Economic Regulation of Transport Bill: public hearings day 6

Meeting report

Transnet presentation

Ms Portia Derby, Group Chief Executive, Transnet, began with a general overview of Transnet’s operations. South Africa was in the unusual situation of having manufacturing centres far from the coast. She noted that Transnet’s ore railway lines were among the best in the world and profitable, but its general freight operations, which included containers, automobiles and agricultural products, were not profitable. For this reason, the issue of enabling cross-subsidisation was long overdue. Transnet was also expected to have a positive socioeconomic impact.

Transnet wholly supported the consolidation of transport regulation. Pipelines were fundamentally a mode of transport too, and their inclusion under the same regulator might be considered in future. The need to look at enabling cross-subsidisation was a reason for Transnet’s support of the Bill. There was also a need for caution, however. Over the last ten years, the fees Transnet had paid to the Railway Safety Regulator (RSR) had increased. It was unsustainable for a single entity to fund a regulator alone, and a sensible method for funding the proposed Regulator needed to be found. The principles of regulation should be standardised across modes of transport and the Regulator must be administratively independent, notwithstanding the fact that the Department of Transport was responsible for determining policy. In particular, the provision of funds for rehabilitation and maintenance of infrastructure was not standardised among different modes and should be specified in the legislation. All monopoly infrastructure providers should be required to invest ahead of demand so that the availability of infrastructure was never a constraint on growth. An amendment to the National Ports Act was expected. Transnet National Ports Authority (TNPA) was currently half regulator and half implementing agent and it was expected that its regulatory responsibilities would be transferred to the new Regulator. It would also be important to delineate the scope of the Regulator with respect to the Competition Commission (CC), but no conflicts were expected.

Discussion

Mr K Sithole (IFP) asked for more detail on how the Bill would impact on the regulation of Transnet. Did Ms Derby have any ideas about the funding of the Regulator?

Mr L McDonald (ANC) asked how much of the increase in the fees paid to the RSR was due to non-compliance fines. How had Transnet’s container tariffs increase year-on-year over the last decade?

Mr T Mabhena (DA) added that it was not fair to pass on the cost of non-compliance with safety regulation to the consumer. He noted Transnet’s view on the independence of the Regulator. He agreed on the need to ring-fence funds for rehabilitation and maintenance. There should be financial consequences for companies that did not meet their rehabilitation responsibilities. He welcomed the clarification of TNPA’s role. What was the expected financial impact of the Bill on Transnet, given that the purpose of the Bill was to curb its dominance, particularly in freight rail?

Mr L Mangcu (ANC) was also interested in the financial impact of the Bill on Transnet, especially the TNPA and the pipelines division. Would it be positive or negative? He asked if Transnet had any comment to make on the relationship of the Regulator to the CC. Was the Bill expected to have any impact on Transnet’s plans to expand its operations across the borders of South Africa and within other countries?

Mr P Mey (FF+) asked how an integrated regulator would attract investment.

Responses

Ms Derby explained that the only regulatory functions performed by Transnet were connected to certain port concessions. Transnet’s view was that all regulatory functions should be shifted to the new Regulator. She said that as South Africa did not subsidise logistics and transport, cross-subsidisation was essential to fund development. By contrast, in the United States for example, the navy would fund the dredging of a harbour, whereas in South Africa, that considerable cost would be borne by TNPA and therefore other parts of Transnet’s business would need to provide financial support. Transnet did not object to paying a fee to RSR but the fee should be fair. It also agreed that fines differed from fees, and that the cost of fines should not be passed on to consumers.

Ms Kgomotso Modise, Transnet, said that the amounts paid to RSR did not include any fines. She explained that the safety permit fee was supposed to be determined by an approved methodology, but at present the fee was being determined arbitrarily because the methodology had been found to be unreliable.

Mr Mboniso Sigonyela, Transnet, said that Transnet had committed to keeping increases in container tariffs below 6% per year. They had been in the 5-6% range over the last five years.

Ms Derby said that Transnet had begun a fundamental breakdown of the cost of its infrastructure and operations across all of its entities, to try and understand the unique cost structure of logistics in South Africa. This was expected to take about three years. As a regulated entity Transnet would be allowed a utility rate of return, and it required a thorough understanding of underlying costs to determine this rate. The benefit of a single regulator to investment was in its simplicity.

Adv Sandra Coetzee, Chief Legal Officer, Transnet, said that the Bill was not only an opportunity to consolidate regulation of the transport sector, but it was also an opportunity to lay down transparent principles to which the Regulator was expected to adhere. The principles according to which prices would be set should be included in the Bill itself, to provide certainty for customers, the shareholder and the regulated entity. Transnet was already in consultation with the CC to prevent anti-competitive behaviour. Currently, there was a degree of “forum-shopping” between the CC and the Ports Regulator. There should be clarity on what matters should be raised with the CC and the proposed Regulator respectively, to prevent expensive and unnecessary litigation.

Ms Derby appreciated the Committee’s support for the ring-fencing of maintenance and rehabilitation costs. If its regulatory responsibilities were transferred to the proposed Regulator, TNPA would become a port landlord. However it would be crucial for TNPA not to be separated from Transnet Freight Rail (TFR), to allow for cross-subsidisation. There would be no way for Transnet to fund a new port in Buchu Bay, which would unlock a lot of mining potential in the Northern Cape, without cross-subsidisation. There was no expected negative impact of the Bill on Transnet’s pipeline division, as it was already regulated. It was obvious that growth could not take place in a sea of poverty. Therefore it was important to look at the whole Southern African Development Community (SADC) as a potential consumption base. She hoped that regulation might involve incentives for efficiency as well as penalties. It was also important to work in partnership with the private sector.

The Chairperson agreed there could be no growth amid widespread poverty and he appreciated that Ms Derby had raised the issue. Whatever Transnet did from an economic point of view, whether it be procurement or any other activity, the majority of South Africans remained outside the process. What was Transnet’s view of this state of affairs and what steps was it taking to remedy it?

Ms Derby said that she would welcome a discussion on the matter. Transnet was a level two broad-based black economic empowerment (BBBEE) entity and it had committed to staying at that level regardless of which charter it fell under. This compelled Transnet to support enterprise, supplier and skills development. It was fair to ask the question of whether Transnet had supported small and medium-sized enterprises in this way, but she could not accurately answer it. It was reviewing procurement policies around suppliers of all sizes. R500m was spent per year on skills development. She added that the large number of different charters that had to be complied was a huge concern, and wondered whether it would be possible to create a single transport charter or for Transnet to comply with generic Department of Trade, Industry and Competition codes. This would make it easier to comply. Transnet was committed to providing a clearly measurable benefit to the communities in which it operated.

Adoption of terms of reference of subcommittee on the Public Protector’s report on illegal vehicle conversions

Adv Alma Nel, Committee Content Advisor, said that she had amended the terms of reference to include the additions that had been requested by Mr C Hunsinger (DA).

Mr Mangcu asked for clarity on the subcommittee’s administrative support.

Ms Valerie Carelse, Committee Secretary, said that the subcommittee would use the administrative support resources of the Portfolio Committee.

The terms of reference were adopted and the meeting was adjourned.