A presentation by Mahesh Fakir, CEO of the Ports Regulator of South Africa at the 2nd annual Coal Transportation Africa Summit, held at the Indaba Hotel in Fourways, Johannesburg from 19-20 May 2015.

1. The Ports Regulator
Regulation in the South African
Port System
Coal Transportation Africa Summit
Mahesh Fakir
CEO
19 May 2015

2. National Ports Act Background
• Sea transport is an essential vehicle of international trade.
• With approximately 80% of SA’s trade being by sea, efficient ports are catalysts for
trade growth
• The Act was established with the purpose of ensuring affordable, internationally
competitive, efficient and safe port services based on a transparent and cost-
effective nature that is economically and environmentally sustainable.
• The Act contains mandates and functions of Ports Regulator and National Ports
Authority
• Sets out powers of Ministers of Transport and Public Enterprises
• Sets overall governance framework for ports system
• Enacted on the 26th November 2006
• Structure
– Act – Parliament
– Regulations – Minister of Transport
– Directives – Ports Regulator
– Rules - NPA
www.portsregulator.org 2

3. Objectives of the National Ports Act
• Development of an 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
www.portsregulator.org 3

4. The role of the Ports Regulator
(In terms of the Ports Act)
• Exercise economic regulation of the port system in line with
government’s strategic objectives
• Promote equity of access to ports, 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 facilities
www.portsregulator.org 4

5. Who is the Ports Regulator?
• It consists of 9 Members (currently 6) that
constitute the economic regulatory authority
for the ports system in South Africa
• They are independent in the performance of
their mandate from Government Departments
• They are one of the key institutions envisaged
by the Ports Policy
• The Secretariat assists the Regulator in
carrying out its mandate
www.portsregulator.org 5

6. What is the Regulator’s role in NPA
tariffs?
• To ensure that NPA tariffs are utilised in
ensuring that the port system is efficient
• To ensure that the tariffs are affordable to
port users
• To ensure that the tariffs are predictable and
non-discriminatory
• To prevent the utilisation of tariffs for cross-
subsidisation unless in the public interest
www.portsregulator.org 6

7. Economic Impact of the Regulator
• Since inception of the Regulator in 2009 to date:
– There has been a smoothing of the NPAs tariffs
– Tariff decision has translated into a saving to users of more than
R5.2 b over the period
• Rationalised Tariffs
– R1 bn rebate
– Significantly lower approved tariffs
– Continued sustainability of NPA
• Proactive and risk mitigating
– Excessive Tariff Increase Margin Credit
– R2.5 bn available to offset future increases
• Looking forward
– Fair tariff incidence
– More accurate investment signals through a multi-year tariff
methodology
www.portsregulator.org 7

8. Weighted Return on Asset Base
www.portsregulator.org 8
3.50%
4.50%
5.50%
6.50%
7.50%
8.50%
9.50%
10/11 11/12 12/13 13/14 14/15
NPA Application
Regulator Allowed

9. Revenue Determinations and
Stabilisation of Tariffs
www.portsregulator.org 9
4
5
6
7
8
9
10
11
12
2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
AnnualrevenueR(billion)
NPA Revenue Applied for NPA Revenue Allowed

10. Purpose of NPA tariffs
• To enable the NPA to-
– Recover its investment in owning, controlling and
administering ports and its investment in port
services and facilities
– Recover its costs in maintaining, operating,
controlling and administering ports and its costs in
providing port services and facilities
– Make a profit commensurate with the risk
involved in ports services and facilities
www.portsregulator.org 10

11. The Regulatory Manual
• Outlines the mandate of the Ports Regulator
of South Africa (the Regulator), the regulatory
framework governing the National Ports
Authority’s (the Authority/NPA) tariff setting
process and matters relating to compliance of
the NPA with the Regulatory Framework.
• 2nd version of the manual
– 2014/15 Interim Tariff manual (one year)
– 2015/16-2017/18 Tariff manual (multi-year)
11www.portsregulator.org

12. Multi-Year Methodology
• Previously an interim 1 year methodology
• Now fixed for 3 years with annual review and an annual
adjustment of tariffs
• No fixing of tariffs for the 3 year period to protect users
from possible large step changes in the tariff.
• Large variations in the users and usage of port
infrastructure and services over time
• Annual review allows adjustments in prices to be more
efficiently and appropriately allocated to users
• Lower regulatory uncertainty
– Will narrow the difference between what is requested by the
NPA and subsequently granted by the Regulator.
– Assists stakeholders in formulating responses to the NPA tariff
application in a manner that will assist the Regulator in its
decision making.
12www.portsregulator.org

