South African Postal Office turnaround strategy & corporate strategic plan, with Deputy Minister

Meeting report

Before handing over to the Deputy Minister and the team from SAPO, Ms Kubayi said an apology had been received from the Director General. This apology was rejected and it was highly unacceptable that the DG should not be present as the accounting officer. Members nodded in agreement.

In opening remarks Deputy Minister Professor Hlengiwe Mkhize said the document began by locating the post office within the National Development Plan framework. It shows how SAPO was an anchor of service delivery and a pillar of inclusion especially at time when everyone was working hard to change the face of the South African economy. One also got a sense of the importance of the proposed Post Bank. There were a few challenges which included the capacity to implement the financial constraints but on the whole the presentation gave a sense of hope that the era of the administrator had given SAPO the opportunity to think seriously about the future and how to improve its capacity.

The presentation (see document) was delivered by the Administrator Mr Simo Lushaba. SAPO was hopefully at a point where the Department could demonstrate that it was an asset that could be relied upon in the development of the country.

Since the 26 November 2014 strikes stopped, SAPO was entering its six month of labour stability. Engagement was ongoing in an honest attempt to have a constructive dialogue that took them all in to a future that was constructive. There were currently cash flow issues because of the challenges. This saw customers looking elsewhere for services. Revenues had not recovered to the levels they were before the strikes. There was a challenge in meeting cash outflow requirements. Long terms funding was crucial. There was a backlog of payments to suppliers and the Department would, through the documents elaborate on plans going forward.

A growth in government business was expected to position SAPO as a delivery arm of government. This was the result of a Cabinet decision earlier in the year that SAPO would be given 30% of the business that was in its areas.

There was a problem in the area of the reserved market. Complaints had been submitted with Independent Communications Authority of South Africa (ICASA). The Department had found that private sector organisation and some state entities were not abiding by the regulations of ICASA. Those bodies were delivering parcels and letters that were one kilogram and below as well as provision of post boxes.

SAPO was expected to roll out a comprehensive network in terms of its developmental obligations particularly to the rural areas. As a result SAPO had been given a reserved market. The leakage in revenue had led to its inability to sustain this market and derive the revenue. The Department had a customer centric business model to uplift SAPO. It was hoped that business from government would derive 50% to 55% of the revenue. At the moment revenue derived from government business was 33%. Sixty five percent of revenue from business and 2% was from consumers. Consumers were not just 2% of the business because they were all the bulk receivers of SAPO.

SAPO had found itself left with a legacy of a dying consumer service. It had not been able to keep up with the changes in the trends. The legislation was developed when access to ICT and digitalisation was still very low.

Challenges were leadership; a lack of adequate funding; an inflexible operating model; inadequate execution capability; changing consumer needs and the high cost of servicing the Universal Service Obligation (USO).

SAPO had been marred by a lack of leadership, lack of trust and some corruption. Governance had been very weak including poor performance in the reserved area. An unclear understanding of the USO had added to the problems. There was very limited oversight, and ineffective management had to be addressed urgently. The morale of staff was very low however the Department noted that staff realised that change was imminent and had come across as supportive of a SAPO that could operate in manner that built confidence.

The bulk of financial challenges related to working capital. The operating model had been very inflexible. It had been based on the way SAPO operated over past 20 to 30 years and had not changed.

Some strengths were government support, the reserved market and the database of customers.

Some threats were a skills shortage especially when SAPO was operating in a more technology based environment and labour unrest. Another threat was digital substitution.

Discussion
Ms M Kubayi (ANC) told the Deputy Minister that the presentation gave her a bit of relief. There was a meeting with SAPO where she felt she was going to lose her mind because there did not seem to be any hope. The picture of SAPO that was being presented now was much more comforting.

Ms N Ndongeni (ANC) asked what criteria would be used for the product pricing model. The Department spoke about a customer focus; were rural areas catered for? At the end of May the Administrator would be resigning, how would SAPO move forward? Could SAPO provide time frames for the objectives outlined in SAPO’s business model overhaul (slides 16 to 18). What had happened to SAPO’s old building? Was it being rented out.

