1

Cost recovery arrangements are transparent and promote accountability

1.1

Ensure that our Cost Recovery Implementation Statement (CRIS) is fully compliant with Australian Government Cost Recovery Guidelines, including in relation to any updates

Main areas of non-compliance

• not published at the commencement of each financial year for the budget year, and updated progressively
• explanation of costing model for each activity
• stakeholder engagement strategy, including summary of the latest engagement round (refer to 3.1)
• financial estimate for the activity for the budget year and forward estimates
• performance reporting (refer to 1.2); and
• key forward dates and events.

(Clauses 2.9, 2.10, 2.11, and 2.12)

Majority of these non-compliance issues were resolved with the publication of our 2019-20 CRIS in December 2019.

Timeframe: Completed

Compliance is an ongoing process and we will update and publish our 2020-21 CRIS applying Activity Based Costing-Zero Based Budgeting (ABC-ZBB) model results before the commencement of the financial year.

Timeframe: June 2020 with publication of 2020-21 CRIS (originally May 2020)

1.2

Report in our CRIS cost recovery performance at the regulatory activity level

AMSA's published CRIS's have not:

• provided disaggregated historical financial performance information at the regulatory activity level (i.e. by levy type or fee grouping), rather only consolidated information has been provided; and
• limited provision of non-financial performance measures at the regulatory activity level.

(Clauses 2.21 and 2.22)

AMSA's 2019-20 CRIS provided the level of disaggregation required for the current and forward years.

Timeframe: Completed

In relation to specific performance measures for fee-based activities (i.e. marine services and ship registration), we are currently developing/assessing key performance indicators. We capture significant amount of data for internal reporting purposes and this is available for tracking performance.

Timeframe: during 2020-21 (originally December 2020)

1.3

Implement effective governance and accountability arrangements.

Lack of internal documentation that specifically outlines its cost recovery process and procedures, stakeholder engagement, and rules underpinning the costing model.

(Clause 2.30)

We have implemented a Cost Recovery Policy (effective from May 2019) and a cost recovery procedure document will be completed on conclusion of the ABC-ZBB exercise incorporating the experience within.

Timeframe: June 2020 (originally December 2019).

Change (delay) in timeframe is the result of the 2019–20 ABC- ZBB budget model development, approved in January 2020. We will now incorporate key assumptions and rules underpinning this model in the procedural and guidance material.

2

Cost recovery arrangements are efficient and effective

2.1

Examine use of tonnage- based proxies for levies to enable charges to more closely link to the level of efficient regulatory effort expended for specific outputs.

Australian Cost Recovery Guidelines states that when designing a levy, the cost-driver should approximate the level of resources used to provide the activity and that differentiate levy rates may be used to more closely reflect resources used by different groups.

The expectation is that we should be able to demonstrate a clear link between the level of effort and the charge (levy). However there appears to be no clear relationship between costs and provision of regulatory activities (using the mechanism of Net Registered Tonnage).

The likely result is cross subsidisation of the owners of smaller vessels by the owners of larger vessels. Although, it is recognised that a tonnage based approach is industry practice, differential levy rates could be used to more closely reflect resources used by different users based on a risk based approach, size of vessels or other criteria.

(Clause 3.6)

We have undertaken preliminary work to assess various variables in our risk-based approach of regulatory activities and linkages to a mechanism in which we may be able to charge industry. This has involved the potential of charging different types, sizes, flagged, and compliant vessels separately, as well as the reviewing the basis of payment (i.e. currently quarterly, could be per voyage or per port visit) and the rate bands.

Any option to align the level of effort to the regulatory activities provided (and associated charging structures) must be weighed up against the ease of operation and associated costs of administration.

Our initial conclusion is that tonnage is the most appropriate method in which to charge industry. In fact, it is the only internationally standardised measurement for ships (through the International Maritime Organization) with many international jurisdictions using a tonnage approach to charging industry. It also appears to be an indicator of the level of effort from our risk-based approach to regulatory activities.

Nevertheless, we have yet to finalise our conclusions. Any decision will involve extensive consultation with a vast number of stakeholders, including the Department of Infrastructure and Department of Finance to seek guidance on the process. An opportune time to undertake this engagement may be at the time of the domestic commercial vessel review in 2020–21.

Timeframe: 2021–22

2.2

Develop a cost recovery model that aligns revenue of outputs with regulatory activities to the efficient cost of providing those outputs.

Alignment between expenses and revenue

Our cost recovery financial performance from 2013-14 to 2017-18, indicate:

• over recovery of costs for all regulatory activities by $28 million,
• over recovery in each year for Regulatory Functions Levy (accumulated surplus of $40 million),
• over recovery for four out of five years for Protection of the Sea Levy (accumulated surplus of $17 million),
• under recovery for four out of five years for Marine Navigation Levy (accumulated deficit of $14 million), and
• under recovery of fees-based activities for all years (accumulated deficit of $15 million).

