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Wednesday, 27 May 2009

Parastatals and Competition Law

An important contribution from Andrew Kashita on the current competition law vis-a-vis parastatal companies.  If Andrew's assessment is correct, it appears some strategic incoherence is at play by the ZCC. Mr Kaira may be trying to mask his incompetence by alluding to clauses that do not exist.  We have previously touched on this issue here.  Certainly its time we all took a closer look at the "Competition and Fair Trade Act 1994"
Competition law and state-owned firms, Andrew Kashita, The Post (subscription), Commentary :
I refer to the story of May 19, 2009 in which the executive director of the Zambia Competition Commission (ZCC) is reported to have announced the proposals to lift the exemption of state-owned companies from the application of the competition and fair trade act, 1994. 

I was saddened and disappointed to see this claim, 15 years after this law was put on the statute book. There is nowhere in the Act where the exemption is conferred on state-owned companies.

The preamble itself states: "to encourage competition in the economy by prohibiting anti-competitive trade practices; to regulate monopolies and concentration of economic power; to protect consumer welfare; to strengthen the efficiency of production and distribution of goods and services.

The definition of a monopoly is " a dominant undertaking ...which produces, supplies, distributes or otherwise controls not less than half of the total goods of any description that are produced, supplied or distributed throughout Zambia or any substantial part of Zambia...". The same goes for services.

The quoted section 3(f): "...activities expressly approved or required under a treaty or agreement to which the Republic of Zambia is a party" has been misconstrued by the ZCC.

By common understanding, a ‘treaty’ or ‘agreement’ to which the government is a party means treaties or bilateral agreements with other countries or protocols and those signed with such bodies as the United Nations, African Union or SADC. These are the bodies in which other countries are signatories, and they rarely deal with trading organisations.

The Act deals with trading organisations in which the government has joint investments with other countries being trading entities which have provisions for dealing with revisions of operating (i.e. trading) charges and there are not many of these. The examples are TAZARA and charges at bridges such as Sesheke crossing into Namibia; at Kazungula when the bridge is built but not the present pontoons to and from Botswana. TAZARA also faces competition on the road throughout its length.

There are no treaties or agreements with other countries in respect of Zesco, Zamtel, Zambia Railways or even Cell Z which are all trading companies.

These companies and other activities are not exempted from the Competition Law.

The report went on to say that ZCC can only recommend to the minister in respect of state-owned companies flouting the law. This is incorrect.

Under the minister incorporation Act, in this capacity, the minister holds shares, bonds or other instruments on behalf of the government but he also as a shareholder, has powers to sue and be sued. His actions under this Act bind his successors, i.e. the government.

It is sad to see such a misunderstanding and misinterpretation of the law.

He said "we have no mandate to punish those who abuse the law but to recommend...to the government". This is wrong.

Section 14(1) authorises the executive director to obtain a court warrant to enter premises, access the books of accounts or other documents relating to the trade or business... and the taking of the copies of an such books of accounts or other documents.

Anyone aggrieved by the action of the executive director of ZCC may appeal to the High Court and the Supreme Court.

Person is defined to include companies, associations, partnerships, etc. With regard to prosecutions, section 16 (1) says "any person who:-

a) contravenes or fails to comply with any provision of this Act...or any directive or order lawfully given or any requirement lawfully imposed under this Act....

(b) omits or refuses to furnish any information when required to do so,

(c) refuses to produce any documents when required to do so, or

(d) knowingly furnishes any false information to the Commission....

shall be guilty of an offence and shall be liable on conviction to a fine not exceeding K10 million or imprisonment for a term not exceeding five years or both.

Most Acts now contain references to "penalty units" to deal with the varying kwacha value. But this has nothing to do with the principal claim that ZCC has no power to take action against state-owned companies.

Before concluding this discourse, let us refer to the announcement by the Cotton Association of Zambia and the Zambia Cotton Ginnery Association of a uniform price per kilogramme to be paid to the cotton farmers. This follows what are referred to as lengthy deliberations by various representatives numbering at least eleven. This appeared in the Times of Zambia of May 20, 2009 on page 15.

The price is what will be paid to the growers and clearly contravenes Part III: Anti Competitive Practices etc, section 7 (1) "Any category of agreements, decisions and concerted practices which have as their objectives, the prevention, restriction or distortion of competition to an appreciable extent in Zambia... are declared anti-competitive trade practices and are thereby prohibited".

Specifically, section 7(2)(g) colluding, in the case of monopolies of two or more manufacturers, wholesalers, retailers, contractors, suppliers of services, in setting a uniform price in order to eliminate competition..." is prohibited.

The only time ZCC is required to get the approval of the minister is in sections 13 and 17 when regulations are required to be made governing; (a) anything which under this Act is required or permitted to be prescribed; (b) any forms necessary or expedient for the purposes of this Act; (c) any fees payable in respect of any service provided by the Commission; (d) such other matters as are necessary or expedient for the better carrying out of the purposes of this Act.

In conclusion, the ZCC claim is false. The requirement to extend the penalty or fine beyond K 10 million is a routine matter which the government dealt with long before now. ZCC has a primary duty to protect consumer welfare. No state-owned trading company in Zambia is exempt from obeying the competition and fair trade Act. what is missing is enforcement by ZCC.

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