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Competition Commission says no to sale of Sasol’s sodium cyanide assets

Due to concerns of substantial price increases which would disadvantage local gold miners.
Image: Waldo Swiegers/Bloomberg

The Competition Commission has rejected the proposed sale of Sasol’s sodium cyanide plant to Czech-based sodium cyanide producer Draslovka Holdings, on grounds that the transaction will reduce competition and drive up the price of the poisonous chemical, it said on Monday.

The commission is of the view that allowing the merger to happen would greatly disadvantage the local gold sector, especially given that it is solely dependent on petrochemicals giant Sasol for supply of the liquid asset.

“The commission finds that the proposed transaction is likely to result in a substantial prevention or lessening of competition due to inevitable post-merger price increases which will be detrimental to customers.

Import parity, the main stumbling block

Industry stakeholders, in engagements with the commission, raised concerns that the success of the acquisition by Draslovka Holdings through its local subsidiary Draslovka (South Africa) Proprietary Limited, would result in the assets’ new owner selling the liquid sodium cyanide product back to local gold miners at import prices, despite the fact that the resource is being produced on home soil.

“Generally, [imported] parity pricing involves pricing a product produced in South Africa as if it is being imported from another country to South Africa and includes the associated costs of importation,” the commission said in a statement.

“According to the concerned customers, a post-merger increase in the price of locally produced liquid cyanide to an import parity level would have a significant negative impact on local gold mining customers and its long-term profitability and sustainability as the procurement of liquid cyanide constitutes a significant portion of the local gold mining customers’ input costs,” the commission said.

No resolve

With the merging parties unable to come to a resolve with the commission on how to address its concerns, Sasol is forced to go back to the drawing board and rethink how the prohibition of this sale will affect its plans to move its business to more sustainable pastures.

JSE-listed Sasol announced its intentions to sell its highly profitable business to Draslovka Holdings for about R1.46 billion, earlier this year.

Read:
Sasol approves climate plan that critics say is too vague
Sasol maps out its future

The sale of the business was meant to pivot Sasol onto a more environmentally sustainable path that ultimately falls in line with the recent COP26’s call on business and world leaders to accelerate their efforts on climate change and adopt a more sustainable approach to their businesses.

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The Competition Commission sees itself as this omnipotent central planner with superhuman economic understanding and secret powers to engineer a lower cost of production through government intervention. They can prevent Sasol from selling the business, but they can’t stop them from shutting it down entirely.

The Competition Commission forces one business to accommodate a value-destructive cost structure for the doubtful benefit of another unrelated business.

The consequences of the various infringements of property rights by the Competition Commission are evident in the unemployment rate and the Debt/GDP ratio. We don’t have an economy anymore, but at least there is no collusion and nobody is disadvantaged.

Sasol anyway prices their chemicals at CBOE prices plus import costs one would suffer. They have excess methanol byproduct that they should want to get rid of but priced their ex factory methanol such that the proposed project was not feasible.

Change foot in mouth in order to shoot oneself in the other foot :/

End of comments.

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