Plastic soldiers line up for price war

2013-05-12 14:00

Commission takes Sasol to task, but critics argue it is being made to do ‘dirty work’

Tomorrow, the Competition Commission squares off against petrochemical giant Sasol.

The battle is around the cost of plastic used for everything from garden furniture and plastic packaging to cooler and lunch boxes.

The case is set down for a four-week Competition Tribunal hearing. It will have the undivided attention of the trade and industry department, local manufacturers and a growing body of critics who believe the competition authorities are being roped in to enforce industrial policy outside their mandate.

The commission is alleging that Sasol has been charging excessive prices for propylene and polypropylene, both polymers, which are used to manufacture a wide range of everyday plastic-moulded products.

According to the commission, Sasol exports more than 60% of its polypropylene at lower prices than it offers the local market.

This results in South Africa exporting most of its plastic raw and then importing most of its finished plastic products.

The polymers are by-products of fuel processing and, according to Mike Rex, the owner and director of Global Commodity Analysts, South Africa produces 625?000 tons of polypropylene a year – 520?000 by Sasol and 105?000 by Safripol, the only local competitor.

Rex estimates that Sasol exports between 350?000 and 400?000 tons of polypropylene a year – up to 80% of total production.

The trade and industry department’s chief director for industrial policy, Nimrod Zalk, said: “South Africa has an upstream resource advantage here and a lot of it was built with public resources. The country needs to see a developmental return.”

Sasol, like the erstwhile Iscor, was privatised years ago and has subsequently drawn trade and industry’s ire for allegedly abusing the legacy of being a state monopoly.

Analysts said large retail chains imported as much as 50% of some plastic products made of the polymers because Sasol’s pricing structure barred local manufacturers from price competition.

Analysts familiar with the polymers sector say that if government regulated the price of polypropylene, it would boost the local manufacturing of plastic goods and create jobs.

Some add that government was essentially asking competition authorities to do its “dirty work” when they should be using regulation and policy to achieve the outcomes they want.

This echoes criticism of the way in which concessions were forced out of Walmart in its takeover of Massmart.

Some analysts argue that the energy ministry could implement the regulation through the National Energy Regulator of SA, which regulates the price of petroleum products.

Sasol has faced competition fines totalling billions of rands since 2008, when the European Commission fined its paraffin wax business €318.2?million.

FIRST EXCHANGE OF FIRE

Lawyers and advocates representing Sasol and the Competition Commission had already clashed last Monday at a preliminary hearing after Sasol’s team demanded full access to documents used by the commission’s witnesses.

The petrochemical giant launched an urgent application to gain access to the financial statements, management accounts, board meeting minutes and data supplied to witnesses by third-party analysts.

The hearing became heated at times.

Sasol was accused of going on a fishing expedition by “casting the net wide”, and also of “inexplicably” waiting to bring an allegedly belated “urgent application” before the tribunal.

Sasol is hoping the time constraints – which threatened the start of the hearing next week – would play into their hands, the commission argued.

“It is not enough to say ‘give me everything and I’ll go on a fishing expedition,’” said the commission’s Advocate, Matseleng Lekoane.

“Sasol had over a year to seek these documents. This is nothing more than a self-created situation.”

Sasol, in turn, accused the commission’s witnesses of providing “pared down” financial statements, which were “patently insufficient”.

Sasol and the commission met on April 15 this year to agree on which documents were to be supplied to Sasol, but apparently forgot to record the agreement.

The Competition Tribunal’s chair, Norman Manoim, said it was a “pity” there was no documentation, but that time was of the essence.

When the tribunal reconvened for the third time last Monday, after two breaks in proceedings, Manoim announced it would be ruling in favour of Sasol and warned the advocates and lawyers present not to get into personal battles.

“This evidence seems to be prima facie,” said Manoim, arguing it should be produced.

“Let’s get this show on the road,” he said.

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