Cost recovery implementation statement 2018-19

3.1 Outputs and business processes of the regulatory charging activities

3.1.1 Activity outputs

As described in Policy background (Section 1.2.1), the role of AMSA is to deliver on seafarer and ship safety, environmental marine protection, and search and rescue capability. AMSA’s broad activity outputs and primary activities are itemised in Table 2 below, which also notes whether the output is a regulatory charging activity.

Table 2: AMSA’s activity outputs for 2018–19

The operational targets of these activity outputs are detailed in Annual Performance Statements of AMSA’s Annual Report and Corporate Plan, which describes the reportable measurements in achieving AMSA’s policy outcomes. A summary is provided in Non-financial performance (Section 7B of this CRIS).

3.1.2 Business processes

It is important to note that levy regulatory charging activities relate to the provision of a total function (statutory regulations) as opposed to transactional business processes; the costs for delivering these activities are not on a transactional basis, rather, levy related costs are driven by the support to overall activity outputs. 

Fee for service activities are linked to business processes, supporting specific charges to which the fees relate. Generic business processes for fee for service activities include:

• receipt and review of an application, including consultation with an applicant
• undertaking technical assessment of an application, with a decision by a delegate and
• processing and issuing a certificate, license or approval. 

In practice, the receipt and review process and issue business procedures is broadly similar across AMSA’s fee for service charging activities. However, time and effort (and costs) for technical assessment and decision business process vary between the types of fees and on the complexity and nature of the application.

3.2 Costs of the regulatory charging activities 

AMSA applies an activity-based costing allocation methodology to determine costs for its activity outputs and regulatory charging activities. This holistic approach incorporates the entirety of AMSA’s cost base, in accordance with the Financial Management Information System (FMIS), and allocates these costs to activity outputs based on activity drivers. An illustration of the methodology and approach for the cost recovery model is depicted in Appendix 1. 

Costs for activities classified as either direct or indirect (overhead) are reviewed on an annual basis to determine operational requirements against expected demand and resulting revenue in order to ascertain efficiencies (or savings) that may be achieved. 

We consider our actual expenditure reflects efficient current costs in the context of regulatory charging activities as it operates today and it is an area of continuous monitoring and improvement.

3.2.1 Nature of costs 

The nature and make-up of costs vary considerably across AMSA’s regulatory charging activities. For example, the provision of aids to navigation has an extensive capital cost component (depreciation and amortisation) with consistently high maintenance costs, reflecting the hostile weather and corrosive environments in which these assets operate. 

In contrast, seafarer and ship safety regulations (for both levy and fee for service activity outputs) is labour intensive and as such has a high staff cost component. Activities requiring a large average staffing level (ASL), will have higher overheads allocated in comparison to activities with minimal labour obligations – refer to Indirect costs (Section 3.2.3).

3.2.2 Direct costs 

Direct costs are those costs directly and clearly attributed to activities based on estimates of resource requirements for the delivery and provision of the statutory and regulatory obligations of AMSA, which include employee costs, suppliers, depreciation and amortisation. 

Direct staff costs are allocated to activities based on a detailed analysis of staff utilisation to determine operational requirements in the context of AMSA’s statutory obligations. This analysis provides and validates estimated time and effort requirements of staff for each activity. 

Direct supplier costs are allocated to activities based on an analysis of the nature of expenditure, validated by management through a detailed activity analysis. Supplier costs include travel and transport costs, materials and services, communication and administrative expenses.

3.2.3 Indirect costs 

Indirect costs include costs attributable to staffing for activities such as property, information technology costs and those costs that cannot be directly attributable to an activity such as corporate and executive costs. These costs are:

1. Property operating expenditure (POE) – the nature of AMSA’s policy outcome—the provision of maritime infrastructure in the form of aids to navigation, as well as obligations in maintaining regional offices and stockpile facilities across Australia— corresponds to a sizeable property footprint and associated expenditure. These overhead costs are assigned to direct activities based on work-points and usage requirements of each business unit.
2. Information Technology (IT) – consists of software licensing and maintenance not directly attributed to activity outputs, as well as an outsourced IT network services. These overheads are allocated to direct activities based on the estimated ASL required to perform those activities.
3. Corporate and executive overheads – determined with reference to the detailed activity analysis, these costs predominately consist of corporate services (IT staff, communications, human resources, finance, and governance), executive functions and legal support. These overheads are allocated to direct activities based on estimated ASL related to the levies and government funded search and rescue activities.⁶

^{6. The basis for this treatment is that corporate and executive costs has predominately been funded from the Community Services Obligation (search and rescue) and international shipping levies in the past. Therefore, these costs should continue to be allocated to these activity outputs only. A review of this methodology will be undertaken in the next published CRIS.}

3.2.4 Capital costs 

Capital costs are represented by depreciation and amortisation, which are used to determine capital expenditure requirements for the replacement and enhancement of AMSA’s assets. These costs are either attributable directly to the relevant activity, where there is a direct linkage to the provision of these activities, or on the overhead basis noted in Direct costs (Section 3.2.3) (either work-points or ASL dependent on the nature of the asset).

