Competition Tribunal 2012 Annual Report briefing

Economic Development

27 January 2013
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Competition Tribunal (the Tribunal) presented its 2011/12 annual report. The position of the Tribunal, which acted as first court in the competition system, was explained, and its staffing and panel members were outlined. It was noted that in the 2011/12 financial year, the Tribunal held 158 hearings, 72% of which were on mergers and 28% on prohibitive practices, representing a 36% increase on the previous year. A summary of some of the cases was given, including the proposed mergers between Pioneer and Pannar, AON and Glenrand, with reasons for the final decisions. The Telkom prohibitive practice was also outlined, noting that in this year the appeal process had been launched. Fines were imposed in three cartel cases, reflecting changes in the level of evidence required by the Tribunal to convict firms and set fines. It was usual practice for those fined to appeal against the decisions of the Tribunal for two reasons; firstly, the costs of appeal were often less than the fines imposed, and secondly, there was no provision for the Tribunal to charge interest on outstanding fines – something that it was considering changing, in line with systems elsewhere in the world. The appeals in the Senwes and Walmart/Massmart matters were described, which had resulted in important rulings around the right of the Tribunal to expand the scope of a case during a hearing, its inquisitorial role and its right to call for evidence over and above that relied upon by the parties. The public’s involvement in hearings was highlighted in the Natal Witness and Media 24 merger, and the Gold Circle and Kenilworth Race merger. The Tribunal also reported on administrative matters, including the way it used media, its document management system that facilitated case tracking and production of performance data, training initiatives, internships, its targets and how the performance was measured. The Tribunal had spent 92% of its R26.4 million budget, with the underspend relating to the difficulties in making accurate predictions of numbers of cases and their cost. However, there had been an overspend on tribunal hearings and decisions, as it was again difficult to predict the days required for hearings.

Members asked about the use of consultants and the customer survey costs, how and where fines were paid, questioned Eskom’s role in the Xstrata and Glencore merger process, and asked about the breakdown of female staff and interns, and how part-time panel members were paid. They wondered if it was possible to keep firmer controls over the appeal process, which currently seemed long-winded and cumbersome. Members were also interested whether the Tribunal could track the numbers of jobs saved as a result of Tribunal judgments, and what was the reason for the rise in mergers activity. The question of benchmarking was raised, as well as public input into the processes, and the procedure followed when seeking government responses. Members also debated to what extent the Tribunal felt it had met all the requirements of the Competition Act and the New Growth Path, particularly in relation to job creation and entrepreneurship and suggested this be measured.

Meeting report

Chairperson’s opening remarks
The Chairperson advised that she had attended a study tour on rail transport in Japan, together with the Chairpersons of the committees that comprised the economic transformation cluster (Trade and Industry, Public Enterprises, Transport and Economic Development), and they would be providing a joint report to inform the proposed high speed Johannesburg-Durban and Johannesburg-Cape Town rail links.

The Chairperson advised that an apology had been received from Dr Jennifer Schreiner, Director General of the Department of Economic Development (EDD or the Department).

Mr Duma Nkosi, Chief Director, EDD, introduced Mr Ivan Galodikwes, newly appointed as Deputy Director for the Department, with oversight of the Economic Regulatory Bodies.

Competition Tribunal: 2011/12 Annual Report briefing
Mr Norman Manoim, Chairperson, Competition Tribunal, advised that the Competition Act (the Act) had required the creation of the three entities; the Competition Commission, which served as “policeman and prosecutor”, the Competition Tribunal (the Tribunal), which served as the first court in the competition system, and the Competition Appeal Court (CAC), which heard appeals against the Tribunal decisions. The Tribunal had powers to regulate and approve mergers and give rulings in cases of prohibitive practices, such as alleged abuses of market dominance or cartel behaviours. Tribunal cases were heard by three of 11 Tribunal panel members.

The President of South Africa appointed the Tribunal panel members on a full or part-time basis. Three new panel members had been appointed in December 2012, who were named on slide 9. The Tribunal panel comprised six male and five female members, of whom five were white, four were black and two were Asian.

The Tribunal had a staff of 13, which provided secretariat support to the 11 panel members. A Chief Economist had recently been appointed. Organograms of the Tribunal structure were provided on slides 6 and 7 of the presentation. The staff comprised four male and nine female colleagues, of whom eight were black and five were white.

