delivering freight reliably Transnet National Ports Authority Presentation to Portfolio Committee on Trade and Industry Pricing Strategy 6 March 2013

Transcription

1 delivering freight reliably Transnet National Ports Authority Presentation to Portfolio Committee on Trade and Industry Pricing Stgy 6 March 2013

2 Context and objectives for today Objective of this session Explain the Pricing Stgy proposed by the Authority Explain why the pricing stgy is a step in the right direction to support the South African manufacturing sector Context The Authority has recently developed its Pricing Stgy This aims to address the shortcomings of the current tariff principles in relation to the Port Directives The basis for this stgy is aligned to the tariff methodology to be adopted as part of the regulatory framework It will also promote the Government s Industrial Policy through the introduction of a Beneficiation Promotion Programme (BPP) 2 2

3 Agenda Part 1: Pricing stgy 3

4 TNPA currently busy with two exercises Validation of tariff methodology The total amount of revenue gened from TNPA s services is currently determined based on a revenue requirement methodology The regulatory framework does not set a tariff methodology nor does it constrain the Ports Regulator from adopting one different from the Authority Validation of pricing structure TNPA s services at the ports can be divided into two basic groups: basic port infrastructure, and operational services to port users The various tariffs related to the services are reviewed on an annual basis and published in the Tariff Book Answers the key question: How much revenue should TNPA be allowed to gene in order to meet its responsibilities? Answers the key question: Which group of port users is responsible to pay for which charges based on what rationale? 4 4

5 The Ports Act 2005 and related directives provide the legal framework for TNPA's tariff structure Ports Act 2005 describes approval process and types of charge Directives 2009 lay out tariff requirements Authority's tariff book 72. (1) (a) The Authority must, with the approval of the Ports Regulator, determine tariffs for services and facilities offered by the Authority and annually publish a tariff book containing those tariffs. (b)... Fees payable to Authority 73. (1) The Authority may charge fees, in accordance with a tariff determined in terms of section 72, for (a) the provision of port and other services, including (i) to (vi)... (b) the provision and maintenance of port infrastructure, port terminals and port facilities, including (i) to (iv)... (c) granting concessions and licences; and (d) any other services provided by the Authority in the performance of its functions. 23. Tariff Requirements (1) In considering the proposed tariff in terms of directive 22, the Regulator must have regard to whether the proposed tariffs and balance the following considerations:- (a) A systematic tariff methodology that is applicable on a consistent and comparable basis; (b) Fairness; (c) The avoidance of discrimination save where discrimination is in the public interest; (d) Simplicity and transparency; (e) Predictability and stability; (f) The avoidance of cross subsidisation save where cross subsidisation is in the public interest; and (g) The promotion of access to ports and efficient and effective management and operation in ports. Source: Directives in terms of section 30(3) National Ports Acts (act 12 of 2005) dated July 2009; Ports Act

6 The current tariff structure is a carryover of historic practices Up to to today Implications Wharfage determined "ad valorem", i.e., as percentage of cargo value Percentage-charge for all cargo types and commodities, with a minimum and maximum wharfage value Minimum/maximum wharfage value was adjusted annually "Ad valorem" approach comes with a big downside Wharfage s vary from year-to-year as function of currency exchange fluctuations and commodity cycles Ad valorem penalises manufactured goods vs. commodities due to their higher intrinsic value Decision to break with ad valorem approach in order to stabilise cargo dues s and switch to "per unit" cargo dues 2002/03 values determined for most common commodities and published in tariff book Over time, 200+ commodity-specific s "Per unit" charges since 2003/04 adjusted annually across the board, i.e., not differentiated by commodity Currently cargo dues s still intrinsically influenced by commodity values from 10 years ago Manufacturing sector burdened with higher tariffs Cargo dues not related in any way to infrastructure actually used High discrepancy in tariffs for very similar commodities High administrative complexity to differentiate large number of commodities Source: TNPA pricing stgy project 6 6

7 Proposed stgy developed after soliciting input from a broad group of stakeholders Ports Regulator DPE, other state entities Cargo owners Shipping lines Terminal operators Key messages Tariffs today are arbitrary, insufficiently justified, and do not promote port efficiency Port tariffs do not consider the potential damage they do to the SA economy Port tariffs are not transparent enough Port-related costs are too high for the provided services and service levels Port authority does not enforce leasehold agreements for terminal operators Key implications The regulator needs a set of principles and rules that allow him to effectively regulate and oversee tariffs Cargo dues need to prefer exports with higher beneficiation in SA Cargo dues are excessive and must be reduced to support their (global) competitiveness Ports have to ope much more effectively and efficiently TNPA must act as a reliable business partner to allow longer term investment planning Source: TNPA pricing stgy project 7

