The Competition Commission discussed the penalties it imposed on certain companies for collusion in the construction in the steel tubes and pipes, gas and bread sectors of the economy. The highest fine imposed was that of R250 million on Sasol Chemical Industries for collusion in fertilizer products. Of a total of 148 cases, there were 41 mergers, 107 enforcement cases, 16 complaints referred to the Tribunal, nine of which were cartel cases, five before the Competition Appeal Court, one before the Supreme Court of Appeal and five consent and settlement agreements. There were fewer merger notifications. Approximately 8% claimed financial distress. There was an estimated 2000 job losses from 19 transactions and conditions were imposed to minimise the impact of job losses. The prohibition of the Massmart and Finro merger was subsequently approved by the Tribunal after evidence provided at the hearing. The Aspen/GlaxoSmithKline merger was also discussed.
The Commission’s advocacy work focused on bid-rigging. A bid-rigging brochure was developed and various workshops were held with government and business; National Treasury issued a practice note on the Certificate of Independent Bid Determination; the Commission submitted comments on procurement policy and legislation; and provide training of procurement officials on the prevention, detection and reporting of bid rigging. In terms of international relations there was participation in international forums and collaboration with African agencies.
The Commission achieved its fifth successive unqualified audit report. It implemented a revised risk management strategy and reported no material breakdown in internal financial control systems.
Members requested clarification of what cases go to the Commission as opposed to the Tribunal. They also asked about the number of disabled people it employed; the staff morale at the Commission; the bread price debacle and how it affected the consumer; the Auditor-General’s comment about 23% of its performance targets not being “SMART”.
The Competition Tribunal mentioned some highlights for the 2009/10 period: 85 cases were heard; 71 reasons issued; 63.46% of the hearings in large merger cases took place within 10 days of receipt of the case; 100% of the decisions in large merger cases were released within 10 days of the hearing; 75 days were spent in hearings; and it had 369 media reports in sources monitored by the Tribunal. A total of 712 mergers had been decided on over a period of ten years: 90.45% were approved unconditionally; 8.42% were approved subject to conditions; and 1.12% were prohibited. 52 mergers were decided in the current financial period: 92.30% were approved unconditionally and 7.7% were approved subject to conditions. 33 of 52 mergers were heard within 10 days of referral, all 52 mergers were decided within 10 days of the hearing and 20 of 60 mergers had reasons issued within 20 days of the decision.
Highest percentage of a fine imposed in a cartel case was 9.5% of Pioneer Sasko’s turnover in the Western Cape (R46 million) and 10% of Sasko’s national turnover (R149 million). The total fine was close to R196 million. Administrative penalties imposed in 2009/10 exceeded R292 million.
The Tribunal actively participated in the Competition Committee of the Organisation for Economic Co-operation and Development (OECD) and case managers and Tribunal members attended International Competition Network (ICN) workshops and conferences. Certain financial challenges existed which included: continuous funding from the department; developing “SMART” targets; and aligning the budget to targets. General challenges included: expediting case resolution; improving access to justice; widening the intern program; and implementing a case management system.
Members raised questions about the Tribunal’s employment of people with disabilities, promotion of its staff to the Competition Commission, clarification on the fruitless and wasteful expenditure shortfall of R3 368 that had to be paid to SARS, the discrepancy in certain amounts shown in its budget, and the outsourcing of the audit committee to KPMG.
Competition Commission presentation of its Annual Report 2009/10
Mr Shan Ramburuth, Commissioner at the Competition Commission, started by explaining the work of the Commission. In terms of prioritisation, the Commission looked at the impact of prices on low-income consumers, the alignment with government’s economic policy and the likelihood of anti-competitive conduct. The mandate of the Commission was governed by the Competition Act, which looked at the prosecution of anti-competitive behaviour, merger control and the advocacy of pro-competitive behaviour. He discussed operational support by looking at the Commission’s human resources, financial revenue and expenditure, information technology and knowledge management.
