Competition Commission & Competition Tribunal Strategic Plans 2010/11

Economic Development

08 March 2010
Chairperson: Mr Z Ntuli (ANC)
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Meeting Summary

The Competition Commission (CC) and Competition Tribunal (CT) presented their strategic plans for 2010-2011 to the committee. They outlined their mandates, particularly in regard to preventing the concentration of power through approval of mergers, the prosecution of anti-competitive behaviour, and advocacy towards fair competition, policy and legislation. The CC’s key strategic goals included the improvements to staff morale and motivation, aligning structures and work processes to strategic priorities, and making the Commission an acknowledged centre for knowledge, expertise and information. Graphs showing activity and impacts were tabled. Strategic partnerships would be developed to promote fair competition through proactive engagement and advocacy. The Commission outlined that it was in need of further funding.

The Competition Tribunal set out it function to regulate corporate mergers and adjudicate allegations pertaining to anti-competitive practices. The key priorities related to prohibited practices and mergers, and graphs were presented on merger trends, and on the adjudication of cases. The necessity for amendment to the Competition Act was outlined. The cases on the roll for 2010/11 were also tabled. The CT noted that it was partially funded by a grant from the Department of Trade and Industry, as well as by filing fees and an accumulated surplus. The expenditure was broken down.

Members asked if allegations around bank charges, the cell phone industry, allegations around price fixing and price hikes in anticipation of the World Cup in the airline, transport and accommodation sectors were being investigated, as well as Eskom’s recent raises. The CC indicated that the current matters were initiated during the 2006 to 2009 period, and explained those cases in which it could not adjudicate because there were independent regulators in those sectors. Members also asked about the deterrents, questioned if the fines imposed were sufficient and really had an impact on the companies concerned, and noted that there had been some recent amendments to the Act that did allow for imprisonment in certain instances. Members also enquired about staff morale and retention, allegations of price fixing in the pharmaceutical sector, professional fees, the declared surplus, the working relationships with law enforcement agencies, clarity on the grant, and whether the CC was working on cross-border activities.

Meeting report

Competition Commission Strategic Plans 2010-11
Commissioner Shan Ramburuth, Competition Commission, presented the strategic plans of the Competition Commission (CC or the Commission) to the Committee. The Commission’s first mandate related to preventing a concentration of power, through merger control. Large merger decisions had to be referred to, and be adjudicated upon by the Competition Tribunal, whilst intermediate mergers and smaller mergers had, respectively to be approved and notified. The Commission’s second mandate pertained to the prosecution of anti-competitive behaviour. This was subdivided into areas pertaining to horizontal and vertical restrictive practices as well as issues pertaining to the abuse of dominance. The third mandate related to advocacy for pro-competitive conduct. That mandate pertained to the idea of instilling fair competition, policy and legislation as well as practice and governance.

Mr Ramburuth said that the Tribunal case hearings often took more than one day. Improving staff morale and motivation was one of the key strategic goals for 2006-2009. Other strategic goals were to align the structure and work processes to strategic priorities and to have the Commission acknowledged as a centre for knowledge, expertise and information. Advocacy and communication, and approach and methodology also formed part of the strategic goals for the three year term.

The Commission tabled graphs showing activity and impacts. Commissioner Ramburuth said that strategic partnerships would promote competition through proactive engagement and advocacy on government practices and policy. The Commission hoped to realise itself as a high-performance organisation.

The Commission noted that it was in need of additional funds for the Medium Term Expenditure Framework (MTEF) period of 2010/11 to 2012/13, and set out its analysis on this. The challenges were named as relating to staff, office space, funding, as well as the need to make amendments to the Competition Act (the Act).

Competition Tribunal (CT) presentation
Mr Norman Manoim, Chairperson, Competition Tribunal, tabled his presentation to the Committee. The Tribunal was noted as an independent, specialised institution that was established by the Competition Act 89 of 1998. Its function was to regulate corporate mergers and adjudicate allegations pertaining to anti-competitive practices.

Mr Manoim said that the Tribunal’s agenda was set by the Competition Commission, in respect of prohibited practices and large mergers, and by private parties for intermediate mergers, complaint referrals and interim relief.

