The Chairperson of the Board of the South African Post Office and senior executives briefed the Committee on the strategic plan and budget for the Medium Term Expenditure period 2012/13 to 2014/15.
The briefing covered the history, vision, mission and values and mandate of the Post Office. The strategic imperatives, alignment to the National priorities and international postal trends were explained. The challenges and risks were summarised and the monitoring and evaluation processes were outlined. An analysis of the external and internal environments was included. The Group had identified eight key strategies and the business goals and corresponding programs were listed.
The Committee requested that the strategic plan was amended to include detailed quarterly targets that would allow Members to assess performance.
The briefing document included graphs illustrating the trends and forecasts of local CPI, PPI, GDP, the prime interest rate, wage rate and fuel price indicators as well as the Post Office indicators for trading profit, net profit, mail revenue, logistics revenue, Postbank revenue, financial services revenue interest revenue, staff numbers and costs, transport cost and property cost trends. The capital spending history, capital investment trends and capital investment requirements were illustrated. The subsidy paid to the Post Office would be discontinued in 2013. The estimated cost of meeting the universal service obligation was estimated at R550 million to R600 million p.a.
The briefing included a progress report on the corporatisation of the Postbank. Additional funding of R607.3 million was required before a banking license could be applied for. The Post Office could not provide the funding and the application for additional funding from the National Treasury had been declined.
Budgeted Group revenue for 2012/13 was R6.2 billion. Budgeted expenditure was R6 billion. Net profit after tax was R59.5 million. Additional budget requirements totaled R698 million and a number of projects had to be deferred due to financial constraints. The operational budget for the period 2013 – 2015 was included. The statement of financial position indicated total assets of R10.3 billion. The cash flow statement indicated a net cash outflow of R118.6 million.
The Committee suggested that the financial information provided in the briefing document was included in the strategic plan document.
Members asked questions about the governance implications of the same person being appointed as Acting Chief Executive Officer, Acting Chief Financial Officer and Group Executive: Business Development; the filling of critical vacant posts; the use of labour brokers; the ability to meet universal service obligation commitments; non-functional public information terminals at post offices; the decision to defer the critical IT infrastructure and staffing project; the legislative programme; the integration of the courier and freight services subsidiaries; the state of post office premises; vacant post office buildings; the lack of service at post offices; the lack of marketing of products and services available at post offices and the human resource development and training plans. Other questions were aimed at getting clarity on specific targets for the strategic goals that had been set.
The Committee was not satisfied with the strategic plan and requested that the plan submitted to the Speaker of Parliament was withdrawn. The strategic plan to be amended as suggested and re-submitted to the Speaker. The Committee would be briefed on the amended strategic plan before the budget debate, scheduled for 8 May 2012.
The request from the Member from the Democratic Alliance for the Committee to consider the matter of the MTN operations in
Mr George Mothema was recently appointed to the position of Chairperson of the Board of the South African Post Office (SAPO). He immediately faced challenges concerning allegations of irregularities with regard to the
Strategic Plan and Budget of the South African Post Office
Mr Nick Buick, Acting CEO, SAPO introduced the delegates and presented the background to the strategic plan of the Post Office (see attached document).
The briefing covered the vision, mission, values and history of SAPO and the profitability trends over the period 2002 to 2015. The strategic imperatives, mandate and alignment with the National priorities were summarised.
Ms Marietjie Lancaster, Group Executive: Strategy, SAPO summarised the current challenges faced by the Post Office. The political, economic, social, technological, legal and environmental aspects of the external and internal macro environments were analysed. Industry factors taken into consideration included competition; customers; the threat of new entrants; the bargaining power of suppliers; the threat of substitute products and government requirements. The strengths weaknesses, opportunities and threats were analysed.
Eight strategic goals were identified – the implementation of governance structures; the implementation of the diversification strategy; optimising the mail business; financial sustainability; the consolidation of functions; the provision of a retail channel network; delivery of license requirements and agreed targets and the provision of secure, efficient and integrated IT systems. The business goals and corresponding programmes for each strategic goal were listed. Details were provided of the monitoring and evaluation of performance activities and an example of a business balanced scorecard was included. SAPO’s environmental strategy comprised formal and volunteer-based programmes.
Mr Buick presented the briefing on the financial aspects of the strategic plan. The financial analysis of the external and internal environments included an overview of the local indicators. Graphs illustrated the trends and forecasts of the Consumer Price Index (CPI), Producer Price Index (PPI), Gross Domestic Product (GDP), prime interest rate, private sector wage rate and fuel price. Internal SAPO revenue and expenditure indicators and were illustrated by graphs of the trends in trading profit, net profit, mail revenue, logistics revenue, Postbank revenue, financial services revenue, employee costs, transport costs and property costs.
