Economy
Competition watchdog shocks steel industry tycoons with record fines
Thursday August 24 2023
GRAPHIC | CHRISPUS BARGORETT | NMG
Billionaire businessman Narendra ‘Guru’ Raval is among Kenyan tycoons and household names in the lucrative steel industry whose companies have been slapped with record Sh338.8 million fines by the competition watchdog for engaging in cartel-like behaviour.
This is the highest penalty the Competition Authority of Kenya (CAK) has ever imposed for anti-competitive behaviour, with the last being Sh66 million against four paint manufacturers two years ago.
The nine companies have been accused of price fixing and restriction of output leading to an inflation of their markup by at least 30 percent, according to research done by global competition experts.
“Cartels are conceived, executed, and enforced by businesses to serve their commercial interests, and to the economic harm of consumers. In this matter, the steel firms illegally colluded on prices and margins as well as output,” said Adano Wario, the CAK’s acting director-general.
The nine penalised firms are managed or owned by billionaire families in Kenya, with the influence of some spreading into related sectors such as cement, an indication that they might have a stronger grip on the country’s housing market.
Read: Watchdog probes steel companies over price-fixing
Still, some of the companies are related to each other, a reflection of how tightly knit the steel sector is.
Mr Raval, whose company Devki Steel Mills was penalised for restrictive trade practices, is ranked among the richest Kenyans. Steel is a critical item in the manufacture of a lot of items.
Also fingered by the competition watchdog is Doshi & Hardware, founded by the late Nilesh Chandrakant Doshi. The firm was slapped with a fine of Sh41.55 million for the offence of price fixing and restriction of output.
In the early 1990s, the Doshi family also bought Brollo Kenya, another company that has been fined Sh9.36 million. The family is now the sole owner and manager of Brollo, with Ketan Doshi serving as its CEO.
Corrugated Steel, which was handed the highest fine of Sh86.98 million, is headed by Mombasa-based tycoon Darshak Hasmukh Kanji Patel.
Mr Patel is the chairman of Corrugated Steel Industries whose headquarters is in Mombasa. The company makes steel products under the Nyumba Brand.
Mr Patel’s name also features in Mombasa Cement, which produces cement under the Nyumba Brand. Tononoka Rolling Mills, another steel powerhouse, was handed the second-highest fine of Sh62.72 million. The CEO of Tononoka is Dharmesh Savla.
The founder and CEO of Jumbo Steel Mills, which has been slapped with a fine of Sh33.14 million, is Indravadan Ashabhai Patel.
Accurate Steel Mills, fined Sh26.8 million, is managed by Avraj Singh Bhachu. Accurate Steel is owned by the Bhachu family, who also own Bhachu Industries.
Neelkamal Rameshchandra Shah is the managing director of Nail and Steel Products, which was fined Sh22.82 million.
Steel is one of the world’s most important construction materials, and is used to make reinforcement bars, beams and columns, windows, and doors, among other products.
This means their anti-competitive behaviours had the effect of raising the cost of construction, one of the development pillars for the administration of President William Ruto.
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“The steel sector is critical to the government achieving its priority agenda, including affordable housing, and thereby supporting the country’s economic performance in boosting infrastructure and manufacturing,” said Shaka Kariuki, the CAK chairman.
Mr Kariuki noted that the intervention by the CAK was backed by strong evidence supporting the illegality of price fixing and output restriction.
“Consumers should always buy goods and services that are competitively priced and not faced with artificially determined prices,” he said.
The steel products include bars, pipes, beams and sheets which account for over 20 percent of the total cost of constructing a house.
The CAK relied on Section 21 (3) of the Competition Act which empowers it to impose a financial penalty of up to 10 percent of the preceding year’s gross annual turnover in Kenya should companies engage in restrictive trade practices.
The CAK said that together with law enforcement officers, armed with search warrants, they undertook a dawn raid in December 2021 in which they seized incriminating materials.
They reportedly found minutes which proved the existence of discussions where the parties resolved to restrict importation of 0.9mm coils and plates.
Read: Devki Kwale steel plant upbeat about EAC orders
They also found a pattern of coordinated release of pricelists through analysis of ex-factory prices.
There was also monitoring of competitors’ stock levels and sales volume monitoring, pointing to collusion.
Local steel manufacturers have been enjoying some protection from external competition, with Kenya slapping a 35 percent duty on finished steel.
In the current financial year ending June next year, the government introduced an export and investment promotion levy of 17.5 percent.
In 2021 the competition watchdog hit four paint makers with a penalty of Sh66 million, for cartel-like practices including price fixing that exposed consumers to high charges for various brands.
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