Slide 13 detailed the breakdown of cases heard by the Tribunal panel during the financial year. The Tribunal held 158 hearings, 72% of which were on mergers and 28% on prohibitive practices. This spilt in caseload was not uncommon. Reviewing of mergers was important for maintaining the fair structure of the market, and this was pre-emptive action, whilst reviewing of prohibitive practices was reactive. There had been a year on year increase in caseloads, from the 2010/11 to 2011/12 financial years, of 36% in relation to matters considered and 38% in the number of hearing days.

Mr Manoim presented a selection of important cases heard in 2011/12. The Pioneer (a subsidiary of the US firm Du Pont) and Pannar (an RSA firm) merger, between two leading producers (who were respectively second and third in the market of Genetically Modified (GM) maize seed) was prohibited by the Tribunal panel on the basis that it would have reduced the number of firms responsible for 95% of the GM maize seed market from three to two. The Tribunal dismissed claims by Pannar that the firm was failing and maintained that the merger would potentially result in increased prices from Pioneer, as one firm would become a price leader and the other a price follower. This was the first merger prohibition since the Telkom – BCX case in 2007. Mr Manoim emphasised that the Tribunal generally preferred to apply conditions to mergers rather than prohibit them outright. The Pioneer/Pannar decision was sent to the CAC for appeal and overturned, on the basis that the CAC considered the Pannar company to be failing and that efficiencies could be achieved in the merged company. The merger was allowed by the CAC to proceed, subject to conditions.

The AON/Glenrand (insurance companies) merger was approved, subject to a two-year moratorium on job losses for employees of both firms earning less that R30 000. This decision fell within the public interest jurisdiction of the Tribunal, on the basis that job losses were likely to arise.

Cases of prohibitive practices were heard in the 2011/12 financial year, but the decisions were frequently handed down only in the following year. Telkom was fined R449 million for abuse of dominance in the market for the provision of infrastructure to Internet service providers during 1999 and 2004, when the Tribunal determined that the Act had been infringed by attempts to keep competitors out of the market. The levels of fines imposed were discretionary to the Tribunal subject to a ceiling of 10% of the turnover of the company in the last year in which the infringement took place. Telkom had appealed the decision to the CAC and the Competition Commission was also appealing to the CAC to raise the level of the fine to R1 billion.

The Tribunal imposed fines in three further cartel cases. These reflected a policy change in the level of evidence required by the Tribunal to convict firms and in setting fines.

Mr Manoim advised that most firms appealed the decisions of the Tribunal as the costs of appeal were often much lower than the fines imposed. In addition, unlike in some other jurisdictions, there was no interest charged on fines imposed during the appeals process. This meant that there was no disincentive to appeal, either due to the costs incurred or through delaying payment of the fine.

Two appeals processes in 2011/12 clarified the powers of the Tribunal. The first matter related to a finding, by the Tribunal, of an alleged abuse of dominance by the firm Senwes and the CAC upheld this opinion on appeal, thereby upholding the Tribunal’s rights to control its own proceedings. Senwes then appealed then to the Supreme Court of Appeal, on the basis that the Tribunal had expanded the scope of the case during the process as new evidence came to light. The Supreme Court of Appeal overturned the decision of the Tribunal. The Competition Commission then appealed against this decision to the Constitutional Court, which agreed with the original judgement of the Tribunal. This Constitutional Court judgement determined the right of the Tribunal to expand the scope of a case during the course of a hearing beyond the initial summons examined by the Competition Commission, enabling the Tribunal to hear new evidence provided all parties concerned were given the opportunity to address the new issues.

The CAC’s judgment in the Walmart/Massmart merger also confirmed the inquisitorial role of the Tribunal during mergers and reinforced the powers of the Tribunal to call for any evidence that it considered relevant if no one else had called for it. The Tribunal relied on this decision when Eskom withdrew from the subsequent hearing of the Xstrata/Glencore merger. Although Eskom no longer wanted to pursue its case, the Tribunal was able to call upon Eskom as a witness to present its original concerns.

Mr Manoim presented two cases to highlight the pubic involvement in hearings. The first, the Natal Witness/Media 24 merger, heard evidence from two small media firms (without support of legal representation) and resulted in conditions applied to the merger to ensure that printing capacity be made available for small firms. The second, the Gold Circle/Kenilworth Race merger, heard evidence from the Groom’s Association and independent black horse owners.

