Edition 32 • June 2009 In this Edition Page 1 - 4 The Unraveling of a The Unraveling of a Fertiliser Cartel as Sasol settles with the Commission on a Record Fine Fertiliser Cartel as Page 2 Editorial Note Sasol Settles with the Page 5 Commission on a Record ICN Merger and Unilateral Conduct Workshops Fine Page 6 R250 million, representing 8% of its Practitioners meeting Sasol Nitro division’s turnover. Below we briefly discuss the cases as well as the Commission’s approach to this Page 7-8 settlement. Merger between Much Asphalt, Gauteng Asphalt, Road Seal and The Nutri-Flo Complaint Road Seal Properties In November 2003, Nutri-Flo, a small Page 9-10 fertiliser blender and distributor (a The Competition Act and Professional customer of Sasol), lodged a complaint Associations with the Commission alleging that three large fertiliser suppliers in South Africa, Sasol, Kynoch and Omnia, were Page 11-12 engaged in collusion by dividing the The Organisation for Economic Co- markets for various fertiliser products operation and Development and the such as Limestone Ammonium Nitrate Global Forum on Competition, 2009 (LAN) and by fixing prices of LAN and other fertiliser products. Further, By: Tembinkosi Bonakele Nutri-Flo alleged that Sasol had Page 13-14 abused its dominance by engaging Competition Commission of South in excessive pricing in respect of LAN On 20 May 2009 the Competition Africa against Senwes Limited and Ammonium Nitrate Solution (ANS) Tribunal (‘the Tribunal’) confirmed and in exclusionary conduct through the settlement agreement between an effective margin squeeze. the Competition Commission (‘the Page 14-15 Commission’) and Sasol Chemical Competition Commission Initiates During its investigation of the complaint Industries (‘Sasol’). The settlement Investigation into Cycle Cartel the Commission noted that concerns covers the Nutri-Flo (collusion) of anti-competitive behaviour, and complaint against Sasol, Omnia collusion in particular, in the fertiliser Fertiliser and Yara South Africa and Page 16 industry had long been highlighted by the Commission initiated investigation Merger thresholds the Competition Board (a predecessor against Sasol for collusion with to the existing competition authorities) Foskor. It does not cover any abuse of in its 1998 decision in the then Page 17 dominance issues or what is sometimes proposed merger between Sasol and Brimstone and Sea Harvest Merger referred to as unilateral conduct. In African Explosives and Chemical terms of the settlement agreement Industries Limited (AECI). Sasol admitted to contravening Page 18-19 Section 4(1)(b) (covering collusion) Mergers and Acquisitions Summaries of the Competition Act (‘the Act’) and >>Continued on page 3 agreed to pay a penalty of just over 1 Editorial Note The past three months have seen During 2007 the Commission the motivation for the Commission’s much activity in the food sector for initiated another complaint, this time recommendation and the Tribunal’s the competition authorities and this against Sasol and Foskor (Pty) Ltd, final decision. This matter again is reflected in the cases covered in following a merger which pointed to a illustrated the need for a holistic the June edition of the newsletter. collusive agreement between the two approach to the food sector involving Food became a priority sector companies in the phosphoric acid both enforcement and merger for the Competition Commission industry. This matter was referred assessments. (“Commission”) following our to the Tribunal as a consent order observation of the impact food together with the settlement reached Outside the food sector we have price hikes were having on the poor in the above fertiliser case, for the covered several notable mergers and and the uncovering of the bread Tribunal’s confirmation. the much publicised alleged bicycle and milk cartels. It became clear cartel. We also continue to learn much that a holistic assessment of the Both of the above matters have from our international relations. In this entire food value chain was needed implications for food prices as fertliser regard, the past few months have with the aim of understanding the is a major input in the food value chain been very active with conferences competition and other factors at play while phosphoric acid is a major input taking place within the International and initiating investigations where this in the production of fertiliser. In this Competition Network (ICN) and was warranted. The result was the newsletter we set out the details of the Organisation for Economic Co- establishment of an inter-divisional both cases and the long road which operation and Development (OECD). food team in early 2008 which has finally lead to the settlement of both Here we detail some of those since been studying and making matters. This settlement was historic learnings as well as a report of how interventions in the food value chain in that Sasol’s penalty was the highest we influence the current thinking in from an enforcement, merger and amount ever agreed between the the