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Sasol to defend itself against new allegations
Business Day reported that Sasol said it would defend itself against new allegations from the Competition Commission of collusion and excessive pricing in its chemicals division. If found guilty, the petrochemicals giant could face another record-breaking fine, this time R4.4 billion. The commission had referred the complaints, relating to collusion in the polymer market, to the Competition tribunal for its adjudication. According to the commission it had been investigating Sasol and Safripol since 2007. Safripol agreed to pay a penalty of R16.5 million after it admitted to colluding with Sasol to fix prices. The investigation followed concerns raised by the Department of Trade and Industry about polymer pricing and its negative effect on growth and employment in the manufacturing sector.
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Sasol -- further announcement
Further to the SENS announcement made earlier today Sasol wishes to provide the following supplementary information relating to Sasol Chemical Industries Ltd (SCI). Shareholders are advised that SCI houses a number of Sasol's South African chemical businesses such as Sasol Nitro, Sasol Polymers, Sasol Solvents and Sasol Wax. In Sasol's public disclosures we have reported on a business segment basis and have not provided the turnover of SCI as a legal entity. The turnover of SCI excluding transfers to the Sasol group for the 2009 fiscal year was R22.13 billion. In our previous announcement we have indicated that at this time there is no reasonable certainty as to whether or not SCI will be found to have contravened competition laws as alleged, whether a penalty will be imposed and the quantum thereof if imposed. There is also no certainty that SCI is the correct base from which to calculate a potential administrative penalty.
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Sasol -- investigation referred to tribunal
As previously disclosed by Sasol as part of its ongoing disclosures, the South African Competition Commission has been investigating the South African polymers industry. The competition commission announced today, 12 August 2010 that it has referred its findings to the competition tribunal for adjudication. In its announcement the competition commission stated that it has referred complaints of collusion and excessive pricing in the polymers market against Sasol Chemical Industries Ltd (SCI) and Safripol (Pty) Ltd (Safripol) to the competition tribunal for adjudication. It also announced that it has simultaneously reached a settlement with Safripol in which Safripol admits that the supply agreement between SCI and Safripol and its implementation amounted to price fixing in contravention of the Competition Act. The competition commission has indicated that it is seeking an administrative penalty of 10% of SCI's annual turnover for each of these alleged contraventions. The competition commission's allegation of collusion relates to an agreement of the Sasol polymers division of SCI with Safripol, which was structured at the behest of the former competition board following the formation of Polifin (the Sasol / AECI joint venture) in 1994. The agreement was structured to ensure Safripol's ongoing access to propylene supply at a market-related price. South African propylene and polypropylene prices are comparable to international prices and hence Sasol believes that there is no legitimate basis for the competition commission's excessive pricing allegations. Sasol Polymers has been liasing with the competition commission in its investigation. SCI has not yet received the referral mentioned in the competition commission's announcement. Given SCI's interactions with the competition commission and knowledge of this matter, SCI does not believe that it has breached any competition laws. Accordingly, at this time, there is no reasonable certainty as to whether or not SCI will be found to have contravened competition laws as alleged, whether a penalty will be imposed and the quantum thereof. SCI intends defending the matter before the competition tribunal should an amicable resolution of the matter not be achieved.
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Sasol -- collusion case in polymers market settled
The competition commission referred complaints of collusion and excessive pricing in the polymers market against Sasol Chemical Industries Ltd ("Sasol") and Safripol (Pty) Ltd to the tribunal for adjudication. Simultaneously, it also reached a settlement with Safripol in which it admits that the supply agreement between Sasol and Safripol and its implementation amounted to price fixing in contravention of the Act. Safripol agreed to pay a penalty of R16.5 million which represents 1.5% of its total annual turnover derived from polypropylene products.
The commission initiated the investigation in 2007 following concerns raised by the department of trade and industry ("dti") about polymer pricing and its negative effect on diversified growth and employment in manufacturing. The commission found that Sasol had charged excessive prices for polypropylene and propylene to its local customers in line with import parity pricing. Further, that Sasol and Safripol engaged in collusive conduct as a result of the implementation of the supply agreement including the operation of the pricing formula and the exchange of information relating to the pricing of polypropylene. Sasol is the dominant supplier of propylene, for its own use and that of Safripol. It is also the major supplier of polypropylene to the South African market along with Safripol. The commission found that South Africa is also a major exporter of polypropylene reflecting its competitive position in this product. One would therefore have expected pricing to local customers to be on the same basis as export prices, however, this is not the case. Polypropylene, a plastics polymer is used by plastics converters to manufacture a wide range of products. The competitiveness of local manufacturers in these relatively labour intensive activities depends on competitively priced polypropylene input.
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Sasol - competition commission settlement
The competition commission has entered into a consent agreement with Foskor in settlement of the phosphoric acid excessive pricing complaint. The commission has filed an application with the tribunal for the confirmation of this agreement. The commission's investigation of this was triggered by a complaint in 2007 from animal feed producers (AFPs) alleging that Foskor had contravened the competition act in that:
- It entered into a toll manufacturing agreement with Sasol. The latter would produce phosphoric acids and related products on behalf Foskor and Foskor would market these products. The commission found that the agreement constituted a division of markets between Foskor and Sasol in contravention of the competition act.
- It was charging an excessive price for phosphoric acid.
Foskor produces phosphate rock and is the main local supplier of phosphoric acid, an important component in fertiliser and animal feed products. Foskor exports the vast majority of its phosphoric acid. Foskor's position as the main supplier of phosphoric acid enables it to control prices locally. Foskor's price to local buyers including an add-on equivalent to 75% of the freight costs to export customers (mainly in India). As soon as being made aware of the anti- competitive implications of such pricing, in August 2008, Foskor removed this component, substantially reducing prices to local customers. It has since maintained prices to local customers in line with the prices it receives from exports.
Under the agreement Foskor has committed to refrain from engaging in excessive pricing of phosphoric acid, and specifically not to revert to its previous pricing policies for the sale of phosphoric acid, phosphate rock, as well as MAP and DAP (two fertiliser products which it now sells directly to the retail farming community). It has also undertaken measures to increase transparency in the downstream market for fertiliser products. In addition, Foskor admitted the collusion allegations and filed a leniency application with the competition commission under which it provided all relevant information regarding its toll production agreement with Sasol. Under the toll production agreement, Sasol undertook to produce phosphoric acid and related products for Foskor to sell in the local market meaning that, by agreement, local buyers who had been able to choose between Sasol and Foskor, now only had Foskor to turn to. Sasol admitted to this collusive arrangement and settled its part with the commission in the agreement confirmed by the Tribunal on 20 May 2009. As a result of the quick action and cooperation by Foskor and the significant reduction in prices payable by animal feed producers and end consumers, the commission is not seeking a penalty against the firm.
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Sasol expect higher earnings
An overall improvement in market conditions, higher production volumes and cost containment have benefited earnings for the financial year ended 30 June 2010. Shareholders were advised that headline earnings per share ("HEPS") for the year ended 30 June 2010 are expected to increase by 0% to 8%, and earnings per share ("EPS") are expected to increase by 12% to 20% compared to the previous financial year. The difference between HEPS and EPS is attributable to the impact of re- measurement items relating to the EGTL project in Nigeria and other impairments which were included in the prior financial year. Shareholders should also note the impact of significant once off items included in the prior financial year as reflected in the 2009 annual financial statements. The group remains strongly cash generative and maintains a healthy balance sheet. Sasol's financial results for the year ended 30 June 2010 will be announced on Monday, 13 September 2010.
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