May 24,2013 / News / E-Bulletin

BACKGROUND AND FINDINGS

On 18 August 2000, the Greater Johannesburg Transitional Metropolitan Council (“GJTMC”) sold its gas distribution and supply business – Metro Gas – to a consortium of private investors. The business, renamed Egoli Gas, was granted a licence to supply piped gas to consumers within the municipal boundary of Johannesburg, which included both the old Johannesburg Municipality as well as extended areas such as Roodepoort, Sandton and Randburg. These areas were included in the municipal area in 2000. The licence, granted by the GJTMC to Egoli Gas for a period of 30 years, would be exclusive for a period of 20 years at the outset.

At the time when GJTMC sold its gas distribution and supply business, Sasol Gas had pre-existing customers in the GJTMC municipal boundary to which it was already supplying gas. The Gas Licence By-Laws at the time contained a “preservation of rights” dispensation, which allowed Sasol Gas to continue to supply its customers in areas previously excluded from the old Johannesburg Municipality. Sasol Gas also supplied gas to Metro Gas.

Egoli Gas subsequently entered into a suite of agreements with Sasol Gas, the sole supplier of natural gas in Gauteng, with rights to import natural gas into South Africa from Mozambique. This suite of agreements formed the subject of the Commission’s investigation.

On 27 October 2008, NERSA (the National Energy Regulator of South Africa) granted 29 licences to Sasol for the operation of gas distribution facilities and 29 licences for the trading of gas in Gauteng, Mpumalanga and the Free State. Certain of these licences were granted in respect of territories included in the GJTMC exclusive licence to Egoli Gas. This rendered the rights of Egoli Gas and Sasol Gas in direct conflict with one another. In granting the licence, NERSA recorded expressly that to preclude competition between Egoli Gas and Sasol Gas may be in conflict with existing competition legislation.

On 19 December 2008, Sasol Gas submitted a CLP application pertaining to the suite of agreements entered into between itself and Egoli Gas. Three days later, a complaint was initiated against Sasol Gas and Egoli Gas for a contravention of section 4(1)(b)(ii) of the Competition Act. Having investigated the suite of agreements, the Commission concluded that the arrangement amounted to an illegal division of markets through the allocation of customers and territories between competitors. Specifically, the Commission found that –

  • a designated class of customers (being customers within a particular supply territory) was reserved for Egoli Gas;
  • Egoli Gas was restrained from selling gas purchased from Sasol Gas to any customer outside that supply territory;
  • Egoli Gas was restrained from selling gas to customers who on-sold gas outside the supply territory;
  • Sasol Gas was restrained from supplying gas within the supply territory;
  • Sasol Gas was restrained from supplying any customer of Egoli Gas;
  • customers supplied by Sasol Gas prior to Egoli Gas being granted an exclusive licence would continue to be supplied by Sasol Gas (there were 16);
  • Sasol Gas could supply customers within the supply territory if Egoli Gas elected not to do so; and
  • Sasol Gas and Egoli Gas agreed to allocate customers on an ad hoc basis within the supply territory.

In terms of the Consent Order, Egoli Gas has agreed to cancel the existing agreement with Sasol Gas and to negotiate a supply agreement on new terms, a copy of which is to be provided to the Commission. In addition, Egoli Gas has undertaken not to engage in market allocation in future and to develop and implement a compliance policy aimed at ensuring its officers and staff comply with competition law.

IMPORTANCE

Where parties are in a vertical relationship (i.e. the relationship between a supplier and customer) they should take great care when agreeing to allocate customers and territories when they are simultaneously in competition with each other, as these types of agreements may contravene the Competition Act.