Ports Regulator spells out thinking behind ‘buffer fund’

The SA Ports Regulator has effectively banked an extra R900 million which will act as a buffer for the shipping industry should future tariff increases exceed the levels that the industry can bear. According to the PR’s CEO, Riad Khan, this is added to the R1-billion discount in port charges announced by President Jacob Zuma in his state of the nation address as part of reducing the costs of doing business. How this billion rand discount will be allocated has not yet been revealed by the TNPA, he told FTW, but – according to presidency instructions – it will be provided to exporters of “cars on wheels” (ie, ro-ro transported vehicles) and of full export containers. “It has been done,” Khan added, “to balance out traffic flows – as the imports are much greater than exports in these traffic categories.” What this is leading to is inefficient utilisation of the facilities. This, in turn, increases the rate at which new facilities need to be built, when they could be delayed by better utilisation resulting from increased efficiencies – which, at the same time, could reduce the tariff increases. On the allocation of the R1-bn discount, said Khan: “We need an exact number from the TNPA before April 1 – to give industry time for planning. That is, how much discount for a full box and how much per car on wheels.” To account for the use of the billion rand, the TNPA is going to have to provide the regulator with an account by the 15th day of every month, commencing May 15, 2012 to April 15, 2013, for the year-to-date utilisation of the rebate – or until such time that the total billion rand has been rebated, according to Khan. At the submission of the next tariff application, the TNPA will have to provide an independent audited opinion on the amount of the total rebate provided under this programme over the 2012/2013 tariff year. But, at the same time, the regulator has retained that R900 m of the R1.44 bn clawback from the TNPA – and that will be held in the TNPA’s excessive tariff increase margin credit (ETIMC). This R900-m retention is considered “prudent”, said Khan, and will be used to offset against “future large, but justified, tariff increases resulting from the capital expenditure spikes envisaged, but not as yet articulated to a level of granularity and phasing that allows accurate prediction”. And, in the event that the regulator is required to grant “an excessive annual tariff increase that would impact very negatively on the industry by a rapid escalation of pricing”, it will utilise the credit in phasing in tariff spikes over a longer period of time to allow industry to adjust to such an increase at a more sustainable rate. This, according to Khan, is probably best instanced in the expected R100-bn budget for the new digout port in Durban. It is likely to require justified but large tariff increases in the years leading up to the port’s completion, and then lessening amounts until it is able to earn its full expected income. The regulator considers this “smoothing” critical in light of the lumpy nature of port infrastructure, and it will be adjusted to suit the situation. “For purposes of clarity,” Khan added, “the regulator shall retain the ETIMC inside of the TNPA….and it shall automatically increase every year that it is not utilised…. “The regulator may, if it deems it prudent, increase the value of such ETMIC if the circumstances require….” On the other hand, if medium- to long-term clarity is provided on the capital expenditure programme and its phasing – and the ETIMC is considered to be greater than that which is required for the smoothing of tariffs over reasonable periods – the regulator may decide to reduce the ETIMC or retain it at its then current level.