In terms of Section 72(1)(a) of the National Ports Act No. 12 of 2005 ("the Act"), the Transnet National Ports Authority ("TNPA") with the approval of the Regulator is required to determine the tariffs for the services and facilities offered by the TNPA on an annual basis. In determining the tariff, the TNPA is bound by the prescribed Tariff Methodology issued by the Regulator in July 2014. The Methodology applies to the 2015/2016 to 2017/2018 tariff years and allows for the annual review and adjustment of the tariffs as opposed to fixing them for the full period. The tariff application for the 2016/2017-tariff year has been published for public comment (TNPA Tariff Application 2016/2017) and any interested parties are invited to attend the TNPA Roadshows and submit written representations by 16 October 2015.

The TNPA, like any port authority, generates revenue through compensation for the utilization of port infrastructure and providing services to all port users. It is therefore incumbent upon the authority to raise tariffs reasonably in order to sustain the organization into the future, with the additional benefit of promoting long term economic growth. According to the 2016/2017-tariff application, the TNPA has applied for revenue of R11 895m, which translates into a weighted tariff adjustment of 5.90%, and is in line with the current inflation rate.

With regards to the Regulator's tariff strategy (Ports Regulator Tariff Strategy 2015/2016) and in order to continue tariff rebalancing and reduce cross-subsidization, the TNPA has proposed differentiating tariff increases in order to fairly allocate costs to all port user groups according to the principle of cost orientation. Cost orientation refers to the fact that services should be priced according the underlying cost of providing the service and that users benefiting directly from the use of the service should cover this cost.

An increase of 6.80% is envisaged for marine charges (borne by shipping lines) such as tugs, berthing and pilot assistance, with a reduced increase of 5.60% in respect of Containers, Automotive, Break & Liquid Bulk (please refer to Table). The average tariff adjustment for the 2015/2016 to 2017/2018 tariff years is expected to be 7.81%, which is in line with that previously communicated to stakeholders at the launch of Transnet's Market Demand Strategy in 2012. According to current forecasts, shipping lines can expect an annual real increase of approximately 7.2%, but will be reviewed annually and reflected in the tariff determination.

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Port tariffs are invariably influenced by the global economic outlook and forecasted volume growth. The subsiding economic growth within South Africa's major trading partners is expected to impact both container volumes and break bulk exports. The weakening Chinese economy traditionally relied on large investment projects and heavy industry that fueled the demand for coal and iron ore exports. Furthermore, the continuing commercial risk within the liquid bulk industry coupled with a volatile Rand exchange rate has led to declining margins. However, the forecast for the 2015/2016-tariff year is positive with the TNPA estimating an overall increase in volume of 3% across all cargo types.

In line with the prescribed Tariff Methodology, the TNPA operates within a zero sum game, with the inclusion of a claw-back provision ensuring that TNPA and/or port users do not benefit/suffer from any discrepancies between the forecasts submitted at the time of the tariff application and the actual realized figures. Over-recovery in 2014/2015 and a projected surplus in the 2015/2016 tariff periods have been included in the 2016/2017-tariff application and resulted in the reduction of the proposed weighted tariff increase from 15.91% to 5.9%.

Whilst the TNPA continues with the implementation of the Market Demand Strategy in order to ensure the development port infrastructure capacity ahead of demand, it has re-iterated its support for the South African government's economic objectives regarding beneficiation and export competitiveness by incentivizing value-adding activities. In accordance with these objectives, the TNPA has considered a tariff adjustment in line with inflation for 2016/2017 whilst attempting to smooth the tariff trajectory for future years.