National Commercial Ports Policy: hearings

Meeting report

TRANSPORT PORTFOLIO COMMITTEE
14 November 2001
HEARING ON NATIONAL COMMERCIAL PORTS POLICY

Chairperson: Mr J P Cronin

Documents handed out:
SATAWU/COSATU Submission (see Appendix)
Railroad Africa's Analysis of the Draft White Paper on National Commercial Ports
CSIR Environmentek: Comments on Draft White Paper on National Commercial Ports Policy
CSIR Presentation
Address by Advocate Menzi Simelane, Commissioner of the Competition Commission
Competition Commission of South Africa: Submission

SUMMARY
SATAWU felt that they were not consulted enough. Therefore it did not warrant an argument that the process be slowed down for proper consultation to take place before the White Paper goes into the Cabinet process and becomes a formal policy.

Meanwhile Railroad Africa, amongst its points of concern was that the concessioning of terminals by the NPA should be done in such a manner that every stakeholder be given a fair opportunity to voice their opinions and suggestions.

The CSIR advised the department on the use of useful tools in recording the inputs of stakeholders suggesting that, for instance, they use something called "comments report" which summarizes individual comments and indicates whether those comments have been addressed or not.

The Chamber of Mines said reiterated the points made by others that they support many of the positions in the draft White Paper but feel there are issues that the draft White Paper should address in more details. It also welcomed "the intention of government to reduce its direct involvement in the management of the commercial ports."

Whilst the Competition Commission advised the portfolio committee that it was much more ideal that "at least in our respect that competition issues be dealt with by the competition authorities in terms of the Competition Act as it adequately covers all the aspects that the policy is concerned about."

MINUTES
Submission by SATAWU
In her opening remarks Ms Jane Barret said there was some good in the White Paper. It places emphasis on the national strategic importance of ports, intermodalism, and the improvement of efficiency at the ports. Safety and environmental factors are also built into the White Paper.

However, they have had tremendous difficulty with the process leading to the publication of the White Paper. Many flaws could have been dealt with had there been proper consultation. The absence of consultation has been serious enough to warrant an argument that this process should be slowed down. Proper consultation should take place before the White Paper goes into the Cabinet process and becomes formal policy because there are some serious difficulties in the White Paper as it stands.

The policy is being rushed in part by the desire to urgently concession operations. They believed that elements of the policy have not been sufficiently researched and thought through.

Submission by Railroad Africa
Mr Roland Naidoo informed the Committee that Railroad Africa was a container logistic company or intermodal company conveying import and export cargo in and out of the container terminals throughout the country.

They provide mainly rail services from the deep-sea port to inland terminals and take the cargo to its destination. They move traffic by rail and by road. Their customers are importers, exporters, shipping lines, clearing forward agencies and others.

Their main service providers are Portnet, Spoornet and owner-drivers. They have branches throughout the countries all situated at the main ports. They also have offices at all the mainland and inland terminals and intend growing up to East London and Richard's Bay.

They acknowledged that the document has taken into account the Constitution, RDP, GEAR, SMMEs. A board of directors is to be appointed to manage the NPA and there will be a port regulator. The government will own real estate and be responsible for building ports and for closing down ports if they are not viable.

They are concerned about the NPA's concessioning of terminals and trust that everybody would be given a fair opportunity to voice their opinions and suggestions.

The White Paper focuses mainly on commercial port policy in terms of the transport perspective. Even though inland ports are vital transport nodes in the industry, the White Paper leaves the inland ports and terminals out, which is a major concern.

The inland ports are gateways to the seaports and if that infrastructure is not taken care of, then these ports are being isolated. There is no use in having efficient seaports without efficient inland ports. There is a need to create a seamless link between inland ports and seaports to have a well organised transport system, as envisaged by the White Paper. It is critical for the White paper to include inland ports.

Commercial Port Users
Railroad Africa would like to understand who are the port users. What is currently happening at the ports was that Portnet and shipping lines ware working together and are isolating other port users, such as importers, exporters, shipping lines, intermodal companies, clearing and forwarding agents and others.

They are concerned that Portnet was developing a pricing policy that makes the shipping lines the sole users of the port on the 'User pay Principal'. Railroad and others have their own account with Portnet and pay directly to them for services rendered. But strategically, the pricing policy is now being aligned in such a manner that Portnet would communicate only with shipping lines. Which means only shipping lines would enjoy the benefits and not industry. They are therefore concerned that the pricing policy eliminates all other port users and creates a pathway only for Portnet and shipping lines and that this would create monopolies.

Mr Naidoo recommended that the Consultative Committee should involve all port users and not only shipping lines and Portnet only. It is quite convenient for the port to set up meetings to exclude all port users so that they can get their point of view across. Railroad Africa fully endorses the inclusion of labour committees. If they want to improve productivity in the ports they have to and must include labour. Education and training is vital.

Competition amongst ports
Page 18 item 3 of the White Paper talks about competition amongst ports and what they imply is that there should be no competition amongst ports but should complement each other. Why should there not be competition?

For example, the efficiency of the ports stirred them and their clients to switch Volvo traffic to Port Elizabeth only because they were efficient. So competition amongst ports is vital and also recommends intra-port competition.

Rail Transport
The rail transport plays a vital role with the inland terminals. Right now they have a general freight business, which sets rates and tariffs. They are increasing rates by 30% without consulting with the industry, effective from the first of April. Right now they are fighting this matter.

If they are going to compete in the global market they cannot have people making unilateral decisions on pricing. Therefore it is their recommendation that pricing must be market related.

Spoornet, the general freight business, has created a pricing policy that is deliberate and attempts to continue to advantage previously advantaged companies. As the result of this, new companies have no chance to grow in this market because of the format of the pricing policies. Railroad Africa wants to see the leveling of the playing field and the creation of equal opportunities for intermodal companies since they are the marketing agent of Spoornet.

Service levels
One cannot have an inefficient inland terminal where the working hours do not complement each other. First one can't get access to information or manpower - information between Spoornet and users almost does not exist. Information flow between Spoornet and Portnet is in conflict and there is a shortage of rail wagons resulting in short shipments and want to compete in the global market.

Derailment have played havoc with their industry because of lack of investment whereas no consultative committee in place right now between rail and port users to come together to find common ground.

