The Competition Commission appeared before the Committee to respond to outstanding questions that had been raised by the Members of the Committee following a presentation on its Strategic Plan in a meeting held on 26 March 2013. A number of issues were responded to, including staff morale and retention, measurement of impact by the Commission and the promotion of greater spread of ownership. Most of the ensuing discussion revolved around the allegations in the Commission on the administration of the Commissioner, victimisation of staff and financial mismanagement. These allegations had been drawn to the attention of the Minister and the Public Protector. The Committee probed the Commission to get details on what the allegations were about and who was involved and their impact on the reputation of the Commission. The Committee was concerned that it had been kept in the dark about these issues and more so for having to learn of the allegations from the press.
The other area of considerable discussion was the Walmart (Massmart) merger that the Committee was concerned about in the sense that it would be construed as promoting dominance of one player over the others in the market and also turning small shops into extensions for Walmart (Massmart). The other discussion concerned the disbursement of the agro-processing fund from the R260 million fine imposed on Pioneer Foods and who would be responsible for distributing the R200 million from Walmart (Massmart) and who would receive the funds.
The Committee asked follow up questions on the best benchmarking, the notice period of one month for resignation, measures in place to deal with prices being passed on to consumers by companies that had been penalised, the study loan policy and class action in claiming damages.
The Chairperson by way of introduction said that the meeting was aimed at the finalisation of the interaction with the Competition Commission on its Strategic Plan, following an earlier interaction on 26 March 2013 at which some questions remained outstanding.
Ms Trudi Makhaya, Deputy Commissioner, Competition Commission South Africa took the Committee through the responses to the outstanding questions that had been raised previously as follows:
Explain how Commission is managing staff morale and retention in light of recent newspaper articles
The Deputy Commissioner said that the recent media reports needed to be contextualised within the facts. The Commission had been the recipient of the Deloitte Best Company to Work For award in the public sector category in 2009 and 2011. A notable number of past employees had also sought to be re-employed by the Commission in the recent past and this was welcome in the case of high performers. It had to be borne in mind that the average age of Commission staff was quite young (33 years) due the fact that the particular field of law of the Competition Commission was relatively new – some staff members were learning on the job. The challenge remained of training people who would then be easily attracted by the private sector.
Divisional Managers had continued to manage staff to ensure that the Commission's mandate was achieved. The Commission had also recently approved various human resources policies that would assist with retention. These include policies dealing with mobility within the Commission (job rotation) and also movement to other institutions (sabbatical training overseas to countries like Mauritius, Tanzania and Spain) to ensure that staff members remained stimulated within a fairly flat structure. Thus arrangements for lateral movements by staff members compensated for the fact that the Commission was a small institution with few layers (limited upward mobility due to a flat structure).
The Commission had a generous study loan policy that allowed its workforce to acquire advanced qualifications. Previous Annual Reports would confirm that the Commission spent a fair amount on bursaries for staff advancement. This boosted staff morale and productivity, but also increased the likelihood of staff seeking opportunities outside the organisation.
Media reports had seized on specific instances but this did not represent the general situation of the Commission with regard to morale and retention. However, the Commission's management acknowledged that motivating and retaining employees was a continuous challenge that required genuine and consistent attention.
The Chairperson asked for the stage at which a staff member got picked to undergo sabbatical leave, for how long and what would happen in the absence of that person, given the skills shortage? Did the Commission have Human Resource Development policies in as far as the provision of loans was concerned?
The Deputy Commissioner said that for a staff member to qualify for sabbatical, he or she would have to have worked at the Commission for a period of three years and then the staff in question would have to negotiate a placement at another competition authority or university for a maximum of three months. Such staff would be expected to share the knowledge gained. There would also be a binding contract in place binding such staff to further service for the Commission as a way of repaying back and this was in line with the Human Resource Development polices that provide for service commitment as a way of recouping the investment.
Mr X Mabasa (ANC) asked how the Competition Commission related to the new entrants – was there a way of attracting new entrants to join the Commission as interns?
The Deputy Commissioner replied that there was an active programme of attracting new entrants such as graduate trainees with interns from as many universities joining the Commission. Some of the graduate trainees would be retained as full-time employees by the Commission in case of vacant positions.
The Chairperson asked as to whether the Competition Commission was dealing with improving sourcing of interns from other universities other than the University of Pretoria and the University of Cape Town.
The Deputy Commissioner replied that it working towards this and that the Commission was currently promoting diversity with sourcing from other universities like Fort Hare and University of Limpopo. The Commission was doing road shows to attract more students from universities.
The Chairperson said that the Commission had to go further into pre-tertiary institutions such as high schools. She added that most of the consultants for the Commission were white and not from previously disadvantaged communities. Road shows should go to public schools to get more students interested in competition law. The Commission should give the Commission the percentages of the diversification in terms of the intake, even in terms of other nationalities besides South Africans.
