She went on to say that Hendrina essentially has t wo suppliers.
55 Transcript pages 106 and 107.
56 Transcript page 110.
57 Transcript page 77.
58 Transcript pages 98 to 100.
59 Houston’s witness statement, paragraph 12.3.
60 Xstrata currently has a long-term supply contract i n relation to Eskom’s Duvha plant via BHP Billiton
Energy Coal South Africa Limited (BECSA). This is r eferred to as the “BECSA Duvha contract”. See
Houston’s witness statement, paragraph 10.1.
61 Transcript page 98.
62 Econex Report, Table 11, page 39.
63 Transcript page 78.
23
Optimum Colliery being its main supplier 64 that provides the bulk of the coal that it
requires and a second supplier, which is not one of the merging parties, which
supplies coal by road. 65
[83] Maharaj confirmed that there currently is no s ignificant overlap of coal supply by
the merging parties with regards to the Hendrina po wer station. 66 Houston
confirmed that Xstrata does not currently have a co ntract to supply coal to
Hendrina. 67
Conclusion
[84] Based on the available evidence, there is no reason to believe that there are any
Eskom power stations where one of the merging parti es is a current supplier and
is significantly constrained by the (potential) alt ernative supply from the other
merging party. Thus the acquisition of Xstrata by G lencore presents no
opportunity for the merged entity to unilaterally r aise prices of coal supply at any
of Eskom's power stations.
Exports
[85] Econex argued that there is a clear rationale for the merged entity to actively
pursue an export strategy through the combination o f the merging parties’
marketing and mining skills and a clear incentive f or the merged entity to direct
coal to the export markets.
[86] The Commission found that an analysis of Xstra ta’s coal exports for the past
four years shows that pre-merger Xstrata’s throughp ut at the RBCT has almost
always been near or at full allocation. Houston con firmed that Xstrata already
utilises its full export capacity allocation from e xisting mines.
68 Houston further
indicated that Transnet will soon require Xstrata ( and all coal exporters that use
the RBCT export chain) to contract on the basis of a 90% take-or-pay
commitment over the next 10 years to support its in vestment in and operating
64 Optimum currently supplies the Hendrina power stat ion with [...] Mt, with the contract expiring in
20[...]. See inter alia page 34 of Econex Report. Transcript page 120. Als o see Ephron’s witness
statement, paragraph 60.
65 Transcript page 79.
66 Transcript page 120.
67 Houston’s witness statement, paragraph 12.2.
68 Houston’s witness statement, paragraph 16.
24
costs in respect of the export coal line. He furthe r said that Xstrata therefore has
planned to grow exports such that these rail commitments will be met. 69
[87] The Commission further found that Glencore is already using almost all of its
export allocation at the RBCT. Ephron also confirme d that Transnet is imposing
10 year take-or-pay obligations on coal exporters t o ensure it secures contracts
to cover the cost of its upgrade investment and fin ancing costs and that those
negotiations have been ongoing for 15 months. 70
[88] We conclude that it is likely that Transnet’s take-or-pay obligations will further
incentivise all coal producing firms to use their full export allocations.
[89] We further note the uncontested evidence that Xstrata is already export
focussed 71 and that it exports much more of its coal as a per centage of its
production than does Glencore. 72 It is thus not a situation in which Glencore is
acquiring domestic resources which are now domestic ally supplied in order to
apply them to exports. It is buying a company that for historical reasons is already
largely focused around coal exports.
[90] Although post-merger the merged entity will ha ve the largest allocation at the
RBCT terminal, displacing Anglo Coal that currently has the largest allocation,
taking into account both the rail and port capacity , the Commission concluded
that the merged entity has no more capacity to expo rt coal than the merging
parties did individually pre-merger. As the logisti cs infrastructure becomes de-
bottlenecked, the opportunity to export more coal o pens up. However, this
opportunity exists even without the merger, i.e. th e lifting of (some of) the export
constraints is not a function of the merger. Export capacity will be utilised, in
current market conditions, by Glencore and Xstrata whether together or apart and
the merger does not give the merged entity the abil ity or incentive to export more
coal.
the merger does not give the merged entity the abil ity or incentive to export more
coal.
