Petrochemicals group Sasol submitted an affidavit in August to the Constitutional Court in response to an application made by the Competition Commission in July for leave to appeal the Competition Appeal Court’s (CAC’s) June ruling to overturn a Competition Tribunal finding, which resulted in Sasol Chemical Industries (SCI) being fined R534-million for excessive propylene and polypropylene prices.
The commission submitted its appeal to the Constitutional Court on July 23 in response to the CAC’s June 17 judgment, which overturned the decision made by the Competition Tribunal on June 5, 2014. In addition to the R534-million penalty levelled against SCI, the tribunal also determined a method for Sasol to use in pricing propylene and polypropylene in future.
“The tribunal . . . imposed behavioural remedies requiring SCI to submit a proposed pricing remedy, based on a price formulation linked to prices charged in regions in the world [that have] the lowest prices for purified polypropylene,” explains South African law firm Cliffe Dekker Hofmeyr competition senior associate Leana Engelbrecht.
The tribunal concluded its hearing in October 2014 and said at the time that the pricing of the two plastic compounds – used to manufacture industrial and household plastic products – would have a knock-on effect on the price of plastic products.
The Competition Commission’s decision to appeal was on the grounds of Section 8 (a) of the Competition Act, which prohibits a dominant firm from charging an excessive price to the detriment of consumers, being interpreted and applied in a way that enables Sasol to charge maximum prices indefinitely, “particularly in circumstances where Sasol acquired its dominant position through the previous government’s support and was a low-cost producer”, the commission said in a statement.
Engelbrecht explains that, to determine whether excessive pricing in contravention of Section 8 (a) has taken place, the court must determine the economic value of the goods in question, and whether the price of the goods is unreasonable and detrimental to consumers.
She adds that the CAC considered the appropriate interpretation of Section 8 (a) to determine the economic value of Sasol’s propylene and polypropylene. However, Engelbrecht notes that it was important to establish whether a cost advantage must come to bear in determining the economic value of the products. Subsequently, the CAC stated: “If the cost of an essential component of products, whose prices are under scrutiny, can be justified on rational grounds that should be the yardstick employed in the primary enquiry with which the court is engaged. The complexity of price assessment dictates that some deference is required.”
Engelbrecht explains that the CAC concluded that the economic value must be determined in light of the price at which SCI bought propylene and polypropylene feedstock from its supplier Sasol Synfuels and “that there is no need to adopt a hypothetical price as conceded by SCI”.
Further, the CAC considered whether the price charged was unreasonable to render it excessive. It concluded that the price charged by SCI was between 12% and 14% higher than the economic value of the product. The CAC deemed this higher price reasonable and not in contravention of Section 8 (a). “It was, accordingly, not necessary for the CAC to consider whether the price led to consumer harm and SCI’s appeal was upheld,” Engelbrecht says.
“We now await the outcome of this appeal process,” Sasol said in its 2015 audited financial results, which were published last month. The company noted that the Competition Commission was investigating a number of industries in which it operated, including petroleum and polymers. The commission also started a market inquiry into the local liquid petroleum gas industry, Sasol concluded.