Results Announcement Transnet Ports Regulator Roadshows Tariff Application FY 2018/ July 2017

Transcription

1 Transnet Ports Regulator Roadshows Tariff Application FY 2018/ July 2017

2 Contents Transnet s Market Demand Strategy Services within the Ports MDS FY 2016/17 MDS FY 2017/18 FY 2023/24 Port Investment Planning Ship Repair Port Efficiency Tariff Application Approach Tariff Application FY 2018/19 Tariff Strategy Conclusion 01

3 Transnet Mandate Our Mandate Assist in lowering the cost of doing business in South Africa; Enable economic growth; and Ensure security of supply by providing appropriate port, rail and pipelines infrastructure in a cost-effective and efficient manner, within acceptable benchmarks. Mandate and strategic objectives are aligned with national plans and the Statement of Strategic Intent issued by the Minister of Public Enterprises. 02

4 Transnet MDS 03

5 Transnet MDS 04

6 Future Trends that will impact Ports (Research Findings) Sources : IHS Survey, Carlos Gallegos, Dr Martin Stopford, Deloitte & Touche, 05

7 Authority s Strategy 06

8 Authority s Core Functions : Ports Act Landlord 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 O p t i m a l l y Master planner Regulator and Controller 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 s e r v e t h e e c o n o m y Controller of ports services & facilities Marketer & administrator Change agent Coordinator with other state agencies Ensure that port services and facilities are provided, and may enter into agreements or license other parties to provide these 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 07

9 Services Provided within the Ports 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. 08

10 Regulation of Port Services and Facilities The Authority exercises control in accordance with the provisions of the Act, by means of agreements, licences and permits. 09

11 The Authority s Administered Pricing The graph below illustrates the Authority s average tariff increase & differentiated container & automotive tariffs R1 bn Discount Program Significant tariff decrease Roro exports Inflation NPA average tariff Containers exports % -11.1% 6.48% 4.80% 0.00% 5.97%

12 MDS FY 2016/17 1. Port Infrastructure provision and development New 90 ton Boat Hoist and Slipway, including new Lead-in Jetties Port of PE Upgrade of the old General Maintenance Quay Offshore Supply Base -Port of Sld Outer Dry Dock Caisson refurbishment and Dry Dock Concrete Repair Port of Durban Delivery of two Tugs - Port of Durban 11

13 MDS FY 2016/17 2. Operational efficiencies Average anchor waiting times improved year-on-year Ship Turnaround Time (STAT) improved and exceeding set targets (exception of DCT) Automated Mooring System (AMS) has yielded improved performance - Port of Ngq Terminal and Marine performance assessments are active JOCs in the ports of Durban, Richards Bay, East London, Port Elizabeth, Cape Town and Saldanha Bay being operationalized with the Port of Durban JOC operating 24/7 The integrated ports management system (IPMS) providing: supply chain visibility; and performance targets with Terminal Operation Performance Standards (TOPS) 12

14 MDS FY 2016/17 3. Private Sector participation and transformation Port Completed concession agreements Port of Cape Town Cruise Terminal: - concession agreement concluded with the V&A Waterfront. development continuing parallel to operations Green fields Liquid bulk Terminal (Burgan Cape): - concession agreement concluded with the facility at operational stage Port of Durban Port of Saldanha Green fields Cruise Terminal: - Preferred Bidder negotiation stage with concession agreement to follow. Greenfields LPG Terminal:- Sunrise Energy construction concluded and is now operational Port of Ngqura Greenfields Liquid Bulk Terminal Concession Agreement concluded with OTGC 13

