presentation to the portfolio committee on economic development on 15 years of competition...
TRANSCRIPT
PRESENTATION TO THE PORTFOLIO COMMITTEE ON ECONOMIC DEVELOPMENT
ON 15 YEARS OF COMPETITION ENFORCEMENT
Commissioner: Tembinkosi Bonakele
10 March 2015
Addressing anticompetitive conduct in the last 15 years
Key highlights o Mergers o Cartelso Abuse of dominance
Case studies o Walmart/Massmart mergero Nestlé/Pfizer mergero Bread cartelo Pioneer Foods settlemento Construction cartelo Cement cartel
Table of contents
• Successes in identifying and taking actions to address anticompetitive mergers and prohibited business practices in different markets including:
o Basic food products affecting the poor (such as bread, maize meal, baking flour, milk, eggs)
o Industrial inputs products important for industrialisation, infrastructure and employment (such as steel, concrete pipes, polymers, diesel , glass)
o Sectors critical for growth and development (such as HIV/Aids drugs, banking and telecommunications)Essential inputs into Manufacturing – Basic Chemicals and Polymers.
o Imposing conditions on mergers with an adverse impact on public interest considerations.
Addressing Anti-Competitive Conduct in the last 15 Years
• The Commission has also enhanced its public profile
o SA ranked amongst the best in the developing world
o SA ranked 8th by the World Economic Forum for effectiveness of anti-monopoly laws
o Commission is well respected among peers and is an active member of the SADC competition committee, the African Competition Forum and the BRICS competition forum
o Commission appointed Chair of the African Competition Forum
• Increase in the size of administrative penalties imposed by the Tribunal o Between 2004 – 2008, about R579
million compared to R4.3 billion between 2009 – 2013.
o Examples include:
o 2009 – Sasol (R250million)
o 2010 – Pioneer Foods (R500million)
o 2010 – Sasol (R111.7million)
o 2011– Aveng Limited (R128.9million)
o 2011– AfriSam (124.9million)
o 2011 – Lafarge Industries (R148.7million)
o 2012 – Telkom SA (R449million)
o 2013 – Several construction firms
(R1.46 billion)
o 2013 – Telkom (R200million).
Enforcement Highlights
Cumulative administrative fines levied (2004-2013)
• Between 2004 – 2008, increase in the number of merger notifications. o Merger thresholds increased in 2009. o Financial crisis
• Careful balancing of competition issues with public interest considerations in mergers assessments: o Employment o Sector or region o SMEs and HDI-owned businesses o Ability of industry to compete
internationally
• Increase in innovative remedies in merger caseso Massmart/Wal- mart merger
• Preventing anticompetitive concentration in consumer markets
o Pick’ n Pay/Fruit & Veg
Merger Regulation Highlights
Merger Trends (2004-2013)
• The Tribunal has only decided on about 11 abuse of dominance cases over the past 15 years, finding that abuse occurred in 8.
o However, only two cases have been subject to a penalty imposed by the Tribunal.
o Even the recent penalty against Sasol is subject to an appeal.
o The Commission has over the decade been involved in investigations and prosecutions against Sasol and Mittal
o Whilst there have been some positive decisions in favour of the Commission on some of
these matters, the fundamental issues relating to excessive pricing remain unresolved
o This continues to have a detrimental effect in downstream industries, given the importance of
the intermediate inputs in industrial development
Abuse of Dominance Highlights
• In May 2011, the merger was approved with conditions:
o No retrenchments from the merged entity’s operations in South Africa for a period of two years.
o The parties must reinstate the 503 employees that were retrenched during 2009 and June 2010 (no time period specified for this condition).
o The merged entity must honour the existing labour agreements with SACCAWU for at least 3 years.
o Massmart must establish a Supplier Development Fund (SDF) by February 2013.
o R242 million was set aside as SDF which was envisaged to operate for 5 years.
o The purpose of the fund is to assist eligible South African Small and Medium Enterprises,
particularly black-owned, black-empowered or local manufacturers.
o Enabling Massmart to increase and diversify its local procurement capacity.
The Wal-mart/Massmart Merger
Fund investment
spend forecast (over 5
year duration)
Value available to
commit per investment
area as at September
2013
Value of
disbursements per
investment area as
at September 2013
Ezemvelo Direct Farm
Programme
R67 760 000 R18 332 440 R16 859 827
Manufacturing SMEs R96 800 000 R92 876 311 R773 689
Service projects R9 680 000 R8 236 524 R721 738
Service to suppliers R19 360 000 R0 R775 630
TOTAL R193 600 000 R119 445 275 R19 130 884
The Wal-mart/Massmart Merger
Source: Massmart Supplier Development Fund Annual Report 2013, page 10.
A summary of the investment forecast of resources to beneficiaries over the funds 5 year duration
• On 08 June 2012, Nestlé South Africa notified the Commission of its intention to acquire the local Infant Nutrition Business of Pfizer Inc.
