The Competitition Commission and Southern Pipeline - 29 November 2010
Tribunal imposes maximum allowable penalty in concrete pipes cartel
29 November 2010
Today the Competition Tribunal imposed the maximum penalty allowed in the Competition Act on a member of a cartel in the concrete pipes industry. This is the first time that the Tribunal has imposed a penalty calculated on the basis of the total turnover of a company. In the past the Tribunal limited its penalties to the turnover relating to the products that were the subject of the cartel arrangements.
The respondents, Southern Pipeline Contractors (SPC) and Conrite Walls, previously admitted to colluding with their competitors to fix prices, rig tenders and divide markets but disputed the penalty that the Competition Commission had asked the Tribunal to impose on them, namely 10% of their respective annual turnovers for 2006.
In argument SPC had argued that the penalty should not exceed R3,3 million and Conrite R1,3 million. After hearing witnesses and arguments from the Commission, SPC and Conrite, the Tribunal imposed the maximum allowable penalty of 10% of total turnover for SPC, amounting to R16, 8 million. For Conrite walls it imposed a slightly lower penalty of 8% of total turnover, amounting to R6, 1 million.
In its judgment the Tribunal noted that the concrete pipes cartel was the “most enduring, comprehensive and stable cartels prosecuted to date ... It operated in such secrecy that members were referred to by number and not name”. The Tribunal also noted that the cartel members “enjoyed a quiet and hugely profitable life”, as evidenced by the testimony of Aveng that, in their estimation, prices of concrete pipes fell between 25-30% after the cartel disbanded in 2007.
In the case of SPC, the Tribunal imposed the higher penalty of 10% because it lasted 13 years in the cartel and it presented a “textbook example of a successful firm that could easily have entered into related concrete markets but elected not to because of its collusive arrangements with competitors”, an act which “clearly had the impact of raising prices in the concrete products market”. Moreover, SPC also played the role of “the banker” in the cartel, whose role was to compile a list of all the contracts available during a specific period and use this information to divide contracts among cartel members while also monitoring the number of contracts allocated in order to ensure that members did not exceed their allocated market share in an area.
The cartel operated at both national and regional levels. In Gauteng, the cartel members monitored their collusion by meeting to discuss this on the second Tuesday of every month, after their Concrete Manufacturers’ Association meetings. Amongst SPC’s main clients for more than 20 years were the Department of Water Affairs and Forestry, Rand Water Board and various municipalities, with projects pertaining to essential services such as water and sewage, which are critical sectors for South Africa’s development.
In relation to Conrite Walls the Tribunal imposed a slightly lower penalty because Conrite’s role in the collusion related only to the markets in KZN and was confined to fewer products. Apart from the market division arrangement, all other aspects of its cartel arrangements ceased in 2005. However, in aggravation, the cartel persisted for at least 6 years and extended to price fixing, market share agreements and customer allocation. That Conrite acted in full knowledge of its unlawfulness was evidenced by its attempts to cover up its unlawful conduct through the creation of fictitious invoices.
This judgment followed the Competition Commission’s 1 year investigation of the concrete pipes industry in which it uncovered a cartel that had operated in the construction industry from 1973 to 2007 - in the market for the manufacturing of pre-cast concrete products such as concrete pipes, culverts, pre-cast manholes and concrete sleepers at both national and regional levels. The Commission initiated this investigation after it received a leniency application from Rocla in which Rocla confessed its role in the cartel and undertook to give the Commission all the information it needed to successfully prosecute the remaining 8 members of the cartel, in exchange for immunity from prosecution. In February 2009, the Commission concluded its investigation and referred the case to the Tribunal for prosecution.
The Tribunal issued this decision earlier today. SPC and Conrite have 20 business days to pay their penalties.
On Behalf Of:
Registrar: Competition Tribunal
Tel: (012) 394 3355
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