The Sasol excessive pricing saga comes to an end

Nov 27, 2015 | 2015, News

In 2007, the Department of Trade and Industry approached the Competition Commission to investigate the pricing practices in the South African chemicals section. The Commission then raised a complaint against Sasol for excessive pricing of propylene and polypropylene.

Propylene is a by-product of fuel and is used to produce polypropylene. Polypropylene is used to manufacture plastic products. Sasol produces far more propylene and polypropylene than is required in the South African market because of its extremely low production costs. Sasol therefore sells roughly half its production to abroad markets. Despite its low cost and abundance of propylene and polypropylene, Sasol sells it at import parity prices.

In 2014, the Competition Tribunal decided that Sasol was charging excessive prices for its propylene and polypropylene to its South African customers and that Sasol had therefore breached South African competition law. Sasol was instructed to pay administrative penalties amounting to R534 million.

The Competition Appeal Court (CAC) then overturned the Tribunal’s decision in 2015. The CAC analysed Sasol’s capital assets, level of capital return on the capital, the allocation of group costs and the allocation of fixed costs between domestic and export sales. The CAC decided that if all these factors are taken into account, the 12-14% mark-up above economic value for propylene would not justify judicial intervention and could not be considered unreasonable. The CAC relied on cases from the European Union which argued that prices under 20% above economic value would not justify judicial intervention.

The Commission then appealed to the Constitutional Court and raised the issue of whether South African competition legislation could be interpreted to allow Sasol Chemical Industries to continue charging maximum prices in perpetuity or not. On 17 November 2015, the Constitutional Court dismissed the Commission’s application for leave to appeal. This means that the Commission will remain bound by the CAC decision. It seems that it will now be very difficult to prove instances of excessive pricing unless the profit margins are extremely high.