South African Post Office Bill [B2-2010]: briefing by Department of Communications

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Communications

23 February 2010
Chairperson: Mr I Vada (ANC)
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Meeting Summary

The Department of Communications presented the South African Post Office Bill. The contents of the Bill were listed. The original Post Office Act of 1958 had been amended many times and had been drafted at a time when the Post Office had provided both postal and telecommunications services. The goal of the Bill was to provide a structure for the Post Office and to promote good corporate governance. The Act of 1958 could not yet be repealed in its entirety due to unresolved issues regarding the pension fund. Certain functions of the Post Office's operations were in a reserved market where services were provided at a loss in order to ensure that all citizens, even those in the deep rural areas, had access. In other areas the Post Office competed with private service providers. The latter operations could not be funded by public money.

Members were unsure of the need for the Bill. They requested clarity on the definitions of the reserved and unreserved markets. There was concern over the limitation of liability. Members were dubious of the process to nominate Board members as they felt the Minister had too much control. They requested that Parliament should be part of the process but were told that public hearings showed that the public disagreed.

Members were concerned about the powers of intervention granted to the Minister. The appropriate use of these powers was subject to the goodwill of the Minister. Public hearings would be held during March 2010 and the Committee was looking to process the Bill in the following term.


Meeting report

The Chairperson noted that the Director General (DG) of the Department of Communications (DoC) was away. The Post Office Act had been amended many times.

Presentation by Department of Communications
Ms Gerda Grabe, Chief Operations Officer (COO), DoC, introduced the delegation from the DoC. All present were involved with policy development.

Mr Wille Vukela, Director, DoC, said that in 1991 the then Post Office had been separated into two entities, namely the South African Post Office (SAPO) and Telkom. The DoC wanted to see SAPO play a meaningful role. The objective of the SAPO Bill was to provide for the organisation's continued existence. A matter of critical importance was the separate accounting for the reserved and unreserved markets in which SAPO operated. The reserved market was a monopoly market where no competition was allowed, and the unreserved market was other enterprises such as courier services. Government wanted to avoid the situation where public funds were used to subsidise SAPO's activities in the unreserved market.

Mr Vukela said that the SAPO Bill contained 32 clauses. He outlined them briefly. Clause 1 contained the definitions. Clause 2 was the purpose of the Bill. Clause 3 provided for the continued existence of SAPO as a public company. Clause 4 provided for separate accounts as alluded to earlier. Clause 5 spelled out the duties of SAPO. Clause 6 listed the powers of SAPO. It was important that the organisation complied with the Public Funds Management Act (PFMA).

Clause 7 addressed the performance agreement that would be concluded annually. Clause 8 empowered the Minister to grant financial support. Clause 9 described how the Board would govern SAPO. The Board would consist of three executive and nine non-executive members. These would be joined by the Managing Directors (MD) of any SAPO subsidiary companies. One of these would be the MD of Post Bank. Clause 10 tabled the functions of the Board.

Mr Vukela said that Clause 11 described the circumstances under which a person could be disqualified from the Board. Clause 12 made provision for the appointment of non-executive members. Clause 13 described the process of resignation by Board members or their removal by the Minister. Clause 14 detailed the fiduciary duties of the Board. Members would have to declare their interests in the promotion of clean governance. Clause 15 provided for the appointment of committees and listed their powers.

Clause 16 provided for the delegation of functions by the Board. Clause 17 provided for the appointment of the Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Chief Operating Officer (COO). Clause 18 listed the conditions of appointment. Terms would not exceed five years and members would be able to serve one additional term. Clause 19 dealt with the terms of contracts. Clause 20 provided for the appointment of an Acting CEO, CFO or COO.

Mr Vukela said that Clause 21 made provision for delegation by the CEO, CFO and COO. Clause 22 dealt with the establishment of staff. Clause 23 addressed the applicability of the PFMA. Clause 24 made provision for SAPO to launch investigations. Clause 25 gave the Minister to power to intervene in the affairs of SAPO in the case of mismanagement. Clause 26 covered limited liability.

