Click to edit Master title style · 2015-10-02 · Transnet’s MDS • The MDS is Transnet’s...
Transcript of Click to edit Master title style · 2015-10-02 · Transnet’s MDS • The MDS is Transnet’s...
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Ports Regulator Roadshows
Tariff Application FY 2016/1701 – 06 October 2015
Contents
Transnet’s Market Demand Strategy
The Authority’s Strategic Focus – Aligned to Transnet MDS
Functions of the Authority
Services within the Ports
Regulation of Port Services and Facilities
Port Investment Planning
Operation Phakisa
Tariff Application Approach
Tariff Application FY 2016/17
Pricing Strategy
Port Efficiency
Current Initiatives
Conclusion
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Transnet’s Market Demand Strategy (MDS)
Transnet’s Market Demand Strategy (MDS)
3
Transnet’s MDS
• The MDS is Transnet’s investment programme aimed at expanding andmodernising the country’s rail, port, and pipeline infrastructure over a period ofseven years to promote economic growth in South Africa.
• The main pillar of the MDS is a rolling seven year R336.6bn investment programme.
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The MDS will make Transnet:
• One of the top global freight railway companies;
• One of the largest employers in South Africa;
• One of the top companies in South Africa in terms of
revenues.
Transnet MDS: 5 Strategic Focus Areas
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FINANCIAL SUSTAINABILITY
Increase asset utilisation and maintain a financially
sustainable business
CAPACITY CREATION
Increase both capability and capacity to deliver the capital investment
plan
OPERATIONAL EXCELLENCE
Maintain readiness to provide world-class rail,
port and pipeline operations
MARKET SEGMENT COMPETITIVENESS
Reduce the cost of logistics and promote an integrated
and aligned regional network that allows for
supply chain optimisation
DEVELOPMENTAL OUTCOMES
Our social and environmental stewardship will develop our
talent, create new jobs, improve health and safety,
benefit communities, reduce energy consumption, and promote the adoption of climate change mitigation
policies
5__________________________
STRATEGIC
FOCUS
AREAS__________________________
Transnet’s MDS: Benefits
• The MDS will have a marked impact on the cost of doing business in South Africa,in line with Government’s New Growth Plan and New Development Plan:
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JOBS
MDS will create &
sustain direct and
indirect jobs over
the next seven
years
COMPANY
GROWTH
Increase in
headcount by
14.1% over the
seven years
SKILLS
DEVELOPMENT
Prioritization of
skills development
to promote a high
performance
culture
organisation
SUSTAINABLE
VALUE
The MDS will
deliver lasting
economic, social &
environmental
value to South
Africa
The Authority’s Strategic Focus – Aligned to Transnet MDS
The Authority’s Strategic Focus – Aligned to Transnet MDS
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Aligned to Transnet MDS
strategy
Strategic Intent “To enable the effective, efficient & economic functioning of
an integrated port system to promote economic growth”
Create & manage Infrastructure capacity ahead of demand
1. Effective port system2. Economic port system
Improve Port efficiencies (oversight role)
3. Efficient port system2. Economic port system
Enhance the ports’ position as integrated gateways for trade
4. Integrated port system.5. Grow the market
Authority’s3-tier strategy
Authority’sStrategic Objectives
Create & manage Infrastructure capacity ahead of demand
Effective port system
Economic port system
Improve Port efficiencies
Efficient port system
Economic port system
Enhance the ports’ position as integrated gateways for trade
Integrated port system
Grow the market
Capital Delivery + Service Levels +Integration = Increased Volumes, Revenue and contain Costs
6.
