The impact of the Competition Amendment Act on the mining sector

13 Dec 2019

On 12 July 2019, certain provisions of the Competition Amendment Act 18 of 2018 (“Amendment Act”) came into effect. This article deals with specific noteworthy amendments which impact the mining industry.

1. New definitions and industry specific criteria for micro, small and medium-sized businesses

• One of the purposes of the Competition Act 89 of 1998 (“Competition Act”) is to ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy. Excessive pricing by dominant firms has contributed to the difficulties which small and medium sized businesses encounter in operating their businesses. New thresholds have been set to assist in determining which entities qualify as micro, small and medium-sized businesses which will be afforded protection under the Competition Act.
• The definitions of small and medium-sized businesses have been amended to include industry sector and sub-sector criteria based on the number of paid employees and the total annual turnover of those businesses.
• In respect of the mining and quarrying sectors, the following criteria are applicable:
  • Micro Businesses – a mining and quarrying business will be considered a micro business in terms of the Amendment Act if:
    • the total number of full-time employees equal ten or less; and
    • the total annual turnover of such business is equal to or less than fifteen million Rand.
  • Small Businesses – a mining and quarrying business will be considered a small business in terms of the Amendment Act if:
    • the total number of full-time employees equal eleven to fifty; and
    • the total annual turnover of such business is equal to or less than fifty million Rand.
  • Medium Businesses – a mining and quarrying business will be considered a medium business in terms of the Amendment Act if:
    • the total number of full-time employees equal fifty-one to two hundred and fifty; and
    • the total annual turnover of such business is equal to or less than two hundred and ten million Rand.

2. Excessive Pricing

• Section 8(1)(a) of the Competition Act prohibits a dominant firm from charging an excessive price that is to the detriment of its consumers. In the 2009 case of Mittal SteelSouth Africa Limited and Others v Harmony GoldMining Company Limited and Another, the Competition Appeal Court ruled that in order to determine what constitutes excessive pricing, the interpretation of economic value and the reasonableness of the relation between price and economic value are required. The court held that an objective test is required in interpreting “economic value” and that if the relevant price is not greater than the economic value, there will be no contravention of section 8(1)(a). Conversely, if the relevant price is greater than the determined economic value, then the test of reasonableness will become applicable.
• The Amendment Act provides for certain factors to be considered when determining if a price is higher than a competitive price and the reasonableness thereof. The Amendment Act provides that if there is a prima facie case of abuse of dominance as a result of the dominant firm charging excessive prices, the dominant firm has an opportunity to illustrate that the price was reasonable. In addition, any person determining whether a price is excessive must firstly determine if the price in question is higher than a competitive price and whether the difference is unreasonable. The following factors must be taken into account when determining whether or not the difference in price is unreasonable:
  • the dominant firm’s price-cost margin, internal rate of return, return on capital invested or profit history;
  • the dominant firm’s prices for the goods or services:
    • in markets in which there are competing products;
    • to customers in other geographic markets;
    • for similar products in other markets; and
    • historically;
  • relevant comparator firm’s prices and level of profits for the goods or services in a competitive market for those goods or services;
  • the length of time the prices have been charged at that level;
  • the structural characteristics of the relevant market, including the extent of the respondent’s market share, the degree of contestability of the market, barriers to entry and past or current advantage that is not due to the respondent’s own commercial efficiency or investment, such as direct or indirect state support for a firm or firms in the market; and
  • any regulations made by the Minister Ebrahim Patel, in terms of section 78 of the Competition Act regarding the calculation and determination of an excessive price.

3. Additional Considerations for Mergers

• The Amendments Act contemplates the following additional factors to be considered by the Competition Commission or Competition Tribunal in relation to mergers:
  • the extent of ownership by a party to the merger in another firm or other firms in related markets;
  • the extent to which a party to the merger is related to another firm or other firms in related markets, including through common members or directors; and
  • any other mergers engaged in by a party to a merger for such period as may be stipulated by the Competition Commission.

4. Additional exemption and extension of exemption period

• In terms of the Amendment Act, the circumstances in which the Competition Commission may grant an exemption in relation to prohibited practices governed by the Competition Act has been extended to include the competitiveness and efficiency gains that promote employment or industrial expansion.
• Furthermore, the Amendment Act compels the Competition Commission to either grant or refuse an exemption within one year of receipt of an application.

The changes to the Competition Act are significant and will have far reaching results vis-à-vis the mining industry. Mining and quarrying businesses are therefore cautioned to seek legal advice in relation to any matter which may potentially fall within the ambit of the Competition Act when operating their businesses. It should also be noted that further provisions of the Amendment Act which may impact the mining industry are envisaged to come into effect at a future date.

See also:

• Has the Mining Charter 3 brought some policy & regulatory certainty to the embattled mining & natural resources sector?
• Draft Public Procurement Bill on track

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)