Clause 27 addressed the Companies Act. Clause 28 dealt with the provisions of the Companies Act. Clause 29 enabled the creation of Regulations. Clause 30 listed the offences, such as the unauthorised use of the SAPO logo, and the related penalties. Clause 31 provided for the repeal of aspects of the 1958 Act. Clause 32 contained the short title of the Bill.

Mr Vukela said that the DoC had engaged in a wide process of consultation. Workshops had been held in all provinces. Written submissions had been provided. The Bill would provide the structure for SAPO. It would promote transparency and accountability. There would be an oversight process for Parliament.

Discussion
Mr N van den Berg (DA) quipped that he was older than the Post Office. He asked what had gone wrong in the past to necessitate the tabling of this Bill, what the position of the Committee would be, and whether the Board and SAPO would be under the control of the Minister.

Mr A Willz (Director, DoC) replied that there was nothing wrong as such. The Bill would capture existing provisions. It was not a case of fixing errors. They had looked at the 1958 Act. Many of the provisions of that Act had migrated elsewhere, especially those concerning telecommunications. Much of what had been applicable in 1991 was no longer relevant. The spirit of current legislation was to improve the State Owned Enterprises (SOEs). The process of appointing the Board was buried in regulations and was not transparent. The process had to be improved. A new provision was for intervention by the Minister. This was crucial to ensure good governance in an SOE.

Mr K Zondi (IFP) asked for clarification on the difference between the reserved and unreserved markets. He had looked at the definitions clause but it only referred him to the 1958 Act. He asked what was meant by the improvement in capacity for the historically disadvantaged. Clause 26 referred to the limitation of liability. He asked if this was not already addressed by the existing Companies Act.

Mr Vukela replied that the SAPO had to operate with two separate accounts. Delivery of mail items of less than 1 kilogram fell into the reserved market, where no opposition was allowed. The unreserved market was where competition was allowed. One example was the courier industry where SAPO operated Speed Services. Courier companies could deliver any items of more than one kilogram. If presented with a standard letter, the courier company would merely put it into a larger envelope and charge their higher fee. The SAPO was committed to providing a service to the rural areas even if these services generated little revenue. This forced the SAPO to run at a loss. This is why it received a government subsidy. The courier companies operated in the prime market and restricted their operations to the major centres. SAPO operated in a dynamic environment. Physical delivery was a priority. More money would enable it to expand its services.

Mr Willz added that SAPO was moving ahead with its Integrated Communications and Technology (ICT) projects. The Companies Act applied in respect of liability, especially to the Directors. Provisions of the Act of 1958 were being migrated into this Bill. The staff needed protection as they performed a public function. Regular claims were made against the Minister – “If a person fell off a chair the employees were cited”. This was unfair. Staff should be protected unless they were guilty of gross negligence or dishonesty. The provisions were standard.

Ms W Newhoudt-Druchen (ANC) asked about amendments to the Act of 1998. She asked if this Bill was completely different to the 1958 Act.

Mr Willz replied that the Act of 1958 dealt with content and regulatory matters. The Postal Services Act (PSA) of 1998 was a clear separation, dealing with matters such as the reserved and unreserved markets and licensing of private operators such as courier companies. Some of the provisions regarding offences and penalties in respect of postal services had migrated to the PSA. This Bill was dedicated to organisational matters. They had wanted to repeal the entire 1958 Act but were only 60% of the way to achieving this. There were complicated legal issues regarding the pension fund and the DoC had not had time to address these matters. Neither the SAPO nor the State Legal Advisor (SLA) had commented on this issue. Clauses regarding telecommunications did not belong in the Bill and should be deleted or relocated. The Electronic Communications Act (ECA) was a more suitable location. The Department would revert to the Committee regarding the 1958 Act. SAPO had enjoyed certain rights and privileges as an exclusive, government-owned organisation. The DoC wanted to see to what extent SAPO would still be protected.

