Click to edit Master title style Ports Regulator Roadshows Tariff - - PowerPoint PPT Presentation

Click to edit Master title style

Ports Regulator Roadshows Tariff Application FY 2016/17

01 – 06 October 2015

Contents

• Transnet’s Market Demand Strategy
• The Authority’s Strategic Focus – Aligned to Transnet MDS
• Functions of the Authority
• Services within the Ports
• Regulation of Port Services and Facilities
• Port Investment Planning
• Operation Phakisa
• Tariff Application Approach
• Tariff Application FY 2016/17
• Pricing Strategy
• Port Efficiency
• Current Initiatives
• Conclusion

2

Transnet’s Market Demand Strategy (MDS)

Transnet’s Market Demand Strategy (MDS)

3

Transnet’s MDS

• The

MDS is Transnet’s investment programme aimed at expanding and modernising the country’s rail, port, and pipeline infrastructure over a period of seven years to promote economic growth in South Africa.

• The main pillar of the MDS is a rolling seven year R336.6bn investment programme.

4

The MDS will make Transnet:

• One of the top global freight railway companies;
• One of the largest employers in South Africa;
• One of the top companies in South Africa in terms of

revenues.

Transnet MDS: 5 Strategic Focus Areas

5

FINANCIAL SUSTAINABILITY Increase asset utilisation and maintain a financially sustainable business CAPACITY CREATION Increase both capability and capacity to deliver the capital investment plan OPERATIONAL EXCELLENCE Maintain readiness to provide world-class rail, port and pipeline

• perations

MARKET SEGMENT COMPETITIVENESS Reduce the cost of logistics and promote an integrated and aligned regional network that allows for supply chain optimisation

DEVELOPMENTAL OUTCOMES Our social and environmental stewardship will develop our talent, create new jobs, improve health and safety, benefit communities, reduce energy consumption, and promote the adoption of climate change mitigation policies

5

__________________________

ST STRATEGIC

FOCUS AREAS

__________________________

Transnet’s MDS: Benefits

• The MDS will have a marked impact on the cost of doing business in South Africa,

in line with Government’s New Growth Plan and New Development Plan:

6

JOBS MDS will create & sustain direct and indirect jobs over the next seven years

COMPANY GROWTH

Increase in headcount by 14.1% over the seven years

SKILLS DEVELOPMENT

Prioritization of skills development to promote a high performance culture

• rganisation

SUSTAINABLE VALUE The MDS will deliver lasting economic, social & environmental value to South Africa

The Authority’s Strategic Focus – Aligned to Transnet MDS

The Authority’s Strategic Focus – Aligned to Transnet MDS

7

Aligned to Transnet MDS strategy

Strategic Intent “To enable the effective, efficient & economic functioning of an integrated port system to promote economic growth”

Create & manage Infrastructure capacity ahead of demand

• 1. Effective port

system

• 2. Economic port

system Improve Port efficiencies (oversight role)

• 3. Efficient port

system

• 2. Economic port

system Enhance the ports’ position as integrated gateways for trade

• 4. Integrated port

system.

• 5. Grow the market

Authority’s 3-tier strategy Authority’s Strategic Objectives

Create & manage Infrastructure capacity ahead

• f demand

Effective port system Economic port system Improve Port efficiencies Efficient port system Economic port system Enhance the ports’ position as integrated gateways for trade Integrated port system Grow the market Capital Delivery + Service Levels +Integration = Increased Volumes, Revenue and contain Costs

• 6. Organizational capacity / readiness

The Authority’s Strategic Focus – Aligned to Transnet MDS

Strategy embodies the landlord functions set out in the Ports Act

8

The Authority’s MDS Plan

9

• The Authority will:

The Authority’s MDS Plan: Successes to Date

10

JOB CREATION

• Employment of 558 employees since the inception of MDS to June 2015

CAPACITY

• Expansion of the Cape Town Container to 1.4 million TEUs
• Expansion of the Ngqura Container Terminal - 1.5 million TEUs capacity

FLEET

• Acquisition of Grab Hopper Dredger
• Award of contracts to local supplier for the delivery of 9 tugs with the first tug to be

delivered in 2015/16

• Award of contract for 5 500m3 Trailer Suction Hopper Dredger (TSHD) with planned

delivery in 2015/16

OPERATIONAL EFFICIENCIES

• Introduction of Terminal Operator Performance Standards (TOPS) and Marine

Operator Performance Standards (MOPS) and monitoring thereof

• Port Operations Centres completed at 5 ports to provide a holistic view of port
• perations

