Telecommunications & Postal Services Department / Entities: 1st Quarter Performance 2015/16

Telecommunications and Postal Services

04 August 2015
Chairperson: Ms T Kubayi (ANC)
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Meeting Summary

The Department of Telecommunications and Postal Services (DTPS) and its entities presented their first quarter 2015 performance review to the Committee. The Minister of Telecommunications and Postal Services attended the first part of the meeting, but had to leave early. Members commented that the time allowed was too short but at least some indication of the difficulties experienced was given. In his introductory remarks, the Minister briefly explained the current situation with the ICASA case, and spoke to requests by the Department of Basic Education on connectivity in schools. He asserted that there had been general improvement on audit issues, although the same entities as last year still showed problems, and funding mechanisms were needed as the government guarantees were proving costly, and S A Post Office turnaround strategy would need funding also. He expressed concern about poor performance in the DTPS, which was caused by lack of capacity, poor skills and recruitment, lack of strategic leadership, tensions at senior management level and lack of proper alignment with the Medium Term Strategic Framework, as well as the failure of certain crucial internal control committees in meeting regularly. Good practice was being identified and shared and meetings were held in July with branches. The Public Service Commission was asked to assist on performance issues and an internal inquiry would be held, hopefully to be finalised within the next 60 days. Members asked about the attitude of the entities, were worried that some branches had failed to respond, and questioned how staff without capacity were appointed.  

The DTPS’s achievements in the quarter were describer, including draft policy directions and reports, the setting up of a project office to manage the Digital Divide, engagements on cyber security in the State Owned Companies, and programmes in three provinces for child online protection. The terms of reference to review the mandates and funding of SITA and Sentech were drafted. The various targets, and their status, were described in detail, with explanations given where they had not been achieved.
The Department was exploring alternative vetting procedures/service providers which could yield quicker turn-around times. This would positively impact both the supply chain management as well as the recruitment processes. Management was exploring all avenues to improve engagements and cooperation with external stakeholders, including other government departments, to progress targets dependent on such cooperation. It was currently prioritising the filling of key vacancies to address human resource constraints in certain branches.

Sentech reported positive performance in this quarter and noted a clean audit for the last year. It was diversifying revenue to address financial risk, and HR issues were being addressed in consultation with the unions. The shortfall for dual illumination was noted and it was to be addressed. Network performance was being investigated and weight-averaged, and Service Level Agreements were being monitored and business cases for continuation of them were being looked into. There was, in this quarter, 4% higher performance than expected, and operations expenditure was also lower than expected. Due to savings, as well as allocations, there was R98 million available for spending on dual illumination and there had been negotiations with National Treasury. Of the 12 targets, five were fully achieved, three partially and four not achieved. The reasons for non-achievement were explained. Progress on government projects, including the DTT migration, were explained. The staffing was also outlined.

USAASA had some backlogs from the previous year, but said that some of the targets still in progress would be carried over to the second quarter. This entity had received clean audits for both the Agency and the Universal Service and Access Fund. It could not raise orders into the future for the DTT and some areas were still under court review. It had achieved 16 targets, partially achieved four and not achieved two. Those not achieved related to internal audit, because of an additional unplanned audit project and follow up on previously completed audits. For USAF, one target was achieved, one partially and one not.

BroadBand Infraco (BBI) was facing a challenge in relation to its status as a going concern, and was engaging with shareholder and stakeholders, including National Treasury, whilst Industrial Development Corporation was busy with its due diligence to investigate whether guarantees might be provided to the BBI. BBI had not met many of the set targets for quarter one but the majority of these non-achievements were due to setbacks regarding delayed billings and an increase of cost of sales that were related to an increase in revenue from SITA, which would be coming through in later quarters. It was pleased to report good cost containment which might help it to reach financial sustainability by the 2017 financial year. Its contribution to the Government Outcomes was set out, and the targets were explained. It had achieved 91% of performance targets, although cost of sales was also over budget. Cash flow remained a problem and BBI forecast running out of cash by December, unless something could be done. Commercial banks were insisting on a government guarantee in order before providing funding, and this was the main hope for the business continuity. It had rolled 198.2 km of fibre throughout the country, and it was working on productivity analysis in relation to HR, and whilst the business was not overstaffed it was worried about retaining the staff it did have.  

SAPO’s Administrator was not present at the meeting and the Chairperson expressed concern about this, particularly given that the institution was still facing difficulties. It conceded that performance was not good, despite efforts to fix its issues, and staff in place were working hard. The difficult trading environment, declining volumes and its large dependence on private sector customers who were taking their business elsewhere meant that revenue was continuing to decline at an alarming rate. The first quarter net loss of R285 million continued to constrain the cash flow position, and although Ministerial approval was received to fund the organization, that debt would need to be repaid. Labour was more stable. A lot of effort had been put in on the turnaround plan but not much done on the operational side. Its capacity remained as it had been in 2008, although there was a decline in volume and so SAPO was trying to reduce costs, but remained bloated in terms of staff, and did not have the right skills at senior levels. It too had cash flow difficulties. Many targets were not achieved because they were dependent on revenue, but on the banking side there had been a lot of good numbers coming through.

SITA was optimistic about the future, with its new Chief Executive Officer, but the changes from the reconfiguration of the mandate may not yet be apparent. There were a number of service delivery challenges but was now responding more proactively, and changes had been made to procurement and infrastructure modernisation was being implemented. More focus had to be put on cash flows in this entity also. Some targets on tenders were met, but others around successful completion were not. In relation to service delivery, a risk assessment should have been conducted, and implementation of e-government services was not achieved; in order to address this it would be managed differently in the next quarter. The role that SITA would play in Integrated Financial Management Systems was settled with National Treasury, but it was lagging behind the target for the acquisition of the IFMS hardware. It was making headway on the infrastructure, and was upgrading bandwidth. ICT internal security was on track, and HR programmes were being moved with several new policies. Overall, 59% of targets were achieved.

