Priscilla Njako, Manager, Buyer Power Department, discusses the Abuse of Buyer Power provisions in the Competition Act, including the amendments donated by Parliament in January 2020, as well as ongoing enforcement initiatives by the Authority.
What exactly is Abuse of Buyer Power (ABP)?
Buyer power is a vertical relationship between a seller/ supplier on one end and a powerful buyer on the other. It is concerned with how downstream firms affect terms of trade with their upstream suppliers. A buyer may enjoy a superior bargaining position where it can easily switch to alternative suppliers or where it is a critical gateway to the downstream consumer market, making suppliers wholly dependent on them. Also, a firm with buyer power may influence the bargaining process to impose terms of supply that are more onerous than is usual in the normal business practice or the supplier’s ordinary contractual terms to the detriment of the supplier. For instance, a supplier accepting reduced price profitability below a supplier’s normal selling price.
How do ABP infringements typically manifest?
The Competition Act provides a list of practices that typically constitute ABP. They include delayed payment by a buyer without justifiable reasons in breach of contractual terms.
Other conduct includes demand for preferential terms by a buyer which are unfavourable to the supplier, unilateral termination of a commercial relationship without notice, or use of threats of termination to obtain undue advantage and suppress suppliers from raising genuine complaints against the buyers. Businesses can also abuse their buyer power position by transferring commercial risks and operational costs to suppliers.
Often times, stakeholder confuse ABP with Abuse of Dominance. Explain the difference.
A party is deemed to be dominant if they control at least one half of the relevant market for either goods supplied or services rendered. An undertaking could also be dominant if they control less than 50%, but possesses market power. Going by the earlier definition of buyer power, it is not necessary for a buyer to be dominant in a market for them to abuse their buyer power. Often times, however, dominant firms also possess buyer power.
What are the sanctions prescribed in the Competition Act for abusing Buyer Power?
Any person found liable for ABP faces imprisonment for a term not exceeding five years, a fine not exceeding ten million shillings, or both, for criminal prosecutions. In addition, the Authority may pursue administrative remedies, including issuing cease and desist orders and imposing a financial penalty of up to ten percent (10%) of the undertaking’s preceding year’s gross annual turnover.
The Competition Act has been amended two times in the past four years, to provide clarity about enforcement of ABP. The latest amendment took effect in January 2020. Describe this regulatory process.
Due to emerging issues especially in the retail which had not been envisaged under any existing law, Parliament legislated for control of ABP. It is important to note that these amendments were limited to the extent that they were set in the section of the Act that deals with abuse of dominance and were not contingent to handle all issues, including that the Authority could not undertake ABP investigations on its own motion. The latest amendments, which came into effect in January 2020, endeavoured to address these limitations.
Kindly elucidate on the latest amendment you have mentioned.
The amendments expanded section 31 of the Act to enable the Authority monitor the activities of sectors and undertakings where there is ongoing or likelihood of ABP and, where necessary, impose reporting and prudential requirements to ensure compliance. Related to that, the Authority may require industries and sectors, where instances of ABP are likely to occur, to develop and publish a binding code of practice. The Act now also makes it mandatory for contracts between buyer and supplier undertakings to contain certain minimum requirements, including terms of payment, conditions for termination and variation of contracts, and mechanisms for dispute resolution.
The Authority has been investigating retailers regarding delayed payments. Briefly expound on this investigation and explain if ABP is peculiar to the retail industry.
Toward the end of April 2020, the Authority required 25 major retailers from across the country to submit their debt portfolios outstanding for over 90 days. Analysis of the information and documents presented to the Authority indicated that the vast majority of retail supermarkets pay suppliers on time. Three of the four retailers found to have delayed payments presented payment plans and have continuously reduced their debt portfolio. Subsequently, the Authority issued Prudential and Reporting Orders to one retailer and continues to monitor compliance. Indeed, the ABP focus, at least in the Press, has been on the retail sector. However, the Authority has investigated cases in varied sectors in the economy including insurance, manufacturing, telecommunications, energy and agriculture. It is important to note that a majority of the cases prosecuted by the Authority are in the insurance industry.
Some critics argue that matters to do with delayed payments can be adequately dispensed with under contract law and that the Authority does not have the locus standi to prosecute such matters. What’s your take on this point of view?
Freedom of contract is not a sacred doctrine, it has exceptions, some of which are in legislation such as the Competition Act. The Act has, as its object, the promotion and protection of effective competition in markets in order to enhance the welfare of the people of Kenya. ABP, if left unabated, harms markets by reducing sustainability and suppliers’ ability to compete.
What will the Authority focus on in terms of ABP in the FY 2020/21?
The Authority’s buyer power mandate is still relatively unfamiliar among many stakeholders. In addition to investigation of complaints, the Authority will enhance stakeholder sensitizations. We shall also focus on reviewing the buyer power guidelines to be in tandem with the 2019 amendments to the Act. The Authority shall also continue working with various sector players to develop codes of practice and offering advisory opinions on the recently introduced minimum contractual requirements.