Independent Ports Regulator 2019/20 Annual Report

Meeting report

Mr Zolani Kgosietsile Matthews, Chairperson of the Ports Regulator, offered a brief introduction into the role and history of the Regulator before handing over to the Ms Jowie Mulaudzi, Executive Manager: Industry Development, and Mr Thokozani Mhlongo, the Chief Financial Officer (CFO), to do the presentation.

The presentation comprised the following:.

• Mandate
• Alignment with national strategic objectives
• Role and functions of the Accounting Authority 2019/20
• Governance
• Audited Organisational Performance
  • Key projects and achievements
• Financial management

The Ports Regulator achieved all its 27 performance targets for the financial year 2019/20. These were under the following strategic objectives:

• the running of an efficient administration system
• the ongoing improvement of economic regulation of ports
• engaging stakeholders and monitoring the provision of infrastructure and facilities
• operating an effective and efficient tribunal to hear complaints and appeals
• ensuring good governance and sustainability of the organisation

Key projects and achievements were highlighted which will improve the efficiency of the ports; positively affect the SA Economic Recovery as well as ensuring adequate preparation for the Single Transport Economic Regulator (STER) [as envisaged in the Economic Regulation of Transport Bill, B1-2020].

• Appointment of Executive Managers for Industry Development and Policy, Strategy and Research.
• Tariff record of decision with below inflation, average fixed tariffs; treatment of the National Ports Authority (NPA’s) Regulatory Asset Base which accounts for the entity’s needs with respect to its corporate structure and the implementation of section 3(2) of the National Ports Act on corporatisation of the NPA.
• Stakeholder feedback and inputs on the third Multi Year Tariff Methodology (three year) consulted in February 2020, approved and published in March 2020 to be applied from the 2021/22 tariff period. Tariff Methodology widely supported by stakeholders.
• Publication of the updated Tariff Strategy that reflects the revalued Regulatory Asset Base.
• Implementation of the Weighted Efficiency Gains from Operations (WEGO) to ensure that the tariff process incentivizes more efficient operations
• Assessment and review of the National Port Authority (NPA) CAPEX to ensure that problems with under expenditure are identified, interventions are planned and implemented and the NPA is held accountable for the effective expansion and development of the port system. This information is used in bilateral engagements with the NPA, Ports Regulator Annual tariff consultations (Johannesburg, Durban, Port Elizabeth and Cape Town); the Port Consultative Committee Meetings; and PCC Roadshows with Industry role players in each of the port cities (Richards Bay, Durban, East London, Port Elizabeth, Ngqura, Mossel Bay, Cape Town and Saldanha Bay).
• Section 30(5) reports to the Minister of Transport on Broad-Based Black Economic Empowerment (B-BBEE) focused on compliance of the NPA with the 2009 Regulations, recommendations for the appointment of the B-BBEE Council which must adopt the Maritime Transport Score Cards and set transformation targets and for amendments of the Regulations to drive transformation.
• All these issues will be attended to whilst the Regulator still continues with its other ongoing analytical, tribunal and compliance work.

The following challenges were faced by the Regulator in executing its mandate:

• Budgetary constraints to expand its mandate and form the nucleus of STER as required in the Transport Economic Regulation (TER) Bill.
• Need to strengthen the Regulator’s powers within the Act as well as enable a new self-funding model that reduces fiscal reliance– Ports Act amendments required to be passed or enactment of the TER Bill which addresses both challenges and will allow for the Ports Regulator to be capacitated ahead of the establishment of the new STER.
• New funding model as per legislative amendments is required to capacitate the Regulator and implement programmes successfully and sustainably. Funding model needs to be in alignment with the STER.
• Capacity – the 22/27 organogram posts filled (2019/20) is too small for the magnitude of the task, as compared to other SA Regulators. The previous Regulator (board) recommended an establishment of 60 people to the Minister of Transport. Ministerial approval is awaited.
• Previously, absence of a Regulator (board) had negative impact as Tribunal function had to be suspended due to lack of Regulator Members. This was addressed through interim Board appointments.
• Employment contract of the CEO expired on 20 April 2019, former Minister Nzimande extended the contract up until 31 October 2019 and Minister Mbalula extended the contract for a 1 year period until October 2020.

Discussion

The Chairperson thanked the organisation for the presentation and asked if there was anyone from the Department of Transport (DOT) to provide some reflections on the challenges raised by the Regulator.