Members were disappointed that there was not sufficient time to address all the issues in detail at the meeting. Questions were asked how SAPO intended to turn its loss into revenue, given that its customer service was poor, and what steps were taken to ensure the Board was compliant. It was also asked to explain its projected losses, and to explain why suppliers were not being paid. It was also asked if it had reduced property rental expenditure. BBI was asked to expand on the rollout of the network, and it was suggested that it should sell some of its assets to address the cash flow difficulties and also to explain its savings. Sentech was asked to explain the filling of vacancies and its retention strategy, and Members were disturbed at the number of senior acting appointments. The Department was asked whether the delays would be sorted out by the second quarter, and why the cost of the deployment policies was so high and so long drawn out. It was also questioned on the hiring of consultants and asked to explain the NHI sites that were not mentioned in the presentation. Members asked why the Open Access Network was still mentioned, and what part the private sector would play, and whether tenders had followed the correct process. Members also asked for explanations why branches failed to respond to the Minister, and if the virtual cyber security hub was launched. The Department was asked if it had considered a Presidential Review process, and whether the overall performance management of the Department was in place as well as whether those appointed had to undergo probation. SITA was asked to expand on the revised budget and whether it would be tabled to Parliament. The Chairperson commented, in general, on the failure to link spending to performance, and the fact that SAPO was clearly still not in a good financial position. Members were pleased to note improvements and performance at USAASA.

Meeting report

Department of Telecommunications & Postal Services first quarter 2015 review
The Chairperson noted the presence of the Minister of Telecommunications and Postal Services, Mr Siyabonga Cwele, and the apology from the Deputy Minister, Mr Hlengiwe Mkhize. She said that one concern in the sector was the major retrenchments, particularly since the mandate of the administration was to create jobs, which meant that no institution should be making a declaration of profit and giving bonuses on one day and on the next day retrenching workers. It would be necessary to engage with the Independent Communications Authority of South Africa (ICASA) to determine development on the mergers that had made their way to Court. There was a request from the Department of Basic Education (DBE) on issues of connectivity, who wanted a joint meeting with the Department of Telecommunications and Postal Services (DTPS). She also made some comments on administrative issues for the Committee.

Mr Siyabonga Cwele, Minister of Telecommunications and Postal Services said, in relation to the ICASA case, that he had been one of those cited, but it was taking some time to get the response and gather the information. He noted the request of the DBE. The real challenge was that ICASA's obligations were not currently aligned to the government policy. It mentioned two year connectivity, but visits to schools would show that equipment upgrades were lacking and needed, although the connectivity obligations were to last for only two years. That may need to be reviewed.

He noted that consultation with the auditors to determine the health of the Department and its entities had shown that there was general improvement but the same entities were still showing problems. The South African Postal Office (SAPO) still had funding problems and steps had been taken with National Treasury on guarantees. However other funding mechanisms still also needed to be sought as the guarantees had become very costly. The turnaround strategy of SAPO had been approved but now funding was required to fund the implementation thereof.

State Information Technology Agency (SITA) still had some challenges but was meeting most of its targets. Not many SENTECH challenges were identified. The Universal Service and Access Agency (USAASA) and the Universal Service and Access Fund (USAF) seemed to be meeting their targets. There were still challenges in the Department and Broad Band Infraco (BBI). There were concerns about poor performance levels within the Department, which ranged from lack of capacity which was linked to the over reliance on consultants, poor skills and recruitment practices, vacancies and a lack of strategic leadership. The other problem was the strategic planning itself, poor target identification and the whole alignment with the Medium Term Strategic Framework (MTSF). Tensions and infighting with the Deputy Director Generals (DDGs) and at the senior management levels were evident, which had “paralysed the Department”. Some of the critical internal committees of the Department, including those that were part of the internal controls, were not meeting - including committees which dealt with procurement and appointments. After senior management had admitted to these things they were asked how matters would be fixed in the new financial year. Any indications of good performance would be followed up, to find out how it was achieved, and then share good practice with other units or branches. The reports were still being studied but it did not seem that the core issues were being addressed yet to the extent that similar problems would not reoccur. In July, meetings were held with individual branches, as the responses given were not satisfactory and Senior Managers, DDGs and blue collar workers in the branches were engaged with, to find out more about the reasons for their poor performance. They were asked to respond in writing on how these issues and lack of performance would be addressed. Only two branches did not respond to the formal request - namely, the Administration branch, and the Office of the Director General. It was clear, from the responses given, that complaints were being made but they did not address how the situation would be addressed. There was then a request made by the executive for assistance from the Public Service Commission (PSC) as the branches were not performing, there was alleged maladministration and in-fighting and the Minister did not have the capacity to conduct these investigations on his own. The recommendation for the PSC to conduct an inquiry into these matters had been accepted, and the PSC had a constitutional duty to act in this way.

The way in which the targets for the first quarter were constructed was the same as for the last year, when performance over the year was lacking. The Annual Performance Plan (APP) however had been submitted to the Committee and could not be changed now; the Department would have to wait and see how it could perform. There were attempts to coerce better performance - any tensions in the workplace should not affect the performance of the work. It was not conducive to have such tensions at the senior management level, on whom a Minister must be able to rely to administer matters well.

The Minister concluded by saying that he was willing to answer any questions but he had requested to depart early to attend a Cabinet meeting.

Ms M Shinn (DA) asked whether the Director General (DG) had signed a performance contract with the Minister, and said that if not, she needed to know why not. She asked who would be the Acting Accounting Officer when the DG commenced her leave in two days’ time, as there were four DDGs short. Lastly, she wondered how long the PSC inquiry would take.