Ms Lerato Motaung, Registrar, Competition Tribunal, presented changes to the use of media by the Tribunal, including changes to the Annual Report, which provided more details on the panel members and press clippings from cases, the revisions to the Tribunal Tribune, a newsletter sent to government stakeholders three times per year, and the Tribunal website, which uses a new document management system to increase access to case files (uploaded in real time) to the 5 000 existing and 2 500 new visitors per month.

Ms Motaung advised that a new document management system implemented in 2011/12 facilitated case tracking and the production of performance data, such as case turn around times, costs and staff participation.

Mr Manoim advised that training initiatives had included judicial writing workshops for panel members and Competition Economics for staff as well as the Tribunal providing training to a delegation from the Fair Competition Tribunal of Tanzania. The Tribunal had provided 11 short-term internships, following which four interns had gained employment and two were continuing their university studies.

Mr Manoim advised that the Tribunal was continuously improving how performance was measured, in particular beyond numbers of cases and decisions. Whilst turnaround time for cases was important, this was also dependent on the case and parties involved. Slide 35 demonstrated a couple of targets that were missed, but highlighted that the measurements did not indicate by what margin this happened. The procedural matters target of 85% issued within 20 days was not reached, with only 74% compliance, due to a shortage of panel members and the complexities of the cases heard. Slides 63 and 64 indicated that there had been an 86% increase in volume of matters heard and a 95% increase in the number of hearing days over a four-year period (2009/10 – 2011/12). These were possibly due to a reduction in mergers activity as a consequence of the global recession, and also to an increase in the turnover value thresholds that were used to determine if a merger must be notified. When this threshold was raised the number of cases were reduced, but deal inflation meant that the number of mergers that met this threshold was increasing.

Ms Janeen de Klerk, Chief Financial Officer, Competition Tribunal, advised that supplier payments were made twice monthly, enabling invoices to be paid within 30 days. The Tribunal spent 92% of its R26.4 million annual budget, with the underspend attributed to the difficulty in forecasting the cost and numbers of hearings likely to arise each year.

Slide 69 presented expenditure by strategic focus and demonstrated an overspend on tribunal hearings and decisions, reflecting the difficulty in predicting the length of hearings as part-time Tribunal panel members were paid on a daily basis. The planned customer survey recorded an underspend as the project was delayed due to an increased development time. Although the Tribunal exceeded the target for people trained, there was an underspend, due to a reduction in overseas training and cost savings on workshop activities. The administrative budget for the Competition Appeal Court reflected an under spend due to difficulties in predicting the numbers and duration of cases to be heard in the year.

Slide 70 presented the same data broken down by expenditure category and as percentage comparisons against the previous year. The increase in workload had caused the increase in share of part-time Tribunal member’s fees.

Discussion
Mr K Mubu (DA) asked whether the external costs for the customer survey were an example of excessive use of consultants in government.

Ms de Klerk replied that the survey, at a cost of between R200 000 and R300 000, had required specialist skills and the specialist survey consultants had been procured in accordance with the due process. Three quotes had been requested and two were received. Only 30% of the budget category of “other professional services” was spent on consultants, all of which were brought in to undertake interim projects or provide specialist expertise such as in software or auditing. None were permanent positions.

Mr Mubu asked which government agency received the fines.

Mr Manoim replied that the fines were paid to the National Revenue Fund in accordance with the Act.

Mr Mubu asked whether an ombudsman would be beneficial.

Mr Manoim replied that the Competition Commission, as an investigative body, served some of the functions of an ombudsman whom the public and businesses could approach, without the need for lawyers, to raise issues of competition concern.

Ms S Van der Merwe (ANC) asked whether Eskom had been consulted early enough in the Xstrata/Glencore merger process.

Mr Manoim replied that in the Xstrata/Glencore case a number of firms had expressed concerns about the potential for electricity price increases. The Competition Commission’s process consulted widely in preparing a report on the case and all parties who had raised issues during the pre-hearing were invited to attend the hearing. However, only Eskom and the Department for Public Enterprises attended. On the morning of the hearing the lawyers for Eskom said that a private arrangement had been reached and that Eskom wanted to halt this procedure. It was described as a process agreement and a private matter. The Tribunal asked Eskom to provide a witness, which it did, but without any lawyers being present.

The Commission took the view that the Eskom concerns were not merger related, but were to do with the coal supply industry. Coal exports had become more lucrative than domestic supply and Eskom’s concerns were therefore an industry problem. They could only be addressed through a market solution or an industrial policy intervention, such as the imposition of export taxes. This was therefore similar to the Walmart situation. Imposing conditions on Walmart would have meant that similar conditions must have been imposed on the other big retailers. The Tribunal was able to uncover industry problems, but was not designed to solve them.

