The Competition Tribunal has imposed a R3.44m fine for excessive pricing on the company that supplied face masks to the SA Police Service (SAPS) at a cost of R32.50 per mask during the early stages of the Covid-19 pandemic.
Tsutsumani Business Enterprises was found guilty of price gouging by the tribunal on April 28 in contravention of the Competition Act and consumer protection regulations, marking the first successful prosecution for excessive pricing during public procurement of personal protective equipment (PPE) for Covid-19. The ruling was welcomed by the Competition Commission, which investigates companies for violating competition law before referring such matters to the tribunal for a ruling.
“The maximum fine imposed by the tribunal on Tsutsumani sends a clear message that price gouging in public procurement to exploit a crisis or emergency situation is viewed in a serious light by competition authorities,” said Competition commissioner Tembinkosi Bonakele. “This is one of the landmark price-gouging cases that the commission has successfully prosecuted since the advent of the Covid-19 pandemic.”
Tsutsumani is a general trader registered on the National Treasury’s central supplier database and supplies a range of products through tenders issued by government departments and municipalities. The SAPS lodged a complaint against the company with the commission on May 5 2020 over alleged price gouging in the supply of face masks during the first hard lockdown.
The SAPS was in desperate need of face masks for its approximately 197,000 members, who required 9-million masks a month in accordance with Covid-19 regulations. Given the unprecedented surge in demand for surgical face masks at the time, the SAPS was forced to secure masks on an emergency basis.
The tribunal found that Tsutsumani exploited this situation by charging the SAPS R16.25m for the bulk supply of 500,000 masks, or R32.50 per mask inclusive of VAT.
In its legal papers presented before the tribunal the commission argued that Tsutsumani had procured the masks from suppliers at an average cost of R17.35 per mask, meaning it charged a total markup of 87% and earned a more than 46% gross profit margin on each mask supplied to the SAPS.
The commission estimated that the excessive profits earned by Tsutsumani for this tender amounted to R5.3m, prompting the tribunal to impose a maximum administrative penalty of 10% of its relevant turnover. That equated to a total fine of over R3.44m.
“These prosecutions have uncovered how both state organs and vulnerable consumers and customers were exploited during the lockdown occasioned by the state of national disaster,” said Bonakele.
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