South African Port Operations Restructuring

1. South African Port Operations Restructuring Meeting: Portfolio Committee on Public Enterprises Venue: M201 Date : 17 September 2003

2. Part 1 Vision and rationale for restructuring of South African Ports

3. 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

4. Institutional and Policy Context • Policy Framework: Accelerated Agenda for the Restructuring of State Owned Enterprises August 2000 • Government and Labour engage on restructuring of SOE’s 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

5. Drivers for Change • South Africa’s ports system faces multiple challenges as a result of: • Fast growing trade volumes, and • Global trends in transport economics driving structural changes. 95% of world’s 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 Africa’s port system must address these challenges despite: • Remoteness of South African ports from major markets, and • The distance of South Africa’s manufacturing centres from ports

6. 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 Africa’s ports system must address these challenges urgently if economic growth and development objectives are to be sustainably realised.

7. 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 Africa’s global competitiveness and facilitating the expansion of the South African economy through socially and environmentally sustainable port development”.

8. 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

9. 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

10. 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

11. 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

12. Rationale for Port Reform in South Africa • Departs from economic policy of infrastructure and services to support growth and development • Government’s 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

13. 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

14. End state of South African port system

15. Proven Effects of Concessioning

16. Part 2 Restructuring of South African Port Operations The journey has begun

17. 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

18. 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

19. 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’

20. 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

21. 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.

22. 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

23. 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

24. 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

25. 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 Governement’s Triple Bottom Line considerations,i.e. Social, Economic and Environmental benefits.

26. 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

27. 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

28. 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

29. 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

30. 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

31. Part 3 Government’s consultations with organised labour through the NFA

32. 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”

33. Ports Restructuring Committee • PRC enagementNDOT SATAWU DPE UTATU DTI UASA 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

34. 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

35. 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

36. 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

37. Thank you Questions