Org
aniz
atio
nal
cap
acit
y /
read
ines
s
The Authority’s Strategic Focus – Aligned to Transnet MDS
Strategy embodies the landlord functions set out in the Ports Act8
The Authority’s MDS Plan
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• The Authority will:
The Authority’s MDS Plan: Successes to Date
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JOB CREATION
• Employment of 558 employees since the inception of MDS to June 2015
CAPACITY
• Expansion of the Cape Town Container to 1.4 million TEUs• Expansion of the Ngqura Container Terminal - 1.5 million TEUs capacity
FLEET
• Acquisition of Grab Hopper Dredger• Award of contracts to local supplier for the delivery of 9 tugs with the first tug to be
delivered in 2015/16• Award of contract for 5 500m3 Trailer Suction Hopper Dredger (TSHD) with planned
delivery in 2015/16
OPERATIONAL EFFICIENCIES
• Introduction of Terminal Operator Performance Standards (TOPS) and MarineOperator Performance Standards (MOPS) and monitoring thereof
• Port Operations Centres completed at 5 ports to provide a holistic view of portoperations
BBBEE
• Measures implemented to ensure 75% of Level 4 B-BBEE status in lease contracts
The Authority’s MDS Plan: Successes to Date (continued)
11
LOCAL SUPPLIER DEVELOPMENT
• Transnet Supplier Development Initiative: Assisting the growth of small firms• Development of local supplier skills to build dredger components in South Africa• Local suppliers will build components for the operating life of the dredgers• Additional benefit / spin-off : Local suppliers building components for other countries
TRAINING & DEVELOPMENT
• Port Engineers, Planners and Project Management skills focus• Port Operations Centres skills evolving into Joint Operations Centres• Aviation skills development
o 23 Helicopter Pilot Traineeso 16 Helicopter maintenance engineers
INTEGRATED PORT MANAGEMENT SYSTEM (IPMS)
• IPMS Implemented at the Ports of Durban, Cape Town & Saldanha• Realisation of SA ports as Smart Ports
CONTINUOUS IMPROVEMENT/KAIZEN PROJECTS
• Establishment of a department focusing on continuous improvements and developinghigh-performance teams
The Authority’s MDS Plan: Administered Pricing
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100106 111
117122
100
103 103109
114
0
20
40
60
80
100
120
140
0 2012 2013 2014 2015
Inflation
NPA averagetariff
2.76% 0.00% 6.59% 4.80%
R1 bn Discount Program Significant tariff decrease
91 Automotives exports
69 Containers exports
Approved average tariff increase
• The graph below illustrates the Authority’s average tariff increase & differentiatedcontainer & automotive tariffs
Base
Functions of the Authority
Functions of the Authority
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Master planner
Marketer &
administrator
Coordinator with
other state agencies
Change agent
Promote the use, improvement and development of ports, and control land use within the ports, having the power to lease port land under conditions it determines.
Plan, improve, develop and maintain port infrastructure.
Make and apply rules to control navigation within port limits and approaches, ensure protection of the environment and ensure safety and security within port limits.
Ensure that adequate, affordable, equitable and efficient port services and facilities are provided for port users.
Ensure non-discriminatory, fair, transparent access to port services and facilities; advancement of previously disadvantaged people; promotion of representivity and participation in terminal operations; enhanced transparency in port management.
Advise on all matters relating to the port sector, and liaise with all stakeholders.
Controller of ports
navigation
Controller of ports
services & facilities
Ensure that port services and facilities are provided, and may enter into agreements or licence other parties to provide these.
Core Functions of Port Authority - Ports Act Section 11
Landlord
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Services within the Ports
Services within the Ports
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Services Provided within the Ports
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• Infrastructure/ Services provided within the Ports are illustrated below:
• Ancillary Services includes security, bus services, baggage handlers, fire fighting, fire protection, power & water supply, labour provision,
pollution control and clearing/forwarding.
Regulation of Port Services & Facilities
Regulation of Port Services & Facilities
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Regulation of Port Services and Facilities
• The Authority exercises control in accordance with the provisions of the Act, bymeans of agreements, licences and permits.
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Port Investment Planning
Port Investment Planning
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Port Investment Planning
• The main function of the Authority is to own, manage, control and administerports to ensure their efficient and economic functioning, and in doing so theAuthority must ―
National Ports Act: Section 11 20
Port Investment Planning (continued)
• The Authority’s capital plan: R42.9bn (exclusive of land associated with DIA)
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15/16 16/17 17/18 18/19 19/20 20/21 21/22
922
1 727
2 922
4 845
5 779 5 779
5 119
2 133 2 417
3 167
2 533
1 666 1 987 1 896
Total Expansion: R 27.1bn Total Replacement: R15.8bn
Expansion vs. Replacement
Total 7 Years: R42.9bn
3 055 4 144 7 377 7 445 7 765 7 0156 090
Cape Town
R2 346mPort Elizabeth
R1 976m
Durban R21 529m
Saldanha Bay
R4 643mEast London
R1 481m
Richards Bay
R3 516m
Ngqura
R5 423m
Mossel Bay
R202m
Port Nolloth
R60mDredging
R686m
Lighthouses
R449m
Maputo
Beit Bridge
South Corridor
R8 880m
Sishen
Other
R580m
• The Authority’s capex spending over the seven year period amounting to R 42.9bn:
Port Investment Planning (continued)
Port Investment Planning (continued)
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Other (incl. LHS) Includes:
• Charl Malan Quay Refurbishment PLZ• Roads , Services & Port Entrances in RCB• Port Admin Facilities in Dbn (B Berth)• Edwin Swales Link Road
12 802
686
4 456
3 670
1 541
5 074
14 663
- 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000
Other (incl LHS)
Dredging Services
Dry Bulk
Fleet - craft
Break Bulk
Liquid Bulk
Containers
Seven-year Capital Investment by CommodityFY 2015/16 to FY 2021/22
Total: R 42 891m
8 081
589
2 044
1 454
…
2 981
4 563
- 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000
Other (incl LHS)
Dredging Services
Dry Bulk
Fleet - craft
Break Bulk
Liquid Bulk
Containers
Capital Investment over Tariff Application Period by Commodity
FY 2015/16 to FY 2018/19Total: R20 666m
Port Investment Planning (continued)
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• Major Capital Projects FY 2015/16 to FY 2021/22
Port Investment Planning (continued)
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Durban Container Terminal
• Berth Deepening and Lengthening Pier 2 (Berth 203 - 205)
• Salisbury Island Infill (Pier 1 Phase 2)
Port of Ngqura
• Operationalisation of the Port
Bulk
• 16mtpa Manganese Terminal at the Port of Ngqura
• Tank Farm Berth A100, roads, port entrance and services at Ngqura
• LNG Terminal and additional Bulk Liquid at RCB (envisaged completion FY 2022/2023)
Break Bulk
• Reconstruct sheet pile quay walls at DBN Maydon Wharf (Berths 1,2, 13 & 14)
Fleet Management
• Acquisition of tug boats, pilot boats, launches, dredgers (all ports)
Helicopters
• Acquisition of replacement helicopters for DBN & RCB
Operation Phakisa
• Operation Phakisa Initiatives at DBN, EL, PLZ, SLD, CPT
Operation Phakisa
Operation Phakisa
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Operation Phakisa
• Operation Phakisa launched by the State President (Oct 2014) resulted infocused initiatives to unlock the economic potential of South Africa’s oceans.
