Financing the universal services obligation in belgium
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Transcript of Financing the universal services obligation in belgium
Financing the Universal Service Obligations in Belgium
Background, Past and Current Situation in a Nutshell Presentation BIPT (not binding) Bern, 9 April
CA Session 2014
1
Agenda 1. Belgium
2. Key figures of the Belgian postal market
3. Designated USP – bpost
4. European framework – Postal Directive
5. Universal Service Obligations
6. Calculation and financing of the USO until 31 December 2010
7. Calculation and financing of the USO from 1 January 2011
8. Reference work of the European Regulators Group for Postal services (ERGP) – reference scenario
2
2. Key figures of the Belgian postal sector (1)
• Postal incumbent: bpost (designated until 2018)
• 5 postal services providers acquired their licences under the system which was applicable before the adoption of the Act of 2010
• May 21, 2013: BIPT granted TBC-POST a postal licence
• Express sector: major international integrators such as DHL, FedEx, TNT, UPS
• More than 90% of turnover generated on the postal services market is generated by 9 players. The rest of the market is represented by more than 700 small companies or self-employed
• Total turnover: ± 3 billion EURO in 2012
• Number of letter-post items per capita per month: 18.4
• Employment: ± 1% of total employment in Belgium, representing close to 33,000 direct positions
• Quality: in 2012, almost 94% of priority mail was delivered next day on time
4
Principal actors on the Belgian market for the provision of postal services in 2012 (Revenue)
These actors account for more than 90% of the revenues and market shares of the Belgian postal sector.
5
Operators Addressed mail Parcels/Express Advertising mail Press Intl mail
bpost
DHL Intl
DPD Belgium
Federal Express Europe
G3 Worldwide
Geodis-Ciblex Belgium
GLS Belgium
TNT Express Belgium
UPS Belgium
2. Key figures of the Belgian postal sector (2)
2. Key figures of the Belgian postal sector (3)
Revenues and market shares of the postal service for 2010, 2011 and 2012
6
0 500 1000 1500 2000 2500 3000 3500
2010
2011
2012
2002
2128
2158
971
1007
897
Revenues (m€)
bpost others
2973
3135
3056 71%
29%
69%
31%
70%
30%
Market shares
3. Designated USP bpost
Year 2007 2008 2009 2010 2011 2012 2013
Operating income (€ Mio)
2276 2262 2250 2318 2365 2416 2429
EBIT (€ Mio)
183 222 240 319 359 404 436
Profit (€ Mio) 117 179 163 210 (57) 174 288
Employees (FTE) 32 571 30 660 29 618 29 311 27 973 26 625 25 683
7
bpost till 31 December 2018
4. European framework – Postal Directive (1)
8
Green Paper in 1992
If no change,
1. postal services will disappear or at least will not enjoy growth in communication and transport sector
2. postal services will focus on business customers who represent 4/5 of postal operators turnover
3. clear obstacle to internal market (essence of EC)
4. In many cases subsidised by the telecom sector
Important Focus on Universal Services
4. European framework – Postal Directive (2)
9
Postal Directives
1. Subsidiarity very important
2. Gradual establishment of a level playing field
• Via the gradual shrinkage of the reserved area • Via an important focus on USO
EU 12 EU 15 EU 25 EU 27
1992 1995 1997 2002 2003 2004 2006 2007 2008 2011-2013 (16 MS) – (11 MS)
Green Paper
Postal Directive 1
Market Opening 1: Domestic and cross border > 350 g or 5 times the standard tariff
Postal Directive 2
Market Opening 2: Domestic > 100 g or 3 times the standard tariff and the whole cross border
Market Opening 3: Domestic > 50 g or 2.5 times the standard tariff
Postal Directive 3
Full Opening
1998
EU 28
Different Postal Directives
Postal Directives Objectives 1. Protect and promote reliable, affordable and efficient universal service 2. Promote a fully operational international market
Directive 97/67 1. Minimum definition of USO 2. Maximum definition of Reserved Area
Directive 02/39 1. Modernisation of postal sector explicitly addressed by Lisbon 2. Decrease of Reserved Area
Directive 08/06 1. Rules for financing the USO 2. No more reserved area
4. European framework – Postal Directive (3)
5. Universal Postal Obligations (1) European directive
At the European level, the postal directives of 1997, 2002 and 2008 define the general framework of the Universal Postal Service (UPS) obligations. These directives provide for:
the right for every user to enjoy the permanent provision of postal services within the UPS of specified quality at all points in the territory and at affordable prices for all users;
a density of the points of contact and of the access points taking account of the needs of users;
one collection a day, at least five working days a week;
one delivery to the home or premises of every natural or legal person (or to appropriate installations by way of derogation), at least five working days a week;
the collection, sorting, transport and delivery: o of postal items up to 2 kg; o of postal parcels up to 10 kg;
the services for registered items and insured items. 11
5. Universal Postal Obligations (2)
Belgian legal framework
Which products? Which obligations?
