Five SA companies appeared before the Competition Tribunal this week in a bid to clear their names of allegations of price fixing, in a case that saw the Competition Commission calling for an administration penalty of 10% of their annual turnover.
The allegations surfaced in 2015.
In the hearing - set to last for 10 days in the Pretoria Competition Tribunal - Totalgaz Southern Africa, Oryx Oil South Africa, KayaGas, Easigas and African Oxygen Limited (Afrox) will be given a chance to defend themselves against allegations of cartel conduct.
The Competition Commission started investigating the LPG companies for allegedly entering into an agreement, or engaging in a concerted practice, to fix the price paid as a deposit on LPG cylinders. "entering into an agreement and/or engaging in a concerted practice to fix the price paid as a deposit fee for LPG cylinders for first-time buyers".
On the first day, the Tribunal was told that that industry leader Afrox influenced the other four companies into increasing deposit prices for a 9kg of gas to R300 in June 2015. A 9kg gas cylinder was said to initially cost R75 in around 2005, which was later increased to R150 in 2010 within the working rules.
The Tribunal also heard that in late 2014 or early 2015, the companies, under the leadership of large industry players – one of them being Afrox – formed a committee to lobby the Department of Energy to approve a "uniform price" higher than the regulated price, as they felt that the price of R150 was "uneconomic" due to expensive imports.
According to Mark Radford, Head of the LPG Division at Afrox, the R150 deposit fee "did not allow participants to continue investing in cylinders. A 9kg cylinder was just not justifiable in terms of ongoing investments. The cylinder exchange program can only be sustained if there’s a uniform deposit by all parties," he said.
"Any increase by any one firm would have to be similarity increased by the rest of the firms for the program to continue," he argued during cross examination.
Although Afrox is one of the five companies accused of price fixing, the firm is not expected to pay any penalties, as it was previously granted immunity for assisting the Commission in its investigation of the other four companies.
Under to South Africa’s Competition Act, which regulates competition in the country, price fixing and excessive pricing of products is prohibited.
Price alignment 'necessary'
Mike van der Nest SC, legal representative for Totalgaz, told the Tribunal in his opening statement that the price alignment was necessary to allow the various LPG companies to work together.
"The wholesalers compete on price and it was a seamless switch… the customer has the stability to select on price. Even though you are sitting with a Totalgaz cylinder, you can approach another manufacturer. With uniform deposits there’s no problem."
Oryx legal representative Jerome Wilson said in his opening statement that there was nothing questionable about the engagement among the companies; they simply sought facilitate healthy competition in a market in which they all operated.
"If the Tribunal were to find that there is an agreement or a concerted practice in relation to increases of LGB deposits, mainly that they should be uniform and came into effect at the same time… those are two aspects which are necessary for a cylinder exchange scheme.
"The Tribunal should conclude that their conduct did not constitute contravention of Section 4 and B [of the regulations] because the purpose and objective was not to eliminate competition between them.
"It would be to maintain a cylinder deposit scheme which… is something [they] all agree is in the consumer's interest," Wilson said.
The hearing continues.