Postal services & postal strike: South African Post Office & Minister of Telecommunications and Postal Services briefing

Telecommunications and Postal Services

31 October 2014
Chairperson: Ms M Kubayi (ANC)
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Meeting Summary

The Committee had requested a full briefing from the South African Post Office (SAPO) and Minister  on the current situation in SAPO, in view of the ongoing strike action and the various issues raised in the media, and the Chairperson made it clear, from the outset, that this was a serious situation requiring urgent and definitive action, to avoid prejudice to the public, particularly since SAPO had universal service obligations.

The Minister of Telecommunications and Postal Services highlighted the problems regarding the labour strikes and noted that a forum had been created to resolve the issues. The labour problem had come about through  labour integration failure on the part of SAPO management, which had tried to do away with labour brokers and bring the workers formerly employed casually into the fold, but the transition had proven too slow and the casual workers received less than their counterparts, which led to strikes by both union and non-union employees. The strikes had been violent and seriously disrupted SAPO services.

The Minister also apologised that the financial statements had been presented late, and explained that the cost model was an enormous problem, and there were certain other problems that delayed the finalisation of the accounting statements, although he assured the Committee that this was being dealt with.

The General Manager of SAPO presented a  report which reflected on the turnaround strategy of SAPO, bringing new innovations and ideas to the table and increasing the revenue pipeline options. He spoke about the cost of the strike (R75 million) and the cost of putting all the casual staff on the same pay as the permanent staff in one year (over R800 million). He then highlighted some achievements of SAPO. The Chief Financial Officer spoke to the unaudited financial statements, noting that this reflected a net loss of R538 million so far for this year. The revenue had fallen dramatically below budget whilst expenses had grown, especially in salaries, property and transport. SAPO no longer received a subsidy.

Members were critical of various aspects of the presentation,pointed to inconsistencies between information provided to the previous Committee and now, particularly around the cost of putting employees on permanent staff, asked why labour brokers had been used at all in the first place, and were critical of the Board, commenting that it did not appear to be showing enough of a proactive approach, appeared to be dragging its feet on the turnaround, which had been ongoing for some time with no apparent change, had not been proactive in identifying the risks and taking action to address them at a much earlier stage, and now appeared to be too soft in its approach to the Chief Executive Officer, who had been placed on "extended leave" pending investigations, where the Committee and Minister urged that this person should be under suspension. Members raised queries about the late payment of workers, the strike, the quality of the management, whether SAPO was engaged on the same or a new turnaround, commented that if it was the same one, then the management needed to be replaced, and the amount of the guarantee provided to the bank, and what exactly had been the reason for the misunderstanding over salaries. The Committee wanted to appeal to the workers not to resort to illegal action, but to return to work quickly, and appealed to the unions to ensure that they negotiated seriously,so that this could happen. Members wanted to know the cost of the strike, the amount and cost of overtime to try to catch up, whether any options such as spaza shops had been investigated for mail services.  The Committee was clear that SAPO should not be attempting to rely on any further handouts. They felt that the strategy needed to be clearly and succinctly described and implemented. A follow up would be done by the Committee in two weeks time.

Meeting report

South African Post Office current state of affairs
Chairperson's opening remarks

The Chairperson noted that the programme had been amended, and today the Committee would be taking a briefing from South African Post Office (SAPO) since it was important for the Committee to establish and understand the current state of SAPO, particularly given the number of rumours in the newspapers and other media. One of the questions that this Committee was particularly concerned with was why SAPO had not tabled its financial statements. SAPO had a critical role to play in delivering services in South Africa (SA) and it was in the best interests of the country to ascertain what exactly was happening in SAPO.

Ministerial briefing
Mr Siyabonga Cwele, Minister of Telecommunications and Postal Services, welcomed the opportunity to address the Committee about the challenges faced by SAPO. With its network of 2 400 offices around SA, SAPO had a massive infrastructure. Its problems were not new, but they were endemic problems highlighted in previous reports. The frequent change of leadership and management had caused problems; and labour instability was another issue meaning that generally there was a constant battle.