Mr Senzo Thwala (Department of Transport) commented that the issue of funding was not clear to the Department as 1) the Department has put back the base line which the Regulator asked for. 2) In terms of the CEO and their appointments, the entity now has a substantive CEO and a full complimentary board.

The Chairperson invited the other Members to engage with the presenters.

Mr T Brauteseth (DA, Kwazulu-Natal) enquired about reports in the media with regards to the pressure from Transnet on the Regulator in 2020 to increase tariffs by 19.74%. He would like to hear the Regulator’s input, in the context of the budget speech (occurring on that day) and the current fiscal environment. Did the Regulator once again expect to be pressured by Transnet in 2021? In his second question, he asked if the Regulator feels that Transnet should be transferred back the Department of Transport, as maybe that will create more synergy between the Regulator and Transnet. Essentially he was asking the Regulator where it feels the home of Transnet should be. In his final question, he queried the backlog of imports and the queuing of ships at ports.

Mr M Rayi (ANC, Eastern Cape) asked about the Auditor-General’s comments, when looking at the financial report with regards to procurement and contract management. The Auditor-General (AG) says a goods and services transaction of above R500 000 was procured without inviting a competitive bid and a deviation was approved by the accounting officer without obtaining prior written approval from the relevant treasurer. Why did this happen? With regards to consequence management, the AG was unable to acquire audit evidence that discipline was taken against the officials. The report says that the disciplinary steps were taken against the CFO, but what the report doesn’t say is what the sanction for this misconduct was. The report blames the leadership of the institution with regard to internal control deficiencies. There is a section that says leadership did not exercise adequate oversight on non-compliance with the laws and information relating to the consequence management and procurement and contract management. He asked for comments on the ratings about the efficiency, effectiveness, responsiveness, neutrality, and independence of the Regulator. There seemed to be a regression in the efficiency and effectiveness with regards to the ratings.

Mr Rayi said that, with regard to funding of the Regulator; the CFO mentioned that they get their grant from the government. But in the statement [slide 26] it says that they also get income from the interest. But if you look at the National Ports Act, it says fees come from filing of complaints or appeals. But in the financial statements, the fees did not appear. Why is this case? How many appeals had the Regulator received, and if there are any complaints against the NPA, how has the Regulator dealt with the complaints.

Mr Rayi asked how the performance indicators were determined, as they are broken down into Human Resources (HR), IT and finance, without alluding to what the financial or HR targets were. Such as in HR for example; it states how many women were employed but fails to state how many were in senior management structures. The key indicators are not stipulated.

Ms S Boshoff (DA, Mpumalanga) asked about the 27 positions that the Regulator want to be increased to 60, and whether, given the current financial situation, it was feasible. Has the Regulator followed up on getting the approval from the Minister? Also, was anything done to capacitate the youth so that they can apply for any vacancies? She also had problems with the disabilities because we do not see anything referring to people with disabilities. She noted that the employment is 89% to 11% black to white, but what about the other races? Can the Regulator indicate how many staff members benefited from further studies and what the cost to company was?

Ms M Moshodi (ANC, Free State) asked the chairperson of the Regulator on the issue of gender parity among the nine members of the board. How many women are represented?

The Committee Secretariat read out a question from Ms B Mathevula (EFF) as she struggled to connect: she asked what the Department‘s plan is in enforcing gender equality in the work place? Especially in the employment of the interim board which is dominated by males. What is the Regulators plan in implementing and promoting intercontinental service in ports? On the three vacant positions that are not funded, what is to be done about it? And what is to be done about assisting people with disability as the report says nothing about this.

The Chairperson asked about the beginning of the presentation, under the outcomes in alignment with the nation, the referral to transformation and the submission of report on port sector to the minister (Slide 4), and if the Regulator can tell the Committee more about what this report entails.

A second question related to the point raised about rental leases and the access to ports. Drawing on the case of rail, there has always been a challenge with regard to emerging mining players gaining access to rail as it is dominated by two players. What is the situation with the access to ports? Is it the same as rail? And what is the profile with regard to port leases?

