FCT bars Scancem, Tanga Cement merger

THE Fair Competition Tribunal (FCT) has prohibited Scancem’s acquisition of Tanga Cement following a successful appeal by some cement industry stakeholders.

Chalinze Cement Limited and Consumer Advocacy Society had appealed against the Fair Competition Commission’s approval with conditions of the intended acquisition of 68.33 per cent of Tanga Cement shares by Scancem.

In its verdict, the Fair Competition Tribunal held that the conditional approval should not have been granted by FCC and declared it void.

In a judgment delivered recently, the Tribunal said the intended merger should be prohibited on grounds that it would likely create a position of dominance in the market, which contravenes the Fair Competition Act (FCA).

“Having made deliberations, observations and findings, it is our conclusion that the intended merger in question will create a position of dominance in the market,” the FCT ruled.

“We have seriously taken note of the fact that in most of its analysis report, the FCC was of the view that the merger will create a position of market dominance with no guarantee of increased market efficiency or benefit to consumer and yet proceeded to grant the merger with conditions,” the FCT stated.

The Tribunal said it was aware of the substantive and procedural law (FCA and FCC Rules) that protect and foster competition and competitive environment in the economy.

It argued that the merged firms should not be allowed to impair competition and consumer’s welfare in the relevant market, stressing, “In the spirit of the FCA, an effective merger decision is of paramount importance.

According to the Tribunal the combined market shares of the merging firms on the basis of the sales volume metric will exceed 35 per cent (with the 47.26 per cent using SID data and 52.11 per cent using FCC data).

“The intended merger fails the test set under Section 5 (6)(b) of the FCA,” it ruled, adding “The conclusion is that post-merger firms, acting alone, will materially and profitably be able to restrain competition for a significant period of time, failing the test under Section 5(6)(a) of the FCA.”

The Tribunal also argued that the decision to approve the merger with conditions, was founded on a wrong conclusion by using a metric that the FCC all along dis-applied, the installed capacity metric, insisting the metric was misleading and improper.

It said, the proper metric of cement sales volumes should have been used to determine the market share of the merging firms in the relevant market.

“By this proper metric, the analysis shows creation of position of dominance by the merging firms in the post-merger scenario; hence a prohibited merger as it contravenes Section 11 (1) of the FCA. Consequently, the decision of the FCC to approve the merger with conditions is hereby quashed and set aside.”

“Pursuant to the provisions of Section (11)(1) of the FCA, having quashed and set aside the decision of the FCC, the Tribunal prohibits the merger between Scancem International DA and Tanga Cement.

The Tribunal settled that the approved merger decision, even with conditions, would not restrain abuse of market dominance including undesirable practices.

Such undesired practices, according to the FCT may include production of undesirable small quantities of cement and provision of inadequate motivation for innovation, influence of bad behaviour in upstream and downstream activities of the other cement manufacturers in this market economy.

“The merged firm is likely to have the ability to increase their cement prices without suffering any decrease in their sales volume and revenues, hence extinguishing the existence of the price competition in the cement market in Tanzania, contrary to the substantive spirit and provisions of the FCA,” the Tribunal argued.

The Tribunal said, according to the report and the records of appeal, the merged firm is likely to organise into a large-scale cement manufacturing trust with interlocking directorship and market power with ability to undertake coordinated conducts to undermine price mechanism in the cement industry in the economy, a situation which will infringe the substantive law of competition and affect consumer rights.

“If this merger decision was to be upheld, it should have among other economic benefits, ensure to promote welfare-enhancing effects and interests of the cement consumers in Tanzania, however, that is not what we gathered from the records,” the Tribunal held.

The Tribunal held that the Fair Competition Commission, being a custodian of promotion and protection of competition authority in the country, failed to clearly give evidence on the existence of the relevant economic benefits of the merger to the welfare of the people of Tanzania.

“Such a failure rendered its merger decision illogical,” read the FCT’s statement.

The Tribunal also noted with concern, the FCC’s failure to engage the consumers who are presumed by law and precedents to have sufficient interest in merger decisions, arguing that the omission resulted in unfair procedure, which left the consumer unheard.

“We find all these concerns, if continued, will lead to injustice to the welfare of the people of Tanzania and defeat the object of FCA. In future, FCC should consider the constituent application of the competition law of the country because it is the consumer who will suffer the most from the consequences of the post-merger scenario concerns as the ones aired in the FCC report,” added the Tribunal.

Related Articles

Back to top button