Port Infrastructure Pricing: A Critique Of The Revenue Required Methodology

South Africa has a distinct system of port governance and regulated port infrastructure pricing. This article makes a contribution as it constructively critiques the Revenue Required methodology used by Transnet National Ports Authority (TNPA) for the 2014/15 tariff application. It challenges the underlying assumptions of the Revenue Required methodology as it is applied to the South African ports system and recalculates the tariff adjustment. There is a concern that the Required Revenue model may incentivise port prices at levels that are not in the best interests of the country. The findings show that TNPA’s application of the model contained rounding-off errors and the model is based on disputed assumptions. Specifically, TNPA does not include a debt beta, they use a Market Risk Premium (MRP) of 7.1% and use an asset beta of 0.5. This article recommends that the Ports Regulator of South Africa should: Include the calculation of a debt beta; allow an MRP of 6.3% or less; and use an asset beta of less than 0.5. Through scenario analyses the article demonstrates the pricing consequences of accepting these recommendations.