The government subsidy reduced to R52 million in 2013 and would be eliminated thereafter. The loss of the subsidy and declining profitability trend had a significant impact on affordable capital investment in future years. Capital sending was forecasted at R290 million in 2012. The required capital investment in 2013 was R974 million, which was unlikely to be realised. The future lack of funding for capital investment projects necessitated the need to re-align SAPO’s priorities. Graphs illustrated the impact of the declining subsidy and the required subsidy to meet the cost of SAPO’s Universal Service Obligation (USO), estimated at R550 million to R600 million p.a. The funding requirement for nine other capital expenditure projects was R367 million.
Mr Shaheen Adam, Acting Managing Director, Postbank presented the briefing on the corporatisation of the Postbank. The total capital requirement was R607.3 million. The key milestones that had to be reached before a banking license could be issued to the Postbank were listed. The progress made since 2009, the current work in progress and the critical deliverables in 2012 were summarised.
Mr Buick summarised the revenue initiatives, budget assumptions and budget outlook for the Medium Term Expenditure Framework (MTEF) period 2012/13 to 2014/15 for the SAPO Group. Total revenue of R6.226 billion and total expenditure of R6.090 billion was budgeted for 2012/13. Net profit before tax was R83.7 million. After-tax profit was R59.5 million (R148.9 million in the prior year 2011/12). Additional budget requirements totaled R689 million, which included R276 million for the Postbank corporatisation. Other projects deferred because of financial constraints were IT staff and support (R183 million), property maintenance (R79 million), mail business structure (R100 million), retail structure (R30 million) and digital compliance and resources (R30 million).
The briefing included the operational budget for the MTEF period 2013 to 2015. The statement of financial position indicated that SAPO remained financially sound, with assets valued at R10.2 billion. SAPO anticipated a net cash outflow of R118.6 million in 2012/13.
The briefing was concluded with an overview of the international trends in financial ratios and the corresponding SAPO trends.
Ms F Muthambi (ANC) said that it was not clear if the strategic plans would be met as only the annual targets were provided. She asked if the plan was compliant with the Auditor-General’s SMART criteria. She queried the appointment of the same person to the positions of Acting Chief Executive Officer, Acting Chief Financial Officer and Group Executive: Business Development. This was not considered to be good governance practice according to the King III principles. She asked when the critical funded vacant position would be filled. According to the previous year’s strategic plans, SAPO was granted funding of R336 million, of which R136 million was earmarked for USO. During oversight visits to post offices, Members could not find a single functional public information terminal. Members were informed that the matter of the terminals would be addressed in the strategic plans but she could not find any reference to this in the plans. She asked what SAPO planned to do about phasing out the use of labour brokers and what would be done to create decent jobs.
Ms M Shinn (DA) asked if the targets set for USO were feasible and if SAPO would be able to meet the targets, for example the target for adding one million new addresses per annum. The risk analysis included in the strategic plan identified IT infrastructure as a major risk factor. The recent incidents of fraud and system down-time of a week at the Postbank was unacceptable. Investment in IT was critical to sustain SAPO as a business. The financial reports indicated that SAPO could not afford to pay staff costs, fuel expenses and IT costs. There were insufficient funding available to establish the Postbank and she wondered why this was proceeded with.
Mr B Steyn (DA) found the financial information provided in the briefing document to be useful. He suggested that the information should be included in SAPO’s published strategic plan document. The strategic plan did not include sufficient information to allow Members to make a decision on the budget. He was not aware of pending major legislative changes that would impact on SAPO’s operations. The strategic plan referred to legislative changes but no details were provided. The outputs and targets were not clear and the Committee would find it difficult to monitor progress. The briefing document referred to the Set Top Boxes required for digital migration but this item had been omitted from the strategic plan.
Mr Steyn asked for more information on the crime hotline. He questioned the target that had been set and asked how the hotline would be marketed. The Committee would prefer a reduction in incidents of crime as a target rather than an increase in the number of calls to the hotline. SAPO had identified a lack of skills as a risk factor but no information was provided on how the risk would be mitigated and it was not clear if there was sufficient funding available. SAPO had indicated that it would not be able to increase the number of post offices without a subsidy. SAPO was a wholly-owned government entity and he would not like to see the organisation requiring bail-outs in future. More information was required on the integration of Speed Services with the freight group to allow Members to determine if this would be beneficial. He asked what was meant by the reference to “culture transformation”. It was necessary to establish benchmarks for the goals concerning labour practices and human resource policies so that performance could be measured.
Mr Steyn asked for an explanation of how it was determined that the planting of trees would benefit 9,000 people. He asked what the current level of carbon emissions was as a target of a 2.5% improvement seemed to be low. He noted that SAPO had a funding shortfall of nearly R700 million. He questioned the decision to cut back on IT staff and support, which was essential for obtaining the banking license for the Postbank and for service delivery. He felt that the funding constraints were a ‘recipe for disaster’ and asked SAPO to provide the Committee with the motivation for additional funding. He suggested that the strategic plan submitted to the Speaker of Parliament was recalled and amended to include more detailed financial information.