Ms Kubayi clarified that Ms Ndongeni probably meant that the term of the administrator was coming to an end; not that he was resigning.

Mr C Mackenzie (DA) lamented that he could only ask five questions. The Committee had waited for so long for SAPO to come before it with something substantial. He queried figures provided. To go from a loss of R1.2 billion in 2014/15 to projected loss of R102 million in 2015/16 to a net profit of almost R1.3 billion. It was very hard to believe that kind of turnaround could be done in that time scale. It was unbelievable to go from a loss of R1.2 billion to a net profit of R1.3 billion in three years.

He said according to SAPO mail was its core business and was still profitable. There was very little said in the presentation about how SAPO would improve its efficiency if it talked about reducing staff numbers. There was no talk about staff being replaced by some sort of automatisation or logistics. To illustrate a point, he said he had gone to the international mail centre and there was conveyor belt that did not move. A man physically had to haul stacks  of mail across the floor. This clearly showed that while there were automotive systems in place, they were not working.

He said was incongruous that when the telecommunications companies came before the Committee they were slated regularly for the cost to communicate. The belief that the way to bring down the costs was to encourage competition. But when it came to SAPO, the Committee’s attitude was very different. The Committee tried to protect SAPO’s monopoly against competition. There was a reference to unfair competition. What was this classed as? What regulations should be put in place to protect SAPO.

Mr Mackenzie asked about the corporatisation of the Postbank. A lot had been said for a long time. He quoted one of the reports which stated that commercial banks and finance companies had increased their focus on lower income customers but there was a viable and important role for Postbank to play in offering affordable banking services to South African citizens compared to profit driven / commercial shareholder driven enterprises. If there was not a profit driven objective then was the thinking for the Postbank? A loss driven objective? Postbank was included in the overall figures. It was disappointing that there was no fresh thinking.  What if, for example, the Department went to Capitec Bank and said here is a space, a retail facility and asked what it would be worth to them. Sell the bank and assets and use that money to recapitalise the Post Office. He was not a banker but were there not any fresh ideas which could recapitalise SAPO so it could focus on its core objective to deliver mail?
 
Mr E Siwela (ANC) said the term of the administrator was coming to an end. Many institutions that were put under administration reverted back to their old problems. What mechanisms were put in place to ensure that SAPO did not find itself in the same position it was in before it was placed under administration? The turnaround was divided into phases. Phase 1 was to stop the bleeding. Administration was supposed to correct that so why were they continuing with Phase 1? Did that mean the administration period had not achieved its goals.
 
He referred to another document in which there was an objective to stabilise labour to achieve zero hours lost. Was it not overly ambitious?
 
The Department had talked about rationalisation where staff would lose their jobs. Did the Department think labour would lie low and allow them to retrench workers and not do anything about it.
 
Mr T Khoza (ANC) said the presentation was long but informative. In the presentation mention was made that the labour environment was stable but it was also said that morale was low. Could that be explained? There was an indication that there were agreements made with labour that had never been implemented. What were the agreements and why were they not implemented? What assistance did SAPO need from the Committee to do this?
 
On leadership instability versus the turnaround strategy; the strategy could only be correct if there was stability. What were the plans to make sure there was stability?
 
Ms M Shinn (DA) said on 10 March, SAPO was before the Communications Portfolio Committee as part of an update on digital migration. It was said SAPO would be part of the logistics rollout of Smart Top Boxes and that would over three years contribute R929 million. There was no mention of the programme in the documents. Had that gone by the wayside?
 
She said the Cabinet decision was to increase government business from 30% up by 20%. How and when was that decision made. How would it be increased? Through regulation or by choice. Who would oversee that? The Department of Public Service and Administration?
 
She referred to the ICASA licence-protected market for the 1kg sector. It seemed as if there was a move to secure business that had been lost through inefficiency or costs to the private sector and at the same time they wanted to get that back from the private sector. Where customers had gone outside of the ICASA regulations to actually send their business to someone else, they were going to use the heavy hand of the law to bring them back. Was this not a taxpayer bailout by stealth?
 
The Department had gazetted the recruitment of board members. Was the selection being done internally or had it been outsourced to an independent specialist firm? What were the criteria? Particularly for operational staff it was hoped that the qualifications were being independently verified.
 