Mr P Siwele (ANC) asked what the attitude of the entities and branches were, as some did not respond, and asked whether these branches were taking the Minister and his directives seriously.

Ms D Tsotetsi (ANC) said that when adverts were placed to fill the vacancies, they set out requirements and qualifications that were needed, and in view of the present difficulties, she suggested that those recruiting must be asked what informed their recommendations for appointments.

The Chairperson said she commended the report and action taken by the Minister as there must be consequences for non-performance. There were worrying matters reported in the media as it seemed as if it was a free-for-all. It was hoped that the inquiry would not take long as it may have an adverse effect if there were already leadership problems.

The Minister responded that the inquiry may take up to 60 days but said he honestly hoped it would be concluded as soon as possible, so as to determine whether the suspicions were well-founded and then what actions should be taken. The DG had signed a performance contract for this financial year. If the DG was given a precautionary suspension, then someone would have to act on her behalf, and currently there were many DDGs in acting positions. In response to the last question, he commented that it had been questioned whether the Ministry itself had the capacity to conduct all these investigations, and it was advised to approach the PSC or the Department of Public Service and Administration. He was well aware that these things had the potential to adversely affect the performance of the Department. Secondly, it was advised that the disciplinary processes must be held strictly in accordance to the regulations and law. Thirdly, it was advised that these things should be done as soon as possible. Another point was whether those people should be put on suspension and he did not think it was a good idea because these matters were old, not relating to current issues, but going back to 2012/13. He was writing to the Accounting Officer regarding any complaints he had received; some were about procedural fairness, others about the external use of lawyers and conflict of interest. These were all dismissed.

In response to who would act on the DG’s behalf, he said that this had not yet been decided; the Director General had 72 hours to respond and there could not be speculation. He said that he could not advise whether the branches were taking the Minister seriously, but the branches' representatives were present and could answer that question. The Administration branch and the Office of the DG were requested to respond directly to the Ministry but did not do so.

He commented, in regard to issues around capacity, that there were many people with good degrees but the way the Department was structured was not conducive to the delivery of the mandate. All of the branches and units were busy with things, but there were no outcomes.  The lack of coercion and leadership from top management did add to some of these delays. The Department of Trade and Industry had given a target extension and was supposed to comply by April on the Council appointments, but the process had become "stuck" with the panel, as it was not yet properly represented and functioning. These were some of the things affecting the Department.

The Chairperson thanked the Minister for his introduction which paved the way for an honest and frank discussion on some of the issues.

Department of Telecommunications and Postal Services briefing on first quarter performance
Mr Tinyeko Ngobeni, Acting DDG: Infrastructure, Department of Telecommunications and Postal Services, noted that he was giving the presentation on behalf of the Director General, who was not well. 

He outlined the background of the DTPS and then went on to the achievements. These included:
- In an effort to address the high cost to communicate, the Department developed a draft Policy Direction on data pricing
- As a part of its Postal Policy Programme, the Department developed a draft benchmark report on the national address system, a concept paper on the national address system and a draft philatelic strategy.
- In order to implement SA Connect, a Project Office had been set up to manage the Digital Development
- In terms of Cyber security, there had been engagements with State Owned Companies (SOCs), on development of their cyber security strategies. A Cyber Security Awareness Implementation Plan and Media Strategy had been developed and approved.
- In preparation for World Radio Communication Conference (WRC)-15, a draft SA position and proposal had been developed, following benchmarking with SADC Positions
-As part of its focus on youth and children, the Department had implemented child online protection awareness programmes in three provinces, and also implemented e-social cohesion programmes in three provinces
- As part of its SOC oversight functions, the Department: developed the terms of reference to review the mandates and funding models of both SITA and Sentech; secured the consent of both the Minister of Finance and the Minister of DPSA with regards to the establishment of iNeSI as a legal entity; facilitated the finalisation and Cabinet approval of the SAPO Strategic Turnaround Plan and monitored its implementation
- As part of its bilateral engagements, the Department developed e-Government Exchange Programmes and engaged with China, Russia and India
- In an effort to upgrade the IT infrastructure, the Department revised its IT and Knowledge Management Strategy
- In a move towards achieving clean administration, the Department had developed a revised Internal Control Framework.

Mr Ngobeni said he would now move to focus on specific targets for the first quarter targets, those that had been delayed, and their current status.

In the Administration branch, the business enterprise architecture development was delayed, and the target was not achieved because a service provider was not yet appointed.

In the Internal Affairs branch, in Programme 2, the target was to collaborate with the International Telecommunications Union (ITU) and the Universal Postal Union (UPU) to develop models to improve connectivity and financial services in rural and under-serviced areas through the postal network being facilitated. The reason for the delay was the extent and scope of the project, but a draft framework for cooperation had been developed and the ITU and UPU had agreed with the DTPS on the way forward, with an amendment to the proposed implementation of the project. The Department was now finalising the agreements.

Another delayed target in Internal Affairs was the Implementation of Postbus project, by SAPO with UPU facilitation. The project terms of reference for the appointment of the consultant had been approved by UPU Quality of Service Fund Trust. The reason for the delay was due to some challenges at SAPO.

The third project was in the policy, research and capacity development branch. The development of the rapid deployment policy had been delayed. Delays in appointment of the Service Provider had put back the initiation of the project. The service provider had subsequently been appointed and stakeholder engagements were now under way to finalise the draft policy by quarter 2.

The draft roaming policy had shown minimal progress because delays in the appointment process had prevented the timely appointment of a service provider.

The target for approval of the final White Paper on National Integrated ICT Policy was not met, because further research was required on certain areas where the panel could not make policy recommendations without such detailed research.

The ICT Broad Based Black Economic Empowerment (BBBEE) Charter Council's establishment and operation, and alignment of the Code were delayed as a result of the delays in the establishment of the Charter Council.

