Mittal’s South Africa company risks higher fine if it appeals

By Fakir Hassen, IANS

Johannesburg : Steel giant Mittal SA has been advised to reconsider its decision to possibly appeal a record fine of nearly R700 million (over $95 million) imposed by the Competition Tribunal here, as a group of local steel users may institute a class action that could see damages of R20 billion being claimed.

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The tribunal this week imposed the fine of R691.8 million as part of its remedial actions after it found in March that Mittal SA was guilty of anti-competitive practices. The charges were brought by several local steel product manufacturers who claimed that Mittal SA was charging them more for flat steel products than the price at which it was exporting.

Jean Maijer, a lawyer who acted for one of the main companies that brought the charge, Harmony Gold, told radio business programme MoneyWeb Power Hour that she “wouldn’t be surprised if a group of steel users didn’t get together and bring a class action” against Mittal SA.

Meijer submitted that the damages caused by Mittal SA’s pricing “continue to be suffered every year that Mittal SA continues to charge on this basis.

“So they need to think very carefully about the possible damages claim that they could see in the long run.”

Mittal SA said in a statement that “the company will consider the judgement with its advisers and assess its full impact. The initial finding of the Competition Tribunal on the merits of the matter is already subject to appeal to the Competition Appeal Court.

“Mittal SA will evaluate whether we also wish to appeal against the present decision on the penalty and remedies. If we do so, the appeals will be consolidated.”

Rick Reato, chief executive officer of Mittal SA, said: “We feel that the ruling is not appropriate for a number of reasons, not least that this was the first time in this country a ruling has been made on what constitutes ‘excessive pricing’. We are being judged against an entirely novel approach to that concept.

“In addition, in January 2006, we moved our pricing model away from Import Parity Pricing to a system based on a basket of domestic prices from a range of international markets, thereby benefiting our customers by in excess of R500 million in 2006 alone.”

If Mittal SA continues with its proposed appeal, the case could go on for several years while the pricing strategy at the source of the problem continued.

Analysts pointed out that the problem could be not only exacerbated if the appeal was dismissed, but also that the risk posed for Mittal SA in the appeal was that the reduced fine imposed by the tribunal could be upped to the maximum of 10 percent of the company’s annual turnover. This would be considerably more than the fine of 5.5 percent of the R12.8 billion turnover that the tribunal decided upon.

Mittal SA, which is currently undergoing a process to rename itself ArcelorMittal SA to build a common brand in line with being a subsidiary of global steel giant ArcelorMittal, has been under pressure for several years now to review its pricing strategy for domestic users.

The tribunal made some strong statements in its ruling. It said that “price fixing through the manipulation of supply… is the most egregious contravention of competition law (and that this) causes considerable damage to customers of the affected products and to the structure and fabric of the economy.

“The fact (that Mittal’s) output levels exceeded domestic demand at the pre-selected price represented a threat to its monopolistic pricing model and so it contrived to snuff out any remaining competition. It did this self consciously and with all the means at its disposal.”

At one stage Mittal SA had entered into discussion with the South African government to develop a pricing model acceptable to the authorities, but the tribunal said this had not had any impact.

“(Mittal SA) rather engaged with the Department of Trade and Industry in a series of discussions in which it proposed a pricing model that remained identical to its long-standing pricing model.”

The tribunal has also ordered that Mittal SA make public its list prices, rebates and discounts for flat steel products.

Mittal SA was formed when London-based steel magnate L.N Mittal bailed out the ailing state-owned manufacturer Iscor some years ago through a massive cash injection and a Business Assistance Agreement. Mittal eventually acquired a majority interest in the company.