The Competition Commission (CC) presented its 2014/15 Annual Report. In describing the organisational profile, the CC emphasised the decreased staff turnover rates and consistent gender employment parity. The CC had improved its previous unqualified audit result of 2013/14 to a completely clean audit in 2014/15. It had won four out of five court cases and met 25 out of 40 annual performance targets. There had been delays in commencing the Healthcare Market Inquiry, so that the CC was presently showing a surplus of R25 million. It had managed to intervene and save 2 746 jobs in mergers and acquisitions processes, notably saving 892 jobs by mergers approved in the wake of the collapse of African Bank and Ellerines. Mergers between Clover SA and Nkunzi and between Life Healthcare, Lowveld Hospital and Interstate Clearing had been prohibited, to protect small businesses and consumers respectively. A structural remedy had been imposed in the merger of Holcim Ltd and Lafarge SA. Conditions were also imposed on an approved merger of Zimco Metals and Atlantis Metals. The CC had prosecuted and won the predatory pricing case against Media 24. Although the Competition Tribunal's R500 million fine of Sasol for excessive pricing had been overruled by the Competition Appeal Court, the CC had approached the Constitutional Court for leave to appeal this judgement. An exemption was granted to the National Hospital Network (NHN), an unlisted co-operative of small independent hospitals, to allow collective pricing agreements that would permit them to compete in the market, and another exemption was granted, also to assist international competitiveness, to the squid and lobster industries. Many of the cartel cases related to the automotive components sector, where raids had been carried out. In the construction industry, the CC had begun with phase 2 of the Construction Fast Track Settlement process, and settlement agreements had also been negotiated for the scrap metal, electric cables and pelagic fish industries. concerning widespread price-fixing from 1998 until at least 2008, in the electric cables industry and in the pelagic fish industry. The inquiry into private healthcare markets, although delayed, was progressing and should be concluded by December 2016. Another market inquiry into the liquid petroleum gas market was expected to be completed in March 2016. Finally, the CC outlined the projects funded by the Pioneer Agro-Processing Competitiveness Fund, which had been established out of the R500 million settlement agreement reached in 2010 with Pioneer Foods, and those funded by the Massmart Supplier Development Fund, which had been established as a condition of the 2010 Walmart-Massmart merger.
Members were appreciative of the presentation and particularly of the clean audit. They asked for an indication of progress in the healthcare inquiry, asking whether there was collaborative work with competition authorities overseas. They asked what evidence tests were applied before dawn raids, and how they were conducted. They asked about the possible implementation of provisions in the amended legislation around cartel activity, asked if there were inquiries into the SAB-Miller deal currently under negotiation, and for an update on the investigation into foreign currency trading. Members received confirmation that study loans issued by the CC were converted to bursaries for successful students ,and asked about recruitment processes and the universities approached. They asked why the turnaround time for mergers was lower than target. They asked about the impact of the appeals, and whether more were likely. The Chairperson suggested that the term “savings” was incorrect and should refer to “under-spending”, and asked about the Memorandum of Understanding with Namibia. Members suggested that the CC needed to have its positive outcomes better publicised. They asked whether the conditions of the Walmart-Massmart merger were being observed.
Appointment of Acting Chairperson
Mr S Tleane (ANC) was nominated to act as Chairperson until the arrival of permanent Chairperson Ms E Coleman (ANC).
Competition Commission Annual Report 2014/15 briefing
Mr Tembinkosi Bonakele, Commissioner, Competition Commission, gave a broad overview of the Competition Commission (CC or the Commission), describing its organisational profile, its staff profile and complement, and emphasised the decreased staff turnover rates and consistent gender employment parity that had been maintained for several years. The Competition Commission had managed to improve its audit opinion from unqualified in 2013/14, to a clean audit in 2014/15. It had won four out of five court cases and met 25 out of 40 annual performance targets. A broad breakdown of the CC's financial statements was also given (see attached document for full details). He particularly noted the surplus of R25 million, due to delays in the commencement of the Healthcare Market Inquiry.
Mr Bonakele then went through some of the Commission's highlights in 2014/15. In the area of mergers and acquisitions, the Commission's interventions had resulted in 2 746 jobs being saved, up from 1 657 in 2013/14. Of particular note were the 892 jobs saved by mergers approved in the wake of the collapse of African Bank and Ellerines. Mergers between Clover SA and Nkunzi and between Life Healthcare, Lowveld Hospital and Interstate Clearing had been prohibited, to protect small businesses and consumers respectively. A structural remedy had been imposed in the merger of Holcim Ltd and Lafarge SA. Conditions were also imposed on an approved merger of Zimco Metals and Atlantis Metals.
In the area of enforcement and exemptions, the CC had prosecuted and won its first ever predatory pricing case, against Media 24. The Competition Tribunal's R500 million fine handed down to Sasol for excessive pricing had been overruled by the Competition Appeal Court, but the CC had approached the Constitutional Court for leave to appeal this judgement. An exemption was granted to the National Hospital Network (NHN), an unlisted co-operative of small independent hospitals, to allow them to collectively agree on prices in order to compete against the big hospital groups. An exemption was also granted to the squid and lobster industries to allow them to share commercially sensitive information which would increase their ability to compete internationally.
In the area of cartels, a large majority of cases were in the automotive components sector. The CC had conducted several dawn raids of business premises. The CC had begun Phase 2 of the Construction Fast Track Settlement (CFTS) process, which allowed for lower penalties in exchange for voluntary disclosure of cartel conduct. Settlement agreements had been reached in the scrap metal industry concerning widespread price-fixing from 1998 until at least 2008, in the electric cables industry and in the pelagic fish industry.
In the area of market inquiries, Mr Bonakele said that the inquiry into the private healthcare market was progressing well. A large amount of information had been gathered which was presently being analysed. It was being delayed because of litigation, but this inquiry was expected to conclude in December 2016.
