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JSE
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JSE Limited - Tribunal prohibits Sasol/Engen merger
JSE Limited
PRESS RELEASE
Tribunal prohibits Sasol/Engen merger
The Competition Tribunal has today, 23 February 2006, prohibited the merger
between the country"s largest producer of refined white fuels - Sasol - and its
largest retailer of these products, Engen.
The merged entity will enjoy a near monopoly of refinery capacity and a retail
market share in the inland market that is considerable. A market structured in
this manner immediately portends the prospect of input foreclosure on the part
of the merged entity. That is, the prospect of the merged entity withholding
supplies of the critical input- refined products - required by the retail arms
of inland fuel marketers.
It is our strongly held view that the merged entity"s power to foreclose will
end, not necessarily in a massively increased retail market share but in a
reconstituted cartel, under the clear leadership of the merged entity. This new
cartel will destroy the promise contained in further planned deregulation
Sasol competitors are themselves all vertically integrated, that is they have
access to upstream product out of their own refineries. But these are all based
at the coast, some considerable distance from the inland market. The weapon
then in this foreclosure battle is logistical capacity, the capacity to convey
refined product from the coast to the inland. The other oil companies - the
OOCs - have opposed this merger and the core of their opposition rests on their
contention that available logistical capacity is insufficient to prevent the
merged entity from foreclosing the inland market.
We have conducted an exhaustive examination of this evidence. The merging
parties" contentions regarding additional logistical capacity are unpersuasive,
as are their arguments which seek to establish the ability of the OOCs to
respond to foreclosure in a manner that would materially ameliorate its intended
consequences.
With the threat of foreclosure, the merged entity may expand its own downstream
market share, the better to attain pricing power in that market and the better
to protect, through the muting of downstream competition, any pressure on the
price of its upstream product. It is quite conceivable, and highly likely, that
the merged entity may forbear from an all-out foreclosure campaign, provided
that its competitors forbear from robust competition in the downstream market
and accept the merged entity"s pricing aspirations in the upstream market.
These pricing aspirations are clearly stated to be the maintenance of the import
parity price base that underpins wholesale and retail prices.
Sasol complains that in the absence of the merger it is condemned to permanent
exclusion from the country"s retail markets. But this averment is clearly at
odds with the facts. In the few years since the termination of the *Main Supply
Agreement Sasol has made considerable inroads into both segments of the retail
market, in the service station segment and in the commercial and industrial
segment. And it has achieved this by means of robust competition on the merits,
including the discounting of the wholesale price.
Critically, Sasol has the means to compete even more vigorously. Its wholly-
owned Synfuels division controls a highly competitive feedstock particularly in
these days of massively inflated crude oil prices.
* The Main Supply Agreement provided for Sasol"s domination of the upstream
inland market for refined product, in exchange for the narrow circumscription of
Sasol"s right to participate in the downstream retail markets.
Issued by: Jane Sussens
Communications Advisor
The Competition Tribunal
Tel: (011) 483 2687
Cell: 082 920 0875
Fax: (011) 483 2686
On Behalf of: Lerato Motaung
Registrar
The Competition Tribunal
Tel: (012) 394 3355
Cell: 082 556 3221
E-Mail: leratom@comptrib.co.za
Date: 23/02/2006 10:00:03 AM Produced by the JSE SENS Department
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