BBBEE

• Measures implemented to ensure 75% of Level 4 B-BBEE status in lease contracts

The Authority’s MDS Plan: Successes to Date (continued)

11

LOCAL SUPPLIER DEVELOPMENT

• Transnet Supplier Development Initiative: Assisting the growth of small firms
• Development of local supplier skills to build dredger components in South Africa
• Local suppliers will build components for the operating life of the dredgers
• Additional benefit / spin-off : Local suppliers building components for other countries

TRAINING & DEVELOPMENT

• Port Engineers, Planners and Project Management skills focus
• Port Operations Centres skills evolving into Joint Operations Centres
• Aviation skills development
• 23 Helicopter Pilot Trainees
• 16 Helicopter maintenance engineers

INTEGRATED PORT MANAGEMENT SYSTEM (IPMS)

• IPMS Implemented at the Ports of Durban, Cape Town & Saldanha
• Realisation of SA ports as Smart Ports

CONTINUOUS IMPROVEMENT/KAIZEN PROJECTS

• Establishment of a department focusing on continuous improvements and developing

high-performance teams

The Authority’s MDS Plan: Administered Pricing

12

100 106 111 117 122

100 103 103 109 114 20 40 60 80 100 120 140 2012 2013 2014 2015

Inflation NPA average tariff

2.76% 0.00% 6.59% 4.80%

R1 bn Discount Program Significant tariff decrease

91 Automotives exports 69 Containers exports

Approved average tariff increase

• The graph below illustrates the Authority’s average tariff increase & differentiated

container & automotive tariffs

Base

Functions of the Authority

Functions of the Authority

13

Master planner Marketer & administrator Coordinator with

• ther state agencies

Change agent

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. 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. 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.

Controller of ports navigation Controller of ports services & facilities

Ensure that port services and facilities are provided, and may enter into agreements or licence other parties to provide these.

Core Functions of Port Authority - Ports Act Section 11

Landlord

14

Services within the Ports

Services within the Ports

15

Services Provided within the Ports

16

• 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.

Regulation of Port Services & Facilities

Regulation of Port Services & Facilities

17

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.

18

Port Investment Planning

Port Investment Planning

19

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

20

Port Investment Planning (continued)

• The Authority’s capital plan: R42.9bn (exclusive of land associated with DIA)

21

15/16 16/17 17/18 18/19 19/20 20/21 21/22 922 1 727 2 922 4 845 5 779 5 779 5 119 2 133 2 417 3 167 2 533 1 666 1 987 1 896 Total Expansion: R 27.1bn Total Replacement: R15.8bn

Expansion vs. Replacement

Total 7 Years: R42.9bn

3 055 4 144 7 377 7 445 7 765 7 015 6 090

Cape Town R2 346m Port Elizabeth R1 976m Durban R21 529m Saldanha Bay R4 643m East London R1 481m Richards Bay R3 516m Ngqura R5 423m Mossel Bay R202m Port Nolloth R60m Dredging R686m Lighthouses R449m Maputo Beit Bridge

South Corridor

R8 880m Sishen Other R580m

• The Authority’s capex spending over the seven year period amounting to R 42.9bn:

Port Investment Planning (continued)

Port Investment Planning (continued)

23

Other (incl. LHS) Includes:

• Charl Malan Quay Refurbishment PLZ
• Roads , Services & Port Entrances in RCB
• Port Admin Facilities in Dbn (B Berth)
• Edwin Swales Link Road

12 802 686 4 456 3 670 1 541 5 074 14 663

• 2 000

4 000 6 000 8 000 10 000 12 000 14 000 16 000 Other (incl LHS) Dredging Services Dry Bulk Fleet - craft Break Bulk Liquid Bulk Containers

Seven-year Capital Investment by Commodity FY 2015/16 to FY 2021/22 Total: R 42 891m

8 081 589 2 044 1 454 … 2 981 4 563

• 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000

Other (incl LHS) Dredging Services Dry Bulk Fleet - craft Break Bulk Liquid Bulk Containers

Capital Investment over Tariff Application Period by Commodity FY 2015/16 to FY 2018/19 Total: R20 666m

Port Investment Planning (continued)

24

• Major Capital Projects FY 2015/16 to FY 2021/22

Port Investment Planning (continued)