The Tribunal’s key priorities related to prohibited practices and mergers. Reference was made via graphs to large merger trends, as well as the numbers of Tribunal case days. A tabled graph was also set for turnaround times for mergers with percentage outcomes.
 
Mr Manoim noted that the plans for 2010/11 included amendments to the Act. The challenges around this were noted. For 2010/11, the Tribunal was prioritising case document management as well as performance information software.

A list of cases on the Tribunal’s roll for 2010/2011 was given (see attached presentation for details). The case against South African Breweries had 40 days allocated to it.

The Tribunal’s activities would be funded by a Department of Trade and Industry (dti) grant, filing fees as well as accumulated surpluses. The reasons for the surplus were explained by graphs. Mr Manoim proceeded to explain why the Tribunal would need to retain its surplus and how this fitted into the Tribunal’s three year funding.

The expenditure categories for the 2010/11 Budget was broken down at 15.86% for capital expenditure, 7.32% for administration, 51.67% for personnel, 5.77% for training, 0.40% for recruitment, 16.23% for professional services and 2.7% for the Appeal Court.

Finally, the breakdown of staff was tabled, noting that there were three full time members, seven part time members, and that the staff comprised 13 members in three divisions.

Discussion
Mr K Manamela (ANC) directed the question of bank charges to the Competition Commission, saying that the Budget Speech had directly addressed service charges. He asked if there had been any collusion between the four main banks in South Africa and whether the Competition Commission had had any complaints lodged or was undertaking investigations with regard to those service charges.

Mr Manamela also displayed concern towards the cell phone industry and the charges imposed on clients.  He said that, contrary to popular belief, he believed there was an element of collusion between cell phone companies.

Dr S Huang (ANC) echoed the concern regarding the cell phone service charges.

Mr Manamela  noted that, in regard to the FIFA World Cup time frame, he was also concerned about price fixing within the airline, transport and accommodation sectors. He made reference to allegations of airline price fixing a few months back. He wanted to know if the Competition Commission was prioritising that.

Mr Ramburuth made reference to the strategic plans for the 2006-2009 period as well as the 2010-2013 strategic plans. He said that the CC had seen results for the 2006-2009 strategic plans and that all the cases it was dealing with now were a consequence of that planning. He said that the work for the 2006-2009 strategic plans had been prioritised by four criteria. The first criterion was those markets whose products impacted the most on low income consumers. These were basic foodstuff like bread and milk. The second criterion was issues that pertained to the cost of doing business, such as telecommunication costs and bank charges. The third criterion of the Commission was to align itself with public policy and economic development and growth objectives. Specific reference was made to industrial policy. The fourth criterion pertained to matters arising from the Commission’s past experiences. The Commission had applied the priorities to four sectors. They were the Agro processing and food sector, the Infrastructure and Construction sector, the Intermediate Industrial product sector (steel, chemicals) and the Financial sector (bank charges).

With regard to bank charges, Mr Ramburuth said that there had been a banking enquiry between August 2006 and June 2008 and that a report had been produced and released in December 2008. Unfortunately the world had been hit by a recession in November 2008, a set of circumstances outside the control of the Commission. The Commission took the stance that most of the recommendations around the banking enquiry related to the way in which the sector was regulated, which it believed must be fixed. This was a job for the South African Reserve Bank and the Department of Finance. The Commission did not have jurisdiction over these issues, which were regulated by a different authority. Mr Ramburuth said that competition challenges had been identified, but that a close working relationship was necessary, and that CC had formed a joint structure with National Treasury, the Department of Trade and Industry and the National Department of Finance. He added that the leadership in fixing the problem would come from National Treasury and the Department of Finance.

With regard to the cell phone industry, the Commission said that there was a specific regulator in that sector, in the form of the Independent Communications Authority of South Africa (ICASA) and that this regulator worked in terms of its own mandate, policy and government inputs. Mr Ramburuth said that the Commission had received several complaints as a direct result of the sector not being regulated in the first place.