• Oceans Economy can contribute to GDP growth and increased employment.
• The Authority will pursue new vessel repair facility opportunities at the Ports ofSaldanha, Richards Bay and East London
• Maintenance and refurbishment of existing vessel repair facilities have beenprioritised at the Ports of Durban, East London, Port Elizabeth, Mossel Bay,Cape Town and Saldanha.
• TNPA is supportive of other Ocean’s Economy initiatives with specific emphasison Aquaculture.
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The Operation Phakisa Lab recommended the following initiatives for Marine - Transport and Manufacturing
Infrastructure and operations Skills and capacity building Market growth
▪ Create supportive funding and revenue model
▪ Establish purpose-built oil and gas port infrastructure by appointing Facility Operators – Saldanha Bay
▪ Align on Implementation of government policy
▪ Prioritise Transnet and TNPA funding allocation towards marine manufacturing
▪ Maintain and refurbish existing facilities
▪ Unlock investment in new and existing port facilities
▪ Implement Strategic Prioritised Project – Richards Bay
▪ Implement Strategic Prioritised Projects – East London
▪ Train 2,550 TVET College graduates on an 18-month Workplace-based Experiential Learner Programme in scarce and critical trades over the 5 year period
▪ Create dedicated Occupational Teams for MTM Sector (professional, trades, operators and seafarers)
▪ Establish trade RPL, CBMT or Centres of Specialisation in Saldanha Bay and Richards Bay
▪ Train 18,172 learners as artisans, semi-skilled workers and professionals over the next 5 years
▪ Increase usage of ESSA system and targeted career awareness services as a high value recruitment tool for MTM
▪ Increase capacity to develop skills for ~1,200 ratings and ~720 officers per year
▪ Create and implement a public procurement and localisation programme
▪ Develop a strategic marketing campaign and value proposition for target markets
▪ Propose inclusion of preferential procurement clause in the African Maritime Charter
▪ Support local registry of vessels through incentives and legislation of using SA-flagged ships for cargo and coastal operations (based on United Nations Conference on Trade and Development and African Maritime Charter guidelines)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
A B C
i. TNPA – Transnet National Ports Authority
ii.ESSA – Employment Services of South Africa
iii.TVET – Technical and Vocational Education and Training
iv. RPL – Recognition of Prior Learning
v. CBMT – Competency-based Modular Training27
TNPA’s immediate focus is on addressing infrastructure constraints
These initiatives require capital investmentover the next 5 years.