24

Durban Container Terminal

• Berth Deepening and Lengthening Pier 2 (Berth 203 - 205)
• Salisbury Island Infill (Pier 1 Phase 2)

Port of Ngqura

• Operationalisation of the Port

Bulk

• 16mtpa Manganese Terminal at the Port of Ngqura
• Tank Farm Berth A100, roads, port entrance and services at Ngqura
• LNG Terminal and additional Bulk Liquid at RCB (envisaged completion FY 2022/2023)

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 (all ports)

Helicopters

• Acquisition of replacement helicopters for DBN & RCB

Operation Phakisa

• Operation Phakisa Initiatives at DBN, EL, PLZ, SLD, CPT

Operation Phakisa

Operation Phakisa

25

Operation Phakisa

• Operation Phakisa launched by the State President (Oct 2014) resulted in

focused initiatives to unlock the economic potential of South Africa’s oceans.

• Oceans Economy can contribute to GDP growth and increased employment.
• The Authority will pursue new vessel repair facility opportunities at the Ports of

Saldanha, Richards Bay and East London

• Maintenance and refurbishment of existing vessel repair facilities have been

prioritised at the Ports of Durban, East London, Port Elizabeth, Mossel Bay, Cape Town and Saldanha.

• TNPA is supportive of other Ocean’s Economy initiatives with specific emphasis
• n Aquaculture.

26

The Operation Phakisa Lab recommended the following initiatives for Marine - Transport and Manufacturing

Infrastructure and operations Skills and capacity building Market growth

▪

Create supportive funding and revenue model

▪

Establish purpose-built oil and gas port infrastructure by appointing Facility Operators – Saldanha Bay

▪

Align on Implementation of government policy

▪

Prioritise Transnet and TNPA funding allocation towards marine manufacturing

▪

Maintain and refurbish existing facilities

▪

Unlock investment in new and existing port facilities

▪

Implement Strategic Prioritised Project – Richards Bay

▪

Implement Strategic Prioritised Projects – East London

▪

Train 2,550 TVET College graduates on an 18-month Workplace-based Experiential Learner Programme in scarce and critical trades over the 5 year period

▪

Create dedicated Occupational Teams for MTM Sector (professional, trades,

• perators and seafarers)

▪

Establish trade RPL, CBMT or Centres of Specialisation in Saldanha Bay and Richards Bay

▪

Train 18,172 learners as artisans, semi- skilled workers and professionals over the next 5 years

▪

Increase usage of ESSA system and targeted career awareness services as a high value recruitment tool for MTM

▪

Increase capacity to develop skills for ~1,200 ratings and ~720 officers per year

▪

Create and implement a public procurement and localisation programme

▪

Develop a strategic marketing campaign and value proposition for target markets

▪

Propose inclusion of preferential procurement clause in the African Maritime Charter

▪

Support local registry of vessels through incentives and legislation of using SA-flagged ships for cargo and coastal operations (based on United Nations Conference on Trade and Development and African Maritime Charter guidelines) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 A B C

• i. TNPA – Transnet National Ports Authority

ii.ESSA – Employment Services of South Africa iii.TVET – Technical and Vocational Education and Training

• iv. RPL – Recognition of Prior Learning
• v. CBMT – Competency-based Modular Training

27

TNPA’s immediate focus is on addressing infrastructure constraints

These initiatives require capital investment

• ver the next 5 years.

2 5 Immediate Impact on TNPA Infrastructure and operations

▪

Create supportive funding and revenue model

▪

Establish purpose-built oil and gas port infrastructure by appointing Facility Operators – Saldanha Bay

▪

Align on Implementation of government policy

▪

Prioritise Transnet and TNPA funding allocation towards marine manufacturing

▪

Maintain and refurbish existing facilities

▪

Unlock investment in new and existing port facilities

▪

Implement Strategic Prioritised Project – Richards Bay

▪

Implement Strategic Prioritised Projects – East London 1 2 3 4 5 6 7 8 A 7 8 28 Initiative Details Initiative 2 Acceleration of identified ship/rig Repair and Supply Bases investments at the port of Saldanha Initiative 5

Acceleration of the refurbishments of existing ship repair facilities

under the control of TNPA Initiative 7 Dredging at the port of Richards Bay to accommodate the introduction of a floating dock Initiative 8 Refurbishment of the East London slip way to accommodate boat building

Replacement of South side crane rail at Dry Dock Erect perimeter wall on north side

