Aviation

1. AVIATION TARIFF REVIEW PROCESS AND
METHODOLOGY
REGULATING COMMITTEE FOR
METEOROLOGICAL SERVICES
Climate Change and Air Quality

2. CONTENTS OF THE PRESENTATION
 Purpose
 Introduction and Background
 Overview of RCMS
 Legal and Legislative Background
 Background of Methodology
 Revenue Requirement
 Weighted Average Cost of Capital
 Correction Factor
 EUROCONTROL Formula
 Calculating Service Units
 Tariff Formula
 Proposed Tariffs – 3 Year MTREF
 Annual Calendar

3. PURPOSE
• The purpose of this presentation is to provide and
overview of :
– Multi-year Price Determination methodology for Aviation Tariffs and
Revenue
– Annual Calendar for the Regulatory Process

4. INTRODUCTION AND BACKGROUND
 The Aviation Industry regarded SAWS as a monopoly as they are
the only authorised provider of AMS in RSA
 In 2000, Aviation formally requested that their interests be protected
and that a Regulator be appointed
 The Regulating Committee for Meteorological Services was
established in terms of Section 20(1)(a) of the South African
Weather Service Act (Act No. 8 of 2001) which reads –
 “The Minister must establish a committee, to be known as the regulating
Committee for Meteorological Services.”

5. OVERVIEW OF THE RCMS
 The name of this committee must be carefully noted as this, in itself,
provides some insight into its role and function – i.e. it is the
 “Regulating Committee for Meteorological Services” and not the “South
African Weather Service (SAWS) Regulating Committee”.
 The Regulating Committee must, on behalf of the Minister and civil
society, ensure that SAWS implements its statutory mandate in
respect of the delivery of meteorological services in an efficient,
effective, fair and transparent manner in line with government policy
and legislation.

6. LEGAL AND LEGISLATIVE BACKGROUND
 South Africa, as a member and signatory, is obliged to enforce the
rules and regulations of :
 ICAO (International Civil Aviation Organization), Chicago Convention
 WMO (World Meteorological Organisation)
 The Aviation Industry is governed by “rules and guidelines” from
ICAO and are obliged to use specialised services from SAWS
 SAWS is the sole authorised provider of AMS in South Africa

7. BACKGROUND OF THE METHODOLOGY
 The RCMS uses the Rate of Return (ROR) Regulatory Framework
to determine SAWS’ revenue from the provision of aviation services:
 SAWS generates revenue that is sufficient to fund its operating budget for the
provision of aviation services (only)
 Generate a fair and reasonable return from infrastructure investment into aviation
 Clawback or pass through any losses or surpluses below or in access of budget
 EUROCONTROL Formula is used to determine the actual tariff
 As per ICAO member states

8. REVENUE REQUIREMENT
 RoR formula used to determine the required revenue
R = E + (V-d+w) i + X
 R = Revenue
 E = Operating Expenditure Budget
 V = Carrying Value of Regulated Asset Base (RAB)
 d = Accumulated depreciation on RAB
 i = Expected return on infrastructure investment based on Weighted Average Cost of
Capital (WACC)
 X = Recovery factor

9. WACC
 Uses the Capital Asset Pricing Model (CAPM) to determine a
reasonable return on infrastructure investment
 Infrastructure that is deem essential in the provision of aviation
services included in the Regulated Asset Base (RAB) i.e. –
 Computer Software and Hardware
 Meteorological Equipment
 Infrastructure typically not included in RAB iincluded the following
 Vacant Land
 Head Office Furniture and Equipment

10. CORRECTION FACTOR
 Should there be a shortfall or surplus in the audited financial year the difference is
passed through or clawed back from the industry using the formula below:
X = (E actual – E budget) + (R actual – R budget)+ (RAB actual – RAB budget)
 X = Correction factor
 E = Operating Expenditure
 R = Required Revenue
 RAB = Regulated Asset Base

11. EUROCONTROL FORMULA
 EUROCONTROL Formula:
Charge = W x D x T
 W = Weight (SQRT{MTOW/50})
 D = Distance (KMS/100)
 T = Tariff in Rands

12. CALCULATING SERVICE UNITS
 Service Units are calculated using the EUROCONTROL Formula:
TSU = W x D x f
 W = Weight (SQRT{MTOW/50})
 D = Distance (KMS/100)
 f = Number of flights

13. TARIFF FORMULA
T = R/TSU
 T = Tariff in Rands
 R = Required Revenue (using RoR)
 TSU = Transaction Service Units (using the EUROCONTROL Formula)

14. • RCMS Model Results:
RCMS Observation and Trend Analysis
202 k
205 k
196 k
209 k 209 k
204 k
216 k
199 k
216 k
212 k
205 k
220 k
180 k
190 k
200 k
210 k
220 k
230 k
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
Service Units
Actual Forecast
2,583
k
2,661
k
2,741
k
2,505
k
2,555
k
2,606
k
78
k
106
k
134
k
0 k
500 k
1,000 k
1,500 k
2,000 k
2,500 k
3,000 k
2017/18 2018/19 2019/20
3 Year Projection – Service Units
RCMS Projection SAWS Projection Variance
3.5%
3.0% 3.0%
0.4%
2.0% 2.0%
0%
1%
2%
3%
4%
2017/18 2018/19 2019/20
YoY Growth Projection - Service
Units
RCMS Projection SAWS Projection

15. PROPOSED TARIFF – 3 YEAR MTREF
2017/18 2018/19 2019/20
Projected Operating
Expenditure R128 442 139 R143 429 729 R147 749 975
Capital Allowance R3 983 152 R4 739 339 R5 884 636
Recovery Factor -R1 895 349
Projected Revenue R130 529 942 R148 169 068 R153 634 612
Projected Service Units 2 583 358 2 660 790 2 740 514
Proposed tariff R50,53 R55,69 R56,06
YoY % change in projected
tariffs -5,04% 10,21% 0,66%
3.40%
-5.04%
10.21%
0.66%
-6.00%
-4.00%
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2016/17 2017/18 2018/19 2019/20
Projected YoY % tariffs increase

16. ANNUAL CALENDAR
April May June July Aug Sep Oct Nov Dec Jan Feb Marc
Promulgation
of
the
new
tariffs
1
st
of
the
month.
Review of previous cycle Consultation process
Meeting with
Aviation
industry
Meeting
with
SAWS
Review &
prepare for
consultation
SAWS presents
proposed the
industry for
comments
SAWS presents
proposed tariffs to
RCMS
SAWS
responding to
aviation
comments and
submissions
2nd regulated
stakeholder
meeting
RCMS notice to
stakeholders on
recommendation
to Minister
Submission
to the
minister
Promulgation process