They experience delays in rail rates of up to five days on traffic that has been moving for years now in our system and somebody pulls off a plug without explanation and one sits and wonders why road transport keeps gaining on rail.

Too many of their rail containers are being pilfered. Claims are not being processed with speed.

Freight Dynamics
They play a role in the transport system but they are becoming destructive. They are using state assets and cutting prices to stay in business. This forces other companies to further reduce their rates in order to stay in business. The result is that there would be inferior and dangerous equipment on the roads because everybody is involved in a price war to retain market share.

The White Paper talks about constructive, not destructive competition. Within the transport sector freight dynamics may be creating havoc. Because Freight Dynamics are not making money they want rail contracts. This is also destructive competition and must not be encouraged.

State Land
State land that is in close proximity to our ports and main inland terminals has fallen into the hands of one company.

Discussion
Mr A R Ainslie (ANC) observed that the SATAWU paper deals with human resource development, relevant to previous presentations on low productivity in South African ports. According to SATAWU the problem seems to lie in lack of investment, equipment and a lack of investment in human resources. The profile one is getting of a South African dockworker is that he is illiterate, unskilled, casual worker and migrant workers living in single sex hostels. What would be the profile of a European dockworker? He anticipates that would be of higher standard and the question was, how did they achieve that standard? What did they do that we need to do to reach that particular standard?

Ms J Barret (SATAWU) responded that the issue of productivity in terms of measuring container movement was not accurate because to begin with the container movement in Durban is higher than often quoted by the press at 16 per hour and not 8 as referred to for South Africa.

The Singapore example and other ports like Dubai were misleading because these ports are hubs. In other words, most of the goods that get transferred are basically taken off ships and put on to other ships. They are not moved within that particular country where the port was located. This means that these ports have an enormous amount of traffic that is coming off the ships and going off again. And because they have such volumes, the port authorities of those ports are able to dictate what kind of vessels come into their ports. For example they would not use an old vessel with old technology, which would take a long time to move each container. Its ports are primarily moving goods off the vessels or onto the vessels for imports or exports. It's not a transshipment operation. The volumes are not such that the ports can dictate which vessels to take or not to take. Those comparisons are misleading.

On the question of a profile of the port worker and who employs them, it is true that most of them are employed by private companies and the private stevedore companies and also companies that operate private terminals. Many Portnet workers are reasonably highly skilled; some are involved in interface/computer technology although a number of manual workers are also to be found.

One of the problems bedeviling the ports generally and particularly chronic in Durban is the HIV/AIDS that is ravaging the workforce. There is a very high level of absenteeism through illness and a high mortality rate amongst the workers. The manual port workers are particularly vulnerable because the work that they do is heavy manual work. Portnet and Transnet are aware of this problem but it warrants national awareness.

The general level of skill is higher in European ports and there are some exchanges between Portnet and the authorities in Amsterdam and other countries looking at how to borrow some of the training examples of those countries.

Ms N Syms (SATAWU) added that there have not been investments in terms of the operational infrastructure. When it comes to certain carriers, for example, a few months ago there was a delay in Durban port. It was identified that most of the carriers were redundant and new investment was needed. The equipment they are using is thirty years old and beyond comparison to European ports.

The training of workers is not being intensified. There are more skilled white workers but they are retiring, leaving the ports to unskilled black workers.

In Rotterdam there is a National Dock Labour Scheme, which is about training, and there are standards which workers need to adhere to. The ports would use workers from that area but government regulates this scheme. Unfortunately this scheme does not exist in South African ports. As a result labour brokers take advantage of this situation by sending workers on board the vessels without safety gears. Workers fall off the containers and are not compensated for; instead they have to fend for themselves in terms of paying for medical expenses.

Mr J H Slabbert (IFP) said he shared the objections of SATAWU and something must be done about the casual labour issue that was becoming countrywide.

Mr T Abrahams (UDM) referred to SATAWU's opposition to the NPA becoming a company. They cite their main reason as fear that government as a shareholder may be pressurized to sell those shares to the private sector in the future. Was there any other reason for their opposition to the NPA becoming a company?

He asked Mr Naidoo whether there were practices to rectify the situation being instituted.

Mr Naidoo responded that there were many changes taking place right now.

When ports were opened many new and small businesses opened up. There were new opportunities created. The new prices that are in existence right now would eliminate small businesses that have come through. Portnet and shipping lines are placing themselves for a monopolistic approach. They were told at the presentation of the White Paper by the steering committee that if anything happened that was in conflict with this document would be reversed. But he thought that it would be reversed at great cost.

Mr S B Farrow (DP) observed that the presentation from SATAWU was opposed to some institutions taking the form of a 'private sector'.

Ms Barret said that there is no proof that the private sector can necessarily do it better than the public sector. Given the difficulty over the power of the shippers and so on, perhaps it makes sense to retain government control, over at least a strategic portion of port operations. That includes the port authority and all its functions. The question of the ownership of the port authority; whether it is set up as a company or public entity goes back to the question of the role of the state and the role of government in maintaining at least some strategic positioning to make sure that things are balanced.

Mr C Schneemann (ANC) said he would like to get SATAWU's views on the involvement of the private sector and shipping lines in certain operations - overseas shipping lines run their own operations.

He observed that Mr Naidoo said inland terminals should be included in the White Paper. Does it mean that Spoornet should be involved in this? He understood that both rail service and ports need to work or the system falls apart. Should Spoornet be involved since they are a key player in ensuring that our ports are efficient?"

Mr Naidoo responded that Spoornet should be involved because the major problem they have today was that Portnet would plan and do their own thing and so would Spoornet. For instance there is no cohesion, the working hours are in conflict and seaports and inland ports do not work together. These issues affect the industry and the competitiveness of the industry and lose market shares to global markets.

Ms Barret added that on the power of the shipping companies, as freight rates reduced, the shipping companies increasingly look to land functions to make profits and have set up terminals. For example, Capespan has set up terminals in Cape Town and Port Elizabeth while P&O have set up in Port Elizabeth.

They are also setting up dedicated terminals and the question is what is that going to do to others? Is that going to exclude certain users? What would the pricing be and so on?

They have a disproportionate amount of freight rate allocated to the sea portion; well over 60-70% of the transportation cost is the sea cost. To reduce the costs of imports and exports, that is the critical area to look at.