The Minister said that the labour challenge was relatively simple. Citing the current industrial labour action, he noted that it had been unprotected and had been quite violent. It stemmed from the labour brokerage system. The agreement to end the labour brokering system eliminated the middle man, and it provided for a gradual absorption of these labourers into SAPO, which would then directly contract with the former temporary employees. However, the implementation of the agreement was weak, which led to a fragmentation of workers, with various different agreements signed. On 2 October 2014, a summit was organised to have a leadership forum to deal with this labour issue. All the leaders had a platform to engage with management. The forum identified ways to make SAPO stable and more efficient. This included looking at the headcount of staff. All stakeholders agreed to work together to keep hold of existing clients. For example, a large client, UNISA, allowed contingency plans to deliver material to students. The Ministry and Department of Telecommunications and Postal Services (the Department) were looking to establish a long-term stable environment that would provide uninterrupted service delivery. A sustainable turnaround for workers and management was desired and the Minister believed that it was attainable.

The Minister then dealt with the delays in submitting the financial reports, and assured the Committee that the outstanding issues were being addressed and he would revert back to the Committee when they were finalised. He apologised for the delay. He added that some of the challenges related to the finances, on which there was engagement at the moment with the Board. Within the Department, an ICT review was under way, which including public participation, and the Department was working with Independent Communications Authority of South Africa (ICASA) on this.

He continued that the main challenge was the cost model, as the current model was not working well, and thus the Department was looking at improving the cost structure. He agreed with the Chairperson that SAPO was providing a service to the poor which could not be ignored.

Several measures to make SAPO more sustainable had been made. In Post Bank, for example, financial services to the poor were being provided with assistance for small businesses in rural communities. If it was possible to allocate 20% of the courier service to SAPO, he believed that many of the problems could be solved.

South African Post Office briefing
Ms Hlamalani Manzini, Acting Chairperson, SAPO Board, agreed that SAPO needed to have a sustainable model. The subsidy had been cut and slowly, SAPO had been weaned off reliance on the former subsidy. It was crucial that SAPO must go through all the internal policy bases, to make sure they were all aligned with each other. The leadership of the unions was invited to take part in the process, to include and empower the workers. There were definite plans to take SAPO forward.

Mr Andrew Nongogo, General Manager, SAPO, noted that clients were choosing to not use SAPO during the recent unrest. The inability of SAPO to invest in its infrastructure was a massive shortcoming. Universal Service Obligations (USO) provided many funding challenges, and the need to decide what were the ideal funding requirements for this service. Once the formerly casual labourers employed by labour brokers were brought into SAPO, SAPO was faced with having to accommodate and incorporate around 8 000 employees, and various industrial actions ensued from this process. The main issues were around equal work/equal pay. At that point, SAPO was dealing with only  two unions and the casual workers did not belong to a union, but carried out industrial action on their own, illegally. The financial cost to SAPO of incorporating all casual workers into permanent work would be massive, in the region of R855 million, if they were brought online with permanent salary levels in the current year. There were leadership issues with lots of acting staff. 34 executive positions were currently vacant.

Many workers were intimidated and violence was present during the strikes. He stressed that it was necessary to get the workers back to work. The strike  cost SAPO R75 million in financial revenue. The mail backlog would be addressed through working overtime, bringing in extra staff, increasing capacity of transport and prioritising mail (FIFO).

SAPO faced many funding challenges. Some post offices  were not bringing in enough revenue, and this meant a decision was needed on what to do with them. Mail constituted 65% of SAPO revenue, any drop in mail would lead to a drop in revenue. SAPO's reputational risks were relevant and SAPO wanted to improve this.

Mr Nongogo said that the turnaround strategy involved innovation in various ways. SAPO had to ensure that it collected faster than it paid out, stabilise the work environment and end the strike, ensure that all issues were dealt with and an agreement with all workers was made for a long-term stable horizon. Reduction of costs was critical and needed to be dealt with. In addition, SAPO had to improve its service delivery.

The key dependencies that were holding SAPO back at the moment included inadequate IT infrastructure and insufficient capital funding.

Mr Nongogo made the point that options for increasing the revenue pipeline  included
- Retail expansions for bookings
- purchasing of ticketing and e-vouchers for buses, airlines and similar travel requirements
- e-business through issuing of motor vehicle licences and traffic fines
- logistics with the distribution of documents for Department of Home Affairs.

Mr Nongogo said that he wanted to indicate some of the achievements to date. SAPO had managed to absorb the casual workers and eradicated use of labour brokers. It had reduced fruitless and wasteful expenditure. It had set up motor vehicle licence pilot sites in the North West and created new point of sale terminals.

