Tsutsumani Business Enterprises, which supplied medical masks to the South African Police Services (SAPS), has been found guilty of overpricing.
This is the first excessive pricing case prosecuted by the Competition Commission of South Africa in the context of the public procurement process during the pandemic.
Tsutsumani is a general trader that supplies a range of products through tenders issued by government departments and municipalities.
The matter emanates from a complaint lodged with the Commission by the SAPS on 5 May 2020 relating to price-gouging in the supply of face masks required by the SAPS during the period of the hard lockdown, the Competition Commission said in a statement.
The tribunal found that during the hard lockdown, SAPS was in desperate need of face masks for its 197,000 members who were on the frontlines of efforts aimed at containing the escalation of the pandemic. SAPS required nine million masks per month to protect its members from contracting the coronavirus.
There was an unprecedented surge in demand for medical face masks at the time, and SAPS had to secure an emergency supply of masks, the Commission said.
The tribunal found that Tsutsumani took advantage of the crisis caused by the pandemic and, in response to a request for an emergency quote, charged the SAPS service R16.25 million for a bulk supply of 500,000 masks during the hard lockdown in April 2020.
The commission submitted documents before the tribunal showing that Tsutsumani purchased masks from suppliers at an average price of R17.35 per piece and charged the SAPS service R32.50 each.
The company thus earned a total of 87% mark-up and 46% gross margin per mask.The excessive profits earned by Tsutsumani amounted to R5.3 million.
The tribunal imposed on Tsutsumani a maximum administrative fine of 10% of its relevant turnover amounting to R3,441,689.10. The fines imposed by the tribunal are based on the firms' turnover.
"This is one of the landmark price-gouging cases that the Commission has successfully prosecuted since the advent of COVID-19 pandemic. The prosecutions have uncovered how both state organs and vulnerable consumers and customers were exploited during the lock-down occasioned by a state of national disaster. 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.