Mr Shan Ramburuth, the Competition Commissioner, said that the insights given by the Chairperson went beyond the Commission. One of the difficulties was there were few universities that taught industrial organised economics which was the specific economics modules that were relevant to the field of the Commission. Universities had to be encouraged to add such modules to their curriculum. The annual conference in competition law was one of the ways that was helping in creating an interest in the field.
Mr K Mubu (DA) needed more clarification on the point of the media focusing on specific issues and if there were internal processes taken, what were the outcomes?
The Deputy Commissioner replied that there were two issues that the media had focused on, one of which was the speculation around the departure of the previous Deputy Commissioner, Tembinkosi Bonakele, and the other being the allegations referred to the Public Protector by the interim company secretary on the administration.
In reply to the Chairperson asked about the role of the company secretary, the Deputy Commissioner said that the company secretary was the custodian of governance at the Commission, ensuring that there was compliance with all the relevance laws applicable to the Commission.
Mr K Mubu (DA) asked what the Commission did to dispel the negativity created by the allegations.
Mr H Hoosen (ID) asked for details on the other allegations noting that there were three allegations against the Commission.
The Chairperson asked what the basis of the allegations was and whether there was mishandling of employees and if the Committee had reason to be concerned. What were the allegations and who was involved – what issues had not been disclosed to the Committee?
The Commissioner said that there was nothing to worry about and that the allegations were spurious. An investigation was going to take place and processes would be followed.
The allegations arose following the death of the company secretary in 2012. The then Deputy Commissioner wrote to the Minister about the leadership of the Commissioner. It was suggested that the death of the company secretary was as a result of the way the Commissioner had treated her. The company secretary died of a heart attack but the insinuation in the letter suggested that it resulted from a meeting that the Commissioner held with her a few days before she passed away.
Following the allegations contained in the letter, the Minister instituted a preliminary investigation and the recommendation following the investigation was that the Minister should have the matter fully investigated. The Commissioner had not received any formal communication from the Minister or the Department.
The interim company secretary wrote a letter to the Public Protector about the management of the Commissioner. There were allegations of maladministration that the Public Protector was going to be investigating.
The Commissioner said that although he wanted to draw the documents to the attention of the Committee, he was advised against taking such action by the Public Protector.
Mr H Hoosen (ID) said that the purpose of asking was not to be misconstrued as sign of guilt on any individual but for the Committee to get information from the Commission as opposed to relying on rumours from the media. He also asked for an explanation on the financial mismanagement and the victimisation of staff.
Ms Maggie Mofokeng, Head of Department: Finance, Competition Commission, said that there was an independent audit process that took place each year. An interim audit for the period 1 April to 30 December 2012 revealed no findings on financial mismanagement. The allegations made to the Public Protector on financial mismanagement were issues around the non submission of the budget on time and therefore was not approved. The reality was that there was proof that the Commission had a delivery note to the Department and the National Treasury dated 31 August 2012. This confirmed that the budget for the period 2013/14 was submitted on time to the Economic Development Department. The other issue concerned communication with regard to staff increase (the meeting had not minuted what had happened in the executive committee meeting) – there was proof to the effect that the staff increase was approved by the executive committee as per the human resource policies. The commission that made the decision on staff increases was made by the commission that comprised of divisional managers. The minutes on the staff increases were also sent to the Public Protector.
Mr K Mubu (DA) asked if the allegations were made while the people making them were still staff of the Commission.
Mr H Hoosen (ID) asked for a response on the victimisation of staff.
The Commissioner said that the victimisation of staff allegation was broad and general. The complainant used procedures outside the structure of the Commission. The Chairperson asked whether the deputy commissioner was aggrieved to the extent that he had to go to the Minister, to which the Commissioner responded saying that he could not speak for him. He added that the grievance process in place required the appointment of an independent person but in this case there was no proper grievance put before the Commission. The audit and risk committee took the allegations.
The Chairperson wanted to know how the matter got to the risk and audit committee to which the Commissioner responded saying that this was through the press. A mediator was appointed by the audit committee to look at the issues between the Commissioner and the Deputy Commissioner and find a way of resolving them. The aim was to ensure that whatever the issues were between the Commissioner and the Deputy Commissioner, they should not affect the effectiveness and efficiency of the Commission.
The Chairperson said that the Committee could not be kept in the dark on issues relating to the Commission. What were the issues between the Deputy Commissioner and the Commissioner?
Mr K Mubu (DA) said that he was concerned that the complaints were against the Commissioner and the system in place that was not nice in the sense that a person lower than the Commissioner could not be bringing a grievance involving the Commissioner to the same Commissioner.
Mr H Hoosen (ID) referring to the victimisation of staff said that said that there was a similar issue in 2009 that was investigated and a report made with a series of recommendations. Was there such an investigation and a report produced? What were the recommendations and where they implemented?
The Commissioner confirmed that there was such an incident in 2009 and the report following an investigation. He however noted that the report was not conclusive on the allegations and their truthfulness. Some of the recommendations made were that senior staff should have executive coaches to help them in dealing with complex issues – this was taken up by the Commission. There was also a team building exercise to improve management communication. The Deputy Commissioner’s complaint was re-iterating what happened in 2009.