Ms Khumo Mzozoyana, Chief Financial Officer, SAPO, indicated that in this financial year, revenue had  - fallen by 3% (R2.764 million) which was below the budget by R429 million in the latest financial year. There had been a net loss of R538 million in the current financial year. Expenses grew more than revenue. Staff, property and transport expenses had grown dramatically, whilst revenue had plateaued.

The Chairperson wanted to ask about the casual workers, indicating reports, and a phone call that she herself had received from one employee, that some employees had not been paid, and she therefore questioned why SAPO said that the workers were being paid.

The Chairperson was critical that no Chief Executive Officer was present from SAPO, and said that these kinds of issues were the wrong footing from which to start. The Committee had received several emails and calls. She felt that the Board's presentation was "evasive".

Ms Manzini conceded that SAPO had had some challenges with the bank. SAPO had paid salaries but in some instances these were paid late but all salaries would be paid by the end of today. She explained that the Chief Executive Officer had been placed on extended paid leave, whilst certain allegations were being investigated. This process had started on 3 October.

The Chairperson asked when exactly the discussions with the bank had started.

Ms Mzozoyana responded that they had started on 17 October, when the issues were discussed and meetings were held with the bank. There had been major challenges with the inflows of revenue. SAPO had been engaging until yesterday to ensure that it could honour its commitments.

The Chairperson asked if the Minister was aware of this.

Minister Cwele responded that he had been informed of this, at short notice, and the Minister and Ministerial team had addressed a "letter of comfort" to the bank to ensure and authorise the release of funds to employees. A letter of guarantee was signed by himself and the Minister of Finance. He repeated his belief that there was a workable turnaround solution for SAPO. The problem with cash flow lay with the bank.

Ms D Tsotetsi asked why a decision was taken to remove the labour brokers.

Ms J Kilian (ANC) pointed out that in terms of the Post Office Act, the entire board was the accounting authority. The board was supposed to give direction and implement the plan. She asked that the Acting Chairperson of the Board must explain, in terms, what was going on. She asked who was responsible for irregular expenditures of R95 million, pointing out that if the board was not able to control its CEO, it must "fall on its sword". She criticised SAPO for having apparently bargained on getting a bailout and said it had not been forward thinking. There had been no steps to curtail expenditure or any forward planning or strategy created. She said that the whole situation was, for some time, a disaster in the making, and it was not possible to blame the strike only. Labour broking was introduced two years ago, and she wanted to know why. At the moment, 65% of the staff were permanent, and  35% were casual, so she asked why SAPO had relied on labour brokers, and why there had been casual workers two years ago. She noted that the turnaround strategy had been touted for a number of years. She asked why, knowing that mail was declining by 5% globally, SAPO did not then develop other products. She did not feel that the Committee could trust this board and management. The executive management had not been to the rural areas to know what they were dealing with.

Mr P Mabe (ANC) pointed out that SAPO was apparently in a bleak and worrying position, and was not even able to secure any loans. He urged that a radical plan to work with the assets of SAPO was needed. SA needed certainty that SAPO would be sustainable and in existence for a number of years.

Mr Mabe questioned what the "e-commerce plan "entailed and said that more elaboration was needed. He noted that the fax-to-email space by Telkom was eroding SAPO’s base.

Mr Mabe urged that now that the CEO was on extended leave, the allegations needed to be swiftly investigated and finalised, particularly since SAPO, which already had money problems, was now paying fora CEO who was not actually in place.

Mr C Mackenzie (DA) noted that SAPO was as important to the country as were the roads and rail services, and it was of paramount importance that SAPO must provide a service, since many businesses and people across the country were affected by the SAPO strike. The strike arose from a failure of the board and management to honour an obligation to move casual workers to permanent workers. This had to be explained. SAPO had universal service obligations. He also pointed out that the Board had made moves to mitigate the risks of loss making entities, and there had been lack of innovation on its part, when seeking  other departments to work with. He asked which of numerous turnaround strategies SAPO was now engaged with, and wanted to know if it had actually started. If this was still the same strategy, then he suggested that new people must be found to run it.

Mr Mackenzie asked if the unions were represented on the Board. He asked when the financial statements would be presented to the Committee. He wanted to know the salaries of the top management and board. He asked how accurate the 2014 figures were.

