Lafarge faces price-fixing penalties

Byrebecca3360

Updated Tue, 29 Apr 2014 13:33:32 GMT

Kenya: Lafarge could face penalties by the Competition Authority of Kenya (CAK) for suspected price-fixing. CAK has accused Lafarge of possible price-fixing owing to its cross-directorship in East African Portland Cement Company (EAPCC) and Bamburi Cement. Lafarge has a 41.7% stake in EAPCC and a 58.9% stake in Bamburi.

"Cross-shareholdings such as these are widely recognised to dampen competition," said CAK. "Even passive shareholdings change the incentives to set prices, as some of the earnings from sales diverted to a rival are now internalised."

CAK is expected to rule in June 2014 as to whether or not Lafarge is culpable of having 'Unwarranted concentration of economic power.' If found guilty, CAK 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 US$115,000 in fines or serve five-year jail terms.

The report comes four months after the Kenyan government, which together with the National Social Security Fund (NSSF) has a controlling stake of 52.3% in EAPCC, accused Lafarge of attempting to destabilise the cement maker to protect its interests in Bamburi. Lafarge countered that its minority stake in EAPCC is insufficient to exert control over the firm. They added that EAPCC is a genuine competitor of Bamburi Cement and that Lafarge stands to lose if it were to destabilise EAPCC.

The director-general of CAK, Kariuki Wang'ombe, 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 Wang'ombe.