The Commissioner said that the Commission acknowledged that the reports on the content were lacking but also expressing the difficulty the Commission faced following the advice from the Public Protector and the Minister’s office against breaking the rank. The letters and all other relevant documents would be disclosed once permission from the respective authorities was obtained.
The Chairperson said that the Committee would use the rules of Parliament to deal with some of the issues.
Ms D Tsotetsi (ANC) wanted clarity on why the study loan policy was considered generous since a recipient would be paying it back to the Commission.
The Deputy Commissioner replied that the study loan would be converted into a bursary if one passed but if one failed, then one would have to pay back with interest.
In terms of the alignment of the Commission's outcomes to EDD's outputs (Slide 5), how does the Commission measure impact? At what point is the impact measured?
The Commissioner said that impact assessment was a difficult exercise in competition policy. Nonetheless, the Commission assessed its impact through sectoral reviews and in-depth case studies of markets that it had intervened in. In the recent past, the Commission had conducted reviews of food and agro-processing and intermediate industrial products, and an in-depth study of the concrete pipes cartel.
At the outset, it had to be noted that the causal relationship between competition law implementation and economic outcomes was complicated by various factors, making impact assessment a complicated exercise. Though increased competition was expected to lead to lower prices, innovation and also higher rates of participation in the economy; specific competition law interventions could appear to have neutral or even counter-intuitive effects in the market. The effects of enforcement action on a market took time to manifest themselves in pro-competitive outcomes (such as lower prices), making it difficult to attribute market outcomes to competition authorities' interventions. Market outcomes were also influenced by a range of domestic and global factors, further bedevilling attempts at drawing causality. In the short run, prices would rise or stay the same in spite of anti-competitive conduct being uncovered and penalised.
The impact of the Commission's work could be inferred from the way it deployed its resources. At the core of the Commission's strategy was the notion of prioritisation. Prioritisation ensured that the Commission's resources are deployed to ensure high impact outcomes.
The Prioritisation Framework directed the Commission to intervene in sectors of the economy that had a big impact on consumers (especially low income consumers) and that determined the enabling environment for business and economic development. The framework was located within the context of the policy focus on labour-absorbing growth to address the high unemployment and poverty levels in South Africa.
The Prioritisation Framework identified specific priority sectors, namely, food and agro-processing; infrastructure and construction; intermediate industrial products and energy; construction services; and banking as focus areas for the Commission's enforcement and advocacy programmes. Cartel conduct, given its well accepted egregious effects on consumers, was also prioritised as an area of investigation. Within priority sectors, investigations were also prioritised depending on criteria such as likelihood of success, evidentiary burden, nature of competition issues (for instance, whether it would be a precedent setting case), resource availability and extent of harm.
An in-depth study of the concrete products cartel uncovered by the Commission towards the end of 2007 demonstrated the positive effects of competition enforcement on prices and entry. This long-running cartel was established in the early 1970s and ended as a result of the Commission's corporate leniency policy which led to Rocla (a subsidiary of Murray and Roberts) coming forwards and revealing crucial details about the cartel.
Following the Commission's focus on collusion in construction, Rocla (Pty) Ltd took legal advice about their involvement in the cartel and contacted the Commission, with its application for corporate leniency being filed on 7 December 2007. Under the Commission's Corporate Leniency Policy, a participant in a cartel was not subject to a penalty under the Competition Act in exchange for revealing the extent of the cartel and cooperating fully in prosecuting the remaining members. This did not exempt the firm from any claims for damages that might be brought by customers.
The cartel was mainly focused on precast concrete pipes and culverts. These were products used in various construction applications such as road construction and earthworks, and were important for the government's infrastructure development drive. According to Rocla, it and nine other firms had engaged in anticompetitive conduct involving market allocation, price fixing and collusive tendering. Cartel members agreed on market shares along regional lines, along with the types of products each was allowed to produce. In 2010 the Competition Tribunal imposed administrative penalties on all the nine implicated firms, who had admitted guilt. Since the demise of the cartel, five new players had entered various product and geographic markets which were previously the reserve of the cartel. This pointed to the fact that the stability of any cartel lay in its ability to prevent new entry.
It was noted that prices only fell towards competitive levels some time after the cartel's end and this transition period could be attributed to a number of factors. The long duration of the cartel indicated the collusive behaviour was particularly entrenched. Contracts agreed under the cartel were also only delivered some months afterwards (when the revenue was booked). In addition, the main cartelists continued to share monthly volume data through the industry association, enabling them to continue tracking market shares, identifying if there were deviations and dampening competition.
Mr H Hoosen (ID) asked what measures were in place to deal with prices being passed on to the consumers by companies that had been penalised.
The Deputy Commissioner replied that companies penalised could not pass on the price to consumers because the penalty allowed for new entrants into the sector and this would ensure that prices stayed low. One of the remedies in place was selling parts of the company that was engaging in anti-competitive behaviour. She gave an example of the Sasol case before the Tribunal in which the recommendation was on how Sasol should be pricing going forward.