In the food and agro-processing priority sector, a fine of R195 million was imposed on Pioneer as a result of collusion in the bread cartel. The appeal was heard in September 2010 and the Commission was negotiating a settlement. Sasol Chemical Industries received a penalty of R250 million for collusion in fertilizer products. In the infrastructure and construction sectors, collusive tendering by construction companies increased the costs of government investment in new and improved infrastructure. Raids in the cement industry resulted in a leniency application and there were referrals and settlements on cast concrete, plastic pipes, bitumen and reinforcing steel. In intermediate industrial products, pricing practices impacted on downstream, labour-absorbing industries. There was also a focus on steel and polymers. In the financial services (banking) sector the Commission wanted to increase competition in retail banking for the benefit of the consumer. There was also a continued focus on implementing 28 recommendations of the Banking Enquiry Panel. A steering committee was established – comprising the Department of Trade and Industry (DTI), National Treasury and the Commission, in consultation with the South African Reserve Bank (SARB). Six discussion papers had been produced on ATM pricing; penalty fees relating to debit orders; improving consumer experience; competition in the national payment system, payment cards and electronic payments.
Several comparative graphs and tables were presented to illustrate the work of the Commission in 2009/10:
▪ Slide 7 showed the number of enforcement cases under investigation from 2007 until 2010.
▪ Slide 8 depicted the number of enforcement cases initiated in 2009/10 classified by sector.
▪ Slide 9 showed the number of corporate leniency applications received between 2007 and 2010.
▪ Slide 10 looked at litigation for the period under review.
▪ Slide 11 looked at complaints referred to the Tribunal against corresponding sections of the Act.
▪ Slide 12 showed the penalties given to certain companies in 2009/10.
▪ Slide 13 depicted the number of merger notifications between 2007/08 and 2009/10.
▪ Slide 14 showed the outcome of merger reviews from 2007/08 until 2009/10.
There were fewer merger notifications. Approximately 8% of these claimed financial distress. There was an estimated 2000 job losses from 19 transactions and conditions were imposed to minimise the impact of job losses. Prohibition of Massmart and Finro merger was subsequently approved by the Tribunal after evidence provided at the hearing.
In terms of advocacy work: a bid-rigging brochure was developed and workshops were held with government and business; National Treasury issued a practice note on the Certificate of Independent Bid Determination; the Commission submitted comments on procurement policy and legislation; and provided training to procurement officials on the prevention, detection and reporting of bid rigging. In terms of international relations, the Commission participated in international forums and collaboration with African agencies.
Slide 18 showed some statistics on communications. Slide 19 showed human resource statistics. Slide 20 showed employment equity (race) figures between 2007/08 and 2009/10. Slide 21 showed employment equity (gender) figures from 2008/09 until 2009/10. Knowledge- sharing and retention was a strategic priority. A knowledge management system had been designed to integrate with the case management system. There was improved collaboration, accessibility and reporting. There were four audit committee meetings. Internal audits were conducted on Legal services, Enforcement and Office of the Commissioner. There was an unqualified audit report for the fifth successive year. According to the Auditor General’s report, 23% of performance targets were not “SMART”.
Slide 24 showed the financial performance review from 2008/09 until 2009/10. Slide 25 showed the expenditure for 2009/10.
Mr S Marais (DA) wanted clarification on the Commission’s role; what cases went to the Commission as opposed to the Tribunal. What about disabled people being employed at the Commission?.
Mr Ramburuth replied that the Commission heard complaints from various sectors and only valid complaints went to the Tribunal. There were only two disabled individuals employed at the Commission and that they were working on increasing that number in the future.
Dr P Rabie (DA) commented that the bread price increase affected the consumer and wanted to know whether the price would decrease in the future.
Mr Ramburuth replied that the fine imposed as a result of collusion in the bread cartel was not passed on to the consumer. He was not sure whether the bread price would decrease in the future. To the public, it seemed as if the bread price increased so that Pioneer could pay for the fine imposed. This was not true.
Dr S Huang (ANC) wanted to know why the Auditor General’s commented that 23% of the Commission’s performance targets were not “SMART”. He also asked for clarification on staff morale.
Mr Ramburuth commented that the Commission could not accurately predict how many complaints it would receive for the year. One could not be 100% “SMART”. The staff morale was low in 2006 but salary benchmarking was done, job descriptions were addressed and regular staff meetings are held to address morale.
The Chairperson thanked the Commission for its professional presentation.
Competition Tribunal presentation of its Annual Report 2009/10
Mr Norman Manoim, Chairperson: Competition Tribunal, explaining what the Tribunal did: it authorised or prohibited large mergers and adjudicated appeals from the Commission’s decisions about intermediate mergers. In respect of anti-competitive behavior, the Tribunal adjudicated complaint referrals, interim relief applications and appeals from the Commission’s decisions about applications for exemptions.