15 MDS FY 2016/17 Current Supplier Development Obligations Current Supplier Development Projects Contract value: R3.2bn SD Initiatives value: R1.6bn SD committed as a % of contract value: R850m SD commitment achieved to date: Skills development: R122m Job preservation: R35m Job creation: R53m Small business promotion: R181m Localisation: R172m Investment in plant: R63m Rural development: R224m 1. Grab Hopper Dredger 2. Truck staging facility 3. IPMS 4. Trailing Suction Hopper Dredger 5. Helicopter Operations 6. Operations Hardware Centre 7. SAP CRM 8. Helicopter Maintenance 9. Upgrade of Port Control Tower 10. Tug boats 11. Ground Maintenance 12. Vessel Tracking System 13. Upgrade of Salt River Bridge 14. Advertising 15. Exhibition Stand- Scan Display 16. Transportation of Dredging crew 1. Digital Media Signage 2. Fire Pumps 3. GMQ 4. Transactional Advisory 5. Rehabilitation of Outer Caissons Dry Dock 6. Industrial-Dredger Equipment Repairs 7. Rehabilitation Service to the Sheet Pile Wharf at the Port of East London 8. Tanker Berth 9. Repair Floating Caisson in Robison Dry Dock Port of Cape 10. Water Quality Monitoring 11. Rehabilitation of Port Nolloth Infrastructure 12. Security Services 13. IPMS 14

16 MDS FY 2017/18 & 2018/19 1. Core Initiatives Improvement Operations Systems Tariffs Customer Improve the availability of the marine services fleet through the fleet management programme. Improving supply chain efficiencies through effective JOCs. Fully operationalize the Division s JOC. TVCC Compliance to slot-booking system. Implementation of the Regulators approved tariff strategy. Fully operationalize customer interaction platforms. Information System Environmental compliance Training Community SMART Peoples Port Order-to-Cash revenue transaction system elte connectivity Port Operational Assets Tracking Arial and Aquatic Drone Service Management. Embed a safety culture and ensure environmental compliance. Continuous improvement training. Promote a People s Port theme through port festivals and various community programmes 15

17 MDS FY 2017/18 & 2018/19 2. S56 Pipeline projects Port In progress- concession agreements Port of Cape Town Liquid bulk Terminal: - pursuing new concession agreement through S56 Port of Durban Greenfields Liquid bulk Terminal : Lot RFP in progress Floating Dock RFP tender preparations in progress Brownfield Liquid bulk and chemical terminal (Island View Storage) Port of Saldanha Greenfields Off-shore supply base Preferred Bidder appointment pending Greenfields Mossgas Ship Repair & Floating Dock Operation Phakisa project Port of Port Elizabeth General Cargo Terminal sheds 10/11 Preferred bidder is pending Port of Richards Bay Green field Ship Repair/floating dock Port of East London Both Green fields and Brown fields Liquid Bulk for high inflammable Oils (preparations in progress for S56 RFP) Greenfields Slipway Split Facility for boat building and ship repair Port of Mossel Bay Waterfront Development - currently at feasibility stage Port of Ngqura Both Greenfields and Brownfields Multipurpose Terminal S56 16

18 Port Investment Planning The main function of the Authority is to own, manage, control and administer ports to ensure their efficient and economic functioning, and in doing so the Authority must National Ports Act: Section 11 17

19 Port Investment Planning (continued) The Authority s capital plan: R34.8bn R1 818m R3 053m R5 655m R5 713m R6 946m R6 658m R4 938m Expansion VS Replacement Expansion Replacement / / / / / / /24 Total Expansion: R19.0 Total Replacement: R15.8 Total 7 Years: R

20 Port Investment Planning (continued) The Authority s capex spending over the seven year period amounts to R 34.8bn: Beit Bridge Other R963m Maputo Port Nolloth R64.2m Sishen Richards Bay R4 432m Durban R16 520m Dredging R753m Saldanha Bay R1 290m Cape Town R3 138m Lighthouses R482m Port Elizabeth Mossel Bay R737m R389m Ngqura R3 619m East London R2 458m South Corridor R6 814m 19