2 5
Immediate Impact on TNPAInfrastructure and operations
▪ Create supportive funding and revenue model
▪ Establish purpose-built oil and gas port infrastructure by appointing Facility Operators – Saldanha Bay
▪ Align on Implementation of government policy
▪ Prioritise Transnet and TNPA funding allocation towards marine manufacturing
▪ Maintain and refurbish existing facilities
▪ Unlock investment in new and existing port facilities
▪ Implement Strategic Prioritised Project – Richards Bay
▪ Implement Strategic Prioritised Projects – East London
1
2
3
4
5
6
7
8
A
7 8
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Initiative Details
Initiative 2 Acceleration of identified ship/rig Repair and Supply Bases investments
at the port of Saldanha
Initiative 5 Acceleration of the refurbishments of existing ship repair facilities
under the control of TNPA
Initiative 7Dredging at the port of Richards Bay to accommodate the introduction of
a floating dock
Initiative 8Refurbishment of the East London slip way to accommodate boat
building
Replacement of South side crane rail at Dry Dock
Erect perimeter wall on north side of Drydock
Initiative 5: Maintenance and Refurbishment of existing facilities: Durban
1.50 5.00 3.50
14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 ETC
Repair of inner and outer caisson of Dry Dock
Execution: Dockyard Lighting and Low Voltage Electrical Distribution Upgrade
Welding Equipment Set for Shop 24
Drydock Jib Cranes
Drydock 6 Tons Forklift
Drydock Compressors
Upgrade of Floating Dock
Feasibility: Upgrade of Dockyard Infrastructure
Repair Concrete works in the Dock
Execution: Upgrade of Dockyard Infrastructure
4.78 5.00 9.00
5.00 95.00 20.00
5.00 16.60
1.57
1.23
7.50
1.00 5.00 4.00
10.00 50.00 70.00 40.00
10.00
DURBAN
Project
FEL 3: Geotechnical study tender to be awarded by 30/09/2015
Comments
Completed
FEL 4: Outer Caisson currently being refurbished. Dock to be in commission for this phase by mid Dec 2015
Completed
Project Awarded. Delivery Dec 2015
FEL 3 Feasibility completed. Execution 2016/17
Project awarded. Delivery 30 Oct 2015
FER: Evaluating business case
FEL3: Execution – FEL 4 evaluating options
FEL3: Completed. Work breakdownstructure finalized. Fast track FEL 4to commence in 2016/17
FEL4: Project Sanctioned. Tenderphase. Award by 30 Sept 2015
Refurbishment of Robinson Drydock
Refurbishment of Sturrock Drydock
Initiative 5: Maintenance and Refurbishment of existing facilities : Cape Town and Mossel Bay
2.00 33.00 35.00 35.00 35.00
14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 PM ETC
Refurbishment of Synchrolift
Replacement of water circulating pumps at Sturrock Dry Dock
Replacement of 10 cranes for Ship repair
Refurbishment of Cradle & Side Slipway
Reconstruct lead-in jetty to slipway
Slipway upgrade
1.70 3.90 7.63 12.00 15.63 10.00
10.00 50.00 240.00 350.00 100.00
25.00 50.00 195.00
3.00
5.00 10.00
CAPE TOWN
Project
1.00 10.00 20.00 19.00
MOSSEL BAY
FEL 2/3: To be awarded in Nov 2015
Comments
FEL 2/3: To be awarded in Nov 2015. Floating caisson tender stage
FEL 2/3: Feasibility study underway.Shutdown envisaged Feb 2016
Tender phase underway.
FEL 3: Completed. Approval for execution underway.
FEL 2: Technical assessmentscompleted. Fasttrack the project
Refurbishment of Slipway Area
Initiative 5: Maintenance and Refurbishment of existing facilities : East London, Port Elizabeth and Saldanha Bay
14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 ETC
Refurbishment of Graving Dock + Refurbish Pumps
Replacement Lead-in Jetties
40 ton Slipway Refurbishment (Feasibility & Execution) New 100t hoist
Modifications of 1200 ton slipway cradle
Refurbishment of Rock Quay (GM Quay area)
3.00
EAST LONDON
Project
5.16 54.47
SALDANHA
4.20 15.00 41.20 42.98 42.49
PORT ELIZABETH
10.73 51.50 81.93
Comments
FEL 3: Switchgear contract awarded. Approval for FEL 4 Execution underway
Execute as PSP
FEL 4: Execution: to be completed in 2017
FEL 4: Execution: to be completed in 2017
FEL 4: Execution: to be completed in 2016
FEL 4: Execution underway. Completion 2015/16
Port space for boat building 3.00 New Project: S79 Directive issued
Operation Phakisa Projects (Initiative 5) : Various projects
Project Objective Estimated Co-funded
investment required
EstimatedJobs created
Estimated GDP
Contribution
Maintain and refurbish existing facilities
Refurbish and upgrade existing ship repair facilities to service current and future
demand
R1.5bn
Target 20 000 (incl
multiplier) by 2023.