With regards to the FIFA World Cup and the allegations of price hikes, he noted the issues but said that, in respect of all restrictive practice cases, CC had to be sure that an offence had taken place before it could even think of taking action against offenders. He said that the Commission could not prosecute people if there was a suspicion that they were planning to do something, as there had to be enough evidence before a case could proceed.

Dr Huang made reference to Eskom who were escalating fees at 25% per annum and wanted to know why the Commission was doing nothing about that.

Mr Ramburuth added that, like the other industries mentioned, Eskom was also governed by its own regulator in the sector.

Mr X Mabaso (ANC) was concerned about the costs to the government and the public of uncovering illegal practices. He wanted to know if the deterrents, in relation to the cost to government, were sufficiently strong. He added that some companies were so wealthy that the fines imposed on them hardly affected them.

Mr Ramburuth noted that the issue of deterrents was always important and that the CC was in constant engagement on this issue.

Mr Manoim added that fines were confined to a maximum of one years’ turnover. The challenge lay with cartels that had been in existence for a long time. He added that one of the weaknesses in legislation was that it was only possible to impose a fine related to the one year turnover. He added that monies derived from fines went to the National Revenue Fund.

Mr Mabaso referred to the community in a broad sense, inclusive of consumers, and wanted to know if the community was empowered in the sense that it felt the CC was available to assist it.

Mr Mabaso asked what the CC was doing with regard to staff retention and training as staff and the training of staff was seen as a huge asset.

Mr S Ngonyama (COPE) asked the Competition Commission if it had achieved its objections with regard to staff morale and motivation. He added that staff morale was critical for the functioning of the Competition Commission.

Mr Ramburuth said that the issue of staff retention was a good point, and that the Commission’s staff was generally very happy. The CC had won the award for the ‘Best Company to Work for in the Public Sector’ for two consecutive years. He added that the Commission had a good University graduate training programme and that it had recruited many of its staff members from University, training and then later employing them.

Mr Ngonyama made reference to the large merger trends of 2008 and 2009 and the approval without conditions. He wanted to know what the meaning of the trends was. He made reference to the turnaround times for mergers and the 52.58% cited in the presentation, and asked the Tribunal to add a specific time to that.

Mr Ngonyama wanted to know from the Tribunal what the nature of the SAB and Sasol cases were. He added that those were two large companies and that one would have expected them to adhere to corporate governance principles.

Mr Manoim said that the fact that the conglomerates had been charged did not mean that they did not adhere to corporate governance principles. He could not say any more at this stage. The decision on how they had acted would only be made if they were successfully prosecuted.

Mr Ngonyama enquired as to the capital component for the budget for this year.

Dr P Rabie (DA) made reference to companies like Tigerbrands and others and commended the Commission for its work done thus far. He said that inflation rates were high and that there had been some allegations of price fixing in the retail sector. He wanted clarification from the Commission on that.

Mr Rabie added that there had been press coverage on allegations made with regards to price fixing of generic medicines in the pharmaceutical sector. He wanted clarification on that from the Commission too. He also wanted the opinion of the Commission with regards to short-term insurance. He asked if the Commission had suspected any collusion in these industries.

Mr Ramburuth noted, in regard to collusion in the pharmaceutical sector, that the CC had dealt with and prosecuted in relation to a case pertaining to the price fixing of intravenous solutions. He was not aware of any others thus far.

With regard to short-term insurance, he noted that this was another instance where there was a separate regulator, outside of the Commission, to deal with allegations.

Mr Rabie wanted to know what the background was of the case between the Competition Commission and Astral Foods.

Mr Ramburuth noted a number of cases pertaining to the poultry industry as well as Astral Foods.

Dr M Oriani-Ambrosini (IFP) highlighted the importance of a full analysis of the competitive environment in South Africa, taking into consideration all those areas that were not in the jurisdiction of the Commission. He displayed concern about professional fees and wanted to know if this was consistent with the budgetary process of the Constitution.

Mr Ramburuth said that with regards to the concerns around over and under spending, there was no correlation between the Commission and the Tribunal. He said that the institutions were two separate institutions and that they did not compare budgets. He added that one years’ under-spending could be the next year’s surplus.