Mr Mackenzie asked when USO was introduced. He pleaded with the board to get the mail moving again and asked how much this would cost. Essentially, the SAPO was bankrupt, and he asked it how it intended to "get out of this hole".

Mr Mackenzie wanted more details on the email of 17 October, concerning the negotiations with the bank. The Minister said that a guarantee was issued, and he asked in what amount. Post Bank figures needed to be presented separately as it was going corporate. He noted that nothing had been said about the pension fund – and he asked if the current members were supporting previous members, and why this fund was moved from Sanlam to Old Mutual.

Mr Mackenzie said that SAPO was "haemorrhaging" customers at a massive rate. He commented on the "MBA-type"jargon used when describing the turnaround strategy, and wanted rather to hear about what actual innovative strategies were used. He noted the comment about the possible increase in revenue streams but pointed out that already there was the option, on PayCity to pay traffic fines, so he wondered what SAPO would actually be intending to add in this space.

Mr Mackenzie pointed out that in the past, CEOs had resigned for losses of a couple of million in the past, yet SAPO had now lost half a billion rand.

Ms M Shinn (DA) said that the possibility of spaza shops being able to offer postal services, at a cheaper price, did not appear to have been explored. SAPO seemed to suggest that there was "business as usual" yet it seemed that very shortly, the lights would be going out on SAPO. She commented that anybody relying on SAPO for business needs was being short-sighted.

Ms Shinn asked what the National Treasury had told SAPO about the removal of the subsidy. She commented that committees in the past were told that it would cost SAPO nothing to remove labour brokers from the picture and employ the casual workers permanently, yet now the Committee was told that it was going to cost over R800 million. Essentially, somebody had lied to the Committee.

Ms Shinn was very strong in her disapproval and suggested that a "corporate hit-squad" was needed to go into SAPO and remove those who were not doing their jobs. Basically, she was of the opinion that the Board had to be removed.

Ms Shinn asked if the workers would be paid overtime, and who was going to pay for it. The whole issue of digital migration had been a comedy of errors. The potential digital set-top box income for SAPO had been blocked by policy issues and failure by the government to resolve digital migration

Ms N Ndongeni (ANC) asked whether the Board was under the impression that it had now done its job. She wanted to know why SAPO had moved buildings, and what was the situation with executive salaries.

The Chairperson said that the main point was how to get SAPO working, now - future plans could stand over for discussion at a future stage. There have been no consequences for the board arising from the strike. The unions must declare their strike. Formal processes needed to be followed; strikers could not simply go ahead and destroy properties. Labour could go ahead with strike action and act outside the laws. This Committee needed to condemn what was happening at SAPO. Workers may not have a job next month – so they needed to get back to work.

The Chairperson noted the discussions on the subsidy and pointed out that the subsidy was just that, and was never a profit and the two should not be confused when reporting.

The Chairperson was condemnatory of the SAPO board, whom she said was "playing with the lives of South Africans, and this is wrong". The decent thing to do would have been to talk to the workers.

The Chairperson asked why the Chief Financial Officer was speaking of financial statements when these had not been audited. She commented that in her view, the CEO should have been placed under suspension, not on special leave. She asked if the Board could afford to pay salaries, and pointed out that it could not negotiate salary increases when it could not pay your workers. Finally, she asked what South Africans were to be told, if the Committee had little hope.

Mr Nongogo firstly addressed the points made around the casual workers and said that when they were brought on board, they were earning less than what was being paid to the permanent workers. SAPO was going to bring them on to the staff at the same pay level they were getting under the labour brokers. The extra money now being referred to was the amount that would be required, if they were to be brought into we SAPO at the same pay as permanent workers. The SAPO reserve did not have enough to cover these costs. Prior to 2012, casual workers were workers of a temporary employment service, completely separate from SAPO. These workers were then brought on board in 2013.

Mr Nongogo said that the key mandate of SAPO at the moment was to stop the industrial action. SAPO had set-up a forum to engage with the labourers. The illegal action of the strikers was making it very hard to have contingency plans at SAPO. At the delivery end, there were problems due to intimidation and damage to property. Workers were brought on permanently, in a phased approach, as vacancies came up. The slow intake from casual to permanent staff had created a "perfect storm". Casual workers were paid the same as they had been under the labour brokers, which caused much frustration. SAPO created a new salary band (called AA) to add new benefits for casual workers. However, if every casual worker was brought on, being paid the same as permanent staff, this would cost over R400 million over three years, or over R800 million in one year.

