THE Competition Tribunal has dismissed a case of alleged price fixing against five liquefied petroleum gas (LPG) firms who were accused by the Competition Commission of fixing the deposit fee charged to first time purchasers of LPG in cylinders in 2015.
In a statement released on Friday, the tribunal said following a hearing last year, and after considering factual and expert evidence, it found that the conduct which the LPG firms were accused of could not be associated with a “hardcore cartel”.
The tribunal found that even if the LPG firms were assumed to be competitors for the supply of cylinders, their conduct was not the type of conduct envisaged to be prohibited by Section 4(1)(b)(i) of the Competition Act.
Therefore, the tribunal dismissed the Commission’s case.
The commission had alleged that during South African Petroleum Industry Association (Sapia) meetings, Totalgaz Southern Africa; Oryx Oil South Africa; Easigas; and African Oxygen concluded an agreement to increase the deposit fees on LPG cylinders for first time buyers in contravention of Section 4(1)(b)(i) of the act.
The alleged agreement resulted in the firms simultaneously increasing the deposit fee paid by first time buyers for cylinders around June 2015, to R300 for cylinders ranging in sizes of 9kg to 48kg. The commission alleged further that KayaGas engaged in a concerted practice by increasing the deposit fee to R300.
The LPG firms argued that their decision to adopt the same increase in the cylinder deposit fee was not due to them being competitors but, rather, was due to the “vertical relationship” between them, that is, the relationship between a firm and its suppliers, its customers or both, as participants in the Cylinder Exchange Programme (CEP). Thus, they argued that they could not be found to have engaged in price fixing.
In addition, they argued that even if the tribunal found that the LPG firms were competitors in the supply of cylinders, the CEP delivered benefits to consumers and/or new/smaller entrants to the market and was not designed to restrict competition in the sale of LPG. Rather the CEP facilitated the increased sale of LPG by a rapid return of cylinders to each wholesaler and necessitated a uniform deposit fee for its smooth functioning.
They further argued that this was not the type of conduct that, properly characterised, was contemplated within the scope of Section 4(1)(b) of the act, which prohibited hardcore cartels.
The tribunal concluded that the CEP delivered benefits to consumers and firms alike:
“Once first-time buyers have paid their cylinder deposit, they have the convenience of purchasing LPG from any supplier in exchange for an empty cylinder. Firms benefit from the CEP because they save on working capital and variable costs and they can sell more LPG because cylinders are returned to them more quickly,” it said.
“Small firms tend to gain the most from the CEP because they need not invest in a vast distribution network, are able to piggy-back on the larger players and compete for market share. A uniform fee is necessary for the effective functioning of the CEP. A uniform fee facilitates the smooth administration for the exchange of cylinders and serves to prevent increases in costs for wholesalers relative to their competitors. It also serves to prevent a cash flow crunch for smaller players.
“The Respondents have explained why a uniform fee limits opportunistic hoarding and prevents lower fee cylinders from being disproportionately targeted by illegal re-fillers … " it said.
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