3.2.5 Attribution of costs to non-charging activities 

Staff providing regulatory charging activities may also undertake other activities funded by either Australian Government budget appropriations (search and rescue coordination services) or Australian Government agencies for targeted externally funded maritime related programs. The costs for these non-charging activities are identified during the detailed activity analysis process, and overheads allocated to these activities using the same process noted at 3.2.3 above.

3.2.6 Key cost drivers and assumptions underlying the model 

The main costs for AMSA’s regulatory charging activities is direct supplier and staff costs (~79%) and corporate and executive functions (~21%), this is summarised in Table 3.

Table 3: Cost categories (%)

Accordingly, staff and supplier costs are key cost drivers for AMSA’s regulatory charging activities. For staff costs, the driver is the time and effort spent on an activity, whereas for supplier costs it is the contracted service agreements for the aids to navigation and National Plan activities. However, this largely depends on the nature and costs of the activity, as mentioned in Nature of costs (Section 3.2.1).

Assumptions underlying the model include:

• no staff vacancies and that any vacant position will be back-filled by a contractor at a similar cost
• no weighting is applied to factor the differential pay grades
• effectively time spent by a manager is treated similarly to a staff member under their supervision and
• capital costs are to be represented by depreciation and amortisation on the assumption that these reasonably reflect the costs associated with required replacement and enhancement of AMSA’s assets⁷.

^{7. This assumption is to be reviewed for the next cost recovery model development. AMSA is currently working on enhancements to its Capital Management Plan which will enable a comprehensive determination of asset and capital requirements, including maintenance, and any potential shortfalls that may exist in capital funding.}

3.2.7 Sensitivity of cost estimates to changes in assumptions 

The assumptions underlying the cost recovery model are developed to limit and constrain any significant sensitivity to the cost estimates from changes in cost drivers or demands in regulatory charging activities. 

As illustrated in Key cost drivers and assumptions underlying the model (Section 3.2.6), costs predominately consist of suppliers and staff. Supplier costs are largely longer-term contracts where expenditure relates to service requirements or deliverables. These are generally not dynamic or responsive to short-term changes in demand of AMSA’s regulatory charging activities. Staff costs have a similar constraint for short-term movements of demand, and are based on long-term expected time and effort requirements to meet policy outcome. 

In determining the staff and supplier cost levels, AMSA forecasts the expected level of demand for regulatory charging activities as part of its annual budgeting processes. This process is based on historical data and trends, consultation advice, understanding of known economic factors, and thorough communication with its principle stakeholders.

3.2.8 Cost estimates for 2018–19 

Estimated costs for providing AMSA’s regulatory charging activities, broken down into direct ASL, and direct and overheads costs, are set out in Table 4 below.

Table 4: Breakdown of costs estimates for 2018–19

*     Consists of various activities considered minor (eg individual costs <$1.0 million), except where noted.

**   Does not include non-regulatory charging activities or overheads, only direct regulatory charging ASL.

3.3 Design of regulatory charges 

Regulations of the international and domestic commercial shipping industry is rather complex, with a wide range in the variety of vessel types and handling of various cargoes. 

During the period 2013–14 to 2016–17, the quantity of levy liable visits to Australian ports by applicable foreign-flagged and domestic vessels have been relatively consistent (~10,000 per annum). However, the total net registered tonnage volumes have steadily increased, signifying larger vessels are visiting Australian ports. 

The majority of vessel types continue to be bulk cargo carriers (~81.8%), with container vessels and liquid product and gas tankers (~11.3%) mainly contributing to the balance. The average number of port visits during each levy payment period (ie three months) varies depending on the vessel type and cargoes, with bulk cargo vessels averaging around one to two visits per levy payment period and container ships around five to six. 

These factors mean that any projections of expected growth (or reductions) in demand for regulatory charging activities must consider the complex relationships within the commercial shipping industry.

3.3.1 Charging structure 

The design of AMSA’s regulatory charging activities considers whether a service is being provided to an individual entity (where costs can be reasonably attributed to that entity) or whether the activity involves a group of entities (provided to commercial shipping industry and the broader community). 

AMSA applies a ‘user pay’ principle for regulatory charging activities. The Marine Navigation Levy and Regulatory Function Levy is charged against vessels that use the national network of integrated aids to navigation and traffic management measures in the Australian waters and are subject to safety regulatory activities. Fee for service activities are performed for, or on the application of, a particular individual or organisation, which receive or use benefits. The Protection of the Sea Levy is charged against vessels that have the potential to be polluters of the marine environment. 

AMSA’s charging structure is broadly shown in Table 5 below.