Mr J P Cronin (ANC) asked Mr Naidoo whether would it be of concern to someone like him if shipping lines operated their own terminals?

Mr Naidoo (Railroad Africa) responded that it would be of major concern. One cannot have a player and a referee in the system, which means one cannot have a shipping line using the port at the same time fighting for freight. They would like to see an independent company. The function of independent companies overseas is to control ports; they are not involved in shipping, or the landside transport.

It was frightening that the shipping lines were becoming multimodal and were losing revenue on freight so they are looking at other sources of revenue and are slowly but surely and effectively coming to the landside function. On the one hand they keep the freight trade low to fill the ship, on the other hand they increase the landside costs.

They would like to see the shipping lines focusing on filling their slots and landside people and intermodal companies moving the traffic as speedily as possible and independent terminal operators operating terminals and then you'd get everybody doing their jobs - that to him was the best model.

Mr S B Farrow (DP) continued that in terms of efficiencies and the requirements in conflicts, what was being done to rectify that situation? Inefficiencies in the movement of shipment and stock needs to change if we want things to be done in an efficient manner.

Ms N Syms (SATAWU) responded that about four years back that might have been a scenario.
Currently all ports are working on a seven day operation and 24-hours. Not all commodities are increasing it is containers only. For example, Cape Town was looking at 4.4 million in terms of increasing the movement of containers and they are moving towards that direction through consultation, knowing they will have the influx of containers to change their operations accordingly.

One area to note is that there are not enough people to do the work and if there are not enough people to do the work how can services improve? In terms of training and productivity levels, in January all ports increased their productivity levels except for Durban.

The Chair asked the Committee to look at the architecture of the White Paper to get some clarity. In previous presentations Safcoc made a strong plea that the NPA accept it for national coherence and strategic adherence around port planning and infrastructural development. But they would like to see that authorities be port specific rather than national authorities. He said he would like to hear some thoughts from SATAWU as to whether national coherence should be retained? Safcoc failed to make the point that labour should be included in consultative. How do we ensure that the key role-players have an effective impact at the port level and national level as well? Many presenters had argued that the NPA should have transport logic about it rather than public enterprises logic. SATAWU was concerned that the CAA might be the appropriate model.

The Chair said when the Department of Transport talks about the business model they see it as something that is not narrowly regulatory in character. CAA was largely concerned with safety and standards regulatory operations. Their inputs identify 'infrastructural investments' as planning and perhaps the key problem or blockage - lack of capital investments and coherence and the White Paper mentions that the NPA would have the sole responsibility for investment and development.

Maybe the South African National Road Authority is a more appropriate model, which has a more infrastructural investment and leverages resources for capital investment.

Ms Barret (SATAWU) responded that it was not true that the model was port specific - there was a mixture. Sri Lanka has a port authority that covers all its ports. The same with the Philippines and there are numerous other examples of NPAs. Where there are specific port authorities it is often related to the specific geography of a country. For example, in Australia, which is a vast country, each port would play a very specific function in relation to a very regionalised economy. Whereas South Africa has a peculiar situation; our economic hub is not on the coast as is the case in most of the countries, it is actually in the centre of the country in Gauteng. The play a complimentary function. Although each port has a regionally specific dimension, particularly those in the Eastern Cape, nevertheless they all play a complimentary role. SATAWU assumes that the Department thinks that with the NPA they would be able to plan in such a way that they could keep the regions economically and sensibly balanced.

Mr Slabbert (IFP) pointed out that SATAWU said the ports were working 24-hours and seven days a week while Mr Naidoo said the opposite, he said there were weekends where you cannot raise anybody.

Mr Naidoo responded that he was referring to inland ports.

Mr SB Farrow (DP) said he got an impression that there were not only breakdowns at ports but also at Spoornet as well. The implications of communicating with Portnet by computer were highlighted and he asked for clarity on this.

Mr Naidoo responded that one would not know one's boxes unless one contacted a shipping line. Shipping lines work from eight to five and then go home. There is no need to create a system of communication that is between the port and the shipping line. They should make it open to all users and that is what the White paper was taking into account. What was happening in practice was totally contrary to that.

With respect to the comment on Spoornet and Portnet not talking to each other, Ms Barret said it links back to the whole question of the end-state of Transnet and which government department takes responsibility.

It is a mssive advantage for government to have a big multimodal company in the form of Transnet where potentially it could be an instrumental vehicle for perfect inter modal communication and logistic improvement. Yet the subsidiaries under Transnet compete with one another and do not talk collaboratively to each other, which introduces a different imperative.

Increasingly it becomes clearer that for Transnet to operate as an effective tool to make transport work in this country, a different line of authority is needed.

The pressure for ports to operate 24-hours meant that the unions have had to make quite significant concessions for weekend work in the ports. The union has agreed to waive one of the two conditions under the basic conditions of the Employment Act. Namely, that workers would work eight hour shift and the agreement that has been reached with Portnet is that on the weekends workers now work twelve hour shift. Workers have not received credit for this major concession.

Submission by CSIR
Mr Chishti told the Committee that the CSIR was oriented towards being a technology partner. It was established in 1945 by Parliament as a Central Scientist Research and Development Resource for South Africa. CSIR was committed to supporting innovation, improving the quality of life for South African citizens and improving South Africa's global competitiveness.

Over the past twenty-five years they have been involved in the research and development of the port related technologies. Recently their research has been focused on developing tools for the integration of a sustainable basis of social, economic and biophysical environment into policy formulation and planning processes - the basis of their discussion today.

Mr S Heather-Clark (CSIR-Environmentek) focused on three major points - the first one being "on the use of specific words within the policy" - in other words having the right type of words in specific sections of the policy. Secondly, on specific tools that have come out through other policies or legislation like the natural environment management act and define those a little bit better. Thirdly, on port and city planning and the linkages around that and the vast gaps that exist at present between the linkages between why are ports are planned and why are cities are planned.

He said it was encouraging to see that environmentally sustainable development has been referred to in the policy in various sections and CSIR wants to make sure they are carried through in an effective way. There are a number of references to various policies that were made in the draft White Paper and also some "glaring" omissions.

Planning in South Africa has also undergone massive transformation over the past five to seven years. Moving away from focusing on spatial aspects like identifying people whether they should live or move to involving public participation and also integrating environmental considerations and linking it to the budgeting process of local government.