Mr Nongogo conceded that the SAPO infrastructure had let the country down and input was needed. A retail rollout similar to a spaza system was currently under way. The pensioners would continue to receive medical aid for pensioners, under a system established prior to 2005. Pensioners would not receive medical aid from 2005 onwards, as it was financially unsustainable.

Ms Mzozoyana added that there had been a change in the pension fund and the move from Sanlam to Old Mutual was happening quite smoothly. The pension fund was a separate entity. The funds were secure and could not be touched. The financial figures were un-audited figures, and were presented to give the Committee an idea of how the performance of SAPO compared against last year's figures.

She reported that casual workers were getting R24 an hour, which was not the same as permanent workers, and was less than the permanent workers were paid. The cost of overtime, on average, was R4 million, but with 12 weeks of no operations to catch up on, this would lead to a higher figure.

Ms Susan Myburg, Acting General Executive: HR, SAPO, noted that SAPO was trying to re-integrate people into the workplace. It was bringing in outside help to assist. Managers were being debriefed and were receiving conflict resolution training. In-house counsellors, Lifeline and SAPS would be used and it would not cost anything extra.

Ms Manzini said that the union members did sit on the board, under the old legislation. Now, SAPO had approved a new organisational structure and was moving out of the old structure. The Board was attending to the competency of management. Speaking to the question of irregular expenditure, she noted that eight members of executive management had been subjected to disciplinary hearings. The SAPO board was now in a joint engagement to rebuild confidence, get business back and end the strike.

Ms Manzini noted that the extended leave of the CEO was essentially under the same conditions as a suspension, but it was used to protect SAPO. It also meant that SAPO was able to use his services if required.

The Chairperson took issue with this, saying that suspension and extended leave were not the same, and a CEO who was under investigation should not be asked to help the organisation. She urged that the board correct this, immediately. She had the impression that the Board was reluctant to take action.

The Chairperson asked for how long the unions had been on the board.

The Chairperson made the point that several of these issues had been continuously raised and discussed, for some time, and she urged that SAPO must go and look carefully at its costing,which was already raised as a problem in 2010.

The Minister said that he had listened carefully to the concerns of the Members, including the call for a consultancy "hit squad". The impact of the service failure was indeed worse for the poor, the sick and for small businesses and the Ministry was prioritising the ending of the strike first. He conceded that there was an incorrect culture that needed to be dealt with at SAPO, that had assumed that business could continue as usual and that it should beg for subsidies. He also agreed that there had been a problem with the decline in mail. The Ministry was looking at strengthening ICASA, as there had been a large amount of dumping of mail. The regulations needed to be strengthened.

The Minister noted that the currently Acting CEO had full powers, and he agreed that the former CEO should be on suspension, not extended leave. He noted that on 2 October a meeting had been held to discuss structure and it was noted that there were too many Acting positions at SAPO. This structure needed to be addressed.

The Minister noted that the Pretoria offices were owned and were lying vacant, and indeed the question must be asked and answered why SAPO had moved to rented premises, and a building audit had to be done. He also agreed that some of the subsidiary offices continuously made a loss and they needed to be investigated.

The Minister explained that there had been misinterpretation by the bank of the letter and this had led to some salary payments being made late. . Why did they move to a rental place? A building audit needs to be done. Some subsidiaries were continuously loss making and they need to be looked at. The letter of guarantee covered a guarantee of R220 million.

The Minister summarised that the SAPO and the Ministry and Department had noted al the problems and he would ensure that SAPO survived, and there would be ongoing engagement with the Board. Something had to be done to ensure confidence in SAPO. The strike must come to an end. SAPO needed strong leadership. Any side deals needed to be stopped, as it was not possible to reward violence and illegal acts. Finally, he noted that the SAPO was not bankrupt; it merely needed to get working again, and salary increases and staff employment should be frozen until then.

The Chairperson noted that the Committee would be holding oversight visits from 25 to 26 November and would be having a follow up meeting in two weeks. She asked that the SAPO team must report back clearly to the Committee on all the issues raised. The Committee was calling on the unions to return to the boardroom and discuss the issues, and for workers to return to work. The Committee was also calling on the Board to act against any executives who had failed to do their jobs. Because SAPO played such a critical role in South Africa, all the issues raised needed to be addressed.

The meeting was adjourned.


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