Competition Tribunal rules on Eskom banning supplier

The Competition Tribunal has ruled that deregistering a supplier is not anti-competitive, after Eskom deregistered Econ Oil & Energy as a supplier and banned it from being a supplier for ten years.

The decision by the utility followed an investigation into allegations of improper and unethical conduct.

Econ Oil & Energy managing director Nothemba Mlonzi applied to the tribunal for interim relief to prohibit Eskom from deregistering and banning it. She asked for an order to interdict and restrain Eskom from abusing its dominance by “refusing to deal” with Econ Oil, and permit Econ Oil to participate in Eskom’s tenders for the supply of fuel oil to Eskom power stations. Eskom opposed the application.

Econ Oil supplied fuel oil to Eskom from 2003. Eskom investigated allegations of improper and unethical conduct against Econ Oil in 2021, and subsequently terminated the supply agreement.

The tribunal said it must be satisfied it is “reasonable and just” to grant interim relief in the form of the order.

“When deciding on what is reasonable and just, the tribunal considers whether there is prima facie evidence relating to the alleged prohibited practice and the need to prevent serious or irreparable damage to the company. The balance of convenience must also favour granting the interim interdict”.

Mlonzi and Econ Oil alleged Eskom’s conduct prevented them from entering into, participating or expanding within the market for the supply of fuel oil to Eskom, a dominant buyer of fuel oil, in contravention of section 8(1)(c) of the Competition Act. Mlonzi and Econ Oil also alleged Eskom discriminated against them on the grounds of race and gender.

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Eskom was not engaged in exclusionary act

The tribunal said this section of the Act prohibits a dominant firm from engaging in an exclusionary act “if the anti-competitive effect of that act outweighs its technological, efficiency or other pro-competitive gain”. An exclusionary act is as an act that impedes or prevents a firm from entering into, participating in or expanding within a market.

In its opposition to these claims, Eskom said it was not possible to regard Eskom’s conduct as exclusionary, given the impropriety Econ Oil is accused of and that Econ Oil cannot argue that it has been prevented from entering, participating or expanding within a market because it claims on its website that it has multiple customers, while Eskom’s decision to de-register Econ Oil as a supplier was based on justifiable grounds.

The tribunal considered whether Econ Oil’s exclusion as a supplier is prima facie evidence of a prohibited practice or exclusionary act, and found no prima facie evidence of an exclusionary act in contravention of section 8.

“It is the tribunal’s view that the Mlonzi and Econ Oil did not demonstrate any anti-competitive effects from Eskom’s exclusion of Econ Oil as a supplier and the tribunal cannot find that Eskom was not justified in deregistering Econ Oil as a supplier for its alleged involvement in improper and unethical business practices”.

According to the tribunal’s finding, “… it is not possible to conclude that there is no ‘proper explanation’ for Eskom’s conduct or that the reasons it has provided lack objective rationality or justification. We also cannot find that the decision to de-register Econ Oil was motivated by a desire to entrench Eskom’s dominant position or to enable it to leverage its market power at the expense of Econ Oil.”

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No discrimination either

The tribunal also found the claims of discrimination by Eskom on the grounds of race and gender was speculative.

Regarding the need to prevent serious or irreparable harm, the tribunal believed it is unnecessary to reach definitive findings given its conclusion that no prima facie evidence of a prohibited practice was established.

Regarding the balance of convenience, the tribunal said it involves weighing the prejudice that will be suffered by Mlonzi and Econ Oil if the interim relief is not granted, against the prejudice to Eskom if the application is successful.

The Tribunal considered Econ Oil’s ability to compete in the market will be severely constrained by the loss of Eskom as a customer, but said this must be balanced with the prejudice suffered by Eskom which, as a public entity, has a constitutional and legal obligation in the way it engages with suppliers.

“The Tribunal is unable to hold in the circumstances of the case, where a strong justification is given as to why an organ of State refuses to engage with a supplier, that the balance of convenience nevertheless justifies the continuation of that relationship. The application for interim relief was accordingly dismissed with no order as to costs.”