• f Drydock

Initiative 5: Maintenance and Refurbishment of existing facilities: Durban

1.50 5.00 3.50

14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 ETC

Repair of inner and outer caisson of Dry Dock Execution: Dockyard Lighting and Low Voltage Electrical Distribution Upgrade Welding Equipment Set for Shop 24 Drydock Jib Cranes Drydock 6 Tons Forklift Drydock Compressors Upgrade of Floating Dock Feasibility: Upgrade of Dockyard Infrastructure Repair Concrete works in the Dock Execution: Upgrade of Dockyard Infrastructure 4.78 5.00 9.00 5.00 95.00 20.00 5.00 16.60 1.57 1.23 7.50 1.00 5.00 4.00 10.00 50.00 70.00 40.00 10.00 DURBAN

Project

FEL 3: Geotechnical study tender to be awarded by 30/09/2015

Comments

Completed FEL 4: Outer Caisson currently being refurbished. Dock to be in commission for this phase by mid Dec 2015 Completed Project Awarded. Delivery Dec 2015 FEL 3 Feasibility completed. Execution 2016/17 Project awarded. Delivery 30 Oct 2015 FER: Evaluating business case FEL3: Execution – FEL 4 evaluating

• ptions

FEL3: Completed. Work breakdown structure finalized. Fast track FEL 4 to commence in 2016/17 FEL4: Project Sanctioned. Tender

• phase. Award by 30 Sept 2015

Refurbishment of Robinson Drydock Refurbishment of Sturrock Drydock

Initiative 5: Maintenance and Refurbishment of existing facilities : Cape Town and Mossel Bay

2.00 33.00 35.00 35.00 35.00

14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 PM ETC

Refurbishment of Synchrolift Replacement of water circulating pumps at Sturrock Dry Dock Replacement of 10 cranes for Ship repair Refurbishment of Cradle & Side Slipway Reconstruct lead-in jetty to slipway Slipway upgrade 1.70 3.90 7.63 12.00 15.63 10.00 10.00 50.00 240.00 350.00 100.00 25.00 50.00 195.00 3.00 5.00 10.00 CAPE TOWN

Project

1.00 10.00 20.00 19.00 MOSSEL BAY FEL 2/3: To be awarded in Nov 2015

Comments

FEL 2/3: To be awarded in Nov

• 2015. Floating caisson tender stage

FEL 2/3: Feasibility study underway. Shutdown envisaged Feb 2016 Tender phase underway. FEL 3: Completed. Approval for execution underway. FEL 2: Technical assessments

• completed. Fasttrack the project

Refurbishment of Slipway Area

Initiative 5: Maintenance and Refurbishment of existing facilities : East London, Port Elizabeth and Saldanha Bay

14/15 15/16 16/17 17/18 18/19 19/20 20/21 21/22 22/23 ETC Refurbishment of Graving Dock + Refurbish Pumps Replacement Lead-in Jetties 40 ton Slipway Refurbishment (Feasibility & Execution) New 100t hoist Modifications of 1200 ton slipway cradle Refurbishment of Rock Quay (GM Quay area)

3.00

EAST LONDON

Project

5.16 54.47

SALDANHA

4.20 15.00 41.20 42.98 42.49

PORT ELIZABETH

10.73 51.50 81.93

Comments

FEL 3: Switchgear contract awarded. Approval for FEL 4 Execution underway Execute as PSP FEL 4: Execution: to be completed in 2017 FEL 4: Execution: to be completed in 2017 FEL 4: Execution: to be completed in 2016 FEL 4: Execution underway. Completion 2015/16

Port space for boat building

3.00 New Project: S79 Directive issued

Operation Phakisa Projects (Initiative 5) : Various projects

Project Objective Estimated Co- funded investment required Estimated Jobs created Estimated GDP Contribution Maintain and refurbish existing facilities Refurbish and upgrade existing ship repair facilities to service current and future demand R1.5bn Target 20 000 (incl multiplier) by 2023. To date, 177 construction jobs created R6.5bn

32

Operation Phakisa Projects (Initiatives 2,7,8) : Overall Scope

Project Objective Estimated Co- funded investment required Estimated Jobs created Estimated GDP Contribution Saldanha Bay Oil and gas repair and supply base facilities Establishment of port facilities to service the Offshore Oil and gas industry within the Port of Saldanha R13.2bn 15 000 18bn Richards Bay Ship repair facilities Development of a cost effective ship repair facilities within the Port of Richards Bay R900m TBC TBC East London boat building facilities Development of the required infrastructure to be a catalyst for the establishment of boat building in the Port of East London R515m TBC TBC

