The second Covid-19 public procurement hearing about buying masks for the South African Police Service (Saps) started on Monday against Tsutsumani Business Enterprise, after they allegedly charged R32.50 per surgical mask and allegedly made a profit of 87%.
The Competition Commission referred the matter for prosecution last year, accusing Tsutsumani Business Enterprise of excessive pricing when it supplied 500,000 masks at the beginning of the lockdown, as well as anti-competitive behaviour after charging above-market prices and ignoring evidence when it was presented with competitive pricing.
James Hodge, chief economist at the commission, rubbished the claim from Tsutsumani Business Enterprise that a harsh fine would lead to nobody wanting to supply personal protective equipment (PPE).
“This is distribution, not production,” he said, adding that reasonable traders would add a normal margin.
Candice Slump, manager of litigation at the commission, said it cannot be denied that the markup should not be more than 20%.
“The company also did not cooperate at all and we have to consider the nature, gravity and extent of its conduct.”
She pointed out that the company did agree in its heads of argument to a penalty of 10% of its annual turnover, but refers to its turnover in 2019 and not in 2020, when its turnover increased markedly.
Slump also said that the company tried to pretend that it came to the aid of the Saps, but instead it was involved in price gouging, with the additional profit exceeding 10% of its turnover.
“I am asking the Tribunal to consider that 10% of turnover will be inappropriate and that the penalty be 10% of the sales figures.”
In addition, Slump asked for interdictory relief from the Tribunal to prevent this from happening again.
In response, advocate Hannes Lerm, for Tsutsumani Business Enterprise, said the price of R32.50 per mask was in line with the prices of other firms. He argued that it was a single transaction and therefore the company could not exclude other competition. The Saps also accepted the masks at that price.
“There was a spike in demand and no barrier to market entry. It is also difficult to quantify expenses in a once-off transaction.”
Lerm asked that the sanction should be proportionate to the transaction and that it should not be too wide.
The hearing continues.