Recommendations coming out from those comments was legislation should be added to the lists within the White Paper are: reference to the National Environmental Management Act, around planning - Local Government Transition Act, Municipal System Act, and the Integrated Development Planning (IDP) Regulations.

T here has been a lot of talk about the competitive position of South African commercial ports and specifically in the policy document a number of factors affecting the competitiveness of the ports but environmental constraints are excluded. CSIR has been involved in the environmental work around the major ports of SA for over twenty-five years.

Looking at the container terminal of the port of Durban specifically where port planners realised there was a need to increase the capacity of the container terminal, additional key space was required. A back up area along with cranes and so forth was identified and called for consultants to do an environmental impact assessment on that specific expansion.

The National Development Strategy for Commercial Ports relates to port-city planning and the misalignment of planning initiatives that are undertaken between the ports and the cities.

There is no mention of the Moving South Africa Strategy as far as SADC is concern; South Africa needs to make clarify their national policy as far as SADC ports are concerned.

Process or Strategic Environmental Assessment (SEA) can be the biggest flaw in any kind of the development of this nature. Even if the technical work is correct, the process can fall down.

The Department was advised to have a list of stakeholders that has been consulted, a simple diagram outlining the process, dates of workshops, and when people are expected to comment, and a statement of how people can get involved.

Submission by the Chamber Of Mines
Mr Dick Kruger told the Committee that his paper was based on why the mining industry has an interest in the national ports policy? Secondly, some views on infrastructure and port policy, and lastly, a brief comment on certain aspects of the draft White Paper.

However, to realise this wealth potential in its mineral resources the mining industry must be able to bring the products to the market at the cost lower to the price offered for those products. The price of most mineral commodities is determined in international markets. Individual producers normally have very little influence over those prices.

The viability of the mining industry therefore depends very much on its ability to contain costs longer in the chain from production to marketing. Because the domestic market for minerals in South Africa is relatively small the South African mining industry has become a predominantly export orientated industry.

Sea borne mineral exports comprise mostly base mineral products. In 2000 the earnings of base mineral products amounted to approximately R24 billion. This establishes clearly that the mining industry and especially the coal and base mineral sectors have a material interest in South Africa's commercial ports.

If the port infrastructure and service is considered, the South African overall infrastructure is rated amongst the best in the world. On a continual basis infrastructure has been ranked as an advantage that South Africa should use to attract investment.

However, inadequate maintenance of the infrastructure in recent years, would negatively impact on the cost of doing business in South Africa. A study conducted by the Department of Transport estimated that the capital spending on ports as a percentage of long-term capital requirements were less than 40% of what it should have been. As a consequence, the cost of repairs would escalate substantially.

The freight transport system in South Africa still reflects the structure designed to support an import substitution economy. Export and import wharfage charges at South African ports are high by international standards but these charges are not levied at cost reflective basis. The 1999 Moving South Africa document issued by the Department of Transport categorizes the fact that exporters start paying higher than global average wharfage costs for container values exceeding R20 000.

While the freight system has been successful in tendering mechanisms for bulk exporters like those of coal and iron ore the general freight routes are characterized by high rail and port costs. Port service levels; lack of competition, inadequate capital planning and spending, and cost subsidization of unprofitable areas within parastatals also service to drive costs higher. High cost levels for general freight therefore tend to nullify the perceived advantages of a good infrastructure.

Considering port policy, one sees important changes emerging in the key factors influencing domestic and foreign direct investment. In contrast to the traditional comparative advantages of mineral resources and diamond natural capital and ready supply of low cost labour, the increasingly integrated global economy means that investors seek destinations where there is an abundance of competitive advantages.

Competitive advantages tend to be created rather than inherited and include assets such as port infrastructure. The national commercial ports policy should therefore aim to develop South Africa's ports to enhance the country's competitive advantages.

Challenges facing ports today
These are not only related to capacity but also to quality of service. The continued globalisation of trade is placing pressure on ports to reduce terminal costs and improve operational efficiency.

Ports are increasingly required to play a more active role in the integration of logistics while continued efforts are simultaneously needed to provide better terminals services at competitive costs. They are expected to be not merely transferring points between different transport modes, but integrated logistic centres and seamless transport chains. At the same time, ports are increasingly required to have better connectivity with all land transport modes and better access to hinterlands.

Port activities are based on an institutional complex involving a number of governmental agencies, maritime organisations, private sector, service providers and port users. It is therefore a constant need for integrated coordination amongst stakeholders if ports are to function efficiently. In addition there is a need for maritime safety services, environmental management and the maintenance of common infrastructure like port channels, breakwaters and access roads. A body such as the port authority best performs these functions.

It stands to reason that in a situation where different service providers need to share infrastructure some form of regulation is needed to curb uncompetitive behaviour. This regulation should however not be performed by port authority, since it, as the landowner and provider of certain services itself, would not be a neutral body.

An independent port regulator should perform regulatory functions.

Ports must be managed with the interest of local communities in mind. This can only be done through formal structures for interaction between the local communities and port management. Ports automatically exist to serve the users and by users is meant the owners of the goods passing through the ports."

It is also essential that the needs of these users be adequately taken into account on the planning and management of the ports. This can only be achieved through formal structures for interaction between the port management and the users.

The Chamber supports many of the positions in the draft White Paper but found it very difficult to comment on the draft itself. While recognizing that a policy document cannot and should not cover every detail there are certain issues which the White Paper should address in more detail.

While it does express the broad and high-level concepts in respect of policy, goals and objectives, it does not clearly describe the strategies required to achieve the desired port restructuring.

The Chamber is also of the view that broad project plan for the restructuring process, and the achievement of stated goals, should form part of the White Paper. The Chamber welcomes the intention of government to reduce its direct involvement in the management of the commercial ports. They accept the necessity for a statutory controlling body in a form of a NPA. But it is also imperative that individual ports, have a high level of autonomy in respect to decision making to ensure flexibility and prompt reaction to market demands.

The White Paper should express the mandates of individual ports clearly. In addition, consideration should be given to local authorities having more than simply a consultation role.

The draft White Paper delegates substantial power and authority regarding regulation and control of port operations to the NPA. The NPA should not have any regulatory functions except in respect to maritime safety, and environmental management.

