South African Post Office Annual Report 2008/09, SA Postbank Bill: Department's briefing

Meeting report

South African Post Office (SAPO) Annual Report 2008/09 Briefing
Ms Vuyo Mahlati, Chairperson of the South African Post Office (SAPO) Board, gave a brief summary on the SAPO history. She stated that SAPO was in its growth, development and sustainability era. This era was driven by the aim for transformation. The trading profit graph showed that SAPO had improved from making losses to now making a profit. This turn around strategy showed SAPO how important transformation was, as it forced it to focus more on systems controls so that a sound foundation could be built for sustainability. In 2010 SAPO would focus on corporate governance and compliance, the corporatisation of the Postbank, and long term sustainability.

Ms Motshoanetsi Lefoka, Chief Executive Officer, SAPO, gave Members a short briefing on the vision, mission and global trends in the postal environment. SAPO would be focusing on optimisation of existing processes and systems, innovation of new products and services, the diversification of new lines of investment, and the expanding and capturing of business opportunities.

Ms Lefoka informed the Committee that there had been a decline in mail volumes during the financial year because people were using email more often. SAPO was focused on commercialisation and regulation of financial services, social transformation and embracing universal service obligations. SAPO wanted to grow its top line revenue at an acceptable cost, deliver on its stakeholder mandate, improve its efficiency and effectiveness and satisfy its customers. Total revenue increased by 8% during the 2008/09 financial year due to an increase in total assets, Postbank deposits, cash and investments and cash flow from operating activities.

In terms of environmental plans, SAPO wanted to reduce carbon emissions and also planned to plant 900 trees per annum for three years. In addition to this, SAPO launched an internal paper recycling programme and piloted energy saving programmes to measure the reduction of energy usage.

SAPO discussed its key initiatives for 2009/10. Postal delivery remained SAPO's core business. However, it also embraced its e-postal service. The service would enable hybrid mail and allow for online, mobile and self-service channels. In terms of the financial services growth strategy, SAPO would focus on the corporatisation of the Postbank. The goal was to allow the government to retain 100% ownership of Postbank and for it to run as efficiently as a second tier bank. Postbank would be registered as a public company wholly owned by SAPO on behalf of the government. The Postbank Bill would set it up, and it would be registered as a financial services provider. Postbank would also be registered in terms of the Banks Act to enable it to be part of the banking fraternity.

Mr Nick Buick, Chief Financial Officer, SAPO, gave an overview of the finances. He stated that SAPO's revenue increased by 8% from 2008 to 2009. SAPO performed well in the first quarter, but with the global economic recession, there was a big decline in mail volumes. As the country's Gross Domestic Product (GDP) contracted, mail volumes contracted as well. SAPO very quickly put a few cost controls in place that limited the expense growth by 10%, while profit before tax decreased by 14%. The group financial overview showed an actual profit-after-tax of R362 million, and the Post Office, excluding subsidiaries, showed a profit of R366.8 million, and the courier and freight group showed a loss of R21,6 million. Postal services were still the biggest contributor to revenue. 61% of the total revenue was attributed to postal services, 24% of the revenue was from a financial services contribution, 13% was from courier services and 2% of the revenue was made up of sundry revenue. Capital Expenditure increased by 65% to R649 million. Most of the capital was invested in infrastructure such as property, as well as information technology. SAPO received an unqualified audit opinion from the Auditor-General (A-G).

Discussion
The Chairperson stated that SAPO's Annual Report was very impressive. It seemed that SAPO was past its worst times. He stated that SAPO seemed to be in a strong financial position but wondered if the financial position was being distorted by the amount of savings that people were depositing into the Postbank. The Courier and Freight Group within SAPO seemed to be having serious financial problems. He asked what the history was of this group and if it was having structural problems. He also addressed the post office strikes. He asked if all the issues had been resolved.

