BUSINESS
WIELDING A BIG STICK Europe's antitrust regulators are in hot pursuit of chemical cartels as U.S. pace slows MARC S. REISCH, C&EN NORTHEAST NEWS BUREAU
A
FEW YEARS AGO, THE U.S. TOOK
a leadership role in rooting out international price-fixing cartels. But last year, it seemed as if the Europeans had taken
the lead. The European Commission—the executive arm of the European Union—undertook investigations into alleged anticompetitive behavior among makers of six chemicals just in the last six months of 2002. It investigated and levied fines in three additional instances. For all of 2 0 0 2 , the European Commission assessed fines of about $1 billion against cartel operators in a wide variety of businesses, from flavor enhancers to concrete reinforcing bars. By contrast, U.S. officials were not nearly as active. And some of the investigative activity the U.S. Department of Justice did undertake seemed to be at the behest of European competition officials led by the EC commissioner responsible for competition, Mario Monti. In the recent past, the U.S. has been no slouch when it came to revealing hard-core cartel activity in the chemical industry Beginning in the mid-1990s, U.S. investigations led to the revelation of collusion among makers ofvitamins, citric acid, and lysine (C&EN, Feb. 21,2000, page 11). THOSE INVESTIGATIONS led to truly spectacular fines, such as the $500 million penalty assessed against Roche and the $225 million bill sent to BASF forfixingvitamin prices. Following the U.S. lead, the Europeans then conducted their own investigations and penalized the transgressors as well. AmeliaTorres, spokeswoman for Monti, attributes much of the commission's recent cartel-fighting activity to a leniency policy first put into place in the mid-1990s for companies that come forward with information about cartels. An updated policy, in force since last February, grants total immunity from fines to the first company to submit evidence on a cartel unknown to or unproved by the EC. A confession also earns the company a written guarantee from the commission that it will receive immunity 12
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At the time, Monti declared that the new policy "creates incentives to denounce this scourge of the economy, which has companies making illicit profits at consumers' expense." Apparently, the immunity policy is working. The commission granted immunity to Aventis, Merck, and Takeda in methionine, methylglucamine, and nucleotide flavor enhancer
prices among makers of ethylene-propylene rubber. Valerie Y. Suslow, an associate professor at the University of Michigan's business school, points out that the U.S. has had a corporate leniency program in place much longer than Europe. And EC regulators have had authority to pursue global cartels only since the 1950s, while the Sherman Antitrust Act has allowed the U.S. government to fight cartels since 1890. Suslow says she wouldn't be surprised, though, if there has been a subtle slowdown in the U.S. Justice Department's pursuit of cartels during the current Bush Administration. "It's not uncommon for antitrust enforcement to be influenced by the Administration. Some Administrations can be more interventionist than others," she says. Still, the Bush Administration "hasn't stopped being interested in cartels," Sus-
U.S. law makes anticompetitive behavior a criminal act that can result in fines and jail time for executives.
investigations, respectively, while fining the other conspirators. And in December, Crompton received immunity for coming forward with evidence of an effort to fix
CARTE BLANCHE Europeans have investigated nine real or alleged chemical cartels since July 2002 PRODUCT
MONTH 3
COMPANY
STATUS
Methionine
July
Aventis (France) Degussa (Germany) Nippon Soda (Japan)
Received immunity Fined $122 million Fined $9 million
Rubber chemicals
October
Bayer (Germany) Crompton (U.S.) Flexsys (Belgium)
Under investigation Under investigation Under investigation
Carbon black
November
Cabot (U.S.) Columbian (U.S.) Degussa (Germany)
Under investigation Under investigation Under investigation
Methylglucamine
November
Aventis (France) Merck (U.S.)
Fined $3 million Received immunity
Ethylene-propylene rubber
December
Bayer (Germany) Crompton (U.S.) ExxonMobil (U.S.) DSM (Netherlands) DuPont Dow Elastomers (U.S.)
Under investigation Received immunity Under investigation Under investigation Under investigation
Nucleotide flavor enhancers
December
Ajinomoto (Japan) Cheil Jedang (S. Korea) Daesang (S. Korea) Takeda (Japan)
Fined $16.1 million Fined $2.8 million Fined $2.k million Received immunity
Tar pitch, creosote, naphthalene 13
December
Koppers(U.S.) Rutgers (Germany)
Under investigation Under investigation
a The month that the investigation began or fines were imposed, b Three separate allegations. NOTE: Euros were converted at a rate of 1.04 euro = $1.00. SOURCES: European Union, company data
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low observes. InJune 2001, theJustice De- I partment undertook an investigation of auto refinish paint makers. And last summer, the department assessed fines against Atofina and Akzo Nobel for fixing monochloroacetic acid prices.
