Expert economic advice in bitumen production merger

Genesis was commissioned by Sasol to provide economic input into the competitive impact of the proposed sale of its Tosas business unit to a major South African road construction company, Raubex.

Tosas is primarily involved in the production of value-added bitumen products, including emulsions, modified bitumen and primes. Local competition authorities had previously concluded settlement agreements with the major South African oil refiners for the coordinated pricing of base bitumen and bituminous products.

Bitumen, a residual product of crude oil refining, is a major input into the road construction industry, both in South Africa and around the world. Through its joint shareholding in the Natref refinery, Sasol is a major supplier of base bitumen to Tosas.

There were two key challenges in this matter. The first was to present a clear definition of the relevant markets for the four-level supply chain, including multiple combinations of value-added bitumen products. The second was to address the many competitor concerns from value-added bitumen producers and road construction companies in South Africa.

The project team formulated a concise description of the industry and defined the relevant production and supply markets in line with local and international best practice to assess the competitive impact of the proposed merger. The team also focused on the potential for input and customer foreclosure across the supply chain, and ultimately mitigated all customer concerns.

The economic advice from Genesis before and during the investigation by the Competition Commission was critical. Unconditional approval was untimately granted to Sasol following the investigation.