Ms E Coleman (ANC) thanked the Commission and the Tribunal for the work done thus far. She added that since 2004 the Commission had been inconsistent in its coverage, but then seemed to have been very active since last year. She required an explanation for the inconsistencies.
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Ms Coleman wanted to know when the Tribunal and Commission were going to table their Strategic Plans through the Minister to Parliament, as they had submitted summaries only.

Mr Ramburuth said that the Commission as well as the Tribunal had submitted, via a request from the Minister, their full strategic plans two weeks ago.

Ms Coleman made reference to slide 5 regarding the activities of the CC in terms of corporate leniency applications. She wanted to know what the term ‘other’ comprised. She noted that one strategy was that the Commission wanted to consolidate working partnerships with law enforcement agencies. She wanted to know what the Commission’s current relationship was with those agencies.

With regards to funding options, Ms Coleman said that the option of cutting down on plans was not advisable given the challenges.

Ms Coleman asked for more clarity pertaining to the large merger trends.

Ms Coleman said that the Tribunal, in its presentation, had given turnaround times for measures in relation to large corporations, but not for private parties.

Ms Coleman wanted clarity with regards to the accountability for the dti grant. She wanted to know if it was a conditional grant, or a normal grant that did not have accountability.

Mr Ramburuth said that the dti grant had been received through the Medium Term Budget Policy Statement (MTBPS) and the CC was accountable in terms of the Public Finance Management Act (PFMA).

Ms Coleman asked the Tribunal why it had referred to the surplus in this way, and not as an under expenditure. She asked in which period the accumulated surplus had occurred.

Dr S Huang (ANC) also required an explanation of the surpluses.

Mr Manoim said that the Tribunal had received the budgetary allocation and the grant, and there had been unexpended money, at the end of the financial year, which had accumulated over various years. This accrued money had not been spent and had become a surplus in the Tribunal’s coffers.

Dr Oriani-Ambrosini said that the Tribunal was not a normal organ of state and that in its case he thought that this under-spending was good.  He added that the more people who approached the Tribunal, then the more money it would make.

Mr Manoim noted that the surplus would not be due to an under-performance. He explained that the Tribunal would be receiving large sums due to mergers. He added that being an adjudicating body meant that the Tribunal was reactive and that income and expenditure could never be predicted exactly. He noted that the Tribunal was not a project based organization. Mr Manoim noted the Tribunal’s reasons for dealing with mergers.

Ms Coleman asked for clarity on the Tribunal’s staff complement

Mr Manoim confirmed that the Tribunal staff complement comprised 23 staff members.

The Chairperson asked the Commission and the Tribunal what issues they would like the Committee to address during the Committee’s oversight visit. He wanted the Commission and Tribunal to be forthright with the Committee on exactly how the Committee could assist with addressing their challenges.

Mr Manamela returned to the question of bank fees. He was still concerned that South African service charges and bank fees were amongst the highest in the world, and South African consumers were suffering. He added that a progress report was needed.

Mr Ramburuth said that the mandate of the regulators in the financial sector dealt mainly with risk and that the Commission’s interest was largely to make the system more user-friendly. He added that the Commission had to persuade the regulator that the two things were not mutually exclusive.

Mr Manamela also referred to the issue of fines and deterrents. He agreed that an amendment needed to be made to the Competition Act with regard to punishment. He wanted offenders to go to prison, and not just be fined. He made reference to the case where Tigerbrands had been fined R90 million, and then simply raised its prices. This meant that the fine had absolutely no impact, and this company was “laughing all the way to the bank”. Although he appreciated that the money imposed for fines went back for redistribution via the national revenue fund, fining the offenders was not enough, as consumers were suffering.

Mr Ramburuth said that the amendment of the Competition Act does now allow for jail time.

Mr Ngonyama wanted to know if there was an international body that looked at airline corruption across borders.

Mr Ramburuth confirmed that the Commission had done a lot of work pertaining to corruption across the South African border, regarding other African countries.

The meeting was adjourned.




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