Mr Buick stated that if the Committee looked at the financial statements of the SAPO Group they would see that the financial position was sustainable. A lot of the money that contributed to the Group’s financial position was interest earned on investments. The Postbank did have a significant impact on the financial performance of the Group; however, the SAPO remained profitable regardless of the deposits into Postbank.

Mr John Wentzel, Chief Operating Officer, SAPO, stated that the timing of the recession in the country was regrettable in terms of the Courier and Freight Group operations. Had there not been a recession, SAPO was confident that the Group would have shown a profit in the last financial year. The logistics industry as a whole was badly affected by the recession. However, the group showed resilience in a very competitive market where many companies had failed. SAPO remained confident that the Group was a very viable business and had a key role to play in a comprehensive range of services that SAPO had to offer.

Ms Mahlati stated that SAPO had created a task team to deal with the issues of transformation, particularly as to how they would move forward from the strike matter. There were also other structures within SAPO's Executive team that would work directly with workers’ unions. Together, they agreed to use the existing structures to monitor the agreements that existed between SAPO and the unions.  SAPO was hopeful that all the issues would be resolved and was looking at this in a more strategic and focused way.

Ms Lefoka added that she had learned that the relationship with labour representatives was very important and could never be taken for granted. SAPO would try to improve this relationship. SAPO and workers unions were starting to engage and focus on all unresolved issues. SAPO was also going to address the issue of salary anomalies and flexible staffing, otherwise known as the “labour broking staff”. It would focus on the treatment of employees and compliance with the rules and regulations of the country.

Ms J Kilian (COPE) stated that it was good to see that SAPO was doing well, despite the difficulties it faced. She asked if SAPO would be able to manage in the 2009/10 financial year, or if it would have to retrench staff to curtail costs. She stated that SAPO's involvement in reducing carbon emissions was very interesting. She asked for more information on this.

Ms Lefoka stated that there were no plans to retrench any of the workers. This would be a last resort. She knew that further modernisation of processes and mechanisms was needed, and SAPO was looking at training courses. SAPO was not only looking at the present but looking to the future. It wanted to retain as many people as possible.
 
Ms Lefoka stated that involvement in carbon emission reduction was new territory for SAPO. SAPO was looking at all facets of carbon reduction, especially forklift management and fleet management. SAPO was currently in the process of converting most of its fleets to unleaded fuel users. SAPO was also looking at how it could influence vehicle manufacturers in South Africa to get involved in carbon emission reductions.

Mr N Van den Berg (DA) congratulated SAPO on the Annual Report. One constant over all the years had been the need for postmen. He asked SAPO to upgrade the postman's mode of transport. He stated that people had been encouraged a few years earlier to get private post boxes for safety reasons. Now the prices of post boxes increased every year, and people were finding it hard to make ends meet. He noted many stories about mail theft, which led people to prefer private couriers. He asked for more clarity on the statistics on mail theft and asked if people now had more trust in the post office. He stated that people were always complaining about the lack of personnel in post offices. He asked what the Department was going to do with its old post office building, which was a national heritage building. He asked if SAPO rented or owned the post office buildings. He also enquired why trees were being planted for three years only.

Ms Lefoka acknowledged that the postman's current form of transport, the bicycle, was an ongoing problem. SAPO did not have the exact statistics for mail theft, but would forward this information to the Committee. In terms of personnel shortages, SAPO was in the process of reviewing its staff model and filling vacant posts. 947 people were already employed during this financial year.

Ms Mahlati added that mail theft had declined by quite a lot. Internal theft was reduced but externally motivated theft was a problem. SAPO was taking measures to reduce this kind of crime.

Ms Lefoka stated that the old post office did not belong to SAPO. SAPO would hold discussions with the Johannesburg Metro to see how the heritage site could be preserved. She stated that SAPO rented most of the properties used as post offices but did own a few buildings.

