The Ports Regulator of South Africa would, in March, hold road shows in Johannesburg, Cape Town, Port Elizabeth and Durban to facilitate stakeholder consultations regarding the Transnet National Ports Authority’s (TNPA’s) proposed tariff methodology and pricing strategy.

TNPA is required, with the approval of the regulator, to determine tariffs for services and facilities offered by the authority and to publish a tariff book containing those tariffs every year.

The authority has proposed that a ‘revenue requirement’ tariff methodology be used by the ports regulator for determining the tariff increases from 2014/15 onwards and had started an engagement process with the regulator to ensure the competitiveness of the country’s ports systems and to support economic growth.

“TNPA is also aware that the current tariff methodology must be reviewed to ensure that overall port charges are set at the right level to allow the organisation to perform its functions efficiently without overburdening port users,” the authority indicated.

TNPA pointed out that the proposed methodology was structured to recover the cost of operations, achieve a return to recover the opportunity cost of the capital employed in the production of the regulated services, provide efficient price signals to market participants and consumers and provide TNPA with the incentive for efficient investment in relevant infrastructure and services.

Ports Regulator of South Africa CEO Riad Khan told Engineering News Online that the intention behind the proposed tariff methodology was to take a longer view of the tariff escalation frontier to make long-term planning more accurate for the TNPA and its clients.

With its full disclosure requirement, including a system for smoothing tariff adjustments, the methodology promoted regulatory independence and certainty. The key elements within the revenue requirements model included an allowed rate of return on investments, as well as allowances for expenses, tax obligations and depreciation to cover the consumption of assets.

The methodology suggested that TNPA would, within 30 days of the directives coming into effect and, thereafter, on a yearly basis on or before August 1, or at such longer intervals as the authority and the ports regulator may agree, submit its proposed tariffs for all services and facilities offered by the authority for the following financial year, for approval by the regulator.

However, the TNPA may, in exceptional circumstances, apply for an ex post adjustment to allow revenues to withstand adverse out-turns in forecast demand and/or costs in a preceding review period, owing to unforeseen factors.

The TNPA further highlighted the importance of retaining an excessive tariff increase margin credit (ETIMC) to offset against future large, justified tariff increases resulting from capital expenditure programmes.

“In the event that the tariff determination warrants an excessive yearly tariff adjustment that could impact negatively on the industry, this ETIMC could be used as a mechanism to phase in or delay tariff spikes over a longer period of time to allow industry to adjust to significant increases at a more sustainable rate,” TNPA pointed out.

The authority suggested a multiyear tariff application approach from 2014/15 to 2018/19 with fixed identical tariffs each year, which would provide a smooth tariff trajectory.

It believes the benefits of a multiyear tariff approach would include reducing regulatory effort by all affected parties; providing the authority with more space to focus on its business plans over the control period without the concern of yearly tariff determinations; providing certainty to funders of the authority; and allowing customers to plan their business accordingly during the control period.

PROPOSED PRICING STRATEGY

The TNPA also proposed a new pricing strategy that was based on, besides others, the need to support government policies and being more strongly aligned with international norms and standards.

It stated that the current port tariff structure was “suboptimal”, as it presented several issues in terms of transparency, compliance, fairness and overall acceptability by port users.

Extensive engagements with stakeholders also revealed concerns over high costs and low levels of performance at ports.

“The tariff strategy proposal deals with the tariff incidence or which sector of the total client group gets to pay which portion of the total returns that are allowed to the TNPA under the tariff methodology that is determined,” Khan explained.

The overall required revenue included the real estate business and was driven by an asset allocation that resulted in preliminary contributions by the different port user groups, which saw terminal operators contributing 33%, cargo owners 46% and shipping lines 21%.

This would result in shipping lines’ required revenue increasing by 4%, that of terminal operators’ growing by 77% and cargo owners’ required revenue decreasing by 25%, as the decrease in cargo dues, combined with the proposed reduction scheme for the export of beneficiated goods, would strengthen the competitiveness of certain industries in the export sector.

The TNPA also proposed a beneficiation promotion programme (BPP), which would see export cargo dues of beneficiated cargo being reduced according to the beneficiation stage of the exported goods.

Stage 2 products, which involve limited value-adding processing and job creation opportunities would receive a 10% reduction, Stage 3 products that comprise higher value-adding processing and job creation opportunities are awarded a 60% reduction and Stage 4 products enjoy an 80% reduction.

The programme is proposed to be fully implemented in the 2013/14 financial year.

TNPA further pointed out that the proposed promotion programme for the export of beneficiated goods strongly improved the alignment of the tariff structure with government priorities through direct support to the key objectives of industrialisation and job creation.

The authority said it intended to phase in the new tariffs for marine services and most cargo handling types, including the BPP, from 2014/15.

Container cargo dues rates would migrate towards the target levels, with increased charges gradually transferred to rentals. TNPA stated that this phased implementation approach ensured the sustainability of terminal operators’ businesses, giving them time to adapt to the new regime, while simultaneously starting to contribute immediately to industrial policy support.

TARIFF DECISION

Khan further told Engineering News Online that the regulator’s decision regarding the proposals would be preceded by the public road shows that would be held in the second week of March to allow interested parties to interrogate the proposals and request additional information.

“In the event that any additional information is reasonably required by interested parties, TNPA shall have until the end of March to provide such information to the regulator, who shall then publish this information on its website,” he said.

Interested parties would be given until May 31 to submit written comments, which would be considered in the regulator’s decision-making process. The decision would then be published in time for the TNPA’s 2014/15 tariff application that was to be prepared by August.