TWO companies that were part of a wire mesh cartel have been ordered by the Competition Tribunal to pay a penalty of R27.2-million for contravening the Competition Act by engaging in price-fixing and customer allocation.

Reinforcing Mesh Solutions (RMS) was ordered to fork out R21.6-million for participating in the cartel from 2004 to 2008, while Vulcania Reinforcing was slapped with R5.6-million for its involvement in the cartel from 2006 to 2008.

The fines were calculated using a new method, the tribunal said.

The Competition Commission initiated an investigation into the monopoly activity after it received information emanating from a leniency application by Murray & Roberts Steel on behalf of its subsidiary, BRC Mesh Reinforcing (BRC), on September 26 2008.

In the application, Murray & Roberts admitted to colluding with RMS, Vulcania and Aveng (Africa) Limited (trading as Steeldale Mesh) and was then granted conditional immunity from prosecution provided that it co-operated with the commission in the investigation and prosecution of the cartel.

Aveng settled with the commission last year and paid an administrative fine in this regard.

During the tribunal's hearing it emerged that the monopoly operated from December 2001 under the auspices of industry association, the South African Fabric Reinforcing Association (Safra).

Initially, Safra's modus operandi was that a price, derived from a set formula, was discussed and agreed upon. Safra would then distribute a price list to members, who would adopt it.

This enabled the competing firms to uniformly pass on input cost increases to their customers by providing a common mechanism for deriving the final price.

According to BRC, the timing of such price increases was crucial.

Ironically, even after the industry participants were informed in 2005 that their conduct could be classified as anti-competitive, they resolved to maintain the status quo.

Collusion had long been suspected in the industry.