Responses

Ms Mulaudzi responded to the question regarding whether the Regulator expects that Transnet will put pressure on the Regulator in terms of tariff application that is due in August 2021. She said the tariff methodology that had been referred to guides the Authority on how it should apply for the required revenue from the Regulator. The 19.74% tariff increase that was applied for in the previous financial year was based on their interpretation and application of the tariff methodology. The Regulator’s decision however, was based not only on the tariff methodology but taking into account our prevailing economic conditions, on how to respond to the pandemic as well as the application of the savings facility spoken about. The role of the Excessive Tariff Increase Margin Credit facility (ETIMC) (slide 4) is to ensure that when we need higher tariffs, we can use the ETIMC to reduce it. The expectation is that they [NPA] will put in an application that takes into account the effects of Covid on their ability to raise revenue during this financial year. Following what has been outlined, the Regulator should be able to, when applying the methodology as well as the ETIMC, come to a decision that is in line with the adopted position. By and large the tariffs must be under inflation.

Ms Malaudzi said the representative from the Department was better placed to respond to policy questions, such as whether Transnet should be under the Department of Transport. The Regulator is a creature of statute, implemented by positions taken by the state. So far as this is concerned, the location of NPA within Transnet and the need for it to be corporatised is a policy decision that government has taken that is reflected in the White Paper on Commercial Ports policy of 2002 as well as the National Ports Act of 2005. As Members note, this has not been fully implemented, and it would be easier for the Regulator to undertake its work with an NPA that is a [separate] subsidiary of Transnet as opposed to an [internal] division. The regulator is supporting the Department with technical work to ensure that the NPA is accordingly corporatized, but the location of Transnet between the departments responsible for transport and public enterprises, is a matter that should be responded to by the DOT.

The Regulator has instituted bilateral meetings with the National Ports Authority so that they report to the Regulator on a regular basis on the backlogs and the congestion at the ports. In that context, the Regulator understands that the congestion during Covid affected the ports of Cape Town, Durban and the Eastern Cape because of the higher levels of infection in those respective locations. They have implemented measures to address the congestion and allow the Regulator’s participation in port consultative committees, where port users provide feedback on how the NPA is handling matters in ports. The respective port users have appreciated that although there was a slow start in the responses from the Authority, they were ultimately happy with how the congestion was responded to and addressed. It should also be highlighted there are vessels that seek shelter in our anchorages. They are viewed as congestion, however, they are not waiting to enter our ports.

In response to the questions from Mr Rayi, in relation to the regression of the customer satisfaction rating of the Regulator, as covered in the annual report; by and large, the feedback received from port users through the surveys submitted to the Regulator shows that there is a high level of approval of the work done by the Regulator, which is why on average the rating of the six year period has been 80% and above. These surveys are undertaken so that the stakeholder engagement programme is addressed by an understanding of the issues that port users raise and where they want the Regulator to focus its attention. In this regard, the area that received a lower rating is on the responsiveness of the Regulator. The fact that there were no members of the board and there was not a hearing panel during the year under review also meant that the Regulator could not respond fast enough to the issues of the port users. And, as highlighted in the presentation, the current board has prioritised tribunal functions, both in terms of the activities has undertaken since they took office in June 2020 as well as the budget. And within 4 to 5 months of starting work at the Regulator, they had already dispensed of a matter and are facilitating another matter.

The Regulator will take Members comments surrounding the breakdown on the administration program as something that needs to be seen into. In future reporting the Regulator will ensure that a breakdown is provided.

10% is the government threshold in terms of vacancy rates. On this particular question, there is an approved staff complement of 27 posts of which 22 are funded. Out of those funded positions, the vacancies have been filled the vacancies as soon they arose. The challenges are that the capacity itself is not sufficient enough to address the mandate of the Regulator. Members had asked whether, in the current financial situation, it is feasible to fill the 60 positions needed. There are engagements with the Department and a determination will be made on how many of the additional posts can be filled. What is clear from the Regulator’s side is that the current situation is becoming untenable, in that a corporate services department, as an example, comprises the CFO who doubles up as the corporate services manager. He is supported by a specialist who is responsible for HR, supply chain management and IT. There are two people that provide the general support. This flies in the face of recommendations of the National Treasury in terms of a fully functional financial management. These are the positions that the Regulator would like to prioritise given the current financial situation.

The CFO had highlighted that there have been surpluses that the Regulator has applied for retention with the National Treasury and the plan is that if [retention of] those surpluses are approved, the Regulator can fill the priority positions necessary for the organisation. Ms Mulaudzi said there was ongoing follow up to this. There was a session Mr Thwala, who was present in the meeting, representing the Minister of Transport. This ensured the Regulator that they are following up in getting feedback from the Department.

