Companies

Lafarge faces price-fixing penalties

French cement maker Lafarge could face penalties by the Competition Authority of Kenya (CAK) for suspected price-fixing.

The competition watchdog has accused Lafarge of possible price-fixing owing to its cross-directorship in East African Portland Cement Company (EAPCC) and Bamburi Cement – two local companies it has significant shareholding in.

The French multinational has 41.7 per cent shareholding in EAPCC and a further 58.9 per cent stake in Bamburi, the largest cement maker in the country by market share.

“Cross-shareholdings such as these (in EAPCC and Bamburi) are widely recognised to dampen competition… Even passive shareholdings change the incentives to set prices as some of the earnings from sales diverted to a rival are now internalised,” says CAK in a new report jointly published by competition authorities from Kenya, Tanzania, Botswana, South Africa and Zambia.

The report sets the stage for an expected ruling in June by the competition watchdog, which has been investigating whether Lafarge is culpable of “unwarranted concentration of economic power.”

READ: Competition agency to rule on State’s row with Lafarge

If found guilty, the regulator could force Lafarge to sell off its stake in one of the businesses.

The Competition Act (No. 12 of 2010) also stipulates that Lafarge directors, if found guilty of price fixing, could be forced to pay up to Sh10 million in fines or serve five-year jail terms.

Each of the competition watchdogs that contributed to the report detailed market dynamics in their countries.

The report also comes four months after the government—which together with NSSF has a controlling stake of 52.3 per cent in EAPCC—accused Lafarge of attempting to destabilise the cement maker to protect its interests in Bamburi.

“Lafarge has a financial interest in maintaining control at board and management levels of the company,” alleged Industrialisation PS Wilson Songa in a letter to CAK.

The government further alleged that Kenya Airways CEO Titus Naikuni and lawyer Hamish Keith— Lafarge’s seconded directors in Portland —were involved in uncompetitive behaviour.

READ: Regulator now wants Naikuni out of Portland Cement board

Lafarge countered that its minority stake in EAPCC is insufficient to exert control over the firm. They added that Portland is a genuine competitor of Bamburi Cement, adding that it stands to lose if it were to destabilise the former.

While the matter of concentration of economic power is yet to be decided, the CAK director-general Kariuki Wang’ombe has stated that the current shareholding structure is not good for fair business.

“Cross-directorship could lead to price-fixing since this creates a position where a competitor is privy to the strategic decisions of another competitor. However, it is not conclusive that there is price-fixing going on,” said Mr Wang’ombe, who is in Morocco for the continental forum of African competition agencies.

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