8 The proposed pricing stgy tries to accomplish several objectives 1 Sustainable 2 Comprehensive 3 Defendable / compliant Allows for ongoing investments to maintain and extend the SA port system appropriately Provides sufficient detail for regulation Covers all Required Revenues Addresses all charges Clarifies all pricing modifiers Based on clear principles Aligned with regulatory directives and expectations of the Ports Regulator Supported by a robust methodology 4 Simple 5 Competitive 6 Implementable Enhances ease of understanding and administration Rationalises charges Simplifies charges for port users Comparable to other global ports Protects market share Supports SA economic development Fair on all port users Allows for competition within ports Complies fully with legal and regulatory requirements Addresses impact on customers Source: TNPA pricing stgy project 8

9 Objectives were translated into pricing principles Design principles Description Application Cost recovery Each tariff should recover the cost of infrastructure and services provided Cost recovery at port system level, not individual ports User pays Each port user should contribute for use of port facilities and services Port users include shipping lines, terminal operators, cargo owners Required Revenue Revenue driven by tariff methodology on a disaggregated level Individual tariffs set to meet Required Revenue at expected volumes Competitiveness Market implications of new tariff structure considered Market expectations, best and common practices considered Source: TNPA pricing stgy project 9 9

10 Buildings & structures Electrical & Rail Land Movable assets Quay walls & Jetties Vessels Repair infrastructure Breakwaters & Seawalls Channels, Fairway & basins CWIP Pricing stgy boils down to one core question: "What port user is responsible for what assets and costs" Dry infrastructure Wet infrastructure Other Operating expenses Rationale Shipping lines Maintenance of wet assets Provision of marine services User pays principle Cargo owners Administration of cargo dues Maintenance of common dry infrastructure Common infrastructure typically government funded elsewhere Tenants Administration of property business Related maintenance Terminal operators derive value primarily from access to quay wall and adjacent land Note: Size of blue bubbles indicate asset values; Based on the allocations in the asset register, excludes minor asset classes valued at R113m and assets valued at R880m linked to minor port charges Source: TNPA March 2011 Asset register, TNPA 2012 Asset Register, Regulator revised asset values, Team analysis 10

11 Proposed tariff structure results long term in balanced distribution of charges across port users Current tariff structure Proposed tariff structure All numbers based on 2012/13 budget Required Revenue 19% 20% 33% 21% Shipping lines Cargo owners Tenants 61% 46% 20% High level assessment Weak justification for tariff levels Rental too low for landlord port Based on defendable principles and approach Charges to tenants aligned with international norms 1. E.g. maintenance dredging Note: Excludes Required Revenue, cost and assets allocated to the group "Other " Source: TNPA cost model 11

12 All vessels face lower costs in SA ports Source: Ports Regulator - Global Port Pricing Comparator Study 1/4/2012

13 TNPA is clearly under-leveraging rental as revenue source Many landlord ports yield 40 to 60% of total revenue from rent % 100 Comparison of tariff income vs. rental income for landlord port authorities Port income Rental income 0 TNPA Mauritius Melbourne Sydney Tampa Rotterdam Toronto Antwerp Nagoya Hamburg Halifax Note: Sample taken from landlord port authorities that disclose revenue split in annual financial statements Source: Port Authority annual reports 13

14 Final tariff structure will benefit cargo owners and promote containerisation and export of industrial goods Impact by port user Impact by CHT 1 Impact revenue per unit 1 Shipping lines Cargo owners R b 1.85 R b % -25% % TNPA revenues R8.4b R9.1b Other RoRos Break bulk Liquid bulk Dry bulk Cargo handling type Old tariffs (R/unit) New tariffs (R/unit) % change RoRos (units) % Break Bulk (tons) % Liquid Bulk (tons) % Dry Bulk (tons) % R b +77% 52 Containers (TEU) % Terminal operators /11 Realised Revenue Revenue 3.01 Recommended Proposed 2012/13 tariff tariff structure structure / /11 Realised Realised Revenue Revenue 30 Container Recommended Proposed 2012/13 tariff structure structure High reduction in containers and automotive aligned with industrial policy 1. Impact by cargo handling type and revenue per unit include all port charges (Marine services, cargo dues and rental) Source: TNPA 2012/13 corpo budge; Team analysis 14