13. Assessment of Authority’s Tariffs
• In terms of the Act, NPA to submit proposed tariffs to Ports
Regulator
• Tariffs cover all NPA activities as a Port Authority
• Published for comments
• Regulator to hold hearings and invite submissions on proposed
tariff increases
• After consideration of submissions, Regulator shall approve or
reject some or all of the tariff increases
• Elements of proposed tariff-
– Manner of calculation and model
– All financial information and valuations
– Reinvestment of profits and revenues
– Impact on port activity cost structures
– Impact on NPA financial position
www.portsregulator.org 13

14. Process
• Similar to past – guided by the Act
• The Regulators assessment:
– Assessment of the NPA application
– Assessment and taking into account of all public comments,
– Own assessment
• Record of Decision (ROD)
– Fixed tariff for the 2015/16 tariff year and
– Indicative tariffs for the 2016/17 and 2017/18 tariff years.
– Specific tariff changes may be requested by NPA (comments
thereon welcomed)
– Tariff strategy (based on public engagement process) will start
to influence tariffs from 2016/17
14www.portsregulator.org

15. Methodology
• Revenue Requirement (RR) methodology
• Constant and familiar approach
• Continues refinement and development of the methodology
• Some Regulatory discretion retained:
“The Regulator, while attempting to increase regulatory certainty, must retain a
degree of regulatory discretion to respond to unforeseen economic or other
events, as well as anomalies and unintended consequences of a strict and
autonomic application of the methodology that may impact on the
sustainability of the South African Ports system. This is especially relevant to
a multi-year tariff determination process ...”
15www.portsregulator.org

16. Information requirements
• Substantive/significant information requirements on
NPA
– Revenue models
– Volume forecasts
– Cash management
– Transfers
– Asset registers
– Capex plans , etc
• Equal info requirement on users/stakeholders
– Volume forecasts
– Capex plans (PCC process)
– Assessment of operational and other costs based on
industry expertise and experience
16www.portsregulator.org

17. Components of the Revenue
Required Tariff Methodology
• Regulatory Asset Base (RAB)
– Depreciation
– Working Capital
– Asset Valuation
• Weighted Average Cost of Capital (WACC) (CAPM model)
• Taxation
• Operating Expense
• Depreciation
• Claw Back
• Excessive Tariff Increase Margin Credit (ETIMC)
• Volume forecast
17www.portsregulator.org

18. Overview of Tariff Methodology
Revenue Requirement =
Regulatory Asset Base (RAB) x Weighted Average Cost of Capital (WACC)
+ Depreciation
+ Operating Expenditure
+ Taxation Expense
±Claw Back
±Excessive tariff Increase Margin Credit (ETIMC)
• It requires that the NPA estimate its operating costs, depreciation, tax expense
and return on capital (a product of the weighted average cost of capital and the
value of assets in the Regulatory Asset Base for the period under review).
• In addition, there is a claw-back mechanism that corrects for over or under
recoveries in previous tariff periods, as well as the excessive tariff increase
margin credit (ETIMC).
18www.portsregulator.org

19. Prudent risk mitigation - ETIMC
• The Regulator regulates in the long term interest of the industry.
• Need to consider possible future shocks to the system
– capital expenditure may spike at some point in the foreseeable future,
– external market related factors eg fluctuations in volumes, inflation, the RFR etc.
• ETIMC will earn a return which is equal to the WACC allowed by the
Regulator.
• Total available under the ETIMC facility will be published annually.
• The Regulator further deems it necessary to define the use of the ETIMC
facility in the following way:
• “The Regulator may authorise the release of part or the whole of the value of
the ETIMC facility to influence tariff levels whenever it deems necessary
including, but not limited to spikes in tariffs (defined as an average tariff
increase in excess of the inflation forecast) due to a sharp increase in capital
expenditure, volume volatility, or any market related factor. The Regulator
may also consider national objectives in any decision to add to, or to utilise
the ETIMC facility to adjust tariffs”
19www.portsregulator.org

20. Port pricing Benchmarking
• Compares South African pricing and pricing
structures to those around the world
• No real relative system level structure change
despite large decreases in container cargo
dues as well as export automotives
• Significant cross-subsidisation from cargo
owners towards primary exporters and vessel
owners persist.
20www.portsregulator.org

