28 March 2007

Harmony – Mittal Competition Tribunal Ruling

Cliffe Dekker is delighted with the decision handed down by the Competition Tribunal on 27 March 2007 in respect of the excessive pricing complaint brought on behalf of their clients Harmony Gold and DRD Gold against Mittal Steel South Africa, formerly Iscor.

The Competition Tribunal found that Mittal had abused its dominant market position and was charging excessive prices for flat steel products, to the detriment of its customers.

Cliffe Dekker has acted for the complainants since they lodged their complaint with the Competition Commission in September 2002.

Nick Altini, a director in the competition department at Cliffe Dekker, said that this is the first excessive pricing complaint to be heard by the Competition Tribunal and sets a precedent. "It is one of relatively few to have come to fruition across many jurisdictions with similar competition laws," he said.

Altini said the Competition Act, 1998 states that is an abuse for a dominant firm to charge excessive prices. "Excessive prices are those that bear no reasonable relation to the economic value of the good or service concerned."

For many years, Harmony, DRD Gold and other South African consumers of flat steel have carried the burden of increasingly high flat steel prices charged by Mittal under Mittal's so called 'international parity pricing' system. This system sets the price for local steel at slightly above the level of what it would cost local consumers to import the same product, thus including fictitious charges such as shipping, import duty and agents fees.

According to Altini, the Tribunal found that Mittal is not only dominant but also 'super-dominant' in a local market that is naturally protected and thus impervious to normal competitive forces from importers.

Mittal has inherited a position of local super-dominance and has no real local competitors in the local flat steel market either. This has enabled it to set prices which cannot be explained by any reason other than the absence of any competitive constraints. In the normal course, market forces such as supply and demand would have played a factor in constraining the prices set but in an incontestable market this does not apply.

"The Tribunal mentioned that excessive pricing is a particularly repugnant form of abuse of dominance and can attract an administrative penalty for a first transgression. The penalty could be as high as 10% of Mittal's annual turnover in the local flat steel market. This has yet to be determined at a hearing to be scheduled," Altini said.

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