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The Ports Regulator Overview and Presentation on 2009/10 Annual

Report

Portfolio Committee on Transport

22 October 2010

Index

• National Ports Act and Regulator mandates• Regulator Programmes and Main Activities• Financial Year 2009/2010 Annual Financial

Statements

www.portsregulator.org 2

Objects of the National Ports Act

• Development of effective and productive ports industry for economic growth and development

• Promote and improve efficiency and performance in the management and operations of ports

• Promote the development of an integrated regional production and distribution system in support of government policies


Functions of the Ports Regulator In terms of the Ports Act

• Exercise economic regulation of the ports system in line with government’s strategic objectives

• Promote equity of access to ports and to facilities and services provided in ports

• Monitor the activities of the National Ports Authority to ensure compliance with the Act

• Adjudicate complaints and appeals against the Authority• Approve or reject the Authority tariffs• Promote regulated competition• Regulate the provision of adequate, affordable and efficient

port services and facilitieswww.portsregulator.org 4

Objectives of economic regulation

• Promotion of efficiency• Promoting investment• Protection of port users• Prevention pricing and service discrimination• Prevention of anti-competitive practices• Competition amongst ports • Competitive and affordable tariffs


Regulator programmes

• Administration• Economic Regulation and Tariffs• Monitoring and Compliance• Tribunal and Regulatory development• Industry Development


Current activities

• Economic review of participation in Ports System

• Implement Ports Regulatory framework• Adjudication of appeals and complaints • Maintain the Regulator secretariat and

systems• Implement tariff regulation framework• Port monitoring


Financial Year 2009/10 Annual Financial Statements


2009/2010 Overall Audit Opinion

• Clean Audit• No disclaimers or qualifications• 100% Audit• Some matters emphasised


Overall Audit Opinion (2)

• Additional matter Unaudited supplementary schedule

The public entity provided supplementary information in the financial statements on whether resources were obtained and used in accordance with the legally adopted budget, in accordance with GRAP 1 Presentation of Financial Statements. The supplementary budget information set out on page 59 does not form part of the financial statements and is presented as additional information. Accordingly I do not express an opinion thereon.


Matters of Emphasis

• Matters of emphasis and explanationsMaterial underspending of the budget– As disclosed in note 23 to the financial statements, the entity has

materially under-spent its budget in the amount of R2,843 million. This is attributable to the fact that the entity is not fully operational in terms of its mandated function and key positions were still vacant due to the organisational structure not yet being approved by the executive authority.

– Mainly in the area of staff costs and indirect costs, some capital expenditure accelerated to reduce under-spending


Emphasis of matters – 2009/10

Unaudited supplementary schedule • The public entity provided supplementary information in the

financial statements on whether resources were obtained and used in accordance with the legally adopted budget, in accordance with GRAP 1 Presentation of Financial Statements. The supplementary budget information set out on page 59 does not form part of the financial statements and is presented as additional information. Accordingly I do not express an opinion thereon.

• Requirement under Ports Act, but not auditable in accordance with PFMA

Submission of strategic plan • The accounting authority of the Ports Regulator of South

Africa (listed in schedule 3A of the PFMA) submitted its strategic plan after the start of the financial year (that is, 30 April 2009) to its executive authority, contrary to Treasury Regulation 30.1.1 of 2005.

• The Strategic Plan was submitted for comment to the Department of Transport prior to the required date, for feedback. The Plan was finally submitted on the date set out above, after amendments as required by the DOT.

Emphasis of matters – 2009/10 (cont.)

13www.portsregulator.org


Non-adherence to legislation • The entity’s audit committee was not properly constituted in terms of

Treasury Regulations 27.1.3 and 27.1.4. Moreover, it did not substantially fulfill its responsibilities, contrary to the requirements of Treasury Regulation 27.1.8 as well as sections 51(1)(a)(ii) and 76(4)(d) of the PFMA.

• The Regulator interprets the Members as non-executive, due to the special nature of the Regulator structure. The Regulator acted in accordance with this interpretation in establishing and managing the Audit Committee. The interpretation of the AG, classes Members as Executive. The Regulator to take opinion on the matter and change composition and operation of the Audit Committee in accordance therewith. Due to their not being permanent staff, business continuity plans could not be developed and implemented.


• The entity’s internal audit function did not have an internal audit charter as required by Treasury Regulation 27.2.5. Moreover, it did not substantially fulfil its responsibilities, contrary to the requirements of Treasury Regulation 27.2.10 as well as sections 51(1)(a)(ii) and 76(4)(b) and (e) of the PFMA.

• The Internal Audit function was outsourced due to the organisation being so small and thereby not justifying the establishment of an in-house internal audit. The internal audit report was not signed off by the end of the financial year. This has been corrected.