[91] Although the attractiveness of exporting RB3 c oal impacts coal supply to the
local markets, this is not related to the merger. T he switch from RB1 to RB3 coal
69 Houston’s witness statement, paragraph 17.
70 Ephron’s witness statement, paragraph 30.
71 Houston’s witness statement, paragraphs 9 and 16.
72 See transcript pages 111 and 112.
25
exports is already an existing feature of the marke t and it is difficult to isolate the
potential contributions of this particular merger t o that trend. It is a natural
strategy for all coal miners to direct their coal s upply towards the higher priced
and growing export markets. However, although the p henomenon of increasing
RB3 coal exports is not independently anti-competit ive, its impact has significant
consequences for the supply of coal to domestic cus tomers (see broader public
interest concerns discussed in paragraphs 103 to 105 below).
[92] We concur with the Commission’s assessment on the vertical issues since we
have found no cogent evidence to the contrary.
Conclusion
[93] After considering Maharaj’s testimony we concl ude that Eskom’s coal supply
concerns, although legitimate, are not merger-speci fic, i.e. this merger is not the
cause for those concerns. We have found no cogent e vidence that the proposed
merger, either from a horizontal or vertical perspe ctive, would likely substantially
prevent or lessen competition in any coal market.
[94] Given our above finding, there is no reason fo r us deal with the “private”
agreement between Glencore and Eskom (see paragraph s 22 and 23 above).
Counsel for Eskom stated that the terms of the agre ement are confidential and
said that in the light of the agreement and the ass urances under that agreement,
it was no longer necessary for Eskom to continue wi th its participation as an
intervener. Eskom accordingly withdrew as intervene r and as a participant in
these merger proceedings. We shall not elaborate on the terms of the agreement,
suffice to say that counsel for the merging parties described the agreement’s
terms as being “largely about process ” and we would agree with this description.
[95] We do however note that customers with supply -related concerns would
normally request the Tribunal to approve a proposed merger subject to specific
normally request the Tribunal to approve a proposed merger subject to specific
conditions to address its concerns. This would rend er the conditions enforceable
and ensure compliance by the merged entity with the conditions. The
Commission would have the task of monitoring this c ompliance. However, as
stated above, Eskom in this case took the unusual a pproach of withdrawing its
intervention based on a “process” agreement and did not ask the Tribunal to
26
impose any of the supply conditions on the merged e ntity that it had originally
argued for (see paragraph 11 above).
Public interest
Merger-specific employment concerns
[96] The merging parties in their merger filing sub mitted that it is contemplated that
the merger will result in rationalisation in respec t of duplicated positions in the
acquiring and target firms. They however indicated that Glencore will use
reasonable efforts to mitigate the impact of ration alisation on employees by
methodologies such as redeployment of affected empl oyees elsewhere in the
merged group (to the extent possible) and/or the pr ovision of re-skilling
opportunities. Where feasible, voluntary retrenchme nt packages will be
considered in lieu of compulsory retrenchment.
73 They however did not initially
quantify the anticipated job losses.
[97] As stated above (see paragraphs 5 and 13), NUM raised the concern of the non-
disclosure by the merging parties of the imminent r etrenchment of 180
employees as a result of the proposed merger.
[98] NUM and the merging parties however ultimately reached agreement on a set of
employment conditions that satisfied NUM’s concerns . This agreement was a
slight modification of the one suggested to the Commission.
[99] In brief, the condition provides for a ceiling on the number of employees that
may be retrenched as a result of the merger. No mor e than 80 skilled employees
may be retrenched and the retrenchment process in r espect of this class of
employee may commence once the merger has been impl emented by the
merging parties.