The policy directive on the regulation of ETOEs and Re- mailing was developed and approved. The target here was to have an International Benchmark report developed.

There was minimal progress in the Information Ethics Programme being implemented in Eastern Cape, Free State and Mpumalanga - because of the delays in the finalisation of the MOU.

Another target was for the digital entrepreneurship capacity development framework to be developed focusing on e-commerce and ICT applications, and prioritizing National Health Insurance (NHI) sites. The reason for minimal progress was that the digital entrepreneurship capacity development framework had not yet been developed, as a proper governance structure needed to be established in the form of a Broadband Provincial Steering Committee.

Another delayed target was the establishment of Research Experts Reference Group. There had been no progress on consultation with stakeholders on the Draft National e-strategy, because of a delay in the appointment of the Service Provider, as proposals received were above the R500 000 thresholds.

Programme 4 covered ICT enterprise development and SOE oversight. The drafting and gazetting of the ICT Small, medium and micro enterprise (SMME) Support Programme for public comments had been delayed because of capacity constraints that delayed the finalisation of the baseline report and support programme. The target of securing the concurrence of the Minister of Finance had been delayed because the background checks of the participating candidates took longer than anticipated to complete, and only 94% of the interviews and 78% of the background checks on all participating candidates had been completed. There had been minimal progress on the target of a Base Document being developed on the establishment of the Postbank Controlling Company. The decision on the Bank Controlling Company was still to be resolved. The target for the adoption and lodging of MOI on the incorporation of the Postbank Company was delayed, because the Reserve Bank's decision on the request for authorisation to establish the Bank was still awaited, and it in turn was dependent on the conclusion of the fit and proper assessment of the Postbank Board designates.

The next target pertained to the deployment of Post Offices/ Points of Presence (PoPs) infrastructure being monitored. The reason for the delay was the misalignment with the timeframe of the target. DPTS was now awaiting the Quarter 1 performance report, which was due on 31 July 2015.

The next target delay was the establishment of the SITA review task team, where there had been delays in the appointment of task team members. The commencement of the research on determining the economic value of SAPO had been delayed by a change of the approach adopted. There was no progress in the commencement of the International and national benchmarking exercise on oversight models.

Programme 5 related to ICT infrastructure support. There was a delay with the appointment of the Implementing Agent. There was also a delay in the development of a procurement strategy because of the prolonged process of engagement. The development of the project management plan was delayed because it was dependent on the appointment of the implementing agency. The Phase 2 business case for digital development had been by the need to now finalise costing based on different technologies. The appointment of the Transactional Advisor for the establishment of a wholesale Open Access Network, and SOC rationalisation, had been set back because of a new approach in appointing the Transactional Advisor. The approval and development of the draft policy direction on spectrum was set back because of a change of approach of the Department in developing a spectrum policy. There had been no progress on the draft policy direction on spectrum for broadband being gazetted for public comment, because the policy had to be finalised first. The commission and launch of the Virtual Cyber Security Hub had not been achieved because of delays in finalising the accommodation tender. Stakeholder consultation targets for the draft internet strategy had been delayed due to a change in the consultation approach.

Over and above these project-specific challenges that had been identified, the Department had identified several cross-cutting challenges that needed to be addressed. In order to address the delays caused by the introduction of vetting requirements, the Department was exploring alternative vetting procedures/service providers which could yield quicker turn-around times. This would positively impact both the supply chain management as well as the recruitment processes. Management was exploring all avenues to improve engagements and cooperation with external stakeholders, including other government departments, to progress targets dependent on such cooperation. Finally, the Department was currently prioritising the filling of key vacancies to address human resource constraints in certain branches.

Mr Ngobeni finally tabled slides (see attached presentation) on the financial information, setting out the operational expenditure in this quarter for each of the programmes.

SENTECH Presentation
Mr Magatho Mello, Chairperson of the Board, Sentech, said that in the first quarter the performance of the company had been healthy. Revenue was ahead of budget and the net profit after tax was almost 100% ahead of budget. The audit for the past financial year had been completed, and was a clean audit. He wished to congratulate the Acting Chief Executive Officer, Chief Financial Officer and Chief Operations Officer on a job well done.

On the delivery side the company had completed two of the Greenfield sites which were still outstanding on the Digital Terrestrial Television (DTT) rollout. The company had started implementing some diversification of the revenue to address some of the financial risk. There were still some people issues but management was working on that and had reached an agreement with the unions with regard to the 13th cheque. One long term challenge that had been foreseen was the shortfall or the funding deficit for dual illumination, which was also part of the DTT rollout, but the Board and management had noted this for urgent attention in the current and following financial year.

Ms Rudzani Rasikhinya, Acting Chief Executive Officer, Sentech, said that the Chairperson had touched on some of the matters. The revenue growth was a result of the diversifying of the business rather than Sentech concentrating on previous traditional business. A growth in facility rentals had also been seen as a 12% increase above budget. Earnings before tax were almost 74% above budget, which could be attributed to the growth in the revenue and the expense line items not having been spent as expected.  The 13th cheque would be facility funded over a period of three years. There was a leadership development programme graduation ceremony and almost all the managers of Sentech in the programme had graduated.

She noted that, on a quarterly basis there was an examination of the network performance but was weight averaged in terms of the revenue received, so that there was a correlation between the revenue and the performance of the network. Five out of the six services exceeded the Service Level Agreement (SLA) targets in terms of network availability. The one that never performed well was the VSAT and the reason for this was the hub and cancellation of services USAASA & KwaZulu Natal Department of Education, which impacted negatively. The company was reviewing the business case for continuing this business. The financial performance of the business was above budget by 4%. There had been a 16% growth in this financial year’s first quarter, compared to last year.

