Tuesday, July 7, 2020

BMC engaged in anti-competitive business practices

An aggrieved whistle-blower told the Consumer Authority (renamed the Competition and Consumer Authority) that he believed that the Botswana Meat Commission (BMC) awarded a purchase contract to the Kgalagadi Soap Industries (KSI) under “dodgy circumstances.”

However, in its advocacy opinion, the Authority used more temperate language and concludes that “considering that BMC is a government agency”, it may not have been aware of the harm it was causing in the market. The market in question is of a product called tallow – the white solid rendered fat of cattle and sheep that is used chiefly in soap, candles, and lubricants. The only tallow extraction facilities are found at the BMC abattoirs in Lobatse and Francistown, making the Commission the sole producer and supplier of tallow in Botswana.

Going as far back as 2012, BMC’s tallow sale has been exclusive to KSI but upon appeal by interested parties, was opened up to everybody else. Six companies started buying the product until May 2017 when BMC floated a tender for purchase of tallow. Four companies submitted bids and down the road, KSI and a company whose identity is protected in terms of the Competition Act, were shortlisted. The former quoted P4600 per metric tonne while the latter quoted P5600.

At this point, the plot elements began to intersect in as suspicious a manner to have provoked the whistle-blower’s use of “dodgy circumstances.” BMC officials asked Company X’s during a site visit if they would be amenable to dropping their bid price as well as to sharing the tallow with KSI. It would later turn out that the price suggested by BMC officials was the very same one KSI had quoted. Oddly, during a meeting with the Authority, “BMC indicated that it opened up the sale of tallow to other firms in order to determine the competitive market price.” Following the site visit, Company X learnt that only KSI was awarded 100 percent of the tender.

“What surprised [Company X] was that the KSI’s initial bid price of P4, 600.00 had now increased to P5 100.00 per metric tonne at the time of award of the tender. [Company X] had bid higher at P5 600.00 per metric tonne of tallow. [Company X] explained that this new development led to KSI being the only customer for tallow at BMC, though BMC was the only producer of tallow in the country. The decision has not only aggrieved the whistle blower, but also [Company X] … [which] indicated that it was willing to assist the Authority address this issue as this decision by BMC closes out any other customers who need tallow and those already in the market for tallow will end up exiting,” the Authority’s opinion reads.

The meeting between the Authority and BMC officials also revealed some more oddities. While BMC explained that the tender evaluation committee put premium on local beneficiation and local operations, this was actually not reflected in the invitation to tender (ITT). While BMC reported that it considered compliance, technical know-how and price/cost when assessing the tender, the Authority would subsequently discover that the tender rating table outlined in the tender evaluation report submitted by BMC revealed four more evaluation criteria “that were not expressed in the ITT.” While the authority customarily uses temperate language in its opinion, what BMC had done was actually in contravention of Public Procurement and Asset Disposal guidelines: “According to PPADB regulations on tender requirements, tender criteria should be clear and complete in order to allow bidders to understand what is required of them. Any requirements over and above what is stipulated in the request for quote or invitation to tender document can be subjective and will bear some level of detriment on competition.”

Abuse of dominance through refusal to deal, which is what BMC was also doing, contravened the Competition Act and in its opinion, the Authority says that “the conduct of refusal to deal has the effect of reducing the level of competition in the market since BMC is the only producer of tallow in Botswana.” In more precise terms, “the exclusive award of the disposal tender to KSI closed out five other local firms that had been purchasing tallow from BMC.”

That BMC is the only producer of tallow in Botswana – which makes tallow an essential input. BMC’s strategy to sell tallow to only one customer was anti-competitive in that it closed out other customers and potential entrants in this particular market. The Authority’s position, as expressed in its opinion, is that this “create[d] serious barriers to entry and [would] have serious impact on firms that use or desire (new entrants) to use tallow as an input.”

BMC’s decision was harmful in two other very important ways. Firstly, “the value added or export revenue that these other five firms brought to the economy has stopped” and secondly, the Authority’s interviews with two losing bidders, “proved that there were business avenues and potential jobs that were shut out by the award of this tender to KSI.” Company X had to actually halt operations after the award of the tender.

In terms of the Act, there are two ways in which this matter could have been dealt with. The first was through enforcement of relevant provisions or through competition tribunal deliberations. The second was through an advocacy route. The Authority opted for the latter on the reasoning that as a government agency, BMC may not have been aware of the harm it was causing in the market. The apparent deal struck was for BMC to open up its tallow market – which obviated need for the complainants to haul it through the coals of a tribunal hearing.

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