Ms D Tsotetsi (ANC) asked for further information on the race and gender breakdowns for the interns.

Mr M Hlengwa (IFP) asked if the numbers of female interns could be increased to meet inclusion objectives.

Ms de Klerk replied that as a small organisation, the Tribunal had limited capacity for interns, and they were brought in as vocational interns as the workload required. There were seven male and four female interns, of whom four were white and seven black. The permanent staff included nine females and four males, of whom seven were black and six were white.

Mr Hlengwa asked whether the existing appeal process was long-winded and subject to abuse, and therefore whether it was possible to reduce or control it better.

Mr Manoim replied that one reform, the removal of the Supreme Court of Appeal from the process, had already been decided, but this was yet to be proclaimed. Another possible reform, based on the German model, would be to charge interest on any fines for appeals that were either withdrawn or unsuccessful.

Mr Hlengwa asked how many jobs had been saved through Tribunal judgements.

Mr Z Ntuli (ANC) also asked whether the numbers of jobs saved, created or retrenchments avoided could be measured.

Mr Manoim replied that this was difficult to assess, since pre-merger implementation of the Tribunal conditions determined that it was impossible to know what might have occurred had the conditions not been imposed. The Competition Commission might be in a better position to track this type of data as companies may be required to report back to them.

Mr Ntuli asked who the suppliers were to the Tribunal.

Ms de Klerk replied that most suppliers were accounted for under the administration budget and included suppliers of such items as paper, telephone services, couriers and travel expenses.

Mr Ntuli asked how part-time Tribunal members were paid.

Ms de Klerk replied that three panel members were full time salaried employees. The rest were part time and were paid a daily rate of R7 000 for attending Tribunal business. These payments were reported separately in the financial statements, and represented 10.3% of the budget.

The Chairperson asked for further clarification on the rise in mergers activity for the Tribunal, and whether this was due to increased foreign investments.

Mr Manoim replied that this was not something the Tribunal had measured and that is was not necessarily a bad thing if it were on the increase, since foreign firms entering the market often increased competition.

The Chairperson asked against which organisations the Tribunal was benchmarked.

Mr Manoim replied that there were no other suitably similar institutions against whom to benchmark. The Tribunal was looking at the UK tribunal and one in Chile, but this was based on a different legal system.

The Chairperson asked whether it would be possible to meet with the members of the Tribunal panel.

Mr Manoim replied that this would be possible, in the case of managers and full time panel members.

The Chairperson asked when the public could engage with Tribunal processes and whether the work was publicised sufficiently so that input could be provided before cases were investigated.

Mr Manoim replied that the Tribunal publicised its hearings when they were planned, but wide dissemination of such information was difficult. Potential mergers would raise issues that required responses from government departments but sometimes they would take too long to respond. Mergers would happen quickly, so government department had to respond more quickly.

The Chairperson asked how much time government departments were given to respond.

Mr Manoim replied that the Competition Commission asked departments for responses during its processes, but there would then be further involvement from the Tribunal. There were no set response times as this was case dependent upon the volume of information required.

Ms Tsotetsi asked for all the responses to be provided in writing.

The Chairperson asked to what extent the activities of the Tribunal had met the requirements of the mandate of the Competition Act and the objectives of the New Growth Plan.

Mr Manoim replied that the Act outlawed cartels, but the Tribunal would not necessarily know whether businesses had intended to collude, and therefore it was not possible to measure how many cartels would have formed, were it not for the Act. It was possible to measure the performance of the institutions under the Act, such as measuring the number of complaints received, but the number of complaints to convictions was never uniform. The Tribunal measured how many cases there were, and how quickly they were heard and disposed of. Qualitative peer reviews had been used to measure whether the Tribunal was doing a good job, and the customer survey was also qualitative, examining if the Tribunal was running on time and whether the decisions were clear (regardless of whether the respondent agreed with the outcome).

The Chairperson said that it appeared that, from an administrative point of view, the Tribunal was working well. However, she pointed out that the Act stipulated a mandate to achieve a broader objective of integration of the previously disadvantaged, through job creation and entrepreneurship, and this too needed to be measured.

Mr Manoim replied that when reviewing cases and making decisions, the Tribunal took into account the objectives of the Act, but conceded that possibly more information could be provided on how these objectives were considered.

The meeting was adjourned.

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