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Sapia granted extended exemption for what is normally cartel conduct

The Competition Commission has extended the petroleum industry’s exemption of industry activities to June 30, following an application by the South African Petroleum Industry Association (Sapia).

Ordinarily, the activities of Sapia members would be considered cartel conduct, says the commission.

Last week, Economic Development Minister Ebrahim Patel gazetted a three months’ designation for Sapia, which is a voluntary association founded by Chevron South Africa, Engen, Total South Africa and BP South Africa in 1994.

In line with previous exemptions, the commission had concluded that Sapia was made up of integrated members who were competitors in the petroleum industry value chain at various levels.

The various agreements and practices between competing Sapia members facilitate the exchange of information relating to, besides others, individual firms’ volumes, product grades, stock requirements, costs, production and capacity constraints.

From 2005 to date, the demand for liquid fuels in South Africa exceeded domestic production or refining capacity. For example, 2014 saw the total demand for petrol exceed total supply by 863-million litres and more than four-billion litres of diesel had to be imported to meet local demand.

Sapia had applied for a five-year exemption on behalf of its members who are mostly major oil companies. The association relied on a section of the Competition Act that allows the commission to consult with Patel to grant a conditional or unconditional exemption if the concerned applicants’ agreement(s) or practice(s) contribute to the economic stability of any industry designated by the Minister.

The association argued that coordination of agreements and practices between their members ensured security of supply and, thus, the economic stability of the petroleum industry. This coordination is facilitated through meetings and information sharing. The scope of the exemption excludes wholesale and retail activities, but covers the coordinated activities.

Coordinated activities include co-freighting and co-loading of crude oil and refined fuel imports through the single buoy mooring in Durban; planning and scheduling of refinery shutdowns; distribution of liquid fuels from refineries to secondary depots and terminals; joint bunkering or supply of fuels for use by ships; supply of fuels to airports through common facilities; and joint interaction between Sapia members on government policy initiatives.