Competition Tribunal fails to deliver on mandate

The recent and widely publicised dramatic “unequivocal apology” by the chief executive Murray & Roberts, Henry Laas, for “collusive conduct” during the period leading up to the Soccer World Cup, while well-intentioned, should be viewed in the context that he assumed his position in July, 2011, well after all these “crimes” were committed. The chief executive at the time leading up to the World Cup was Brian Bruce and he is the one who should have issued the apology. It is furthermore no excuse to claim that the main board of Murray & Roberts knew nothing of these practices and fob the blame onto certain directors of subsidiaries. To further placate an irate public, Laas, reassuringly advises that “six former subsidiary directors implicated in these transgressions have all left the group between 2004 and 2010”. The real question that Laas should answer is whether any of these directors have been charged. This exposes one of the fundamental flaws of the process, the guilty parties have long vacated their positions and their successors have been left to pay the price.

A further injustice falls on the existing shareholders who are burdened to pay the fine. They are not the same shareholders that held the shares during the halcyon days leading up to the Soccer World Cup. Indeed some shareholders, may be the same, namely those held by long-term investors, and by pension funds. Sadly, pensioners who least can afford to have their returns negatively impacted, will carry the “can” for these fines.

So the leads and lags effect of the workings of the Competition Tribunal, unfortunately leads those who are innocent to be punished, while allowing those who are guilty to escape scot-free. The widespread calls for harsher penalties from a public that feels buffeted from all sides by price pressures, while understandable, should ensure that guilt is apportioned correctly and that the fines should be paid by the guilty parties. Applying the words of Laas, that “companies don’t commit offences, but people do” will hold company directors accountable in their personal capacities, and not require the companies to pay the fines.

Another problem, is that when companies admit culpability, they are not charged for breaching any laws, and consequently all parties escape being sentenced for any criminal offences.

In certain industrial sectors where the Tribunal has acted and issued onerous fines, there is today less competition than before. As a result there is more concentration, an oligopoly, controlling price levels, which are higher than before intervention. The harsh fines issued have had the inadvertent effect of eliminating certain suppliers that happened to have weak cash flows.

The thermo-plastic pipe industry provides such an example. This industry provides critical products to the building and to all infrastructural projects. Plastic piping is used to supply water to houses, factories and mines. It is used widely in agriculture and aquaculture and even in the chemical sector because of its properties to withstand corrosion and acids.

Before the fines were issued in 2010, there were at least half a dozen significant pipe producers that competed fiercely with one another. Granted, there was a time during the eighties and perhaps before, when collusion did take place. The flaw in the execution of the mandate of the Competition Tribunal, is that no action occurred when collusion was rife, and that by the time action was taken, the problem was historical.

Another fundamental flaw allows the whistle-blower to be provided with immunity or partial immunity. In this case, when the Competition Tribunal first got scent of anti-competitive behaviour, and approached one of the worst culprits, the directors of this company quickly realised the severity of the allegations, and sued for amelioration of guilt, in return for spilling the beans. While it is apparent that these blackmail tactics, are successful in evincing the facts and evidence, they do shield the worst perpetrators of anti-trust behaviour, from due process and from prosecution.

The real bugbear responsible for inducing anti-competitive and “collusive conduct” in my estimation is the convoluted and muddled tender process. This process based on so many subjective and extraneous considerations, is predisposed to abuse. When the cheapest price is the single most important parameter, there can be no confusion as to the outcome of tenders. When price alone is the criteria, the process is inherently transparent. But when, the racial credentials of the supplier need to be taken into account, and how the supplier measures up against a bureaucratic invention, transparency flies out of the window. When complex tenders are adjudicated, where quality criteria for materials used need to meet certain exacting specifications, it is a travesty to use current BBEE scoring models as the yardstick. Because of these complexities, there are delays in issuing tenders, resulting in budget allocations not being spent and in service-delivery delays. It is no wonder, that corruption infiltrates the tender process. Where tenders are awarded, inflated prices and cost overruns are the order of the day.

So, in order to up its game the Competition Tribunal needs to react more quickly, in order to apprehend the guilty parties while committing their acts, or shortly thereafter. The law regarding anti-competitive behaviour needs to be tightened and the offenders need to be charged in order to either prove guilt or innocence. The whistle-blowers, if found to be complicit in the crimes, need to be charged. The powers granted to the Competition Tribunal to gain access to information and people and to gather information, should be sufficient to avoid the use of intimidatory tactics in order to extort confessions. The Tribunal also needs to shift its focus to examine the activities of state-supported enterprises like Eskom and South African Airways, which clearly operate under a different set of rules, yet affect every taxpayer and member of the public.