21 Port Investment Planning (continued) Seven-year Capital Investmentment by Commodity FY 2017/18 to FY 2023/24 Total: R34 781m Containers R m Liquid Bulk R m Break Bulk R 801 m Fleet - craft Dry Bulk R m R m Dredging Services R 520 m Other (inc LHS) R m Amount (R'm) Other includes all other port facilities: Deepening Berth at Small Craft Harbour RCB New Tug Jetty DBN Edwin Swales Link Road DBN Extend main breakwater and deepen entrance EL Additional Rail Facility in Ports Upgrade Breakwaters and Replace Dolosses Various Ports Electrical and Lighting Upgrades Various Ports Lighthouses & VTS Upgrades Various Port Ship Repair Facility Various Ports Upgrade Water Network Systems including Water Billing Systems 20

22 Port Investment Planning (continued) Major Capital Projects FY 2017/18 to FY 2023/24 Container Terminals Berth Deepening and Lengthening Pier 2 (Berth ) Salisbury Island Infill (Pier 1 Phase 2) Cape Town Container Terminal (Increase capacity from 1m TEU s to 1.4 TEU s LNG Bulk Services for LNG Facility in Port of Richards Bay Bulk Berth deepening M/Wharf 5-11 & 15 DBN Tank Farm Berth A100, roads, port entrance and services at NGQ Manganese Export facility NGQ Bayvue rail yard expansion RCB 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 Helicopters Acquisition of replacement and new helicopters for DBN & RCB Ship repair Initiatives at DBN, EL, PLZ, SLD, CPT Operation Phakisa 21

23 EXISTING SHIP REPAIR FACILITIES Project Objective Estimated investment required Estimated Jobs created Estimated GDP Contribution Maintain and refurbish existing facilities Refurbish existing ship repair facilities at all ports to effectively service current and future demand R2.1bn - (FEL 2) Current total = R2.52bn Target (incl. multiplier) by 2023 R6.5bn Transnet has spent R401m to date on Initiative 5 (Operation Phakisa). A further R2.1bn is committed towards the upgrade of existing Ship Repair Facilities. Spending ramps up in the next 2 years. JOBS, INVESTMENT, TRANSFORMATION INVESTMENTS TO DATE: Private Sector: The PSP processes are still in execution Government: R401m spent to date. The Authority plans to spend R2.1bn for the 2017/18 to 2019/20 financial years (3-feet plan to Dec 2019). JOB CREATION TO DATE*: Total direct jobs created & sustained = 602* Disaggregated jobs: Women - 68 (Temp and permanent) Youth (Temp and permanent) People with Disabilities - 38 (Temp and permanent) TRANSFORMATION*: SMMEs BBBEE 13 (Created and sustained) 19 (Created and sustained) Note*: Based on completed projects Sld OSSB Berth, Durban Outer Caisson, Durban Concrete Repairs and PE Boat Hoist plus Lead In Jetties. 22

24 COMPLETED PROJECTS DBN Outer Caisson, DBN Welding Set, Forklift, DBN Dock Concrete Repairs, PE Boat Hoist & Facility, PE Lead In Jetties SALD OSSB Berth CT Recirculating Pumps CT Traverser Repairs Phase 1 EL Switchgear EL Crane Rails 23

25 Port Efficiency 24

26 Weighted Efficiency Gains on Operations (WEGO) The new methodology has introduced an incentive for increased efficiency. The incentive scheme will be based on the current performance standards in terms of: o TOPS o MOPS o HOPS o ROPS A basket of operating performance indicators will be selected and weighted. Once the basket has been finalised, efficiency gains/(losses) will be rewarded according to the formula: o 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. The reward will be based on these ranges: Gain of 10% in efficiency = 1% of return on equity to the Authority Loss of 10% in efficiency = -1% of return on equity (from the Authority s bottom line) to customers. 25

27 Weighted Efficiency Gains on Operations (WEGO) (Contd.) The process for WEGO will be as follows: FY 2017/18 Determination of applicable KPI basket and weights on port level. PCC and the Authority s port specific KPI s presented to all port users and agreed. The Regulator approves port specific KPI s for inclusion in WEGO. Roadshow consultations have been concluded at all ports. FY 2018/19 Report to the Regulator on actual performance. FY 2020/21 Tariff Application to include report on actual Audited KPI performance. Implement WEGO as per audited KPI performance. 26

