COMPETITION and Consumer Protection Commission has fined Lafarge Cement Zambia Plc K99,235,400 for applying abusive loyalty discount schemes, price discrimination and excessive pricing.

Competition and Consumer Protection Commission Board of Commissioners chairperson Kelvin Fube Bwalya stated in a statement today that the board had further ordered Lafarge Cement Zambia Plc to cease and desist from the application of its loyalty schemes, discrimination and excessive pricing.

“The Board of Commissioners of the Competition and Consumer Protection Commission (CCPC) has fined Lafarge Cement Zambia Plc (formerly known as Chilanga Cement), 10 per cent of their annual turnover as at 2012 which is equivalent to ninety nine million two hundred and thirty five thousand four hundred kwacha (ZMK 99,235,400), for the application of abusive loyalty discount schemes, price discrimination and excessive pricing,” Fube stated.
“The Board also directed Lafarge Cement Zambia Plc to present proposals to the Commission within three months on how it will ensure that it complies with the provisions of the Competition and Consumer Act. 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.”

He stated that an exhaustive investigation by the Competition and Consumer Protection Commission initiated in August 2013, following observed persistent increases in the price of cement found that the company 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.

Fube stated that Lafarge’s pricing discriminated the domestic consumers against the export market and further applied discriminatory pricing for the Lusaka segment of the Zambia market.

He stated that Lafarge Plc had abused its dominant position and had excessively priced its cement on the domestic market.

“The investigation which lasted for four (4) 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,” Fube stated.
“Specifically, the investigation revealed that from 2010, Lafarge Plc started running loyalty programs which categorised its customers into Tiers based on volumes. The Customer Loyalty Program covered Lusaka and Ndola with Ndola receiving 3.5 per cent, five per cent and eight per cent for Tier 1, Tier 2 and Tier 3 respectively while Lusaka customers in similar Tiers received 0 per cent, 3.5 per cent and five per cent respectively applicable on condition of a full month’s purchase or continued purchase from the time a customer starts buying from Lafarge Plc.”

He stated that in July 2010, Lafarge Plc discontinued the scheme due to dilution of its margins and implemented a uniform pricing policy with the Ndola price maintained at around K49 ex-works while the Lusaka prices were adjusted by four per cent to K51.5 ex-works.

Fube stated that Lafarge re-introduced the schemes (Rebate Scheme and Bonus Scheme) targeting Lusaka, the Democratic of Congo (DRC), Copperbelt and Chipata on similar categorisation and graduated applicable discounts based on a 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 (largely DRC and Burundi). As a result, the domestic market paid K3,231,838 more than the export market for the three year period of 2010 to 2012.”

“The price differentials were also extended to the domestic market with the Lusaka customers paying between 17 per cent and 59 per cent more than other customers outside the Lusaka market. Therefore the Lusaka customers paid K14,015, 257 more than other customers for the three years from 2010-2012,” Fube stated.

“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-works were also found to be higher compared to observed ex-works 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 USD7,910, 000 more than what the market would have paid in a competitive market.”

He stated that 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 was detrimental to consumers.

“While the Board of Commissioners takes cognizance of the role Lafarge Plc plays to 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,” stated Fube.

“Based on these facts, the Board decided to fine Lafarge 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 contravention of section 16(1) as read together with 16(2)(f)of the Competition and Consumer Protection Act no. 24 of 2010.”

“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.”