On 11 June 2024, the Economic Regulation of Transport Act of 2024 (Act) was promulgated into law. A copy is available from the South African Government website here.
The key objective of the Act is to establish a single Transport Economic Regulator (Regulator), which will be the only regulator regulating economic aspects of the different modes of transport in South Africa, namely road, rail, sea and air.
The primary aim of creating a single Regulator within the transport sector is to prevent monopolistic pricing by regulated transport entities and to combat inefficiencies.
The Act applies to all markets, entities, facilities and services in the transport sector which have until now been subject to economic regulation under other statutes, viz. the Air Traffic and Navigation Services Company Act, the Airports Company Act, the National Ports Act, the National Land Transport Act and the South African National Roads Agency Limited and National Roads Act.
Access to infrastructure in respect of roads, shipping, ports and aviation will still be regulated by the other legislation mentioned above.
Chapter 2 of the Act deals exclusively with the proposed regulatory structure of rail and has been included in the Act to deal with access to rail infrastructure.
The provisions of Chapter 2 of the Act apply solely to access to rail infrastructure as there is no other policy or legislation regulating this access by third parties.
Access to rail infrastructure has also been facilitated by the infrastructure manager (Transnet SOC Ltd) publishing a draft network statement that sets out the conditions of rail access for rail operators.
According to section 71, the Act will come into operation on the effective date (or dates) to be announced by the President, alongside the transitional arrangements detailed in Schedule 2 of the Act.
Pricing by the Regulator
The Regulator’s key functions and powers are to regulate and approve the price tariffs of regulated entities within the transport sector, such as Transnet, in respect of the use of the infrastructure and other services in the regulated transport sector.
The Regulator will use its discretion to set the pricing method, taking into consideration the needs of each area in the transport sector. The Regulator is envisaged to perform a similar function to that of the National Energy Regulator of South Africa (NERSA).
Until the Regulator has published new price controls, the existing price regulations in each area of the transport sector will remain in force and effect.
The pricing process by the Regulator is an inclusive process where the regulated entities will submit their respective pricing proposals to the Regulator.
Subject to the methodology(ies) employed by the Regulator, the latter may approve the tariff proposals with or without conditions or deny the proposed pricing tariffs and request new tariff pricings from the regulated transport entities. No methodologies have yet been prescribed and therefore it is not clear whether, for instance, there will be any price cap on tariffs.
We expect the Regulator to emulate the methodology and past practice of the Ports Regulator to some extent.
The latter has successfully managed to keep Transnet National Ports Authority (TNPA) port prices in check for the past 15 years and has saved industry many billions of rands over that period.
The transparent pricing guidelines and access to infrastructure are expected to promote healthy competition in the industry. This will benefit the transport sector by fostering a competitive market and driving down costs for consumers.
Port terminals, services and facilities
From our initial review of the Act, it is not completely clear if its ambit and scope extend to both ports and port terminals. Under the regime in place prior to publication of the Act, the Ports Regulator of South Africa is tasked with overseeing TNPA, but has not exercised jurisdiction over Transnet Ports Terminals (TPT) or, indeed, any terminal operators.
In an article recently published by Maritime Review Africa, the CEO of the Ports Regulator of South Africa, Johanna Mulaudzi, was quoted as saying that ‘it is important to note that the single transport economic regulator expands the regulation beyond infrastructure’.
Noting this comment, and the amendments to the National Ports Act set out in Schedule 1 of the Act, it can be assumed that both the ports and the operations of port terminals are all intended to fall within the scope and ambit of the Act and the new regulation by the Regulator.
This assumption is made on the basis that the definition of ‘transport sector’ (shipping and ports, aviation, rail or road transport and infrastructure) as set out in the Act includes ports ‘and infrastructure’. It is assumed that by extension this also includes port terminals.
Section 3(b) of the Act states that the purpose of the Act is to ‘promote the development of an integrated system of economic regulation of transport of passengers and goods, by air or through airports or ports, and by road or rail’.