There had also been a once off billing, with an exciting project involving the City of Johannesburg. The operations expenditure was lower than budgeted, and this was mainly due to the satellite rental fees contract being renegotiated. There was some delay with some of the planned preventative planned maintenance. For sales costs there was an increase of R1.7 million from the 2014/15 year, but this was primarily due to the CSI commitments that were done for the community broadcasters last year. Money was allocated for dual illumination, which amounted to almost R95 million, and there was a saving of R3 million from the previous financial year, so R98 million could be spent on dual illumination. R28 million was utilised in the first quarter. There was a shortfall of R30 million on funding and it was suggested to National Treasury to possibly make use of the R70 million.

With regard to revenue per service, almost all had performed well in whole or in part.  The Consulting Fees were fees charged for services rendered to the Lesotho Broadcasting Corporation.

She tabled a pie-graph of pre-determined objectives. This showed that there were 12 targets and 5 were fully achieved, three partially achieved and four not achieved. She mentioned the reasons for the non-performance of certain quarter 1 targets, and the current status. The first target was the Talent Management Training for All Non-Bargaining Unit Staff Members which was not been achieved due to the primary focus on re-training on performance management, in order to fast track the process on bargaining unit employees contracting. Some employees within the bargaining unit had since contracted, but the new target was to finalize contracting within Quarter 2.

The second target was to design top layer structure for executives and heads of departments, but there were delays in sourcing the services of a suitable service provider. Progress had since been made and it was anticipated that the work would begin in the 2nd quarter. The third target was to achieve 20% of the budgeted Enterprise and Supplier Development Strategy spend. The incubation programme launch was delayed to Quarter2. The selection or screening process took longer than anticipated, but all beneficiaries for Phase One of the programme had since been identified and the launch was scheduled for August 2015. The last target not achieved was the FM Services implemented, where there were delays in the connection of these broadcasters, including studio readiness, supply by Telkom of service as well as delivery of customised equipment. Since the end of quarter 1, four broadcasting sites were connected, and the remaining studios would be on air in Quarter 2.

She briefly looked at the government key projects, which included the DTT migration project and the Business Continuity Plan project. The current status was outlined (see attached presentation).

The company had 539 staff at the end of the first quarter. There were 24 appointments made (internally and externally) of which 63% were black and 29% were black females. By the end of quarter 1, the company had a total of 19 learners.  The company had 5 terminations, 2 at senior management level, 2 at professional/ skilled level and 1 at semi-skilled. The staff turnover rate for this quarter was 0.9%.

Ms Pumla Radebe, USAASA Board Chairperson, said that there had been a backlog from targets from last year into quarter one, so there had been a slow start to the targets in quarter one of this financial year. Some were in progress and would be noted in quarter 2.

USAASA had received clean audits in the last financial year for both entities.

With regard to the DTT, Ms Radebe said that  USAASA was not capable of raising orders into the future, with the exclusion of the area which was currently under court review.

Mr Sipho Mngqibisa, Acting Executive Manager: Performance Management, USAASA said that the presentation would deal firstly with USAASA, then USAF. USAASA had 22 planned targets of which only 16 were achieved,4 were partially achieved, and 2 were not achieved at all. The partial achievements were registered because these projects were interdependent and were under research. Four definitions were cornerstones for the Universal Services and Access policy. These definitions were Universal Service, Universal Access, needy persons and the underserviced areas. USAASA had to now work in collaboration with the Department and ICASA. As a result of the inter-dependencies some targets were not reached. However, it was hoped that achievements on these would be reported in quarter 2. 

Targets that were not at all achieved were in relation to the internal audit. The first was the Financial Management Quarter 4 Expenditure.  There was an additional unplanned audit project conducted in the period under review and a broadband project in Joe Morolong and Ratlou Local Municipalities.
The HR Audit was not achieved because of an additional unplanned audit project conducted in the period under review, and a follow up audit on previously completed audits.

With regard to the performance of USAF there were three first quarter targets. One was achieved, one partially achieved and another not achieved. The Broadband division had targets for having environmental rights applications completed, third party agreements signed, and the 30% Backhaul extension/ upgrade as partially achieved. The School Connectivity division had a target of upgrading the broadband network, and this was achieved. The Broadcast digital migration had a target of 55    900 households being supplied with set-top boxes, through a subsidy or 100% funding, but this was not achieved. There were delays experienced due to the ETV legal matter which was only concluded on 25 June. The court had affirmed the amendments to the Broadband Digital Migration (BDM) policy that was gazetted on 18March 2015.

BroadBand Infraco (BBI)

The Chairperson noted that the Chairperson of the BBI’s Audit Committee had not ever attended a Portfolio Committee meeting and had not even given an apology for his absence.

Ms Thandi Pama, Acting Chief Financial Officer, BBI, said she would brief the Committee on behalf of the Chairperson of the BBI’s Audit Committee.

She said it was well known that the BBI was facing a lot of challenges in relation to its status as a going concern. Currently, there was engagement being conducted with various shareholders and stakeholders, including National Treasury, where the matter was being given the highest priority. The Industrial Development Corporation (IDC) was busy with its due diligence and was about to present to its credit committee to see if guarantees might be provided to the BBI, so that the BBI was able to close up its books properly. In the meantime BBI had continued to consider its books as a going concern and had budgeted as if it were indeed so, and would receive the guarantee. Financial sustainability continued to be at the top of the BBI priorities and highest on its agenda.

BBI did not unfortunately meet many of the set targets for quarter one but the majority of the non-achievements were due to setbacks regarding delayed billings and an increase of cost of sales that were related to an increase in revenue from SITA, which would be coming through in later quarters. BBI was happy with the interventions that had been made by management in relation to cost containment, and if it continued with this then BBI should be able to reach financial sustainability by the 2017 financial year. She concluded her segment by noting that BBI, in Women's Month, was represented by an all women team.