33

Project Advisor Project Analysis Completed Business Case Development and Approval Procurement

• f Preferred

Bidder Completed Financial close and appointmen t of Bidder Required Operationa l Date Saldanha Bay Oil and gas repair and supply base facilities Sept 2015 Oct 2015 Dec 2016 Sept 2017 2019 Richards Bay Ship repair facilities Nov 2015 Nov 2015 June 2016 Sept 2016 2019 East London boat building facilities Jan 2016 Jan 2016 Nov 2016 Jan 2017 2019

Operation Phakisa Projects (Initiatives 2,7,8) : Execution Phases

34

The Analysis and Business Case phases are in execution phase and on track to meet the indicated timelines

Saldanha : Rig Repair Berth 205 (Artist Impression)

35

Saldanha : Mossgas Jetty (Artist Impression)

36

Saldanha : Oil and Gas Supply Base (Artist Impression)

37

Richards Bay : Ship Repair (Artist Impression)

38

Tariff Application Approach

Tariff Application Approach

39

Tariff Application Approach

• The Port Directives were approved on 13 July 2009 (gazetted on 06 August 2009)

and amended on 29 January 2010.

• 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.

40

Regulatory Framework (continued) Regulatory Framework

• On

31 July 2014 the Regulator issued a Regulatory Manual (“Tariff Methodology”) applicable for the tariff years 2015/16 to 2017/18.

• The approved Tariff Methodology is multi-year in its approach (3 years)
• The methodology further allows for an annual review and an annual adjustment
• f tariffs within the three year period as opposed to fixing the prices for the full

period.

• The Authority has applied for a fixed tariff adjustment for FY 2016/17 and

indicative tariff adjustments for FY 2017/18 & FY 2018/19

• Whilst the Tariff Methodology is applicable up to FY 2017/18, the Authority has

included FY 2018/19 in order to demonstrate the tariff trajectory over a three year period

41

Regulatory Framework (continued) Regulatory Principles & Previous Records of Decision (ROD’s)

• In determining the Tariff Application FY 2016/17, 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
• pposed to contract rates).
• Whilst the Authority has adopted the approach of the Regulator, it has done so
• n the assumption that the recovery of the revenues based on tariff book rates

will be legally enforceable.

• The Tariff Application FY 2016/17 has therefore been prepared in accordance

with the Tariff Methodology and principles applied in previous decisions of the Regulator.

42

Tariff Application FY 2016/17

Tariff Application FY 2016/17

43

Tariff Application FY 2016/17

• 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)

44

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 NPA is allowed to earn a return on. Vanilla Weighted Average Cost of Capital  A real WACC will be applied, given that the RAB is indexed for (WACC) inflation. Operating Costs  The NPA is required to provide 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 opening 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 NPA’s ETIMC.

45

Revenue Requirement Components

• Valuation of the RAB takes into consideration Depreciation, Inflation Trending,

Capital Works in progress (CWIP)/Capex and Working Capital:

Notes:

• Durban International Airport (DIA)/ Durban Dig Out Port (DDOP): In accordance with the Tariff

Methodology, the RAB excludes DIA land acquisitions as the site has not been legislatively incorporated and established as a port.

• Properties Outside of Port Limits: Properties that falls outside the co-ordinates as stipulated in the

Regulations with a trended value of R489m has been removed from the RAB.

46

FY 2016/17 FY 2017/18 FY 2018/19 Fixed Tariff Year Opening Net Book Value 71 342 77 249 85 625 Less: Properties Outside of Port Limits (489)

• Restated NBV

70 853 77 249 85 625 NBV Inflated 75 033 81 652 90 506 Less: Depreciation (1 928) (2 117) (2 355) Add: Capex 4 144 6 090 7 377 Closing NBV 77 249 85 625 95 528 Average Opening and Closing 74 296 81 437 90 577 Less: Working Capital (813) (1 111) (1 374) RAB Final 73 483 80 326 89 203 Details Indicative Tariff Years R'm

Revenue Requirement Components(continued)

• The Vanilla WACC is determined is as follows:

