South African Port Operations Restructuring

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South African Port Operations Restructuring

• Meeting Portfolio Committee on Public
  Enterprises
• Venue M201
• Date 17 September 2003

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• Part 1
• Vision and rationale for restructuring of South
  African Ports

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Contents

• Background
• Institutional Context
• Principles of an Accelerated Agenda for
  Restructuring of State Owned Enterprises
• National Transport Policy
• Drivers for Change
• Commercial Port Policy
• Rationale for Port Reform
• End-state of S.A. Port System
• Effects of Concessioning

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Institutional and Policy Context

• Policy Framework Accelerated Agenda for the
  Restructuring of State Owned Enterprises August
  2000
• Government and Labour engage on restructuring of
  SOEs via National Framework Agreement of 1995,
  reaffirmed July 2001
• National Transport Policy
• System to provide reliable, effective, efficient
  integrated transport operations and
  infrastructure to best meet needs of Freight
  Passenger customers at improving levels of
  service and cost in a fashion which supports
  government strategies for economic and social
  development in an environmentally economically
  sustainable manner.
• Ports recognised as critical key nodes in the
  Transport system
• Urgent need to induce competition in sector
  resolve Bottlenecks

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Drivers for Change

• South Africas ports system faces multiple
  challenges as a result of
• Fast growing trade volumes, and
• Global trends in transport economics driving
  structural changes. 95 of worlds general cargo
  transported in containers
• The ports system must support broader economic
  policy goals i.e
• Maintaining and enhancing export competitiveness,
  and
• Promoting broad-based economic growth
  (multi-sectoral growth, effective import
  processing, expanding the foreign sector).
• South Africas port system must address these
  challenges despite
• Remoteness of South African ports from major
  markets, and
• The distance of South Africas manufacturing
  centres from ports

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Drivers for change cont.

• South Africa is facing
• Strategic challenges of becoming a sucessful
  economy increasing the welfare of current and
  future generations.
• Tactical challenges in building coherence across
  supply chain communities to drive effective
  logistics.
• A myriad of operational problems in SAPO
  terminals, especially containers. Low
  productivity, slow ship turn around, deferred
  investments resulting in incapacity to meet
  shipping service demands
• South Africas ports system must address these
  challenges urgently if economic growth and
  development objectives are to be sustainably
  realised.

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Policy Context for Port Reform

• Articulated in the White Paper on National
  Commercial Ports Policy, March 2002
• Vision
• A system of ports, seamlessly integrated in
  the transport network, that is jointly and
  individually self-sustainable through the
  delivery of high levels of service and increasing
  efficiency for a growing customer base, enhancing
  South Africas global competitiveness and
  facilitating the expansion of the South African
  economy through socially and environmentally
  sustainable port development.

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Commercial Ports Policy white paper March 2002

• Principles
• National needs, aspirations and requirements will
  be of primary consideration
• Regulation should be kept to a minimum w/out
  compromising national aspirations
• Participants in the market should be treated
  equally and fairly
• The principle of user pays or cost recovery,
  benchmarked against international best practice
  to ensure that the costs are globally competitive
  to be applied as far as possible, including
  appropriate returns.

• Goals Objectives
• Invest in port infrastructure
• Ensure safe, affordable, efficient port services
• Encourage fair competition based on transparent
  rules applied consistently across port/transport
  system
• Ensure cost effective efficient port management
  and operation
• Promote development of efficient, productive SA
  port industry capable of competing
  internationally
• Promote BEE SMM Enterprises

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Key Distinguishing Principles of the Policy

• Commercial ports fall within the competence of
  National Government and its structures
• A National Ports Authority will be established
  with landlord and control functions. In time it
  will become a stand-alone SOE
• Port property will remain in public hands
• Operational responsibility will be transferred to
  specialised private operators
• An Independent Port Regulator will be established
• DPE is responsible for port reform and
  restructuring
• Foregoing leads to
• Restructuring model of private sector
  participation in operations via concessions that
  retain public ownership and transfer operational
  and investment risk to private sector

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Rationale for Port Reform

• Crticical role of ports
• Previously gateways to nation/region
• Now platforms for dynamic integration into world
  economic system
• Transport users select ports on cost, service and
  movement
• Efficient ports support trade leading to economic
  growth
• Global competition in the broadest sense compels
  port stakeholders to asses whether institutions
  and operations are meeting demands of changing
  trade environment

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Critical influences on ports globally

• Global trade trends
• Changing role of ports as economic centers
• Ports compete locally and globally
• Poor offering will turn away trade
• Drivers for change in port sector
• Globalisation of production
• Changing technology
• Bargaining power of buyers and suppliers rise of
  global terminal operators
• Changing distribution patterns

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Rationale for Port Reform in South Africa