Ms Puleng Kwele, Chief Executive Officer, BBI, said that the first slide covered what the BBI would like to achieve at the highest level and aligned it to the medium term strategic framework, given the financial situation that the Chair of the Audit and Risk had highlighted. As an entity BBI focused on outcome 6, which spoke to broadband access and connectivity. This was an enabler from Outcome 1 and 2 which related to health and education and also Outcome 4 which concerned economic transformation. Outcome 5 related to capacity development. With regard to performance against the predetermined objectives, there were a couple of key indicators that were not achieved in the last quarter of the previous financial year. As indicated by the Chairperson of the Audit Committee, there were inter-linkings in relation to revenue, cost of sales and profit, which were not achieved. The revenue target was achieved, and the cost of sales target would continue to be optimized and hopefully, by the end of the second quarter, since most of the costs were fixed, some of those would be minimized and should improve the profitability of the company. The target was still to break even by the end of the next financial year. From a network utilisation point of view he noted that BI was still making sure that its network was being utilised. It had now 18 customers and therefore network was fully utilised. The first KPI on network performance rebates concerned the ability of the company to deliver services to agreed service levels agreements with its customers and that had been achieved. The annual targets were in progress, and it was hoped that these would be achieved within the given period. With regard to the interactive boards on the schools that had been "adopted" in Mpumalanga and Limpopo provinces, the intention was not to spend the money itself but look for  partners to facilitate the delivery of the specific objective.

Ms Meta Maponya, Audit Committee Chairperson, said that 91% of budget was achieved. The reasons for the under performance were related to delayed sales billing, which would be retrospectively billed in the second quarter. Cost of sales was also over budget, due to additional costs incurred on the SITA project, but this was a once off for the current quarter and it would be able to recoup from later quarters. This would have an effect on the overall profitability of the business. Speaking to the forecasts to March 2016, the company was confident that it could reach the targets. Operating costs were kept within budget and it was only spending on critical costs. She was confident that the net profit would be met by March 2016.

Cash flow was very important for the business, but it was forecast that BBI would run out of cash by 1 December. BBI was tracking current cash flow performance against the target. For the first quarter it was R7 million short, due to a key client having delayed in its payment. It had engaged on getting other funding reserves to resolve the issues around the BBI's "going concern" status. One shareholder was doing due diligence on the BBI and should be presenting to the management and the credit committee in August. Some activities had been halted pending that. There had not been good progress or any good feedback from the commercial banks, who were insisting on a government guarantee in order before providing funding, and this was the main hope for the business continuity. 

Ms Kwele said that money had been spent on projects committed to last year, and to connecting government with SITA, and commercially delivering on Cell C. BBI was on track with the budget and in line with economic transformation. To meet network infrastructure targets, it had rolled out 198.2 km of fibre throughout the country. A productivity analysis had been conducted to optimise its HR, and it was trying hard to minimise costs. There was a saving of 73% in the maintenance department on overtime double rate and of 17% on overtime, standby and night-shift in the first quarter.  Variable costs to employment were tightly controlled. The employment cost to revenue ratio was 24% so the business was not over-staffed - it was, however, worried it would lose key staff if stability could not be maintained. BBI had to let seven interns go last quarter, but all had been taken up by Altech; BBI was thus providing skills back to the sector although it would have liked to have kept those people. Not much irregular expenditure had been incurred, only R38 000, which was mainly a result of credit cards which had now been cancelled and a shareholder matter which was now being dealt with by the IDC. Funding was a key issue that the company has identified and was facing.

South African Post Office (SAPO) presentation

The Chairperson expressed concern that there was no apology from the Administrator of SAPO, particularly given that this was an institution in difficulty and in need of assistance, so it was particularly bad that leadership was not present.

Mr Mlu Mathonsi, Acting Group Chief Executive Officer, SAPO, said that the performance of SAPO was not good, but there had been efforts to fix its issues. As the Minister has indicated, some staff were working hard, and he believed there was progress, albeit slow.

SAPO continues to face substantial difficulties with the difficult trading environment and the declining volumes leading to the declines in revenue, although at this stage this seemed to have levelled out and there was no further drop. The revenues were continuing to decline at an alarming rate, particularly since 65% of revenue came from private sector customers, and most of them had some alternative means to what the post office traditionally offered, so there were continuing and difficult challenges. The first quarter net loss of R285 million continued to constrain the cash flow position, and constrained operations. Ministerial approval had been received to fund the organisation through debt, but this was a longer-term challenge, and the debt needed to be repaid within a short time. The labour environment had remained stable and engagements with labour representatives were ongoing. A lot of effort had been has been put in on the turnaround plan but not much done on the operational side.

SAPO had lost a lot of revenue due to the mail revenue decline. The logistic side was operating on unregulated space but had also seen some decline. He noted that the SAPO had the same capacity it had in 2008 despite the 30% decline in volume over that period of time. Extra capacity would cost, so significant effort had gone into reducing costs in line with the decline of volume and revenues. SAPO was now at the point where it had leveled out and he said that it should be able to be turned around now, with the initiatives in the Turnaround Plan. It was managing key cost lines from transport as well as properties, but not much has happened on the key management side. Employment costs had accounted for 58% last year but was now at 63% of total costs, but this was largely because the other cost elements had been pushed severely down. SAPO still had a bloated organisation.