FY 2016/17 FY 2017/18 FY 2018/19 Fixed Tariff Year Risk Free rate (nominal) 8.26% 8.17% 8.16% Real risk free rate 2.23% 2.34% 2.33% MRP 5.40% 5.40% 5.40% Asset Beta 0.50 0.50 0.50 Equity Beta (Using Hamada) 0.86 0.86 0.86 Gearing 50% 50% 50% WACD (nominal) 9.87% 10.07% 10.22% Inflation 5.90% 5.70% 5.70% Tax rate 28.00% 28.00% 28.00% Cost of Equity (real) 6.87% 6.98% 6.97% WACD (real, pre-tax) 3.75% 4.13% 4.28% Vanilla WACC 5.31% 5.56% 5.63% Details Indicative Tariff Years Explanatory Notes:

 Risk Free Rate: Calculated over a five year monthly average from June 2010 to May 2015 for FY 2016/17.  MRP: Geometric mean with the use of the DMS dataset over a full 113 year period.  Cost of Debt: Transnet Weighed Average Cost of Debt  Inflation: Latest National Treasury (NT) forecasts used for FY 2016/17 & FY 2017/18. NT forecast not available for FY 2018/19 therefore maintained inflation rate of FY 2017/18  FY 2017/18 & FY 2018/19: The MRP for FY 2015/16 is used as a proxy to determine an indicative WACC as this index is based on historical data

47

Revenue Requirement Components(continued)

• Taxation calculations as per Tariff Methodology (which includes the flow of funds
• re. Clawback and ETIMC) is highlighted below:

48

DETAILS FY 16/17 FY 17/18 FY 18/19 Gross Income 9 326 10 953 11 967 Pre Tax debt return

• Equity Return on RAB

2 524 2 803 3 109 ETIMC 67

• Clawback

(680) 66

• Depreciation

1 928 2 117 2 355 Opex 5 487 5 967 6 503 Deductions 6 802 8 150 8 858 Depreciation 1 928 2 117 2 355 Opex 5 487 5 967 6 503 ETIMC 67

• Clawback

(680) 66

• Taxable income

2 524 2 803 3 109 Gross up for tax 3 506 3 893 4 318 Tax at 28% 982 1 090 1 209 Tax on Clawback 190 (18)

• Tax on ETIMC

19

• Tax Allowance

1 191 1 072 1 209

Revenue Requirement Components(continued)

• Operating Expenditure is highlighted below:

49

Actual Budget Forecast Dev Dev % of Opex Forecast Forecast CAGR 2014/15 2015/16 2016/17 vs 16/17 vs 16/17 15/16 2017/18 2018/19 2016/17 - R Million R Million R Million R Million % R Million R Million 2018/19 Labour Costs 1 909 2 219 2 571 352 16% 53% 2 783 2 931 7% Rates & taxes 316 363 397 34 9% 8% 443 456 7% Maintenance 260 329 402 73 22% 8% 452 545 16% Contract Payments 71 138 157 19 14% 3% 119 139 11% Energy 440 488 554 65 13% 11% 622 693 12% Professional services 18 51 56 5 10% 1% 73 89 26% Material 76 85 104 20 23% 2% 112 124 9% Computer & Info systems 122 147 157 10 7% 3% 175 201 13% Rental 60 66 80 13 20% 2% 85 103 14% Security costs 71 82 89 7 8% 2% 107 131 22% Pre -Feasibility Studies 43 118 139 21 18% 3% 129 186 16% Sundry operating costs 17 113 131 18 16% 3% 181 184 3% Total operating cost 3 403 4 200 4 837 637 15% 100% 5 280 5 782 9% (excluding depreciation) Group Costs 509 619 650 31 5% 687 721 5% Total operating cost 3 912 4 819 5 487 668 14% 5 967 6 503 9% (Including Group Costs) Cost Category

Revenue Requirement Components (continued)

• Key Drivers for the increase in Operating Expenditure is as follows:

COST DRIVER DETAILS

• 1. Labour

 Increase in minimum manning levels of marine to 100% service and then to 120% to meet MOPS requirements;  Additional crew to man new craft being deployed by Dredging and Marine services;  Trainers required to establish marine engineering schools in the Ports of Durban, Cape Town, Saldanha and East London;  Manning of port operational centres; and  Appointment of trainee helicopter pilots.

• 2. Maintenance

 Refurbishment of ageing infrastructure;  Frequent dredging of berths resulting in increased and additional maintenance of dredgers; and  Ship repairs maintenance and refurbishment which involves the upgrading of existing facilities.

• 3. Energy

 Eskom tariff hike and crude oil prices and new craft.