development of competition law advocacy perspective. Within the Commission and a respondent. around the world. food sector, the main focus areas of the food team are the grain milling & The Senwes matter, which is also There is much more to gain from this baking, dairy, vegetable fats and oils, covered in this edition, also has edition of the newsletter, for example poultry, and pelagic fish industries. implications for the price of grain in our article on lessons for professional South Africa. Here we summarise the associations. We hope you enjoy The leading case in this month’s main findings of the Tribunal following this newsletter as you have previous newsletter however was, for the most the Commission’s referral of this case. editions. Please contact us on the part, completed before even the bread The Tribunal found that Senwes had details set out if you need any more and milk cartels were uncovered. contravened the Competition Act 89 information. The case against Sasol Chemical of 1998, as amended, by denying Industries Limited (“Sasol”), Omnia grain traders the benefit of an annual Fertilizer Limited (“Omnia”) and Yara storage discount which they had Nandi Mokoena South Africa (Pty) Ltd (“Yara”) began previously enjoyed. Editor-in-Chief in 2003 after complaints from two companies operating in the fertiliser Staying with the food theme, we industries. The Commission completed also cover the merger between this investigation and referred it to the Business Venture Investments No. Competition Tribunal (“Tribunal”) for 1311 (“Newco”) and Sea Harvest adjudication in 2005. In this matter Corporation (“Sea Harvest”) in which the Commission alleged that Sasol, Newco, a subsidiary of Brimstone Omnia and Yara had colluded to fix intended to acquire the entire issued prices and divide markets while Sasol share capital of Sea Harvest. The had also abused its dominance in the Commission recommended that the fertiliser industry. Tribunal approve this merger without conditions. This edition gives a brief report on the analysis in the case and 2 Subsequent to its investigation, the to exclusively manufacture phosphoric of section 4(1)(b) of the Act and Commission found that Sasol and acid for Foskor. This effectively meant proposing to settle the abuse of its competitors had contravened that Sasol ‘agreed’ not to compete with dominance conduct (this cannot be section 4(1)(b) of the Act in that Foskor in the phosphoric acid market. covered by the CLP). Foskor was they had entered into a framework The Commission recommended that granted leniency and negotiations of agreements, arrangements and the merger be prohibited because over abuse of dominance conduct understandings which had the it was likely to lead to substantial are the subject of ongoing settlement effect of constructing and dividing lessening or prevention of competition discussions. the market such that Sasol became in the phosphoric acid market, as the exclusive supplier of LAN. The these were the only two firms which Towards the end of 2008 Sasol filed a Commission’s investigation revealed supplied the South African market marker application for fixing prices of that collusion was, amongst other with almost all its phosphoric acid various fertiliser products. (Note that things, facilitated through a network requirements. The parties then because leniency is granted to the first of committees and clubs, namely decided to withdraw the merger, but person to approach the Commission, the Import Planning Committee, the continued with the TMA. the CLP permits a person who wants to Nitrogen Balance Committee and the apply for leniency but is still collecting Export Club. These committees were The Commission noted that the the required information to apply for used by the respondents to exchange effect of the TMA would be what it a marker to reserving a space as commercially sensitive information sought to prevent by blocking the the first applicant for leniency). At and to reach agreements on prices, merger, elimination of competition the same time Sasol informed the export volumes and market division in the supply of phosphoric acid. Commission that it was conducting by allocating customers, suppliers Accordingly, the Commission initiated a competition law compliance review and territories for a range of fertiliser an investigation into the TMA. During of its activities and it would approach products including ammonia, potash, its investigation the Commission the Commission and fully cooperate urea, phosphate-based fertilisers and received a further complaint from if it finds any wrongdoing on its part. LAN. In addition, the Commission animal feeds producers in which The marker application was rejected found that the cartel enhanced similar issues were raised. The animal on the basis that the marker was too Sasol’s ability to exert market power feeds producers further alleged that wide in its scope and was in respect – unchallenged by the big players Foskor charged excessive prices in of matters that were pending before who were then part of the cartel.