Competition Tribunal on its 2014/15 Annual report

Economic Development

18 November 2015
Chairperson: Ms E Coleman (ANC)
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Meeting Summary

The Committee met to hear the Annual Report of the Competition Tribunal, sister entity to the Competition Commission. The presentation started by detailing the types of case the Tribunal considers and examples of each. Most explored were cartel cases against 40 furniture cases and an abuse of dominance case against Sasol Chemicals. The Tribunal also presides over mergers, where it rules based both on competition and the public interest; the Tribunal strives to prevent job loss. The Tribunal received an unqualified audit, though had some problems with irregular expenditure. The Tribunal underspent on its budget. It has had challenges with vacant positions, insufficient office space, and has recently solved its budget limitations. Members pursued extensive engagement on the Sasol case, construction cases, the use of fine money collected, vacancies, the length of penalties imposed, and budget. The Committee lauded the work of the Competition Tribunal and assured the delegation that the Committee would help it pursue a better office space and the filling of vacancies in order to help better address the Tribunal’s workload.
 

Meeting report

Opening Remarks
The Chairperson welcomed everyone. She reminded the Committee that yesterday the Committee heard the Annual Report of the Competition Commission, an entity that works together with the Competition Tribunal. The Tribunal acts like a small court, while the Commission processes everything. She welcomed back the support staff after the strike and hoped that the support staff would be able to catch up. She noted that PMG was in meetings throughout the strike. She gave the floor to the delegation from the Competition Tribunal.

Presentation
Mr Norman Manoim, Tribunal Chairperson, explained that, as the Chairperson said, the Competition Commission is the sister agency of his Competition Tribunal. He said that the Competition Commission is akin to a policeman and prosecutor, whereas the Tribunal functions like a court. The Commission brings cases and the Tribunal hears and decides on them.

Mr Manoim apologised that the CEO could not attend. He started the presentation with case review. The Tribunal deals with mergers, cartel, and excessive pricing or abuse of dominance cases mainly. In the previous financial year, there were 97 mergers whereas in this last financial year there were 102. We expect this year to see even more mergers. This last financial year saw 25% of mergers approved with conditions, up from 15% the previous year. When we look at mergers, we do not only look at competition but also the public interest, such as the effect on employment. We try to prevent mergers that would cause job loss. An example is that, when African Bank collapsed, a furniture company called Beares belonging to the Ellerines group went into business rescue then went for a merger in November 2014 with Lewis Stores. This is the first time the Tribunal had to urgently consider a merger involving a business under rescue. The Tribunal acted very quickly in the interest of the public interest and saving jobs. Another case involved Bidvest Group buying Adcock Ingram in a hostile takeover. There were going to be job losses, but the question was whether this was caused by the merger or simply by Adcock Ingram’s failings. The Tribunal decided that Bidvest’s merger policy would make the losses greater, thus the Tribunal approved the merger with a one-year ban on all retrenchments. This was a merger specific retrenchment and had not had proper consultation with employees.

There were 43 consent orders last year, virtually all cases of prohibited practice review. However, statistics showing a lack of contested cases are changing as of recently. The furniture removal cartel is the largest cartel uncovered in respect of its national scope. The Competition Commission alleges that 40 furniture removal companies were involved in rigging 3 500 relocation tenders between 2007 and 2012. This case is an example of insider collusion. The tribunal confirmed 13 furniture removal settlements ranging from R39 260 to R4 273 060. This variance is due in part to the length of time over which the penalty is imposed.

A big case considered by the Tribunal is the Sasol Polymers case, which has been a long process both before and during tribunal hearings. The Tribunal eventually decided that Sasol acted abusively and charged excessive prices. That decision was appealed and overturned, which we then appealed to the Constitutional Court and the case is pending there. There is a question of how involved the Constitutional Court wants to get in competition legislation. If the case stands the way it is, it would be the second time the Competition Appeals Court successfully overturned a Tribunal decision. In order to win a case, the Tribunal must prove many things about the company’s practices.

The Chairperson asked whether these matters are between the same market or in ensuing markets as well.