To date, 177 construction jobs created
R6.5bn
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Operation Phakisa Projects (Initiatives 2,7,8) : Overall Scope
Project Objective Estimated Co-funded
investment required
EstimatedJobs
created
Estimated GDP Contribution
Saldanha Bay Oil and gas repair and supply base facilities
Establishment of port facilities to service the Offshore Oil and gas
industry within the Port of Saldanha
R13.2bn 15 000 18bn
Richards Bay Ship repair facilities
Development of a cost effective ship repair
facilities within the Port of Richards Bay
R900m TBC TBC
East London boat building facilities
Development of the required infrastructure to
be a catalyst for the establishment of boat
building in the Port of East London
R515m TBC TBC
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Project Advisor Project Analysis
Completed
Business Case Development and Approval
Procurement of Preferred
Bidder Completed
Financialclose and
appointment of Bidder
RequiredOperationa
l Date
Saldanha Bay Oil and gasrepair and supply base facilities
Sept 2015 Oct 2015 Dec 2016 Sept 2017 2019
Richards Bay Ship repair facilities
Nov 2015 Nov 2015June 2016 Sept 2016 2019
East London boat building facilities
Jan 2016 Jan 2016 Nov 2016 Jan 2017 2019
Operation Phakisa Projects (Initiatives 2,7,8) : Execution Phases
34
The Analysis and Business Case phases are in execution phase and on track to meet the indicated timelines
Saldanha : Rig Repair Berth 205 (Artist Impression)
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Saldanha : Mossgas Jetty (Artist Impression)
36
Saldanha : Oil and Gas Supply Base (Artist Impression)
37
Richards Bay : Ship Repair (Artist Impression)
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Tariff Application Approach
Tariff Application Approach
39
Tariff Application Approach
• The Port Directives were approved on 13 July 2009 (gazetted on 06 August 2009) and amended on 29 January 2010.
• Directives require the Regulator to ensure that the Authority’s tariffs allows it to:
recover its investment;
recover its costs;
make a profit commensurate with the risk.
40
Regulatory Framework (continued)Regulatory Framework
• On 31 July 2014 the Regulator issued a Regulatory Manual (“TariffMethodology”) applicable for the tariff years 2015/16 to 2017/18.
• The approved Tariff Methodology is multi-year in its approach (3 years)
• The methodology further allows for an annual review and an annual adjustmentof tariffs within the three year period as opposed to fixing the prices for the fullperiod.
• The Authority has applied for a fixed tariff adjustment for FY 2016/17 andindicative tariff adjustments for FY 2017/18 & FY 2018/19
• Whilst the Tariff Methodology is applicable up to FY 2017/18, the Authority hasincluded FY 2018/19 in order to demonstrate the tariff trajectory over a threeyear period
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Regulatory Framework (continued)Regulatory Principles & Previous Records of Decision (ROD’s)
• In determining the Tariff Application FY 2016/17, the Authority has been guidedby principles included in previous decisions of the Regulator.
• This includes the consideration of bilateral contracts at tariff book rates (asopposed to contract rates).
• Whilst the Authority has adopted the approach of the Regulator, it has done soon the assumption that the recovery of the revenues based on tariff book rateswill be legally enforceable.
• The Tariff Application FY 2016/17 has therefore been prepared in accordancewith the Tariff Methodology and principles applied in previous decisions of theRegulator.
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Tariff Application FY 2016/17
Tariff Application FY 2016/17
43
Tariff Application FY 2016/17
• The Tariff Methodology prescribes the following Required Revenue (RR) formula:
Revenue Requirement
= Regulatory Asset Base (RAB) x Weighted Average Cost of Capital (WACC) + Operating Costs +
Depreciation + Taxation Expense ± Claw-back ±Excessive Tariff Increase Margin Credit (ETIMC)
44
Key Principles of Tariff Methodology
• The key principles included in the Tariff Methodology is as follows:
Component Details
Regulatory Asset Base (RAB) The RAB represents the value of assets that the NPA is allowed
to earn a return on.
Vanilla Weighted Average Cost of Capital A real WACC will be applied, given that the RAB is indexed for
(WACC) inflation.
Operating Costs The NPA is required to provide detailed and complete
motivation for each of the expenses applied for.
Depreciation The depreciation of the assets in the RAB will be calculated as
a straight line 40 year on the opening balance of the RAB.
Taxation Expense The Regulator will use the pass-through tax approach where
the vanilla WACC will be applied to the average RAB for the
period under consideration
Claw-Back The Regulator will spread the total impact of over/under
recovery of revenue over a period of two tariff determinations.
Excessive Tariff Increase Margin Credit (ETIMC) The Regulator considers it prudent to avoid future tariff spikes
by retaining and increasing the NPA’s ETIMC.
45
Revenue Requirement Components
• Valuation of the RAB takes into consideration Depreciation, Inflation Trending,Capital Works in progress (CWIP)/Capex and Working Capital:
Notes:• Durban International Airport (DIA)/ Durban Dig Out Port (DDOP): In accordance with the Tariff
Methodology, the RAB excludes DIA land acquisitions as the site has not been legislatively incorporatedand established as a port.
• Properties Outside of Port Limits: Properties that falls outside the co-ordinates as stipulated in theRegulations with a trended value of R489m has been removed from the RAB.
