THE two parties in the silica industry fighting for the approval of their merger transaction before the Competition Tribunal asked for a costs order against the Competition Commission yesterday.

It is the second time the commission is facing a costs order stemming from a merger review. The decision by the Competition Appeal Court in the review of the transaction between Pioneer Hi-Bred and Pannar Seed to award costs against the commission has opened the gates for more companies that feel aggrieved by the process to ask for a costs order.

Thaba Chueu, a subsidiary of Silicon Smelters, applied for a review at the beginning of the year asking the tribunal to approve its acquisition of SamQuarz, a subsidiary of JSE-listed Petmin, without conditions. The transaction, an intermediate merger, was prohibited by the commission.

In the Pioneer case the commission prohibited the merger and the tribunal confirmed the prohibition, but the Competition Appeal Court approved it.

SamQuarz supplies silica to Sublime Technologies, Silicon Technology (Siltech) and to Silicon Smelters' Rand Carbide Plant. Silicon Smelters is a subsidiary of Spain's FerroAtlantic, and has two plants that will be acquiring its silica rock from the merged entity for its production of silicon metal and ferrosilicon.

The merging parties said last week that the commission's case had been conducted in a manner lacking any "discernible direction". They claimed that despite their concluding substantive supply agreements spanning over nine years with competitors, easing the foreclosure concerns raised by the commission and the Department of Trade and Industry, the commission decided to continue opposing the merger.

The commission argued that the long-term supply agreements did not offer the protection that they purported to offer Sublime and Siltech. The commission said the agreements were discriminatory and restrictive.

The merging parties argued that they had no incentive to foreclose smaller competitors. If they did, they would lose millions of rands. Even if they did foreclose, such an action would be disciplined by imports.

The merging parties also eased concerns raised by the department about new entrants.

Competition lawyers said the obligation to pay costs in merger reviews was certainly not a precedent the commission could afford. Ian Jacobsberg, head of law firm Eversheds' competition practice in SA, said earlier there were several precedents for costs awarded against the commission on prohibited practices, but in merger proceedings it was unusual.

Former tribunal chairman David Lewis called the decision by the Competition Appeal Court outrageous and unprecedented. He said the commission was a statutory body mandated to review all mergers submitted to it. In good faith, it made decisions, which were subject to appeal.

vissera@bdfm.co.za