Reserve

As at 30 June 2018, our retained earnings is $65 million, with a consistent trend of over recovering and building up retained earnings, which includes a Pollution Response Reserve of $50 million. There is no agreed target level of reserves with industry, and is it not clear what investments we have made from surpluses.

Update fee determination

Our fees under the Fee Determination was last revised in 2015, with a need to update charge-out rates more regularly to assist in addressing under recovery of costs.

Cost recovery model methodologies

Although our costing model had a clear overall structure, it was not a fully functioning activity based cost model and required further work to:

• separately calculate costs for individual outputs (i.e. individual fees),
• allocate corporate function costs accurately across all activities (previous model did not allocate to fee-based services or National System),
• refine allocation of direct costs (noted Finance are engaging with operational areas to improve this),
• include accurate drivers of central costs and depreciation, and
• document processes and rules underpinning the model (refer to 1.5 above)

(Clauses 3.25, 3.26, 3.29 and 3.51)

Alignment between expenses and revenue

A comprehensive holistic review for all AMSA’s regulatory charging activities forms part of the ABC-ZBB analysis being undertaken now. Once this is completed, we will have an understanding of the resources associated with the provision of National System activities and consequences of joint workloads by personnel for both domestic and international shipping related activities.

Timeframe: 2020–21

Reserves

We will work with both the Department of Infrastructure and Department of Finance, and consult with industry on the maintenance, utilisation, and agreement of regulatory charging reserves for specific agreed purposes. Expect that this will occur as part of the upcoming review.

Timeframe: 2021–22

Update fee determination

Until we finalise our analysis of fee-based activities), we cannot measure whether costs are efficient, effective, and whether industry has the capability to fully fund our costs – after which we will engage with government on any funding shortfall (if required).

Timeframe: 2021–22

Cost recovery model methodologies

During the development of the 2019-20 CRIS, improvements were implemented to our cost recovery modelling techniques, including alignment of costs to individual outputs, developing more accurate cost drivers for corporate functional costs, refined direct costs, and allocated corporate overheads methods across all activities based on normalised revenue estimates.

These techniques have been further enhanced during ABC-ZBB 2020–21 budget model development, especially in relation to cost drivers for corporate functional costs.

In relation to documenting processes and rules, we are currently working on a procedural document (refer to 1.3).

Timeframe: June 2020 (publication of 2020–21 CRIS and governance documentation).

2.3

Review charges for regulatory activities covered by the Regulatory Functions Levy and Marine Navigation Levy.

There is a need to restructure charges of the Regulatory Function Levy (RFL) and Marine Navigation Levy (MNL) to enable alignment of costs and revenue under each arrangement.

(Clause 3.28)

Finance is exploring options for a holistic review of all AMSA’s regulatory charging mechanisms and rates, not limited to the RFL and MNL.

These discussions will occur as part of the upcoming review of regulatory charging activities, with potential for a revision in legislative instruments (tax acts and determinations) to occur in 2021–22.

Timeframe: 2021–22

2.4

Examine ways to reduce costs in the provision of fee- based services, and seek a decision from government on how to fund any shortfall should we be unable to fully recover costs from industry.

Fee-based activities have been under-recovered over the past few years, with cross-subsidisation from levy-based activities. We advised that perhaps full cost recovery for fee-based activities may be unsustainable for industry, although further investigation is required and will be undertaken when developing and improving the costing model.

(Clauses 3.28 and 3.59)

Finance is assessing costs that underpin fee-based activities, as part of the 2020–21 ABC-ZBB budget model development.

Further analysis, such as benchmarking our costs with entities that provide similar regulatory functions, is planned in 2020–21. This will provide evidence whether costs are efficient.

Timeframe: 2021–22

3

Effective engagement with stakeholders in our cost recovery activities

3.1

Develop and implement an ongoing stakeholder engagement strategy in consultation with stakeholders, specifically on cost recovery.

There is no ongoing stakeholder engagement strategy on cost recovery, nor have we consulted with stakeholders on the level of engagement that is expected (although, we have consulted widely and extensively on the National System).

Develop performance measures on stakeholder engagement on cost recovery and be more responsive to request for information about models and input into cost recovery processes.

(Clauses 4.3 and 4.7)

During the development of the 2019–20 CRIS, Finance undertook a three-week consultative exercise inviting specific industry participants to provide feedback of our cost recovery arrangements. The details were included in the 2019–20 CRIS published in December 2019.

Options are been explored to implement a specific and ongoing cost recovery stakeholder engagement strategy.

Timeframe: 2021–22