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FY 2016/17 FY 2017/18 FY 2018/19
Fixed Tariff Year
Opening Net Book Value 71 342 77 249 85 625
Less: Properties Outside of Port Limits (489) - -
Restated NBV 70 853 77 249 85 625
NBV Inflated 75 033 81 652 90 506
Less: Depreciation (1 928) (2 117) (2 355)
Add: Capex 4 144 6 090 7 377
Closing NBV 77 249 85 625 95 528
Average Opening and Closing 74 296 81 437 90 577
Less: Working Capital (813) (1 111) (1 374)
RAB Final 73 483 80 326 89 203
Details
Indicative Tariff Years
R'm
Revenue Requirement Components(continued)
• The Vanilla WACC is determined is as follows:
FY 2016/17 FY 2017/18 FY 2018/19
Fixed Tariff Year
Risk Free rate (nominal) 8.26% 8.17% 8.16%
Real risk free rate 2.23% 2.34% 2.33%
MRP 5.40% 5.40% 5.40%
Asset Beta 0.50 0.50 0.50
Equity Beta (Using Hamada) 0.86 0.86 0.86
Gearing 50% 50% 50%
WACD (nominal) 9.87% 10.07% 10.22%
Inflation 5.90% 5.70% 5.70%
Tax rate 28.00% 28.00% 28.00%
Cost of Equity (real) 6.87% 6.98% 6.97%
WACD (real, pre-tax) 3.75% 4.13% 4.28%
Vanilla WACC 5.31% 5.56% 5.63%
Details
Indicative Tariff Years
Explanatory Notes: Risk Free Rate: Calculated over a five year monthly average from June 2010 to May 2015 for FY 2016/17.
MRP: Geometric mean with the use of the DMS dataset over a full 113 year period.
Cost of Debt: Transnet Weighed Average Cost of Debt
Inflation: Latest National Treasury (NT) forecasts used for FY 2016/17 & FY 2017/18. NT forecast not
available for FY 2018/19 therefore maintained inflation rate of FY 2017/18
FY 2017/18 & FY 2018/19: The MRP for FY 2015/16 is used as a proxy to determine an indicative WACC as
this index is based on historical data
47
Revenue Requirement Components(continued)
• Taxation calculations as per Tariff Methodology (which includes the flow of funds re. Clawback and ETIMC) is highlighted below:
48
DETAILS FY 16/17 FY 17/18 FY 18/19
Gross Income 9 326 10 953 11 967
Pre Tax debt return - - -
Equity Return on RAB 2 524 2 803 3 109
ETIMC 67 - -
Clawback (680) 66 -
Depreciation 1 928 2 117 2 355
Opex 5 487 5 967 6 503
Deductions 6 802 8 150 8 858
Depreciation 1 928 2 117 2 355
Opex 5 487 5 967 6 503
ETIMC 67 - -
Clawback (680) 66 -
Taxable income 2 524 2 803 3 109
Gross up for tax 3 506 3 893 4 318
Tax at 28% 982 1 090 1 209
Tax on Clawback 190 (18) -
Tax on ETIMC 19 - -
Tax Allowance 1 191 1 072 1 209
Revenue Requirement Components(continued)
• Operating Expenditure is highlighted below:
49
Actual Budget Forecast Dev Dev % of Opex Forecast Forecast CAGR2014/15 2015/16 2016/17 vs 16/17 vs 16/17 15/16 2017/18 2018/19 2016/17 -
R Million R Million R Million R Million % R Million R Million 2018/19
Labour Costs 1 909 2 219 2 571 352 16% 53% 2 783 2 931 7%
Rates & taxes 316 363 397 34 9% 8% 443 456 7%
Maintenance 260 329 402 73 22% 8% 452 545 16%
Contract Payments 71 138 157 19 14% 3% 119 139 11%
Energy 440 488 554 65 13% 11% 622 693 12%
Professional services 18 51 56 5 10% 1% 73 89 26%
Material 76 85 104 20 23% 2% 112 124 9%
Computer & Info systems 122 147 157 10 7% 3% 175 201 13%
Rental 60 66 80 13 20% 2% 85 103 14%
Security costs 71 82 89 7 8% 2% 107 131 22%
Pre -Feasibility Studies 43 118 139 21 18% 3% 129 186 16%
Sundry operating costs 17 113 131 18 16% 3% 181 184 3%
Total operating cost 3 403 4 200 4 837 637 15% 100% 5 280 5 782 9%
(excluding depreciation)
Group Costs 509 619 650 31 5% 687 721 5%
Total operating cost 3 912 4 819 5 487 668 14% 5 967 6 503 9%
(Including Group Costs)
Cost Category
Revenue Requirement Components (continued)
• Key Drivers for the increase in Operating Expenditure is as follows:COST DRIVER DETAILS
1. Labour Increase in minimum manning levels of marine to 100% service and then to 120% to meetMOPS requirements;
Additional crew to man new craft being deployed by Dredging and Marine services;
Trainers required to establish marine engineering schools in the Ports of Durban, CapeTown, Saldanha and East London;
Manning of port operational centres; and
Appointment of trainee helicopter pilots.