Ms W Newhoudt-Druchen (ANC) asked for more clarity on the e-postal programme and how it would bring in revenue. She knew there was a decline in the volume of physical mail because of emailing, and asked what SAPO was going to put in place to increase the volume of mail and make it easier for people to use the post office. She asked for more clarity on the working relationship with the South African Social Services Agency (SASSA).

Ms Lefoka said the e-postal programme meant that people could send their mail through the post office electronically. An electronic file would be provided, would be printed at the post office and sent to the nearest distribution centre. This would reduce costs and enable customers to send mail later than they would usually have sent it. The mail would still reach its destination on time. This may not increase the volume of mail but would help SAPO to diversify and bring new revenue into the post offices.

Ms Totsie Memela-Khambule, Managing Director for Financial Services, SAPO, stated that a Memorandum of Understanding was signed two years ago by the Minister of Communications and the Minister of Social Development, on how government could be enabled to take responsibility for information concerning beneficiaries of SASSA. The database was held by the private sector, not by the government. In line with the strategy of government to allow people to be paid any time and anywhere, SAPO tried to help people access their grants. SAPO had started a programme this year to try to ensure that all those staying in peri-urban areas, when they applied for grants, would be allocated bank accounts, so that the money would automatically be credited. Since the beginning of January SAPO registered over 400 000 beneficiaries as they got approved by the SASSA process.

Mr L Mkhize (ANC) noted that SAPO was in the process of reviewing its staff model. He asked for more clarity on this. He wanted to know if SAPO was using labour brokers to get its staff, and what the impact was of reviewing the staff model on the number of temporary staff. He asked if there was any outreach programme that informed communities on how to utilise post offices and the services they offered.

Mr Lefoka stated that SAPO lost almost a thousand employees a year due to dismissals, resignations and retirements. They would need to be replaced. Training people was also a major issue. The review of the staffing model showed that SAPO needed to capacitate itself for businesses with particular competency requirements. The review had dealt not only with the numbers, but also the competencies, profile and grading of each and every position of employment in the post offices. SAPO also currently employed labour brokers within the organisation.

In terms of the community outreach programmes, SAPO would, when going to rural areas, go to local metros and other structures first. It regarded its outreach programme as a continuous programme, where SAPO could raise awareness about services. It was also looking to use community radio services to inform communities about services, as this gap had been identified.

Ms R Morutoa (ANC) asked how the postal address system affected SAPO when dealing with squatter camps. She noted that post offices in the Northern Cape were very sparse. She asked why this was so.

Ms Lefoka stated that SAPO was trying to address all urban, rural and informal settlements postal address issues. There was a challenge with informal settlements, but SAPO provided people with addresses, using the same system that was adopted for rural areas. SAPO also needed cooperation from the local government in terms of promulgation of the informal settlements. However, many of those originally allocated addresses then moved away, which upset the sequencing of the addresses.

Ms Lefoka stated that postal offices were sparse in the Northern Cape as the population was sparse. In fact, the Northern Cape was a province that was over-catered for in terms of the number of post offices.

Mr S Kholwane (ANC) asked how far SAPO was regarding the building of Thusong Centres.

Ms Lefoka stated that SAPO had committed to building three Thusong Centres, and was currently in discussions with the Government Communication and Information System, and would present to the board very soon. The Thusong Centre project was being done in collaboration with government, and the plans for building had been reviewed and would be resubmitted. SAPO would update the Committee on the Centres when it could.

South African Post Bank Bill (the Bill) [B14-2009]: Briefing by Department of Communications (DOC)
Ms Mamadupi Mohlala, Director-General, Department of Communications, briefed the Committee on the South African Postbank Bill B14-2009 (the Bill). She stated that the Postbank was a financial services division of the Post Offices around the world. It aimed to provide isolated and rural areas with access to vital financial and related services. SAPO had been offering financial services since its incorporation. In 1996 the White Paper on Postal Policy provided a framework for the restructuring of the Postbank, and its corporatisation as a subsidiary, wholly owned by SAPO, with the ultimate aim of becoming a fully fledged bank. A Memorandum of Understanding was entered into between the Ministers of Communication and Finance on the restructuring and corporatisation process in 2005. The Department was tasked with developing a legislative framework that would enable the corporatisation process and the creation of the Postbank.