•The entity did not settle payments due to creditors within 30 days from date of receipt of invoices, contrary to the requirements of section 38(1)(f) of the PFMA. Consequently, fruitless and wasteful expenditure amounting to R6 219 was incurred.



Supplier Category Amount Penalty / Interest Reason

IT Service Provider Late payment R 3 454.20R 570.00

R 0.00R 0.00

New contract, S.P. delayed submitting banking confirmation form.

Travel Agency Late payment R 5 698.55 R 0.00 Queries on account

Online Legal SP Late payment R 5 678.60 R 0.00 Queries on account

Electricity Provider Fruitless &Wasteful

R 2 627.53 Account disputed

Rental Fruitless &Wasteful

R 2 505.39 Late payments

Communication SP Fruitless &Wasteful

R 1 086.27 Late payments

R 6 219.19

• The entity did not formally approve and implement a fraud prevention plan during the year under review, contrary to the requirements of section 51(1)(a)(i) of the PFMA.

• DOT policies followed in periods up to 1 January 2010(DOT managed the payments). Subsequent to that internal audit outsourced, but had not been signed off by year end.



Internal control• I considered internal control relevant to my audit of the financial

statements and the report on predetermined objectives and compliance with the PFMA, but not for the purposes of expressing an opinion on the effectiveness of internal control. The matters reported below are limited to the deficiencies identified during the audit:

Leadership– Leadership did not design and implement an appropriate internal control

system to monitor and ensure that the entity complies with all applicable laws and regulations.

– The current staffing levels including contract staff, does not allow the formal process separation necessary between procurement and financial transactions. The CEO signs off all payments to ensure oversight, until such time as staffing all in place. No irregularities encountered in any transactions that were the result of a lack of internal controls.



Governance• The internal audit function and audit committee did not substantially fulfil

their functions to management/those charged with governance in maintaining and ensuring an efficient and effective system of internal control during the year under review. Moreover, the systems necessary to mitigate the risk of fraud have not been implemented.

• The internal audit function was out-sourced as the organisation is too small to justify a stand alone full time internal audit function. The internal audit function of the DOT managed the oversight of payments till 1 January 2010. The financial systems that were implemented did not have an audit function that met the requirements of the AG, although documentary records recorded the classes of transactions referred to.

Other reports• No matters to report.



Achievements – 2009/10

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Key Result AreaKey Performance Objective

Key Performance Indicator Output

Establishing and operating a tribunal to hear complaints and appeals under the National Ports Act

Commence hearing of Appeals and Complaints

Develop Tribunal procedure manuals Internal procedures and simplified Access Guide developed. Directives published in Government Gazette and in force, that set out formal processes.

Tribunal training for Regulator Members Training to be scheduled with first hearing. No matters ripe for hearing as yet.

Establish Tribunal to hear complaints and appeals under the NPA Act

16 Complaints and 2 Appeals were received. These matters are in process to hearing or decision. No matters ripe for hearing as yet, therefore no hearings had been held in period under review.




Establish all elements of the Regulatory framework within its mandate

Finalisation of Ports Regulatory Framework

Finalise Directives Directives developed, consulted and approved. Published in Government Gazette and in force. Subsequent technical amendment approved and published as well.

Finalise Regulatory Principles Paper

Regulatory Principles Paper published

Finalise and implement tariff regulation framework

Finalise and implement the interim Tariff regulation framework

Completed assessment of 2010/2011 Port Tariffs. Tariff hearings held in all port cities. Asset valuation accepted pending valuation to be completed in subsequent tariff years.No rebasing done or planned over medium term. This is as a result of a technical amendment to the Directives that removes the requirement for a re-basing.

Finalise and implement tariff regulation framework

Economic review of participation in the port environment

Economic review research and analysis complete. Consultation with industry to be completed in next financial year.

Achievements – 2009/10 (cont.)




Develop the capacity to deal with all the output requirements of the organisation

Establish and maintain Regulator Secretariat to deal with the establishment requirements of the PR

Human resource acquisition and capacitation and Staff benefits and conditions regime

Human resource regime not approved as yet.HRD Strategy and Skills plan await staff appointments to commence.Internship Programme commenced.

Develop systems architecture and user requirements for next 3 years

Desktop components and interim system in place

Acquire platform for MSP MSP System research is on-going. 1st round assessments too expensive

Finance Management System Financial and HR modules acquiredRevised Delegations developed (Interim Financial Delegations in place)

Financial Policy and procedures developed and approvedNot all responses to previous year’s audit in place (Internal Audit function outsourced)





Support the development of the port system and the port Regulatory system architecture.