2. Maintenance Refurbishment of ageing infrastructure;
Frequent dredging of berths resulting in increased and additional maintenance of dredgers;
and
Ship repairs maintenance and refurbishment which involves the upgrading of existing
facilities.
3. Energy Eskom tariff hike and crude oil prices and new craft.
4. Rental Leasing of computer equipment, office space for JOCs and vehicle rentals for berthing,
pilots, and water supply to vessels.
5. Pre-Feasibility Studies Studies relating to ship repair facilities for the port system in terms of the Operation Phakisa
initiative;
Other projects include long-wave mitigation measures, wind mitigation studies and land use
planning studies; and
Studies related to the future capital programme.
6. Sundry Operating Costs S56 projects lead to increased legal fees. Other cost increases relate to Water,
printing/stationary, promotions and advertising and Rates & Taxes.50
Revenue Requirement Components (continued)
• Claw-back considers the differences between allowed and actual revenues.
• The re-computed RR for FY 2014/15 is R10 059m and determined as follows:
RAB 63 858
WACC 5.48%
Return 3 499
Opex 3 826
Depreciation 1 675
9 000
Plus: Tax 956
Re-computed Revenue Requirement 9 956
Plus: Clawback 103
Plus: ETIMC -
Re-computed Revenue Requirement 10 059
Details
51
Revenue Requirement Components (continued)
R'm
Allowed Revenue per ROD FY 2015/16 11 109
Latest Estimate Revenue 10 797
Plus: Bilateral Contract revenue 181
Total Latest Estimate Revenue 10 978
Estimated Clawback 131
50% Clawback Adjustment in FY 2016/17 66
Clawback FY 2014/15 (707)
Return on Clawback FY 2014/15 (39)
Estimate Clawback FY 2015/16 66
Net Clawback FY 2016/17 (680)
Estimate Clawback
Total Clawback due to customers FY2015/16
• The “net” claw-back calculations are demonstrated below:
• Per principles contained in the ROD FY 2015/16, the re-computed RR has beendetermined with bi-lateral contracts considered at tariff book rates.
52
FY 2014/15
R'm
Re-computed Allowed Revenues 10 059
2014/15 AFS Revenue 10 469
Plus: Bilateral Contract Revenues 123
Total Revenue FY 2014/15 10 592
Clawback FY 2014/15 (533)
Provisional allowed in ROD FY 2015/16 (174)
Final Clawback FY 2014/15 (707)
Actual Clawback
Revenue Requirement Calculation
FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19
ROD Fixed Tariff Year
R'm
RAB 66 789 73 483 80 326 89 203
Vanilla WACC 6.38% 5.31% 5.56% 5.63%
Return on Capital 4 261 3 902 4 466 5 022
Plus: Depreciation 1 791 1 928 2 117 2 355
Plus: Operating Costs 5 020 5 487 5 967 6 503
Plus: Taxation Expense 768 1 191 1 072 1 209
Plus/(Less): Clawback (581) (680) 66 -
Plus/(Less): ETIMC (150) 67 - -
Revenue Allowed 11 109 11 895 13 688 15 089
Less: Real Estate (2 449) (2 600) (2 874) (3 147)
Marine Revenue 8 660 9 295 10 814 11 942
Details
Indicative Tariff Years
R'm
Application of the RR Formula results in a Total required Revenue of R11 895m for FY 2016/17:
Marine Business Revenue: R 9295m Real Estate: R2 600m
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Volume Growth FY 2016/17
• The Authority’s estimated weighted average volume growth for FY 2016/17 is asfollows:
FY 2015/16 FY 2016/17 FY 2016/17 FY 2016/17
Revenue Latest
Estimate
R million
Weighted
Average
Revenue %
Revenue:
Volume Increase
R million
Revenue: Before
Tariff Increase
R million
Containers 3 870 3.5% 135 4 004
Automotive 582 -2.0% (12) 570
Break Bulk 282 3.7% 10 292
Dry Bulk 1 184 4.7% 56 1 240
Liquid Bulk 591 2.8% 17 607
TOTAL CARGO DUES AFTER REBATE 6 508 3.2% 206 6 713
Marine & other revenue 2 063 0.0% (1) 2 062
TOTAL TARIFF BOOK REVENUE 8 571 2.4% 205 8 775
Real estate revenue 2 407 8.0% 193 2 600
TOTAL REVENUE 10 978 3.6% 398 11 375
Details
54
Tariff Adjustment FY 2016/17
FY 2016/17 FY 2017/18 FY 2018/19
Fixed Tariff Year
Prior Year Revenue 8 571 9 295 10 814
Estimated Volume Growth 2.40% 3.20% 2.60%
Revenue after volume growth 8 777 9 592 11 095
Required Revenue 9 295 10 814 11 942
Tariff Increase 5.90% 12.74% 7.63%
Marine Revenue
Indicative Tariff Years
R'm
• The Latest Estimate Revenue of R8 571m for FY 2015/16 is adjusted with the forecasted weighted average volume increase of 2.40%.
