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ArcelorMittal, Anglo live with deal before their time
October 30, 2009
Many years ago, former trade and industry minister Alec Erwin said he would "fire the board" of the Industrial Development Corporation (IDC) if they failed to ensure supplies of competitive iron ore during talks to unbundle the steel and iron ore assets of Iscor.
One wonders whether Erwin might have made good on his word this week, on the hypothetical assumption that he was still in the government.
After nearly a decade of uncertainty, an arbitration panel has determined that Iscor's steel operations (now housed in ArcelorMittal South Africa) did not have the right to participate in the expansion of Iscor's iron ore operations (now known as Kumba Iron Ore). Of course, Erwin is history and the supply arrangement is no longer the government's headache. The controlling shareholders of the two companies, ArcelorMittal and Anglo American, are the ones that have to live with a supply deal formulated before their time.
The 2001 agreement that paved the way for Iscor's R16.8 billion unbundling now appears to have swung in Anglo's favour.
The history of the arrangement lies in the old Iscor's supply of iron ore at cost to its steel making plants in Vanderbijlpark and Newcastle. The IDC wanted to ensure that supply at fair prices continued after the privatisation. Due to confidentiality clauses, all we really know about the deal is that it gave ArcelorMittal access to Kumba's entire output from the mature Thabazimbi mine in Limpopo and 6.25 million tons a year at the Sishen mine in the Northern Cape at the narrow margin of cost plus 3 percent.
It is said the deal was structured to give ArcelorMittal the first right of refusal to participate in capital expansion projects - but this was to become a point of contention between the parties, especially given ArcelorMittal's desire to invest in Kumba's massive expansion at Sishen.
The steel maker has benefited substantially from the supply arrangement, especially when global iron ore prices shot through the roof during this decade's minerals boom. Kumba, on the other hand, has foregone attractive export earnings for the feedstock it supplies to ArcelorMittal - and certainly would have wanted no further obligations to its one-time sister.
It's unclear whether ArcelorMittal will take the matter further. But it is hard to muster up a lot of sympathy for a company that has been hauled before South Africa's competition authorities repeatedly for excessive pricing, even while its relationship with Kumba was helping to line its pockets.
Conspicuous consumption
One would think that someone who has managed the country's finances so adeptly for 13 years would not need advice on what kind of car to buy. Nor would it take much common sense to consider an appropriate price for a ministry to spend on a vehicle in a climate were hundreds of thousands of South Africans have lost their jobs.
Trevor Manuel, the former finance minister and now the minister of national planning in the presidency, conceded this week that buying a R1.2 million BMW "was not entirely well advised".
The already top-of-the-range vehicle was upgraded with R100 000 worth of accessories.
Finance minister Pravin Gordhan, who himself bought a more modestly priced vehicle, is leading efforts to trim excessive and unnecessary spending across government. It just seems ministries are above all of that sort of cost cutting nonsense.
But then, perhaps it is unreasonable to expect Manuel to be in touch with the hardships of being an ordinary South African.
After being in office for so many years and with all the perks, he must have no idea how stressful it is to struggle to pay for electricity, food and transport.
In a speech Manuel gave in October 2003 to the Standard Bank emerging financial markets conference, he said: "Even 10 years after the end of apartheid, we face a society with a well-developed, sophisticated formal sector. Where multimillion-rand deals, lavish salary packages and conspicuous consumption for the privileged are the order of the day. This exists alongside an informal sector where unfair deals, meagre salaries and inconspicuous consumption are a reality."
Well, not much has changed 15 years after the end of apartheid, except now, Mr Manuel, you seem to be feeding from the same trough of conspicuous consumption.
Quagmires and questions
It is the Bermuda Triangle of the regulatory world. Legend has it that even if you just dip into it, you risk disappearing into a quagmire of unconnected legal sentences, one following the next in a Joycean style stream of consciousness. In the secular world it is referred to as chapter 10 of the Electronic Communications Act.
Indeed, so often is chapter 10 mentioned that it is now generally felt that this piece of legislation started with the usual bland preamble and went directly to chapter 10. Few people can recall seeing chapters 1 through 9 of the act.
Some believe that the chapter 10 turbulence is manipulated from a distance by a troika comprising MTN, Vodacom and Telkom. But no one can say for sure.
And now it looks as though not only are the Independent Communications Authority of SA, the parliamentary committee and the department of communications in this triangle, but the competition authorities are also about to disappear into it..
It has referred its findings of abuse of dominance to the Competition Tribunal and is looking for a penalty of R3.4bn. While that might help Minister Gordhan out of his fiscal knot, getting it out of Telkom is even less likely than getting cellphone charges reduced by Christmas.
Even if the authorities attempt to trump chapter 10 with the Competition Act's recently signed but not-yet-implemented amendment, there will be much confusion. After being chastised by the parliamentary committee on communications for not doing its bit to rein in the telecoms giants - or big gorillas as David Lewis once described them - the commission has decided.
Edited by Peter DeIonno. With contributions by Ingi Salgado, Samantha Enslin-Payne and Ann Crotty
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