Presentation to the Portfolio Committee on Economic Development 30 January 2013.

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Presentation to the Portfolio Committee on Economic Development 30 January 2013

Transcript of Presentation to the Portfolio Committee on Economic Development 30 January 2013.

Page 1: Presentation to the Portfolio Committee on Economic Development 30 January 2013.

Presentation to the Portfolio Committee on Economic Development

30 January 2013

Page 2: Presentation to the Portfolio Committee on Economic Development 30 January 2013.

1. Wal-mart/Massmart merger update

2. Proposed market enquiry into the private healthcare sector

3. Construction Fast Track Settlement project - update

4. Discussion

Presentation Outline

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Page 3: Presentation to the Portfolio Committee on Economic Development 30 January 2013.

WAL-MART/MASSMART MERGER UPDATE

Page 4: Presentation to the Portfolio Committee on Economic Development 30 January 2013.

Background

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• The Competition Commission was notified of this merger on the 03 November 2010

• SACCAWU, FAWU, SACTWU, SMME Forum & EDD made submissions to the Commission’s investigation and participated in the proceedings

• Public interest issues raised on employment and supplier development

• Hearings at the Competition Tribunal commenced on the 11th May 2011 – 16th May 2011

Key milestones

Page 5: Presentation to the Portfolio Committee on Economic Development 30 January 2013.

The order of the Tribunal – 31 May 2011

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• Tribunal’s order (on 31 May 2011) included undertakings by the parties on employment and supplier development:

• MM/WM may not retrench workers for a period of 2 years

• Preferential employment opportunities to 503 workers retrenched during June 2010

• Honour existing labour agreements and not challenge SACCAWU’s role as the collective bargaining agent for at least the next three years

• Set up a R100m Fund to support local suppliers and small businesses as well as provide training to South African suppliers on how to do business with the merged entity and Walmart

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The order of the CAC – 9 March 2012

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CAC approved the merger with the following conditions:

1.No retrenchments based on the merged entity’s operational requirements in South Africa, resulting from the merger, for a period of two (2) years from the effective date of the transaction.

2.Reinstate the 503 employees who were retrenched in 2009 and June 2010 and must take account of these employees’ years of service in the Massmart Group.

3.Honour existing labour agreements and must continue to honour the current practice of the Massmart Group not to challenge SACCAWU’s current position, as the largest representative union within the merged entity, to represent the bargaining units, for at least three (3) years from the affected date of the transaction.

4.Commission a study to determine the most appropriate means together with the mechanism by which local South African suppliers may be empowered to respond to the challenges posed by the merger and thus benefit thereby.

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Order of CAC - 9 October 2012

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2 expert reports were presented to the CAC, with recommendations of the fund size, structure and governance. The CAC ordered Massmart to establish a R200 million to support local suppliers.

  

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• Advisory board• two representatives chosen by the merged entity; one representative chosen by the Ministers (first to third applicants); one representative chosen by SACCAWU; one representative chosen by the SASMMEF

• to consult with Massmart to determine the details of each designated class of beneficiaries

• advise Massmart as to the means and mechanisms to fulfil the objects of the fund, including advise on proposed projects

• produce an annual report on the activities of the fund and its assessment thereof which shall be submitted to the Competition Commission

Order of CAC on 9 October 2012 contd

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•  The following considerations shall be taken into account in the design and approval of projects:

•The producer’s prospects of remaining or becoming long-term suppliers to Massmart, Wal-Mart or to both;

•The labour-intensity of the producer’s South African operations;

•Whether the producer is a small-, micro- or medium-sized enterprise (SMME); and

•Whether the producer is owned by historically disadvantaged persons.

Order of CAC on 9 October 2012 contd

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Progress to date – Supplier Development Fund

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• Initial meetings held with Massmart in December 2012 and January 2013

• Massmart has set up structure for the Fund; appointed Executive for Supplier Development and Project Manager

• EDD represented by the Director-General on the advisory board

• Funding criteria, instruments and monitoring and evaluation framework to be confirmed by the advisory board in the next two months

• Annual report to be provided to the Commission in December 2013; interim report in the next quarter

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Progress to date – employment conditions

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• On-going monitoring of the company’s compliance with the order

• No retrenchments reported thus far as result of the merger• Current investigation into the implementation of the re-

instatement condition in order to verify compliance. • Commission is working with SACCAWU and Massmart to

ensure compliance• Commission has met with SACCAWU and will meet with

Massmart within the next month to determine their extent of compliance and deal with any concerns that might arise.