21. Vessel costs remain relatively
cheaper
• All vessels face much lower overall costs in RSA ports than
the averages in the study, ranging from 32% below the
global norm in the case of containers and 75% for iron ore
• real price decrease in the 2013/14 tariff year resulted in a
relative increase of the discount to the global average.
• The depreciation of the South African Rand by 16.7% for
the period also contributed to the decrease in the dollar
price.
• The incidence of the tariff clearly indicates that foreign
users of the ports are not contributing to the overall
infrastructure costs in a similar manner than they do in the
global average.
21www.portsregulator.org

22. Containers and Ro-Ro Prices much
higher than bulk
-50.03
-9.81
874.20
743.76
-57.76
-34.04
542.43
588.79
-200
0
200
400
600
800
1 000
Coal Iron Ore Containers Automotives
Premium/
Discount
%totheglobalaverage
Commodities
2012/13 2013/14
22www.portsregulator.org

23. Transhipment below global average
$14.31
$0.00
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
Tariffs
(US$)
Port
CargoDues per TEU Transhipped (export, full)
23www.portsregulator.org

24. TPT tariffs remain high
$140 707.02
0
50 000
100 000
150 000
200 000
250 000
300 000
Valencia Durban Cape Town Colombo Port Louis Valparaiso Kaohsiung Klang
Northport
Terminal
Johor Houston Jawaharlal
Nehru
Laem
Chabang
Chennai Vladivostok
Tariffs
(US$)
Port
24www.portsregulator.org

25. What can we conclude from this?
• High levels of cross-subsidisation in the port system remain a
concern.
• The Regulator has started to adjust the tariff book within the
parameters of the Revenue Required methodology applied in
the tariff setting process.
• This has started to bring about some normalisation- much
more is required and current Tariff Strategy process will take it
further.
• South African “Free on Board” (FOB) export and “Cost,
Insurance and Freight” (CIF) import predominance in
concluding international trade contracts ensuring that the
bulk of the port charges liability lies with the South African
party, South African container cargo owners continue to carry
the greatest burden of the transaction.
25www.portsregulator.org

26. Tariff Strategy
• Must address the anomalies and imbalances in
the tariff book.
• Establish a more equitable and fair allocation of
costs
• Determines the slicing of the cake-not the size
• Close cooperation with the NPA
• Will include comprehensive public consultative
process
• May start to take effect from 2016/17
www.portsregulator.org 26

27. Status Quo/Problem Statement
• Lack of a clear set of principles and rules to be applied in determining the
individual tariffs for the various services and facilities, especially where
deviating from a baseline tariff;
• Lack of clarity and transparency regarding all operating costs, expenses
and revenues incurred or generated from a specific service, facility or land,
as well as the value of the capital stock related to such services, facilities
or land;
• Lack of explanation for differential tariffs for different commodities using
the same handling classification;
• Lack of information detail with respect to services or facilities pricing and
cost relationships, making it impossible to determine where and in which
direction subsidisation takes place or if it does not;
• Lack of information on how the tariff structure promotes access to ports
and efficient and effective management and operation of ports.
www.portsregulator.org 27

28. Status Quo/Problem Statement
• Very high tariff levels for cargo dues resulting from the migration from the
old wharfage charge, which was calculated on an ad-valorem basis
depending on the value of the cargo;
• Very high differentials in the levels of cargo dues for different cargo types
and commodities with no clear motivation for the differences;
• Relatively low tariff levels for maritime services, which are based on an
activity-based costing exercise conducted during the tariff reform of 2002
and that has since not been updated, resulting in the subsidisation of most
services;
• Relatively low and unevenly distributed levels of revenue from the real
estate business based on the asset value and benefits derived from being
in the port system
www.portsregulator.org 28

29. Tariff Strategy Approach
www.portsregulator.org 29

30. Asset allocation
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Cargo
owner,
60%
Shipping
Lines,
18%
Tenants,
22% Cargo
Owner
35%
Shipping
Lines
36%
Tenants
29%
The new asset allocation results in the following changes in required revenue per user
group.
Current Proposed

31. Cargo Dues – Global Port Pricing Study
The GPPCS produced by the Ports Regulator for the past three years shows that cargo dues, collectively,
are higher than global ports but, importantly, that container and automotive cargo dues are substantially
higher than dry bulk cargo dues (which are slightly below the global average).
www.portsregulator.org 31
743.76
874.20
-50.03
-5.28
588.79
413.39
-57.76
-34.04
541.00
388.23
-59.70 -45.63-90
110
310
510
710
910
Automotive Containers Coal iron ore
Deviation
%
Commodities
2012/2013
2013/2014
2014/2015

32. Cargo Dues Cost Contribution
www.portsregulator.org 32
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10
Costcontribution
Containers
Dry bulk
Liquid bulk
RoRo's
Break bulk
Individual cargo dues will be rationalised over ten years from a commodity based cargo due to a cargo handling
type cargo due. This is reflected in the graph below. Cargo dues are allocated according to the number of vessel
calls per cargo handling type.

