Experts trash proposed competition legislation

As Parliament on Tuesday opens debate on a Bill that seeks to control mergers and acquisitions of businesses in Kenya, experts have trashed it saying it does not provide new guidelines.

If passed into law, the Bill, sponsored by the Ministry of Finance will create a new parastatal — the Competition Authority — to regulate any planned takeover of businesses registered in Kenya.

The new Authority is to replace the Monopolies and Prices Commission of Kenya which has been responsible for controlling mergers and acquisitions in the country.

Nothing new

“There is nothing new in this Bill. The provisions are the same; they are only changing the name from Monopolies and Prices Commission of Kenya to the Competition Authority. It is the same old organisation” says Mr Richard Omwela, a Nairobi based lawyer and a partner at the Hamilton, Harrison and Mathews law firm.

The Monopolies and Prices Commission of Kenya is being reviewed on the backdrop of a recent collapse in merger efforts between BOC gases and Carbacid investments.

BOC Gases, a supplier of industrial gases which is publicly quoted at the Nairobi Stock Exchange withdrew its offer to buy Carbacid Investments — Kenya’s only manufacturer of Carbon dioxide, in a deal that would have created an industrial gas major with a turnover of over Sh1.8 billion annually.

The review of the mergers and acquisitions comes hot on the heels of the recent acquisition of Chevron outlets by oil marketer Total Kenya which gave the latter increased control of the oil retail business across the country.

Total Kenya, is set to claim a larger share of East Africa’s fastest growing petroleum market after shareholders approved a deal to acquire its subsidiary firm, Total Marketing Kenya Limited (TKML).

Total Kenya will spend Sh11.4 billion to acquire 100 per cent of the capital shares of TMKL, formerly Chevron Kenya Limited.

The shareholders also handed the oil marketer the green light to finance the acquisition through a capital injection.

The Monopolies and Prices Commission of Kenya has already approved the deal even though it is likely to result in direct control of the oil marketing business in Kenya.

According to the new Bill, the new Competition Authority will not approve mergers which intend to reduce competition in any segment of the economy.

Mergers or acquisitions of companies dealing in similar lines of business will only be allowed if the resultant firm will not distort market prices or stability.

The Monopolies and Prices Commission of Kenya approved a merger between milk processors Brookside and Spinknit in November last year despite data indicating that the merged firm would control Kenya’s milk market in contravention of the Monopolies Act.

At the time of the approval of the merger, Brookside was processing 57 million litres of milk while Spinknit processed 21 million litres of milk in the first six months of 2008.

The merger created a bigger milk processor in the country with over 78 million litres of milk processed within the last six months, beating KCC and other dairy companies which processed 63 million litres within the same period.

Colonial legislation

The Bill will repeal the Restrictive Trade Practices, Monopolies and Price Control Act—a colonial legislation that has escaped amendment.

It recommends that any companies or persons who implement mergers which have not been approved by the proposed Competition Authority commits an offence that warrants a five year jail term or a fine not exceeding Sh1 million or both.

In addition, the Authority may also impose a financial penalty not exceeding 10 per cent of the gross turnover in Kenya of the undertakings in question.

“The Monopolies and Prices Commission has never taken anyone to court. We wonder how strong this new Authority will be, given that it is not given any additional powers,” said Mr Omwela.