The envisaged independent port regulator should regulate service providers in the ports and should also regulate the NPA. Regulatory mechanisms and rules should be formulated through the consultative process.

The White Paper should contain more detail in respect to the proposed institutional structures especially the relationship between the port regulator and the port authority; the port authority and the port operators, and the port authority and the port users should be stated more clearly.

The draft White Paper does not adequately address the function, role and power of consultative bodies. Important that once such bodies are place, that their comments are not noted and ignored.

In addition the paper should provide clearly for consultation on the structures and composition of the board of the NPA as well as for private sector (user) representation on this board, with port users.

The Chamber supports the principle of user-pay in respect of cost recovery for services provided to the user. Users should however not be expected to pay for developments that would be of no direct benefit to them.

The evaluation methodology of existing assets should be addressed in the White Paper. The paper specifies that only the NPA would be allowed to construct new commercial ports and offshore cargo handling facilities. The reason for this is not quite clear. As worded in the current document, it would prevent even the construction of offshore transfer facilities for liquid cargoes.

The document also states that South African ports are to compliment rather than compete with each other. The Chamber is of the view that competition between ports should be encouraged, with each port competing on its own merits. That would promote efficiency and cost competitiveness whilst still ensuring commercial viability and sustainability of the ports.

It would also enhance the global competitiveness of the country as a whole. The creation of intra-port competition may be extremely difficult in respect of dedicated port facilities servicing specific industry owning to investment costs and economics of scale required. There is a view that such operations should be ring-fenced and concessions granted to the cargo owners, as opposed to the port operator, to encourage competitive behaviour by the actual operator.

The draft White Paper charges the port authority with ensuring that individual ports would prioritize and be responsive to physical and technical knowledge infrastructure, required to support the integrated industrial strategy. Also to prioritize the provision of infrastructure to those manufacturing sectors that government has identified as strategic. These strategic manufacturers should be identified in the document .There is a view emerging that the development strategy should promote enterprise development rather than only selected manufacturing sectors.

Submission by the Competition Commission
Adv Simelane advised that it would be much more ideal that competition issues be dealt with by the competition authorities in terms of the Competition Act as it adequately covers all the aspects that the policy is concerned about.

Mr Parr added that competitiveness of SA ports is crucial since we are far from world markets for our goods and transport costs are likely to be fairly high. The ports are crucial parts of transport network and as such there is high cost of infrastructure involved. The viability of that network depends on volumes that go through it.

Page 9 of the White Paper states that Portnet is a national natural monopoly but he did not think that is correct. If it were the case there would only be one port in the whole country but that is clearly not the case.

There is a degree of natural monopoly for each port and the prospect of some inter port competition is good for several reasons particularly relating to high volume and low volume goods.

There is a reference in the White Paper to destructive competition that has not been elaborated upon. In the contents of inter competition it would lead to investor uncertainty which would be an aspect of destructive competition.

Also the issue of the NPA or one authority per port might be detrimental to inter port competition because each port authority would be subject to regulatory capture and lobbying by investors in that specific port, which would give rise to differential port authority decisions.

Destructive competition might affect intra-port competition. Certain services might not be amiable to competition and may instead become destructive competition.

Discussion
Mr Cronin observed that the key issue for the Competition Commission is the architecture of the White Paper and the proposal for a port regulator whose lifespan appears to be interim as long as Portnet is operator and authority and then phased out. There seems to be strong objections and concerns from the Competition Commission about sectoral regulators when they stray into competition.

Mr A R Ainslie (ANC) asked which "steering committee" is being referred to on page 7. On the relationship between the port and the city, was planning done in terms of "land use". Thirdly, did SA have sufficient mechanisms in place to deal with pollution in ports?

Mr Heather-Clark (CSIR) responded that the IDP is still relatively new and most local authorities are still initiating the first processes. In the past with structured planning the port was also considered as a stakeholder but did not actually provide direction on industrial development around port linkages. He cited the example of areas such as Cape Town Waterfront where you have waterfront development and port development at the same time.

The major component of port planning is actually land use and if one looks at port of Saldanha as well as the port of Cape Town one of the key issues is land availability. Often it is considered that the port can well expand into the marine environment however the cost of expanding at the water are substantial compared to the cost of expanding on the land as well as the environmental issues. Cape Town your biggest issue is probably the erosion of the beaches further north. Saldanha your expansion into the water body is linked to change in circulation patterns within the bay, which affects the natural fluctuations of nutrients within the system.

One cannot distinguish between this and pollution Often the port lands up with a problem, for instance, the ports of Cape Town and Durban, where storm waters channels are basically channels from hinterland that brings pollutants into the water.

Mr C Schneemann (ANC) pointed out that the CSIR mentioned the issue of process. Who has been consulted and who has made input and so on. He appealed to the Department that the Portfolio Committee be brought on board about the process that has been followed and be given a clear information about where the process is going, dates, time and so forth.

Mr J Makokoane (Transport Department) observed that they have come a long way to arrive at what they have today and appreciate the contributions from the stakeholders that have responded to the draft White Paper.

He noted that there have been some fundamentals that have been raised and about 25 comments from various stakeholders revolves around institutional framework, subsidiarities, pricing policies, representivity in terms of forums be it on the advisory level or on the board level as stipulated.

The draft paper initiated a process of engaging in deliberations, which was not there before it was put out. This has provided a platform for everyone to raise their concerns, which would assist the Department to come out with something that encompasses the concerns of all the stakeholders.

Mr J P Cronin (ANC) observed that many inputs have complained of lack of adequate consultation. The SATAWU one was probably the strongest in that respect not only on consultation but also of proper research to be done to have a clear picture of how much government (Portnet) involvement currently there is.

There is a strong view that more time is needed for a variety of processes to happen. However, Cabinet is keen that the White Paper process should be completed by early next year, which would lay a basis for legislation and the setting up of new entities or statutory bodies.

Mr J Makokoane (Transport Department) responded that policies are dynamic. Government translates policies in many ways and it may not necessarily be written.

Secondly, transport is a logistical chain - it involves aviation, oceanic transportation, road transportation, rail transportation. The White Paper on national transport is an outline of what we thought they thought they would be doing in 1996. It is supported by the Moving South Africa Action Plan in 1999, which outlined what they thought would be appropriate.