Postal items < 2 kg
• Uniform and affordability tariff • Postal items delivery to all the
houses • One access point per municipality
National postal parcels < 10 kg Incoming postal parcels < 20 kg
Registered items Insured items
• Per municipality: at least one
collection, one sending and one delivery 5 days/week
12
6. Financing of the USO until 31 December 2010 (1)
Description Advantages Disadvantages
All costs of the financial accounting are allocated to the products. Costs = direct costs (variable and fixed), shared costs, overhead costs and "sunk costs" are distributed among the products. Distribution criterion: e.g. the volumes
Easy conciliation with the balance
- Easiest method to implement
- Reflects the real situation of the company
- Very widely used
- Distribution of indirect costs: causality link hard to establish
- The costs of inefficiency are included
13
FDC (Fully Distributed Cost)
14
Activity base costing principles
Costs
Activities Drivers Cost objects: products, customers
cost distribution first activity based
second activity based cost distribution to driver based cost objects
6. Financing of the USO until 31 December 2010 (2)
Resources
15 15
Resources Activities Cost objects
About 2000 Responsibility centres with
+/- 20 kinds of cost
About 500
activities
About 1000
products
Drivers: FTE’s time standards
Drivers: weighted volumes
6. Financing of the USO until 31 December 2010 (3)
The costing model of bpost - some figures
16 16
The ABC method is an internal accounting method that starts from the principle that any cost within a company is caused by a specific activity.
Direct investment costs
Direct labour costs
Overhead costs
centre 1
Overhead costs
centre 2
Overhead costs
centre N
Production costs
Centre 1
Production costs
Centre 2
Production costs Centre
N
Products
6. Financing of the USO until 31 December 2010 (4) Current method: ABC methodology: basic principles
17 17
+
...
...
...
Cost of reserved and non-reserved universal services (R and U)
Total revenue of US (US = Universal Service)
Result of US
Burden resulting from universal service obligations (R and U)
Compensation by the reserved sector (R)
Burden to be compensated (if < 0) by the compensation fund?
FDC Cost Product US P1
FDC Cost Product US P2 FDC Cost
Product US PN
Profit Product US P1
Profit Product US P2
Profit Product US PN
Loss Product US P1
Loss Product US P2
Profit Product US PN
Total losses of the Universal
Service
Profits from profitable reserved services
Unfair burden remaining to be covered
+
...
...
...
Universal Service Cost reserved or not (R and U)
Total of US revenues
Result of US
Extra burden (R and U)
Compensation by the reserved sector (R)
Burden to be compensated (if < 0) by the compensation fund
FDC Cost Product US P1
FDC Cost Product US P2
FDC Cost Product US PN
Revenues Product US P1
Revenues Product US P2
Revenues Product US PN
Loss Product US P1
Loss Product US P2
Profit Product US
PN
Total losses of the universal service
Profits of profitable reserved
services
Unfair burden remaining to be covered
6. Financing of the USO until 31 December 2010 (4) Calculation of the burden to be compensated according to the FDC
Former mechanism of compensation funds laid down by the Act
§ 1. At the earliest on the date determined by the Decree referred to in Article 144novies, § 1, all the companies licensed according to Article 148sexies to provide non-reserved services included in the universal service, for which these companies make a turnover of more than EUR 1, 240, 000 (and La Poste), are obliged to contribute towards the compensation fund. This contribution depends on the turnover made by the services as defined in the previous paragraph provided to the users who have their usual headquarters, establishment, domicile or place of residence in Belgium. The first (EUR 1, 240, 000) are not taken into account in the determining of the turnover made. § 2. The contribution is calculated as follows: the cost of the universal postal service that is still to be covered, considering the reserved services, added to the compensation fund handling charges, is multiplied by the part obtained when dividing the turnover of the contributor referred to in §1 by the sum of the turnovers of the contributors referred to in §1.
18
6. Financing of the USO until 31 December 2010 (5)
7. Calculation and financing of the USO from 1 January 2011 (1)
European framework Since 01/01/2011, the reserved service does no longer exist; it is now expected that a
compensation could be given to the provider of the UPS for the provision of the UPS, insofar as this financial transfer results in the least distortion to competition.
