transport portfolio committee strategy and app report 04 november 2014

Transport Portfolio Committee

Strategy and APP report

04 November 2014

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 2

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


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


Institutional Structure

5

NPA(Port Infrastructure and marine

services)

TPT and private

(Port operations)

Private(Port

services)

DOT(Policy, regulatory frameworks, industry strategy and regulation)

DPE(TPT and NPA shareholder

management through Transnet

Group) Ports Regulator(Industry regulation

and pricing)

NPCC and PCC(Planning, strategy, performance and port specific

issues)

www.portsregulator.org

Port Sector Instrument architecture

NPAPort Rules

Sets processes for participation in ports, and establishes safety regulation for port control

Ports Act and RegulationsMinisterial Approval, decision or directive(Ports Act)

(setting regulations, instructing, approving actions or documents of NPA and Ports Regulator)

Ports RegulatorDirectives

Sets process and content articulation for Regulator in hearings, monitoring and

economic regulation


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


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


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

9www.portsregulator.org

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


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


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


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


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


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


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


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


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


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


Weighted Return on Asset Base


Revenue Determinations and Stabilisation of Tariffs


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)


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.


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


Port Pricing Trends

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.


Container tariffs

$188 852

0

50 000

100 000

150 000

200 000

250 000

300 000

350 000

400 000

450 000

Tariff

s(U

S$)

Port


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.


Vessel costs remain relatively cheaper

-36.97

-71.57

-26.00

-41.45-44.79

-79.30

-37.75

-52.66

-90

-80

-70

-60

-50

-40

-30

-20

-10

0

10

Coal Iron Ore Containers Automotives

Prem

ium

/Di

scou

nt%

commodity

2012/13 2013/14


Ro-Ro tariffs remain high


Containers and Ro-Ro subsidising bulk

-42.84-31.85

194.05

245.59

-53.11 -49.33

166.97

139.96

-100

-50

0

50

100

150

200

250

300

Coal Iron Ore Containers Automotives

Premium

/discount%

2012/13 2013/14


Coal and Iron Ore total port pricingRichards Bay (Coal) Saldanha Bay (Iron Ore)


Transhipment below global average

$14.31

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

Tariffs(US$)

Port

Cargo Dues per TEU Transhipped (export, full)


TPT tariffs remain high

$140 707.02

0

50 000

100 000

150 000

200 000

250 000

300 000

Valencia Durban Cape Town Colombo Port Louis Valparaiso Kaohsiung Klang Northport Terminal

Johor Houston Jawaharlal Nehru

Laem Chabang

Chennai Vladivostok

Tariffs(US$)

Port


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.


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.


2014/15 Annual Performance Plan

2014/15 Half year report on APPStrategic Objective Objective Statement KPI Indicator

Target

Q1 Actual Performance Challenges Action to be taken

1. The running of an efficient and effective administration system

To expand and capacitate the organisation with the technical and competent staff to enable the organisation to fulfil its legislative mandate and reduce external resource utilisation. and implementation of all staff benefits

Fill funded posts Position of the CEO to be filled

CEO appointed effective 01/05/2014

Skills development and training plan (SD&T) and HR Strategy developed and implemented for the period

SD&T Plan and HR

strategy to be

developed and

approved by the

Regulator members

Target partially acheived. HR strategy developed but not yet submitted to regulator members for approval

Work load and capacity constraints

prevented achievement of target.

Document in draft status

HR strategy to be finalised and

submitted to HR in second quarter.

Maintain and improve where applicable staff benefits which have been implemented

To review staff benefits and improve on these where necessary and suitable for the organisation

Group life benefit to be reviewed

Target partially achieved. Medical aid

benefits were reviewed and

approved by the board. On grouplife

there has been engagements with

service providers but formal review has not

been completed.

grouplife benefits will be reviewed in second

quarter, previous engagements with

other insurance providers indicated that this benefit will

remain a challenge to meet 100%

The Regulator has very small staff number thus

insurance companies are not willing to

accept full risk of the benefit


Strategic Objective Objective Statement KPI Indicator Half year Status

1. The running of an efficient and effective administration system

To expand and capacitate the organisation with the technical and competent staff to enable the organisation to fulfil its legislative mandate and reduce external resource utilisation. and implementation of all staff benefits

Fill funded posts All funded posts have been filled.

Skills development and training plan (SD&T) and HR Strategy developed and implemented for the period

Skills development approved and implemented, HR strategy in draft, to be approved in 4th Quarter.

Maintain and improve where applicable staff benefits which have been implemented

To review staff benefits and improve on these where necessary and suitable for the organisation

All staff benefits reviewed and approved.

Strategic Objective Objective Statement KPI Indicator Half year status

Organisational and Employee performance management system (PMS) Implemented

Organisational Performance scorecard reported on quarterly

All quarterly reports submitted for each quarter timely.

Staff PMS Implemented with performance contracts in place for each staff member

All staff performance plans in place by the end of the first quarter, half year review of employees also completed.

