Ports Regulator 2018/19 Tariff Application Roadshow...09:25-9:40 Overview of PRSA Stakeholder...

Ports Regulator2018/19 Tariff Application Roadshow

www.portsregulator.org 1

10 August 2017

Radisson Blu, Nelson Mandela Bay

Programme 09:00-09:10 Opening and Welcome

09:15-09:25 Introduction by the CEO

09:25-9:40 Overview of PRSA Stakeholder processes

9:40-10:10 Overview of Ports Regulator’s Tariff Strategy & Tariff Methodology

10:10-10:30 Tea Break

10:30-11:15 NPA Tariff Application 2018/19

11:15-11:50 Questions and Comments

11:50-12:00 Closing Remarks, Vote of Thanks and lunch invitation


Ports Regulator of South Africa

Who the Regulator is

• The Regulator is one of the key institutions envisaged by the Commercial Ports Policy, and the National Ports Act, Act 12 of 2005, which creates the National Ports Authority, the Regulator and the PCC’s as statutory institutions.

• The Regulator consists of a Chairperson, Regulator Members and the CEO as ex-officio member.

• The Regulator is independent in the performance of its mandate from state departments and entities.

Functions of the Regulator • Exercise economic regulation of the

port system in line with government’s strategic objectives

• Approve or reject the Authority tariffs

• Regulate the provision of adequate, affordable and efficient port services and facilities

• 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


• A complaint against the Authority may be based on Section 11 (NPA functions) and Section 47 of the Act:

a) Access to ports and port facilities are not provided in a non-discriminatory, fair and transparent manner;b) Small and medium sized enterprises owned by historically disadvantaged groups do not have an equitableopportunity to participate in the operation of facilities in the ports environment;c) Transnet is treated more favourably and that it derives an unfair advantage over other transport companies

• A port user or licenced operator adversely affected by a decision of the NPA may appeal against that decision to the Ports Regulator (Section 46)

• The Regulator Members on the Tribunal hearing panel must make a written decision: Within a procedurally fair process; As expeditiously as possible; Including reasons there for• Process and forms for lodging appeal and complaint www.portsregulator.org/tribunal• Administrative fee charged in lodging a complaint (R 2000.00) and appeals (R 3000.00).• PRSA can be approached to facilitate discussions with NPA.

PRSA Tribunal FunctionPort users may lodge complaint or an appeal against the NPA with the PRSA


NPA Tariff application submitted to the Ports Regulator –

1 August

Application is Published for comments

www.portsregulator.org

Roadshows and port users invited to submit comments on NPA’s tariff application

The Regulator considers application and submissions

Regulator approves, varies or rejects tariff as applied

Tariff Application:

Submission based on set multi-year methodology

Public consultation process:

Regulator’s Tariff Decision: 1st

December

Tariff determination and decision:


Tariff Road Shows: 07 Aug – Ekurhuleni 08 Aug – Cape Town10 Aug – Nelson Mandela Bay (PE)11 Aug - Durban Comments in by: 15 Sept 2017

Tariff determination process

• PCC to consider NPA’s capex plan up to 2023/24 (6 year capex plan)

• Year 2020/21 PRSA to review implementation progress for necessary adjustments

• New component in tariff methodology: WEGO

Studies: port pricing, port capacity and utilisation & port performance


Processes and dates to note

• Submissions on NPA tariff application due on 15 September 2017 • [email protected]

• Record of Decision on the Tariff Application 01 December 2017

• PCC and NPA Submissions on KPIs and weights per port to the Regulator by 15 September 2017

• Port Tariff Incentive Program (PTIP) awareness programme(October/November 2017)

• Consultations on a Port Asset Valuation Methodology

• Lodging of appeals/complaints (ongoing)


mailto:[email protected]

Tariff Strategy


Global Pricing Comparator Study - some highlights

• Progress evident

• Useful as a way to monitor tariff changes

• Its the trend…not the value, that’s important

• Report available at www.portsregulator.org

• Quick overview of some cargo dues that were the targets of

significant differentiation in past tariff decisions


http://www.portsregulator.org/

Automotive Cargo Dues

• Currently 128% above global sample average

• Down from 537% above the global sample average in 2015/16

-47

246

744

-45

230

589

-68

204

542

-68

195

537

-45.71

7.06

128.5

-200

-100

0

100

200

300

400

500

600

700

800

Total Port Authority pricingexcluding cargo dues

Total Port Authority Charges Cargo Dues

2012/13 2013/14 2014/15 2015/16 2016/17

Container Cargo Dues• Currently 182% above

global sample average

• Down from 267% above the global sample average in 2015/16

-26

360

194

874

-38

213

123

413

-42

190

125

388

-44

116 117

267

-38

88117

182

-200

0

200

400

600

800

1000


Total Port Pricing (includingport authority & terminal

handling charges)

