South Africa | The Competition Commission in South Africa has imposed a 146 million Rand (US$18.75 million) ‘administrative penalty’ on one of the major South African scrap metal companies, New Reclamation Group (Reclam), for its involvement in collusion and price-fixing in the ferrous and non-ferrous scrap metal markets. The company, which also processes cardboard, paper, glass and plastic, has 24 months to pay the penalty, in three instalments. The settlement of Johannesburg based Reclamation, is the largest of an administrative penalty in both real and percentage terms in South Africa.
The administrative penalty represents 6% of the unlisted company's annual turnover in the affected markets. Reclamation's collusion, one aspect of which was to rig bids in the sale of wagons, tankers and coaches by Spoornet –a South African provider of rail freight services - was uncovered in July 2007 by the Commission during raids seeking information about a separate matter -- the proposed merger between the company and a client, SA Metal and Machinery.
At the time of the raids, the company said it "strongly" denied any bid-rigging. Reclamation was then headed by CEO Martin van Wijngaarden, Mittal's former deputy CE. Mr. Van Wijngaarden, who is now head of new business for Reclamation Holdings, which controls New Reclamation, was replaced by Michael Movsas as CEO at the beginning of this year.
According to Reclam, the broad issues and practices in the scrap recycling and steel industry which prompted the Commission’s investigation pre-date the promulgation of the South African Competition Act. These issues and practices arose from the fact that since the 1990’s the Department of Trade and Industry has continued in its attempts through a series of interventions into, inter alia, the scrap recycling industry.
‘These interventions were aimed at encouraging the scrap recycling industry to make cheaper input prices available to the South African steel industry, enabling the latter to pass on these benefits to downstream industries to increase value addition and job creation,’ a press release from Reclam states.
The train of events that led to the fine began in October 2005, when Reclamation and SA Metal and Machinery filed a merger application with the commission. The commission recommended the prohibition of the merger in June 2006, and in August that year it initiated a complaint against Reclamation, SA Metal, National Scrap Metal and Cape Town Iron and Steel Works, alleging that certain documents submitted to it during the course of the merger investigation indicated market allocation and price-fixing .
In July, the commission conducted a search of Reclamation's premises, with simultaneous raids at its Durban, Port Elizabeth and Johannesburg offices . The company was found to have contravened the Competition Act by agreeing to fix prices with its competitors for the supply of ferrous metal and to have fixed prices with its competitors for the purchase of non-ferrous scrap metal, Competition Commission Deputy Commissioner Thulani Kunene says.
It was also found to have entered into exclusive agreements and other arrangements with competitors to divide markets by allocating territories and customers to be supplied with ferrous and non- ferrous metals. ‘We need to implement harsher penalties because, despite the Competition Act having been in operation since 1998, we still have a lot of cartels operating in the economy,’ Kunene says. ‘This tells us that the penalties we imposed previously may not have had the desired deterrent effect,’ he adds.
Acknowledgement
www.reclam.co.za