It would have been good if the Moving South Africa Action Plan had a supportive document that would outline strategies of ports very clearly - be it oceanic ports, dry ports or inland ports. He said the challenge was allowing themselves not to introduce a lot of strategies without clarifying policies.

He said that perhaps it would be opportune if they were given time to analyse the 25 or more submissions that they have , comparing inputs from stakeholders with the content of the White Paper.

He made a commitment that the Department would have further bilaterals with stakeholders on issues which needed clarity or appeared to be ambiguous. Perhaps in January they would give a progress report as to whether they consolidated the inputs and whether they have factored the concerns into the White Paper.

Mr J P Cronin (Chair) said that would help a great deal they would like to see a process that covers a key ground effectively. He suggested that by the end of January the Department could give the Committee a progress report, and second draft of the White Paper. The Committee may do its own report, which could interact with the drafting process.

However, the Committee has missed significant input. The first from Public Enterprises, who have been invisible in this process of hearings and the other input should be from Spoornet - a critical player in the process.

The Committee would have liked to hear from Portnet but it does not exist except in its schizophrenic form and would have liked to hear from Port Operations Division (POD).

Mr Heather-Clark (CSIR) pointed out that a useful tool in a report back would be a "comments report" which summarises individual comments and indicates whether those comments have been addressed or revised in a report, or simply a counter comment as to why it has been ignored.

Ms J Barret (SATAWU) expressed concern on bilaterals. They should focus specifically on identifying the problem with ports, to unpack those questions of efficiency and so on as they link with proposals around what to do with operations.

The hearings were concluded and the meeting was adjourned.

Appendix1:
Draft White Paper on National Commercial Ports Policy

Comment submitted by SATAWU/COSATU
9^th November 2001

Contact persons in Satawu: ph 011-3336127 fax 011-3338918
General Secretary, Randall Howard e-mail [email protected]
Policy & Research officer, Jane Barrett e-mail [email protected]

General introductory comment

The Draft White Paper is to be commended in that it places considerable emphasis on the role of ports in developing the economy nationally. It also emphasises the importance of enhancing intermodalism as well as the efficiency and productiveness of our ports. Safety and environmental protection are also emphasised to good effect. All these are in line with Satawu policy on maritime affairs.

Satawu/Cosatu also welcome the fact that the draft policy specifically argues against inter-port competition. Satawu/Cosatu are of the view that the introduction of inter-port competition would run against the principles of the RDP. National government must be able to influence regional economic growth and sustainability in part through ensuring that price competition does not lead to the demise of certain ports at the expense of others.

However, Satawu/Cosatu are deeply concerned that this ports policy is being rushed and driven by the desire of government to proceed with the concessioning of port operations, and that there are many areas of serious weakness in the draft policy. Satawu/Cosatu are of the view that many of these weaknesses cannot be resolved without further extensive public debate and consultation - in particular within the Tripartite Alliance.

It must be put on record that the consultative process with Satawu/Cosatu has left much to be desired to date. While Satawu has received an apology from the relevant government departments, this does not detract from the fact that the process was very flawed. A consultative meeting with Satawu was called only after repeated protests were made by the union. The consultative meeting date was set after the official closing date for comments, necessitating agreement on extension of time for submission. Very little time was allocated by the relevant government departments for the consultative meeting and there was insufficient time to adequately debate various points raised by Satawu.

Summary of areas of concern

There are a number of problematic elements of the White Paper that SATAWU/Cosatu has identified. We will spell these out in general terms and then address them specifically. The contentious areas are:-

The lack of clarity about the end-state of Transnet. This is a fundamental concern and in the view of Satawu is enough of a concern to argue that the port policy making process should be stalled until such time this is clarified.

The assumption, stated repeatedly in the draft White Paper, that port infrastructure currently places a burden on the tax payer and on government. In reality there has historically been little or no direct investment by government in our ports, and no subsidisation of operations. Investment has been undertaken by Portnet and its predecessors, via loans secured by Transnet.

The emphatic pronouncement in the White Paper that government will reduce its involvement in port operations and will in fact concession such operations. No analysis has been done on the impact of such reduced operational involvement. In tonnage terms, current operational involvement is actually relatively limited.

The absence of any mention of the role of the Port Authority viz port equipment. This omission is of great concern, given that the current inefficiencies of our ports is explained by many to be the consequence of poor handling equipment.

It is proposed that the Ports Authority be established under the terms of the Companies Act, with the state being the only shareholder. Satawu/Cosatu is opposed to this institutional model being used. Satawu/Cosatu propose that the model should be the one used in the case of establishing the Civil Aviation Authority i.e. where the CAA was established as a public entity or "juristic person".

The White Paper places insufficient emphasis on the centrality of human resource development in the development of ports.

The emphatic statement that government funding will not be available for the National Ports Authority.

Organised labour is not included in the proposed consultative committees.

The accountability of the NPA to the Minister of Public Enterprises rather than the Minister for Transport.

A lack of clarity on the role of the Port Regulatory Body viz the Port Authority, and duplication of the role of the Competition Commission.

There is no reference in the White Paper to the role and functioning of inland ports, such as Kazerne in City Deep, Johannesburg.

The absence of clarity concerning the end-state of Transnet

The absence of any clarity (and absence consultation with labour to date) on the end-state of Transnet is a serious background flaw to the draft White Paper. The most immediate way in which this impacts on the draft policy is the lack of clarity viz the relationship between Portnet operations and the Port Authority.

Satawu will go so far as to argue that the Ports Policy and all other policies that impact on any way on Transnet, should be put on hold until such time as the end-state has been publicly consulted and its future decided by government.

It should be noted that Satawu's repeated requests for a meeting with the Minister for Public Enterprises to discuss the end-state of Transnet have been ignored.

Shifting the financial burden for port infrastructure to the port user

The White Paper creates the impression that the tax payer, via the state, currently carries the burden for port infrastructure investment and development. Reference is made to this in the following paragraphs:-
Paragraph 4 of the Ministerial Foreword.
The paragraph on page 8 headed "The Restructuring Policy of the Department of Public Enterprises", where reference is made to the objective of reducing state debt.
Bullet point three of point 3 under Section 2 "Policy Goals and Objectives".

Portnet and its predecessors have historically been responsible for infrastructure investment and development. Loans have been raised via Transnet and repaid by Portnet. The only so-called burden on the state has been the underwriting of such loans.