Ms Nicola Dewar, Acting Group Chief Financial Officer, SAPO, said that from a group perspective it seemed that SAPO was "sitting on a pile of cash" when in fact that was not the case, as the money  belonged to Postbank depositors. The balance sheet was R10.1 billion in terms of total assets. SAPO had largely fixed properties and property equipment in its non-current assets and most of the assets were in the Postbank division. She suggested that more focus was needed on cash flow, given the financial state the company was in, and the fact that it was spending R100 million more a month more than cash that was being generated, and that was worrying. At the end of June, SAPO held R97 million in cash, most of which would belong to third party collections, which needed to be paid over the next day, so it was not available to settle creditors. That was quite a desperate position. In fact, R3.3 billion out of its R3.4 billion belonged to Postbank depositors. There were very tight cash constraints, so SAPO had in part being using creditors to fund the business.

Mr Mathonsi said that for years the SAPO had had employment vacancies and it was trying to capacitate. Many executive positions were being filled. From general manager upwards, about 40% of those people were double heading and doing more than one job, so there was recruitment to try to alleviate this. However, this has been a challenge, as the brand of the organisation has been severely affected over the past few years and it had been difficult to bring in a high caliber of people.

On the quick wins, much success had been seen in reducing costs.  Most of the costs on the revenue side required some funding, but without cash injections it had been very difficult to pursue cash generation initiatives, and fixed costs remained. In the last 12 months the head count had been reduced by at least 1 500, some through resignation, others by not filling vacancies as a part of the rebalancing exercise but there were areas in which vacancies needed to be filled.

Progress had been made with most of the commercial banks, the Ministers had signed and it hoped that this would be finalised by the end of the week. Debt funding was going to be a very expensive form of funding for an institution like the Post Office.

He tabled slides on performance, and indicated that some targets were not achieved because they were dependent on revenue, and those key performance indicators would not be easily realisable. At some point the revenue would have to pick up; if not then the unenviable task of looking into the headcount would be conducted. On the banking side there had been a lot of good numbers coming through. There had been a rigorous audit by the Auditor-General and the organisation has been exposed, particularly with regard to external controls, so it was now addressing how to deal with the information and fix the problems that had been identified in the audit. Irregular expenditure had been brought down; it now related to three contracts and he would be able to report on that in October. In summary, he said that much work had to be done in order to turn around the situation in the shortest possible time.

State Information Technology Agency (SITA) Presentation
Mr Zeth Malele, Board Member, SITA Board of Directors, said that the new CEO of SITA, Dr Setumo Mohapi, had only been in office for a few months but had  hit the ground running, and SITA, which was a service partner in the e-challenges of government, was winning some battles and he was optimistic for its future. .

Dr Setumo Mohapi, Chief Executive Officer, SITA said that it may not yet be possible to see immediate changes since the first quarter performance review, particularly changes made to the way the company had reconfigured its delivery of its mandate. The organisation was pursuing the overall  framework and strategic plan and was looking into various parts of the organisation. He accepted that there were a number of service delivery challenges. On a daily basis, SITA received complaints from key customers but had done a lot of work on this, since SITA had responded reactively, with little proactive initiatives. Some challenges had been related to its response to work requested; it had waited for a business case for the customer, in the form of user requirements specifications, where the customer would be asked to state the specification rather than pushing this itself. The Board had made several changes to the procurement policies. A programme around infrastructure modernisation had been focused on civil and electrical systems but had not yet gone into the IT systems. It was realised that more focus had to be put on cash flows.

He reported that in the first quarter SITA received R1.2 billion income, exceeding target. Net surplus after tax target was not achieved. The liquidity ratio and the percentage against approved capex budget were achieved. With regard to procurement, the percentage of tender awards completed within the targeted turnaround time and the percentage of tender contracting completed within the targeted turnaround time of 30 days was achieved. However, the percentage of tenders published and completed successfully/ awarded was not achieved. This was due to various issues such as failure of specifications, budget and preference point system that resulted in a number of cancellations. The percentage of savings on acquisition of ICT goods and services with major OEMs was achieved. The percentage of ICT acquisition spent through SMME entities was not achieved because there was no mechanism in place to implement it at the time; it was now in place. The percentage of ICT acquisition spend through BBBEE-compliant entities was achieved, as so was the target on the number of findings in the interim external audit, with respect to fraud and corruption in procurement process-related activities.

On service delivery, SITA was not doing well generally. A risk assessment should have been done earlier in the year, prior to submitting the APP, and implementation of e-government services was not achieved. It must be noted that e-government should be dealt with in a very different way and from the second quarter onwards it was being moved into the operational environment and being managed at a programme level. The implementation of e-Cabinet lead site implementation was not achieved. The approval of award recommendations for the new Integrated Financial Management Systems (IFMS) project was not achieved, but was now in the process of being done. The result of that would be used for the scaling of the network on which the IFMS would depend. There was an agreement with National Treasury, which still had to be ratified by the steering committee, on the role SITA would play in the IFMS project. SITA was lagging behind the target for the acquisition of the IFMS hardware.

With regard to infrastructure SITA was making headway since it had to change the approach to managing the physical infrastructure. In regard to the bandwidth, SITA was upgrading the core bandwidth, working with BBI. There was a project with the Western Cape provincial government, taking all 4000 of the existing network services of all government departments and at least upgrading them to one Mb per second. SITA was also focusing on the hosting and DR services. It had almost achieved the target with regard to the ICT internal security controls, but this would be achieved by the end of the second quarter. The HR programme was moving along and several policies had been created, but SITA has now redirected the corporate services department to become more hands-on in implementing measures such as talent and performance management. The internal control framework had been completed and was doing well regarding the management of risk. Overall, there had been 59% achievement on targets.

Dr Mohapi then touched on a couple of financial aspects from the first quarter. Capex budgets were presented previously in the APP, but it had since been found that the estimates of cash flow in the plan were wrong, especially with regard to operations. The figures were estimates and a proper capital calculation exercise had to be done. That risk had been mitigated significantly.

Ms Shinn said that the time allocation for the meeting was not sufficient for members to do their jobs. Today should have been set aside for engagement with the Department, but another for the troubled entities such as SAPO and SITA.