She said there was no mention of a programme that would bring the staff along with the huge change management. There was no mention of special programmes or skills upgrades. Was staff just going to have to like it or lump it?
 
The Department had spoken of a crime prevention plan. There had been an awful lot of fraud in SAPO. There was mention of a specific programme for that. What was it going to cost and how would they get staff buy-in. No one wanted to work for SAPO. People had left and those who had stayed had been battered by labour unrest. There was nothing at SAPO to make people want to stay. If the crime prevention policy was not properly thought through, funded and implemented, people would just carry on as normal.
 
In terms of I-ECS and ECNS licences, how were these being used as an income generator. What was the expected revenue that would enable it to contribute a percentage of its turnaround to the Universal Service Access fund?
 
Ms J Kilian (ANC) said she really believed it was the first time the Committee felt more comfortable. Over the years trends had been identified. Looking back to the suspension of the subsidy for universal service obligations, Members had said then that it effectively amounted to an unfunded mandate. The plan looked good on paper but how was it going to be implemented?
 
There was a summary SWOT analysis but she had not seen where the weakness and problems were listed.  The fact was that SAPO had to compete in a market; it was important to list that as a threat. Ms Kilian asked about the automation systems. The technology was outdated and that was a serious weakness for an organisation that competed in the communication field. To what extent had they analysed all their systems and what investment was needed?
 
She asked for more information on the USOs. In the documents, SAPO had said it was engaging ICASA. The notion of a point of presence in a radius of 3km was unrealistic. The country could not afford that. Governments by nature operated in silos.  Could there be a rationalisation of office space where SAPO could share a location with another government department? The costing of the USO was so important, SAPO had a developmental role to play, in the rural areas people needed a presence.
 
She said ultimately it was issues about the reliability and security of parcels and mail that would make people trust the Post Office again. The strategic plan would have to change because the trust curve on “we deliver whatever it takes” had run out. SAPO had not delivered for months. They should develop a catchy new phrase to restore confidence and trust. They had to earn their credibility.
 
She asked what the bottom line of the borrowing and funding plan was. Any institution or bank would want to see them have better control over risk analysis and risk management. For a long period SAPOs governance was not what is should have been. Was there anything that was going to come out of the woodwork that would be a financial burden? There was a matter dating back to 2004 that was in court last week, but how many more unsavoury arrangements had been entered into.
 
If SAPO was going to go with its funding and borrowing plan. There was a further request to increase borrowings by R1.25 billion which had been lodged with the Department. This was apart from the overdraft facility where they already had the state guarantee. Could they explain what was meant when they said there was a build to up the facility, to be backed by a state guarantee of R1.6 billion. Was this over and above to R270 million already in place. Could the funding and borrowing plan be explained again?
 
Ms Kubayi reiterated the good quality of work in the strategic plan. The major thing for her was how SAPO was going to integrate its work through the National Development Plan. Key going forward after the appointments of the board members for both the Post Office and the Postbank was that separate strategic plans would be presented. The Postbank had been stable, it was a matter of waiting for the corporatisation. It was how SAPO positioned itself in the market. The initial thinking for the Postbank was to close the gap between those who were unable to access banking or those who could. Both the Post Office and Postbank had to deal with issues of pricing and accessibility; reliability, efficiency and accountability. They had to get the basics right especially at human resources level. When they interacted with employees there had to be standard procedure. There were disputes about how employees were dismissed. There was a lack of understanding of the procedures.
 
She said it was important that the people appointed to the boards and senior management positions needed to be filled with credible and qualified people who had been involved in turning around and stabilising institutions.
 
She appreciated the situational analysis that had been done and the environmental scan. It showed they had internalised the position that SAPO was in.
 
She supported the need for engagement with the regulator on the USO. The previous targets were very ambitious. Realistically 3km was not feasible, viable and realistic. International trends were mail was dropping. South Africa had the opportunity to service un-serviced areas in terms of mail that could still generate income. It could assist for about three years. They had to analyse penetration. The penetration level of internet in the country was about six billion, this meant about 44 million people did not have access to internet. Those people were the target and an analysis needed to be done to find ways to access that market.
 
