Click to edit Master title style · 2015-10-02 · Transnet’s MDS • The MDS is Transnet’s investment programme aimed at expanding and modernising the country’srail, port,

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Ports Regulator Roadshows

Tariff Application FY 2016/1701 – 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 andmodernising the country’s rail, port, and pipeline infrastructure over a period ofseven 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 operations

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__________________________

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

organisation

SUSTAINABLE

VALUE

The MDS will

deliver lasting

economic, social &

environmental

value to South

Africa



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 system2. Economic port system

Improve Port efficiencies (oversight role)

3. Efficient port system2. Economic port system

Enhance the ports’ position as integrated gateways for trade

4. Integrated port system.5. Grow the market

Authority’s3-tier strategy

Authority’sStrategic Objectives

Create & manage Infrastructure capacity ahead of 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.

Org

aniz

atio

nal

cap

acit

y /

read

ines

s


Strategy embodies the landlord functions set out in the Ports Act8

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 MarineOperator Performance Standards (MOPS) and monitoring thereof

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

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

o 23 Helicopter Pilot Traineeso 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 developinghigh-performance teams

The Authority’s MDS Plan: Administered Pricing

12

100106 111

117122

100

103 103109

114

0

20

40

60

80

100

120

140

0 2012 2013 2014 2015

Inflation

NPA averagetariff

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 & differentiatedcontainer & automotive tariffs

Base



13

Master planner

Marketer &

administrator

Coordinator with

other 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



15

Services Provided within the Ports

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• 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, bymeans of agreements, licences and permits.

18



19


• The main function of the Authority is to own, manage, control and administerports to ensure their efficient and economic functioning, and in doing so theAuthority 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 0156 090

Cape Town

R2 346mPort Elizabeth

R1 976m

Durban R21 529m

Saldanha Bay

R4 643mEast London

R1 481m

Richards Bay

R3 516m

Ngqura

R5 423m

Mossel Bay

R202m

Port Nolloth

R60mDredging

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:



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 CommodityFY 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 2018/19Total: R20 666m


24

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


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 infocused 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 ofSaldanha, Richards Bay and East London

• Maintenance and refurbishment of existing vessel repair facilities have beenprioritised 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 emphasison 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, operators 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 Training27

TNPA’s immediate focus is on addressing infrastructure constraints

These initiatives require capital investmentover the next 5 years.

2 5

Immediate Impact on TNPAInfrastructure 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 7Dredging at the port of Richards Bay to accommodate the introduction of

a floating dock

Initiative 8Refurbishment 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 of 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 options

FEL3: Completed. Work breakdownstructure finalized. Fast track FEL 4to commence in 2016/17

FEL4: Project Sanctioned. Tenderphase. 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 assessmentscompleted. 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 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

EstimatedJobs 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

EstimatedJobs

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 of Preferred

Bidder Completed

Financialclose and

appointment of Bidder

RequiredOperationa

l Date

Saldanha Bay Oil and gasrepair and supply base facilities

Sept 2015 Oct 2015 Dec 2016 Sept 2017 2019

Richards Bay Ship repair facilities

Nov 2015 Nov 2015June 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



39


• 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 (“TariffMethodology”) 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 adjustmentof tariffs within the three year period as opposed to fixing the prices for the fullperiod.

• The Authority has applied for a fixed tariff adjustment for FY 2016/17 andindicative tariff adjustments for FY 2017/18 & FY 2018/19

• Whilst the Tariff Methodology is applicable up to FY 2017/18, the Authority hasincluded FY 2018/19 in order to demonstrate the tariff trajectory over a threeyear 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 guidedby principles included in previous decisions of the Regulator.

• This includes the consideration of bilateral contracts at tariff book rates (asopposed to contract rates).

• Whilst the Authority has adopted the approach of the Regulator, it has done soon the assumption that the recovery of the revenues based on tariff book rateswill be legally enforceable.

• The Tariff Application FY 2016/17 has therefore been prepared in accordancewith the Tariff Methodology and principles applied in previous decisions of theRegulator.

42



43


• 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 incorporatedand established as a port.

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


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


• 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


• Operating Expenditure is highlighted below:

49

Actual Budget Forecast Dev Dev % of Opex Forecast Forecast CAGR2014/15 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 meetMOPS 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, CapeTown, 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


• 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


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

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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


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

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Volume Growth FY 2016/17

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

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


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%.

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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:

o Including revising revenue contribution from Terminal Operators in line withInternational Landlord ports model;

o Greater incentives to maximise efficiencies and productivity for TerminalOperators; and

o Higher revenue contribution by shipping lines to remove subsidisation.

• The Authority’s Pricing Strategy includes the Beneficiation PromotionProgramme (BPP), incentivizing the export of beneficiated goods tosupport 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:

o Cost causation – correct pricing signals;

o Cost minimisation – approach to minimize costs;

o Distribution and benefits – equity and reasonability; and

o Practicality – ease of implementation.

59

Tariff Strategy Phased Approach

• 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.

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 raterisk, fuel prices and falling commodity prices

• Government objective of supporting the export of beneficiated commodities

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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 followingdifferentiated tariff increases:

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Port Efficiency

Port Efficiency

63

Port Efficiency

64

• The Ports Authority Operations Strategy

focuses on optimising cargo and vessel

turnaround and exercising mandated

oversight

• Year 3 Terminal Operator PerformanceStandards (TOPS) have been issued andTerminal performance is being monitored

• Marine Operator Performance Standards(MOPS) has been implemented. Rail androad equivalents being development.

• Port Operations Centres (to evolve to JointOperation Centres) to enable performanceoversight 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 other 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 theRegulator, 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

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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

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