Presentation by the Department of Trade and Industry

Presentation by the Department of Trade and Industry. Parliamentary Portfolio Committee on Trade and Industry 6 th March 2013 Administered Prices and the Manufacturing Sector. 1

Context Issues - Multiple shocks on the manufacturing sector include: - Protracted global recession and decreased demand from traditional trading partners impacting heavily on manufacturing sector – jobs/exports/capacity utilisation/investment - Successive annual iterations of IPAP have highlighted serious negative impact of ‘bunched up’ and sharply escalating administered prices on the manufacturing sector: - electricity prices (especially where high municipal premiums are added) - Port charges amongst highest in the world with significant port and logistics inefficiencies 2

Context Issues - Electricity and port tariff setting and regulation are neither functions nor core competencies of the DTI. - Industrial Policy, the IPAP included, is a complex set of inter-locking, inter-departmental, transversal and sector specific policies and interventions. Policies outside of the DTI do have a profound impact on industrial development. - DTI provides a perspective mindful that the PPC has invited key institutions to provide the positions of other service provider, regulator and line function departments on the issues under discussion. - DTI informed by the often repeated perspective that sharply escalating electricity prices and grossly distorted port charges constitute serious dangers to the viability of the manufacturing sector 3

Electricity Supply & Distribution Environment - The electricity supply and demand environment remains difficult for the manufacturing sector: – NERSA has recently awarded an electricity tariff increase of 8% over the next 5 years – High, sometimes triple digit, increases are added to the Eskom tariff by municipalities – There are very significant electricity tariff disparities within and between municipalities 4

Possible short-term policy options • Strengthen of the Manufacturing Competitiveness Enhancement Programme (MCEP) and propose amendments to the 12 i incentive to up-scale support for cleaner production and energy-efficiency project development and implementation. For the MCEP this can take the form of an increase in the capex ‘cap’ for energy efficiency projects and/or an increase in the matching grant formula with an increase in the dti’s contribution. • An appropriate strategic approach and institutional location to scale up and expedite implementation of Eskom’s Integrated Demand Management (IDM) with an explicit prioritisation of the most vulnerable and strategic industrial sectors. 5

Possible short-term policy options • Scale-up support to the National Cleaner Production Centre (NCPC) in both energy audit implementation, under the MCEP and in training private sector energy auditors - NCPC (13 staff members) has worked with over 200 companies in the last 2 years, saving 185 GWh for companies by introducing energy efficiency measures. • Engagement of SALGA; Metros and Municipalities with significant numbers of vulnerable and strategic sectors to encourage a coordinated approach to assisting these sectors and to encourage moderation of municipal tariff increases under the current circumstances. 6

Possible short-term policy options – Rolling out and localisation of Smart Grid and Smart Metering technology as an urgent priority, with conditional localisation component through Designation. Improve efficiency and billing systems. – Conceptualisation of labour-intensive IDM approaches. e. g. ; Australia where suburbs are systematically targeted for residential light-bulb replacement. 7

Port Charges and Implications for the Manufacturing Sector 8

Context Issues - Successive iterations of IPAP for last 5 years raised following: - SA has amongst the highest port charges in the world - Container and automotive cargo owners face price premiums of between 710% and 874% above the global norm. (See Slides 10 and 11) – Compounded by significant ports inefficiencies - Represents a very significant constraint to exports of valueadded, labour intensive, tradable manufactured goods 9

Administered prices – port charges $600, 000. 00 Average Cost per vessel call $500, 000. 00 $400, 000. 00 $300, 000. 00 $200, 000. 00 $100, 000. 00 Terminal Handling Charge Cargo Dues YO RK E W NE BA LT IM OR ON ST LE AR CH PO RT EL IZA BE TH AN RB WN DU TO CA PE VE N RY HA BR EM ER BU E TIL HA VR RE LE PO GA SIN TW ER P YA AN GO MA NA HA G KO AN YO S AB CH LA EM OS AI RE UZ CR BU EN RA VE SA NT OS $0. 00 Sea Side Costs 10 Source: AIDC Port Benchmarking Study, 2007

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Implications - Current Port Tariff Structure - - SA Manufacturers are apparently ‘subsidising’ other TNPA operations. Tariffs for the export of bulk commodities are charged lower prices than the global averages. (Source: Ports Regulator) The export of primary commodities, mainly coal & iron ore and to a lesser extent importers of manufactured goods are priced below those required for export of tradables. Foreign owned cargo trans-shipments through a SA port also benefit from lower prices. Stands in direct contradiction to government policy (NIPF/IPAP and NGP) to support export of manufactured goods with wider economic benefits, including the balance of trade 12

TNPA Proposed Pricing Strategy • TNPA draft pricing strategy presently subject of stakeholder engagement, including government departments • TNPA suggested approach - welcome break with status quo but remains problematic. The following could be considered: – Alternative or independent asset valuation as basis for cost recovery model – Rigorous, inclusive assessment and economic cost-benefit analyses of proposed ports pricing strategy for the domestic economy, including manufacturing sector – International bench-marking of ports pricing strategy and ports efficiency – Inclusion of other value adding, revenue generating activities in the income generation and pricing model. e. g. ; Upstream Oil and Gas industry. 13

Thank You 14