Sasol Nitro, a division of Sasol Chemical Industries Ltd., has concluded a settlement agreement with the Competition Commission of South Africa relating to its fertilizer business. This agreement is scheduled to be considered by the Competition Tribunal on July 14, 2010.
Sasol Nitro and the Commission have been engaged in settlement discussions regarding alleged contraventions of the Competition Act, pertaining to excessive pricing and exclusionary practices. The discussions have been focused on addressing outstanding matters raised by Nutri-Flo and Profert from the mid-2000s.
The settlement will see Sasol Nitro restructuring its fertilizer business. Sasol Nitro says it does not believe it engaged in excessive pricing and exclusionary practices. Sasol believes the restructuring will address the Commission’s concerns regarding Sasol’s position within the nitrogen-based fertilizer value chain, while also opening the industry to more competition. Sasol Nitro will withdraw from certain downstream activities with increased focus on the core activities of its fertilizer business.
Sasol Nitro said it approached the Commission with this structural solution and has undertaken several changes to its fertilizer business model:
- Divesting its regional blending capacity in Bellville, Durban, Kimberley, Potchefstroom, and Endicott, while retaining its full production activities in Secunda.
- Altering Sasol Nitro’s fertilizer sales approach to a Secunda ex-works model. All fertilizer retail agent contracts will be phased out, and a new fertilizer sales operating model formulated.
- Supplying the market, in future, from Sasol Nitro Secunda and three distribution centers within a 100 km radius of Secunda and Sasolburg.
- Pricing all ammonium nitrate-based fertilizers on an ex-Secunda basis.
- Phasing out ammonia imports on behalf of customers in South Africa.
Approximately 50 permanent Sasol Nitro employees will be affected by the restructuring, as well as approximately 90 commission-based agents. Over the implementation period, Sasol Nitro will work with the affected parties to, as far as possible, limit the impact of the changes on the staff. Sasol ChemCity, Sasol’s business incubator, will facilitate interested parties in the development of business opportunities that may arise from the restructuring.
“Not only will this settlement see us restructure our fertilizer business within Sasol, we believe it will open the downstream fertilizer industry to more players, encouraging competition and potentially create new distribution business opportunities, as this sector redesigns itself. We also believe that these changes will create several new opportunities for Sasol Nitro to improve our offering to the end customer, our farmers,” said Marius Brand, managing director of Sasol Nitro. “We remain committed to the agriculture industry and the competitiveness of inputs to that industry. We have already started with detailed planning to ensure these changes are implemented as smoothly as possible.”
Sasol said the agreement will be a full and final settlement of the alleged contraventions of excessive pricing and exclusionary practices, which are the subject of the Nutri-Flo and Profert referrals, but requires confirmation by the Tribunal. It said that the Commission is of the view that since the settlement will address their competition concerns, the Commission has not sought an administrative penalty.
Sasol says the proposed settlement, together with the changes to the Sasol Nitro business, will not have a material adverse impact on the Sasol Group.