Mr Manoim said that is a very difficult question and the legislation is somewhat unclear on that. Courts and economists seem to create an imaginary market to explain these concepts. This case got bogged down on the issue of costs. Sasol’s costs, some accused, were exaggeratedly high and did not reflect economic value due to the help of, for example, government subsidies. Another question was the costs of the factory, which garnered a vast number of different opinions due to the relation of price and costs. The Court trusted the Sasol expert more than the Tribunal did. The Court did not consider comparisons of Sasol’s prices in different markets. On appeal, we hope to have Sasol’s prices in other markets considered.

The biggest upcoming merger case involves Vodacom trying to buy Neotel. We have allowed parties opposing the merger like MTN to be involved. Ministries have also intervened; there will be eight in total legal teams involved. The evidence will take 17 days and argument will happen in February. Depending on the outcome, there may be further deliberations on the sanctions necessary. A decision on the ICASA case should come from the High Court next week, though that will not decide competition issues; this will affect the Vodacom case. After this big merger, there will be more furniture cartel cases for those who have not settled. You will see next year a spike in the number of contested cartel cases. There is no big abuse of dominance case like Sasol that we foresee. However, though no remedy has been imposed, there is a case against News24. However, since it is a first time matter, there will be no fine. This case may be appealed.

Ms Lerato Motaung, Registrar, explained that the Tribunal decided on 175 out of 180 cases last year. Large mergers and consent order were 80% of cases. The Tribunal prevented 3 800 job losses and approved eight large mergers with employment conditions. The Tribunal confirmed 43 settlement agreements, most of which involved the furniture cartel cases. They approved 84 mergers, which is up from previous numbers. They levied R725 million in penalties, mainly against the furniture industry. They appointed a fourth full-time Tribunal member. They spent 91% of our budget.

Out of 18 performance targets, the Tribunal met 12 fully and six partially. For intermediate mergers, they only had one case and they did not meet our target because the decision was not released on time. Normally intermediate mergers do not come to the Tribunal unless someone is not happy with the decision of the Competition Commission. The target of releasing a decision on these contested cases in 20 days is a very difficult target to meet. With regards to opposed prohibited practices matters, they sent out five pre-hearing invitations and one was issued out of time thus they only hit their target 80% of the time; however, they find this target unimportant and are changing it for next year. As for releasing decisions on prohibited practice matters, they released decisions within 100 days 67% of the time, which is short of the 80% target. However, cases like Sasol were very complicated and time-consuming. For next year, they have created a new category for complex cases with more time given.

In stakeholder awareness targets, the Tribunal only achieved three out of six targets. For example, the Tribunal strives to put up reasons for decisions on the website within 24 hours; this did not happen 14 times out of 120 due to confidentiality claims and technical issues. They also were not able to gazette decisions within 20 business days 7 out of 111 times. Five cases were not given a press release at all. The Tribunal intends to lower these targets from the 100% goal.

The Tribunal received an unqualified audit. There were no material findings. As for fruitless and wasteful expenditure, the Tribunal paid a fine of R10 000 to SARS. Many other entities paid similar fines. There were irregular expenditure on CMS project management and on the procurement of furniture. We are seeking condonation from National Treasury for both. In 2014/15, the total budget was R36 million and the total expenditure was R33 million for 91.38% of budget spent. Personnel spending and the rental costs from the Department have gone up, but most other expenditures have gone down.

Mr Manoim wanted to now follow up on issues previously discussed with the Committee, such as Tribunal member vacancies, office space, and funding requirements. As for office space, there is the physical problem of lack of space and the financial problem of escalated rent. The Department has agreed to decrease rent and cover the difference between budget and the asked for rent in a two-year lease agreement. However, no solution has been found for a new physical space because the Tribunal cannot reasonably move out alone. We bought new furniture to double up to better take advantage of the small space.

The Tribunal felt that its budget is way too low, but National Treasury did not give enough and the Tribunal thus had to redo its budget. However, the Tribunal has got permission to carry over savings from last year and this year into the future. We should get grants for the future to take care of shortages and thus, at the current time, our financial woes have been solved.

There have been two Tribunal vacancies since August 2014 out of 11 positions. There has not been a Deputy Chairperson since February 2012. We hate to deny cases because we cannot process them or to write decisions late. Many people have had to write and hear cases at the same time, which is an excessive workload. The lack of two tribunal members make a huge difference. Five members are currently part-time. The Minister wants to call for public nominations; the Department is aware of the problem.

