A government administrator’s decision may be irrational because it does not take into account a vital material fact for making a rational decision in the light of the empowering legislation and its purpose. The relevant question for rationality is whether the means, including the process of making a decision, are linked to the purpose or the required ends.
The decision must be rationally related to the achievement of the purpose for which the power is conferred by legislation on the person making the decision. The evaluation process has to be looked at. Procedural irrationality may signify material irrationality.
A failure to consider a relevant material factor in the process of coming to an administrative decision can render the decision irrational. The question is: Do the means justify the ends?
In this matter the National Energy Regulator of South Africa (NERSA) determined the maximum price for gas chargeable by Sasol under the Gas Act 2001 and its regulations. In doing so, NERSA failed to consider Sasol’s marginal costs in the method NERSA used to determine the maximum gas price for Sasol.
The Gas Act requires fairness and adequate competition in the market especially because Sasol is a monopolist. NERSA’s task was to set a ceiling price for Sasol that allowed it to recover its costs and to make a profit commensurate with its undertaken risks. In order to do this it needed to know and consider Sasol’s marginal costs of production which had not been considered. The decision was therefore irrational. The court declared the decision invalid and remitted the matter back to NERSA for a new decision taking the proper facts into account.