Total Port Authority pricing(including cargo dues)

Cargo Dues

2012/13 2013/14 2014/15 2015/16 2016/17

Outlook for Container Cargo Dues• At full implementation of

the Tariff Strategy, Container cargo dues will be 43% below the global sample average

$41 409

0

50 000

100 000

150 000

200 000

250 000

Tariffs(US$)

Port

Iron Ore Cargo Dues• Currently -35% below

the global sample average $213 917.78

$ 0.00

$50 000.00

$100 000.00

$150 000.00

$200 000.00

$250 000.00

$300 000.00

$350 000.00

$400 000.00

Oxelosund Ennore Hedland Ventspils Sept-iles Esperance Mormugao Chennai Saldahna Bay Narvik

Outlook for Iron Ore Cargo Dues• At full implementation of

the Tariff Strategy, Iron Ore cargo dues will be 46% below the global sample average

$150 061.40

$0.00

$50 000.00

$100 000.00

$150 000.00

$200 000.00

$250 000.00

$300 000.00

Coal Cargo Dues• Currently -63.92% below

global sample average

• Down from -59% in 2015/16

-36.97

-42.84

-50.03

-40.54

-53.11

-57.76

-52.11

-57.25-59.7

-47.55

-53.89

-59.01

-54.32

-61.98-63.92

-70

-60

-50

-40

-30

-20

-10

0


Total Port Authority Charges Cargo dues

2012/13 2013/14 2014/15 2015/16 2016/17

Outlook for Coal Cargo dues• At full implementation

of the Tariff Strategy, Coal cargo dues will be -46% below the global sample average

$78 904.10

$0.00

$50 000.00

$100 000.00

$150 000.00

$200 000.00

$250 000.00

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Port

Cargo Dues (US$): Coal

Tariff Strategy• Answers the question: Who pays for what? And why?

• Determines “how the revenue cake should be cut”

• Sets the structure of the tariff book

• Must be considered with the RR methodology in mind – “zero-sum

game”

• Formalisation of existing tariff trajectory

• Aims to “clean up the tariff book” – status quo

• Current tariff application already proposes tariff differentiation in line

with the Tariff Strategy


Port Tariff Incentive Programme (PTIP)

• To support Beneficiation, Industrialisation, and Localisation through Port

Tariff Regulation.

• To create a mechanism in which cross-subsidies can be introduced that are in

‘the public interest’.

• The PTIP was published on 31 March 2016 for public comment and widely

consulted including government departments.

• Currently in the final development phase.

• Publication and awareness programme October/November 2017

• Expected implementation: January 2018


Port Tariff Methodology – 2018/19 – 2020/21

• Multi-year in its approach – 2018/19 – 2020/21.

• Continuing the use of Revenue Required Methodology.

• Major changes include:

• Introduction of a six year CAPEX plan.

• Introduction of an efficiency incentive ‘Weighted Efficiency Gains

from Operations’ (WEGO).

• Also changes in the calculation of debt and taxes

• Provision for changes in the Valuation of Assets

• RR = (RAB)*r + D + OPEX + T + Clawback + ETIMC + WEGO



• Regulatory Asset Base:

• Great progress has been made with the Valuation of Assets and the Regulator is currently

developing the Methodology to be implemented – public consultations towards end of the year.

• Depreciation:

• Currently utilising 40 year depreciation period.

• The VoA Methodology will provide more detail regarding the various depreciation periods.

• Capital Works in Progress:

• Introduction of a six year CAPEX plan.

• Historically, CAPEX approved ‘in-principle’ by PCCs.

• Going forward – An assessment will be undertaken on all business cases and the CAPEX plan in

terms of recent records and appropriateness.