15 Agenda Part 2: Beneficiation Promotion Programme 15

16 Introduction of Beneficiation Promotion Programme (BPP) fully aligned with national priorities National priorities with key policies Proposal to adopt DTI beneficiation framework Key policy objective Industrial Policy Action Plan New Growth Path 1. Promotion of beneficiated products 2. Labour intensive growth 3. Economic diversification 4. Movement towards knowledge economy 1. Create 5m jobs by 2020 via labour intensive economic growth 2. Focus on areas with potential to create large scale employment Metals sector description Industrial activity Economic benefits Generic description Stage 1 Stage 2 Stage 3 Stage 4 Ore or concent Mining Production of ore & concent Medium level of employment No value add Raw material Processed or refined ore Smelters & refineries Convert into bulk tonnage intermediate products Low employment levels Significant value add Processed/ refined raw material Primary manufacture Blast furnaces & foundries Convert into refined semifabricated product Higher employment levels Substantial increase in value add Primary manufacture Final manufacture Manufacturing factories Finished product Significant increase in employment levels Significant value add Final manufacture Beneficiation Stgy for Minerals Industry 1. Optimise value chain linkages 2. Job creation 3. Industrialisation 4. Economic diversification Examples Textile Iron & Steel Cotton fibre Yarn Woven fabric Clothing item Iron ore Pig or cast iron Wrought iron Steel product DTI Metals Sector Stgy 1. Improve global competitiveness 2. Enhancement of exports 3. Attract local and foreign investments 4. Maintain and create new employment 5. Encouragement of BBBEE Food Furniture Leather Wheat Basic wheat flour Processed flour Bread Timber logs Cut timber pieces Seasoned wood End state furniture Animal skin or hide Tanned leather Lubricated & dyed leather Finished leather good Cooperation with DTI required to apply beneficiation framework to other sectors Source: TNPA pricing stgy project 16

17 BPP Discount levels for export cargo derived from labour intensity and value add to economy Steel sector value add and employment levels by beneficiation stage Proposed discount Discount level rationale Beneficiation stage Selling price/ ton steel (US$) Employment per 100 tons of steel % of base export 1 Iron ore % no discount as no beneficiation 2 Iron % low discount as low incremental value add and job creation 3 Hot rolled steel Cold rolled steel Pipe and tube % high increase in discount level as stage 3 necessary precursor to stage 4 currently low level of stage 3 ben'n in SA 4 Structural steel White goods 5,000 Mining equipment 1,000 13, % high discount as high potential for significant increase in incremental value add and job creation to SA economy Cooperation with DTI also required to to provide certification/information to allow TNPA rebate i.t.o. BPP Source: Department of Trade and Investment: Metals Sector Stgy 17

18 Stage 1 Stage 2 Stage 3 Stage 4 Stage 1 Stage 2 Stage 3 Stage 4 Stage 1 Stage 2 Stage 3 Stage 4 Stage 1 Stage 2 Stage 3 Stage 4 Stage 1 Stage 2 Stage 3 Stage 4 Proposed differentiated cargo dues s by cargo handling type Containers Cargo dues s (R/ TEU) 1, Base 446 General Export General Import -10% -60% -80% RoRo Cargo dues s (R/passenger vehicle) Base General Export General Import -10% -60% -80% Dry bulk Break bulk Liquid bulk Cargo dues s (R/ ton) Base 7.6 General Export General Import -10% -60% -80% 7.6 Source: TNPA pricing stgy project Cargo dues s (R/ ton) Base 51.5 General Export General Import -10% -60% -80% Cargo dues s (R/ ton) Base 10.7 General Export General Import -10% -60% -80%

19 Agenda Part 3: Implementation and closing remarks 19

20 Pricing Stgy implementation should take place in stages through 2019 Getting started Mig Fully implemented FY 2012/13 FY 2013/14 FY '14/'15 FY '15/'16 FY '16/'17 FY '17/'18 FY '18/'19 Approval of new stgy/consultation process Rent Cargo dues Restructure agreements as they run out/come due for extensions Start renegotiation for voluntary switch of agreements Raise revenue from terminal operators Start migrating towards new levels with '13/'14 tariff application $ Set deadline to force renegotiation Continue adjusting tariffs closer to levels per new pricing stgy with each tariff application. Lower total cargo dues revenues as rent is ramped up $$ $ $$$ New tariff structure fully in place Marine charges Re-set for '14/'15 tariff application New tariff structure in place for Marine charges Source: TNPA pricing stgy project Getting started Migration Fully implemented $$$ Shifting revenue from one tariff to another 20

21 Concluding Remarks The proposed pricing stgy... Is based on defendable asset allocation principles Applies the user pays and the cost recovery principles to ensure port users contribute to the Required Revenue Allows to adjust tariffs in the future based on the individual changes in Required Revenues by port user group Improves alignment to the income structure of a landlord port (higher Real Estate Revenue) Results in a considerable drop in cargo dues for the manufacturing industry through lower costs for containers and the automotive sector Achieves South African economic objective of encouraging the export of beneficiated goods Is implementable in the medium to long term taking into account dependencies Source: TNPA 21 21

22 Questions QUESTIONS 22