Draft Ports Policy is faulty, says CC

Jan 4, 2003
Author: Competition Commission

CC says draft Ports Policy fails to address vital competition issues

Several forms of competition are possible within and between the various ports in South Africa, but the Draft Ports White Paper fails to explicitly recognize these types of competition, and the draft policy is inadequate to that extent," said Geoff Parr, Chief Economist for Competition Commission in a recent submission to the Portfolio Committee on Transport.

The Commission submitted that the Draft White Paper says very little about which port services are to be concessioned, or for how long.

"Since there is a desperate need for new investment in port infrastructure, and Government is unwilling to spend its own money on that investment, it would appear that a complete range of port services must be concessioned, and for a reasonably long period of time, so that there is an incentive for the successful bidder to invest in substantial infrastructure. To make an investment pay, the investor must be assured of the monopoly right to offer enough services, and to offer them for long enough."

Parr said three forms of competition should be present; competition between SA ports (inter-port competition), within each port for providing certain port services (intra-port competition) and competition relative to South African ports international counterparts.

Inter-port competition
The Commission argued that to a degree, tariffs charged in adjacent ports should exert a disciplining effect on one another. Marginal consumers should be able to choose between, say, PE and East London, depending on which offers the best deal.
"In assessing market power, the role of marginal consumers is crucial, though they may represent only a small proportion of all consumers for a good or service. Therefore, in theory at least, and abstracting from differences in facilities offered at each, SA ports are potentially competitors to each other."

Intra-port competition
The Commission advocated that within each port, and in respect of certain services, the way to introduce vigorous competition might be to have competition in advance (ex ante) for the market, rather than competition in the market.
"Unfortunately, the draft policy makes no mention of which port services might be amenable to the introduction of competition, how much competition would be feasible, or how such competition would be brought about."

The competitiveness of SA ports
In addition to the possibility of competition in and between SA ports, there is the matter of the overall level of competitiveness, efficiency and productivity of SA ports in comparison with world standards.
"There is a general feeling amongst stakeholders that SA ports are slow and expensive, and there have been calls for increased participation of the private sector, to reinvigorate investment and efficiency."

"In their submission on the Ports Draft White paper, made to the Portfolio Committee on Transport, SATAWU (SA Transport and Allied Workers' Union) denied that Portnet had made any decent investments in SA ports for many years. Therefore, the problem was one of a lack of investment in upgrading port infrastructure, rather than the source of that investment (Government v private)."

Competition concerns
The Commission highlighted the chief competitive concern currently to be the existence of what might be called restrictive vertical practices, which come about because several competing service providers are vertically integrated to differing degrees.

"In the coming months, as part of the policy development process, the Competition Commission will continue to engage the Department of Transport and other stakeholders, in order to address some of the issues identified above," said Parr.

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