28 Tariff Application Approach The Port Directives were approved on 13 July 2009 (gazetted on 06 August 2009) and amended on 29 January 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. 27

29 Regulatory Framework On 30 March 2017 the Ports Regulator issued a new Tariff Methodology applicable for a period of 3 years, starting from FY 2018/19 to FY 2020/21. The Tariff Methodology prescribes an approach that requires an annual review and an annual adjustments of tariffs within the three year period as opposed to fixing the prices for the full period. This is similar to the previous version of the Tariff Methodology as the Authority will still be required to submit applications presenting three years of information on required revenues, with the first year requesting for a tariff determination and giving an indicative projection of tariff adjustments for the two subsequent years. The Authority has applied for a fixed tariff adjustment for FY 2018/19 and indicative tariff adjustments for FY 2019/20 & FY 2020/21. 28

30 Regulatory Principles & Previous Records of Decision (ROD s) In determining the Tariff Application FY 2018/19, the Authority has been guided by principles included in previous decisions of the Regulator. This includes the consideration of bilateral contracts at tariff book rates (as opposed to contract rates). Whilst the Authority has adopted the approach of the Regulator, it has done so on the assumption that the recovery of the revenues based on tariff book rates will be legally enforceable. The Tariff Application FY 2018/19 has therefore been prepared in accordance with the Tariff Methodology and principles applied in previous decisions of the Regulator. 29

31 Tariff Application FY 2018/19 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) ± Weighted Efficiency Gains from Operations (WEGO) 30

32 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 Authority is allowed to earn a return on. Vanilla Weighted Average Cost of Capital (WACC) A real WACC is applied, given that the RAB is indexed by inflation. Operating Costs The Authority is required to provide a 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 average 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 Authority s ETIMC. Weighted Efficiency Gains from Operations (WEGO) It is an agreed efficiency gain through operations, excluding the effect of market driven volume growth. The Regulator s proposed changes on the new Tariff Methodology Capex The Regulator requires detailed per project as well as planned expenditure schedules (Capex approved but not implemented will be taken into account as clawback which gets calculated every 6 years); RFR calculated on SARB published time series KBP200M (yield on loan stock traded on BESA for Government Bonds ten years and over); Cost of Debt use NPA s actual, embedded debt with the use of Transnet Group short term vs Long term debt ratio structure which is deemed efficient; Tax any over or under recoveries in terms of estimated vs actual taxation allowed due to group effects will be included or offset in ETIMC; and WEGO will be weighted average growth rate of a selected group of audited performance results on a port by port basis. The KPI s and appropriate weights will be selected by the Regulator in consultation with the PCC s and NPA. 31

33 Revenue Requirement Components Valuation of the RAB takes into consideration Depreciation, Inflation Trending, Capital Works in progress (CWIP)/Capex and Working Capital: REGULATORY ASSET BASE FY 2018/19 FY2019/20 FY2020/21 Rm Rm Rm Opening book value Inflation Index Indexed Opening Asset Base Indexation of Capex Indexed Asset Base Add :Capex (Corporate Plan) Depreciation Closing Book Value Average Asset Base Less :Working Capital Regulated Asset Base

34 Revenue Requirement Components(continued) The Vanilla WACC is determined is as follows: REAL RATE OF RETURN 2018/ / /21 Inflation forecast 5.40% 5.10% 5.30% Nominal Risk-free rate 8.33% 8.33% 8.33% Real risk free rate 2.78% 3.07% 2.88% MRP 5.30% 5.30% 5.30% Asset beta Equity beta (using Hamada) Gearing 50.00% 50.00% 50.00% Debt/equity ratio % % % Nominal Weighted Average Cost of Debt (WACD) 10.79% 10.79% 10.79% Tax rate 28.00% 28.00% 28.00% Real Cost of equity (post-tax) 7.34% 7.63% 7.44% Real WACD (pre-tax) 5.11% 5.41% 5.21% Real Vanilla WACC 6.23% 6.52% 6.32% Explanatory notes: Risk Free Rate: KBP2003M, compounded semi-annually, calculated over a five yearly average from June 2011 to May 2016 for FY 2018/19 MRP: Geometric mean with the use of the DMS studies over the full period available dataset Inflation: BER Forecasts Cost of Debt: NPA s actual, embedded (adjusted for an effective weighting) debt costs & utilising Transnet Short term vs Long term debt structure FY 2018/19 MRP figure is used as a proxy for MRP for indicative years FY 2019/20 & FY 2020/21 33

