Competition Commission & Competition Tribunal: Strategic Plans 2010-2013 & 1st Quarter 2010 performance reports

Economic Development

30 August 2010
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Competition Commission (CC) presented its Strategic Plan for 2010-2013.The mandate was highlighted as prevention of concentration through merger control, prosecution of anti-competitive behaviour and advocacy for pro-competitive conduct. The strategic goals for the period 2006-2009 had focused on staff morale and motivation, aligning structure and work processes to strategic priorities and advocacy and communication. Challenges included the external economic crisis, and internal factors such as the increase in cases that required expansion in resources. The Strategic Plan for 2010-2013 was then outlined. It aimed to achieve demonstrable outcomes in the economy, create a competitive environment for economic activities, and promote a high performance competition agency. For the budget period 2010/11 the Commission would receive a total revenue of R123.7 million from its fees and through the Department of Trade and Industry. However, it needed to spend R187.4 million, and was thus budgeting for a deficit. The CC was already negotiating for more funds through the Department of Trade and Industry, to fund the deficit. Deficits were also budgeted in the following financial years. The major implementation challenges had to do with funding, and capacity constraints that were related to retention and hiring of staff. Members asked the Commission to provide the members with a motivation on the request for extra funding, so that it could support the request, and questioned why there were such budgetary constraints, and the source of the funding. Members also asked about any future changes to the Competition Act, how the strengthening of the middle management would result in investigation time being shortened, the training, how promoting a culture of savings would impact on the goals, whether the Commission focused on consumer protection, whether it was dealing with the steel prices, and whether it was expecting a rollover. The CC would report back to the Committee on its gender composition and employment figures.

The Competition Commission then presented its performance for the 1st quarter of 2010. It outlined what work had been undertaken in mergers, investigations, litigation, prosecution and complaints. The Global Merger Control Index 2010, drawn by the Centre for European Law and Economics, had ranked South Africa ninth out of 60 countries surveyed. The Commission outlined the types of cases, and noted that it was working on bid-rigging in public procurement and aimed to introduce a Certificate of Independent Bid Determination, with National Treasury. Implementation challenges included increasing litigation costs and difficulty in measuring impact. The implementation of certain programmes had been put on hold due to funding constraints, including programmes in training, market enquiries, organisational structure, formation of a cartels unit and raids. Members enquired about the impact of the rating for the Global Merger Control Index, noted that the numbers of non-referred complaints wasted the Commission’s time and perhaps there was a need for more consumer education, what work the Commission was doing in the retail sector, and what challenges were faced in measuring impact. Members commented that the Commission needed to improve on the processes for employing people, asked whether those employed were in new or replacement positions, asked why certain entities had been selected for training, how South Africa compared to the rest of the Continent and how the Committee could assist in enhancing the work of the Commission.

The Competition Tribunal presented its strategic plan for 2010-2103 and the 1st quarter report for 2010. The Competition Tribunal outlined that its strategic plans were based on requirements of the Competition Commission, firms, consumers and trade unions. There were targets for the turnaround times, which were outlined in the presentation. The Competition Tribunal noted that its strategic plan also outlined that it must respond to amendments to the Act, the preparation of practice guidelines, and identifying partner organisations in order to facilitate legal representation for parties who were unable to afford this. It would also be focussing on implementing its Case Document Management and Performance Information Software, upgrading and improving its website, and providing internships. It had budgeted in the region of 51.37% of its budget for personnel costs and 16.34% for capital costs. The latter were higher than usual as a result of the development of the Case Document and Performance Information Service software. It had also budgeted 16% for professional services, which included professional fees associated with the Tribunal’s hearings such as recording and transcription services. Key challenges were named as the need to expedite case hearings, to maintain the quality of its decisions, and to integrate the software, and staff development. Members asked for clarity around the issue of the Tribunal maintaining the quality of its decisions, and questioned how long the internships lasted, what the requirements were and what the long-term prospects were for those taken on as interns. Members asked if the timeframes matched international best practices. Members questioned why the Tribunal was working only with the University of Pretoria on its internship programme, how many students were retained as employees, their race and gender profiles, and for further details on recording and transcription costs, the grant, and who was paying it.

