The Ports Regulator Overview and Presentation on 2009/10 Annual Report

1. The Ports Regulator Overview and Presentation on 2009/10 Annual Report Portfolio Committee on Transport 22 October 2010

2. Index • National Ports Act and Regulator mandates • Regulator Programmes and Main Activities • Financial Year 2009/2010 Annual Financial Statements www.portsregulator.org

3. Objects of the National Ports Act • Development of effective and productive ports industry for economic growth and development • Promote and improve efficiency and performance in the management and operations of ports • Promote the development of an integrated regional production and distribution system in support of government policies www.portsregulator.org

4. Functions of the Ports Regulator In terms of the Ports Act • Exercise economic regulation of the ports system in line with government’s strategic objectives • Promote equity of access to ports and to facilities and services provided in ports • Monitor the activities of the National Ports Authority to ensure compliance with the Act • Adjudicate complaints and appeals against the Authority • Approve or reject the Authority tariffs • Promote regulated competition • Regulate the provision of adequate, affordable and efficient port services and facilities www.portsregulator.org

5. Objectives of economic regulation • Promotion of efficiency • Promoting investment • Protection of port users • Prevention pricing and service discrimination • Prevention of anti-competitive practices • Competition amongst ports • Competitive and affordable tariffs www.portsregulator.org

6. Regulator programmes • Administration • Economic Regulation and Tariffs • Monitoring and Compliance • Tribunal and Regulatory development • Industry Development www.portsregulator.org

7. Current activities • Economic review of participation in Ports System • Implement Ports Regulatory framework • Adjudication of appeals and complaints • Maintain the Regulator secretariat and systems • Implement tariff regulation framework • Port monitoring www.portsregulator.org

8. Financial Year 2009/10 Annual Financial Statements www.portsregulator.org

9. 2009/2010 Overall Audit Opinion • Clean Audit • No disclaimers or qualifications • 100% Audit • Some matters emphasised www.portsregulator.org

10. Overall Audit Opinion (2) • Additional matter Unaudited supplementary schedule The public entity provided supplementary information in the financial statements on whether resources were obtained and used in accordance with the legally adopted budget, in accordance with GRAP 1 Presentation of Financial Statements. The supplementary budget information set out on page 59 does not form part of the financial statements and is presented as additional information. Accordingly I do not express an opinion thereon. www.portsregulator.org

11. Matters of Emphasis • Matters of emphasis and explanations Material underspending of the budget • As disclosed in note 23 to the financial statements, the entity has materially under-spent its budget in the amount of R2,843 million. This is attributable to the fact that the entity is not fully operational in terms of its mandated function and key positions were still vacant due to the organisational structure not yet being approved by the executive authority. • Mainly in the area of staff costs and indirect costs, some capital expenditure accelerated to reduce under-spending www.portsregulator.org

12. Emphasis of matters – 2009/10 Unaudited supplementary schedule The public entity provided supplementary information in the financial statements on whether resources were obtained and used in accordance with the legally adopted budget, in accordance with GRAP 1 Presentation of Financial Statements. The supplementary budget information set out on page 59 does not form part of the financial statements and is presented as additional information. Accordingly I do not express an opinion thereon. Requirement under Ports Act, but not auditable in accordance with PFMA

13. Emphasis of matters – 2009/10 (cont.) Submission of strategic plan • The accounting authority of the Ports Regulator of South Africa (listed in schedule 3A of the PFMA) submitted its strategic plan after the start of the financial year (that is, 30 April 2009) to its executive authority, contrary to Treasury Regulation 30.1.1 of 2005. • The Strategic Plan was submitted for comment to the Department of Transport prior to the required date, for feedback. The Plan was finally submitted on the date set out above, after amendments as required by the DOT. www.portsregulator.org

14. Emphasis of matters – 2009/10 (cont.) Non-adherence to legislation • The entity’s audit committee was not properly constituted in terms of Treasury Regulations 27.1.3 and 27.1.4. Moreover, it did not substantially fulfill its responsibilities, contrary to the requirements of Treasury Regulation 27.1.8 as well as sections 51(1)(a)(ii) and 76(4)(d) of the PFMA. • The Regulator interprets the Members as non-executive, due to the special nature of the Regulator structure. The Regulator acted in accordance with this interpretation in establishing and managing the Audit Committee. The interpretation of the AG, classes Members as Executive. The Regulator to take opinion on the matter and change composition and operation of the Audit Committee in accordance therewith. Due to their not being permanent staff, business continuity plans could not be developed and implemented. www.portsregulator.org

