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R691 800 000 ... Tribunal slaps Mittal with megafine
September 7, 2007
 By Ann Crotty
Johannesburg - The competition tribunal yesterday imposed a staggering R692 million fine on ArcelorMittal South Africa (formerly Mittal Steel SA) for abusing its dominance and charging excessive prices for flat steel.
The penalty is the largest imposed by the tribunal in its nine-year history, far exceeding the R45 million fine slapped on SAA two years ago for abusing its position of dominance.
It represents 5.5 percent of Mittal's R12.7 billion flat steel sales in the 2003 financial year. The tribunal is entitled to impose a penalty of up to 10 percent of a firm's annual turnover for contravening the Competition Act.
The tribunal also ordered Mittal to stop imposing conditions on the resale of flat steel products bought from it.
The fine and the prohibition order followed the tribunal's ruling in March that Mittal had contravened the Competition Act.
That ruling related to complaints lodged by Harmony Gold in 2004. Former Harmony chief executive Bernard Swanepoel told the tribunal that Mittal's high steel prices had shortened the life span of Harmony's mines.
The tribunal warned Mittal that if it attempted to side-step the prohibition and use alternative mechanisms to maintain excessive prices, "then the prospect of more invasive remedies will loom large … and may even include the enforced divestiture of its steel producing plant".
In announcing the remedies to be imposed, tribunal chairman David Lewis said the excessive prices charged by Mittal caused "considerable damage to customers of the affected products and to the structure and fabric of the economy.
"Price fixing through the manipulation of supply … is, without doubt, the most egregious contravention of competition law and principles."
Evidence presented by Mittal at the hearings revealed that in the six years from 2000 to 2005, the steel maker's price premium had generated additional revenue of R20.7 billion for the group. And while Mittal's flat steel products account for only 70 percent of its total sales, its excessive pricing strategy had been in force since 1994.
Lewis said Mittal secured excessive prices through contracts with the steel merchants to which it sold its output.
These arrangements prevented merchants that received steel at comparatively attractive prices from selling the product to domestic customers "who may be prepared to pay a price higher than the discounted price but lower than the list price".
Mittal expressed disappointment at the ruling, saying it would consider the judgment with its advisers.
Chief executive Rick Reato said yesterday that the ruling was "not appropriate for a number of reasons, not least that this was the first time in this country a ruling has been made on what constitutes 'excessive pricing'. We are being judged against an entirely novel approach to that concept.
"In addition, in January 2006, we moved our pricing model away from import parity pricing to a system based on a basket of domestic prices from a range of international markets, thereby benefiting our customers by in excess of R500 million in 2006 alone."
By keeping Mittal from imposing conditions on the resale of flat steel, the tribunal hopes to encourage a competitive resale market in which excessive pricing will be eliminated.
"It is likely that much will change," says the ruling. "Those established traders hitherto confined to the domestic market will likely seek customers in the international market, Macsteel International [a joint venture between Mittal and Macsteel] will be free to seek domestic customers, and the domestic price of flat steel products should decline towards the export price."
The ruling opens the way for Harmony to institute civil action against Mittal, which was ordered to pay the costs of the complainants.
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