Ms DR Tsotetsi (ANC) asked what happened to habitual offenders.
The Deputy Commissioner replied that in imposing a penalty, the Commission took into consideration a company’s history and if it was discovered a company was in habit of offending against the competition laws, then a maximum penalty would be recommended.
The Chairperson said that the Commission had to measure the impact and it was not a matter of whether the Commission could do it or not. Measurement of impact was required so as to eliminate imbalances and allow for an equal platform for all competitors. She added that a penalty imposed had to be seen as having an impact on the abnormal practice noting that there were companies that could afford to pay the fine and carry on with the abnormal practices.
Has the Commission done a benchmarking exercise to other Competition Authorities globally?
The Commission had been benchmarked against other competition authorities through two independent surveys: the Global Competition Review Rating Enforcement Survey which was an independent global survey of competition authorities, conducted by a publishing house based in the United Kingdom. The survey ranked competition authorities according to criteria including the enforcement record, operations, efficiency and reputation. The Commission ranked in the same category as competition authorities in Brazil, Russia, Portugal, Denmark, Switzerland and Sweden according to the most recent rating which was given in 2012. In 2011 the Commission ranked as the best agency in the Asia-Pacific, Middle East and Africa category. The benchmarking was also a way of highlighting areas of improvement – for instance it was recommended that the Commission could do more in improving the area of abuse of dominance.
The Commission was found to be performing well in the Global Merger Control Index (GCMI) where it was noted that the Commission was doing good assessments, meeting its merger timelines and no major complaints or review of merger decisions except in one or two instances.
Mr K Mubu (DA) and the Chairperson asked what constituted best benchmarking and who decided on the countries to be involved? What countries were the considered worst to be benchmarked against?
The Deputy Commissioner replied that in terms of the Global Competition Review Rating Enforcement Survey, there was an independent company that covered almost all competition authorities across the globe. The survey would require going to each country and carrying out interviews with journalists (top 10 journalists covering competition issues), leading consultants and advocates, lawyers and practitioners in a country to come up with a picture of what was going on in the competition field in terms of how practitioners were experiencing the Commission’s turnaround time and quality of decisions – this would through a methodology be compared with other countries.
In terms of the ranking, the best predictable were the European Union, the United States which had a different system from South Africa (it was also more advanced in terms of economic analysis given the large pool of PhDs), United Kingdom and France. The Asian agencies ranked the same as South Africa with a 3-star to 3.5-star rating. Most of the countries in Sub-Saharan Africa were not ranked because their competition regimes were relatively new. Countries like Papua New Guinea and Vietnam also do not get ranked.
Mr H Hoosen (ID) said that there was a drop in the ranking of the Commission at one point from 3.5 stars to 3 stars – if any recommendations were made following this drop, was the Commission implementing them to ensure an improvement in ranking?
The Deputy Commissioner replied that there was indeed a drop because of what was noted as Commission’s abuse of its dominance with bias towards cartels and comments on its average age of staff of 25 years as compared to countries like to the United States were the average age was 45. At the time of the drop in ranking the Commission was facing legal challenges with people taking the Commission to the Constitutional Court on procedural issues. Most of these challenges had been overcome with recent cases going in favour of the Commission.
When the Commission concludes settlement agreements, is the consumer ombudsman involved in the process? If not why?
The Deputy Commissioner replied that the Consumer Ombudsman handled consumer issues and not competition cases - this was an important distinction. Competition law enhanced consumer welfare by challenging anti-competitive practises in the market as these practices related to the way companies competed against one another, whereas consumer law dealt with how companies treated consumers in terms of product quality, terms and conditions and other such transactional matters. Settlement agreements were also a mechanism to resolve cases brought by the Commission against companies in accordance with competition law, and thus could only include remedies that were recognised in competition law. However, this did not preclude creative remedies from being imposed as long as they did not go beyond the bounds of competition law.
Explain how the Commission achieved the objective 'promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged persons'? (Slide 1 - last objective 5)
The Deputy Commissioner replied that companies involved in anti-competitive behaviour would be excluded from the market and others fined. For instance in the Pioneer Foods case, part of the settlement was that R260 million would be given to an agro-processing fund that would be administered by the IDC. The Commission was still following up on the disbursements made by the company. The same applied to the Walmart (Massmart) merger were one of the conditions was setting up of a fund to develop more business. The objective of promoting a greater spread of ownership had been achieved by the Commission challenging exclusionary and exploitative behaviour and thus enabling new companies to enter the market.
The Chairperson asked if the Commission had set up a structure to follow up on the disbursement of the funds and the time frame for ensuring that the funds got to the right recipients. How far had the Commission gone with the monitoring and what were the challenges that the Committee could help with? Where there any adverts to inform people of the availability of the funds?
The Deputy Commissioner replied that there was R260 million from Pioneer and R200 million from Walmart (Massmart). In the case of Walmart (Massmart), there was a merger monitoring unit in place monitoring the conditions of the fund. It was a new fund and Massmart (Massmart) was trying to communicate it to the intended recipients especially in giving details on what the fund was all about. There was an annual report that the company was supposed to give to the Commission. An interim report from the company only gave information on governance, how the fund was set up and the criteria for companies to qualify (mostly in areas of food and manufacturing).