35 Revenue Requirement Components(continued) Taxation calculations as per Tariff Methodology is highlighted below: Taxation FY 2018/19 FY 2019/20 FY 2020/21 Equity Return Depreciation Opex Gross income R'm Depreciation Opex Less: Deductions Taxable Income Grossup factor Grossed up taxable income %

36 Revenue Requirement Components(continued) Operating Expenditure is highlighted below: Cost Category Actual Budget Forecast Dev '17/18 Dev '17/18 % of Opex Forecast Forecast CAGR 2016/ / /19 vs 18/19 vs 18/19 18/ / / /19 - R Million R Million R Million R Million Percentage R Million R Million 2020/21 2 Labour Costs % 53% % Rates & taxes % 7% % Maintenance % 8% % Contract Payments % 2% % Energy % 11% % Professional services % 2% % Material % 2% % Computer & Info systems % 5% % Rental % 4% % Security costs % 2% % Pre -Feasibility Studies % 3% % Sundry operating costs % 3% % Total operating cost % 100% % (excluding depreciation) Group Costs % % Total operating cost % % (Including Group Costs) 35

37 Revenue Requirement Components(continued) Key Drivers for the increase in Operating Expenditure is as follows: COST DRIVER DETAILS 1. Labour Employment of port engineering personnel in order to create adequate port infrastructure capacity ahead of demand and maintaining existing and new assets Increase in minimum manning levels of marine to 100% service and then to 120% to meet MOPS requirements; Increase Fire Services personnel to ensure correct manning levels i.t.o. operating of new fire trucks Trainers required for marine engineering schools in the Port. Manning of port operational centres; and The key operations functions filled with personnel include Artisans, Chief marine engineering officers, Electrician, Tug Master, Engineers, and Port operations etc 2. Maintenance Refurbishment of ageing infrastructure; Frequent dredging of berths resulting in increased and additional maintenance of dredgers; Maintenance of new infrastructure assets (Automated Mooring System will be maintained for the full year in 2018/19 vs few months in 2017/18); Increase in the maintenance of electrical network (High masts and substations); and Ship repairs maintenance and refurbishment which involves the upgrading of existing facilities. 36

38 Revenue Requirement Components(continued) Key Drivers for the increase in Operating Expenditure is as follows: COST DRIVER DETAILS 3. Energy Eskom tariff hike and crude oil prices and new craft. 4. Rental Rental costs relates to the hiring of internal and external land and buildings, leasing of vehicles, equipment, computers and furniture. 5. Pre-Feasibility Studies / Professional Fees Other projects include; the Richards Bay expansion, increased power supply in the Port of Durban; roads study interlinked with metro; Point and Bayhead precinct development plans; wind and long wave mitigation studies; the Cape Town container terminal expansion; Port Elizabeth investigation for a passenger liner terminal and a car terminal; and Studies related to the future capital programme. 6. Sundry Operating Costs Sundry Costs include expenses relating to insurance, stationery and printing, transport, promotions and advertising 37

39 Clawback Claw-back considers the differences between allowed and actual revenues. The re-computed RR for FY 2016/17 is R9 896m and determined as follows: Details FY 2016/17 R'm RAB WACC 4.64% Returns Opex Depreciation Tax 865 Clawback -680 Re-computed Revenue Requirement