Section 4(1) says that the Act applies to ‘any market, entity or facility in the transport sector that was, immediately before the effective date, subject to economic regulation by the Minister’.
A review of the definitions of ‘market’ (any place or platform where exchange for goods and services at a certain value exists) and ‘facility’ (any physical infrastructure used for the transportation of persons or goods within the transport sector) respectively, suggests on a wide interpretation that the infrastructure of ports and port terminals falls within the definition of ‘facilities’ and that the operations undertaken at the ports’ facilities fall within the definition of ‘market’.
Subject to the provisions of section 4(2), the Minister is empowered to extend the application of the Act to state or privately-owned markets, entities or facilities within the transport sector that were not previously subject to economic regulation, where a dominant sole operator exists or where preconditions for efficiency and cost-effectiveness do not exist.
As port terminals have not been subject to economic regulation by the Minister up until now, they will not automatically become subject to economic regulation, but the Minister may extend the application of the Act to include them. Arguably the Minister could extend the ambit of the Act even wider to include operations such as container storage depots.
Therefore ports will also be regulated by the Regulator and port terminals and the operations undertaken at the port terminals might be regulated in future.
Having said that, a narrow interpretation might exclude port terminals in the sense that they are not so much used for transport as to facilitate the transfer of cargo between different modes of transport.
However, we are of the view that the intention is for the Act to be of wide application in the transport sector.
Under section 11(1)(h) of the National Ports Act, TNPA is required to ‘ensure that adequate, affordable and efficient port services and facilities are provided’. Given the requirement to ensure that port services and facilities should be ‘affordable’, this suggests that TNPA is required to exercise economic regulation of the service providers that TNPA licences to operate in the ports system.
The consequential amendments set out in Schedule 1 of the Act do not repeal or amend this provision in the National Ports Act. In addition, the Regulator is granted further oversight of agreements in port operations and services entered into with TNPA under section 56 of the National Ports Act.
On the assumption that section 11(1)(h) requires TNPA to regulate tariffs of port terminals, this could potentially cause a conflict in the functions of the Regulator and TNPA. Having said that, historically TNPA has never exercised economic regulation as such in respect of port terminal operators (ie it has never regulated any tariffs of such operators, possibly because this would require it to regulate the tariffs of TPT, which would create an inherent conflict of interest).
Its regulation has always been more focused on operational efficiencies. Accordingly, it may be convenient for TNPA to have port terminal tariffs regulated by the Regulator.
Provision is made for this in the amendments to sections 56 and 57 of the National Ports Act whereby the Regulator must approve, and may vary, agreements and licences issued to entities in the same corporate structure as TNPA (eg TPT). Fees payable to TNPA for the granting of concessions and licences, will then accrue to the Regulator despite the fact that the Regulator is not the landlord.
Conclusion
At the Department of Transport briefing held on 8 February 2023, members of the Select Committee on Transport, Public Service, Administration, Public Works and Infrastructure expressed their concerns over the consolidation of various transport entities and the overreaching and unnecessary regulation of the transport entities.
The Department expressed that the TNPA had concerns regarding the implementation of the Act and that these concerns would be addressed in the regulations.
At the briefing the members did not go through or discuss the concerns raised by TNPA. To date, no regulations have been published for public comment and it is therefore not clear what concerns have been raised by TNPA.
It could be that the TNPA has flagged that it is not clear from the provisions of the Act whether the facilities of ports and port terminals and the operations on the port terminals are subject to the provisions of the Act and accordingly seeks clarity on whether TNPA will continue its functions of regulating the ports system under the National Ports Act.
We can only confirm this position once we have had sight of the regulations.
The Act also promotes the establishment and formation of the Transport Economic Council as the primary adjudicative entity, which will review decisions of the Regulator in the event of any conflict or dispute that arises from the Act when an affected party applies for a review.
The Transport Economic Council will have the obligation to review the decisions of regulated entities when a user of a facility or service provided or licensed by a regulated transport entity considers that its rights have been adversely affected.
We will only be in a position to provide more specific advice once regulations for the Act have been promulgated.
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