The Chairperson asked who decided on the enterprises to benefit from the fund?
The Deputy Commissioner replied that the Competition Appeal Court order was designed in such a way that Walmart (Massmart) only got to inform the Commission at the end of the disbursement process of the fund. There was an executive committee that took decisions with a representative from the Economic Development Department, a representative from labour; Southern African Confederation of Agricultural Unions (SACAU) and a representative from the small business forum were involved in the process of determining how the disbursement would be made.
Mr X Mabasa (ANC) said that the conditions for the Massmart fund were not clear and they would possibly end up fronting the dominance and monopoly of Massmart. There was also a concern that the small shops would end up becoming conduits for Massmart. Upon completion of the disbursement of this fund, the small businesses benefiting from it would be sustainable
The Deputy Commissioner replied that the way the conditions were made was not meant for Massmart to create a value chain that would replace what already existed. The value chain in this case would support small businesses as opposed to replacing them.
The Chairperson said that small businesses were not to act as extensions of Walmart (Massmart) but rather should be able to stand alone after the receipt of the funds. Mr X Mabasa (ANC) added that there was need to be careful with this as it would seem that the Government was unconsciously supporting Walmart (Massmart) to have dominance over other competitors. He proposed the invitation of the funding committee to the Portfolio Committee for a discussion. The Deputy Commissioner replied that the Commission would follow up on the Pioneer Fund which was managed by the IDC.
Slide 4 indicates 'increase sophistication', what does this mean?
The Deputy Commissioner replied that slide 4 summarised the assumptions into the various strategies devised for the Commission over the years. For the 2007 to 2010 strategy, the authors perceived increasing sophistication in the Commission's external environment.
For slide 11, what sectors are included in food and agro-processing? Firms want to increase the food prices however the over-abundance of food should cause a decrease in food prices. So the factors that should be taken into account in the impact assessment, how does food availability affect the assessment?
The Deputy Commissioner pointed the Committee to a table with a breakdown of the total number of investigations in the food and agro-processing sector from 2009/10 to 2011/12. The areas included agriculture, fast foods, poultry/eggs, milk/dairy, confectionary, ground nuts, milling, fats and oils, fish/meat, fruit, potatoes, baking, spices, sugar and yeast.
Investigations into price fixing and market allocation by major players in the maize and wheat milling, bread and milk sub-sectors were completed. Outstanding investigations included supermarkets, poultry, milling and bread (info exchange), fats and oils, fish and animal feed. The main contraventions in these cases related to the abuse of dominant position and exchange of competitive sensitive information on prices of the affected products.
She referred to a further settlement with Pioneer Foods for an array of anticompetitive practices in bread, milling, poultry and eggs that resulted in a fine of R500 million. Subsequent arrangements were made for half of this amount to be set aside for the creation of an Agro-processing Competitiveness Fund. Pioneer Foods also made a commitment not to reduce capital expenditure as well as a commitment to reduce prices on the sale of selected flour and bread products over an agreed period. The creation of the Fund was aimed at lowering the barriers to entry into the agro-processing industry, while the price reduction and capital expenditure commitments sought to constrain Pioneer Foods, compensate and disgorge some of its profits to the benefit of consumers, and improve the competitive dynamics of the relevant markets.
What process does the Commission follow to measure its objectives and outcomes? Is this quantified?
The Deputy Commissioner replied that the Commission reported on its targets as set out in the Annual Performance Plan in its audited Annual Report The response given for the question on how the Commission measured impact applied to quantification.
For which cases did the Commission have adverse court decisions? How does this impact the upcoming cases of the Commission?
The Deputy Commissioner replied that the Commission received adverse decisions in the following matters: Competition Commission vs Loungefoam (Pty) Ltd, Gomma Gomma (Pty) Ltd, Steinhoff lnternational Holdings Ltd & Steinhoff Africa Holdings (Pty) Ltd 102/CAC/Junl0 ("Loungefoam") and Netstar (Pty) Ltd, Matrix Vehicle Tracking (Pty) Ltd and Tracker Network (Pty) Ltd vs The Competition Commission and Tracetec (Pty) Ltd 97/CAC/May10 ("Netstar")
In the majority decision of the Constitutional Court, also handed down on 26 June 2012 in the Loungefoam case, it was held that the Commission's application for direct appeal to the Constitutional Court should be dismissed on the basis that it would be preferable for the Commission to first approach the Competition Appeal Court (CAC) and the Supreme Court of Appeal (SCA) before approaching the Constitutional Court.
The Commission proceeded to set down its application for leave to appeal the CAC's decision to the SCA for hearing. The application was heard on 6 December 2012 and on 14 December 2012, the CAC dismissed the Commission's application for leave on the basis that it concluded that the Commission had argued its case before the Tribunal on a different factual and legal basis to that which it contended for on its papers and on appeal. The CAC concluded that its decision to set aside the Tribunal's decision to grant the amendment was not final and that it was open to the Commission to amend its papers and pursue the matter in the Tribunal. The court further held that the appeal did not involve an issue of law of public importance warranting further appeal to the Supreme Court of Appeal.