The Competition Tribunal then presented its first quarter report for 2010. It noted that the numbers of cases received was in excess of those heard. The bulk of the matters received were procedural. In the next quarter, it would need to realign and approve the strategic plan, following the transfer of functions to the Department of Economic Development, realign the business plan with the strategic plan, and then revise and align its performance reporting. Members asked if there were plans to increase the numbers of internship, and whether the Tribunal had to look into the legality of every merger that took place. Members asked that more details be provided of the cases before the Tribunal.


Meeting report

Competition Commission (CC) Strategic Plan 2010-2013 briefing
Mr Shan Ramburuth, Commissioner, Competition Commission, presented the Strategic Plan of the Competition Commission (CC or the Commission) for 2010-2013. The mandate of the Commission was highlighted as prevention of concentration through merger control, prosecution of anti-competitive behaviour and advocacy for pro-competitive conduct. The CC’s past strategic goals for the period 2006-2009 had focused on staff morale and motivation, and aligning structures and work processes to strategic priorities and advocacy and communication. The strategic goals were challenged by external factors such as the global economic crisis and internal factors like the need for expansion of resources to deal with the increase in cases. The CC’s Strategic Plan for 2010-2013 addressed three broad areas. It aimed to achieve demonstrable outcomes in the economy which focused on developing a framework for prioritisation and selecting markets for market enquiries where interventions would result in meaningful impact.  The second goal aimed at creating a competitive environment for economic activities which involved proactive engagement, dialogue and advocacy with key stakeholders and partnerships with the National Prosecuting Authority (NPA) and South African Police Service (SAPS) to implement changes to the Competition Act. The third goal aimed at promoting a high performance competition agency that was focusing on empowering leadership and supportive management practices, and reducing staff turnover.
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Mr Ramburuth then presented the budget for 2010-2013. For the financial year 2010/11 the CC would receive total revenue of R123.7 million, through fees and from the Department of Trade and Industry (dti). The expenditure was set at R187.4 million, thus budgeting for a deficit of R63.7 million. The Commission was in the process of negotiating for more funds through dti to fund the deficit. For the period 2011/12 the CC budgeted to receive total revenue of R157.1 million, through fees and from the dti. The expenditure was projected at R225.1 million, creating a deficit of R68 million. In 2012/13 the CC projected total revenue of R165.7 million through fees and from the dti. The expenditure was estimated at R270.8 million, which would be a deficit of R105 157 000.

Mr Ramburuth highlighted some of the implementation challenges, such as budgetary constraints relating to uncertainty around funding and capacity constraints that were related to retention and hiring of staff.

Discussion

Dr P Rabie (DA) asked what kinds of amendments were required to the Competition Act to make the Commission more effective.

Mr Ramburuth replied that the amendments were not being spearheaded by the Commission, but there was a Competition Act Amendment Bill that should shortly be brought forward. The CC was preparing for that.

Dr Rabie asked why the Commission was battling for funds when it was apparently a major source of revenue for government.

Mr Ramburuth replied that the Commission had in the past tried to work within its budget, but conditions were now beyond this point and the Commission was in need of the extra funding. The CC did not receive funding directly from the revenue it collected, as this went to the National Treasury, and the CC was then funded through dti. This worked well, because if the Commission generated revenue from the fines that were levied, then this would give rise to the temptation or the accusation that more fines were being levied in order to raise revenue, which would not have worked out well.

Dr Rabie asked if the strengthening of the middle management would result in investigation time being shortened.

Mr Ramburuth replied that the training was aimed at giving the middle management skills in project management, which would allow the staff to understand the processes of the Commission better.

Mr S Ngonyama (COPE) stated that before this Committee could give support to the Commission’s attempts to source the shortfall in funding, then the Commission would need to provide a breakdown of the figures and how the amount would be spent.

Mr Ngonyama asked how promoting a culture of savings impacted on achieving the goals of the Commission.

Mr Ramburuth replied that that was not the intention of the Commission but the idea was to do more with fewer resources.

Mr Ngonyama asked if the Commission was taking up the issue of the steel price.