Ms M Magazi (ANC) asked about the appointment of staff and Board members. She noted that the Minister would establish a nominations committee. She asked what role Parliament would play in this process.

Mr Vukela replied that not many changes had been made. The public were involved in the nomination process. The current situation was that the Minister appointed the Board. Structural arrangements had been considered during the public hearings. Members of the public had huge concerns that they would not be able to participate in the process. It was a different situation to that of the South African Broadcasting Corporation (SABC).

The Chairperson said that this was a policy matter. There were no criteria for the nomination committee and their composition was purely at the discretion of the Minister. He suggested that more public involvement was needed. He felt that nominations should be channelled through Parliament. This should be considered.

Mr Willz said that the Bill did not allocate a role to Parliament. The committee had to be representative. The Minister had to ensure that the committee was broadly representative, and populated by persons with the necessary knowledge and skills.

Ms P de Lille (ID) said that the Bill was not the final version. As representatives of the people, members had a right to be involved. In terms of Clause 8, Parliament would appropriate money but would have no say over the composition of the Board. SAPO was still getting money through Parliament. She asked what happened with the dividends, and if they were paid into reserved or unreserved funds. She was still not clear why there had to be two different funds. Clause 12.7 provided for the appointment of non-executive Board members. The Minister had to appoint two of these members from the ranks of the trade unions. While there was nothing wrong with this principle, she wondered how this could be achieved. The SAPO was still subject to the Independent Communications Authority of South Africa (ICASA). She asked what the key areas were, and what the role of ICASA was.

Mr Vukela replied that ICASA was active in both markets. ICASA regulated the industry, covering both reserved and unreserved sectors. The PSA was still in place. ICASA had a role to develop standards, for example in the courier services industry. The unions were already part of the current scenario. Trade union representatives served on the Board, and were a major stakeholder. Regarding the role of Parliament, the initial draft of the Bill, which was written in June 2009, had made provision for Parliamentary involvement. During DoC's engagement with the public, there was a feeling that this would be setting up a situation where the situation of the SABC could be repeated. Therefore the feeling was that the SAPO should not be subject to Parliament. Provision for Parliamentary involvement would be included if Members felt that this was needed.

Mr Willz said that there had been no changes. The accounts for reserved and unreserved activities had to be separate, but there was no requirement for physical separation of assets. Dividends received would be returned to the state no matter how they were derived. ICASA had made a presentation on why this separation was needed. The Clause had been included to strengthen the principle.

Ms de Lille repeated her question on the separate accounts.

Mr Vukela replied that the interests of the public had to be protected. Money granted to SAPO was dedicated to specific purposes. While operations in the reserved market could be subsidised, SAPO would be in conflict with anti-competitive regulations if public money was used to subsidise competitive operations.

Ms R Morutoa (ANC) told the DoC delegation about a person who had asked for permission to build a post office in Everton. Permission was granted by the local authority. She asked how Clause 6 would impact on that person. This person had wanted to assist the community.

Mr Willz said that this was a general clause. It gave general powers to perform operational functions.

The Chairperson asked if it was permissible for a private citizen to build a post office, and if the SAPO would recognise such an enterprise.

Mr Vukela said that there were different categories of post office. The Citizens Post Office (CPO) was the conventional type of post office which was fully fledged and offered all of the SAPO's services. A citizen's post office had other functions. An increasing number of Post Point outlets were opening in shopping malls with limited services. The type probably alluded to was the retail postal agency (RPA). Any person could build such an outlet or convert an existing building for this purpose. SAPO would assist with training staff and providing services. This was part of SAPO's empowerment process. These were not covered in the existing Act.

The Chairperson asked if the market should be liberalised.

Mr Vukela replied that it was a political question. The DoC needed to engage with the Committee on policy. It was not yet the time to liberalise the market. The SAPO played an important role in the socio-economic structure of the country. There was no control over Telkom. Resources should be used to build SAPO.

