Johannesburg — IN A landmark ruling yesterday, the Competition Tribunal slapped steel giant ArcelorMittal SA with a record R692m fine after finding earlier this year that it had abused its dominant market position and ripped off domestic steel buyers.

The fine dwarfs the previous largest of R45m imposed on South African Airways for abusing its dominant market position, and constitutes 5,5% of Mittal's total flat-steel turnover in 2003. The company was also ordered to pay complainant Harmony Mining's legal costs, amounting to about R14m. With its own legal costs, the financial penalty runs to well over R700m.

More significantly, the tribunal imposed "behavioural remedies" aimed at preventing Mittal from manipulating the market in future, which could substantially contribute to achieving more competitive prices in the flat-steel market.

A lawyer involved in the case described the ruling as " precedent-setting".

"It is the first excessive-pricing case in SA and it is a decision that will be looked at internationally. Big companies will also have to pay attention. The message the tribunal is sending is to be very careful," said Nick Altini, competition lawyer and director of law firm Cliffe Dekker, which represented Harmony in its five-year battle with Mittal.

Explaining its decision, the tribunal said it had leaned heavily on the underlying structural circumstances in the market and on the ancillary conduct that enabled Mittal to sustain the charging of excessive prices. It was here that it sought to constrain the company.

The group effectively controlled steel volumes in the domestic market, thereby achieving excessive prices. Its primary instrument for achieving this was to prohibit the resale of steel product into the local market, which prevented arbitrage. This was aided by a highly secretive rebate scheme, which favoured some customers over others on price.

By its own admission, Mittal estimated that its pricing methodology resulted in additional revenue of about R20,7bn from 2000 to 2005.

The suggested structural remedies aim to stop this behaviour, and include that Mittal may not impose conditions on customers on their use of flat-steel or the resale of those products, nor may it make any agreements with customers on the use or resale of flat-steel products.

The company was also ordered to make public its list prices, rebates, discounts and other standard items of sale for flat-steel products.

However, the tribunal did not prohibit Mittal from selling steel to select customers at a discount, envisaging that "much will change" in consequence of the remedy lifting Mittal's ban on the resale of product into the local market.

"Those established traders hitherto confined to the domestic market will likely seek customers in the international market, (steel merchant) Macsteel International will be free to seek domestic customers, and the domestic price of flat-steel products should decline, it should 'tend', towards the export price," the ruling stated.

The tribunal warned of more sweeping structural measures, such as ordering the divestiture from Mittal's flagship Vanderbijlpark works or Saldanha Steel, should the group try to circumvent the behavioural measures.

Mittal, which earlier this year rewarded shareholders with a R6,3bn capital reduction, has so far not made any provision for a penalty, having indicated that it would appeal the tribunal's original ruling.

The group yesterday issued a subdued response, saying it would consider the judgment with its advisers to assess its full effect.

But it felt the ruling was not appropriate because it was the first time that a ruling has been made on what constitutes excessive pricing in SA.