Omnia closer to getting big refund
Dismissal of Foskor’s high court appeal makes little impression on shareholders after a decade of wrangling over phosphoric acid
Chemical products group Omnia has moved one significant step closer to securing payment of a R60m refund due to it in terms of a Competition Tribunal consent agreement with Foskor. It may also be closer to securing lower prices for its phosphoric acid inputs.
But shareholders seemed unmoved by this week’s favourable high court ruling, with the share strengthening only marginally during trade on Wednesday and Thursday.
The dispute, which relates to Foskor’s pricing of phosphoric acid, is unfolding in front of the competition authorities. In October, after an approach from Foskor to have the consent agreement altered, the tribunal encouraged the two parties to seek help from a mediator. In a directive to the parties, the tribunal said if they were unable to agree on a mediator, they were each to submit three names to the tribunal chairman for him to nominate one.
Legal action over the terms of the consent agreement and the refund forced Omnia to restate its financial 2016 results, with earnings reduced to R642m from R702m. At the time, the board explained the restatement was due to a legal dispute "regarding the recoverability of amounts overcharged by a third-party supplier of raw material to agriculture division".
At R147.40, the share is 14% stronger than its 12-month low of R129 and 20% off its 12-month high of R185 reached in early December 2016.
The sluggish reaction suggests shareholders are expecting Foskor to continue dragging out a legal battle that began almost 10 years ago. Business Day was unable to get comment from Foskor on whether it intends to appeal against the latest ruling.
A considerable amount is at stake for Foskor, which is 59% controlled by the Industrial Development Corporation and appears to be in a fragile financial state. The most recently available statements reveal that in financial 2016, Foskor posted a loss of R568m, up from a loss of R415m in 2015. The consent agreement reached in 2011 relates to the pricing of phosphoric acid by Foskor, a monopoly supplier of the fertiliser ingredient. Foskor’s market dominance is strengthened further by it having sole access to the import/export terminal at Richards Bay.
The agreement, described by one competition lawyer as "rather messy and complicated", attempts to commit Foskor to setting its prices at export parity level rather than the much higher import parity level. Omnia told shareholders on Wednesday that, since 2014, Foskor had been setting the domestic phosphoric acid price at a level higher than the international price despite the tribunal’s ruling.
Omnia went to the high court to enforce the ruling and in October 2015, the court ruled in its favour. However, in March 2016 Foskor lodged an appeal, which has just been dismissed.