She asked for more of an explanation of monitoring and evaluation in terms of the turnaround strategic plan.
 
She asked if the right, skilled and experienced people were in the Group Project Management Office. Did they have the capacity? The devil was in the detail in how the Post Office dealt with its human resources issues.
 
In the corporate plan on page 45, there was subsidy that had been under-utilised. Was the money returned to Treasury? It was not clear because there were no notes of explanation. Could the capital expenditure of the Post Office over the medium term of R707 million which was dependent on the availability of funding be explained. Could the entities explain what was meant by depreciation under Postbank and deferred tax under Post Office. What was inter-company loads? The proposal for structure was a suggestion that one subsidiary, Courier Freight Group (CFG), go. She agreed it should go. Then there was Property Company Subsidiaries. Were they relevant to the Post Office?
 
Group Executive Human Capital Management, Ms Anthea Seafield, replied an analysis had been done on the agreements with labour. What had come out of this was some elements of the agreements had not been fully implemented. They related to the conversion of casual workers through the different phases of the agreements that had been reached with the unions. In the interim they had had discussions with the trade unions around those agreements. Progress had been made but discussions were still ongoing. What SAPO was trying to do, is that while it was reducing staff numbers to not necessarily reduce its flexible/casual labourers. It was looking at what skills would be required in the future in order to populate the structure with the right skills. As a responsible corporate citizen, SAPO was making provisions for people in the casual labour force to be made permanent. There was an agreement with unions that they needed to address the overall staff numbers. It was a balancing act, to look at funding available and how to deal with the labour issues and the operational needs of SAPO. Both parties were willing to get to an agreement and there was a clear understanding that it would be dealt with in a responsible manner.
 
Mr Lushaba added that one of the major reasons it was difficult to implement the agreement was affordability. It would have cost in excess of a billion and half rand over next three years to implement, but the agreement was for 24 months. It was a fine balance between what was promised and what the reality was. The last agreement was a convergence which did accommodate affordability. They were implementing based on affordability. Some people wanted to be converted tomorrow and ran out of patience so SAPO needed to move with the turnaround time. That had been the pain in the situation. He was not criticising but said some of the promises had been made out of pressure but the reality was that the money  had to come from somewhere. The Company made of loss of a billion and it could not be irresponsible and just add another R1.5 billion to that.
 
Ms Seafield said an analysis had been done on the issues around low morale. One of these was not being able to see the vision of the organisation. The strategic turnaround plan was to show people what the vision was and also how it was going to be achieved. Another issue was the employee value proposition. The remuneration policy and philosophy was looked at. Unfortunately because of funding especially, at management level, the policy was not being implemented at a market-related level. SAPO was looking at an incentives programme that should be tied in to a credible performance management system. It was something that was being looked at. In the last three weeks the company had been getting people to understand that 1. the performance system should at this stage be divorced from the remuneration circle because it was not as stable and it should be. 2. To enable the discipline around performance management to set targets but also to have the tough conversations that enabled consequence management to take place.
 
She said within the learning and development space they had looked back to when people understood what they were supposed to do and what the consequences for failing to do this were. SAPO needed to go back there. It was expected that in a changing organisation people would take chances so they needed to ensure that people were skilled and that there were programmes to explain to staff how things were handled.
 
They had also started working with the unions to build workplace relationships. Together they had developed a capability development programme in terms of what the various positions should know around HR processes. In the last six months they had investigated all the HR cases, where people were dismissed and proper procedure was perhaps not followed. There were some gaps and they were being addressed with the unions through the capability development programme.
 
Mr Lushaba added there had been areas where management had been inconsistent. When management sought to take corrective steps, they got resistance from people who said they could not do this because they did it differently the year before. For example there was a case where people had been paid or received their bonuses while on strike. The day they returned to work another group went on strike but because the system had changed they did not receive pay. SAPO had to be very clear and to break the thinking that ‘I got away with it in the past so I’ll get away with it in the future’. It was a matter of breaking from the past.
 