Table 5: Charging structure

Levies 

The commercial shipping industry pays levies on non-exempted vessels⁸ that are twenty-four (24) metres or more in tonnage length, with the rate based on a vessel’s net registered tonnage (NRT). The rate of the Marine Navigation Levy (MNL) and Regulatory Function Levy (RFL) is charged on a sliding scale, whereas the Protection of the Sea Levy (PSL) is charged on a linear (or flat) rate for vessels that also carry ten (10) or more tonnes of oil on board⁹.

^{8. There are a list of exemptions contained in the Marine Navigation Levy Collection Regulations 1990, Marine Navigation (Regulatory functions) Levy Collection Act 1991, and Protection of the Sea (Shipping Levy) Regulation 2014.}

^{9. There will be situations where vessels exempted from the MNL and RFL may be liable for the PSL. Generally, these vessels include fishing, religious charitable, non-for-profit organisation, or research vessels.}

A summarised Levy Ready Reckoner is shown in Table 6 below.

Table 6: Levy Ready Reckoner*

* Schedule of levy rates are contained in each respective levy legislative instruments. 

AMSA’s methodology for the charging structure of levies is derived from historical predecessors, where banding of levy charges on net registered tonnage is considered a common basis for regulatory charging within, and to, the commercial shipping industry. Levy rates within these traditional net tonnage bands have been adjusted periodically.

International vessels are liable for levies on either the day of arrival to an Australian port, or where the vessel remains in Australia and not paid the corresponding levies in the previous three months, the day after the end of that period. With Australian coastal trading vessels, unless the vessel is out-of-service, levies are payable at the start of each quarter.

Fee for service 

The fee for service activities comprise applications or assessments, inspections, registrations, and accreditations. This is predominately based on determined average time and effort requirements, and associated hourly rates of labour and overheads costs. 

AMSA’s fees are generally broken into the following broad categories:

• services to seafarers and coastal pilots (mainly qualifications), including approvals, issuing permits, authorisations, certifications, and licensing for both domestic and internationally recognised marine qualifications
• inspections and surveys requested by ship owners (or agents)
• shipping registration of Australian Flagged Vessels, including ensuring ships are maintained and crewed to a suitable standard
• other services relating to international shipping, including determinations and exemptions and
• National System introductory services fees, including application of marine surveyors, assessment of application for specific exemptions and assessment for equivalent means of compliance. 

Fixed fees are applied to those regulatory activities where the range of typical delivery times do not vary significantly from the standard average time. Where there are wide variations, indicated by significant deviations from the standard time, the relevant charge is based on an hourly rate, plus any reasonable unavoidable travel costs. These travel costs may be flights and accommodation, where services are provided at locations remote from AMSA regional offices,¹⁰ or motor vehicle travel rates where vehicles are used for the mode of transport to and from offices. ¹¹ 

For 2018–19, the hourly rate will remain at $272, with the National System introductory services hourly rate increasing to $238 (from $234) in accordance with indexation. 

The current schedule of the fees for service regulatory charging activities are included in Appendix 2. Charging rates are also published in AMSA’s website.

^{10 Given the various locations of AMSA offices, these costs will generally be limited.}

^{11 Defined as more than twenty-five (25) kilometres from an AMSA office, the charge is based on a per kilometre based specified by the Australian Taxation Office business use rates.}

3.3.2 Revenue estimates 

Estimated revenue for the budget (2018–19) and 2019–20 is summarised in Table 7.

Table 7: Revenue estimates

Levy and fee for service revenues have only been projected until 2019–20 since it is not possible to comment on the future years without factoring the review of AMSA’s operating model for the National System, which is to be undertaken in the 2020–21 budget development.

Regulatory charging activity estimate volumes are determined with reference to actual and historical results, with an application of growth rates sourced from independent resources with detailed analysis and inputs from management.

AMSA has implemented internal controls to ensure that costs recovered for regulatory charging activities are measured correctly and collected on time. In adherence with legislative obligations, an officer of Customs may detain a vessel at any Australian port for unpaid and outstanding levies, released only after payment is received. This process ensures that the existence of any unpaid levies are consistently at a very low level. 

An assessment of regulatory charging activities was conducted using the Department of Finance’s Charging Risk Assessment. AMSA considers the risk to remain low given that there are no anticipated changes to current activities. The new charges applicable from 2018–19 are only those commencing under the National System and these are covered under a separate CRIS, which is rated independently against the CRA. 

An examination of the risks with its regulatory charging activities, accompanying mitigation strategies are detailed in Table 8 below, with additional details provided in AMSA's Corporate Plan.

Table 8: Risks and mitigation strategies associated with regulatory charging

Current schedule of the fee for service regulatory charging activities are listed below, with references to AMSA’s Fees Determination 2015 and Marine Safety (Domestic Commercial Vessel) National Regulation 2013.

*     National System introductory services fees are subject to annual indexation.