The Strategic focus of the Bill was to create a legislative framework that would facilitate the incorporation of the Postbank division of the Post Office as a public company wholly owned by SAPO. The Bill would also provide for the establishment of financial institutions for the mass mobilisation of savings and investment from a broad community, particularly to communities that had little or no access to commercial banking services and facilities.

Chapter 1 of the Bill looked at the interpretation and objects of the Bill. Chapter 2 looked at the incorporation and transfer of the business. It would provide for the incorporation of the public company and for the company to be a wholly owned subsidiary of SAPO. It also made provision for the company to be registered as a bank in terms of the Banks Act. Chapter 3 focused on the powers and duties of the company. The chapter provided for powers that the company would have, to enable it to realise its objectives described in Chapter 2. Chapter 4 looked at the control and management of the company, which would be done through the establishment of a Board. Board members were obligated to disclose any interests before and after their appointment. Chapter 5 focused on the funds and financial accounts of the company. This chapter provided for what would constitute the companies funds. Chapter 6 focused on general and miscellaneous issues. it empowered the Minister, with concurrence of the Minister of Finance, to develop regulations for the board to recommend the development of such regulations.

The Department believed that the Postbank had become extremely important in the realisation of integrated services delivery. Postbank was also important to ensure that ordinary people participated in the economic activities of the country. The Bill aimed to create a company that would develop into a bank of first choice, particularly for communities with little or no access to commercial banks.

Discussion
Mr J De Lange (ANC) stated that the Department had to be careful when creating institutions, as it had to know what these institutions really were. He wondered if the Department knew whether it wanted to create a bank, a company or a combination of both. If the Department wanted to create a company then this company had to be subject to the Companies Act. If the Department wanted to create a bank, then there were very stringent laws that had to be followed. The presentation did not make good sense.

Clause 4(1) stated that the Company must be regarded as having been authorised to form a company in terms of the Companies Act, while Section 4(2) stated that the Company had to be registered as a bank after it satisfied the requirements of the Banks Act. This section was incomprehensible, and it seemed that the Department did not know what it wanted to create.

He noted that the Department also wanted to create a board for this entity. He wanted to know if this entity was a bank and if all the protections of the Banks Act would apply, similar to the other commercial banks. However, there was nothing else in the Bill that said anything about the entity being a bank. A bank operated in a certain way in terms of the law. None of this was made applicable to the Postbank. He thought that the Department and Committee had to sit down and conceptualise what they wanted. If the Department wanted a bank then it must create a bank. If it wanted to create a statutory body then it must create a statutory body.

Mr de Lange noted that since he had become involved in the Communications Portfolio Committee, he had found that many of the relationships were not clearly defined. The same applied here. He noted that the SAPO would become the sole shareholder on behalf of the government. The Bill did not spell out who would create the policies for the bank, nor the role the Minister would play.

The Committee was clear that when there was a conflict of interest, a person could not hold a place on any boards. This Bill, however, merely required people to declare their interests. This meant that they could remain board members, provided that they declared their interests. This was exactly how corruption started. He felt very strongly that where there was a conflict of interest, people could not sit on boards. The Bill also did not say anything about the evaluation of directors and board members. All the best practices that the Committee had developed were not being implemented in this Bill and there was no evaluation system that would hold people accountable for their actions.

Mr de Lange commented that he hoped someone would convey back to the legal advisers that they had followed a wrong approach. He further commented that they should look more closely at the Promotion of Administrative Justice Act (PAJA). This Bill cited that PAJA was applicable for the removal of board members, which was concerned with labour issues. PAJA in fact did not apply to labour issues, but to administrative actions. He urged that the Director General should get independent legal advice. This Bill, as presented, would create nightmares for the Department and for the Postbank. He reiterated that the Department and the Committee had to conceptualise this entity differently, and decide if it was to be a bank, a company or a new statutory body.

