Government waiting in the wings to impose regulations if the petrochemical giant doesn’t agree to revised plastic prices
The department of trade and industry (the dti) wants to start regulating the price of polymers (plastics) which in effect means regulating Sasol, the source of more than 80% of local plastic production.
That is plan B if the current case against Sasol before the Competition Tribunal doesn’t bear developmental fruit, City Press has established.
Polymer pricing is a key driver of manufacturing and job creation and this is why government is throwing everything it has at Sasol in an attempt to get it to play ball.
In recent industrial policy documents, the price of plastic is second only to steel as a target for price-lowering interventions.
Sasol is currently under the spotlight at the Competition Tribunal regarding alleged “excessive pricing” of key polymers used to manufacture everyday plastic products.
City Press has established there is a parallel process whereby the dti and the department of energy (DoE) are engaging in potential regulation of polymer prices.
A dti official who spoke to City Press this week on condition of anonymity said the political economy has not favoured regulation of private businesses.
“There is a view that price regulation is only suitable for public monopolies,” he said.
The official confirmed that engagements between the dti and the DoE had begun and these engagements were particularly looking at polymer-price regulation, which could fall under the DoE, which is already involved in the regulation of fuel prices.
Polymers are also products of oil refining.
“Let’s see what the mechanisms of the competition authorities can do,” said the dti official.
“Is there sufficient evidence to prove a breach of the Competition Act? What kind of remedies could be imposed if there is? Would these remedies be enough?
“The engagement with the DoE will continue and hopefully bear some fruit,” the official added.
Government is looking to promote the manufacturing of plastic goods in South Africa, for domestic consumption and for export.
This could lead to a substantial number of new jobs, but South African plastic manufacturers argue they can only really compete locally and internationally if the price of the polymers propylene and polypropylene are brought down.
If government manages to secure lower polymer prices, it might allow South Africa’s plastics-moulding sector to compete with manufacturers in nations like Brazil.
In 2004, the government of Brazil created a plastic programme that saw polymer producers in the fuel sector partnering with thermoplastic producers and processors, as well as the government.
The initiative aimed to increase exports of plastic products.
The Brazilian trade and investment ministry says: “The synergy in trade promotion, business intelligence, empowering business and operational support has provided excellent business opportunities in the seven-year programme.”
Commenting on the similarities between the Sasol polymers hearing and the commission’s case against ArcelorMittal a few years ago, which also involved allegations of excessive pricing, the official said the cases were similar.
He said the two biggest inputs into manufacturing in South Africa are polymers and steel and so pricing of these products is “fundamental”.
Said the official: “We have a resource endowment in our stocks of iron ore and coal and the processing of these resources into steel, fuel and chemicals has a long history of state support.”
The official pointed out that, unlike the ArcelorMittal case, which was brought by a complainant in the form of Harmony Gold, the hearing
into Sasol’s polymers business was launched by a request from the dti.
That makes it unlikely Sasol will be able to secure an out-of-court settlement like ArcelorMittal ultimately did.
The official said both cases go to the heart of policy decisions that were taken in the mid- to late-1990s around former state-owned companies like Sasol and Iscor.
They were allowed to move their primary stock exchange listings overseas and have majority foreign shareholding with limited conditions.
“These policy decisions had a huge impact on South Africa,” said the official, describing them as Alec Erwin’s and Trevor Manuel’s legacy.
“In the bigger picture, broader questions need to be asked about that strategy.”
The official said the general attitude of Sasol towards engagement with government could be characterised as “obstructionist” rather than “open and honest”.
The official also pointed out Sasol had been found guilty of numerous competition violations, both in South Africa and Europe.
Former Competition Tribunal chairperson David Lewis went as far as to describe Sasol as a “serial offender”.
The official said Sasol’s obstructionist position was damaging relationships with government.
Two of Sasol’s top directors last week cashed in share options worth millions – making both likely candidates for the list of best-paid executives in the nation.
Financial director Christine Ramon exercised options worth R33 683 276 while executive director Nolitha Fakude exercised options worth R11 084 414.
Both Ramon and Fakude were paid more than R11 million last year in salaries, perks and bonuses.
Based on the Sunday Times’ list of top-earning executives last year, Ramon seems likely to make it into the top 20 best-paid bosses in South Africa this year.
Fakude is a shoo-in for the top 50.
The two directors’ packages last year included a R982 000 “vehicle benefit” for Ramon and a R245 000 “security benefit” for Fakude.
Sasol chief executive David Constable received R32 million last year. But the figure included almost R10 million related to the American’s sign-on bonus in a move to South Africa to head up the petrochemical giant, which last year had profits of R24.3 billion.
We welcome engagement with government on all levels and continue to pursue open lines of communication. We support government’s developmental objectives, particularly the dti’s efforts in creating an environment conducive to economic growth, driven by policies such as the National Development Plan and the New Growth Path.
Recently, the dti contributed R26 million in a partnership with Sasol towards the development of a business incubator, which is being driven by Sasol ChemCity (our enterprise-development vehicle) and will be housed in the Eco Industrial Park in Sasolburg.
The investigation, which has culminated in the current case before the tribunal, was initiated by the Competition Commission in 2007.
We completed a group-wide competition-law compliance review in 2010. This was a comprehensive review reinforcing our commitment to ongoing compliance.
Sasol believes the question of state support bears little, if any, relevance at all to this case.
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