Using Economic Expertise to Overturn Competition Rulings

Sasol

Energy & Utilities

September 13, 2016

Sasol Oil Pump

When our client was found to have priced excessively, we used our extensive experience in quantitative economics to help successfully overturn this ruling.

Sasol is an international chemical company based in South Africa. Among other business activities, it converts refinery grade propylene – a by-product of fuel production – into purified propylene, which it either sells externally or further converts into polypropylene. Polypropylene is used to manufacture industrial and household plastic products.

In 2007, the Competition Commission of South Africa (Commission) alleged that Sasol had priced propylene and polypropylene excessively in the domestic market over the recent period and brought the matter to the Competition Tribunal (Tribunal) in 2010. The Tribunal upheld the Commission’s allegations and levied a significant fine against Sasol. Additionally, the Tribunal imposed a number of restrictions on the prices Sasol could charge within the domestic market.

Sasol appealed the Tribunal’s decision and filed with the Competition Appeal Court. FTI Consulting and Compass Lexecon were engaged to perform an independent analysis of the ‘economic value’ of its propylene and polypropylene businesses to evaluate if Sasol’s prices were excessive, by reference to South African competition legislation.

FTI and Compass Lexecon:

  • defined the economic tests to be performed to assess whether prices were excessive;
  • performed a benchmarking study, comparing prices internationally;
  • analysed Sasol’s prices by reference to ‘economic cost’ to estimate a lower bound for economic value.

We concluded that, although prices sometimes exceeded economic costs, the price/cost mark ups were not significant enough to warrant a finding of excessive pricing.

Outcome: The Competition Appeal Court preferred our analysis and determined that Sasol’s prices were not excessive.

Using the economic evidence we provided therefore, Sasol was able to successfully appeal and overturn the Tribunal’s decision.


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