The Chairperson stated that the Committee would not be able to settle these issues in this meeting, and they were being raised for noting.

Mr Van den Berg wondered if poor people needed a bank or just a simple service. If a bank was created, more fees would have to be paid. This would cost people in rural areas more money. He thought that the Committee and the Department needed to reconsider this proposal.

Ms Kilian aligned herself fully with the comments made by Mr De Lange. She was also confused about what type of entity this was intended to be. There were many structures being created that did not have public accountability, often due to “shoddy” legislation. She believed that there was a need for ordinary people to have access to banking services, without the excessive tariff structures that commercial banks were charging. The Committee and the Department had a responsibility to protect the money that was received from disadvantaged people and communities. It was vital to have clarity on the entity. The Board must be at arms length from any conflict of interest and must not duplicate the duties of any of the staff. She proposed that the Committee engage with the Companies Act and the Banks Act, and take some legal advice before  it commented on the Bill. The Committee also needed to hear from other bodies and institutions what they wanted.

The Chairperson stated that the Bill had now been tabled in Parliament and parties would have to discuss it and decide on what had to be amended. He reiterated that no decisions would be taken today. He asked the Parliamentary legal unit to start preparing a document for the Committee that looked at the Companies Act, the Banks Act and to show some legal approach to banking in general. He also asked the Parliamentary Research Unit to prepare a concept paper for the Committee on how banks were structured in the country and what the governance model was. The Committee would then decide on when to hold public hearings on the Bill. In principle, the Committee supported the concept of a Postbank.

Ms Mohlala assured Members that the Bill had been looked at by both Departmental and State Law Advisers. She had also applied her own legal experience to the Bill. She urged Members to read Clauses 1 to 3 in the Bill carefully. Clause 1 stated that a public company would be registered, and the sole member would be SAPO. Thereafter the public company would be registered in terms of the Banks Act. Only registered companies could register under the Banks Act, whilst other entities could not.  The Banks Act specified the particular requirements that an entity had to meet in order to be a bank. Clause 3 of the Bill showed the corporatisation processes, and the registration of the entity as a public company. Clause 4 then validated that the company had to go through a specific process as required by the Banks Act.

She thought that the concept was clear. The Bill stated that the Minister would have the right to make regulations for the Bill. The regulations would lay out the policy propositions and provisions that would regulate the Postbank. The Department would outline what was intended by the regulation making process. The Department’s intention was that the regulations would be made and the policy laid out.

In respect of lack of performance management systems, Ms Mohlala stated that the Department was sitting with something of a challenge. There was great debate in the public, following the proposal in the broadcasting legislation to introduce performance agreements for board members. She knew the Committee had agreed to such performance management systems being put in place. She suggested that the Committee announce to the public what policy would be taken in regard to boards.

The Department had noted objections about the Minister micro-managing, but stressed that Postbank was not an entity in which the Minister would have direct control. SAPO would have control over Postbank. If the Committee was suggesting that the Minister must put in place a performance management system for the Board, when the Minister would have no control over the entity, then the legislation would have to be very clear on the roles. The Committee would also have to outline the modality.

Ms Mohlala agreed that the Committee should have time to read through the Bill and consider other pieces of legislation. Debates on this Bill were long overdue. This Bill was critical for rural development and ensuring that those in rural areas had access to banking facilities. The Bill would give every South African an opportunity to have safe and protected financial services.

The Chairperson noted that there was no need for the Department to be defensive as this was merely the first of many discussions on the Bill. He was confident that the Committee and Department could work together. Over the next few months a legal framework would have to be put in place for this Bill. Public hearings would be held in the first quarter of the next year.

The meeting was adjourned.