• 4. Rental

 Leasing of computer equipment, office space for JOCs and vehicle rentals for berthing, pilots, and water supply to vessels.

• 5. Pre-Feasibility Studies

 Studies relating to ship repair facilities for the port system in terms of the Operation Phakisa initiative;  Other projects include long-wave mitigation measures, wind mitigation studies and land use planning studies; and  Studies related to the future capital programme.

• 6. Sundry Operating Costs

 S56 projects lead to increased legal fees. Other cost increases relate to Water, printing/stationary, promotions and advertising and Rates & Taxes.

50

Revenue Requirement Components (continued)

• Claw-back considers the differences between allowed and actual revenues.
• The re-computed RR for FY 2014/15 is R10 059m and determined as follows:

RAB 63 858 WACC 5.48% Return 3 499 Opex 3 826 Depreciation 1 675 9 000 Plus: Tax 956 Re-computed Revenue Requirement 9 956 Plus: Clawback 103 Plus: ETIMC

• Re-computed Revenue Requirement

10 059 Details

51

Revenue Requirement Components (continued)

R'm Allowed Revenue per ROD FY 2015/16 11 109 Latest Estimate Revenue 10 797 Plus: Bilateral Contract revenue 181 Total Latest Estimate Revenue 10 978 Estimated Clawback 131 50% Clawback Adjustment in FY 2016/17 66 Clawback FY 2014/15 (707) Return on Clawback FY 2014/15 (39) Estimate Clawback FY 2015/16 66 Net Clawback FY 2016/17 (680) Estimate Clawback Total Clawback due to customers FY2015/16

• The “net” claw-back calculations are demonstrated below:
• Per principles contained in the ROD FY 2015/16, the re-computed RR has been

determined with bi-lateral contracts considered at tariff book rates.

52

FY 2014/15 R'm Re-computed Allowed Revenues 10 059 2014/15 AFS Revenue 10 469 Plus: Bilateral Contract Revenues 123 Total Revenue FY 2014/15 10 592 Clawback FY 2014/15 (533) Provisional allowed in ROD FY 2015/16 (174) Final Clawback FY 2014/15 (707) Actual Clawback

Revenue Requirement Calculation

FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 ROD Fixed Tariff Year R'm RAB 66 789 73 483 80 326 89 203 Vanilla WACC 6.38% 5.31% 5.56% 5.63% Return on Capital 4 261 3 902 4 466 5 022 Plus: Depreciation 1 791 1 928 2 117 2 355 Plus: Operating Costs 5 020 5 487 5 967 6 503 Plus: Taxation Expense 768 1 191 1 072 1 209 Plus/(Less): Clawback (581) (680) 66

• Plus/(Less): ETIMC

(150) 67

• Revenue Allowed

11 109 11 895 13 688 15 089 Less: Real Estate (2 449) (2 600) (2 874) (3 147) Marine Revenue 8 660 9 295 10 814 11 942 Details Indicative Tariff Years R'm

Application of the RR Formula results in a Total required Revenue of R11 895m for FY 2016/17:

• Marine Business Revenue: R 9295m
• Real Estate: R2 600m

53

Volume Growth FY 2016/17

• The Authority’s estimated weighted average volume growth for FY 2016/17 is as

follows:

FY 2015/16 FY 2016/17 FY 2016/17 FY 2016/17 Revenue Latest Estimate R million Weighted Average Revenue % Revenue: Volume Increase R million Revenue: Before Tariff Increase R million Containers 3 870 3.5% 135 4 004 Automotive 582

• 2.0%

(12) 570 Break Bulk 282 3.7% 10 292 Dry Bulk 1 184 4.7% 56 1 240 Liquid Bulk 591 2.8% 17 607 TOTAL CARGO DUES AFTER REBATE 6 508 3.2% 206 6 713 Marine & other revenue 2 063 0.0% (1) 2 062 TOTAL TARIFF BOOK REVENUE 8 571 2.4% 205 8 775 Real estate revenue 2 407 8.0% 193 2 600 TOTAL REVENUE 10 978 3.6% 398 11 375 Details 54

Tariff Adjustment FY 2016/17

FY 2016/17 FY 2017/18 FY 2018/19 Fixed Tariff Year Prior Year Revenue 8 571 9 295 10 814 Estimated Volume Growth 2.40% 3.20% 2.60% Revenue after volume growth 8 777 9 592 11 095 Required Revenue 9 295 10 814 11 942 Tariff Increase 5.90% 12.74% 7.63% Marine Revenue Indicative Tariff Years R'm

• The Latest Estimate Revenue of R8 571m for FY 2015/16 is adjusted with the

forecasted weighted average volume increase of 2.40%.

