Evaluating the rate of return pricing methodology for ports in South Africa: a scenario analysis.

Abstract

Port pricing plays a strategic role in the management of ports and port operations, and it is an important aspect that informs long-term port infrastructure investment plans and broader policy objectives. The South African government regards the maritime industry as a catalyst for economic growth and acknowledges the need to promote an efficient and effective transport system. However, port costs in South Africa are high by global standards and this has a negative impact on the country’s economic growth and port competitiveness. While port costs in South Africa have improved over the years, they remain elevated. Specifically, container cargo dues and the total port costs to users in container ports are above the global sample average by 166% and 146% respectively. Consequently, the Ports Regulator of South Africa aims to implement a tariff strategy that will decrease container cargo dues to 36% below the benchmarked average. The study mainly adopted a quantitative scenario methodology but has some elements of qualitative scenario methodology. This study will recalculate the National Ports Authority’s required revenue tariff application for 2023/24 using adjusted input components (i.e., the Regulatory Asset Base, Asset beta, Tax Rate, and Excessive Tariff Increase Margin Credit) informed by an evidence-based preliminary empirical and theoretical literature analysis. This will establish a sound theoretical foundation for each scenario and relies upon in-depth analysis. The recalculated required revenue tariff application for 2023/24 demonstrates that port tariffs could be reduced significantly. That is, scenarios 1 and 2 show that tariffs could increase at a slower rate which is below the upper inflation target band of 6%. Furthermore, scenario 3 shows that port tariffs could decrease by 10,4%, while scenario 4 shows that port tariffs could decrease to 2,4%. The study shows that there is scope to reduce South Africa’s port tariffs by improving the accuracy of the components of the revenue required model, thereby fostering South Africa’s trade competitiveness, and stimulating economic development in South Africa.