After taking advice, the Commission decided to not pursue a further appeal of this matter. It is pursuing the further prosecution of the complaint referral before the Competition Tribunal. The Commission expects that its pending appeal to the Supreme Court of Appeal in the Yara matter would resolve the issues around the interpretation of the proper scope of the Commission's powers of investigation and referral of anticompetitive conduct.
In the Netstar matter, on 19 June 2012, the Constitutional Court dismissed the application for leave to appeal filed with it by the Commission. No reasons were given by the Constitutional Court. This followed after the Supreme Court of Appeal, on 30 March 2012, had refused the Commission leave to appeal the CAC's decision. The Commission had appealed against the CAC's decision, in which it found that the Commission had failed to establish that the respondents, Netstar, Matrix and Tracker had concluded an agreement within the meaning of the Act and to establish a causal link between such agreement and a substantial lessening of competition in the vehicle security market.
The Commission contended that the CAC's interpretation of what constitutes an agreement and its application of the legal causation test was unduly restrictive and at odds with the letter, spirit and purpose of the Act and would unduly restrict the Commission in its ability to prosecute restrictive horizontal practices. There being no further avenue of appeal, the Commission finalised this matter. There would be further opportunities to test the bounds of statutory interpretation in respect of the issues raised in this case in other matters in future. Based on the prosecutions that it had undertaken since the date of the CAC's decision, the impact of the decision had not been substantial.
Mr H Hoosen (ID), as a follow up on agro-processing, wanted to know how the Commission was achieving the compensation and disgorging of its profits to the benefits of consumers considering that there was a requirement to remit money to the National Treasury. He further noted that the list given by the Commission of the cases with adverse findings was incomplete - what was the total cost spent on adverse findings?
The Deputy Commissioner replied that the details for the cost of the adverse findings were currently not available but that these would be provided to the Committee at some point together with the statistics.
Mr X Mabasa (ANC), referring back to the Walmart (Massmart) point, said that Walmart (Massmart) should not be involved in the executing of the fund as this would kill the competition.
The Chairperson, in a follow up on the response to the question on agro-processing, said that there the Commission had indicated that with regards to pricing, it had no authority because of the provisions in the current legislation that made it impossible to make an impact on pricing and that the only way was to penalise: what would have been the impact in instances where the consumer price of bread that was previously at R5 had moved to R10 due to collusion?
The Deputy Commissioner in response to the questions said that there were challenges in the setting up of the agro-processing fund that was administered by the IDC. The National Treasury made objections following the imposition of the remedy for the fine. An agreement was reached in which money would be handed over to Treasury which would then commit to handing the money over to the IDC.
The Commissioner added that that there were issues with broader governance of the fund. The National Treasury was opposed to the Commission taking it upon itself in deciding how the fine would be distributed amongst those who were disadvantaged. National Treasury’s argument was that according to the Appropriations Bill, only Parliament had power to determine how money could be allocated and although the Commission’s sentiment was right, it was going beyond its mandate.
The Commissioner further said that in terms of the Competition Act, the fine by the Commission was an administrative fine meant to be a disincentive for firms to behave in a particular way. There was meant to be a second process once the decision of the Authority was taken to ensure that parties disadvantaged by the breach would have a right to claim legal damages at the High Court. Unfortunately South Africa’s legal system did not have a history of class actions like in the United States.
Mr X Mabasa (ANC) in a follow up said that whistleblowers (those that have suffered) should be incentivised to help the Commission. By harmed communities benefiting, it would create an atmosphere of wanting to cooperate with the Commission. As long as money went to invisible persons, it would disincentivise the harmed communities and class actions would also leave remedies to only the rich that could be able to access the court.
The Chairperson asked who would pay for the class action – would the Commission be able to do this? There was a need to educate people on class actions and what needed to be done so that they could be able to claim these benefits. The Commission had to consider this through an investigation and revert back to Committee.
The Deputy Commissioner replied that the damages revolved around system development, giving an example of the US were lawyers would take on a class action for a percentage of the award. As for the bread cartel, there was an attempt to institute a class action led by Black Sash and other NGOs – the Commission was monitoring this development. There was also the development of the construction settlement fast-track process. The challenge with damages was proving that one had suffered harm even in cases of a class action. In the construction sector this was an easy one to overcome and so it would be one of the areas to help the development of class actions in the country.
The Commissioner added that all the damage cases could not be class action cases and that in some instances it was another firm that was disadvantaged with capacity to hire a lawyer. There were intermediaries that could claim damages but even then there were challenges in proving damage and the extent of the damage. In the end, the ultimate loser would be the consumer as the firm would pass on the cost.
The Chairperson said that the Committee acknowledged that anybody that collected money under the Public Finance Management Act (PFMA), had to deposit it into the national revenue fund. The Commission and the National Treasury should work out a plan that allowed for a percentage of the collection by the Commission to be retained by it (the Commission).