33. Cargo Dues change in Required Revenue
www.portsregulator.org 33
3.9%
9.0% 9.1%
18.0%
60.0%
7.7% 7.5%
9.5%
29.7%
45.5%
0%
10%
20%
30%
40%
50%
60%
70%
Break bulk RoRo's Liquid bulk Dry bulk Containers
ContributiontoRequiredRevenuefromCargo
Current distribution
Target distribution

34. Marine Services Cost allocation
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26%
31%
12%
6%
7%
4% 5%
0%
5%
2%
14%
32%
10%
4%
4%
8%
6%
1%
14%
6%
Port Dues
Tugs
Pilotage
VTS
Light Dues
Berthing
Ship Repair
Floating Crane
Networks
Facilities
The proportions of revenue recovered from various marine services will
change under the tariff strategy in the following ways. Changes are a
result of a more accurate reflection of the underlying cost of each
service.

35. Strategic approach to cross-subsidies
www.portsregulator.org 35
Potential Cross-subsidies arising from historical
pricing
Tariff strategy approach
Cargo owners are subsidising other user groups
such as vessel owners, and tenants.
A new asset allocation that results in an infrastructure cost reflective tariff
proportional to the benefit each user group derives from the infrastructure or
service provision. See sections 2 and 3.
Container and automotive cargo owners pay
more than dry bulk cargo owners on a global
comparator basis
Similarly, infrastructure is costed according to benefit derived from each cargo
handling type – this is calculated by weighting total revenue required from cargo
owners according to the number of vessel calls per cargo type and is then
divided by total volume to get a per unit cost. See section 4.1.
It is still to be determined whether lessees are
being subsidised (i.e. paying less than market
value for their land) and whether some lessees are
subsidising others (i.e. paying unequal or unfair
tariffs).
The Regulator will start to actively monitor rental prices to ensure that two
pieces of land with similar characteristics are not being charged radically
different rentals. Furthermore, the Regulator will endeavour to determine the
market value of port land as part of its asset valuation exercise. See section 4.3.
Port users of a particular port subsidising users in
other ports, through a system wide tariff book
approach.
System-wide pricing will remain in order to reduce the risk placed on any single
port user; however, the tariff book is to be rebalanced and direct user charges in
certain instances may be introduced. See section 2.3.
Port users subsidise fledgling port-related
industries and other national policy
initiatives/government objectives.
Discounting certain infrastructure for identified port users in order to achieve
national objectives of economic growth and inclusion will remain. See section
5.
Use of port revenue/profits for non-port
purposes.
This is outside the scope of the tariff strategy
Port users of the same category or user group
paying lower tariffs than similar users through
differentiated tariffs or discount structures.
All discount structures are to be removed from the tariff book. Tariff
rationalisation will result in a gradual move towards consolidated tariffs that will
include the removal of any discount structure currently in place. Certain built-in
incentives and discounts will remain, mainly related to coastwise shipping and
transhipment etc. See section 5.2 for further information.

36. Port users’ role critical in considering
and supporting the following...
• NPA Port Development Framework Plan
(medium to long term planning)
• Annual Capex plan and expenditure trends
(projects)
• Volume: Trade and vessel traffic
• Port productivity and performance
(infrastructure and marine performance)
• Operators Performance Standards
www.portsregulator.org 36

37. Operationalised just over 3 years ago, PCCs
maturing and gradually improving in:
• Advising Minister of Transport
– Varying levels of success in changing sequencing/scheduling of Capex by NPA
• Assessing and/or supporting Capex programme/infrastructure
– Improved engagement with Capex programme, though there is room for
improvement
• Defining efficient terminal and marine operations indicators and
holding NPA to account on these
– KPI subcommittees being established and/or operationalised to define terminal and
marine operating standards against which NPAs performance will be measured at
port level.
• Submissions on NPAs tariff application
– Through NPCC, port users’ collective submission on the NPAs tariff application are
processed. Have to date been instrumental in interrogating components/ elements
of the NPAs application www.portsregulator.org 37

38. 38
Ke ya leboga Ke a leboha
Ke a leboga Ngiyabonga Ndiyabulela
Ngiyathokoza Ngiyabonga
Inkomu Ndi khou livhuha
Thank you Dankie
Go to http://www.portsregulator.org for documents
including Records of Decision, Regulatory Manual,
consultation submissions and reports, Draft Tariff Strategy
and other useful documents
www.portsregulator.org