Transport Portfolio Committee

1. Transport Portfolio Committee Strategy and APP report 04 November 2014

2. Overview • Who is the Ports Regulator • The benefits of regulation in the SA port system and economy • Port pricing trends • Strategic Plan and Annual Performance Plan www.portsregulator.org

3. National Ports Act Background • Sea transport is an essential vehicle of international trade. • With approximately 80% of SA’s trade being by sea, efficient ports are catalysts for trade growth • The Act was established with the purpose of ensuring affordable, internationally competitive, efficient and safe port services based on a transparent and cost-effective nature that is economically and environmentally sustainable. • The Act contains mandates and functions of Ports Regulator and National Ports Authority • Sets out powers of Ministers of Transport and Public Enterprises • Sets overall governance framework for ports system • Enacted on the 26th November 2005 • Structure • Act – Parliament • Regulations – Minister of Transport • Directives – Ports Regulator • Rules - NPA www.portsregulator.org

4. Objects of the National Ports Act • Development of an effective and productive ports industry for economic growth and development • Promote and improve efficiency and performance in the management and operations of ports • Promote the development of an integrated regional production and distribution system in support of government policies www.portsregulator.org

5. Institutional Structure DOT (Policy, regulatory frameworks, industry strategy and regulation) NPCC and PCC (Planning, strategy, performance and port specific issues) DPE (TPT and NPA shareholder management through Transnet Group) TPT and private (Port operations) Private (Port services) Ports Regulator (Industry regulation and pricing) NPA (Port Infrastructure and marine services) www.portsregulator.org

6. Port Sector Instrument architecture Ports Act and Regulations Ministerial Approval, decision or directive(Ports Act) (setting regulations, instructing, approving actions or documents of NPA and Ports Regulator) Ports Regulator Directives Sets process and content articulation for Regulator in hearings, monitoring and economic regulation NPA Port Rules Sets processes for participation in ports, and establishes safety regulation for port control www.portsregulator.org

7. Who is the Ports Regulator? • Set up in terms of Chapter 5 (Section 29 – 55) of the National Ports Act, 12 of 2005. • It consists of 9 Members (currently 6) that constitute the economic regulatory authority for the ports system in South Africa • They are independent in the performance of their economic regulation and tribunal functions from the Department • They are one of the key institutions envisaged by the Ports Policy • Secretariat www.portsregulator.org

8. Functions of the Ports Regulator In terms of the Ports Act • Exercise economic regulation of the port system in line with government’s strategic objectives • Promote equity of access to ports, facilities and services provided in ports • Monitor the activities of the National Ports Authority to ensure compliance with the Act • Adjudicate complaints and appeals against the Authority • Approve or reject the Authority tariffs • Promote regulated competition • Regulate the provision of adequate, affordable and efficient port services and facilities www.portsregulator.org

9. Purpose of equity of access to port facilities and services • Movement of goods for the import and export markets as well as domestic and regional distribution • Access by SMME’s, BBBEE and women led companies • Improving international trade • Prevention of access arbitrage in vertically integrated port participants • Promote efficiency and reliability of port services and facilities www.portsregulator.org

10. Competition in the port system • The Ports Act requires the Regulator to promote regulated competition • The port system must be locally, regionally and globally competitive • The port user must have choice in facilities and services www.portsregulator.org

11. Industry Development Programme • Equity of access to port facilities and services • Competition in the port system • Economic participation in the port system • Infrastructure and planning • Port Infrastructure Efficiency monitoring • Promotion of the participation of Women www.portsregulator.org

12. Legal Programme • Compliance Project: • Review of S56 Agreements and Licences • Review Lease agreements • Review of BBBEE compliance of the NPA • Complaints and Appeals Tribunals: • Hears appeals on the Decisions of the NPA and complaints about NPA in terms of the Act and Directives • For example finalised matters include: K&N ROD issued, Columbus Stainless Steel, GMSA ROD • All Records Of Decision (RODs) on the PRSA website www.portsregulator.org

13. Objectives of Economic Regulation • Regulation is a balancing act between users of ports and service providers of infrastructure. • Provides protection in cases of monopoly pricing • Geographic location makes them in many cases natural monopolies • Must ensure openness, transparency and due process • Minimum service standards • Usually protects public interest but also that of infrastructure owner • Reduces risk (both port owner as well as users)– rules/guidelines www.portsregulator.org

14. What is the Regulator’s role in NPA tariffs? • To ensure that NPA tariffs are utilised in ensuring that the port system is efficient • To ensure that the tariffs are affordable to port users • To ensure that the tariffs are predictable and non-discriminatory • To prevent the utilisation of tariffs for cross-subsidisation unless in the public interest www.portsregulator.org

15. Purpose of NPA tariffs • To enable the NPA to- • Recover its investment in owning, controlling and administering ports and its investment in port services and facilities • Recover its costs in maintaining, operating, controlling and administering ports and its costs in providing port services and facilities • Make a profit commensurate with the risk involved in ports services and facilities www.portsregulator.org

16. Assessment of Authority’s Tariffs • In terms of the Act, NPA to submit proposed tariffs to Ports Regulator • Tariffs cover all NPA activities as a Port Authority • Published for comments • Regulator to hold hearings and invite submissions on proposed tariff increases • After consideration of submissions, Regulator shall approve or reject some or all of the tariff increases • Elements of proposed tariff- • Manner of calculation and model • All financial information and valuations • Reinvestment of profits and revenues • Impact on port activity cost structures www.portsregulator.org

17. Economic Regulation Programme • Primarily responsible for • Tariff setting process • Assessment of tariff application and public submissions • Tariff methodologies • Tariff book restructuring • Tariff incidence • Other research • Port pricing • Cargo traffic flows www.portsregulator.org

