THE PORT TARIFF FORMULATION, REVISION AND APPROVAL PROCESS

APPROVAL PROCESS

As mentioned in section 1.3, third objective of the study is to assess the determinants of port infrastructure tariff design and practices in world seaports and discuss the implications for port management and policy makers. Thus open-ended question section is to investigate whether port follow a structured procedure to design, revise and implement tariffs. This section presents the results of the two open-ended questions included as part of the questionnaire to international seaport managers (Appendix II). The first open-ended question concerned the survey port's tariff formulation, revision and the tariff approval process, and the second one concerned the training needs for port managers in port tariff design. The tariff setting practices that are influenced by port tariff policy include: having a policy guideline for tariff

22 _{An e xtract of responses to the open ended questions E5.2 and E5.3 on tariff formu lat ion, revision}

and approval process of the respondent’s port and the training needs for p ort managers in port tariff designing is provided in Appendix II.

134 design and revision; revising tariffs based on the port’s competitive position and strategic plan; obtaining input from the port's commercial and planning departments; and having a policy on rebates and discounts. A content analysis of the responses to the open-ended question on port tariff formulation and the revision procedure reveals the role of a port committee or a board of directors and the existence of several different approaches to tariff formulation, revision and approval (summarised in Table 5.17).

135 Table 5.17: Port tariff revision and approval: participants and the process.

Port Admi nistrati ve Model

Internal

body Re vie wers

Government Re p

Government

Appr oval Fee dback Process

Municipal port enterprise

Port committee/ board Co mme rcia l section Council representative - -

Internal depart mental rev iew → internal co mmittee→ imple ment

Statutory port authority Board of directors Internal staff/CEO/ Ministry representative Ministry/ Regulatory approval

Port users Internal rev iew → Board of d irectors → min istry recommendation → regulatory approval → imp lement Co mme rcia lised port

authority Board of directors Port manage ment - Ministry

approval Port users Internal rev iew → Ministry approval→ implement Port department Internal

committee

Port financia l section/CEO

- Ministry

approval Internal rev iew → Ministry approval → imp lement Port corporation Board of

directors

Each port

department -

Ministry

approval Port users

Internal rev iew → Board of d irectors → customer feedback → imp lement

Private limited company Board of directors Internal review/ e xternal consultants/ CEO

- - - Consultant → CEO → Board o f directors

→imp lement

136 In ports owned by municipal councils port tariffs are subject to approval by a port committee, usually the council of administration of the port authority. The council is made of representatives of the public administrators and of the port operators. The analysis of responses from port managers revealed that 60% of port authorities have a committee responsible for tariff formulation, review and revision. They also stated that the technical aspects of port tariffs are handled by their port’s commercial division.

The following summarises the d ifferent procedures for tariff formulation and revision used by the municipal ports surveyed:

i. The existing tariff structure, including both tariff items and rates, is used for tariff revision. The revision is proposed by the Business & Operations Department based on the market and certain other conditions for consideration and approval by a committee of selected members chaired by the Chief Executive O fficer (CEO) of the port. Revision is usually on an annual basis but sometimes is on-demand (when required).

ii. Tariff change initiatives are first suggested internally by the department that owns the tariff then, after consultation with port users, the proposed fees/changes are internally approved by the Executive Committee or the Board, upon which a notice of the fee/change is published before the fee comes into effect.

A port tariff committee works with port operators to review tariffs based on the Consumer Price Index and in the event of a new port investment, identifies new port users and proposes incentives for port users.

Statutory public port authorities established under the service and landlord models represent 33% of the ports sampled. The procedures for tariff formulation and revision used by the statutory public port authorities surveyed are summarised below:

i. Port tariffs are annually reviewed by senior staff responsible for tariffs with the CEO and with the endorsement of the CEO of the port. The revised tariffs are then forwarded to the Board of Directors for final approval.

137 ii. The port tariffs are agreed by a Port Committee that is the administrative council of the port authority. The council is made of representatives of the public administrators and the port operators.

iii. Port tariffs are revised annually to adjust for the inflation rate. After discussions between the Executive Board and the port community association, revised tariffs are submitted to the government (at the ministerial level) for approval.

iv. Basic tariffs are approved by the government and the port has a limited authority to change, depending to its strategy and financial situation.

v. The tariff revision process is based on the strategic plan and objectives, and is reviewed by a state board responsible for public sector administration.

vi. Tariff revision considers the regional trends in tariffs, the tariffs of competing ports and the infrastructure costs. Tariffs must be approved by a board of directors and/or a commissioner and a supervisory board of the port.

The data collected also revealed the different steps that ports under the statutory port authority administrative model take when revising and formulating port tariffs. These are:

i. Conduct a review of the prevailing rates (domestic and regional) for similar services offered at competing ports. This includes a review of the port's competitive position and the behaviour of competing ports.

ii. Review the financial conditions of the port, and any wages and salary increases that are a result of negotiations with employees, which increase the operational costs.

iii. Strive to engage in the settlement of labour contracts with labour unions in order to reduce operational costs through higher efficiency, which will impact on shipping lines costs.

iv. Account for the maintenance of and acquisition of new equipment and infrastructure.

v. Ensure that the port remains competitive by using a conservative increase in tariffs.

vi. Forward revised tariffs for approval. The approval process would include board approval from the port and ministerial approval on behalf of the government.

138 The information provided by commercialised port authorities on the tariff formulation revision and approval procedure indicates a procedure similar to that adopted by statutory port authorities. The involvement of the Board of Directors of the port and the relevant ministry for tariff approval is common to both administrative models. While tariffs are reviewed and revised annually by port management, it involves a process of engagement with all port stakeholders. Port users are informed of the revised tariff rates prior to implementation for comment and suggestions. Interestingly, tariffs are revised annually with regards to the rate of return objective and cost increases including finance costs, wages and other supplies of the port. The changes to pricing are usually formulated and documented in the port’s strategic plan.

Survey information provided by Government Department port authorities indicates the tariff formulation revision and approval procedure involves a public policy prescription adopted by a public department or a bureau. Since port infrastructure tariffs, port, berth and light dues, are charged for the use of public marine infrastructure and facilities, fees levied are based on the schedules contained in legal provisions and thus, revision to those schedules is a legislative procedure. While tariff revision is carried out annually based on cost, the process involves approvals by the CEO of the port and the minister. Port tariffs are internally reviewed and adjusted by the financial department of the port with technical inputs given by respective departments such as the Marine Department and Port Works Division of the Civil Engineering and Development Department.

For Port Corporations including both statutory and limited corporations, port tariffs are reviewed regularly to ensure currency using financial reports, market information and strategic planning. Once reviews are completed, tariffs are set. After the approval of the Board of directors, tariffs are published to port customers. Unlike a port under a port authority or government department, there is no or much less government or regulatory involvement in the tariff approval process. The tariff revision process is carried out internally. The existing tariff structure is revised by each department of the port based on the market and certain other conditions for consideration and approval by a committee chaired by the CEO. In order to increase the transparency, revised port charges are notified to port users with information concerning the reasons for revision.

139 The tariff revision process of the more corporatised port administrative models such as private limited company ports involves the annual revision of tariffs to allow for growth in infrastructure, customer requirements and the need for a return to shareholders. In the revision process, port management often employs external consultants in the absence of internal expertise. As commonly seen in other port administrative models, the pricing of tariffs is led by the CEO or Financial Officer. The results are submitted to the Board of Directors of the port for approval. More importantly tariff adjustment takes into account the Consumer Price Index and other input cost changes.