• The difference between this Revenue and the Marine Business Revenue Required for FY 2016/17 results in the tariff adjustment of 5.9%.
55
Pricing Strategy
Pricing Strategy
56
The Authority’s Pricing Strategy
• The Pricing Strategy proposes an allocation of costs on a “user pay”principle to achieve cost reflective tariffs including:
o Including revising revenue contribution from Terminal Operators in line withInternational Landlord ports model;
o Greater incentives to maximise efficiencies and productivity for TerminalOperators; and
o Higher revenue contribution by shipping lines to remove subsidisation.
• The Authority’s Pricing Strategy includes the Beneficiation PromotionProgramme (BPP), incentivizing the export of beneficiated goods tosupport Government key objectives of industrialization and job creation.
57
Regulatory Framework (continued)Key Pillars of the Pricing Strategy
58
Regulators response on the Pricing Strategy
• The Regulators tariff strategy is premised on the following:
o Cost causation – correct pricing signals;
o Cost minimisation – approach to minimize costs;
o Distribution and benefits – equity and reasonability; and
o Practicality – ease of implementation.
59
Tariff Strategy Phased Approach
• Ports Regulator’s tariff trajectory (over 10 year period):
o Cargo Dues – 5.2% real price decrease on an annual basis;
o Shipping Lines – 7.2% real price increase on an annual basis; and
o Tenants – 2.8% real price increase on an annual basis.
• The allocation envisages the following:
o Steep price reductions for Containers and Automotives; and
o Marginal increase for Dry and break bulk commodities.
60
Economic climate considered in determining differentiated tariff
increase
• SA’s narrow economy’s heavy reliance on export of natural resources
• Sluggish economic performance of major trading partners like Germany, China & US
• The current global environment of volatile currency risk fluctuations, interest raterisk, fuel prices and falling commodity prices
• Government objective of supporting the export of beneficiated commodities
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The Authority’s proposed differentiated tariff increases
• 6.80% – Marine Charges (shipping lines)• 5.90% - Exports of Dry Bulk (Coal, Iron Ore and
Manganese)• 5.60% - On all other cargo dues
• Whilst the Pricing Strategy is being finalised, the Authority proposes the followingdifferentiated tariff increases:
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Port Efficiency
Port Efficiency
63
Port Efficiency
64
• The Ports Authority Operations Strategy
focuses on optimising cargo and vessel
turnaround and exercising mandated
oversight
• Year 3 Terminal Operator PerformanceStandards (TOPS) have been issued andTerminal performance is being monitored
• Marine Operator Performance Standards(MOPS) has been implemented. Rail androad equivalents being development.
• Port Operations Centres (to evolve to JointOperation Centres) to enable performanceoversight are at an advanced stage
• The “Smart Port” initiative has commenced
with the implementation of the Integrated
Port Management System (IPMS)
Current Initiatives
Current Initiatives
65
Current Initiatives
66
• Implementation of IPMS towards the realization of ‘Smart Ports”
• Port Operation Centres to monitor performance, identify & mitigate constraints
• Evolution of Port Operation centers into Joint Operational Centres to improve logistics performance
• Development of new ship repair facilities
• Maintaining existing repair facilities
• Development of oil & gas services with dedicated rig and other vessel repair capabilities
• Implementation of Revised Pricing Strategy in a phased approach
STRIVING FOR DIGITAL EXCELLENCE
REVISED PRICING STRATEGY
OPERATION PHAKISA
Conclusion
Conclusion
67
Conclusion
FY 2016/17 FY 2017/18 FY 2018/19
Fixed Tariff Year
Revenue Allowed 11 895 13 688 15 089
- Marine Revenue (Rm) 9 295 10 814 11 942
- Real Estate (Rm) 2 600 2 874 3 147
Tariff Increase (%) 5.90% 12.74% 7.63%
Revenues Indicative Tariff Years
• In line with the Tariff Methodology and principles per previous ROD’s of theRegulator, the Authority applies to the Regulator for the following revenues:
• For FY 2016/17, the average tariff adjustment of 5.90% is differentiated as follows: 6.80% – Marine Charges (shipping lines) 5.90% - Exports of Dry Bulk (Coal, Iron Ore and Manganese) 5.60% - On all other cargo dues
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Conclusion (continued)
• In line with Port Directives, the revenues will allow the Authority to:
recover its investment;
recover its costs; and
make a return commensurate with the risk involved.
Thereby sustainably fulfilling its role and delivering on its mandate ito the National Ports Act
Whilst remaining committed to Transnet’s and Governments objective of reducing the cost of doing
business in South Africa.
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