Purchase scalable IT modules (low cost) in research, process and data management that are cost effective and appropriate for the Regulator

Research data analysis software procured and fully implemented.

Software procured and implemented.

Document management system procured and implemented

System procured and implemented



Strategic ObjectiveObjective Statement

KPI Indicator Half year status

1st phase Data management software and hardware procured and implemented


Tribunal case management system procured and implemented


IT Governance Framework drafted and implemented

IT governance still in draft, to be approved in the 4th Quarter. The Items below (BCP and DRP form part of the IT governance framework and have been drafted).

Business Continuity and Disaster Recovery Plan drafted and implemented.

Business Continuity and Disaster Recovery Plan drafted but not yet approved, will be approved in the 4th Quarter.

Preferential procurement in accordance with the regulatory framework and SCM policy.

75% of discretionary procurement must be from BBBEE in accordance with the scoring in the regulatory framework

20% of procurement was from suppliers with BEE rating of 2.



Obtain and maintain Clean Audit - Ensure financial policies in place, approved and implemented to ensure compliance with the PFMA

Financial policies not having formed part of the finance review to be drafted, approved and implemented

Policies approved and implemented.

Accurate and timeous quarterly and financial reporting, as well as budgeting to Executive Authority

Quarterly reports to be sent to the Executive Authority on time and on budget

Quarterly reports submitted at the end of each quarter.

Compliance with the PFMA in terms of time periods for submission of budgets and financial reports.

All compliance requirements of the entity have been complied with.

Effective risk management Risk assessment performed and risk register in place, risk strategy to be drafted in line with the risk register in the 3rd Quarter.

Engagement with the Executive Authority regarding a sustainable funding model for the organisation especially in the medium term

Engage Department of Transport and the Treasury to evaluate ways to supplement the Regulator’s funding to ensure sustainability.

Submitted funding proposal to the Department of Transport and presented the proposal in AGM held on 26/09/2014. The Minister requested a meeting, during the AGM, to discuss the funding proposal.



2. Improvement of Economic regulation of ports (Price, access, institutional structure, )

Medium-term Tariff Methodology developed consulted and approved

Methodology decision and publication Tariff Methodology was implemented and presented at the Regulator roadshows during the quarter. The PRSA received an application in line with the methodology from the NPA. The Road shows were used to engage with and provide clarification to port users and stakeholder on the Multi-year tariff determination methodology, its components on effective infrastructure and service delivery in the South African port system.

Tariff Strategy consulted and finalised

Medium to long term Tariff Strategy to be developed and approved by the Accounting Authority and consulted with the Executive Authority.

NPA has been consulted and a working arrangement to address differences or areas identified for further development put in place. Industry has not yet been consulted due to ongoing work and consultation with the NPA

Perform NPA 2015/2016 Tariff Assessment

Tariff decision and ROD publication Application received and assessment has commenced. Roadshows were held in September 2014. Decision on tariff amendment planned for middle of February 2015.




Engagement with Executive Authority on integrated tariff methodology principles for the Single Transport Economic Regulator beyond medium term.

Long term integrated tariff approach agreed with DOT

Engagements have been held with the working group on the legislative components of the STER Bill, this has also been covered in the funding proposal to the Minister.

Annual Global Tariff Comparator Study for at least 5 commodity types. Ie, coal, iron-ore, automotives, liquid bulk, containers

31 March 2015 Global Port Pricing Comparator completed for 5 cargo/commodity types

67% of total project has been completed and will be finished ahead of schedule. Liquid bulk has been added to the report (the 3rd annual update-the previous two only covered 4 commodities)

3. Industry development and Infrastructure planning integration and efficiency

Joint port traffic statistics review performed with DOT

Complete traffic statistics review for liquid bulk and thereafter upscale.

Data (106 000 lines) have been received from SARS. Data has been received from the NPA, however there are some discrepancies with the data these are being addressed through consultation. The scope of the research report has significantly increased from previous year and include all bulk and break-bulk commodities in addition to liquid bulk.

Support the Maritime Industry Development Programme initiatives of the DOT.

Provide support required by DOT in the industry at the PCC meetings as well as the NPCC meetings

Support the DOTs National and Port Consultative Committee processes through which port users across all 8 ports make inputs into the National Ports Authority’s Capital Programme and monitor port performance

Engaged in a tariff methodology clarification workshop with the National Port Consultative Committee which advises the Minister of Transport, on amongst others, measure that need to be taken to improve the regulatory framework governing management and operations of ports and alterations to the Authority’s tariffs.




Medium term port benchmarking review 2014/15

Perform by 31 March 2015 full port benchmarking review on marine, terminal infrastructure services with a shared efficiency research component.

Second quarter target not achieved due to timing challenges in accessing data from the NPA. Data requests to the NPA for information to be received by end October 2014.

Port capacity and utilisation review 2014/15

Perform capacity and utilisation review 2014/15

Start review and engage NPA for capacity and utilisation data.