Page 12: Presentation to the Portfolio Committee on Economic Development 30 January 2013.

MARKET INQUIRY INTO THE PRIVATE HEALTHCARE SECTOR

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Background

• The Commission seeks to undertake a market inquiry into the private healthcare sector

• The purpose of the Commission is, inter alia ‘to promote the efficiency, adaptability and development of the economy’ and ‘to provide consumers with competitive prices and product choice’

• Amidst concerns about pricing, costs and the state of competition and innovation in private healthcare

• An assessment of the market has been called upon by key stakeholders

• The importance amplified by the unique nature of healthcare markets i.e. information asymmetries, agency relationships, distorted incentives etc.

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Recent history of the sector

• Pre-1993 the private sector was regulated; regulation covered tariffs and allowed for collective bargaining

• After the Medical Schemes Act in 1993 the determination and publishing of tariffs continued as before

• In 2002 this conduct came under the scrutiny of the Commission and was confirmed in consent orders with BHF, HASA and SAMA in 2004 as anti-competitive

• In response the CMS (supported by the DoH) published the NHRPL to establish a schedule of prices based on independent and objective determination of costs

• However this regulation was set aside in 2010 by the High Court following review applications

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Complex value chain

Source: Preliminary research commissioned by the Competition Commission

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Proposed scope of the inquiry

Purpose

•To conduct an analysis of selected segments; examining interactions between the segments and their contribution to healthcare costs;

•Inquire into the nature of the price determination in the private sector

•Establish factual basis for recommendations that support accessible, affordable and innovative private healthcare

Objectives

•Evaluate the nature of price determination with reference to competition, bargaining power, profitability and costs

•Determine what factors led to increases in cost of healthcare

•Evaluate consumer behaviour and constraints

•Make recommendations to appropriate policy and regulatory mechanisms

•Make recommendations on acceptable price-setting mechanisms

•Make recommendations on the role of competition policy and law in achieving pro-competitive outcomes in healthcare

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Methodology

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CONSTRUCTION FAST-TRACK SETTLEMENT PROJECT UPDATE

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Background

• Construction & Infrastructure sector is one of Commission’s priority sectors.

• The Commission conducted a number of investigations (including scoping exercises) in the product market (i.e. concrete pipes, cement, bricks).

• The Commission received many CLP applications from the Construction sector (i.e. cartels and bid rigging).

• Commission concluded that bid rigging is widespread.• Noted that Britain and Holland had similar challenges and

developed a fast track settlement process. • Commission launched its fast track settlement process in

2011.

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• To incentivise firms to disclose information

• To encourage truthful and comprehensive disclosure by

firms involved in bid rigging

• Strengthen evidence against other firms

• Minimise legal costs and speedily resolve complaints

• To give firms that disclosed their involvement in bid rigging

better financial settlement terms

• Set the construction industry on a new trajectory

Aims/Objectives of the Fast Track Settlement process

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• The Commission received settlement applications from 21 firms

(including the largest 5 construction firms) since the launch.

• Settlement applications revealed 133 rigged projects in both the

public and private sector. This includes major infrastructure

projects such as, stadiums, roads, dam, mines, shopping

centres.

Responses received from Firms

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• The fast track settlement runs concurrently with the CLP process.

• Firms were also implicated in prohibited practices they did not disclose.

• The Commission is also investigating firms that are implicated in prohibited

practices but did not apply for settlement.

• An envisaged Phase 2 of the investigation project in the construction sector

will begin once this settlement process is concluded.

• The purpose is to prosecute firms that do not settle undisclosed projects and

those firms that did not apply for settlement at all.

• The Commission will refer consent agreements to the Competition Tribunal

for them to be made orders of the Tribunal.

Scope of the Investigation

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Calculation of penalties

The Commission considers the following factors when determining the penalty:

• Number of contraventions in each subsector.

• Number of projects won or lost.

• The size of the contract.

• Whether firm settled any claim for damages.

• Annual turnover in each sub-sector.

• Factors mentioned in section 59(3)(a)-(g) of the Competition Act 89 of 1998 as

amended (“the Act”) .

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Thank you!

Tel: +27 (0)12 394 3200

Fax: +27 (0)12 394 0166

Email: [email protected]

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