• The difference between this Revenue and the Marine Business Revenue

Required for FY 2016/17 results in the tariff adjustment of 5.9%.

55

Pricing Strategy

Pricing Strategy

56

The Authority’s Pricing Strategy

• The Pricing Strategy proposes an allocation of costs on a “user pay”

principle to achieve cost reflective tariffs including:

• Including revising revenue contribution from Terminal Operators in line with

International Landlord ports model;

• Greater incentives to maximise efficiencies and productivity for Terminal

Operators; and

• Higher revenue contribution by shipping lines to remove subsidisation.
• The Authority’s Pricing Strategy includes the Beneficiation Promotion

Programme (BPP), incentivizing the export of beneficiated goods to support Government key objectives of industrialization and job creation.

57

Regulatory Framework (continued) Key Pillars of the Pricing Strategy

58

Regulators response on the Pricing Strategy

• The Regulators tariff strategy is premised on the following:
• Cost causation – correct pricing signals;
• Cost minimisation – approach to minimize costs;
• Distribution and benefits – equity and reasonability; and
• Practicality – ease of implementation.

59

Tariff Strategy Phased Approach

• 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.

60

Economic climate considered in determining differentiated tariff increase

• SA’s narrow economy’s heavy reliance on export of natural resources
• Sluggish economic performance of major trading partners like Germany, China & US
• The current global environment of volatile currency risk fluctuations, interest rate

risk, fuel prices and falling commodity prices

• Government objective of supporting the export of beneficiated commodities

61

The Authority’s proposed differentiated tariff increases

• 6.80% – Marine Charges (shipping lines)
• 5.90% - Exports of Dry Bulk (Coal, Iron Ore and

Manganese)

• 5.60% - On all other cargo dues
• Whilst the Pricing Strategy is being finalised, the Authority proposes the following

differentiated tariff increases:

62

Port Efficiency

Port Efficiency

63

Port Efficiency

64

• The Ports Authority Operations Strategy

focuses on optimising cargo and vessel turnaround and exercising mandated

• versight
• Year

3 Terminal Operator Performance Standards (TOPS) have been issued and Terminal performance is being monitored

• Marine Operator Performance Standards

(MOPS) has been implemented. Rail and road equivalents being development.

• Port Operations Centres (to evolve to Joint

Operation Centres) to enable performance

• versight are at an advanced stage
• The “Smart Port” initiative has commenced

with the implementation of the Integrated Port Management System (IPMS)

Current Initiatives

Current Initiatives

65

Current Initiatives

66

• Implementation of

IPMS towards the realization of ‘Smart Ports”

• Port Operation

Centres to monitor performance, identify & mitigate constraints

• Evolution of Port

Operation centers into Joint Operational Centres to improve logistics performance

• Development of new

ship repair facilities

• Maintaining existing

repair facilities

• Development of oil &

gas services with dedicated rig and

• ther vessel repair

capabilities

• Implementation of

Revised Pricing Strategy in a phased approach

STRIVING FOR DIGITAL EXCELLENCE REVISED PRICING STRATEGY OPERATION PHAKISA

Conclusion

Conclusion

67

Conclusion

FY 2016/17 FY 2017/18 FY 2018/19 Fixed Tariff Year Revenue Allowed 11 895 13 688 15 089

• Marine Revenue (Rm)

9 295 10 814 11 942

• Real Estate (Rm)

2 600 2 874 3 147 Tariff Increase (%) 5.90% 12.74% 7.63% Revenues Indicative Tariff Years

• 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:

• For FY 2016/17, the average tariff adjustment of 5.90% is differentiated as follows:
• 6.80% – Marine Charges (shipping lines)
• 5.90% - Exports of Dry Bulk (Coal, Iron Ore and Manganese)
• 5.60% - On all other cargo dues

68

Conclusion (continued)

• In line with Port Directives, the revenues will allow the Authority to:
• recover its investment;
• recover its costs; and
• make a return commensurate with the risk involved.

 Thereby sustainably fulfilling its role and delivering on its mandate ito the National Ports Act  Whilst remaining committed to Transnet’s and Governments objective of reducing the cost of doing business in South Africa.

69

Click to edit Master title style

THANK YOU