40 Clawback The net claw-back calculations are demonstrated below: Actual Clawback Re-computed Revenue Requirement FY 2016/17 AFS Revenue Contract Revenue Total Revenue FY 2016/17 Clawback FY 2016/17 Interim Clawback FY16/17 taken in FY 17/18 Final Clawback FY 2016/17 FY 2016/17 R'm

41 Revenue Requirement Calculation Application of the RR Formula results in a Total Required Revenue of R12 743m for FY 2018/19: Marine Business Revenue: R 9 719m Real Estate: R3 025m 40

42 Volume Growth FY 2018/19 The Authority s estimated weighted average volume growth for FY 2018/19 is as follows: REVENUE FY 2017/18 Revenue LE Weighted Average Revenue Volume Increase FY 2018/19 Revenue: Volume Increase Revenue: Before Tariff Increase R'm % R'm R'm Containers % Break Bulk % (4) 224 Dry Bulk % Liquid Bulk % Automotive % TOTAL CARGO DUES AFTER REBATE % Marine & other revenue % TOTAL TARIFF BOOK REVENUE % Real estate revenue % TOTAL REVENUE %

43 Volume Growth FY 2018/19 Prior Year Revenue Estimated Volume Growth Revenue after volume growth Required Revenue Tariff Increase MARINE REVENUE 2018/ / /21 Fixed Tariff Year R'm Indicative Tariff Years % 2.79% 2.79% % 23.82% 2.09% The Latest Estimate Revenue of R8 646m for FY 2017/18 is adjusted with the forecasted weighted average volume increase of 2.79%. The difference between this Revenue and the Marine Business Revenue Required for FY 2018/19 results in a tariff adjustment of 9.36%. 42

44 Revised Tariff Application To strike a balance between the customer s affordability of the port services; The Authority s ability to provide the service (delivery of MDS); The Authority proposes to utilise R81m of the ETIMC facility; Therefore, the revised Tariff Application is presented as follows: 43

45 Revenue Requirement Calculation With ETIMC 2017/ / / /21 DETAILS ROD Fixed Tariff Year Indicative Tariff Years R'm R'm RAB Vanilla WACC 5.71% 6.23% 6.52% 6.32% Return on Capital Plus: Depreciation Plus: Operating Costs Plus: Taxation Expense Plus/Less: Clawback Plus/Less: ETIMC Revenue Allowed Less: Real Estate Marine Revenue Application of the RR Formula results in a Total required Revenue of R12 663m for FY 2018/19: Marine Business Revenue: R 9 638m Real Estate: R3 025m 44

46 Tariff Adjustment FY 2018/ / / /21 MARINE REVENUE Fixed Tariff Year Indicative Tariff Years Prior Year Revenue Estimated Volume Growth Revenue after volume growth Required Revenue Tariff Increase R'm % 2.79% 2.79% % 24.85% 2.09% The Latest Estimate Revenue of R8 646m for FY 2017/18 is adjusted with the forecasted weighted average volume increase of 2.79%. The difference between this Revenue and the Marine Business Revenue Required for FY 2018/19 results in the tariff adjustment of 8.45%. 45

47 Tariff Strategy Envisaged Trajectory 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. 46

48 Asset Allocations Split Port User Asset Class Lessees Terminal Operator Cargo Owners Shipping Lines Breakwaters 33% shared on a NBV basis 33% 33% Channels, Fairways, basins 50% 50% Quay walls, berths and jetties 50% 50% All ship working vessels and aids to navigation 100% Vessel repair infrastructure 40% 15% 15% 30% All movable NPA assets, buildings and structures (not part of lease agreements) and unused land 50% shared on a NBV basis 25% 25% Terminal land and staging areas 100% Non-Terminal Land including recreational and yachting 100% All common access infrastructure 66% Shared on a NBV basis 33% Overheads 50% shared on a NBV basis 25% 25% 47

