Gaps in Sasol review

[] — IT’S no coincidence that over the last three years, the competition commission has gunned for what a colleague reminded me recently were once called “national champions”.

These were the state-owned parastatals Iscor (now ArcelorMittal SA), Clover Industries, Nestle SA, Dairybelle (which established its anti-competitive position during a period in which the Milk Board set milk prices in South Africa) and Sasol.

It’s clear these companies’ current dominant positions have a common root in Apartheid government financial support. Consequently, the redress, while economically healthy, has touch of political expedience.

Last week, Sasol’s fertiliser business, held in Sasol Chemical Industries, agreed to the competition commission?s R188m penalty for cartel behaviour in the production of nitrogenous fertiliser. And there may be more to come, although analysts reckon Sasol has weathered the worst of its anti-competitive fines. Or has it?

One wonders, for instance, whether Sasol has included its shareholding in the Richards Bay Coal Terminal (RBCT) as a potential anti-competitive practice.

This question may light a fire under RBCT itself, and whether the practice of restricting export facilities to its shareholders constitutes an abuse of market dominance.

Like Iscor and the Milk Board, RBCT has its roots in state support in the form of the Coal Act which set export volumes and coal export prices. That was until 1986, the year of the Coal Act’s repeal. RBCT Limited was then formed in the stead of legislation.

Coal terminal cartel questions

RBCT didn’t set prices, but it certainly set out to control export coal volumes. That’s because the use of its loaders and what-have-you is restricted to qualifying shareholders. They are, by definition, those able to afford the heavy capital a coal export facility requires, such as Anglo American, BHP Billiton and Sasol Mining.

RBCT exports about 76 million tonnes/year of coal but has recently expanded to a capacity of 91 million tonnes. Winning “entitlement”, as it is termed, is not easily done. It’s not as if I could approach RBCT and bid a higher price for use of the terminal.

No indeed. Applications to export coal are referred to shareholders and often ? always? ? turned down as Petra Mining, a Johannesburg- and London-listed junior mining firm, recently discovered when it applied to export anthracite.

So isn’t this a kind of cartel?

In defence of the coal terminal’s shareholders, there was an effort to extend the use of RBCT so that empowered coal exporters could share in the extra entitlement created when the terminal expanded to a 91 million tonnes/year capacity.

But an unintended consequence of this is that it further complicates the cartel, extending it from the old firm to black-owned firms while excluding others which might want to export coal.

Sadly, Sasol couldn’t provide details on whether it would include RBCT use in its anti-competitive review.

Says Iscor spokesperson Jacqui O’Sullivan: “On Monday [May 4], we did announce that we foresee the review running for a bit longer than originally planned, with probable completion only in the second half of this year.

“Each business is being scrutinised and as the reviews are still under way, we cannot comment on specifics.”

however, deputy commissioner to the competition commission Thembinkosi Bonakele said he wasn’t aware Sasol considered its mining division part of such a review.

“They [Sasol] haven’t mentioned it to us,” he said. Intriguingly, he added: “What would trigger our interest is if there was evidence they refused smaller competitors use of that facility. Then we?d be interested to look at it,” he said.

Maybe the commission should speak to Petra Mining.

Randgold Resources

I noticed in a recent announcement regarding Randgold Resources’ annual general meeting that all six of its ordinary resolutions were passed, although there did seem to be some difficulty with one of them.

Roughly 27% of the ballot – 18 million votes – opted not to favour adoption of Randgold Resources’ remuneration report this year, whereas the other resolutions were roundly supported.

According to a Randgold spokesperson, there were some quibbles among shareholders who sometimes rely on the advice of the Institutional Shareholder Services (ISS).

The ISS believes Randgold directors ought to see their share options vest in the standard five years rather than the three years adopted by the Randgold board.

According to the spokesperson, Randgold Resources CEO Mark Bristow reckons that given the low cost and thinly spread nature of the executive – an effort to save shareholders extra overheads – he and his directors deserve to recognise compensation earlier.

Bristow has track record on his side.

Randgold Resources was trading at about $20/share in 2006 and was last quoted at $52.95/share ? all achieved on the back of organic growth rather than the dubious heroics of merger and acquisitions.

It’s popular among journalists to seize upon the remuneration report because, let’s face it, poring over what others earn is never out of vogue. But perhaps some directors deserve their pay.