• On 14 December 2012, the Commission recommended the approval of the Nestlé/Pfizer merger, conditional on what was called a transitional re-branding remedy
• The transitional re-branding remedy imposed by the Tribunal envisaged Nestlé divesting the Pfizer brands to an independent third party through a transitional re-branding arrangement.
o The remedy is based on a 10 year transitional re-branding period whereby the successful
purchaser of the divested Pfizer brands would rebrand the products,
o followed by a 10 year black-out period where neither the licensee nor Nestlé can introduce the
original Pfizer brands into the South African market.
o After the blackout period, Nestlé will then be allowed to re-introduce the divested brands into
the South African market, should it wish to do so
The Nestlé/Pfizer Merger
• Cartel members included Premier Foods, Tiger Brands, Pioneer Food and Foodcorp)
o Premier Foods granted leniency for disclosing its role in the bread cartel, flour cartel and maize meal cartel.
o Tiger Brands granted leniency for proving further evidence on the flour cartel and maize meal cartel.
o For the bread cartel:
o 2007 – Premier Foods (R0 million)
received immunity.
o 2007 – Tiger Brands (R98 million).
o 2009 – Foodcorp (R45 million).
o 2010 – Pioneer Foods (R196 million)
after a contested hearing.
The Bread Cartel
• Pioneer Foods undertook in terms of the proposed settlement agreement to:
o Pay a fine of R500 million to the National Revenue Fund.
o Further, an Agro-processing
Competitiveness Fund of R250 million
drawn from the penalty was
conceptualized.
Direct Investment
Business Support
Research Grant
Fund size 225 000 000
12 500 000 12 500 000
Committed 212 421 470
2 867 120 10 276 629
Funds available
12 578 532 9 632 880 2 223 371
Interest is at 0%, total reflows of R7.5 million achieved. All reflows will be invested in new clients.
Pioneer Foods Settlement
A summary of Agro-processing competitiveness fund
STATUS No. OF CLEINTS
AMOUNT
On-track 23 146 647 720Under supervision
7 61 373 750
Legal action 1 4 400 000Ceased operations
0 0
Total 31 212 421 470
PROVINCE VALUE (Rand)
NO. OF DEALS
JOBS
Mpumalanga - - -Western Cape 39 125
00010 120
Gauteng 68 305 042
9 283
Eastern Cape 13 885 000
4 746
Limpopo 35 716 428
4 224
Kwa-Zulu Natal 16 900 000
5 69
Northern Cape - - -North West 5 500 000 1 19Free State 35 857
1205 873
Total 215 288 590
38 2 334
Geographical spread of APCF
• Pioneer Foods undertook in terms of the proposed settlement agreement to:
o Reduce the prices of certain of its products for an agreed period of time up to the total value of R160 million.
o Increase its capital expenditure budget by R150 million.
Pioneer Foods Settlement….
Average wholesale and retail prices for Pioneer Foods’ standard white bread, 06/2010 -06/2011
• First investigation initiated into the construction sector on 1 February 2009 regarding tenders for
the construction of 2010 FIFA World Cup stadia.
• The second investigation was initiated on 1 September 2009 and covered all big and small
tenders for construction projects.
o Received approximately 150 marker applications (intention to apply for leniency) and 65 CLP
applications which implicated the majority of medium and large firms.
o developed and launched a fast track settlement programme on 1 February 2011 to incentivise
firms to enter into settlement arrangements.
Construction Cartel
• Phase 1 of the fast track settlement programme
led to 15 firms reaching settlements with the
Commission and paying about R1.46 billion in
fines.
• Phase 2 is concerned with the construction
cases/projects that were not settled under
phase 1.
o 24 firms were implicated in construction
cases/projects but did not participate in phase
1.
o The commission has since referred all
remaining cases and aims to close the chapter
on construction by March 2015.
Firm Settlement amount (ZAR)1. Aveng R 306 576 143
2. Basil Read R 94 936 248
3. Esorfranki R 155 850
4. G Liviero R 2 011 078
5. Giuricich R 3 552 568
6. Haw & Inglis R 45 314 041
7. Hochtief R 1 315 719
8. Murray & Roberts R 309 046 455
9. Norvo R 714 897
10. Raubex R 58 826 626
11. Rumdel R 17 127 465
12. Stefanutti R 306 892 664
13. Tubular R 2 634 667
14. Vlaming R 3 421 662
15. WBHO R 311 288 311
Total R 1 463 814 394
Construction Cartel
• On 02 June 2008, the Commission initiated an investigation against the cement producers alleging
that PPC, Lafarge, Afrisam and NPC-Cimpor had entered into restrictive horizontal agreements
o The Commission raided the premises of the four cement producers on 24 June 2009
o Subsequently, PPC applied for leniency and confirmed the existence of a cartel among the four
cement producers.
• On 01 November 2011, Afrisam agreed to pay a penalty of R124 878 870
o representing 3% of its 2010 cement annual turnover in the Southern African Customs Union
• On 28 March 2012, Lafarge agreed to pay a penalty of R148 724 400
o representing 6% of its 2010 annual turnover in the Southern African Customs Union region.
• The Commission study of the impact of uncovering the cartel
o Consumer savings as a result of the cartel being uncovered range approximately between R 4.5
billion to R 5.8 billion for the period 2010 to 2013
o In addition, there has been noticeable change and dynamism in the market, with firms entering
territories they previously did not trade in.
Cement Cartel
THANK YOU