Mr Andrew Nongogo, Acting General Executive: Mail, responded to questions around the criteria for product pricing. Ideally they were around profitability and sustainability. In the past there was a tendency to price in such a manner that they were actually subsidising the customer. That was unsustainable. They were having conversations about differentiated pricing. For example, where Foschini was dealt with, then commercial market related prices were applied. When he went in to rural areas and individual customers were dealt with, then a different tack on pricing had to be applied.
 
SAPO was most definitely catering for rural areas. As a state-owned entity, a key part of the role was to service people in rural areas. One of the mistakes of the past was that there was an insistence that all retail outlets should be the same form and shape. The cost for that was unsustainable. SAPO had to now look at retail outlets on the basis of what was needed in a particular area. There was a great deal of focus on rural where mobile post offices were also used.
 
Mr Nongogo assured Members that once the administrator left, SAPO would continue with the turnaround. Management had a willingness to implement the plan. They were committed to it and would implement to the best of their ability.
 
SAPO was trying ascertain to what extent they could get out of the current lease agreement with Eco Point. They were trying to understand what terms and conditions were entered in to and in what manner they were entered in to. If there was fraudulent activity in entering the agreements then they would gladly break the agreement and return to the NPC. If they were unable to do so, they did have a potential buyer for the NPC.
 
Responding to Mr Mackenzie’s question about the unrealistic and ambitious net profit of R1.3 billion, Mr Nongogo agreed that it was ambitious but he did not think it was unrealistic. There were a number of revenue upliftment initiatives. A lot was backed by the requirement that SAPO did get from government that was due to it. They were confident that if the initiatives were pursued and they did get what they wanted then they could reach that target.
 
On improving efficiency and reducing staff, Mr Nongogo said the reality was that the Post Office had a lot of machinery for automatic sorting of mail. Currently they were using the machines up to 30% so they could be used more efficiently. Where there was manual labour, they also had to look at how that was utilised. This would also involve how staff were rotated. The aim was to ensure that whatever staff they had was utilised efficiently.
 
Mr Nongogo noted Ms Kilian’s comments that SAPO had to draw its customers back. SAPO had to prove it was reliable, secure and efficient.
 
Mr Lushaba said SAPO had a history of working in isolation from the value chain in which it participated. For example mail sent to Nelspruit, was printed in Cape Town in bulk by very large entities like Bidvest Data. SAPO needed to work better with them. They were going to increase the hybrid mail offering. In the plan they had not suggested that the Post Office should invest all the capital, they suggested that it work in partnership with those already in the industry to leverage capital expenditure.
 
Mr Nongogo responded to questions on competition. There was a law in place that protected a certain weight, size and dimension of parcels and letters. That protection was designed to provide for SAPO's capacity to roll out USO. A number of private entities had entered into that reserved market and deprived SAPO of that income and hence they found themselves sitting in front of the Committee trying to explain how they were going to get out of the hole. It was important to acknowledge that these practices did occur. New regulations were not needed, they existed. There was a need to ensure that the regulations were followed. There was discussion with ICASA and the DTPS around the enforcement of them. When SAPO spoke about 30% government business, some of that business was going to other players in the market which should, through regulations, be going to SAPO. 
 
Mr Nongogo said the target of zero percent lost hours was ambitious but Members would see there was a lot in the plan that was ambitious. There had to be targets that were necessary. They did not want to have any labour unrest so the zero hours spoke in part to that. It was not lost hours if someone was sick and did not come to work, it was no hours lost to labour unrest.
 
Ms Seafield said SAPO was looking at a multi-year agreement with the unions. That created a bit more stability. Also in terms of reconstituting the forums at the different levels. Two unions had agreed to the new proposal and SAPO was meeting with the third the next day. They had a few  things they had a problem with but the overall consensus was to have local level negotiating and consultative forums in place.
 
Mr Lushaba said in the strategic turnaround plan, comments from labour had been included. Unions were agreeable to things like early retirement in terms of exit plans but they were opposed to forced retrenchments. SAPO thought it had enough mitigation mechanisms to deal with that. They would start with voluntary retrenchments and early retirement plans first. Employees themselves had indicated they wanted to move forward along those lines.
 