• Departs from economic policy of infrastructure
  and services to support growth and development
• Governments vision, mission and strategic
  objectives for Transport Sector Policy
• Carried into National Ports Policy
• To increase productivity and trade performance
• To provide port users with more efficient and
  higher quality services (JIT, rapid technological
  innovation, competing trade routes)
• Improve infrastructure
• Improve service delivery
• Improve skills of port staff

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Rationale for Port Reform in South Africa

• Mobilise private sector investment to meet
  capital requirements in terms of customer demands
• Reduce public sector debt burden, raise
  efficiency of public sector fixed investment
• Improve service delivery (higher efficiency at
  lower cost)
• Modernise SA port system to be globally
  competitive in terms of planning
  operations,systems and structures
• Leads to private sector participation in
  operations via concessions that retain public
  ownership and harness private investment and
  initative into port system

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End state of South African port system
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Proven Effects of Concessioning
Moves per crane hour after privatization Moves per crane hour before privatization
Dar es Salaam 20 14
JNPT, Indian 26 15
Chennai/Madras/India 19 11
Colombo (average) 18 9
Colombo (for main feeder operator) 25 14
Rio de Janeiro, Brazil (Terminal 1) 25 7
Santos, Brazil, Tecon 1 22 14
Durban ?? 16
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• Part 2
• Restructuring of South African Port Operations
• The journey has begun

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Port operations restructuring work streams

• Work performed by inter-departmental teams led by
  Department of Public Enterprises
• Legislative framework National Ports Authority
  Bill (led by NDOT, passed by the National
  Assembly)
• Phase 1 preparations
• Economic Impact Appraisal and Ports Packaging
  Study
• Concession principles adopted by Government
• Concession strategy, under development
• Detailed transaction plans for each terminal,
  under development
• Phase 2 transaction implementation
• Start with DCT when Minister Radebe makes
  announcement to proceed

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The National Port Authority Bill

• NPA to own, manage, control and administer all
  S.A. ports
• NPA to become owner of all Port land and
  Immovable property
• NPA to be corporatised as a subsidiary of
  Transnet
• NPA to exit Transnet be incorporated as a stand
  alone SOE when Transnet financial stability
  permits
• Regulator to monitor, hear complaints and appeals
  of port users (NDOT started to establish the Reg)
• All operators (including existing) to be licensed
  by NPA
• NPA Bill to be tabled in National Council of
  Provinces
• Bill debated in National Assembly on 18th
  September

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Port Operations Concessioning Architecture
Principles

• DPE through NPA responsible for concession
  process
• SAPO will not participate in bidding process
• NPA to exit Transnet asap without prejudice to
  Transnet finances
• Mobile assets sold/rented to concessionaires
  benefits to Transnet, NPA or National Revenue
  Fund
• Transnet will be compensated for assets
  sold/leased and may have portfolio investment in
  concession companies
• Labour will be transferred at conditions not
  inferior to current conditions
• SAPO will cease to operate when all facilities
  have been transferred
• NPA responsible for ensuring continuity of public
  service in cargo handling by arranging operators
• Concessions are to be awarded through a
  transparent competitive bidding process
• Competition is to be created either in the
  market or for the market

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Port Operations Concessioning Architecture
Principles

• For each concessioning transaction a
  comprehensive document will set out the rules of
  the game
• Financial and technical proposals will be
  evaluated separately
• Regular concessions will be evaluated on the
  highest offered present values of cash flows
• For BOT concessions technical proposals, esp
  investment scheme will prevail
• Preference will be given to bids from independent
  terminal operators over bids from shipping lines
• Joint ventures or other partnerships with Black
  Economic Empowerment companies will be a
  requirement
• Operating concessions should have a minimum of
  15 BEE
• Concessioning will take into account the inherent
  degree of competitiveness of the facilities or
  services

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Economic efficiency goals of restructuring

• To achieve a paradigm shift in the efficiency of
  port operations that flows from private sector
  participation and extend beyond the gains from
  commercialisation of state owned enterprises.
• To drive system wide improvements in parts of the
  logistics system under Transnet from commercial
  terms imposed by higher performing port
  operations strong market discipline on services
  on both water and land (rail) side.

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Objectives for restructuring transactions

• Increase efficiency of port operations
• Mobilise private sector capital for terminal
  infrastructure
• Maximising shareholder value
• Developing Black Economic Empowerment in the port
  sector
• Improving conditions of port labour
• Securing participation from labour and
  management
• Conducting competitive, efficient and transparent
  transactions

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Increase efficiency of port operations

• Higher effiency levels to delivered over time and
  enforced via contract with penalties
• Access to latest Global Skills and Technology
• Private Operators will respond to customer
  demands in a
• competitivie environment

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Mobilise private sector capital for terminal
infrastructure

• Transfer port investment risks to the private
  sector, but retain land ownership in public hands
• Reduce debt burden on the state
• Compliment public sector fixed investment made by
  NPA
• Access best global skills and technology

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Maximising shareholder value

• Government to get fair value for assets
  transferred. Not selling monopolies to maximise
  proceeds
• Fair Economic Value in terms of lower transport
  costs and benefits to broader economy
• Realisation of Governements Triple Bottom Line
  considerations,i.e. Social, Economic and
  Environmental benefits.

