NATIONAL PORTS BILL NCOP 25 MAY 2005

1. Department of Transport NATIONAL PORTS BILL NCOP 25 MAY 2005 1

2. BACKGROUND KEY DRIVERS FOR CHANGE VISION OF THE COMMERCIAL PORTS POLICY OBJECTIVES OF THE POLICY INSTITUTIONAL ARRANGEMENTS EXISTING CHALLENGES CONTEXT OF NP BILL CURRENT STATUS OF REVISED BILL FUNCTIONS OF THE REGULATOR FACTORS CONSIDERED FOR FLEXIBILITY OF NP BILL OUTLINE OF PRESENTATION 2

3. BACKGROUND • The White Paper on Commercial Ports Policy was developed with the following policy objectives: • Increase levels of investments in ports and its related infrastructure • Improve efficiencies in port operations • Introduce competition in certain port operations • Divisionalization of Portnet into SAPO and NPA. Stemming from this process was the tariff rebalancing which sought to set tariffs that were internationally competitive and affordable. The Commercial Ports Policy coincided with this process. • The current NP Bill seeks to give effect to key provisions of the Commercial Ports Policy 3

4. When benchmarked against countries such as Rio de Jeneiro; India and Columbo, it has been found that SA ports are subject to: Low productivity levels Slow ship turn around time Under investment in port infrastructure, superstructure and equipment Reservations towards Transnet playing the role of both landlord (NPA) and port operator (SAPO), ie Referee and Player within one parent body KEY DRIVERS FOR CHANGE 4

5. South African Ports are facing multiple problems: Fast growing trade volumes which has resulted in an increase in port traffic Changes in global trends has resulted 95% of cargo being carried in containers – congestions at the Durban Container Terminal (DCT) South Africa’s macroeconomic policies advocating the shift towards an export market All of the above has resulted in our Ports not being able to respond to the growing demands in international trade and this resulted in our ports holding back the growing of our economy due mainly to: Congestions being experienced at the Durban Container Terminal Cost in the form of surcharges are incurred Under investments in infrastructure, superstructure and equipment which contributes significantly to slow ship turnaround time All of which create a negative environment for any foreign country seeking to engage in shipping trade with South Africa KEY DRIVERS FOR CHANGE-continued 5

6. For South Africa’s commercial ports to be globally competitive, safe and secure, operating at internationally accepted levels of operational efficiency, in a manner that supports the objectives. NP Bill will create an NPA as a Landlord Authority with the following functions: Ownership (of all land and immovable assets) Management of landlord fucntions The development of SA ports in terms of infrastructure investments Corporatized as a subsidiary of Transnet, and When Transnet’s balance sheet permits to create NPA into a State Owned Enterprise. VISION OF THE COMMERCIAL PORTS POLICY 6

7. Amongst others, the Commercial Ports Policy seeks to: Ensure affordable, effective and efficient port services Encourage fair competition Improve infrastructure and service levels Establish appropriate institutional arrangements and legislation to support the governance of ports Promote international competitiveness and thereby increase international trade Promote Black Economic Empowerment and SMME’s. POLICY OBJECTIVES 7

8. Establishment of the National Port Authority Establishment of the Independent Port Regulator Separation of the Port Authority and Port Operation functions INSTITUTIONAL ARRANGEMENTS 8

9. Skewed prices in port services Misallocation of port revenues NPA being a landlord and regulator and SAPO being the operator – all under the same holding company = Transnet Monopolistic private sector terminals Inefficiencies in current port operations which impact significantly on ship turn around time EXISTING CHALLENGES 9

10. CONTEXT • Current situation: • NPA, as a subsidiary of Transnet is both landlord and regulator – gives rise to inherent conflict between the two roles • Transnet cross subsidizes from port revenues its other businesses not relating to ports • NP Bill: First Tabling (as NPA Bill) • Sought to achieve the introduction of the Independent Ports Regulator, with the main function of regulating the relationship between Transnet and NPA – key to unlocking investment • To corporatize the NPA within Transnet within a specified period of 3 yrs • To reposition the NPA as a public company owned by the State 10

11. CONTEXT – continued… • First version of the Bill – mandatory clauses to corporatize the NPA and take it out of Transnet. • Revised Bill still maintains the mandatory clause for NPA to be corporatized but it now allows flexibility for the formation of a public company outside of Transnet. • In the event of NPA corporatizing: • Next Step for NPA: To corporatize while still remaining within the Transnet stable = National Ports Authority (Pty) Ltd • End State: Shareholding Minister and in consultation with the Minister of Transport may take the necessary steps to convert the (Pty) Ltd company into a limited company outside of Transnet 11

12. Basis behind the changes in the first version of the NP Bill: Transnet’s financial position was a concern which government took into account Backlog in infrastructure investments To minimize potential monopolistic behaviour Grow the ports sector in light of the growth in import and export markets Socio-economic developmental aspects of ports CONTEXT – continued… 12

13. CURRENT STATUS OF REVISED BILL • Corporatization of NPA: To take place as follows: • Within Transnet as a (Pty) Ltd company • As a public company outside of Transnet within an unspecified period • The position of the regulator thus had to be strengthened in order to accommodate the corporatisation of the NPA within Transnet. • Revised Bill therefore allows for a greater flexibility as the requirement to form a public company outside of Transnet. 13

14. FUNCTIONS OF THE REGULATOR • The main functions of the Regulator as laid out in the NP Bill are to: • Exercise economic regulation of the ports 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 Authority to ensure that it performs its functions as prescribed by the Act There will be no overlapping of functions with the NPA. 14

15. FUNCTIONS OF THE REGULATOR VS FUNCTIONS OF NPA • Current regulatory framework as contained in the Bill is sufficient and there are no duplications of powers eg. Tariffs will be considered by the regulator as proposed by the NPA • Regulatory functions will be carried out by the regulator once it has been established. 15

16. FACTORS CONSIDERED FOR ALLOWING FLEXIBILITY IN REVISED BILL • Backlog in infrastructure investments • To minimize potential monopolistic behaviour • Grow the ports sector in light of the growth in import and export markets • Government recognizes and appreciates the present status of Transnet’s balance sheet, but these challenges cannot disappear within a short space of timesuch as 3yrs • Socio-economic developmental aspects of ports 16

17. CONCLUSION Government would like to move with great speed in finalising this Bill for the following reasons: • Approval will give the finalisation of the legal framework for the establishment of the regulator and its functions. • This legal framework will provide certainty to the South African economy and to Transnet. • Approval will ultimately lead to the doors of opportunity being opened to broad based black economic empowerment and social development. 17

18. Department of Transport Thank you 18