Mr Jerel Ruthnam, Acting Head : Project Management Office, drew Members attention to page five of the corporate plan where the desktop boxes were outlined.
 
Ms  Kubayi noted that the set-top box information was not reflected in the finances as the money was not directly appropriated to SAPO via the Appropriation Bill but to the Universal Service and Access Agency of South Africa (USAASA). Once it was transferred, then it would have to dealt with in terms of showing how it was going to be used.
 
Deputy Minister Mkhize said Members would understand that with the digital migration process there were opportunities for other agencies to work in a coordinated manner. SAPO has always expressed interest in being the distributor for the set-top boxes. In the letter from Treasury to USASA, the money was for distribution. The planning over the years was for distribution, the money matter needed to be clarified.
 
Ms Shinn said SAPO had previously told the Committee that it had budgeted for an income of R929 million over three years. It would have been expected that that projected income appear somewhere in the projected bailout. Was she assuming that the miraculous turnaround that was expected would exclude the money from the distribution of desktop boxes.
 
Mr Lushaba referred Members to slide 10 of the Additional Notes document. The amounts under Capture additional government business logistics did include the Digital Terrestrial Television (DTT) income.
 
Mr Nongogo clarified the agreement between USASA and SAPO. SAPO would play a role in distribution. What had happened was that an amount of R190 million had been appropriated to USASA. Of that amount about R31 million was going to be used by USASA for the ARP system and the remaining would be used for distribution. The money was in the name of USASA. As SAPO distributed, it would be paid by USASA.
 
Deputy Minister Mkhize asked that they go back to the question on uncompetitive behaviour. This took them back to the value and vision in the NDP. She commented that it was a disservice to the most vulnerable people in South Africa.
 
Acting Chief Financial Officer, Ms Manteng Maleka, responded to the question on the state guarantee. In December 2015 there was a state guarantee issued to back the existing overdraught facility. For the purposes of concluding the financial statements for the prior year there was another guarantee of R1.67 billion. The Post Office was able to borrow on the back of that. The R1.25 billion was an application to borrow against the guarantee.
 
Ms Maleka said the unutilised at the end of 2013/14 related to USO and had now been utilised.
 
Ms Kubayi asked what the R707 million was for.
 
Ms Maleka responded that it was mainly on IT infrastructure and the processing of mail.
 
Ms Kubayi wanted to make sure that the money was Capex.
 
Ms Maleka said it was the case. She and her colleague tried to explain the definitions of deferred tax asset and the deferred tax liability. It was purely an accounting issue and one of the most difficult subjects in accounting.
 
Some Members let out cries of confusion.
 
They were told it was purely an accounting issue and one of the most difficult subjects in accounting.
 
Ms Kubayi said she needed an independent opinion. Previously SAPO had declared a profit on a subsidy. The fact that SAPO had a record of declaring a subsidy and income or profit, it was something she was worried about.
 
Ms Nichola Dewar, CFO of the Postbank, said the Postbank in the next year would implement a significant amount of IT systems, enterprise risk management, enterprise resource planning etc. to meet the requirements of the Banks Act. This year the Capex would go up and when the assets were used in the following financial year they had to start to depreciate them.
 
Ms Kubayi said the Department had to understand that the documents were public and people did not always understand. She asked that explanatory notes be provided. Based on the experience of dealing with SAPO, the Committee had to be thorough.
 
Mr Nongogo said in future additional notes would be added.
 
In terms of how the staff were going to be taken along with the turnaround strategy, he said the administrator had alluded to the fact that there had been extensive engagement with staff members both through unions and individually. There was a project in SAPO that would be launched and it would talk to internal employees about their role in the strategic plan and the key objectives of it.
 
Ms Seafield said in terms of change management, they had piloted a programme. It was not a matter of like it or lump but one of engagement. It was also not one of those plans that was based on a lot of models, it was simplified. It addressed what had happened with the strike and how this affected the individual. It also looked to create a culture of high performance and accountability.
 
She said that was being looked at was getting the key people. What SAPO was trying to do is get the right skill for the right price.
 
Mr Nongogo said there were detailed plans around the crime prevention plan. It was across the full scope of operations.
 