Mr Ramburuth replied that the Commission understood that there was much controversy surrounding the steel prices and the Commission had been dealing with these cases for the past four years.

Mr Ngonyama asked if consumer protection was supposed to be one of the outcomes of the Commission.

The Commissioner replied that there were complementary features between the Consumer Protection Act and the functions of the Competition Commission. However, the Consumer Protection Act was crafted to deal with consumer complaints and the Competition Commission focused on problems in the market as a whole.

Mr Z Ntuli (ANC) asked how the Commission was reducing the youth unemployment, and what the target was.

The Commissioner replied that the Commission did not directly tackle youth unemployment but contributed to reducing unemployment in general by advising companies that were going into a merger to retain jobs.

Mr Ntuli requested the Commission to assure the Committee that there would not be a rollover, particular since the CC was calling for extra funding.

Mr Ramburuth said that in the past the Competition Commission had experienced rollovers, but in recent years had witnessed an exponential growth in the number of cases being reported, which meant that extra funding was needed to fund the Commission’s operations.

Ms H Line (ANC) asked how many managers had attended the training programme.

Mr Ramburuth replied that the Commission had finished training the first batch of fifteen members, and was looking to train more in the coming year.

The Chairperson asked for the gender composition of employees within the Commission.

The Commissioner replied that the Commission would provide the information to the Committee in writing.

The Chairperson asked who was responsible for training the managers within the Commission and where the training was done.

Mr Ramburuth replied that a tender had been put out and the Resolve Group was selected to carry out the training. This was done at a private facility hired for these purposes.

The Chairperson asked how many people had been employed or were planned to be taken into employment for the current financial year.

Mr Ramburuth replied that the Committee would be provided with the information in writing.

Competition Commission 1st Quarter Report 2010/11
Mr Shan Ramburuth, Commissioner: Competition Commission, presented the first Quarter Report of the Competition Commission’s activities for 2010/11. The work of the Commission was centred on its mandate, which drew its authority from the Competition Act. Other work related to strategic priorities, operational support and governance.

The Committee was informed that the Commission was notified of 56 mergers, finalised 45, approved 44 and prohibited 1.
The Global Merger Control Index 2010 by Centre for European law and economics had ranked South Africa 9th in a survey conducted on 60 countries. Under enforcements, Mr Ramburuth explained that there were 166 cases under investigation, 63 complaints from the public and 41 complaints non-referred at screening. In respect of litigation and prosecutions there were two cases referred to the Competition Tribunal for prosecution, 34 cases were being prepared for referral to the Tribunal, comprising 24 collusion cases and 12 abuse of dominance/vertical restraints cases, and there were 10 cases currently running before the Tribunal.

The Committee was further informed that the Competition Commission was working at addressing bid-rigging in public procurement. It was working on introducing a Certificate of Independent Bid Determination with National Treasury in terms of the Public Finance Management Act (PFMA). At a policy and legislation level, there were meetings with the National Prosecution Authority and South African Police Service Commercial Crimes Unit. Amendments were being proposed to the Competition Act. On the international front there were various collaborations with African agencies such as the Joint Food Project with Zambia and Egypt on edible oils, milling and fertiliser. To ensure a high performance competition authority, the Commission had embarked on coaching and mentoring for both middle and senior management. Mr Ramburuth concluded the presentation on the quarterly report by highlighting the implementation challenges, which included increasing litigation costs and difficulty in measuring impact. The Committee was further informed that the implementation of certain programmes had been put on hold due to funding constraints. These programmes included training, market enquiries, organisational structure, formation of a cartels unit and raids.

Discussion
Dr Rabie asked what norms were used in ranking South Africa 9th in the Global Merger Control Index 2010.

Mr Ramburuth replied that there was a full methodology that was used in arriving at the rankings, and some of these included consistency in decision making, reliability of organisation and turnaround time.

Dr Rabie asked if there were any findings of collusion within the retail sector, which was concentrated.

Mr Ramburuth replied that the Commission’s work in this sector was ongoing.

Ms Line
asked if the 41 complaints non-referred at screening were from the public, and if there were problems experienced with cases non-referred after investigation.

