THE South African competition authorities have been wonderfully agile in coming down on anti-competitive practices in the private sector.
But the collapse of low-cost carrier 1time has exposed them to charges of failing to act with anything like the same fervour to ensure fair competition in the public sector.
The government-owned South African Airways and Airports Company South Africa (Acsa) stand accused of abusing their dominant positions in the market to the detriment of competitors in a way that the competition authorities would never allow in the private sector.
So why do they allow it in the public sector?
They do not, says the head of the Competition Commission, Shan Ramburuth, pointing to the cases it has successfully pursued against SAA and Telkom.
“It’s not true that we keep away from the public sector. We have clearly demonstrated that we do take up matters against firms owned by the government which are functioning in a competitive market.”
Not, however, in the case of low-cost airline Mango, an SAA subsidiary suspected of using taxpayers’ money to gain unfair advantage over the opposition and squeeze them out of business.
Certainly their behaviour has incensed Erik Venter, the CEO of Comair and low-cost carrier kulula.com. On the basis of previously released financial statements of SAA and parliamentary comments, which he has had to rely on in the absence of information from Mango itself, he reckons that Mango has made a loss of R500m since its launch in 2006 due to undercutting the viability of private low-cost carriers.
He believes 1time would still be alive if it had not been for this and is not alone in wondering where on earth the competition authorities have been?
“Bring us the evidence,” says Mr Ramburuth. “To draw a straight causality line from SAA’s behaviour with respect to Mango to what happened to 1time, that causality is not straightforward. There are probably a whole range of reasons it experienced the difficulties it did.”
He says anecdotal evidence is not enough to initiate an investigation.
“When you take up a matter you’ve got to demonstrate that you’ve applied your mind to the facts before you and that it’s a reasonable decision.”
The competition authority relies on competitors bringing relevant information forward, and that has not happened yet, he says.
“We certainly can’t act on a whim or on sentiment. There have been numerous incidents where we’ve been criticised for precisely the opposite behaviour, for being too gung-ho about the way we’ve done things.”
It needs to be borne in mind that the aviation sector is under strain internationally, he says.
Does he believe that there is a fair competitive environment in the local aviation sector?
“There may well be a number of issues that distort competition in a number of ways,” he concedes.
He agrees that Acsa may be one of them.
Acsa has a monopoly over most local airports and has used it to devastating effect, as Investec economist Brian Kantor pointed out in a recent Business Day article.
It has exploited its pricing power in a way that the competition commission would never allow in the private sector.
The system seems manifestly anti-competitive to many other observers and cries out for the attention of the competition authorities. The government regulator in the Department of Transport allows Acsa to raise its airport tariffs to what Kantor has calculated are “inappropriate” levels. Last year they went up 70%. The effect is to fatally reduce profit margins for private carriers while Acsa’s swelling profits from the tariffs are used to offset SAA’s operating losses.
In effect this means private airlines are subsidising their competitors, SAA and Mango.
Mr Ramburuth agrees that the reasons for granting such high tariff increases “need to be made more clear and transparent”. But he says the Competition Commission itself cannot interrogate these tariffs without convincing evidence that they are having an anti-competitive impact.
There would be an “outcry” if they tried this in the private sector without any “real evidence”, he says.
“I’m sure there are many in the private sector who would love us to do this provided it’s against the government, against a state-owned enterprise, but would cry foul if we did the same to them.
“A lot of the challenges against us have been from the private sector to curb that kind of power. We need to have reasonable grounds to pursue something. Bring us the evidence.”
Mr Venter, for one, believes that the collapse of 1time is all the evidence needed, but Mr Ramburuth begs to differ.
“There are many well-resourced entities out there that would have and could have provided us with this evidence or information should it have existed,” he says.
He points out that Comair and Nationwide (before it went under) both took legal action against SAA when they had enough evidence.
“They are not unfamiliar with this area of law. They have armies of lawyers who can tell them, ‘Hey, here is a good case to take to the Competition Commission.’”
He believes the demise of 1time had less to do with unfair competition than the fact that it did not have a big investor. “You need a big investor. SAA are lucky that they’ve got one.”
He thinks the question people are really asking is about the wisdom of state ownership and the rationale behind it.
“There are invariably good reasons but I think what people are asking for is a better explanation of why that is the case.
“The point is you’ve got state ownership of these two enterprises, Acsa and SAA, and the rationale for that ownership is not clear to everybody.
“We need more policy coherence in terms of how, in regulated sectors where state ownership is involved, competition considerations are taken into account.
“You can regulate in a competitive way, in a way that is competition friendly. If that does not occur there should be a clearer understanding of what public interest is.”
* This article was first published in Sunday Times: Business Times