He said SAPO had both the ECS and the ECNS licences for a while. This was because it possessed the VANS licences in the previous dispensation. They had not been used effectively in the past. In the STP the licences would be used for a mobile virtual network operator to try and generate income.
 
A colleague from SAPO elaborated on the licences. He said there were initiatives such as IT hotspots, and retail hubs where communities could have access to a full range of services. The mobile virtual network operator effectively used the ECS licence to sell in partnership with the likes of Telkom the full bouquet. ECS and ECNS were new generation types of revenue.
 
Mr Nongogo said Members would be aware of the concept of the Thusong Centre to try and get all government related agencies to sit together in one space. As the Post Office they were not adverse to this. SAPO wanted to position itself as the effective arm of government and service delivery in the remote areas. They would gladly go with that concept.
 
Mr Mackenzie said he was overwhelmed and had so many questions. To be dramatic, he held up his laptop showing a photograph he had taken of the state of the Boksburg Post Office. The things SAPO said it wanted to introduce in the retail centres were grand. At the Boksburg post office there was a man directing people to queues who was not an official. After queuing, Mr Mackenzie attempted to send himself a Speed Services envelope to see how long it took. There were no envelopes and he was asked to wrap it in brown or white paper. That was his customer centric experience. There was urine everywhere around the area of the post boxes, there was no security at night, people slept in the post boxes area. When SAPO talked about a two year turnaround strategy it was hard to believe. Fix the broken windows, clean the offices; get the basics right.
 
Ms Shinn said she was concerned about meeting the turnaround target. Particularly as it depended on the cost reduction issues like workforce re-sizing or right-sizing. That was going to save close to R2 billion over three years? How certain was the SAPO that it could cut all the costs in a year.
 
Ms Kilian asked about the subsidiary boards. Was SAPO going to reconfigure the group structure in the future. She could not understand how there could be so many subsidiary boards. There was also the issue of the property companies of which there were several. Would that be restructured.
 
Mr Lushaba said the turnaround plan created a SAPO parcels business so they would do away with the different companies in logistics which was CFG. SAPO was going to get rid of those businesses that were not profitable. CFG had been making losses since 2013. Their clients had been offered profitable alternatives.
  
In relation to property companies; he said in the past, all the critical properties had been taken and ring fenced. If SAPO was attacked for any reason, then those critical properties for operations were not subject to that. It was just a shell. It was something the companies did to protect their critical assets. Asked about surprises, he said he did not want to discuss the recent legal matter because SAPO had that day lodged papers to take it back to court. There was a serious oversight with compliance with the Public Finance Management Act (PFMA). Judges were taking a very hard stance because it was taking so long. He was trying his best to defend public funds but SAPO could lose the case. It was unclear why SAPO never argued the PFMA defence because it was supposed to be a joint venture and it was signed by people who were not allowed to sign the agreement. He did not know if there were any more surprises.
 
Ms Kubayi said the Committee’s view was that if SAPO lost money as a result of a court ruling then SAPO was expected to recover the R50 million from the individuals who signed knowing they should not have.
 
Deputy Minister Mkhize took Members back to the Cabinet decision on the 30% of government business for SAPO. There was a Lekgotla and the Cabinet memo would come out of that process. She said the recruitment process and criteria for vacancies of the boards of state owned companies was no different to the private sector.  There was an open process in place.
 
Mr Lushaba said on the Post Bank side the nominees would be independently vetted by Deloitte. It was a requirement of the SA Reserve Bank. It would then be approved by SARB and go to the Minister for a decision.
 
Ms Kubayi said the discussions had been long.
 
She noted that in the previous meeting there had been a request for the Department to submit a letter to the Committee by Tuesday. The Director-General requested an extension to the Thursday. The letter has yet to be submitted.
 
She said that the State IT Agency (SITA) had revised its corporate plan together with the annual performance plan. She had asked that copies reach the Members either that day or the day after. There was literally one meeting before the budget vote debate. Members were urged to go through the documents and send comments through electronically. It may have to be a working weekend. The Committee Report on the Department  Budget Vote was expected to be adopted by the Committee at its 12 May meeting.
 
The meeting was adjourned.