Maximum penalty for South African pre-cast cartel

By Helen Wright30 November 2010

The South African Competition Tribunal has handed down fines totalling ZAR 22.9 million (US$ 3.2 million) to two concrete pipe manufacturers which pleaded guilty to participating in a price-fixing cartel that was started in 1973.

Southern Pipeline Contractors (SPC) was fined ZAR 16.8 million (US$ 2.3 million) and Conrite Walls' penalty was ZAR 6.1 million (US$ 0.8 million), representing 10% and 8% of their respective annual revenues in 2006.

SPC and Conrite Walls had previously admitted to being part of the "Rocla" cartel, but disputed the maximum 10% of turnover penalty that the Competition Commission had asked the Tribunal to impose on them.

But after hearing evidence from witnesses, the Tribunal went ahead and imposed the maximum penalty for SPC, which had participated in the cartel for 13 years. The lower fine for Conrite reflected less wide-spread involvement.

The judgment followed a year-long investigation by the Competition Commission into the concrete pipes industry which lead to it uncovering a cartel that had operated from 1973 to 2007.

Nine companies operated in the cartel, dubbed the "Rocla cartel" after Rocla, a subsidiary of one of South Africa'n contractor company Murray & Roberts, blew the whistle in December 2007. As a result of coming forwards and implicating itself and the other cartel members, Rocla was granted conditional leniency by the Commission.

In February 2009, the Commission concluded its investigation and referred the case to the Tribunal for prosecution. The Tribunal issued its decision on 29 November 2010.

In its judgment, the Tribunal described the concrete pipes cartel as the "most enduring, comprehensive and stable cartel prosecuted to date".

The cartel fixed prices and contracts at both national and regional levels for the manufacture of pre-cast concrete products such as concrete pipes, culverts, pre-cast manholes and concrete sleepers.

Tribunal documents state, "Among SPC's main clients for more than 20 years were the Department of Water Affairs and Forestry, Rand Water Board and various municipalities, with projects pertaining to essential services such as water and sewage, which are critical sectors for South Africa's development".

SPC played the role of banker in the cartel, and compiled lists of all the contracts available during specific periods. It used this information to divide contracts among cartel members while also monitoring the number of contracts allocated in order to ensure that members did not exceed their allocated market share in an area, according to the Tribunal.

After the cartel disbanded in 2007, the price of concrete pipes fell up to -30%, according to the Tribunal's calculations.

The SPC and Conrite penalties represent the first time that the Tribunal has calculated a fine on the basis of the total turnover of a company. In the past the Tribunal limited its penalties to the turnover relating to the products that were the subject of the cartel arrangements.

SPC and Conrite have 20 business days to pay their penalties.

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