Mr C Kekana (ANC) recalled the dismal state of post offices in rural areas observed by members during oversight visits. Customers had expressed unhappiness with the level of service provided and Members had not been impressed by the malfunctioning terminals intended to provide information to the public. Money had been spent but the system was not being used, which indicated poor management. He suggested that the vacant funded positions were filled as soon as possible, in accordance with the Presidential statement in the State of the Nation Address. He was not convinced that SAPO lacked the required skills as it should not be difficult to find people who could be trained and promoted. Improved training of existing personnel would result in the provision of better service. He felt that SAPO should not request additional funding if it had failed to spend available funding effectively.
Mr Kekana had not been aware that motor vehicle licenses could be renewed at post offices. He said that the services offered were not being effectively marketed at post offices. It would be a simple matter to list the services available on a board that customers would see when visiting a post office. He mentioned that many post office buildings were empty and were being vandalised.
The Chairperson suggested that the Committee’s oversight reports were linked to the strategic plans. The matters that were raised in the reports required a response from SAPO. Senior SAPO managers were not available during the Committee’s oversight visits and the staff members were unable to respond to the issues that were raised. The strategic plans should include the action that would be taken to meet government’s service delivery goals. The Committee had found that the current management structure at post offices did not integrate responsibility for services, for example, a different person was responsible for mail services.
The Chairperson said that the issue of cultural transformation was long-standing. A statement was made that the issue would be addressed but it was not measurable and progress could not be monitored. The Post Office continued to operate along apartheid demarcation lines and there was a distinct difference in the standard of post office facilities between affluent areas and predominantly Black, poor areas. He cited the example of the post office in Citrusdal, which was situated in a shack. This issue continued to be a major concern but was not being addressed.
The Chairperson queried the delay in establishing the Postbank. The Postbank Bill had been passed but there appear to have been little progress over the previous two years. The establishment of the Postbank was a high government priority but this was not reflected in the strategic plans. He wanted to know who had overall responsibility for resolving the challenges with the mail service.
Mr Mothema noted the concerns that had been raised by Members, in particular the matters raised during oversight visits. He assured the Committee that the SAPO Board took the role played by the Committee seriously. He was perturbed to hear that the manager responsible for mail services had not been available during the oversight visits and that the different business units were not interacting with each other and responded to the issues raised by Members. He gave an undertaking to attend future oversight visits and to ensure that senior management personnel were present.
Mr Mothema agreed that the issue of corporate governance was problematic. The Minister shared the concerns. He was not aware of any legislative requirement for adherence to the King III principles. The Board would review the performance against the key performance indicators (KPI) on a quarterly basis and the results would be communicated to the Committee. He conceded that succession plans were not in place. Efforts had been made to fill the vacant positions internally and a meeting with the financial team had been scheduled. The National Treasury had been requested to second a senior person for two to three months while the process of recruiting a Chief Financial Officer took place. In the interim, Mr Buick had given an undertaking to delegate his Business Development responsibilities. The Chief Executive Officer, Chief Financial Officer and Chief Operating Officer positions were vacant. These executives served on the Board of SAPO as well. An urgent meeting with the Human Resources division had been called by the Board. An amended recruitment plan was subsequently approved. The plan would be implemented as soon as the approval of the Minister was received. As a lawyer, he was reluctant to sign off the annual reports before the matter had been resolved.
Mr Mothema said that SAPO was obliged to provide decent employment opportunities. He had requested a briefing on the issue of labour brokers and was aware of adverse media reports on the matter. A workshop had been held and SAPO had commenced with employing temporary workers on a permanent basis. The savings in broker fees would be passed on to employees. The new human resource strategy was within the regulations and he hoped it would be approved by the Cabinet.
Mr Mothema said that the process of establishing the Postbank commenced 16 years earlier. The Postbank Bill was passed two years ago and the process was currently in the implementation phase. The National Treasury had been engaged on the issue of funding. A funding model and business plan had to be approved by the Treasury before the banking license could be issued. He had been in consultation with the Minister on expediting the matter and PriceWaterhouseCoopers (PWC) was appointed to provide assistance. It was necessary to appoint the head of the Postbank to drive the process. SAPO’s priorities had to be finalised and a meeting had been scheduled to identify which projects would be proceeded with, given the funding constraints.
Mr Buick explained that SAPO needed to satisfy its shareholders whilst providing critical but unprofitable services such as USO. The National Treasury had been provided with a detailed motivation for the additional funding required but the request had been declined. SAPO was considering alternative sources of funding, for example public/private partnerships and agencies to provide services. SAPO was subject to a number of laws, for example the SAPO Act, the Banks Act, the Companies Act and others.