Port Tariff Methodology – 2018/19 – 2020/21• Cost of Debt:

• The use of the Transnet Group short term vs long term debt structure will be applied to determine

an efficient deemed short term vs long term debt ratio for the NPA.

• The NPA is required to submit the initial calculation of the variable as well as revised average

embedded debt costs based on the average embedded NPA allocated Transnet Group cost of debt

on a group level.

• Taxation Expense:

• The Regulator will accept the current corporate tax rate of 28% (t) (to be adjusted if amended by

the National Treasury) adjusted for a proportional Transnet Group taxation rate for the period.

• The Vanilla WACC will be applied to the average RAB for the period under consideration, less the

interest cost of debt, and wear and tear, and other tax allowances.

• Any over or under recoveries in terms of the estimated vs actual taxation allowed due to “group

effects” will be included or offset in the ETIMC facility.


Port Tariff Methodology – 2018/19 – 2020/21• Opex:

• The Regulator currently analyses the operating cost estimates for the period on a detailed

line by line item basis. The NPA is requested to provide detailed and complete motivation

for each of the expenses applied for, especially on large items such as labour and energy

costs.

• Should the Regulator not be satisfied that the expenditure is within the scope and

mandate of the NPA, and that the amounts are reasonable, or reasonably allocated to the

NPA – the claw-back mechanism will be utilised.

• Claw-Back:

• The key purpose of applying claw-backs is to ensure that the NPA or any port

user is fairly treated and is not subjected to unfair gains or losses that are the

result of incorrect forecasting, inaccurate information and system shocks.



• Excessive Tariff Increase Margin Credit (ETIMC):

• The Regulator may authorise the release of part, or the whole, of the value of the ETIMC facility to influence

tariff levels whenever it deems necessary including, but not limited to, spikes in tariffs (defined as an average

tariff increase in excess of the CPI inflation forecast) due to a sharp increase in capital expenditure, volume

volatility, or any market related factor. Further, the Regulator may consider national objectives when making

decision to add to, or to utilise the ETIMC facility to adjust tariffs.

• The Regulator regulates in the long term interest of the industry. This requires that the Regulator not only

confine itself to the immediate tariff decision, but also considers ways to ease any future shocks to the

system.

• The role of the ETIMC is to allow the smoothing of unaffordable tariff spikes over multiple periods in the

future

• Volumes

• Whilst the NPA submits its own volume forecasts and calculated tariffs, the Regulator conducts its own,

independent volume forecast.www.portsregulator.org 25


• Weighted Efficiency Gains from Operations(WEGO):

• WEGOt = EGt-1 x 0.05 x Ret-1

• Where: Efficiency Gain (EG) = Agreed efficiency gain through operations, excluding the effect of market driven

volume growth.

• Return on Equity (Re) = return on equity as determined in the ROD.

• For the calculation of operational efficiency, port revenue contribution will establish the weighted

contribution on a per port basis to calculate the overall EG, however, all ports’ PCC’s must present

signed off results to the Regulator for consideration and inclusion in the tariff Assessment

• These key performance indicators, as well as the appropriate weightings for every port, will be selected

by the Regulator in consultation with port users through the PCC process as well as with the NPA.

• No cap on efficiency gains will be imposed, however, performance below a previous year’s performance

(the Baseline) will not be allowed. A declining or negative value of EGt-1 will result in an increased claw

back over period t.


Efficiency Incentive• Port users through PCC/NPCC and NPA to submit a basket of KPI per port

• KPI basket to reflect overall port performance (excluding throughput)

• Process:• Each PCC to select KPIs for the port and assign weights

• The NPA will also select KPIs and assign weights per port

• The PRSA to determine the final basket of KPIs and weights

• Each port contribution will be weighted by terminal vessel call ratio and by port revenue contribution at

system level

• All ports must present signed off KPIs and weights to the PRSA for consideration and inclusion

in the Tariff Assessment. Due date for submission: 15 September 2017.

• 2017/18 establishes baseline performance for selected indicators. 2018/19 performance will be monitored and the difference in the two years outcomes will determine the incentive or disincentive to the NPA


Thank You


Ports Regulator 2018/19 Tariff Application Roadshow...09:25-9:40 Overview of PRSA Stakeholder...

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Transcript of Ports Regulator 2018/19 Tariff Application Roadshow...09:25-9:40 Overview of PRSA Stakeholder...