15. The entity’s internal audit function did not have an internal audit charter as required by Treasury Regulation 27.2.5. Moreover, it did not substantially fulfil its responsibilities, contrary to the requirements of Treasury Regulation 27.2.10 as well as sections 51(1)(a)(ii) and 76(4)(b) and (e) of the PFMA. The Internal Audit function was outsourced due to the organisation being so small and thereby not justifying the establishment of an in-house internal audit. The internal audit report was not signed off by the end of the financial year. This has been corrected. Emphasis of matters – 2009/10 (cont.) www.portsregulator.org

16. The entity did not settle payments due to creditors within 30 days from date of receipt of invoices, contrary to the requirements of section 38(1)(f) of the PFMA. Consequently, fruitless and wasteful expenditure amounting to R6 219 was incurred. Emphasis of matters – 2009/10 (cont.) www.portsregulator.org

17. The entity did not formally approve and implement a fraud prevention plan during the year under review, contrary to the requirements of section 51(1)(a)(i) of the PFMA. DOT policies followed in periods up to 1 January 2010(DOT managed the payments). Subsequent to that internal audit outsourced, but had not been signed off by year end. Emphasis of matters – 2009/10 (cont.) www.portsregulator.org

18. Internal control I considered internal control relevant to my audit of the financial statements and the report on predetermined objectives and compliance with the PFMA, but not for the purposes of expressing an opinion on the effectiveness of internal control. The matters reported below are limited to the deficiencies identified during the audit: Leadership Leadership did not design and implement an appropriate internal control system to monitor and ensure that the entity complies with all applicable laws and regulations. The current staffing levels including contract staff, does not allow the formal process separation necessary between procurement and financial transactions. The CEO signs off all payments to ensure oversight, until such time as staffing all in place. No irregularities encountered in any transactions that were the result of a lack of internal controls. Emphasis of matters – 2009/10 (cont.) www.portsregulator.org

19. Governance The internal audit function and audit committee did not substantially fulfil their functions to management/those charged with governance in maintaining and ensuring an efficient and effective system of internal control during the year under review. Moreover, the systems necessary to mitigate the risk of fraud have not been implemented. The internal audit function was out-sourced as the organisation is too small to justify a stand alone full time internal audit function. The internal audit function of the DOT managed the oversight of payments till 1 January 2010. The financial systems that were implemented did not have an audit function that met the requirements of the AG, although documentary records recorded the classes of transactions referred to. Other reports No matters to report. Emphasis of matters – 2009/10 (cont.) www.portsregulator.org

20. Achievements – 2009/10 www.portsregulator.org

21. Achievements – 2009/10 (cont.) www.portsregulator.org

22. Achievements – 2009/10 (cont.) www.portsregulator.org

23. Achievements – 2009/10 (cont.) www.portsregulator.org

24. Achievements – 2009/10 (cont.) www.portsregulator.org

26. Ports Regulator – Financial Performance (cont.) www.portsregulator.org

28. Ports Regulator – BBBEE www.portsregulator.org

30. Employment Equity(including contract staff)

31. Additional Issues • Consultants and Lawyers • R 2.1 million • Travel and Accommodation • R 1.4 million • World Cup declarable • 14 BafanaBafana T-Shirts (R 8 000.00) • International Port Company and Regulator Managers • Singapore • Australia • Malaysia www.portsregulator.org

32. Challenges in 2009/2010 • Capacity a problem • First tariff assessment was difficult as Regulator to act in the absence of historical precedent • Policy gaps eg. What is the perspective on Capital Work in Progress? • Implementation of Act, questions as to speed and possible policy shifts • Small organisation challenges such as scale dependent systems eg. Information and data processing systems www.portsregulator.org

33. Strategic Challenges • Budget constraints – long-term financial sustainability • Part-time Regulator issues and implications • Time constraints • High requirement for Regulator Member time for tribunals eg: 5 day hearing = 1 Appeal, 16 complaints coming through process, 6 board meetings at least per year, plus • Clarity on approach to port institutional structure • Impact of unified Transport Policy changes on PR? • Ensuring Regulator is not referee and player. • Balance of infrastructure programme in economic development versus cost of doing business? • Determination of appropriate infrastructure build programme against which Regulation occurs? www.portsregulator.org

34. Interventions required • Consideration of additional members that have higher levels of availability for tribunal • Consideration of structure eg. Secretariat and Commission Structure • Revised income model for Regulator • 2010/2011, requested R20m, allocated R8.8m • Infrastructure tariff approach by DOT • Amend Act to streamline administrative processes • Infrastructure sign-off to NPCC? • What does the state expect the outcome of the Regulator to be over the first ten years of its existence? • Additional budgetary allocation? • How far do we want to take this? www.portsregulator.org