THE COMMISSION CONTINUES WITH ITS ROBUST APPROACH TO HORIZONTAL MERGERS
Updated: Dec 14, 2021
In a response to disruptions caused to the supply chain of essential goods as a result of the events that took place during the last two weeks, the Minister of Trade, Industry and Competition, consulted the Competition Commission and published a Block Exemption for the Security of Supply of Essential Goods Regulations (“Regulations”) that now allows affected companies, in both horizontal and vertical relationships, to communicate and co-ordinate with each other in order to respond to the actual or anticipated shortages of essential goods in the country.
The exemption allows firms involved in the supply of the specified essential goods to engage with each other to prevent critical shortages of essential goods and promote the equitable distribution of scarce essential goods across the country. However, parties engaging with each other must (i) inform the Department of Trade, Industry and Competition and the Commission of their intention to do so and the anticipated shortages; and (ii) keep records of such engagements.
Subject to these requirements, the exemption permits parties to communicate in relation to (i) the loss of stock or capacity in general and in particular areas; (ii) the availability of stock and capacity – and the ability of firms to supply specific areas; and (iii) the demand for essential goods to determine the extent of shortages and allow for equitable distribution.
In addition, the exemption permits of co-ordination in relation to (i) the allocation of inputs in order to reduce actual or anticipated shortages – which will also allow for the transfer of inputs between producers of essential goods; (ii) the distribution of essential goods to different areas; and (iii) measures that may expand stocks or capacity to reduce anticipated or actual shortages.
Despite the fact that the Minister has exempted certain categories of agreements or practices by companies in the value chain (i.e. production, distribution and retail) for essential goods from the application of sections 4 and 5 of the Competition Act (the horizontal and vertical prohibited practices), it is critical for companies to be aware that the Regulations do not:
exempt them from the prohibition against price-fixing and collusive tendering in respect of essential goods and inputs used in the production of essential goods; or
authorise any discussion of the pricing of essential goods and the pricing of inputs used in the production of essential goods.
In other words, where section 4 of the Competition Act absolutely prohibits competitors from engaging with one another regarding the areas to which they will supply essential goods or the allocation of inputs for the production of essential goods, the Regulations now allow for this form of engagement up until 15 August 2021. However, it is critical to note that the scope of the engagement is strictly limited to addressing actual or anticipated shortages and the equitable distribution of essential goods, subject to upfront discussion with the Department and the Competition Commission.
In addition, companies in the supply chain for essential goods remain subject to the Consumer and Customer Protection and National Disaster Management Regulations and Directions issued on 19 March 2020. The Regulations note that this means that any increases in prices for the essential goods, or the supply of inputs for essential goods, must be cost justified and not increase the net margin or mark-up for that good above the average margin or mark-up for that good in the three month period to 1 March 2020. Where companies do not comply with this requirement, they may be open to investigation under the excessive pricing prohibition in the Competition Act and, in view of the decision of the Tribunal in Babelegi, it may be the case that (in these unusual circumstances) a small market share does not exempt a firm from the scope of the excessive pricing provision (which is usually reserved for dominant firms).
For more information, please access the Regulations here.