Ironically, the "user-pays" principle has historically applied to the extent that shippers and shipping lines have complained bitterly over the years about the price of wharfage and other tariffs.

Satawu/Cosatu are of the strong view that these references create a false impression and should therefore be deleted from the document in their entirety.




Intention to reduce government involvement and to concession port operation

The White Paper emphatically states that government intends reducing its involvement in port operations. It does this in the following sections:-
Section 3, point 1, the paragraph reading "Government will reduce its direct involvement in operations to allow for a more competitive environment."
Section 3, point 2, the paragraph reading "The extensive public investment in port infrastructure does not provide adequate return to port users and taxpayers, therefore government will concession port operations to enable users of the system to have more say in how they work."
Section 3, point 13.4 and in particular the sentence reading "The Government will reduce its direct involvement in operations and in the provision of infrastructure."

Satawu/Cosatu are concerned that the inclusion of these statements of intent in the White Paper commit Government to reduce involvement in operations and specifically to concessioning of port operations before a study has been done on the financial and other consequences, and before any consultation has taken place with labour on the implications for employment. This is contrary to the spirit and letter of the National Framework Agreement referred to in the Introduction of the Draft White Paper.

The third statement cited above is additionally problematic in that it adds reduced involvement in the provision of infrastructure. It appears to contradict one of the central landowner functions of the Port Authority, spelt out in Section 3 point 1.3 i.e. the provision and maintenance of port infrastructure.

Furthermore Satawu/Cosatu are concerned that such an emphatic commitment to a particular form of restructuring may result in government pursuing a path that contradicts the stated policy objective of enhancing the efficiency of our ports. A fully inclusive and transparent consultative and research process should be embarked upon before any such commitment is made.

Government's current involvement in port operations, via Portnet, is actually fairly limited relative to public enterprise involvement in many other countries. Stevedoring (i.e. the on-board loading and off-loading of goods) is carried out entirely by the private sector in South African ports, and the private sector is heavily involved the movement of goods from the quayside. Portnet's primary involvement in operations is in the somewhat narrow activity of "hooking" goods off vessels and depositing them on the quayside. Even in this area of activity, there are a number of private operators who control the operations of a dedicated wharf. Portnet's involvement in the transfer of bulk commodities is limited.

It is also possible that a reduced role for Portnet operations could increase shipping costs for small and medium sized exporters who may find themselves squeezed out by private investors in terminal operations.

Satawu/Cosatu's point is that a thorough analysis is required of ways of improving the seamlessness of the logistics chain in our ports. Research may even point in the direction of enhancing the involvement of Portnet operations, at least in the short term. It should not simply be assumed that the best way of enhancing efficiency and price competitiveness is to concession operations currently undertaken by Portnet.

Satawu/Cosatu have already experienced a similar situation in regard to government's commitment to the concessioning of parts of the railway network, and would not like to see such a mistake repeated. Satawu/Cosatu therefore propose that the above three portions of the White Paper be deleted.


Exclusion of port operations from port authority functions

Satawu/Cosatu are not convinced that there is any necessary reason why the Port Authority should automatically be excluded from performing port operations. Satawu/Cosatu are aware that Portnet has already been divided into Authority functions and Operations functions. This in itself does not however warrant the permanent separation of the two functions. Neither should this division be seen as irreversible, given that it was lead by government in the absence of elaboration and public participation in the development of a ports policy.

The Port Authorities of the following countries, for example, continue to be involved in operations:- Philippines, Dubai, New York, Singapore and many European ports.

It may well be the case that after careful consideration, it is found that certain economically strategic operations, such as the affordable movement of general export cargo, could most economically be performed by the state in the guise of the Port Authority.

This is therefore an area that needs far more discussion and consideration.


No mention in the draft of the importance of port handling equipment

The current state of port handling equipment (cranes etc) is often cited as one of the reasons for productivity not being up to scratch in our ports. Portnet management, shippers and shipping companies alike have pointed out the problem with the current state of this equipment.

However, nowhere in the draft White Paper is port handling equipment dealt with. There should be some reference to port handling equipment in the section dealing with the port utility functions of the Port Authority (Gazette pg 17).

Satawu/Cosatu are aware that at present the question of asset allocation between the Port Authority and Portnet operations is unresolved. Satawu/Cosatu do not at this point have a fixed view on this question. However the policy should at the very least make provision for the possibility of port handling equipment being allocated to the Port Authority and/or the responsibility of the PA to ensure that investments are made in port handling equipment and that it is adequately maintained.


The Ports Authority to be established as a company

Section 3 point 1.3 describes the characteristics of the proposed National Ports Authority. The draft White Paper states "The National Ports Authority shall also operate as a company in terms of the Companies Act, with the state being the only shareholder."

Satawu/Cosatu believe strongly that this is an inappropriate model for the NPA.

The Civil Aviation Authority (CAA), which was established in 1998 in terms of the South African Civil Aviation Act, is not constituted as a company. Rather, it is constituted as a "juristic person", with the obligation to produce financial reports in terms of the Public Entities Act of 1992. Satawu/Cosatu see no reason why the same model should not be used for the Port Authority.

International comparisons reveal that the public agency model for a Port Authority, as opposed to a company model, is the norm. Amongst others, the following port authorities are constituted along public agency lines:- New York, St Johns (Canada), Singapore, Rotterdam, Philippines, Sri Lanka, Dubai, Antwerp, and London. Satawu/Cosatu know of no port authority constituted as a company.

By constituting the Port Authority as a public agency, long-term state control and ownership will be guaranteed. By adopting a business model approach, it is possible that government will opening itself up to pressure from the private sector to sell shares in the Port Authority.

The argument for establishing the Port Authority as a public entity in no way detracts from the importance of the Port Authority operating in an efficient and financially responsible way.


Human Resource Development

Satawu/Cosatu are of the view that the White Paper should contain much more emphasis on human resource development. Human resource development is one of the critical keys to improved efficiencies in the ports. Section 3 point 11 deals with Human Resource Development, but in a very cursory manner.

Satawu/Cosatu propose that the White Paper be amended to include more references to HR development. The following insertions are proposed:-

Under Section 2 point 1 "Vision for the National Commercial Ports Policy", at the end of the first paragraph, a new sentence should be added reading "The ports should employ a stable workforce trained at levels which meet the demands of new port technologies and employed on conditions that are internationally acceptable."