[100] In respect of the class of semi-skilled and u nskilled employees, greater
protection is provided. Following the effective dat e (i.e. the date of the last
jurisdiction’s competition approval of the merger), the merging parties must
conduct a review to analyse whether retrenchments f rom this class of employees
73 Commission’s merger record, pages 1115 and 1116.
27
are required. This review period, which will involv e engagement with the unions
concerned, must be completed within 90 days. If aft er this review has been
concluded, it is determined that retrenchments of this class are still required, then
the merged firm may retrench, provided it does so; only two years after the end of
the review period; and no more than 100 employees f rom this class may be
retrenched. What this means is that retrenchments, of unskilled and semi-skilled
employees, if they have to take place, are postpone d for at least two years and
90 days after the effective date.
[101] For those semi-skilled and unskilled employee s who are retrenched, a re-
training fund has been established and each retrenc hed employee will be entitled
to receive R10 000 towards an approved training course.
[102] We note that the Glencore Group and Xstrata c ollectively currently have more
than 7 000 employees in South Africa. 74 We are satisfied that the agreed set of
employment-related conditions, that we have imposed as a condition of approval
of the proposed merger, is fair both to the affecte d employees and the merging
parties.
Non merger-specific broad public interest concerns
[103] Although not specific to the proposed merger, it has become clear during our
process that there are causes for concern around fu ture coal prices in the
domestic market and the impact of this on South Afr ica’s electricity prices. We
have taken note of a number of important trends and developments in the coal
industry as a whole in recent years. These include (i) the impending ending of
certain of Eskom’s long-term coal contracts; (ii) t he anticipated increased coal
demand from Eskom and its increased buying on short -term contracts; (iii) the
anticipated increase in rail transport capacities for coal exports; (iv) the incentives
of coal miners to export coal given higher coal exp ort prices and revenues; (v)
increases in the export of coal and meaningful chan ges in the composition of
increases in the export of coal and meaningful chan ges in the composition of
these exports, specifically the increased demand fr om countries that use lower
quality coal (i.e. RB3 coal) and thus increases in the exports of this coal from
South Africa; and (vi) the trending of prices on th e residual (short-term) market
74 Commission’s merger record, page 1115. These figures exclude the employees of contractors.
28
towards international export prices. These trends d o not favour domestic coal
users, specifically Eskom as the largest coal customer in South Africa.
[104] However, as noted above, these developments are occurring separate from the
proposed merger, i.e. the merger is not the cause o f these developments. These
factors will no doubt have an impact on Eskom’s abi lity to procure coal and the
price thereof and to produce competitively priced e lectricity. Although the
increasing prices of coal supply to our domestic market is a very serious concern,
given its effect on electricity prices and potentia l detrimental effects on economic
growth, South Africa’s development goals and indeed the entire economy, we
have no reason to believe that this merger is going to make that situation worse.
These concerns, which are industry-wide, could be a ddressed by other policy
instruments, if government deems it appropriate, an d if Government wants to
ensure that the strategic importance of South Afric a’s coal reserves to domestic
industries is protected.
[105] The Commission should actively use its advoca cy role to engage with all
relevant stakeholders including policymakers to adv ise them on these broader
public interest concerns and their causes.
CONCLUSION
[106] We approve the proposed transaction subject t o the employment-related
conditions as per the attached “ Annexure A ”.
______________________ 06 March 2013
ANDREAS WESSELS DATE
Norman Manoim and Merle Holden concurring
Tribunal researcher: Nicola Ilgner
For the Commission: Tembinkosi Bonakele
For the merging parties: D Unterhalter SC, J Blou SC and G Marriott instructed by
Werksmans
29
For Eskom: R Bhana and MJ Engelbrecht instructed by Cliffe Dekker
Hofmeyer
For NUM: L Tyatya, S Murule and S Bejab instructed by Silus Molebalo
For NUMSA: M Le Roux instructed by Routledge Modis e, practising as
Eversheds