The Competition Commission and Vita Gas, the South African subsidiary of global energy and commodities giant Vitol, are set to square off over an exclusive liquified petroleum gas (LPG) supply contract the commission wants halted.
Business Times has learnt that both the Competition Commission and Vita Gas have filed papers before the Competition Tribunal, and that the alleged market abuse matter is expected to be heard in the next two weeks.
It comes at a time when Vitol is awaiting the commission's approval of its intended purchase of a 74% stake in Engen.
This week the commission referred another energy giant, Sasol, to the tribunal for excessive pricing going back a decade.
The Vita Gas case relates to a supply contract the company has had with Sunrise Energy, operators of the only gas import and storage facility in the Western Cape.
Through this contract, which is an exclusive take or pay agreement dating back to 2018, Vita Gas imports LPG through the facility at Saldanha Bay to supply most of the demand in that province.
In July 2020, Sunrise lodged a complaint with the Competition Commission arguing that the exclusive nature of the deal shut out other potential players who would have an interest in supplying gas through their facility.
Last year the commission confirmed it would prosecute the matter before the tribunal. It is seeking an administrative penalty of up to 10% of the revenue generated in the contract and an interdict of the contract, as well as declaratory relief that might have an impact on how future supply contracts are concluded in the sector.
On Wednesday Vita Gas confirmed it was opposing the matter, saying the case was “fundamentally flawed”.
“The commission itself has already dismissed a complaint from a third party about Sunrise in previous years, which had been brought on broadly the same grounds,” the company said.
The declaratory order the commission seeks would make exclusive supply deals in the sector a thing of the past.
But the interdictory part, which was meant to be heard last month, was withdrawn as the extent of the fallout between Vita Gas and Sunrise led to the former terminating supply through the facility with immediate effect last month.
The announcement, made a day before the June 16 public holiday, had the effect of leaving distributors in the lurch at a time when gas was sorely needed both as a source of warmth in winter and as mitigation against regular load-shedding.
Both Vita Gas and its shareholders, including Vitol, continue to believe in South Africa and intend to continue investing in the South African energy sector
— Vita Gas
Almost immediately Sunrise, through a statement, accused Vita Gas of acting deceptively as it had in the same week confirmed an import vessel for June 17.
"We wish to reiterate that any supply shortage has been caused knowingly and deceptively by Vita Gas and we assure the market that the Sunrise LPG terminal remains fully operational and available to receive both vessel imports and truck dispatch of LPG to the market," Sunrise said at the time.
It also announced that it had secured a temporary agreement with Trafigura to ensure continued supply of gas through its terminal.
In its own statement at the time, Vita Gas said the decision to halt supply was taken because both Sunrise and the Competition Commission had requested the tribunal to suspend the contract with immediate effect.
“Vita Gas deeply regrets that it has not been possible to find a mutually acceptable way forward. Sunrise Energy has, for over three years, sought to terminate the contract and, whilst Vita Gas contests the validity of Sunrise Energy’s arguments, the lengthy and ongoing legal actions against Vita Gas have made the situation untenable,” it said.
A player in the sector with insight into the fallout, but who asked to remain anonymous so as not to jeopardise future business prospects, said the argument by Sunrise was a legitimate one, but added that it was still cynical.
“The real issue here is likely that the agreement between the two parties was take or pay, which left Sunrise in an unenviable position, and also that they had very little say on price with a single supplier. It’s also worth noting Sunrise entered into the exclusive contract willingly because Vita Gas was putting up the money for the upgrade of the facility,” he said.
The source said Vita Gas’s conduct, if confirmed to be abuse of market dominance, could impact another application for the commission to approve the parent company Vitol’s purchase of a majority stake in Engen petrol stations.
“The timing of it all isn't great because of the other application for the Engen transaction. The petty action from last month of just cutting supply could also be viewed in a certain light no matter how justifiable,” he said.
VIta Gas said it had no view on whether the current case “will or will not affect Vitol’s decision to take up a majority stake in Engen. The two matters are unrelated.
“Both Vita Gas and its shareholders, including Vitol, continue to believe in South Africa and intend to continue investing in the South African energy sector.
“Vivo Energy, Vitol’s downstream company across 23 countries in Africa, is expected to complete on its agreement to combine with Engen, one of South Africa’s largest fuel retailers. Both Vitol and Vita Gas will continue to supply LPG to South Africa where practicable,” the company added.
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