Brace for a lengthy Sasol plastics hearing

2013-06-09 11:00

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Competition tribunal hearing on ‘excessive pricing’ will take longer than the four weeks set aside

The competition tribunal’s hearing of “excessive pricing” charges levelled at Sasol Chemical Industries (SCI) by the competition commission is going to take a great deal longer than the four weeks that were set aside for it.

The tribunal hearing around the local pricing of the polymers ­propylene and polypropylene, used to manufacture everything from garden furniture to plastic packaging, will continue later in the year with a number of witnesses yet to testify after the allotted time ended on Friday.

The two sides are battling with rival economic modelling. Key to the dispute is that Sasol exports more than 60% of its polypropylene production at prices lower than what it charges in South Africa, according to the commission.

The main issues being debated are whether Sasol is “dominant” in the polypropylene market and ­whether the polypropylene market is ­national or international.

In the commission’s version, Sasol towers over a relatively small local market where imports are not an effective competitive check.

In Sasol’s version, the company is a relatively modest producer in a large international marketplace that puts checks on its prices.

Sasol’s economist, Jorge Padilla, argued that the market for ­polypropylene was “international, if not global”, whereas the commission’s economic witness, Simon Roberts, argued that it was “national”.

“Our view is that, while there are some imports of polypropylene ­into South Africa, the costs of ­doing so are high in relation to the value of polypropylene in the relevant period,” says Roberts in his economic report.

He also argues that Sasol far ­exceeds the 45% market share of polypropylene that the ­Competition Act stipulates to ­declare dominance.

The commission is keen to make Sasol’s past as an apartheid-era, state-owned company a vital ­consideration in the hearing.

Sasol has access to cheap ­polymer feedstock from its synfuel plants in South Africa, but argues that this “special cost” advantage should not be factored into the judgement of its prices as ­excessive when compared to ­“economic value”.

Central to this debate are concepts drawn from the Competition Appeal Court’s judgment on the ArcelorMittal South Africa case – another instance where a former state monopoly stood accused of charging excessive prices.

The steel giant was found guilty by the competition tribunal, won an appeal at the Competition ­Appeal Court, which kicked it back to the tribunal for a further ruling.

At that point the matter was settled out of court by the original complainant, Harmony Gold, ­leaving the judgment open to ­interpretation.

In the Competition Appeal Court judgment “economic value” was defined as “the notional price of the good or service under ­assumed conditions of long-run competitive equilibrium.”

Roberts, for the commission, ­argues that this reasoning is based on a “particular interpretation” of the ArcelorMittal judgment.

He counters that the Competition Act explicitly refers to ­“excessive concentrations of control as a legacy of apartheid”.

Sasol’s “special cost” advantage is a “position it attained through the apartheid state’s economic policies”, he says.

Sasol now wants that position to “immunise it from the Competition Act’s excessive pricing ­provision” when the provision is specifically meant to curtail ­Sasol’s kind of apartheid-born control, says Roberts’ report.

Roberts argues that because SCI is vertically integrated with Sasol, the feedstock costs could be ­“internal transfer pricing ­decisions” and do not reflect ­actual costs.

Padilla argues that there is no reason Sasol would share the benefits of that low-cost ­feedstock with unrelated chemical businesses. Which is ultimately the crux of the matter: should Sasol be forced to share the benefits it accrued under apartheid with the downstream polypropylene and plastic-manufacturing markets in order to boost economic activity and create jobs – or should it be allowed to keep that cost advantage all to ­itself?

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