Under Section 2 point 2 "Goals of the National Commercial Ports Policy", amend the last bullet point by adding after "environmentally unsustainable", "which relies on and promotes good employment practices and standards".

Under Section 3 point 3 "Objectives of the National Commercial Ports Policy" add a new bullet point, "Ensure training and employment of high quality".

Under Section 3 point 7, third paragraph add a fifth bullet point to read "Quality of training".

Section 3, point 11 "Human Resource Development", delete the first paragraph and replace with the following:- "A large proportion of workers in port operations have low levels of skill and high levels of illiteracy. There is a high degree of reliance on casual labour. These factors limit the ability of the industry to adapt to technological change and improve efficiency and levels of service. The ability of the industry to adhere to internationally acceptable safety standards is also affected."

And amend the policy recommendation that follows in point 11 by inserting the following after "…….transport sector." "To this end government will continue to engage labour on the firm establishment of a National Dock Labour Scheme as a means of stabilising employment in the industry. Government also commits itself to the ratification of the relevant Conventions and/or Recommendations of the International Labour Organisation (ILO). (Conventions 137 and 152 and Recommendations 145 and 160)."
Also, add a new sentence after "…….the challenge" to read "Government will encourage the continued engagement by the industry of the support of the International Labour Organisation's Port Development Programme".


Funding of the Port Authority

Section 3 point 2, last sentence, states "Government funding will not be available for the National Ports Authority". In addition point 7 in the paragraph beginning "The port authority's tariffs…..", states "The South African port system should remain financially autonomous and not require subsidisation from the State". Satawu/Cosatu accept that it is the international norm that Port Authorities are self-funding through levies, user-fees and rents. As stated earlier in our comment, it is also the case that historically investment in our ports has been self funded through Transnet and its predecessors.

However, given that the end-state of Transnet is yet to be determined, and given that the entire port tariff structure is currently under review, the finances of the NPA are unpredictable. Such emphatic statements on no government funding to the NPA may therefore limit the ability of the NPA to get on its feet in the initial stages. Satawu/Cosatu note that in the case of the Civil Aviation Authority, government funding was made available for the first three years of its life.

In any event, there appears to be a contradiction in the draft White Paper. Section 3 point 4 states as a policy recommendation "In the case of socially necessary infrastructure and services, the Government will contribute or guarantee financing." Satawu/Cosatu are of the view that a false distinction is made in point 4 between infrastructure and operations which provide social benefits, and those which do not.

Satawu/Cosatu proposes the deletion of the sentence quoted from Section 3 points 2 & 7, and deletion of the whole of point 4.


Inclusion of organised labour in the consultative forums/committees

Section 3 point 12 recommends the establishment of local port consultative committees comprising representatives of port management, port based institutions, business interests and provincial and local government. Organised labour is however not mentioned.

SATAWU/Cosatu proposes that the policy recommendation be amended to include organised labour as part of the local port consultative committees.


Accountability of the NPA to the Minister for Public Enterprises rather than the Minister for Transport

SATAWU/Cosatu are of the view that it is inappropriate, even on an interim basis, for the Port Authority to be accountable to the Minister for Public Enterprises. The PA is a transport entity, entrusted with the implementation of port policy. To ensure that the transport and logistics objectives of the PA are met, accountability should be to the department that is most hands-on in the field.

It should be pointed out that there is a precedent for this in the CAA and various other transport related agencies and authorities, all of which are accountable to the Minister for Transport.

SATAWU/Cosatu would actually propose that it is time that government consider transferring responsibility for Transnet to the Department of Transport, with DPE's involvement being confined to restructuring questions in the parastatal.


The Regulatory Body

SATAWU/Cosatu are not convinced of the necessity to establish a Regulatory Body, even on a transitional basis. The Competition Commission and Competition Tribunal should be sufficient to control anti-competitive behaviour.

SATAWU/Cosatu are concerned that the establishment of a separate institution creates another layer of bureaucracy which will incur unnecessary costs either for government or for the port users.

The proposed Port Regulator is not independent. The Regulator is accountable to the Minister for Transport. In Satawu/Cosatu's understanding this is counter to the principle of regulation.

Finally, there is evidence to suggest that single entity regulators, even when independent, tend to be weak competition regulators because the relationship with those the regulator seeks to bring to heel is too intense and antagonistic. There is also the danger of "regulatory capture" by industry players.

On the basis of the above Satawu/Cosatu therefore propose that regulation should be left to existing institutions.


Inland ports?

The draft White Paper defines "port" under Section 2, point 1. The definition emphasises the transfer of goods between the maritime and other transport modes. It appears to exclude what are currently referred to as the inland ports - most notably Kazerne in City Deep, Johannesburg.

Some traditional port operations such as customs clearing and forwarding are performed at the inland ports. Satawu/Cosatu also understand that there are plans to develop the City Deep area as an SDI with full export processing facilities.

SATAWU/Cosatu are unclear about the vision of government for these inland ports. Is planning for such inland ports to be outside of the NPA?

SATAWU/Cosatu have no specific recommendations in regard to inland ports, except to propose that the White Paper should spell out what the relationship between the inland ports and NPA is, even if that relationship is to be a non-relationship.

oncluding remarks

The flawed process, combined with the lack of clarity about the end state of Transnet as well as other flaws in the draft, give Satawu/Cosatu no option but to argue that the process should be put on hold until such time there has been further consultation, especially with organised labour.

Such further consultation should follow the chronology spelt out below:-

An attempt to reach consensus on what the current difficulties with our ports are. Discussions should be backed by equal access to informed, transparent and independent research.
Resolution on the end-state of Transnet, including the questions of accountability to government (i.e. which department).
An attempt to reach consensus on a vision for a Port Authority - what function it should perform and whether operations should form part of its functions.
Discussion on the institutional form of a Port Authority, inclusive of funding questions.
Discussion on whether additional interim regulation is required in the ports, and if so, what form it should take.

Once consensus is reached on the above issues, then it will be possible to start re-drafting the ports policy. In the process of re-drafting, the various other concerns raised by Satawu/Cosatu should be addressed. These would include the importance of human resource development and minimum labour standards, as well as representation of labour on various structures related to the Port Authority.