Mr Mkhize referred to Clause 3. The written presentation referred to the Minister but the slide in the presentation referred to the Board. Clause 29 referred to intervention by the Minister. The Minister could act on the recommendations of the Board. He asked what consultation process would occur. While the Board should be representative, there was no mention of persons with disabilities. The Minister could invite trade union officials to serve on the Board, but the Bill was silent on the disabled. There was a need to say something on this subject. The public had the option of nominating trade union members to the nomination committee. He asked if the RPA operators were in the reserved or unreserved market.

Ms Grabe apologised. The written copy of the presentation was an older version. The version presented to the Committee in electronic form was an updated version.

Mr Vukela said that an agent of SAPO could only provide services in the reserved market. If he wished to provide services in the unreserved sector such an agent would have to register his own company. SAPO had to provide a universal service that would also encompass the disabled community. They must get the same services as anyone else and such services needed to be accessible. The Minister did invite trade union members to serve on the Board. He acknowledged that Members of the Committee might feel otherwise.

Mr Willz added that it would be a serious oversight if persons with disabilities had been overlooked. He would check on this. The Minister and SAPO would agree on regulations. The Minister would proclaim regulations on the advice of the Board. The Minister could make regulations regarding the pension fund. Clause 25 empowered the Minister to intervene if things went wrong. This would typically be in response to a complaint from the public. In the case of financial issues it would be more a case of organisational intervention than regulations.

Mr S Kholwane (ANC) said that receiving the wrong presentation had put the Members on the wrong footing. Clause 25 outlined the procedure which the Minister could use to remove the Board. The readiness to use these powers would depend on the personality of the Minister. He asked how the Bill would change the scheduling of SAPO in terms of the PFMA. The role of the Minister depended on the scheduling. He noted the influence of westernisation and asked why the Board members should be restricted to one or two terms only. Services were protected, but ICASA was the regulator. He asked what would happen if ICASA were to change its policy in this regard. If the CEO was suspended, it was possible that he or she could still claim the right to sit on the board. In the case of a conflict of interests, it was not enough for the person affected to recuse him or herself from meetings. His or her colleagues would still continue to make decisions on the matter. There should be a better way. He asked if there was a way to fuse Clauses 4 and 7. Notices around the nomination process were advertised in two national newspapers. He did not know if this was appropriate and felt that community newspapers might be better vehicles for distributing information.

Mr Vukela replied that in the case of a CEO being suspended, the MD of a subsidiary would serve on the board by virtue of his or her position. Thus if he or she were suspended, then they could no longer serve on the Board as they no longer held the position. The market was controlled by ICASA regulations. These would not change overnight. In Sweden the postal sector was the biggest in the economy but it is the least in South Africa.

Mr Willz added that there was a balance between intervention and the removal of Board members. Intervention played a specific role as was seen in the history of SOEs. Section 221 of the Companies Act made provision for the removal of a Director or CEO. This would result from a loss of confidence. The Bill was an attempt to strengthen the process. The matter involving the SABC was still before the Labour Court. It was arguable whether there should be separate clauses to cover this. The scheduling of the SAPO would not change in terms of the PFMA. The limitations on the terms of office were a repeat of the current scenario.

Governance issues were identified in the King report.  ICASA determined the classification of reserved and unreserved markets and who could render such services. Parliament would need to lift restrictions. The law determined that suspended executives could not serve on the Board although it was happening in some cases. The SLA did not want this to happen. He had no good answer on the advertising issue. There were precedents in other cases, and he assumed that this was best practice. Issues of conflict of interest were a dilemma. There were existing rights. A person should not serve on the Board if there was a major conflict.

Ms L Mazibuko (DA) agreed that public funds should not be used to cross-subsidise commercial operations. This had been done in the case of the SABC. Telkom should rather be used as example. The SAPO was building its infrastructure. There could then be room for private players to make use of the backbone that had been created. SAPO played an important role. She asked why funds earned in the private sector could not be used to cross-subsidise operations in the public sector. The profits from SAPO operations in the unreserved market could be used to speed up the building of infrastructure on SAPO's terms. This would benefit the process. She asked if this would be restricted by ICASA regulations. She agreed with Mr Kholwane on Clause 25. The actions of the Minister were dependent on his or her goodwill. The law should apply irrespective of who was in charge. Much of the functioning of SAPO was at the behest of Government. SAPO could either operate as an arm of government or as an SOE. There was no clear explanation of why the Minister needed powers of intervention.

