2005-10-13,+With+champions+like+Sasol,+who+needs+enemies,+Crotty

= With 'champions' like Sasol, who needs enemies? =


 * Business Report, Johannesburg, October 12, 2005**


 * By Ann Crotty**

Occasionally during the competition tribunal hearing into the proposed merger between Sasol's liquid fuels business and Engen, mention is made of the "national interest" or of "SA Inc", as though Sasol represented this vague concept.

What is not mentioned but seems implied is that Sasol should be allowed to have its way because what is good for Sasol is good for South Africa. Indeed, the concept of a "national champion" seems to lurk below the surface of much of Sasol's input in the case.

If the merger is approved, Uhambo will be a major player in the oil production and retailing business. Uhambo's primary objective seems to be to ensure that it can secure a price for its huge volumes of oil/petrol that is equivalent to import-parity pricing plus.

At this early stage in proceedings it does seem that, in creating Uhambo, Sasol is driven by the desire to ensure that it will be able to dominate an oil industry cartel that will restrain any benefits consumers hope to reap from deregulation of the industry.

And it is likely that the other oil companies are not as concerned about the possible lack of benefits for consumers as to who gets to control the cartel.

The tribunal members have been remarkably restrained in not pointing out that our national champion in this industry probably holds the record for appearances before them in cases that suggest that Sasol, accustomed to getting its way for so long, has become something of an anti-competitive bully.

Apart from a few of the Tiger economies in the Far East, the notion of a national champion is problematic, particularly in a globalised trading environment where import-parity pricing is the order of the day. One would have thought that in a world of import-parity pricing there can be no national champions.

In essence, what this pricing means to the consumer is that you enjoy no advantage if you live on the doorstep of the world's primary source of a particular commodity, let's say steel or synthetic fuel.

You will be charged the international market price for that commodity plus the cost of schlepping it from the international marketplace back to your doorstep.

These additional "virtual" costs go straight from your pocket to the bottom line of the company concerned. You can forget about enjoying even the slight price advantage that you feel you might be due from the billions of rands of government funds that were poured into the creation of world-class groups such as Sasol and Iscor/Mittal Steel.

The notion of a national champion becomes all the more quaint when you consider that in both cases we are dealing not with nationalised entities but with private sector companies.

Of course, if you wanted to ease some of the financial pain caused by import-parity pricing, then you could buy Sasol shares. And if you'd timed the purchase well over the past year, then you would probably be sitting with a sufficiently large book profit to cover your exposure to the effects of Sasol's pricing.

Indeed, if you had enough Sasol shares, you would probably be considering doing whatever was necessary to ensure that the government did nothing to restrain the huge profits your investment is generating.

The record profits and share price levels that Sasol enjoys are attributable to uncontrollably high world oil prices, import-parity pricing, regulation of the local oil industry and, to a limited extent, good management.

The lucky members of this management team are generously rewarded not only in cash but also through the allocation of share options, which have made many of them multimillionaires.

The truly altruistic among us will perhaps smile benignly as we fill up their cars and hand over to Sasol/Uhambo an amount of money that could sustain the family of an unemployed worker and contemplate how much our small transaction is contributing to the wealth of Sasol shareholders.

Some of the rest of us may wonder when will we get sight of the government policy that will either alter or make sense of a system that results in such a massive redistribution of wealth from oil consumers to shareholders.

Or is there some efficient economic process at work in all of this - that perhaps ensuring that Sasol is dominant in the oil industry will protect our foreign exchange reserves? Could it be that forcing oil consumers to pay more than top dollar is hugely efficient in a way that is not apparent to the average oil/petrol consumer?

It shouldn't have to be pointed out that the average oil consumer in South Africa is not the wealthy owner of a pointlessly luxurious car but an employee facing ever-increasing costs of getting to work.

And as we fork out more money to get to work, will we take comfort from the fact that one of the justifications for pushing through the Uhambo deal is that it will result in the speedier enrichment of a handful of well-placed black empowerment players?

It's time for the government to realise South Africa cannot afford national champions such as Sasol, Mittal Steel and Telkom if it wants to achieve 6 percent growth.

From: http://www.busrep.co.za/index.php?fSectionId=553&fArticleId=2942898