Competition watchdog bites Mittal where it matters
September 7, 2007
It's hard to understand why the government should be concerned about foreigners owning a few fancy houses on the beach but not about foreigners owning the country's "superdominant monopoly" steel supplier.
Fortunately, we have the competition authorities. While the R692 million fine they imposed on ArcelorMittal is not quite up there with the penalty recently levied against British Airways by the US and EU authorities, it is big enough to attract appropriate attention.
Mittal will no doubt appeal. It might even drag the issue as far as the constitutional court. That would be unfortunate because, until this case is finally resolved, consumers will have to continue living with the consequences of excessive steel prices.
Of course, for Mittal an appeal does carry the risk of the competition appeal court increasing the fine to the full 10 percent, which would take it to about R1.2 billion.
In its copious coverage of this vexed issue, the tribunal describes a powerful international player that has succeeded in securing huge profit at the expense of the local economy and consumers.
In its reasons, published in March this year, the tribunal describes how Mittal enjoyed local cost advantages in the form of favourable iron ore and electricity pricing. For Mittal shareholders, the benefits of these attractive prices, as well as the economies of scale the group enjoyed in South Africa, were significantly enhanced through the regime of excessive pricing that it enforced on local consumers. This abusive pricing undermined business prospects for Mittal's local customers - steel fabricators and end users of metal products.
As for Mittal's allegedly "extensive engagement" with the state, aimed at developing an acceptable pricing regime, the tribunal declares this to essentially have been a sham.
LABAT AFRICA: A lot has been going on at the little venture capital company of controversial former rugby boss Brian van Rooyen, much of it related to a former parastatal that it acquired in 1999: South African Micro-Electronic Systems (Sames), set up in the 1970s as South Africa's sole producer of integrated circuits.
Labat's most recent round of problems surfaced when its auditors raised concerns about whether Sames was a going concern.
According to Van Rooyen, the auditors had conducted a post-balance sheet review of the subsidiary. This review was affected by a dispute between Labat and the SA Revenue Service (Sars) over an assessed loss of R190 million relating to Sames.
When Labat bought Sames, it created a deferred tax asset in the subsidiary. Van Rooyen complains that Sars wrongfully assumed Labat was putting all of its income through Sames to make use of an assessed loss.
This claim, he says, is the source of the dispute.
Labat, claims Van Rooyen, objected to the taxman's treatment of the assessed loss three years ago but the receiver of revenue did "absolutely nothing" for most of this period.
Van Rooyen refers to an "attack" on himself and his companies by parties who besmirched his reputation by writing to Sars, the Scorpions and the president's office, alleging impropriety. He won't name the parties but believes they are linked to rugby circles.
Sames, he insists, has been making a profit since April. Up until that point, it had encountered problems on a deal with Finland's Micro Analogue Systems (MAS), with which it has a five-year design and offtake agreement worth E5 million (about R49 million).
The parties agreed that MAS would transfer its processes from Helsinki to Sames' Pretoria facility, but this took place only in December. By April, Sames had started to manufacture for MAS.
Van Rooyen is candid in acknowledging that reputational problems arising from his controversial association with SA Rugby have harmed Labat. This is why he wants to close the chapter on the company by delisting it later this year and taking Sames private.
Its more profitable sister company, Labat Traffic Solutions, will be listed separately on the JSE.
Only time will tell whether Van Rooyen will truly be able to mend his reputation.
RESERVE BANK: There are two kinds of economists, Reserve Bank governor Tito Mboweni said in a speech prepared for Reuters' Economist of the Year breakfast: those who cannot forecast and those who don't know that they cannot forecast.
The governor, who tends to depart from his prepared text, did not actually say this at the breakfast.
But he made his point by challenging analysts to divulge how they arrive at their forecasts.
The Reserve Bank has previously been criticised for changing its inflation forecasts.
"We have published our core model, following numerous requests from private sector analysts and forecasters," Mboweni said.
He then asked: "Should these analysts not also be transparent with their models? Would it not improve the quality of debate? I have noted a deafening silence when I raise this issue with market economists."
He pointed out that the primary source of errors in forecasting is the "unanticipated large changes or shocks within the forecast period".
To illustrate the difficulties faced by forecasters, he spoke of the range of forecasts on the oil price. They show a spread between the highest and lowest forecast in the market of almost $22 per barrel for 2008, and slightly more for 2009.
"If the oil experts are so uncertain, how confident can we be? Yet this variable has a bearing on the inflation outcome and the accuracy of our forecasts," Mboweni said. "Unfortunately, as is sometimes said, the future is not what it used to be."
With contributions by Ann Crotty, Ingi Salgado and Ethel Hazelhurst
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