The Competition and Consumer Protection Commission (CCPC) has fined Lafarge Cement Zambia Plc K99,235,400 for application of abusive loyalty discount schemes, price discrimination and excessive pricing.

This is according to a statement issued by Chairperson of the CCPC Board of Commissioners Chairperson Kelvin Bwalya Fube who disclosed that the decision to fine Lafarge Plc was made during the 29th Board of Commissioners meeting for the adjudication of cases held in Lusaka on December 14, 2017.

Bwalya stated that the Board had further ordered Lafarge Cement Zambia Plc to present proposals to the Commission within three months on how it would ensure that it complied with the provisions of the Competition and Consumer Act.

“This was after an exhaustive investigation by the Competition and Consumer Protection Commission initiated in August 2013, following observed persistent increases in the price of cement, which found that; Lafarge Cement had engaged in the application of loyalty discounts which had lock-in effects and, facilitated discrimination among its customers in the market whom it had segmented based on trading volumes; Lafarge’s pricing discriminated the domestic market against the export market and further applied discriminatory pricing for the Lusaka segment of the Zambia market. Lafarge Plc abused it’s dominant position and had excessively priced its cement on the domestic market,” Fube recounted.

“The investigation which lasted for four years revealed that Lafarge Plc manufactures, markets and distributes Portland cement and had enjoyed market shares of 48 per cent to 86.4 per cent in Zambia during the 2010-2012 investigative period. This gave it a dominant position in the market, as investigations also revealed that cement imports only accounted for 4 per cent to 8 per cent of the market hence offering no effective competition. Specifically, the investigation revealed from 2010, Lafarge Plc started running loyalty programmes which categorised its customers into the tiers based on volumes. The customer loyalty Programme covered Lusaka and Ndola with Ndola receiving 3.5 per cent, 5 per cent and 8per cent for tier 1, tier 2 and tier 3 respectively while Lusaka customers in similar Tiers received 0 per cent, 3.5per cent and 5per cent respectively applicable on condition of a full month’s purchase or continued purchase from the time a customer starts buying from Lafarge Plc.”

Fube disclosed that investigations on the operations of Lafarge revealed that the cement company had different prices for the same product in various provinces in the country and that for those countries importing its commodity were buying at a relatively cheaper price than locals.

“In July 2010, Lafarge Plc discontinued the scheme due to dilution of its margins and implemented a uniform pricing with the Ndola price maintained at around K49 ex-workers while the Lusaka prices were adjusted by 4 per cent to K51.5 ex-workers. Lafarge re-introduced the schemes targeting Lusaka, the Democratic Republic of Congo, Copperbelt and Chipata on similar categorisation and graduated applicable discounts based on full months purchase. The investigations further revealed that the attempt by Lafarge to effect an import pricing parity on the domestic market resulted in domestic market paying more than the export market. As a result, the domestic market paid K3,231,838 more than the export market for the three year period of 2010 to 2012,” Fube stated.

“The price differentials were also extended to the domestic market with the Lusaka customers paying between 17 per cent and 50 per cent more than other customers outside the Lusaka market. Therefore, the Lusaka customers paid K14,015,257 more than other customers for three years from 2010-2012.

The investigations revealed that Lafarge excessively priced its cement during the investigations period effectively enjoying margins of close to 40 per cent. It observed Lafarge margins were found to be higher compared to its regional peers. Lafarge’s ex-workers were also found to be higher compared to observed ex-workers in Botswana and Tanzania among other comparators despite having more or less similar cost of production per bag especially from 2011 going forward. The practice resulted in the Zambian market paying $7,910,000 more than what the market would have paid in a competitive market.”

Meanwhile Fube charged that the excessive pricing of cement by Larfage and charging of high prices for the domestic market compared to the international market was undermining a competitive market and was detrimental to consumers.

“Infrastructure development is the backbone of social-economic development and one of the government’s key priority areas in the Seventh National Development Plan. The construction industry is very important for Zambia’s economic growth, infrastructural development and employment generation and the cement industry plays a vital part of this infrastructure development. The excessive pricing of cement by Lafarge and the charging of high prices for the domestic market compared to the international market and for Lusaka compared to the rest of Zambia undermined a competitive market and detrimental to consumers,” he stated.

“While the Board of Commissioners takes cognisance of the role of Lafarge Plc plays in the economy and its contribution to employment creation and the economy in general, its conduct had the serious effect of undermining infrastructure development both private and public especially with government’s continued thrust on infrastructure development projects from roads, schools, clinics and development of district centres among others. Based on these facts, the Board decided to fine Zambia Sugar Plc 10 per cent of its annual turnover as of 2012 for having abused its dominant position by applying abusive loyalty discount schemes, discrimination and excessive pricing in contradiction of section 16(1) as read together with the 16 (2)(f) of the Competition and Consumer Protection Commission Act number 24 of 2010.”

Fube also warned of stern action against any other businesses wishing to take advantage of their monopoly like Lafarge Cement Plc.

“We would like to take this opportunity to warn businesses that are engaged in abuse of dominance of their market positions or any other form of Anti-competitive Business Practice to desist from such conduct as there will be serious consequences. We remain steadfast in our commitment to eliminate any Anti-competitive Trade practices, which impact negatively on Zambia’s quest to promote a competitive business environment business environment, ensure that ordinary consumers are not exploited and an inclusive economy for job creation,” stated Fube.