Mr Ramburuth replied that the complaints non-referred at screening were from the general public, but these were not within the scope of the Commission.

Ms Line asked why the period for the exception application for South African Airways was so short.

Mr Ramburuth replied that the issue related to some other outstanding matter with South African Airways, and had nothing to do with the world cup ticketing enquiry.

Ms D Tsotetsi (ANC) asked the Commission to improve on the processes for employing people.

Mr Ramburuth noted her concerns.

Ms Tsotetsi asked what challenge the Commission was facing with regard to measuring impact.

Mr Ramburuth replied that the Commission was good at keeping output indicators, but found it difficult to measure impacts, such as when the price of bread would fall.

The Chairperson asked how much was budgeted for the quarter.

Mr Ramburuth replied that he would send this information on to the Committee.

The Chairperson asked whether the new appointees were replacing those who had resigned, or whether they were new appointments.

Mr Ramburuth replied that these appointments were new appointments.

The Chairperson asked what the 9th place rating for the Global Merger Control Index 2010 meant for South Africa.

Mr Ramburuth replied that this was an indication that South Africa was a business friendly destination as processes were efficiently attended to.

The Chairperson asked why the Commission selected Department of Health and Cape Metro for its advocacy programme.

Mr Tembinkosi Bonakele, Deputy Commissioner, Competition Commission, replied that this was entirely responsive, as these entities had responded to the Commission’s call for training.

Mr Ngonyama asked what the turnover of cases in litigation was.

Mr Ramburuth replied that most businesses were litigious in nature, and therefore tended to challenge the CC, which delaying the outcome of cases.

Mr Ngonyama asked what the performance of South Africa was, relative to other countries within the continent.

Mr Ramburuth replied that South Africa was seen as a flagship agency and most countries looked for direction and input from South Africa.
A Member stated that complaints that were non-referred were a waste of expenditure, and therefore the Commission needed to educate the community on what was properly to be referred to the Commission.

Mr Ramburuth replied that this was a valid point.

Mr Ngonyama asked Mr Ramburuth what the CC felt that the Committee could do to enhance the work of the Commission.

Mr Ramburuth replied that the Committee could independently take a stance on certain matters, as was the case with the bread price-fixing scandal. The Commission also needed assistance where one of the respondents was a State owned entity. The Committee could interrogate that entity as to why it was contesting certain matters.

Mr Bonakele added that all levels, including Parliament, had the right to express outrage at certain tendencies such as cartels.

Competition Tribunal: Strategic Plan 2010-2013
Mr Norman Manoim, Chairman, Competition Tribunal, said that the agenda of the Competition Tribunal (CT) was set by the Competition Commission (CC), as well as firms, consumers and trade unions. Targets were developed around its turnaround times.

He set out the turnaround times for the Competition Tribunal. He outlined that for mergers, the target was that hearings were to be set down within 10 business days of referral, orders were to be issued within 10 business days of the hearing and written reasons for decisions were to be provided within 20 business days of the orders being issued. The turnaround times in relation to prohibited practices aimed to request pre-hearings of or by the parties concerned within 20 business days of the close of pleadings, with orders and reasons being issued within 20 business days of hearings.

He noted that the CT aimed to focus, in the period covered by the Strategic Plan, to respond to amendments of the Act if any were proclaimed. It would attend to the preparation of practice guidelines. It would identify partner organisations (such as Pro Bono) in order to facilitate legal representation for parties who were unable to afford representation in tribunal proceedings. It would also be focussing on its Case Document Management (CDM) and Performance Information Software, upgrading and improving its website and providing internships. The Competition Tribunal had, as part of its internship drive, been working together with the University of Pretoria.

Ms Janeen De Klerk, Head of Corporate Services, Competition Tribunal, said that 51.37% of the CT’s budget went towards personnel costs. Around 3% of its budget was spent on Appeal Court costs, as it played an administrative role for the Court. Its capital expenditure was, at 16.34%, higher than usual as a result of the development of the CDM and Performance Information Service software. Approximately 16% was spent on professional services, which included professional fees associated with the Tribunal’s hearings such as recording and transcription services.

