South Africa’s Seaports

1. South Africa’s Port Governance and Pricing:Dilemmas and Reforms Dr Mihalis (Micky) ChasomerisChasomerism1@ukzn.ac.za

2. South Africa’s Seaports

3. Table 1. Public and Private Sector Market Share, A Comparison of 2010 and 2016 Source: URBAN-ECON (2010), Havenga et al.,(2017), Gumede and Chasomeris (2017).

4. 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

7. Source: Meyiwa & Chasomeris, 2016

8. Table 3. Historic differences between the figures proposed by TNPA and those allowed by the Ports Regulator, 2010/11 to 2016/17

9. Table 3. Historic differences between the figures proposed by TNPA and those allowed by the Ports Regulator, 2010/11 to 2016/17

10. Table 4. Recalculation of NPA Tariff Application 2014/15 (Chasomeris, 2015)

11. Table 5. Recalculating the TNPA Tariff Application for 2016/17: Changing Market Exposure Risk Assumptions (Gumede & Chasomeris, 2016)

12. Revenue Required Conclusions • RR model may incentivise port capital expenditure (investments), operating expenditure and port prices at levels that are not in the best interests of the country • RR method does not provide appropriate incentives to reduce costs and to improve productivity in the ports. • If the RR method continues to be used, then the value of the components in the RR model need to be reviewed, including the adoption of an asset beta lower than the present 0.5, and the inclusion of a debt beta.

13. SA total port costs deviation to global average Source: Ports Regulator of South Africa

14. Ports Regulator of South Africa, 2014

15. Ports Regulator of South Africa, 2014

16. Ports Regulator of South Africa, 2014

17. Ports Regulator of South Africa, 2014

18. Ports Regulator of South Africa, 2014

19. Table 6. Distribution of Ports Costs among Port User Groups Source: Author created from TNPA Tariff Application for 2018/19

20. Ten Year Gradual Shift in Port Cost Allocation Source: Author generated from Ports Regulator data.

21. Tariff Strategy (Ports Regulator, 2017) Ports Regulator’s tariff trajectory (over 10 year period): • Cargo Dues – 5.2% real price decrease on an annual basis; • Shipping Lines – 7.2% real price increase on an annual basis; and • Tenants – 2.8% real price increase on an annual basis. The allocation envisages the following: • Steep price reductions for Containers and Automotives; and • Marginal increase for Dry and break bulk commodities.

22. NPA Proposed Tariffs for 2018/19: • 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%.

23. Proposed long term end state cargo dues base tariffs

24. Tariff deviation from the base

25. Deviation of Commodities from Proposed Cargo Dues Base tariffs Source: Gumede and Chasomeris (2017).

26. Commodities below and above the proposed cargo dues tariff base Source: Gumede and Chasomeris (2017).

27. Tariff Structure Conclusions Of the 254 commodity cargo dues examined by Gumede and Chasomeris (2017): • 100 are below the base tariff and therefore being cross subsidised and may experience a relative increase in cargo dues over the next ten years, and • 154 are above and therefore subsidising other cargoes and may experience a relative decrease in cargo dues over the next ten years. The Ports Regulator proposed tariff structure appears to be an improvement, however: • TNPA and the Ports Regulator need to be transparent on the calculation of the base tariffs and provide access to information to allow stakeholders to make a more meaningful contribution towards governance, regulation and the pricing of South Africa’s ports (Gumede& Chasomeris, 2017)

28. Port Tariff Incentive Programme • “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” Source: Ports Regulator 2017.

29. Any Questions?Contact: Dr MihalisChasomerischasomerism1@ukzn.ac.za

30. Discussion questions:1) What is good and should be celebrated about South Africa’s system of ports?2) How to improve the productivity and competitiveness of South Africa’s ports?3) How to improve the pricing of SA’s ports?

31. Discussion Questions 4) How to improve the governance of SA’s ports?5) Are there any tariff rebates or other support for exporters using SA’s ports? 6) Are there any opportunities for increased private sector participation or public private partnerships?