Ms Lancaster explained that the equipment used for the public information terminals were imported from
Mr Maphutha Diaz, Group Executive: Human Resources, SAPO advised that SAPO would be implementing a new flexible labour strategy and would be phasing out the use made of labour brokers. The strategy comprised three steps, i.e. the appointment of permanent staff, minimizing the risks and taking over the entire human resource recruitment and management function. The human resource plan would be presented to the Committee on 12 June 2012.
Mr Mothema added that the Board had appointed a sub-committee to consider the human resource, succession and transformation plans.
Mr Adam conceded that the recent allegations of fraud and the fact that the system was down for a week had been damaging to the Postbank. Work had commenced on back-up and disaster recovery plans. The plans had to be in place for the banking license application and Board approval was required. The Minister had been informed of the funding requirements to establish the Postbank. SAPO was not in a position to provide the funding, without which the banking license would not be issued. The request for funding had been submitted to the National Treasury and the DOC had been engaged on the matter. SAPO did not have any internal skills available to deal with the banking license application. The responsible person had to be fit and proper and would have to be recruited externally.
Mr Ndala Mnisi, Group Executive: Retail, SAPO explained that not all vacant buildings belonged to SAPO. Some buildings were owned by now defunct government entities and were rented by SAPO. The process of verifying the fixed asset portfolio had commenced and the extent of usage of the buildings owned by SAPO was being assessed. Certain Post Office buildings had been privatised and SAPO was forced to move its operations to other premises, which was the case with the temporary accommodation for the post office in Citrusdal. A maintenance plan was being developed as many post office buildings were old and in need of repair. For example, the cost of renovating the
Mr Mnisi advised that a poster listing the services available was displayed in most post offices. Other mediums were used to advertise the new products available as well. He apologised for not being available during the Committee’s oversight visit as he had been attending a conference in
Mr Molefe Mathibe, Managing Director: CGF and DOCEX, SAPO advised that the decision to integrate the freight and courier operations was made by the Board in 2007 after extensive investigation and briefings. The matter was complex but the substantial amount of information could be made available to the Committee if required.
Mr Lungile Lose, Group Executive: Corporate Affairs, SAPO said that the increase in revenue from motor vehicle license renewals was an indication that more people became aware of the service. He conceded that it would be necessary to indicate the number of trees planted as well as the number of people benefiting from the social investment initiative in the strategic plan.
Ms Lancaster had noted Member’s comments concerning the need for benchmarking. The strategic plan would be amended to include benchmarking data. A campaign to market the crime hotline had been done and an increase in the number of calls was anticipated. More detailed financial information would be included in the revised strategic plan document, as suggested by the Committee.
Mr Mathibe advised that meetings with the DOC were held bi-monthly to discuss the matter of the Set top Boxes. The mechanisms to verify the applicants for the boxes, the distribution of the boxes in the rural areas and the ongoing repair and maintenance of the boxes had been identified.
Mr Diaz explained that SAPO suffered from a shortage of scarce critical skills in the areas of IT, e-postal, the Trust Centre and banking. A breakdown of the training budget was provided in the briefing document.
Ms Muthambi pointed out that Members compared the strategic plan and briefing documents to the documents provided for the prior year and noticed discrepancies and omissions. The Committee had not been provided with a report on the previous financial year, the report of the Auditor-General and a progress report on the action taken to address the findings of the Auditor-General. She asked why the motor vehicle licensing service was not available at post offices in
Mr Kekana reiterated complaints about the lack of service in post offices. He observed that IT technology generally changed constantly and suggested that SAPO checked current lease and upgrade agreements with the suppliers of IT equipment.
Ms Shinn said that it was not necessary to state that the strategic plan was confidential as the document was in the public domain. She queried the percentage targets set for gender and race.
The Chairperson advised that the Committee monitored the progress made by State entities on a quarterly basis. SAPO had appeared before the Committee on many occasions and he was at a loss to understand why the organisation had failed to provide an acceptable strategic plan document. Not all copies of the strategic plan had been signed. The Committee could not adopt the strategic plan in its current format. He asked that the document was corrected and amended to include the additional financial and other information suggested by the Members and specified the quarterly targets. SAPO had to rescind the plan sent to the Speaker and re-submit the amended strategic plan as a matter of urgency. The amended strategic plan and budget would have to be re-presented to the Committee prior to the budget debate, scheduled for 8 May 2012.
Mr Steyn pointed out discrepancies on page 11 of the strategic plan document and on slide 64 of the briefing document. He suggested that the figures were checked. More risks were listed in the briefing document than in the strategic plan.
Mr Mothema agreed to ensure that the strategic plan and briefing document were amended and re-submitted.
Other Committee Matters
The Chairperson advised that further clarity on the response of the Parliamentary Legal Services department on the matter concerning MTN’s operations in
The meeting was adjourned.
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