Data reflecting the design and installed capacity in all NPA terminals, throughput and terminal characteristics sourced from the NPAs port planning and own analysis and assessment of port capacity and utilisation has commenced.

Asset Valuation Project to be completed and results published

Target not achievable – process to be terminated and additional processes to be investigated, budgetary Constraints, proposal for donor funding has been submitted to National Treasury.



4. Monitoring the port industry and its compliance with the National Ports Act, Port Policy and other Regulatory Instruments.

Draft recommended amendments report to the Ports Act are required to enhance the power of the Regulator to police decisions made by it as well as enhance its governance structures in compliance with overarching legislation.

Various provisions of the Ports Act, 12 of 2005 are outdated and additional provisions are to be added in line with shortcomings identified by the Regulator

Draft report on which Sections of the Act are to be amended has been completed, internal consultation thereon has commenced to identify additional sections, draft to be submitted to the next meeting of the Regulator.

Complete 100% of the compliance review of Durban and Richard’s Bay and commence other ports

Richard’s Bay and Durban port level compliance review to be completed

All 124 licenses and agreements have been reviewed. Awaiting lease agreements from NPA to start reviewing them. During the second part of the year

Commence review of East London/PE/Nquga/ Saldanha & Mossel Bay: Compliance workplan to be drafted and approved.

Plan drafted awaiting engagement with NPA.


Strategic Objective Objective Statement


BBBEE status review of all s56 and s57 port facilities and service providers for all the ports.

Richard’s Bay and Durban BBBEE status review to be completed

A format for reporting has been agreed to with NPA and their annual report is due on 26 November 2014. Engaged with the NPA and Industry (SAASOA) on the new BEE codes and scorecard for the Maritime Industry.

(Currently the NPA exceeds the thresh hold of 75%. Approximately 86% has been achieved)

Commence East London/PE/Nquga, Saldanha & Mossel Bay BBBEE review.

Work plan in place, need to request documents from NPA to start reviewing

Revise Directives on compliance filings by all port industry participants, tribunal procedures and enforcement of decisions by the Regulator

Revised Directives published for comment

Project delayed due to time constraints, need to consult further internally to obtain comments on draft before submitting NPA and entire ports industry

Organisation to ensure compliance with all legislation applicable to it in terms of its core mandate and its operations.

Legislative Framework to be developed implemented and updated annually.Ensure good governance in compliance with King Code and PFMA and Governance Policy developed.

Target achieved


Strategic Objective

Objective Statement KPI Indicator Half year status

5. Operating an effective and efficient tribunal to hear complaints and appeals under the National Ports Act.

Tribunal to be consistently operated to hear complaints and appeals and Tribunal members to undergo ongoing training to ensure efficient and effective decision making.

Regulator members to receive ongoing training on judicial processes.

Target partially achieved. Submission on service provider sent to CEO.

Draft and finalise submission for additional commissioners to assist members on tribunal matters.

Ministry requested to increase the number of Board members to the full complement of 12 in order to facilitate more rapid resolution of Tribunal matters.

Tribunal to have at least 18 days availability in the year

Timeous selection and availability of Members for approximately 3 days per matter estimated at 6 matters per year to be heard.

5 matters finalised within first half, it is anticipated that 3 more matters will be finalised by financial year end which will be in excess of the actual target.

Financial Management

Budget and expenditure

MTEF Budget (2014 -2017)


Actual 2014 Economic ClassificationActual Amount

Approved Budget Variance

Revenue

15 900 Transfers 8 426 8 426 0275 Interest Received 151 135 18

0 Sundry Income 163 0 163

0 Sale of goods and Services 3 16 (13)16 175 8 473 8 577 166

Expenses

337 Depreciation and Amortisation 144 200 567 188 Compensation of Employees 4 412 4 815 4038 800 Goods & Services 3 336 2 390 (946)

16 325 7 892 7 405 (487)

(150) Surplus/(Deficit) 851 1172 (321)www.portsregulator.org 50

2nd Quarter Revenue and Expenditure

Strategic Plan

(Included as word document)

C:\Users\jowiem\Documents\1. Port Regulat

Support required on challenges facing the PRSA

• Funding – support for new funding model will require legislative changes. The small size and budget prevents the PRSA from achieving some APP targets e.g. Valuation project.

• Single Transport Economic Regulator (STER) – supported but transitional arrangements will need to be looked at carefully by legislators.

• Regulator requires greater enforcement capability. Amendments to the Act have been proposed and may soon serve before the legislature, support will be required


53

Ke ya lebogaKe ya leboga Ke a lebohaKe a leboha

Ke a lebogaKe a leboga Ngiyabonga Ngiyabonga NdiyabulelaNdiyabulela

NgiyathokozaNgiyathokoza NgiyabongaNgiyabonga

InkomuInkomu Ndi khou livhuhaNdi khou livhuha

Thank youThank you DankieDankie

Go to http://www.portsregulator.org for documentsincluding Records of Decision, Regulatory Manual,

consultation submission and reports and other useful documents


http://www.thepresidency.gov.za/dpme.asp