49 Tariff Structure Marine Services Tariff Revenue: general under recovery with the exception of: Tugs Pilotage VTS Light dues Overall steep tariff increase are required for the Marine Services Charges Port dues need an annual real increase in excess of 20% over the next 10 years Berthing services should gradually increase over the next 10 years Ideally cargo dues tariffs should levelise-off, depending on the rate of tariff increase on port dues tariffs over the next 10 years in accordance with asset allocations Moderate or lower tariff increase for cargo dues tariffs is desirable Some bulk tariffs are way below the tariff base rates and should be adjusted over time Unitised tariff for Automotives in three categories Passenger vehicles:- 5 metres or less Light Commercial vehicles:- greater than 5 metres but equal or less than 8 metres Heavy vehicles:- greater than 8 metres but equal or less than 10 metres. The tariff book which reflects tariff conditions need to update regularly with changes stemming from the tariff strategy (i.e. cost recovery on user pay principle) 48

50 The Authority s proposed differentiated tariff increases The Authority proposes the following differentiated tariff increases: An average 10.00% increase for Marine Services tariffs applicable to shipping lines with: Port Dues tariff to increase by 14.05%; Berthing Services tariff to increase by 11.15%; and Other including Pilotage, Towage, VTS to increase by 7.04%. An average 7.88% increase for cargo dues tariffs with: FULL containers import and export tariffs to increase by 7.50%; Automotive converted to unitary based tariff structure increasing by 5.00%; Bulk tariffs increasing by 9.00% except: Coal to increase by 10.00%; and Ores and Minerals: Magnetite to increase by 10.00%. Other cargo dues increases by 8.45%. FY 2017/18 - Budget Envisaged PR Tariff Structure FY 2018/19 Tariff Proposal Tenants 24% Shipping lines 21% Cargo Owners 55% Tenants 29% Shipping lines 36% Cargo Owners 35% Tenants 24% Shipping lines 21% Cargo Owners 55% 49

51 Tariff Book Summary of some changes in the Tariff Book: Coasters don t include non South African ports (Walvis Bay and Lüderitz) Exemptions should include SAMSA, research, naval, war & medical vessels, vessels mooring at SBM Exemptions should be extended to vessels ordered out of the port by Harbour Master Pilotage services offered at tariff book rates are compulsory Berth Dues are based on hours observable on source documents obtained from Terminal Operators Cargo loaded and then discharge from a vessel in the port should attract transshipment charges Cancellations and amendments on cargo dues orders for containers will apply per container A host of changes in the documentation and timing sections of the tariff book is provided in the tariff book 50

52 Conclusion In line with the Tariff Methodology and principles per previous ROD s of the Regulator, the Authority applies to the Regulator for the following revenues: Prior Year Revenue Estimated Volume Growth Revenue after volume growth Required Revenue Tariff Increase MARINE REVENUE 2018/ / /21 Fixed Tariff Year R'm Indicative Tariff Years % 2.79% 2.79% % 24.85% 2.09% An average 10.00% increase for Marine Services tariffs applicable to shipping lines with: Port Dues tariff to increase by 14.05%; Berthing Services tariff to increase by 11.15%; and Other including Pilotage, Towage, VTS to increase by 7.04%. An average 7.88% increase for cargo dues tariffs with: FULL containers import and export tariffs to increase by 7.50%; Automotive converted to unitary based tariff structure increasing by 5.00%; Bulk tariffs increasing by 9.00% except: Coal to increase by 10.00%; and Ores and Minerals: Magnetite to increase by 10.00%. Other cargo dues increases by 8.45%. 51

53 Conclusion (continued) Even in the period of recession where there is contraction in economic activity, the Authority knows that generally recession phases are short lived: therefore the Authority must provide capacity ahead of demand through the MDS a framework which provides port capacity and foster economic growth; MDS is an outcome based approach which considers financial stability; As the heart of the South African oceans delivery platform; based on the approved Tariff Methodology FY 2018/19- FY 2020/21; the proposed weighted average tariff adjustment of 8.45% for FY 2018/19 is within CPI + 3% range required by the Authority to achieve the MDS. 52

54 Thank You