Secret emails, WhatsApp chats and minutes of meetings helped the competition watchdog to crack cartel-like behaviour among top players in the local steel industry, which saw nine firms fined for fixing prices, restricting output, and revising the size of products.
The uncompetitive behaviour was laid bare in a legal battle between the firms and the Competition Authority of Kenya (CAK) as the steel makers sought to avoid a fine of Sh338.8 million for making illegal arrangements to control prices and interfering with product sizes.
The CAK investigations exposed a trove of emails, WhatsApp chats, and meeting records that pointed to deliberate collusion among nine steel firms.
The steel makers were linked to collusions and agreements to secretly shrink their products without commensurate price cuts in a bid to increase their gross profit levels.
The authority presented evidence before a tribunal showing top executives and directors in the firms discussing and agreeing to adjust product dimensions, manipulate market supply, and fix prices, in what the competition watchdog reckons undermined fair competition and defrauded consumers.
The firms at the centre of the legal battle include Devki Steel Mills, which is owned by billionaire industrialist Narendra Raval, Tononoka Rolling Mills, Accurate Steel Mills, Nails and Steel Products and Blue Nile Wire Products.
The CAK investigators discreetly sought a court warrant for search and seizure, known as an Anton Pillar order in legal lingo, in the homes and offices of the executives and directors of the firms.
They swiftly confiscated communication gadgets like mobile phones and laptops in simultaneous raids across parts of the country to retrieve e-mails, texts and WhatsApp messages shared among the firms’ officials, which helped the CAK secure a victory at the tribunal.
The Competition Tribunal noted in a judgment seen by the Business Daily that these companies had not proved their case “beyond a reasonable doubt,” even as it agreed with CAK’s position that the five had acted as cartels by colluding to fix prices and restrict output.
Among the most damning pieces of evidence was a May 15, 2018 email from Neelkama Shah of Nails and Steel to Niral Salva of Tononoka.
In the email, Mr Shah laments the slim profit margins on specific tube products, including 20x20x1 and 25x25x1, suggesting the need for price adjustments across the industry.
He indicated that manufacturers had already discussed the issue and resolved to revise sizes due to low gross profits.
Mr Shah is quoted as saying that gross margins can go as low as Sh12 to Sh15 per six-metre length. Mr Shah assigned Mr Salva to "look into" the matter, pointing to an attempt to fix prices.
The Competition Tribunal ruled that this exchange revealed a deliberate attempt to set prices and restrict output.
“This deliberation amounts to an agreement on price fixing and output restrictions,” the tribunal found in a ruling against Devki Steel Mills. Devki Steel Mills is owned by Mr Raval, whose interests also span cement, fertiliser, aviation, packaging, and energy.
The tribunal dismissed Devki's argument that its freedom of association had been violated, noting that the meetings and messages presented by the CAK demonstrated collusive behaviour. Devki was fined Sh46.2 million by the competition watchdog.
Tononoka was slapped with a fine of Sh62.7 million, Accurate Steel Sh26.8 million, Nails and Steel Sh22.8 million and Blue Nile Wire Products Sh9.1 million.
All nine companies fined petitioned the Competition Tribunal to reverse the CAK’s punishments, but two of them, including Apex, opted for an out-of-court settlement.
The appeals by Corrugated Steel and Jumbo Steel are ongoing as per the tribunal's cause list.
In another instance, CAK filings cited a January 2020 WhatsApp message in which Samir Patel of Apex discussed a revised price list for deformed bars.
Mr Patel mentioned that the prices had been confirmed by major players, including Devki, Abyssinia, Blue Nile, Jumbo, and Tamal—again pointing to coordinated price setting.
The watchdog also flagged a November 13, 2019 meeting hosted by the Kenya Association of Manufacturers (KAM), in which Devki was represented by Mr Geoffrey Mbithi.
Minutes of the meeting obtained by the CAK reveal that the players present resolved to halt the importation of 0.9 mm coils. These coils are commonly used for roofing and the fabrication of windows and doors.
The manufacturers agreed that all members would refrain from importing these items, a move that the CAK described as a deliberate restriction of supply.
Devki defended its actions, claiming the meeting addressed concerns over substandard coils, and that it had a constitutional right to associate under the KAM umbrella. But the tribunal was not convinced.
Another WhatsApp exchange dated August 2020 revealed an Apex staff member discussing future price increases for rebars and tubes.
“During this discussion, it was confirmed that new prices for rebars would take effect on Monday, 24th August 2020, and for the tubes on 1st September 2020,” states the tribunal’s ruling, which underscored the premeditated nature of the price changes.
The collusion extended beyond pricing to sensitive commercial information sharing, such as production levels, profit margins, and raw material sources.
The tribunal upheld the CAK's Sh338.8 million fine, which is one of the largest ever imposed by the watchdog.
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The cartel-like behaviour shines a light on Kenya's steel industry, a crucial pillar of the country’s construction and manufacturing sectors.
Steel is one of the world’s most important construction materials and is used to make reinforcement bars, beams and columns, windows, and doors, among other products.
The industry, estimated to be worth over Sh100 billion annually, has benefited from a range of government incentives, including tax breaks on imported machinery, protectionist tariffs on imported steel, and priority in public infrastructure projects.
These incentives were designed to spur industrial growth, job creation, and affordable housing. However, the cartel conduct undermines these objectives by distorting market forces and driving up prices.
By shrinking product sizes and restricting supply, the implicated firms could effectively inflate construction costs, adding strain to public and private infrastructure budgets.
The steel products include bars, pipes, beams, and sheets, which account for over 20 percent of the total cost of constructing a house.
The CAK relied on Section 21 (3) of the Competition Act, which empowers it to impose a financial penalty of up to 10 percent of the preceding year’s gross annual turnover in Kenya should companies engage in restrictive trade practices.
The steel industry in Kenya is controlled by a few wealthy families, making it prone to cartel-like behaviour, given that most of the products are homogeneous.