Ms Lerato Motaung, Registrar: Competition Tribunal, gave some statistics on Tribunal cases and mergers (see slides 7 to 12 of presentation). Mr Manoim gave examples where the Tribunal imposed conditions in the public interest (employment): Harmony Gold / Pamodzi, Nedbank / Imperial Bank, Bidpaper / Pretoria Wholesalers Stationers, Wispeco / Shoreline; competition issues (securing supply for customers of merged firm): Chlor-Alkali / Botash. A merger where the Tribunal overruled the Commission’s recommendation was the Masscash/ Finro case.
Slide 15 gave statistics for turnaround times for mergers. On restrictive practices, Mr Manoim said that the Tribunal had had jurisdiction over the Atomic Energy Corporation (AEC) and the Department of Minerals and Energy. There was unfinished business in connection with the travel agents’ remuneration at South African Airways (SAA). The Tribunal acted vigorously in the case of Pioneer which was found guilty of cartel behavior in the baking industry. Slide 24 showed the turnaround times for restrictive practices. Slide 25 showed Tribunal hearing days for cases taking longer than one day.
Highlights included the move to the Department of Economic Development; 10-year anniversary celebrations and the appointment of new Tribunal members. Slide 31 showed the staff race/ gender composition. Slide 32 showed the Tribunal Members race/gender composition. Slide 33 showed staff experience at the Tribunal.
Ms Janeen de Klerk, Head of Corporate Services: Competition Tribunal, said there was an under-expenditure of 30.11% in the following areas: Tribunal members’ training; case document software and decreased hearing days. Slide 36 showed the hearing days in 2009 and 2010. In terms of financial performance: there was a high level of financial control; all financial policies were being updated; there were no balance sheet issues; the functioning Audit Committee met four times per year; it had received an unqualified audit report; there had been no financial misconduct and no significant findings. 24% of its performance targets were not “SMART”. Fruitless and wasteful expenditure amounted to R3368 for a PAYE shortfall. Just over R13 000 was spent on 30 soccer t-shirts for staff and security personnel and R219 was used to purchase flags for the office during the 2010 FIFA World Cup. Slides 41 and 42 gave some figures on the budget of the Tribunal. Slide 43 gave information on the distribution of professional service fees.
Certain financial challenges existed which included continuous funding from the department; developing “SMART” targets; and aligning the budget to targets. General challenges included expediting case resolution; improving access to justice; widening the intern program; and implementing a case management system.
Mr S Marais (DA) wanted to know whether the Tribunal employed people with disabilities.
Mr Manoim replied that currently the Tribunal did not employ anybody with a disability.
Mr Z Ntuli (ANC) asked if staff of the Tribunal were promoted to the Commission.
Mr Manoim said that there have been instances where staff had applied for more lucrative positions at the Commission and had been appointed. He said that staff generally gained initial experience at the Tribunal and then moved on to more senior positions at the Commission.
Dr P Rabie (DA) wanted further clarification on the fruitless and wasteful expenditure of R3 368.
Ms de Klerk said that the amount reflected amounts that the South African Revenue Service (SARS) had indicated were owed by the Tribunal for a PAYE shortfall in March 2007. The Tribunal paid this amount in April 2007 and therefore disputed the liability. The Tribunal paid this amount over to SARS while it would query and conduct its own investigation into the matter. The Tribunal expected this liability to be reversed
Dr S Huang (ANC) wanted to know how the Tribunal arrived at the figure of 14.04% on slide 42.
Ms de Klerk said that the figure of -7.82% under the % change column should in fact be 7.82%. She apologised to the Committee for the error.
The Chairperson wanted to know who formed the audit committee.
Ms de Klerk said that the Tribunal outsourced this to the auditing firm KPMG.
The Chairperson commented on the cost implications of not doing the audit committee oneself.
Mr S Marais (DA) advised the Tribunal to rather quote actual, not indexed amounts when drawing up its budget.
This was noted by the Tribunal.
The Chairperson thanked the delegation for its professional presentation.
The meeting was adjourned.
- PC Economic: Briefing by the Competition Commission & Competition Tribunal on their Annual Report 2009/10 Part 1
- PC Economic: Briefing by Competition Commission & Competition Tribunal on Annual Reports 2009/10 Part 2
- PC Economic: Briefing by Competition Commission & Competition Tribunal on Annual Reports 2009/10 Part 1
- PC Economic: Briefing by the Competition Commission & Competition Tribunal on their Annual Report 2009/10 Part 2
- PC Economic: Briefing by the Competition Commission & Competition Tribunal on their Annual Report 2009/10 Part 1
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