The Tribunal entered last year’s Annual Report in a competition and won an award for the Top Corporation Publication from the SA Public Forum’s Corporate Publication Competition. This is a happy bit of news to end on; sometimes the Tribunal itself is competitive.

Discussion
The Chairperson thanked the Tribunal for the presentation. She understood the challenges it faces and welcomed openness on the Tribunal’s lack of performance in some areas. The Tribunal does very technical work. The Committee needs to take these challenges up with the Ministry to assist this tribunal that does great work for the country. We heard from the Competition Commission yesterday; let us engage now with the Competition Tribunal.

Mr P Atkinson (DA) asked about the Sasol case. How often do cases get appealed like that? Who is the fourth full-time Commissioner that has been appointed? Who are all four full-time tribunal members? Has the new person assisted with the workload?

Dr J Cardo (DA) noted that there were R725 million in penalties in the last financial year. Where does this money go? Why are customers not compensated? How do you prevent companies not hiking their prices to pay for these fines? Can you comment on the Competition Appeals Court’s nullification of your ruling on the Premier Foods case? I understand the ruling prevents COSATU and others from suing the bread cartels. Please provide a status update on cases against the construction companies from the 2010 World Cup. To what extent do you think the collusive conduct and cost conflation behavior from the 2010 World Cup has had an impact on infrastructure development?

Mr S Tleane (ANC) agreed that the Tribunal does wonderful work. Can you provide more information about Tribunal penalties? We know that penalties can only last a certain length of time. What happens after penalties end? As for Sasol, who exactly is the appellant in this case? What is the role of the Tribunal going forward in this case in terms of the law? We are worried about the outcome of this case. The case shows a lack of interference by the state, which is a good thing. As for irregular expenditure, can you give more information on the project management issue?

Mr M Mabika (NFP) asked about the process of saving jobs during mergers. How do mergers result in job loss?

Mr A Cele (ANC) asked why there has not been a Deputy Chairperson since 2012.

Ms C Matsimbi (ANC) asked about the Bidvest case: after the retrenchment ban ends in a year, what happens?

The Chairperson said that the financial performance is quite good with the exception of the irregular expenditure. Why do you need condonation from National Treasury? Please explain why you need money back from National Treasury. We always ask about benefits for consumers from penalties. We are also interested in the outcome from the Appeals Court on the Premier case. How will that affect consumers and those in agriculture business and unions? I like that you were able to take decisions on issues involving government. Price rigging happens with private sector collaborating sometimes with the public sector. Government departments are involved in furniture removal; perhaps we need to make noise about this. Administrators should avoid taking shortcuts. Shortcuts cripple small enterprises’ ability to compete. We appreciate also your efforts to raise public awareness. Sometimes companies like Sasol know they are wrong but have the legal and financial muscle to continue to abuse the markets anyway; we must all sing in one voice to support the everyday consumer. We commend the Tribunal and will continue to support you in your endeavours. We do want the physical space issue solved. The CFO of the Department is here. Please report back on the Department’s efforts to solve this. The Finance Minister did indicate that public servants’ demands are too high; we support you but the financial issues of the country are real.

Mr Manoim thanked everyone for the questions. There is no statistic on hand on the number of cases appealed; many appeals are merely appealed for procedural issues. We will try to find the figure. The Sasol case is unique in that the Constitutional Court is looking at wider competition issues. The four full time members are myself, Ms Yasmin Carrim, Mr Andreas Wessels, and the recently hired Ms Mondo Mazwai. Having a fourth member has definitely helped. For example, on Monday, we had a case that Ms Mazwai was able to deal with for us.

As for penalties, that money goes into the National Revenue Fund. It is up to Treasury to allocate that money. We tried in the past to allocate some of this money to other Tribunal projects. The Finance Minister, however, reserved the right to allocate where this money goes. However, a fund called the Agro-Processing Fund was created. In broad terms, hopefully taxpayers do benefit from the Revenue Fund. Narrowly, people can go to a civil court with a certificate from us and sue for damages. We have not seen any of these certificates come to court because the industry is negotiating with people in order to settle out of court. Some companies and universities have also been given certificates.