Establish Stakeholder engagement processes and fora

Establish stakeholder fora and engagement processes.

Currently PCC’s launched(DOT) but NPCC not yet established. PCC’s to be port level fora of engagement for Regulator. Specific interest group fora to be established in next financial year.

Roadshow was held covering all port cities, informing industry and communities of Regulator functions and methods of accessing Regulator services.

Assess NPA Infrastructure

High level NPA Infrastructure assessment

Initial benchmarks developed, data gathering commenced.Valuation methodology and assessment for RAB moved to outer years. Not completed in this year.





Ensure that all port sector participants comply with the National Ports Act

Establish the initial port compliance, monitoring and performance measurement framework and system

Benchmarking study to establish performance indicators of port environment (Economic and Social).

Initial economic benchmarks identified and data collection commenced.Baselines defined and set.Baselines for comparables not set as yet

Development and maintenance of the port performance measurement system

Initial development only on port performance measurement, no system developed as yet.

Perform a regulatory compliance review on major processes within the Ports industry

Preliminary indicators defined and awaiting timelines.None, as regulatory review to follow end of year post publication of Directives - 6 August 2010.


11144 11382

13603

2390

5988

10413

8754

5394

2573

0

2000

4000

6000

8000

10000

12000

14000

Budget Expenditure Unspent

Comparison Budget v Expenditure

2007/08

2008/09

2009/10


Expenses 2007/08 2008/09 2009/10

Compensation of employees 423 1 934 3 000

Goods and services 1 915 3 656 6 821

Depreciation 52 398 592

Interest, dividends and rent on land – – –

Interest – – –

Dividends – – –

Rent on land – – –

Transfers and subsidies – – –

Total expenses 2 390 5 988 10 413

Ports Regulator – Financial Performance (cont.)

2390

5988

10413

4231934

3000

19153656

6821

52499

592

0

2000

4000

6000

8000

10000

12000

Total Expenditure Compensation ofEmployees

Goods &Services

Depreciation

Comparison in Expenditure

2007/08

2008/09

2009/10


Ports Regulator – BBBEE

0

2 000

4 000

6 000

8 000

10 000

12 000

2009/10

BBB-EE as a percentage of the Discretionary Expenditure

BBBEE R 4,860

TotalDiscretionaryExpenditureR 5,580

TotalExpenditureR 10,413

0

2,000

4,000

6,000

8,000

10,000

12,000

2009/10

Total Expenditure - Discretionary and Non Discretionary

NonDiscretionaryR 4,833

DiscretionaryR 5,580

TotalExpenditureR 10,413

0%

61.33%

30%

59.82%

50%

87.10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2007/08 2008/09 2009/10 to date

BBB-EE Actual vs Target

BBB-EETarget

BBB-EEActual

Technical & Management Staff (Support & Interns)

2007/08 Male Female Male Female

Black 100% 0% 0% 100%

White 0% 0% 0% 0%


Black 100% 0% 25% 50%

White 0% 0% 25% 0%


Black 67% 33% 0% 86%

White 0% 0% 14% 0%

Employment Equity(including contract staff)

Additional Issues

• Consultants and Lawyers– R 2.1 million

• Travel and Accommodation– R 1.4 million

• World Cup declarable– 14 Bafana Bafana T-Shirts (R 8 000.00)• International Port Company and Regulator Managers

– Singapore– Australia– Malaysia


Challenges in 2009/2010• Capacity a problem• First tariff assessment was difficult as Regulator

to act in the absence of historical precedent• Policy gaps eg. What is the perspective on Capital

Work in Progress?• Implementation of Act, questions as to speed and

possible policy shifts• Small organisation challenges such as scale

dependent systems eg. Information and data processing systems


Strategic Challenges• Budget constraints – long-term financial sustainability• Part-time Regulator issues and implications

– Time constraints– High requirement for Regulator Member time for tribunals eg: 5

day hearing = 1 Appeal, 16 complaints coming through process, 6 board meetings at least per year, plus

• Clarity on approach to port institutional structure• Impact of unified Transport Policy changes on PR?• Ensuring Regulator is not referee and player.• Balance of infrastructure programme in economic

development versus cost of doing business?• Determination of appropriate infrastructure build

programme against which Regulation occurs?


Interventions required• Consideration of additional members that have higher levels of

availability for tribunal• Consideration of structure eg. Secretariat and Commission

Structure • Revised income model for Regulator

– 2010/2011, requested R20m, allocated R8.8m• Infrastructure tariff approach by DOT• Amend Act to streamline administrative processes• Infrastructure sign-off to NPCC?• What does the state expect the outcome of the Regulator to be

over the first ten years of its existence?• Additional budgetary allocation?• How far do we want to take this?