In terms of capacitating youth to apply for positions, from the inception of the Regulator the capacity had mainly been built from within. When looking at the current specialities, almost all of the staff came in as interns. The Regulator structured an internship program where young people are identified from universities, given a three internship opportunity which remunerates slightly higher than other internships, and they have been absorbed into the organisation. The last absorption happened at the end of the 2019/2020 financial year where two interns are now part of the organisation. When feasible, interns are identified and trained when the opportunity presents itself.

The Regulator had to accept that it had no developed program to identify and accept people with disabilities. That is an area that needs to be addressed. However, when positions are advertised, it is stated that the organisation welcomes applicants with disabilities. The current building the organisation occupies is disability friendly.

On the breakdown of black employees, that term included coloured and Indian. The CFO would respond in terms of actual numbers.

The interim board for period under review, which was 2019/20, had to comprise members that were familiar with work of the Regulator and who only served one term. This was an important period because there was limited time left for approval of tariffs. That was what resulted in the gender profile of the board as seen in the annual report. In terms of the board appointed by the Minister in June 2020, six of the ten members are women. The issue of gender parity is being addressed at board level for the Ports Regulator. In terms of the staff compliment, there are more women at the Regulator. The new appointments made during the current financial year included two senior managers, both of which are women.

The Regulator is in alignment with government objectives. Members requested an appreciation of what was covered in the section 35 report to the Minister of Transport in relation to transformation in the port sector. Ms Mulaudzi said a copy of the report can be made available to the Committee. From a capacity point of view, the Regulator was only able in 2017/18 to start a project to determine B-BBEE compliance across the different sectors that the authority is responsible for. This report focused mainly only terminal operators. The overall finding is that there are variable levels of transformation in the system. When looking at terminal operations, where companies that are required to participate in that space must have capital, know-how and so on, levels of participation by B-BBEE empowered companies; levels of black ownership, women ownership, are very low. However in the space of licensing of port activities around bunkering, provision of services in the port space, there is over time, an improvement in terms of transformation when using the proxy of black ownership and women participation. However, across the board, the Regulator is not doing well in terms of [encouraging] 51% ownership or participation of companies with 51% black or women ownership. Part of the challenges reflected in the B-BBEE report is the outdated regulations and absence of a private sector participation framework that also defines what needs to be done to open the spaces for black companies in the port space.

In the tariff decision that the Regulator published in November 2020, the Regulator wanted to target the interventions or incentives to Covid19 only to Small, Medium and Micro Enterprises (SMMEs), but also black to owned companies within that category. The challenge that exists at a legislative level was the decision of the Supreme Court of Appeal (SCA), delivered in November 2020, which nullified the Preferential Procurement Policy Framework Act (PPPFA) regulations of 2017 that were beginning to allow entities to target black qualifying small enterprises (QSEs). However, through interactions with the B-BBEE Commission, it has become clear that the NPA should be applying to the Minister of Trade and Industry to activate section 9 of the B-BBEE Act which allows public entities a deviation from normal supply chain management to address particular objectives, of which transformation would be one.

Commercial leases and licences concerning the ports amount to over 600 agreements that the Regulator has to go through. It is only in the 2020/21 financial year that the Regulator will be reporting on the full analysis on leases and the licenses in the port space. The report for the 2019/20 financial year demonstrates the beginning of the process of the Regulator to open up the space, but because of the capacity constraints, the Regulator was unable to have projects that addressed its full mandate. This is an area that is now being looked into to fully, to understand the leases in the port space.

The Regulator exercises oversight of the NPA on B-BBEE. The Regulator has required the NPA to submit their transformation strategy which includes how they are using the expiry of licenses in the port space to address transformation. There is the example of Island View precinct in the Port of Durban where leases run on a month to month basis because the Regulator had to ensure that transformation was addressed with the renewal of licenses in that space. The project that is being undertaken will assist the Regulator in having a full perspective of what is happening in the rental space and with transformation. This is a project the Regulator will be happy to report on in further engagements with the Committee.

The Chairperson asked the Members and the Ports Regulator representatives if the remaining questions could be answered in writing. All the participants agreed.

The Chairperson thanked the Members and said that the next meeting would also deal with the minutes of the last meeting, which dealt with one of the entities.

The Chairperson thanked all who attended the meeting.

The meeting was adjourned.