Can the Commission briefly discuss how they are dealing with the following issues: (a) staff turnover; (b) succession plans; and (c) Uncertainties in leadership issues especially in line with the investigation by the Public Protector.
With regards to staff turnover, the Deputy Commissioner replied that it was important to note that the Commission's staff was highly skilled at almost all levels and with the experience gained in the Commission employees became marketable to both the private and public sectors. The Commission was performing an analysis of its staff turnover and appropriate measures would be put in place to address any concerns highlighted. The Commission however had continued with its established measures such as performance bonuses, year-end awards to recognize high performing employees, internal rotation opportunities study loans, local and international sabbaticals and local and international short courses.
Responding to succession planning, she said that the Commission, through its recruitment processes and learning and development initiatives, continued to grow its talent pool at each level to ensure that critical staff replacements were available when needed.
Ms D Tsotetsi (ANC) asked were there policies in place on performance bonuses? The one month notice period for one to resign was not sufficient to enable the Commission to get a replacement.
The Deputy Commissioner replied that the Commission in giving performance bonuses was guided by performance management policies that had different ranks of scores that formed the basis for the award of the different percentages of the bonuses – the policy and the latest statistics would be provided to the Committee. She added that the Commission would internalise the notice period for resignations and see how it could be adjusted.
Concerning the uncertainties in leadership, the Deputy Commissioner replied that the investigation by the Public Protector was expected to cause some anxiety amongst staff. However, none of the members of senior management had expressed any concerns about the investigation and as such the Commission's work would continue. The Commission had prepared and sent a response to the first information request by the Public Protector.
For the new powers that the Commission has been granted in the Competition Amendment Act: Will there be sanctions imposed or financial settlements?
The Deputy Commissioner replied that in terms of the Commission's new powers to conduct market inquiries, penalties or settlements would only result in the instance where an inquiry uncovers anti-competitive conduct by firms. This would not always be the case as market inquiries were designed primarily to address market-wide competition distortions that arose from causes such as market failure or regulatory failure.
Market inquiries were recognised globally as an important tool in promoting competition in the economy. A market inquiry was a formal inquiry in respect of the general state of competition in a market for particular goods or services, without necessarily referring to the conduct or activities of any particular named firm. The Commission could initiate a market inquiry if it has reason to believe that any feature or combination of features of a market for any goods or services prevented, distorted or restricted competition within that market; or the achievement of the purposes of the Competition Act as amended.
The amendment provided for the conduct of market inquiries, including the selection, initiation, conduct and outcomes of such inquiries. The outcomes of a market inquiry might include recommendations to the Minister for new or amended policy, legislation or regulations; or recommendations to other regulatory authorities in respect of competition matters. On the basis of information obtained during a market inquiry, the Commission might also initiate a complaint which may be settled or referred to the Competition Tribunal without further investigation, or that may be investigated further. The Commission might also choose to take no action.
In 2008, the Commission concluded a market inquiry into aspects of the banking sector, relying on its general powers and without investigative powers; and also relying on companies' voluntary participation. The amendment gave the Competition Commission, during its conduct of a market inquiry, the ability to issue summons to compel persons to appear before the inquiry and to compel evidence which had a bearing on the subject matter to be presented; it outlined the powers of the officer presiding at a hearing and also dealt with various offences including failure to answer fully or truthfully during an inquiry. The amendment also provided for the treatment of confidential information.
For the upcoming Market Inquiry;
a. Is the Commission ready for the Market Inquiry as indicated in the media?
b. Where is the project now? Is there a project and implementation plan?
c. What are the focus areas?
The Deputy Commissioner replied that the Commission was engaged in pre-launch activities for a market inquiry into private healthcare. The envisaged inquiry would be directed at the healthcare industry at large to determine the factors that restricted competition and the observed increases in the costs of private healthcare in South Africa. Such an inquiry would provide a factual basis upon which sound recommendations could be made on how best to address the problems in the sector. Moreover, an inquiry was an ideal platform through which a broad public consultation could be conducted so as to ensure that the diverse views of the relevant stakeholder groupings were accounted for.
The purpose of the market inquiry was: to conduct an analysis into selected segments of the private healthcare industry, examining the contractual relationships and interactions between and within the segments and the contribution of these dynamics to total healthcare costs; an assessment of the impact of Commissions interventions, in both enforcement and merger cases, on the bargaining mechanisms and consolidation in the healthcare industry; inquiry into the nature of price determination in private healthcare sector in South Africa; and to establish a factual basis for recommendations that supported the achievement of accessible, affordable and innovative private healthcare.
