1. AVIATION TARIFF REVIEW PROCESS AND METHODOLOGY
REGULATING COMMITTEE FOR METEOROLOGICAL SERVICES
Climate Change and Air Quality

2. CONTENTS OF THE PRESENTATION
Purpose
Introduction and Background
Overview of RCMS
Legal and Legislative Background
Background of Methodology
Revenue Requirement
Weighted Average Cost of Capital
Correction Factor
EUROCONTROL Formula
Calculating Service Units
Tariff Formula
Proposed Tariffs – 3 Year MTREF
Annual Calendar

3. PURPOSE
The purpose of this presentation is to provide and overview of :
Multi-year Price Determination methodology for Aviation Tariffs and Revenue
Annual Calendar for the Regulatory Process

4. INTRODUCTION AND BACKGROUND
The Aviation Industry regarded SAWS as a monopoly as they are the only authorised provider of AMS in RSA
In 2000, Aviation formally requested that their interests be protected and that a Regulator be appointed
The Regulating Committee for Meteorological Services was established in terms of Section 20(1)(a) of the South African Weather Service Act (Act No. 8 of 2001) which reads –
“The Minister must establish a committee, to be known as the regulating Committee for Meteorological Services.”

5. OVERVIEW OF THE RCMS
The name of this committee must be carefully noted as this, in itself, provides some insight into its role and function – i.e. it is the
“Regulating Committee for Meteorological Services” and not the “South African Weather Service (SAWS) Regulating Committee”.
The Regulating Committee must, on behalf of the Minister and civil society, ensure that SAWS implements its statutory mandate in respect of the delivery of meteorological services in an efficient, effective, fair and transparent manner in line with government policy and legislation.

6. LEGAL AND LEGISLATIVE BACKGROUND
South Africa, as a member and signatory, is obliged to enforce the rules and regulations of :
ICAO (International Civil Aviation Organization), Chicago Convention
WMO (World Meteorological Organisation)
The Aviation Industry is governed by “rules and guidelines” from ICAO and are obliged to use specialised services from SAWS
SAWS is the sole authorised provider of AMS in South Africa

7. BACKGROUND OF THE METHODOLOGY
The RCMS uses the Rate of Return (ROR) Regulatory Framework to determine SAWS’ revenue from the provision of aviation services:
SAWS generates revenue that is sufficient to fund its operating budget for the provision of aviation services (only)
Generate a fair and reasonable return from infrastructure investment into aviation
Clawback or pass through any losses or surpluses below or in access of budget
EUROCONTROL Formula is used to determine the actual tariff
As per ICAO member states

8. REVENUE REQUIREMENT R = E + (V-d+w) i + X
RoR formula used to determine the required revenue
R = E + (V-d+w) i + X
R = Revenue
E = Operating Expenditure Budget
V = Carrying Value of Regulated Asset Base (RAB)
d = Accumulated depreciation on RAB
i = Expected return on infrastructure investment based on Weighted Average Cost of Capital (WACC)
X = Recovery factor

9. WACC
Uses the Capital Asset Pricing Model (CAPM) to determine a reasonable return on infrastructure investment
Infrastructure that is deem essential in the provision of aviation services included in the Regulated Asset Base (RAB) i.e. –
Computer Software and Hardware
Meteorological Equipment
Infrastructure typically not included in RAB iincluded the following
Vacant Land
Head Office Furniture and Equipment

10. CORRECTION FACTOR
Should there be a shortfall or surplus in the audited financial year the difference is passed through or clawed back from the industry using the formula below:
X = (E actual – E budget) + (R actual – R budget)+ (RAB actual – RAB budget)
X = Correction factor
E = Operating Expenditure
R = Required Revenue
RAB = Regulated Asset Base

11. EUROCONTROL FORMULA Charge = W x D x T EUROCONTROL Formula:
W = Weight (SQRT{MTOW/50})
D = Distance (KMS/100)
T = Tariff in Rands

12. CALCULATING SERVICE UNITS
Service Units are calculated using the EUROCONTROL Formula:
TSU = W x D x f
W = Weight (SQRT{MTOW/50})
D = Distance (KMS/100)
f = Number of flights

13. T = R/TSU TARIFF FORMULA T = Tariff in Rands
R = Required Revenue (using RoR)
TSU = Transaction Service Units (using the EUROCONTROL Formula)

14. RCMS Observation and Trend Analysis
RCMS Model Results:

15. PROPOSED TARIFF – 3 YEAR MTREF
2017/18
2018/19
2019/20
Projected Operating Expenditure
R128 442 139
R143 429 729
R147 749 975
Capital Allowance
R3 983 152
R4 739 339
R5 884 636
Recovery Factor
-R1 895 349
Projected Revenue
R130 529 942
R148 169 068
R153 634 612
Projected Service Units
2 583 358
2 660 790
2 740 514
Proposed tariff
R50,53
R55,69
R56,06
YoY % change in projected tariffs
-5,04%
10,21%
0,66%

16. ANNUAL CALENDAR Review of previous cycle April May June July Aug Sep
Oct
Nov
Dec
Jan
Feb
Marc
Review of previous cycle
Consultation process
Promulgation process
Promulgation of the new tariffs 1st of the month.
SAWS presents proposed tariffs to RCMS
SAWS responding to aviation comments and submissions
RCMS notice to stakeholders on recommendation to Minister
Meeting with SAWS
Review & prepare for consultation
SAWS presents proposed the industry for comments
2nd regulated stakeholder meeting
Submission to the minister
Meeting with Aviation industry