According to the 2008 directive,
the net cost of the UPS obligations represents "the difference between the net cost for a designated universal service provider of operating with the universal service obligations
and the same postal service provider operating without the universal service obligations.
19
Revenues Revenues
Costs
Costs
Costs linked to the US provision
UPS net cost
Revenues linked to the UPS provision
Operator with the UPS
obligation
Operator without the
UPS obligation
Costs and revenues linked
to the UPS
UPS net cost
Simplified schematic representation of the cost model to
calculate the net cost of the UPS as proposed in the directive 2008/6/CE
20
NAC: Net Avoided Cost)
Revenues, including the US
obligations Revenues
without the US obligations
Costs, including the US
obligations
Costs without the US obligations
Costs linked to the US provision
US net cost
Revenues linked to the the US provision
Intangible and market benefits
Situation of an operator with the US obligations
Situation of an operator without
the US obligations
Costs and revenues directly linked to the US
Revenues indirectly linked to the US
US NET COST
R BIC
C C-R-BIC
The net cost of the universal service obligations represents "the difference between the net cost for a designated universal service provider of operating with the universal service obligations and the same postal service provider operating without the universal service obligations".
Directive 2008/06/EC, Annex I
7. Calculation and financing of the USO from 1 January 2011 (2)
21
Adopted principles and method of the economic modelling. As a reminder: Reference scenario and counterfactual scenario
Definition of the services provided by the postal operator assumed in the reference scenario without its obligations to provide the UPS.
It comes to calculating the level of the postal operator costs in both situations (provider and non-provider of the UPS)
R BIC
C
2 3
4
Cost modelling of an operator
Definition of a counterfactual scenario
Transversal costs
Joint costs Services A, B, C
Joint costs Services D, E
Dire
ct c
osts
Se
rvic
e B
Dire
ct c
osts
Se
rvic
e C
Dire
ct c
osts
Se
rvic
e D
Dire
ct c
osts
Se
rvic
e E
Dire
ct c
osts
Se
rvic
e A
UPS
Transversal costs
Joint costs Services A, B, C
Joint costs Services D, E
Dire
ct c
osts
Se
rvic
e B
Dire
ct c
osts
Se
rvic
e C
Dire
ct c
osts
Se
rvic
e D
Dire
ct c
osts
Se
rvic
e E
Dire
ct c
osts
Se
rvic
e A
UPS UPS
excluded UPS
- =
Situation of an operator with the UPS obligations
Situation of an operator without the UPS obligations UPS net cost
UPS excluded
1
2
• The application of the avoided cost method comes to calculating the difference between the costs structures of the postal operator providing the UPS and of the same postal operator without the UPS obligations.
7. Calculation and financing of the USO from 1 January 2011 (3)
BIPT objective: Determine the net cost
of the UPS
Regulatory framework
Operational elements
• Efficiency • Objectivity/opposa-
bility of the UPS net cost calculation
• Incentive for the UPS provision
• Inclusion of the regulatory accounting
• "Net avoided cost" method
• Data availability • Transparency • Objectivity of the cost
allocation • Acceptance by the
operator • Dynamic aspect of the
approach
What is possible?
22
BIPT objectives and context. Which margins for manœuvres for the determination of the UPS net cost?
7. Calculation and financing of the USO from 1 January 2011 (4)
23
• Modelling of the Belgian postal operator currently designated to provide the UPS (bpost)
• Bpost situation and context of the postal market corresponding to the year of the UPS net cost calculation
• Bottom-Up approach
• The postal delivery is considered to be the decisive process for drawing up the counterfactual scenario From an operational perspective, the delivery
sizes the transmission network, represents the majority of the postal activity costs and cannot be avoided
From a commercial perspective, the delivery is the main link between the service user/prescriber and the postal operator
Reference situation Counterfactual scenario
Identification of the operational constraints linked to the UPS
Adopted principles and method of the economic modelling. The counterfactual scenario is obtained by identifying the operational constraints linked to the UPS provision in the reference situation
7. Calculation and financing of the USO from 1 January 2011 (5)
24 24
The unfair burden is compensated by the State budget. (art 144 novies)
The net cost implies an unfair burden to the universal service provider if it exceeds 3% of the turnover that the universal service provider achieves in the universal service segment.
The new mechanism for financing the net cost of the US laid down in the future legislation
7. Calculation and financing of the USO from 1 January 2011 (6)