The Chairperson joked that the Bill was paving the way for a DA Government with Ms Mazibuko as a future Minister of Communications.

Mr Vukela replied that the presentation had been silent on why unreserved market funds could not be used to cross-subsidise reserved market operations. There was in fact provision for this. SAPO could send funds from the unreserved market to the reserved market fund. Public funds could not be used to subsidise commercial operations.

Mr Willz suggested that they should reflect on the SABC situation. This was why a mechanism was needed to enable Parliamentary intervention. Similar circumstances might arise in the future with SAPO. Normally a shareholder had the right to intervene in the running of a company. Government was the shareholder with SAPO. This was not a new clause. Similar clauses were found in other Acts such as the provision for the Housing Development Authority.

Mr Vukela understood this view. Intervention could be positive. The SAPO was set annual targets by ICASA, who also determined the standards. The Minister might feel the need to intervene before the end of the financial year in question. There was a need to create a one-stop shop. Government had inspired the idea, especially for residents in the deep rural areas.

Ms de Lille felt that if 60% of the 1958 Act could be repealed then the whole Act could have been repealed now. The Bill was about governance. Some policy decisions had informed it. She asked which policies had been used. The presentation was incomplete. There was no reference to the Post Bank Act. Unreserved funds would be provided for the Bank. She wondered if SAPO was being quietly privatised or at least liberalised. The Bill was a mixture of many things. The Minister had the right to intervene in some areas but other areas were autonomous. If there was a need to improve as SAPO moved towards universal access for previously disadvantaged individuals then there was a need to change governance policies. She asked if the best method was being employed.

Mr Vukela replied that the Act of 1958 was the policy position. In 1998 the Postal Policy White Paper was published. The vision was contained in that document. Government owned the postal sector totally but was lacking instruments to control it. The current law was more than fifty years old. It also contained telecommunications matters. The Minister had made a speech in June 2009 about the integration of ICT policy. One law was covering four sectors. The ECA should cover the telecommunications aspects. He would love to see the 1958 Act repealed. It had already been amended 38 times. There were two issues preventing this from happening. One was the problems surrounding the pension scheme and the other was the issue regarding telecommunications legislation. These should either migrate to the ECA or else a single policy should be adopted.

Mr Willz commented that it would be great if the Committee could find a mechanism to incorporate the telecommunications aspects. Perhaps the Bill could be renamed something like the Post and Telecommunications and Related Matters Act.

The Chairperson asked what the issue was with the pensions.

Mr Willz replied that it was a complicated issue. He would revert to the Committee on this matter.  The Department had consulted with Telkom on what provisions should be retained. Telkom had deferred the discussion. They would make an effort to introduce an Amendment to the ECA. On governance issues the DoC wanted to see an open and transparent atmosphere with services being available to all. The documents were not easily accessible in their present form. The King 4 recommendations should be considered. The question was whether the regulations should be in the Articles or the Bill. The ideal place had to be determined. The Department wanted to strengthen the position of the SAPO. One way of doing this was to emphasise the role of the public in nominating Board members. The Minister could appoint the non-executive members without consultation. It was not an issue of privatising the Post Bank but of rewriting the corporate identity.

Mr Vukela said that the Post Bank was a subsidiary with its own Board. The policy was that the Bank should be corporatised rather than privatised.

The Chairperson asked how this Bill fitted with the Post Bank Act.

Mr Vukela said that if the Bill was passed then the Post Bank would be a group of companies whose MD would sit on the SAPO Board. The Bank would be accountable for its own functions. There could be some inter-relations such as providing a counter for the bank in SAPO branches. There was a Memorandum of Understanding on how the Post Bank could compete in the banking sector and become a bank of first choice.

