South Africa: Competition Tribunal

3.3.1. engaged in conduct in terms of the Administration Services Agreement which resulted in a contravention of s 4{1)(b)(i) of the Act; and

3.3.2. entered into a suite of agreements which had the effect of dividing the piped gas market by allocating customers and territories in contravention of s 4(1)(b)(ii) of the Act

4. Market allocation

4.1. The suite of agreements between Sasol and Spring Lights dividing the market by allocating customers and territories are the following:

4.1.1. the Sale and Purchase of Business Agreement dated 1 July 2002 between Spring Lights and Sasol Gas;

4.1.2. the Shareholders Agreement dated 20 August 2002, between Sasol Gas Holdings and CEPR;

4.1.3. the First Gas Supply Agreement dated 1 July 2002, between Spring Lights and Sasol Gas;

4.1.4. the Memorandum of Understanding dated 16 May 2006 between CEPR and Sasol Gas Holdings; and

4.1.5. the Second Gas Supply Agreement dated 22 August 2007, between Spring Lights and Sasol Gas.

4.2. In terms of the suite of agreements referred to above —

4.2.1. The portion of the Sasol Gas business which Spring Lights would acquire, which would be the business of Spring Lights (which could only change by unanimous resolution of the shareholders), was the business of selling gas in the Durban South region to a specified group of customers and potential future customers in that geographical area, to the exclusion of certain identified customers and certain categories of business and any geographical area which was not included in the sale of business,

4.2.2. Sasol Gas would supply gas to Spring Lights to enable Spring Lights to conduct its business, but subject to the restriction that Spring Lights could only buy gas from Sasol Gas and sell it to its customers (being the customers whose customer contracts ft acquired in terms of the Sale and Purchase of Business Agreement) and to customers in the Durban South area. However, Spring Lights was restricted from selling to any customer which, to the knowledge of Spring Lights, on-sold the gas for consumption inside or outside of the territory specified in the supply agreement..

4.2.3. Through the Shareholders' Agreement, Sasol Gas Holdings and CEPR recognised that the business of Spring Lights would be restricted to the business purchased by Spring Lights in terms of the Sale and Purchase of Business Agreement and to future customers in the Durban South region (which customers, read together with the first gas supply agreement, were restricted to the pool of customers to whom Spring Lights could sell gas and the territory within which it could sell gas).

4.2.4 Sasol Gas Holdings and CEPR later concluded a memorandum of understanding to, inter alia, expand the potential customers to whom Spring Lights could sell gas purchased from Saso! Gas and to expand the territory within which Spring Lights could sell gas purchased from Sasol Gas. Consequently, a second gas supply agreement was concluded which had the effect of expanding the territory in which Spring Lights could trade, and Spring Lights’ potential customer base, but still contained restrictions in that Spring Lights was limited to selling gas within the designated geographic area and was prohibited from selling gas within certain categories and to certain identified customers,

4.3. The suite of agreements referred to above was implemented by Sasol Gas, Spring Lights and CEPR and the parties acted in accordance with the terms of those agreements. Consequently, Sasol Gas and Spring Lights have entered into a suite of agreements which had the effect of dividing the market by allocating customers and territories of piped gas in contravention of s 4(l)(b)(H) of the Act

4.4. Spring Lights submitted a licence applications to the Gas Regulator (NERSA) in terms of the Gas Act on a basis consistent with the suite of agreements (particularly in relation to marketing areas) as set out in the suite of agreements,

4.5. The rationale behind these provisions was to foster BEE at the trading level of the gas supply chain by providing Spring Lights, as an empowered firm, with a customer base and assisting it to acquire the necessary expertise to develop and excel. Sasol Gas was of the view that if it had continued servicing this customer base, or offered to service potential future customers in the relevant Designated Geographical Area, Spring Lights would not have secured a foothold in the market. Consequently, Spring Lights has made an application to the Competition Commission to exempt the conduct permitted in terms of these agreements, on the basis that it promotes the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive, in terms of section 10 (3)(b)(ii) of the Act.