An inquiry into the liquid petroleum gas (LPG) market had been launched in August 2014, which was expected to be completed in March 2016.
Mr Bonakele discussed the projects that had been funded by the Pioneer Agro-Processing Competitiveness Fund, which had been established from the R500 million settlement agreement reached in 2010 with Pioneer Foods, and by the Massmart Supplier Development Fund, which had been established as a condition of the 2010 Walmart-Massmart merger (see attached presentation for full details)
Mr P Atkinson (DA) asked what progress was being made in the ongoing healthcare inquiry. He particularly wanted to know if the CC was looking at precedents and working with competition authorities in other countries, as it had done with the Holcim-Lafarge merger.
Mr Bonakele said that one of the panellists was a Dutch expert, and the technical team itself had also engaged some international experts. Healthcare competition was a global issue, although the solution in South Africa would naturally have to be tailored to the country's specific circumstances.
Mr M Cardo (DA) asked what evidence tests were done before the CC decided to undertake a dawn raid on business premises.
Ms Wendy Ndlovu, Manager: Office of the Commissioner, CC, explained that the Commission could obtain a search warrant where there were reasonable grounds for believing that a contravention of the Competition Act was taking place on the premises. The granting of a warrant was subject to judicial review. The typical standard applied looked at whether there was a possibility that the evidence would be destroyed if the CC tried to obtain it through other means, such as an information request or through summons.
Mr Bonakele added that the police support that was typically a part of a dawn raid was necessary in case the CC was refused entry to premises. He admitted that the raids could be intimidating and disruptive, but assured the Committee that they were conducted with restraint and respect and with a minimum of disruption.
Mr Cardo asked whether the CC intended to implement the Competition Amendment Act's provisions relating to the criminalisation of cartel activity.
Mr Bonakele said that it would be more appropriate for the Ministry of Economic Development to answer this question. The CC was making sure it was ready for any changes in the law in this regard.
Mr Cardo asked if the CC could give the Committee any insight into the SAB-Miller deal currently being negotiated, and whether the CC could say whether it would be probing into this matter.
Mr Bonakele could not give much information, other than to say that the CC was expecting to be formally notified of the merger soon.
Mr Cardo asked for an update on the CC's investigation into foreign currency trading.
Mr Bonakele said that this investigation was being closely co-ordinated with other countries, especially the United Kingdom and the United States of America, who were engaged in similar inquiries.
Ms C Matsimbi (ANC) congratulated the CC on attaining a clean audit, and on the gender balance of its staff. She asked whether the CC would consider converting the study loans it issued into bursaries, to lighten the country's student debt burden.
Mr Bonakele said that this was already done for students who completed their studies.
Ms Matsimbi observed that the turnaround time for mergers was slightly slower than the target.
Mr Hardin Ratshisusu, Manager: Mergers and Acquisitions, CC, explained that the CC had used a new measure in 2014/15 for this performance indicator, and that it perhaps did not give an accurate picture of the real situation. The number of mergers and acquisitions handled by the CC had also increased dramatically in 2014/15.
Mr Bonakele added that the CC was looking to increase the capacity of the mergers and acquisitions team. The parties involved were also sometimes responsible for delays.
Mr Tleane commended the CC on the work it had done publicise its activities and the jobs created by the two funds. He was disappointed that the Sasol fine had been overturned, and asked what sort of impact a decision like this had on the CC's work. He wondered if there was a chance that Media 24 would also appeal the ruling in its case.
Mr Bonakele admitted that it was a setback when a ruling of the Tribunal was overturned, and such a decision might also encourage others to “try their luck” with an appeal. On the other hand, he noted that of course the CC had to respect the verdict of a judge. Although the CC was often engaged in litigation against private companies who had much greater resources, the CC's lawyers were able to hold their own in court battles.
Mr Tleane asked about the CC's recruitment processes. He particularly wanted to know if the CC had any agreements with higher education institutions or did students just apply of their own accord?
Mr Bonakele said that the CC tried to attract talented students from all universities, particularly from the historically black institutions.
Ms E Coleman(ANC) said that the CC appeared to support a disproportionate number of students at previously advantaged universities.
Mr Bonakele assured the Committee that this was not an official policy, and that the CC was monitoring the situation.
Ms Coleman questioned whether “surplus” was the correct term for the R25 million that had not been spent on the Healthcare Market Inquiry. She drew the distinction that this was not a saving that had been made on a programme that had been implemented more cheaply than expected, but money that had been allocated to a programme that had not yet been undertaken. Although the reasons for the delay were reasonable, she was of the view that it would still be more correct to call this under-expenditure. She also stressed the importance of the inquiry for all South Africans.
Mr Bonakele agreed with that point.
Mr Pikinini commended the CC on the positive outcomes that it had managed to achieve from the mergers arising from the African Bank and Ellerines collapses. He felt that the CC was not getting enough positive feedback for achievements like this.
Ms Coleman asked the CC to elaborate on a memorandum of understanding that had been signed with Namibia.
Mr Bonakele explained that the memorandum concerned co-operation on training, staff sharing and information.
Ms Coleman was concerned about reports from Makro in Nelspruit, which had opened in 2014. Jobs had been promised, but she had discovered that although many young people had been employed initially, many had lost these jobs after three months. She asked whether, in general, the CC was satisfied that the conditions of the Walmart-Massmart merger were being observed.
Mr Bonakele said that the Walmart-Massmart merger was an extremely complex one, and it was perhaps to early to make a full assessment of its impact. The CC was monitoring the situation, and had made it very clear that ignoring the conditions of the merger would not be tolerated. The CC had worked with trade unions to get retrenched workers re-employed.
The meeting was adjourned.
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