18. Ports Regulators contribution to the country’s developmental objectives • Although the Regulator does not have a direct mandate to implement projects, its decisions on the NPA’s tariff have significant implications on the Ports Sector, the Economy and ability of stakeholders to implement projects. • Since inception of the Regulator in 2009 to date: • There has been a smoothing of the NPAs tariffs • Tariff decision has translated into a direct saving to users of about R5b over the period www.portsregulator.org

19. Economic Impact of the Regulator • Since inception of the Regulator in 2009 to date: • There has been a smoothing of the NPAs tariffs • Tariff decision has translated into a saving to users of about R5.2 b over the period • Rationalised Tariffs • R1 bn rebate • Significantly lower approved tariffs • Continued sustainability of NPA • Proactive and risk mitigating • Excessive Tariff Increase Margin Credit • R2.5 bn available to offset future increases • Looking forward • Fair tariff incidence • More accurate investment signals www.portsregulator.org

20. Weighted Return on Asset Base www.portsregulator.org

21. Revenue Determinations and Stabilisation of Tariffs www.portsregulator.org

22. The Regulatory Manual • Outlines the mandate of the Ports Regulator of South Africa (the Regulator), the regulatory framework governing the National Ports Authority’s (the Authority/NPA) tariff setting process and matters relating to compliance of the NPA with the Regulatory Framework. • 2nd version of the manual • 2014/15 Interim Tariff manual (one year) • 2015/16-2017/18 Tariff manual (multi-year) www.portsregulator.org

23. Multi-Year Methodology • Annual review and an annual adjustment of tariffs • No fixing of tariffs for the period to protect users from possible large step changes in the tariff. • Large variations in the users and usage of port infrastructure and services over time • Annual review allows adjustments in prices to be more efficiently and appropriately allocated to users • Lower regulatory uncertainty • Will narrow the difference between what is requested by the NPA and subsequently granted by the Regulator. • Assists stakeholders in formulating responses to the NPA tariff application in a manner that will assist the Regulator in its decision making. www.portsregulator.org

24. Tariff Application Process • Guided by the Act and Directives • The Regulators assessment: • Assessment of the NPA application • Assessment and taking into account of all public comments, • Own assessment • Record of Decision (ROD) • Fixed tariff for the 2015/16 tariff year and • Indicative tariffs for the 2016/17 and 2017/18 tariff years. • Specific tariff changes may be requested by NPA (comments thereon welcomed) • Tariff strategy (based on public engagement process) will start to influence tariffs from 2016/17 www.portsregulator.org

25. Port Pricing Trends

26. Persistent Port pricing imbalance • Compares South African pricing and pricing structures to those around the world • The current (second) iteration of this study serves to confirm some of the results from the 2012/13 version of the GPPCS. • No real relative system level structure change despite large decreases in container cargo dues as well as export automotives - 13/14 ROD. • Significant cross-subsidisation from cargo owners towards primary exporters and vessel owners persist. www.portsregulator.org

27. Container tariffs www.portsregulator.org

28. Vessel costs remain relatively cheaper • All vessels face much lower overall costs in RSA ports than the averages in the study, ranging from 32% below the global norm in the case of containers and 75% for iron ore • real price decrease in the 2013/14 tariff year resulted in a relative increase of the discount to the global average. • The depreciation of the South African Rand by 16.7% for the period also contributed to the decrease in the dollar price. • The incidence of the tariff clearly indicates that foreign users of the ports are not contributing to the overall infrastructure costs in a similar manner than they do in the global average. www.portsregulator.org

29. Vessel costs remain relatively cheaper www.portsregulator.org

30. Ro-Ro tariffs remain high www.portsregulator.org

31. Containers and Ro-Ro subsidising bulk www.portsregulator.org

32. Coal and Iron Ore total port pricing Richards Bay (Coal) Saldanha Bay (Iron Ore) www.portsregulator.org

33. Transhipment below global average www.portsregulator.org

34. TPT tariffs remain high www.portsregulator.org

35. What can we take from this? • High levels of cross-subsidisation in the port system remain a concern. • The Regulator has started to adjust the tariff book within the parameters of the Revenue Required methodology applied in the tariff setting process. • This has started to bring about some normalisation- much more is required. • South African “Free on Board” (FOB) export and “Cost, Insurance and Freight” (CIF) import predominance in concluding international trade contracts ensuring that the bulk of the port charges liability lies with the South African party, South African container cargo owners continue to carry the greatest burden of the transaction. • significant contribution to tariff book revenue (46% of all tariff book revenue comes from container cargo dues-carry the bulk of the infrastructure costs, while also paying greater premiums over global averages than foreign cargo owners transhipping through South African ports. • Vessel owners costs below the global average • Dollar terms discounts increased as a result of the depreciation of the South African currency and will arguably support the dollar price of South African port prices for the foreseeable future. www.portsregulator.org

36. Programme Areas • Programme 1:Running of an efficient and effective administrative system • Programme 2: Improvement of Economic Regulation of Ports • Programme 3: Industry Development and infrastructure planning, integration and efficiency • Programme 4: Monitor the port industry and its compliance with the National Ports Act, Ports Policy and Regulatory instruments • Programme 5: Operate an effective and efficient tribunal to hear complaints and appeals under the National Ports Act. www.portsregulator.org

37. 2014/15 Annual Performance Plan

38. 2014/15 Half year report on APP www.portsregulator.org

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48. Financial Management Budget and expenditure

49. MTEF Budget (2014 -2017) www.portsregulator.org

50. 2nd Quarter Revenue and Expenditure www.portsregulator.org