FUELING THE FUTURE
BUT OVER the past seven months, U.S. officials revealed only one new initiative: an investigation into fixing ofpolyester staple fiber prices. In September, a Nan Ya Plastics executive was indicted and awaits trial. At the time, DAK Americas and DuPont said they were cooperating with the investigation. In October, Kosa paid a $29 million fine for participating in the conspiracy, and an executive of the company pled guilty and agreed to pay a fine and go to jail for eight months. "It's easy to see how officials would find more instances of cartel behavior in the EU," says Henry J. Kahwaty, Washington, D.C.-based director of the financial and economic consultancy LECG. Until recently, many member nations sanctioned collusion, says Kahwaty, who once worked for the Justice Department as an antitrust economist. He points out that the U.S. has long had a more effective deterrence framework. US. law makes anticompetitive behavior a criminal act that can result in fines and jail time for executives. The EU's Torres admits that only three European countries —Ireland, the U.K., and Germany—have criminalized or are in the process of criminalizing cartel behavior. The EU has wide-ranging investigative powers. "But the difference between the EU and the U.S. is that our investigations are not criminal investigations. And unlike the U.S., the EU has no authority to send people to jail," Torres points out. Also, once a company admits to criminal behavior in the U.S., it is subject to private class-action lawsuits that allow victims to sue for triple damages. In late 1999, for instance, seven major vitamin makers agreed to pay $1.2 billion, including legal costs, to settle a U.S. class-action lawsuit. Roche alone paid $632 million. "So while the government holds a stick with fines and jail time, there is another stick behind," Kahwaty says. Still, the EU is taking its place beside the U.S. as a global antitrust policeman. With 13 countries poised to join the EU in the next few years, and with its growing antitrust powers, the commission is likely to go after many more allegations of anticompetitive behavior in the future, Kahwaty says. • I
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China seeks to turn coal into clean fuel to reduce pollution, increase energ 7 security ANY C H I N E S E C I T I E S ARE I
afflicted by extremely poor air quality but China is nonetheless hoping that coal, the prime cause of the pollution, will help solve its growing energy shortage. In China's northwest, the Shenhua Group is planning a $2 billion coal liquefaction plant. Headquartered in Beijing, state-owned Shenhua is China's largest coal mining company Last November, it secured a $6 billion line of credit from the state-owned China Development Bank. ABB Lummus will act as manager for the liquefaction project, which will be built in the Inner Mongolia city of Majiata. The technology to be used has not been commercially demonstrated. Shenhua is implementing a direct liquefaction process developed by US.-based Hydrocarbon Technologies Inc. (HTI) with support from the U.S. Department of Energy The Chinese group has acquired 15% of the rights to the technology Formed in 1943, H T I is mostly a developer of catalysts used in gasification, synthesis gas generation, gas to liquids, and other energy applications. H T I was acquired by Headwaters Inc. in mid-2001 for about $17 million. Direct liquefaction is the transformation of coal into hydrocarbon liquids by hydrogénation. So far, H T I has set up one pilot plant, which led to approval of the Shenhua project by China's State Development & Planning Commission last year. A Beijing source involved with the project says Shenhua expects that it will produce fuel from coal at a cost lower than from crude oil. H T I will participate in the construction of the project as an adviser on the basic engineering. Today South Africa's Sasol is the world's main practitioner of coal liquefaction, having developed an industry during South Africa's decades of international isolation. John Marriott, Sasol's general manager responsible for technology, says HTI's onestage liquefaction can theoretically produce fuel from coal at a lower cost than Sasol's process. But the technology has not been commercially proven. "For turning coal into liquids, we have probably the only commercially available technology today," Marriott says. With Sasol's two-stage I
process, coal is first gasified, then turned into hydrocarbons by use of a FischerTropsch reaction. SASOL HAS BEEN approached repeatedly by various Chinese organizations, including the planning and development commission, to participate in coal liquefaction projects in China. But the company will only proceed if two conditions are met. Marriott says Sasol wants "national support," and it wants a credible partner of a caliber equivalent to China Petroleum & Chemical Corp. (Sinopec) or PetroChina. "We will make our technology available to an organization that appears to have the capability to undertake a very major project," he says. Marriott recognizes that Sasol's technology makes little economic sense unless oil prices stabilize at a price two or three times higher than what they are today Coal liquefaction projects, he notes, are capitalintensive. Unless oil prices rise, such projects cannot be profitable without significant government assistance. But given the right conditions, Sasol will invest in a Chinese coal liquefaction project. The South African company would want to be involved in the project as an investor—and not just a technology licensor—"to make sure that it works," Marriott says. Because oil prices are fairly low, Sasol has upgraded its existing units, but it has not built new large-scale coal liquefaction plants since the 1970s. However, even when oil is cheap, coal liquefaction may make sense for China. The country's crude oil reserves are insufficient, and it is increasingly dependent on imports. On the other hand, China has the world's third largest coal reserves after the U.S. and Russia. Though the fuel is a significant pollutant, reducing coal production would lead to layoffs as well as reduce energy security Environmentally friendly coal liquefaction may provide China an alternative that minimizes layoffs while improving self-sufficiency in energy Shenhua says other plants will follow its Majiata project. Although it remains to be seen whether the technology being implemented will prove commercially viable, China's interest in coal liquefaction is not in doubt.-JEAN-FRANÇOIS TREMBLAY C&EN
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