Mr Manoim noted that key challenges facing the Tribunal included the need to expedite case hearings, maintaining the quality of its decisions, integrating the CDM software and staff development.

Discussion
Ms Line asked for clarity on the aim that the Tribunal must maintain the quality of its decisions.

Mr Manoim answered that it was important for the CT to write decisions of a high-quality. The CT already had a good reputation in this area, and must uphold it.

Dr Rabie asked how long the internships lasted, what the requirements were for these, and what the long-term prospects were for those taken on as interns.

Mr Manoim answered that students who were under the internship programme were taken into the Competition Tribunal for three to four weeks in the mid-year vacations, and possibly for a week or two towards the end of the year. As they were still law students, the CT did not have to enter into an employment agreement with them.

Dr Rabie asked if the timeframes that CT had set were in line with international best practices.
 
Mr Manoim responded that no figures around best practice had been found, so the targets that CT had set were based on a large number of the Tribunal’s cases.

Mr Ngonyama asked whether the timeframes set around 10 business days represented the maximum time.

Mr Manoim said that this depended on whether the case was complicated or not.

Mr Ngonyama asked if the reasons that were provided after the findings were provided to the Competition Commission or to the relevant parties.

Mr Manoim answered that the reasons were given to all the relevant parties, as well as being posted on the CT website in order to ensure transparency.

The Chairperson asked why the CT only worked with the University of Pretoria around its internship programme. She asked when this internship programme was started. She asked how many were retained as employees and what their race and gender were.

Mr Manoim answered that this university was chosen as it had approached the CT with a proposal. It was also convenient to work with this university as it was within close proximity to the CT offices. The programme was now in its second year. Three students, all of whom were black and two of whom were women, had been through the programme. Two of these students had also been foreign African nationals.


The Chairperson asked why recording and transcription costs were included under professional services, and not under goods and services. She also asked what made up the capital costs.

Ms De Klerk answered that this was recorded in this way as these services related to outside consultants. Around R3 million was budgeted for the implementation of the CDM software, and this was included under Capital Costs. There were other minor costs for the purchase of a new motor vehicle, the leasing of printing and photocopy machines and the replacement of computers.

The Chairperson asked if the grant was received from the Department of Trade and Industry (dti), and why this had not formed part of the total budget.

Ms de Klerk said that the grant had previously been given by the Department of Trade and Industry, but, once the functions were transferred, it was transferred to the Department of Economic Development. The total allocation, which did indeed form part of the Tribunal’s total budget, was R13.63 million.

Competition Tribunal First Quarter Performance Report 2010
Mr Manoim said that the number of matters the Competition Tribunal had received had exceeded the number of matters heard. Cases could not be heard at the same rate at which they were received. The bulk of the matters that the CT had received were procedural. These were simply tactical ploys used by parties in order to avoid having to settle, and were a necessary aspect of the legal process. Some of the more noteworthy cases included that of 1-Time Airline and Lanseria International Airport, the Competition Commission and SA Breweries, and the Competition Commission and Tracetec and Netstar.

The Competition Tribunal, in the next quarters, would need to realign and approve the strategic plan following the transfer of functions to the Department of Economic Development. It would also realign its business plan with the strategic plan, and revise and align its performance reporting with the revised business and strategic plans.

Discussion
Ms D Tsotetsi (ANC) asked whether the number of internships would be increased, and, if so, how the CT was planning to do this.

Mr Manoim answered that that the CT did plan to extend this programme. It would do so through working with other universities and other initiatives.

Mr K Manemela (ANC) asked whether the CT had to look into the legality of every merger that took place.

Mr Manoim answered that notification of mergers was compulsory if they exceeded a certain turnover. Such mergers could not be implemented until they had been approved.

Ms Tsotetsi said that, in relation to its internship programme, the Competition Tribunal should set itself targets, in which South African students take precedence over foreign nationals.

Mr Manoim responded that this was done in order to invest in the skills and training of other parts of Africa as part of its broader contribution to the Continent.

The Chairperson said that, as the presentation given was a simplified one, the Committee should be provided with greater details of the cases with which the Tribunal was dealing.

The meeting was adjourned.


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