JOHANNESBURG (Business Day) -- The reason for the deadlock between Mittal Steel SA and government emerged yesterday when a key witness for the steel maker said government wanted Mittal to adopt export parity pricing in South Africa - a move he said Mittal Steel SA would not survive.
Government and Mittal [NSYE:MT] threw a blanket of secrecy over the negotiations after a public spat last year.
The process, initiated by former trade and industry Minister Alec Erwin in preparation for steel magnate Lakshmi Mittal's takeover of the local company, started at the end of 2004.
Both parties have broken their silence, illustrating the extent to which the talks had deteriorated.
Mittal's market strategy manager, Charles Dednam, told the Competition Tribunal on Tuesday that the approach of the trade and industry department had been "peculiar".
He said the department had voiced its concerns over Mittal's pricing and that Mittal proposed a remedy in response. At the next meeting, however, the department said it wanted Mittal to charge domestic customers export prices, without considering the steel maker's proposal.
Dednam said Mittal would not survive this model, which required that it lowered its prices for domestic customers.
All eyes are now on the Competition Tribunal and the way it will address the matter.
Dednam also told the tribunal that the company moved away from import parity pricing in December last year. He said Mittal's prices now tracked international price movements more closely. Dednam said Mittal's pricing was consistent with international best practice in the steel industry and was neither excessive nor an abuse of dominance.
Meanwhile, the steel maker on Tuesday announced two major capital projects.
It unveiled a R222 million ($36.5 million) water treatment plant as part of commitments valued at close to R1 billion ($164.7 million) to improve environmental standards and "for cleaning up the legacy of our operations".
It was also confirmed that Mittal would build a 100MW gas-fired power plant at its Vanderbijlpark steel mill in partnership with a black investor.
Engineering company Bateman Africa, which had undertaken the feasibility study for the power station, told Business Day in 2004 that the facility could cost about R850 million ($140 million).
Bloomberg quoted Mittal Steel SA COO Rick Reato as saying that the project would give Mittal carbon emission credits that could be traded as it would use gases generated by the Vanderbiljpark plant south of Johannesburg.
Reato was quoted as saying that "a substantial investment" would be required.
