Import parity pricing to be hit

Such a step could hit major industrial groups, such as Mittal Steel SA and Sasol, which in the past have come under fire from local downstream manufacturers for applying import parity pricing. Government leaders, notably President Thabo Mbeki and Trade and Industry Minister Mandisi Mpahlwa, have spoken out against the continued use of the controversial pricing mechanism, under which major local manufacturers charge customers the price it would cost to import the product. State benefits that could be reconsidered include programmes such as government’s Strategic Industrial Projects (SIP) incentive initiative, which offers tax breaks to companies investing at least R50 million in qualifying projects. “As we design our industrial incentives, we will have to review providing support to companies charging import parity prices,” said Nimrod Zalk, chief director of the trade |and industry department’s competitiveness unit. “The logic is, why should we provide support to companies that engage in a pricing mechanism that damages the economy?” Zalk said government’s decision would apply to future incentives and not retroactively. “We will not take away the benefits that companies enjoy, unless there is a clear breach in the conditions of the incentives,” he said. Customers of these companies argue that the prices charged are inflated. The pricing model has again come under the spotlight because of the Competition Tribunal hearings on Mittal Steel prices. Gold producers DRDGOLD and Harmony have filed a complaint against Mittal Steel with the tribunal, arguing that the steel giant’s pricing of flat steel products in the domestic market is excessive. Mittal Steel SA spokesman Thami Didiza on Monday said the company no longer applied the import parity pricing mechanism. Prices were benchmarked on those of comparable markets. Import parity pricing removes most of the benefits that come from domsestic production, including the lower staff costs that typically apply in South Africa. The system has come into increasing use north of the Limpopo in Zimbabwe, where so many producers are monopolies or a member of a duopoly since the economy is too small to support more open competition. ‘ Business Day, ST writer.

March 2006
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