It was proposed that the main objectives of a market inquiry would be to: evaluate the nature of price determination in the private healthcare sector with reference to the extent of competition between different categories of providers and payers; the extent of countervailing bargaining power between different categories of providers and payers; and the level and structure of prices of key services, including an assessment of profitability and costs; evaluation and determination of factors that had led to the observed increases in the cost of private healthcare in South Africa; evaluation of constraints on consumers with reference to how consumers accessed and assessed information about private healthcare providers, and how they exercised choice; the making of recommendations on appropriate policy and regulatory mechanisms that would support the goal of achieving affordable and innovative quality healthcare;
Other objectives included the making of recommendations on price-setting mechanisms acceptable within the competition policy context; and Make recommendations with regard to the role of competition policy and law in achieving pro-competitive outcomes in healthcare, given the possibly distinct nature of the market.
The Commission hoped to commence the inquiry in the second half of 2013. It was imperative that the inquiry was conducted in a fair, transparent and inclusive manner. In keeping with this imperative, the Commission had approached a large number of stakeholders affected by the inquiry to discuss the draft terms of reference and formally request their comments on the scope of the inquiry. The stakeholder engagement process would be completed by 31 May 2013.
In addition to these one-on-one consultations, the Commission would publish the draft terms of reference on the Commission website for public comment for a period of 20 working days, from a date still to be determined. This would ensure that the consultation was inclusive and that the final terms of reference to be published in the Government Gazette included the comments of all affected and interested parties.
The Chairperson said that the Commission would be called back to give feedback on the market inquiries at another time.
Why was there a reduction in the fee income? How does the Commission budget for this line item?
The Deputy Commissioner informed the Committee that the decrease in the fee income was a result of fewer mergers being notified, hence lower fees were paid. This might be due to lower levels of economic activity which resulted in few mergers being notified. The Commission projected the number of mergers that were likely to be notified in forthcoming years based on previous trends
How does the Commission monitor the compliance with merger conditions? For instance how does the Commission monitor impact of mergers in job creation?
The Deputy Commissioner replied that the Commission had a unit that monitored the compliance of merging companies with any conditions imposed by it or the Tribunal. This would follow a merger assessment wherein the Commission would have assessed the likely job losses resulting from a merger and would have imposed appropriate conditions. Most merger conditions dealing with employment issues were intended to preserve jobs rather than create new jobs. Therefore, measuring the number of jobs saved through merger conditions was monitored and such data was readily available.
Certain conditions that require parties to make an investment were more likely to result in job creation. In those cases, number of jobs created could be measured and specified under the monitoring requirements. The mergers and acquisition division was aware of this and would require parties to provide details on the number of jobs created, the type of jobs created and the relevant sectors, prior to the conditions terminating. Furthermore, the Commission communicated decisions on employment conditions on a regular basis to trade unions where those unions had participated in the merger review process. The monitoring function would be emphasised to them so that they could also assist in providing relevant data for assessing the impact of the merger. The latest statistics would be provided to the Committee.
There are 2 Deputy Commissioner's appointed by the Minister however currently there are 3 Deputy Commissioners, has the Commission budgeted for 3 Deputy Commissioners?
The Deputy Commissioner replied that the Commission had three deputy commissioners for the week of the 25 March 2013. Two new deputy commissioners were appointed as from the 25 March, whilst the' outgoing deputy commissioner was serving his last week of his notice period. This may have been intended to facilitate a hand-over process. The Commission budgeted for two Deputy Commissioners for the 2012/13 financial year.
The Chairperson asked as to how the Commission would justify the payment of a third Deputy Commissioner yet the budget was for two Deputy Commissioners.
The Deputy Commissioner re-iterated that the overlap lasted for a week and that it was intended to facilitate the hand over process. The Head of Finance added that this was a small amount compared to what had been budgeted for the whole year.
What initiatives is the Commission taking to identify problem areas in the economy? How is the Commission introducing new blood into the sectors, SMMEs?
The Deputy Commissioner replied that in terms of prioritisation, the Commission was constantly looking at sectors to prioritise in addition to conducting scoping studies in various industries to try and see if there were any systematic barriers to entry into the market for small businesses and whether there was anti-competitive conduct. The studies had helped in the past in identifying areas of anti-competitive conduct – examples of the studies included one on the media sector and another on barriers to entry in private hospitals. This would inform the analysis into the upcoming market inquiries.
Proactive measures taken by the Commission in priority sectors included reviewing available information and evidence on potential anti-competitive conduct and screening various markets for signs of potential anti-competitive outcomes. This had assisted the Commission in initiating and in some instances concluding investigations in key consumer and input markets such as poultry, bread, wheat and milling, animal feed, steel, polymers, fertiliser, cement, concrete pipes and bricks. It also resulted in an increase in the number of abuse of dominance investigations.
By focusing its energies on identified priority sectors selected on the basis of criteria that included impact on poor households (and industrial development with implications for employment), the Commission had been able to optimize on its resources whilst also contributing towards poverty reduction.
Mr X Mabasa (ANC) said that cooperatives should be included in the list of small medium enterprises.
The Chairperson said that the Commission seemed to have a better understanding of its role and mandate than before. The law gave the Commission a broader mandate and therefore the more people knew, the more they would be interested in engaging with the Commission.
The meeting was adjourned.
[There were apologies from Mr S Ngonyama (COPE) and Mr Z Ntuli (ANC).]
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