The Chairperson accepted the principle of the MD serving on the SAPO Board, but asked if decisions made by SAPO would override those of the Post Bank.

Mr Willz said that the DoC would consider this matter further. An exact copy of the Articles would be studied. At one stage of the planning of the Bill the Post Bank MD had been removed from the Board, but SAPO had asked for this decision to be reconsidered. The SLA had emphasised the importance of the pension fund regulations. They would clarify this in writing. The issue might still be addressed before the Bill was finalised.

Mr van den Berg was still uncomfortable with Clauses 27 and 28. The provisions were too open-ended. The Bill was still subject to the Companies Act. He could not believe that such an open-ended measure was part of a democratic law. He understood the need for the SAPO. The Clauses in question had provision to have sections of the Companies Act declared inapplicable. SAPO was an old body. In 2010 he thought that the Ministers of Trade and Industries and of Communications should know which sections of the Companies Act should be applicable. This would lead to a very dangerous situation.

Mr Willz said that such provisions would normally be cast in stone with the inapplicable sections specified. The process made for good administrative justice. Good cause had to be shown to justify the sections being declared inapplicable.

Mr Mkhize was also unhappy. No proper explanation was provided. He was uncomfortable with a situation that seemed to him to be a passing of the buck.

Mr Willz explained that this was the new drafting style. The reference to specific sections was inappropriate as the Companies Act could be amended. Changes must be motivated to the Minister through a public process.

Mr van den Berg was not convinced. Legislation should be written so that ordinary people could read and understand it. These clauses were so open-ended that good lawyers could mesmerise people. The motivation could be good but it could be wrong. This part of the Bill would lead to a lot of interpretation.

Ms N Mnyikiso (SLA) said that there was a danger in listing the specific exempted sections. A new Companies Act was being drafted and advice was needed. She was here to get the Committee's guidance.

The Chairperson noted that the Board consisted of thirteen members, to which the CFO, CEO, COO and MD of the Post Bank were added. He asked if this was not cumbersome. He had seen with the SABC that an interim Board of five had produced better work than the full Board of twelve. Clause 16 addressed the delegation of authority. The Board could delegate all its powers and then hold that party accountable. He asked if this was standard practice. He also queried the number of committees and their composition, and asked what the cost implication was.

Mr Willz responded that there were four committees envisaged rather than three. There would also have been a chairpersons' committee but his had been removed. There was a question of reducing this number further. Any further committees could be appointed by the Minister. The size of the Board was determined in the Articles of Association. In the White Paper on Postal Policy, paragraph 3.9, it was said that the Board should be not comprise of more than fifteen persons. The composition envisaged in the Bill was twelve non-executive members, three executive members and the MD of Post Bank.

The Chairperson remarked that twelve seemed to be a magic number. The mandate was there.

Mr Vukela noted that the legislation had not been prepared overnight. There was a need to implement government policy.

The Chairperson said that the policy of twelve members had been drawn up some time ago. He asked if this was still the best way, as other needs had to be considered. He asked the DoC to provide Members with a pack of documents so that they could see the full background. He wanted copies of the old Act, the White Paper and the Articles and Memorandum of Association, as well as another document that he could not recall at the time. The Committee had called for public hearings, which had already been advertised. These were scheduled for 22 and 23 March 2010. The Bill would be processed early in the next term. He asked if the National Treasury (NT) should brief the Committee on the Post Bank Bill. NT could be invited to be part of the public hearings.

Mr van den Berg said that the Post Bank Bill was informed by the NT, so a clear understanding was needed.

Ms de Lille asked why the Post Bank was needed. She asked if it was part of the policy.

Mr Mkhize felt that it would be wrong to have NT as part of the public hearings. Their briefing should be made to the Committee before the hearings.

The Chairperson said that NT would then be invited to a separate meeting with the Committee. The date of this would be discussed in the next few days.

Ms Newhoudt-Druchen reminded the Chairperson that the other document which should be part of the pack requested was the PSA.

The meeting was adjourned.

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