5. Price-fixing

5.1. As described above, in terms of the Administration Services Agreement, Sasol Gas undertook to provide administrative assistance to Spring Lights. Such administrative support included making available pricing indices (consisting of independently sourced economic and energy-related time series data), which Spring Lights used to periodically adjust the price that It would charge to customers, and assisting Spring Lights to administer the price adjustment mechanisms contained in Spring Lights agreements with its customers. Sasol Gas was paid a service fee for maintaining a database of indices, generating forecasts for budgeting purposes, and ensuring the price adjustment intervals were complied with.

5.2. Given that Spring Lights was a new entrant in the gas market, it had no expertise in the industry or any personnel with the requisite skills or experience. The Administration Services Agreement was thus concluded in order for Sasol Gas to provide administrative assistance to Spring Lights - with the intention being that, in time and through the passing of skills, Spring Lights would become independent and would itself undertake the work envisaged in the Administration Services Agreement.

5.3. Pursuant to the agreement, Sasol Gas would receive information about the identities of the customers to whom Spring Lights sold gas and the extent of gas purchases by these customers from Spring Lights, and information regarding price increases to these customers.

5.4. Consequently, Sasol Gas and Spring Lights entered into an agreement, which had the effect of fixing the price of piped gas in contravention of s 4(1){b)(i) of the Act.

6. Admission

6.1. Spring Lights admits the facts set out in paragraph 4 above and admits that it has entered into a suite of agreements which contravened section 4(1)(b)(ii) of the Act in those respects.

6.2. Spring Lights admits the facts set out in paragraph 5 above and admits that it entered into an agreement which resulted in a contravention of section 4(1 )(b)(i) of the Act in those respects.

7. Agreement concerning future conduct

7.1. Spring Lights confirms that it has already put in place measures to prevent any conduct which could be misconstrued as price fixing. It has taken the following measures in this regard:

7.1.1. Directors of Spring Lights who were also active in Sasol Gas have resigned from the Board of Spring Lights;

7.1.2. Sasol Gas no longer provides any administrative support services in terms of the Administration Services Agreement;

7.1.3. Spring Lights has secured independent service providers to administer the pricing databases and analyse the economic data that drive the gas price adjustment mechanisms; and

7.1.4. Spring Lights has made significant investments in implementing a new Enterprise Resource and Planning (“ERP”) system so that it no longer needs access to Sasol Gas’ SAP system for the purpose of administering the business.

7.2. In addition, Spring Lights agrees and undertakes;

7.2.1. to prepare and circulate a statement summarising the content of this Consent Agreement.to its directors and shareholders within 30 days of the date of confirmation of this Consent Agreement as an order of the Tribunal;

7.2.2. not to enforce any of market allocation clauses contained in the suite of agreements or any other agreement or require any of the parties to the suite of agreements or any other agreement to abide by the aforesaid clauses, unless an exemption Is granted by the Competition Commission;

7.2.3. to take necessary steps to procure the amendment of the suite of agreements or any other agreement to remove any market allocation clauses within 60 days of the confirmation of this consent agreement as an order of the Tribunal unless an exemption is granted by the Competition Commission;

7.2.4. to, refrain from engaging in price fixing and market allocation in contravention of sections 4(1 )(b)(i) and (ii) of the Act; and

7.2.5. to develop and implement a compliance programme designed to ensure that its employees* management and directors do not engage in any conduct which constitutes a prohibited practice in terms of the Act, a copy of which programme shad be submitted to the Commission within 60 days of the date of confirmation of this Consent Agreement as an order of the Tribunal.

8. Administrative Penalty

8.1. Spring Lights is liable for an administrative penalty in terms of sections 58(1)(a)(iii), 59(2) and (3) of the Act in the amount of R 10.8 million (TEN MILLION AND EIGHT HUNDRED THOUSAND RAND). The administrative penalty represents 3% of Spring Lights’ annual turnover for financial year ending 30 June 2008.

8.2. The administrative penalty will be paid by Spring Lights to the Commission within 60 days after the date of confirmation of this Consent Agreement as an order of the Tribunal. The penalty will be paid over by the Commission to the National Revenue Fund in accordance with the provisions of section 59(4) of the Act.

9. Full and final settlement