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Record:
| Header: |
Harmony Gold Mining Limited |
| Case No : |
13/CR/Feb04 |
| Parties: |
Harmony Gold Mining Limited Durban Roodepoort Deep Limited
AND
Mittal Steel South Africa Limited Macsteel International Holdings BV |
| Case Rating: |
1 |
| Date: |
6/9/2007 |
| Time: |
12:00:00 AM |
| Case summary: |
Tribunal fines Mittal R691 800 000 and imposes behavioural remedies
The Competition Tribunal released the remedies it has imposed on Mittal Steel SA after finding on 27 March 2007 that Mittal Steel had contravened the Competition Act by charging an excessive price for its flat steel products to the detriment of consumers. It has imposed certain behavioural remedies aimed at reducing the segmentation that Mittal SA’s pricing regime has created in the market for flat steel products. It has also imposed an administrative penalty of
R691 800 000 (six hundred and ninety one million, eight hundred thousand).
The Tribunal said, the “…basis for (Mittal SA’s) pricing regime was market segmentation and the limitations that it imposed on arbitrage between the segmented markets”. “….Macsteel International, receives flat steel products from Mittal SA at prices significantly lower than those charged to other steel merchants. However Macsteel International is contractually prevented from making this steel available on the domestic market. Similar conditions are imposed on other domestic customers who receive discounts off Mittal SA’s domestic list price. Essentially then these contractual limitations all come down to measures which prevent customers who receive steel at prices lower than the pre-selected domestic list price from on-selling this product to domestic customers who may be prepared to pay a price higher than the discounted price but lower than the list price.
The Tribunal said, “price fixing through the manipulation of supply, …is, without doubt, the most egregious contravention of competition law and principles”, and this “causes considerable damage to customers of the affected products and to the structure and fabric of the economy”.
For these and other reasons set out below the Tribunal has imposed an administrative penalty of
R691 800 000.
The fine represents 5,5% of Mittal’s total turnover of R12 759 632 000.00 earned on flat steel in both the local and export market during the preceding year (2003) In terms of the Competition Act the Tribunal is empowered to impose a penalty of up to 10% of the firm’s annual turnover.
In order to reduce the segmentation in the market for flat steel products, the Tribunal also ruled that Mittal SA may not, amongst other things, impose upon any customer of its flat steel products any conditions in respect of the customers’ use or resale of those products. The Tribunal has also ordered Mittal SA to make known in the public domain at all times, its list prices, rebates, discounts and other standard items of sale for flat steel products.
“..it is likely that much will change in consequence of the imposition of this remedy – those established traders hitherto confined to the domestic market will likely seek customers in the international market, Macsteel International will be free to seek domestic customers, and the domestic price of flat steel products should decline, it should ‘tend’, as Mr. Dednam has put it, towards the export price”.
Mittal SA is ordered to pay the costs of the complainants including the cost of two counsel and two expert witnesses in the main matter.
In deciding the size of the penalty the Tribunal has also factored in:
Any loss or damage suffered as a result of the contravention;
“.. Mittal SA has itself estimated that the premium that its pricing methodology has enabled has, in the six year period between 2000 and 2005, resulted in additional revenue of some R20,7 billion. While this calculation pertains to all of Mittal SA’s products and not only its flat steel products (which account for some 70% of Mittal SA’s sales by volume), note that it only applies to a six year period which is significantly shorter than the duration of the anti-competitive conduct in question”.
The Tribunal documented numerous examples of “well-informed and persuasive evidence of the damage imposed by Mittal SA’s pricing practices on its direct customers, the fabricators, and on their customers, the end users of metal products.”
The Tribunal also noted that the outcome of Mittal’s pricing policies “is substantially at odds with the expressed purposes of the Act. The evidence clearly establishes that charging an excessive price for flat steel products, does not “promote the efficiency, adaptability and development of the economy; or provide consumers with competitive prices and product choices; or, promote employment and advance the social and economic welfare of South Africans;or, expand opportunities for South African participation in world markets…”.
The behaviour of the respondent
The Tribunal noted, that “Mittal SA insists that it has engaged extensively with the South African authorities in an attempt to develop a pricing regime acceptable to them. In the process it has changed the basis of its pricing from one based on import parity to one based on a representative basket of national prices…”.
However the Tribunal held that “In the context of this market, the only way that Mittal SA could have acceded to a competitive pricing model would have been to remove the limitations that it had introduced on arbitrage between its segmented markets. However there is no evidence to suggest that this was ever proposed by the DTI. Instead the DTI’s ‘developmental pricing model’ appears simply to amount to a plea for a voluntary price restraint. For its part Mittal SA never revealed to the DTI that the basis for its pricing regime was market segmentation and the limitations that it imposed on arbitrage between the segmented markets. It rather engaged with the DTI in a meaningless series of discussions in which it ultimately proposed a pricing model that, insofar as its essential elements were pre-selected prices in segmented markets and the prevention of arbitrage between the segments, remained conceptually identical to its long standing pricing model. And predictably the actual outcome of the ‘new’ pricing model – the model based on the basket of international prices - did not differ materially from the model in which the pre-selected price was the import parity price. Indeed this seems to have been assured by the selection of countries in the basket…”
The market circumstances in which the contravention took place
“The fact that its output levels exceeded domestic demand at the pre-selected price represented a profound threat to its monopolist’s pricing model and so it contrived to snuff out whatever prospect for competition remained. It did this self consciously and with all the means at its disposal. Hence while profit maximising rationality dictated that it discounts its product on the international market and that it extends rebates to selected domestic customers, it took great pains to immunise the effects of this pricing from its default domestic price, the import parity price. In order to achieve this it was obliged to set up a veritable licensing bureaucracy in order to administer its pricing rules. Nor was this the only such effort to snuff out competition. As we have already noted, when it entered into the Saldanha Joint Venture with the IDC it sought to bolster these rules by the inclusion of a clause which required Saldhanha to export its entire output. This agreement was, of course, concluded prior to the coming into force of the Competition Act and would not have been permitted under the current statute. And so while no measure of illegality is imputed, certainly the Saldanha-ISCOR JV is indicative of the care taken to bolster anti-competitive outcomes in a market structure already profoundly inimical to competitive forces.”
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| Keywords: |
complaint, remedies |
| Judgment source: |
Competition Tribunal |
| Documents: |
13CRFeb04reasons.pdf
13CRFeb04remedies.pdf
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| Last update user: |
tebogo mputle |
| Last update date: |
11/9/2007 8:56:22 AM |
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