As for the Premier Foods case, there was a cartel involving bread companies. Premier got leniency from the Commission because it came forward with information on other companies. We found eventually that Premier was involved in the cartel. Lawyers wanted a certificate issued against Premier; before I could hear argument on this, Premier took this matter to the High Court. The High Court found that the Tribunal could make a finding against Premier, but Premier appealed again and that decision was overturned. This may very well be pursued to the Constitutional Court due to the issue of whether Premier can be found against despite the fact that Premier was not a respondent in the case. It is a very technical case.

Certain firms on the World Cup stadium collusion matter have already settled, but not all have. There are a lot of construction cases still pending. People are still filing answers to court questions, so the Tribunal cannot yet hear these cases. Though the Tribunal is not involved really and thus cannot comment much, there are implications that companies will have to pay money back because too much was paid on constructions and roads.

Many firms come to us and say that, when business improves, they will not have to retrench. The periods of moratorium vary based on the case, some are three years for example. Usually mergers need retrenchment because the merger results in jobs being duplicated. At the end of the moratorium, workers still have labour law rights even after competition enforcement ends.

The appellant now is the Competition Commission for the Constitutional Court case. We are a lower court entity and cannot add much. The Commission has a great legal team and has our information.

Consumers can bring a case for any competitive overcharge and, as of recently, class-action cases. In the past, a consumer could not afford to sue a huge company without class-action. Consumers won here. With the Premier case, if the Constitutional Court does not overturn the case the consumers will have lost out but only in a very specific manner with alternative routes available.

The Accounting Officer applied to extend that project management contract. The auditors felt that we should have re-tendered instead of continuing with this one person. Continuation seemed cheaper to us because we are so small and tendering is a costly and time-consuming process; the auditor disagreed. Apparently in this situation we have to write a letter to Treasury asking for condonation. The Treasury has the ability to agree with position; we hope for an answer by the end of 2015.

When there are people who are lazy about tenders, people exclude firms that they have not heard of or bothered to research. As the Chairperson points out, this hurts small enterprises; this is a good point. We still have not been given more physical space, though we have organised it better through new furniture allowing us to double up offices. Some members are forced to work from home.

The reason the Tribunal has historically had finance issues is that we have tended not to ask for the full amount budget-wise in the hope that we would garner income or ask for grants later. This ad-hoc practice creates problems for everyone; we aim now to give Treasury a consistent budget projection. Income depends on how many mergers come in and is thus inconsistent.

The Chairperson noted that more business would come with the more people that are educated on the work of the Tribunal.

Mr Tleane asked about staff training. Spending on this has gone down since last year. Very skilled people drive the Tribunal. How do we ensure that skills are retained with transformation in mind so that people who previously did not get opportunities benefit? In the future, black people should be seen to engage in upward mobility. I am trying to ask this question in a different way than the past. What is the Tribunal’s strategy on this?

The Chairperson said that a case in point would be that the very same class action, being short of competition lawyers. The legal system in general experiences this issue, not out of anyone’s making but rather as a consequence of the system itself. We need to produce more skilled lawyers. The only institution that can help produce such professionals is yours.

Mr Manoim said that expenditure declined because of budget worries for this upcoming year. This is one unhappy decision that we had to make; now that financial issues have been solved, funding on this and other things will return to previous levels. We will prevent this in the future. The most important issue is skills transfer. This is why I am so concerned about vacancies: this reduces the amount of time I have to do skills transfer to new people. Often newer people in a panel will ask questions to more experienced members about cases that offer precedent. Member appointment is a Presidential approval based on the Minister’s suggestion. Case managers tend to be young lawyers that soon go somewhere else, such as to the Commission or the private sector. We are an attractive employer for young people. Turnover is part of the sector.

The Chairperson congratulated the Tribunal on its audit outcome and its performance once more. We understand that you have a board member working from home, which is not nice. We will raise your issues in the Committee’s report. Thank you for coming. Many countries look to South Africa on competition matters.

Next week Wednesday is out last meeting. Next week Friday 27th the term concludes. She wished the delegation a Merry Christmas.

The meeting was adjourned.

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