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Developing Black Economic Empowerment

• Government controls terms, thus able to enforce
• Joint Ventures other partnerships with BEE
  companies, a requirement
• 15 BEE requirement part of bid selection
  criteria
• Outsourcing and Procurement to small businesses
• Economic Growth stimulate small business
  spin-offs, which would favour small, BEE
  companies

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Improving Conditions of Port Labour

• Better Prospects for Career Growth and
  Development
• Training Opportunities
• Employee Share Ownership Schemes
• Employment Conditions Will not be Inferior to
  Existing Ones

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Securing Participation from Labour and Management

• Government addresses Key Areas of concern to
  Employees on job security and bargaining rights
• Wages Working Conditions Protected under
  Section 197 of the LRA
• Employment Retention. Government proposes a three
  year Moratorium on forced retrenchments, pre
  post concessioning.
• Retention of Trade Union Collective Bargaining
  Rights. Govt. to work with Labour other
  employers to bring about a Maritime Bargaining
  Council.
• Regulation of Casualisation through the NDLS.
  National Dept. of Transport working with Trade
  Unions to realise this. Must not repeat past
  mistakes

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Competitive, efficient transparent
transactions

• Government to ensure that tender processes are
  open and Globally Competitive
• Probity, economy, efficient and time bound
  transaction
• Corruption and Scandal Free

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Expected economic benefits from concessioning

• Output multiplier from PSP in Terminals
• Benefit to economy of a reduction in handling
  costs at container terminals exceeds the direct
  benefit to users by more than 15 to 1
• For neo-bulk cargo, multiplier is 5 to 1
• Employment multiplier for Durban Container
  Terminal 14 to 1
• Economic modeling shows additional employment to
  be generated throughout SA economy from
  efficiency gains expected to be 2,845.
• Cost increases reverse this flow and destroys jobs

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• Part 3
• Governments consultations with organised labour
  through the NFA

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Sechedule of engagements

• Organised labour contributed to National
  Commercial Ports Policy. Note, labour referred
  policy to Nedlac on grounds of inadequate
  consultation
• Government briefed labour on vision and rationale
  for port operations restructuring 22 October
  2002. Proposed establishment of Ports
  Restructuring Committee
• NFA Transport Sector meeting 14 Feb 2003 unable
  to agree terms of reference
• NFA Transport Sector meeting 12 May Minister
  Radebe encourage parties to run a robust
  engagement

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Ports Restructuring Committee

• PRC enagement NDOT SATAWU DPE UTATU DTI U
  ASA NT
• Terms of reference
• Develop common understanding of problems and
  challenges
• Interrogate key issues for restructuring and
  report to NFA
• Prefer to reach consensus
• Ten meetings 16 May to 13 August
• Labour present consolidated views on 1 July 2003
• Reported to NFA Transport sector 15 August 2003
• Further meetings 21 August and 29 August 2003
• Report to NFA Transport sector 22 September
• Recorded broad agreement on challenges facing
  ports

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PRC enagement on solutions

• Package of in-principle agreements reached
• Employment related issues
• Prohibition on forced retrenchment pre
  concessioning for 3 years
• Prohibition on forced retrenchment post
  concessioning for 3 years
• Safety and health
• Ratification of ILO convention 152 safety
  Health (Dock work)
• Training
• Focused attention on TETA company strategies to
  upgrade skills
• Human resources policies
• Record existing policies
• Wages and working conditions
• Section 197 of LRA applies to transferred
  employees on going concern basis

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PRC enagement on solutions

• Casual employment
• Ratification of ILO convention 137 on dock work
• Expedite establishment of national dock labour
  scheme
• Transnet social plan
• Parties not agree on whether or how to extend
  Transnet social plan
• Collective bargaining rights
• Establish a Maritime Bargaining Council
• Interim arrangement (if necessary) extend
  Transnet Bargaining Council
• Measures to increase efficiency
• Broad agreement, government maintains private
  sector will trigger additional gains

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PRC enagement on solutions

• Moblisation of private sector capital
• Parties not agree. Labour maintains that SAPO can
  meet its investment requirements. Government
  maintains that public sector investment should
  focus on infrastructure provided by the NPA and
  private sector capital is necessary and desirable
  for investment in cargo handling
• Role of port in economic development
• Parties not agree. Labour prefers option for
  cross subsidisation for development. Government
  opposes cross subsidisation of commercial
  businesses. Other incentive instruments to be
  used for development.
• Final report to NFA Transport sector meeting 22
  September 2003

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Thank you Questions