Mr C Mackenzie (DA) said that he knew people who had phoned SAPO call centers but the phones went unanswered. He asked SAPO how its loss would be turned into revenue if SAPO was currently treating customers with contempt. He asked the BBI to give more explanation on rolling out the fibre network. He asked Sentech what steps had been taken to fill the 24 skilled posts and asked whether it was difficult to get in and retain such skilled people. How far along the line were SAPO in appointing a corporate governance-compliant Board, as the Minister had said that the Board was on the verge of being appointed. Noting that SAPO had made a net loss of R285 million for quarter one, he asked how this affected its projection that it would make a loss of R102 million by the end of the financial year? He asked SAPO when the suppliers would be paid and noted that one specific supplier “JustMatric”, which helped many SAPO employees to complete matric, had not been paid for over a year.

Ms L Maseko (ANC) asked the Department whether the matters currently delayed would be achieved in the second quarter or by the end of the financial year. She said that the BBI was projected to run out of cash by December 2015 and she suggested that the BBI sell some of its assets and perhaps scale down to stay afloat. She mentioned that the BBI was currently running on government guarantees and said that she did not think that creditors would give them funding if the company was not stable in itself.

Ms Shinn posed all her questions to the Department. She had spoken to a lawyer in the telecommunications field, who said he could have drawn up the rapid deployment policy in half an hour for the fraction of the cost, so she asked why the cost was so high, and why the policy was delayed in the first place. She commented that the Department was more capacitated now, and had more staff, but the consultancy fees still went up by 23%. She suggested that the policy division staff be reduced to a core group of competent employees, with outside ICT consultants with the needed expertise then to be hired. She asked for further elaboration on the NHI sites and questioned why this was not mentioned as a key performance indicator, as R700 Million was being earmarked for it over a three year period. She referred to the wholesale open access network and recalled the Committee previously saying that it was a project that the DTPS should not be a part of, so she questioned why it was still being mentioned. If it was going ahead or being revised with SA Connect, then she wanted to hear what part the private sector would be playing, because SA connect was a collaboration between government and the private sector. She noted that a transactional advisor was appointed for the wholesale open access network, and asked if this was done through a tender and after following the correct processes?

Mr Siwela asked the Department for further elaboration on the delay of two branches in responding to the Minister. He asked the Department whether there had been launch of the virtual cyber security hub, which was due to be commissioned in this quarter. He asked SAPO why only 8 of its 21 targets in the APP were achieved.

Ms J Killian (ANC) asked SITA what the process would be with the revised budget and whether it would be tabled to Parliament. She asked SAPO, in relation to the mention that it had achieved 46% of its quick wins against the target, whether the target was for the quarter, or the year.  She asked whether SAPO had reduced its property rental expenditure, which was highlighted as one of the major expenditures. She asked if the BBI's saving on overtime and nightshift expenses was achieved through reduction in operations, or better controls over the salary expenses. She said to the Department that the difficulties the SOCs were experiencing was a direct indication that the Department was not doing its work. She referred to a statement of the Department that the target for oversight for the SOCs was developed and approved, asked if the Department had considered a  Presidential review and how this exercise might relate to that. She asked whether the overall performance management of the Department was in place and was in fact being managed properly and said she would like to see consequences management also in place.

Ms Tsotetsi referred to the significant achievements by the Department. Noting the mention of child awareness programmes in three provinces, she asked how those provinces were determined. She asked what the problem was with the many delays in appointing service providers. She asked whether there was a probation period for new appointees to the Department, as people who were given five year contracts were not concerned about their performance and knew they might leave with a golden handshake before the end of the contract. She was bothered by the acting posts in Sentech, commenting that this trend may have an adverse effect, and asking how skills and capacity would be retained at Sentech.

The Chairperson asked why some of the targets mentioned in the Department's strategic turnaround plan tabled to Parliament were not mentioned as targets in today’s quarterly review. She said she was concerned with the linking of spending to performance. Fewer targets were achieved but more money was spent. She said that the last time SAPO came in front of the committee it had said that it had “stopped the bleeding” but that had clearly not happened, and she was also very concerned that the Administrator was not present here today. BBI previously said that it would run out of funds by September but today it said that it would run out of funds by December, so she asked for clarity. She welcomed and congratulated the development within USAASA, which was indicative of changing performance.

Mr Ngobeni responded to questions put to the Department. Some of the targets where there were delays had subsequently been achieved. A number of the delays were related to policy making processes. The service provider for the rapid deployment policy had been provided and there had been consultation with relevant stakeholders. This had taken so long because there was a need of support from all spheres of government, but the project was now back on track. Commenting on the use of consultants in the policy department, he said that the work was complex and was not something that was done on a day to day basis by staff, hence the need to bring in consultants. However, as much work as possible was done internally, and without using external services. The NHI sites referred to the eight districts which were part of the Phase 1 of SA Connect piloting in those sites. He apologised for the delayed response to the Minister, and explained that the Office of the DG could not respond on time because there was no feedback from the State Security Agency on one of the requirements. The Administration branch had submitted a response. The delay with regard to the cyber security hub arose in the acquisition of the building for the hub, and refurbishment was already under way. The main issues with regard to the appointment of service providers were due to the vetting of the service providers before the appointment. The Department would work to show a linking between the spending and performance against targets.

Mr Sibongile Makopi, DDG: SOC oversight, DPTS, responded that the delay on the SOC oversight model arose because the Department decided that it should not outsource the work but do it internally. Work was in progress internally. The Presidential review was one of the things that were being looked at. The international benchmark exercise was not a study tour and because there were only three directorates, only compliance work would be done. Now capacity was growing, and the Department would need to sit down and review how the work was being done, and where improvement and reinforcement were needed. There were three elements to the Open Access Network; namely, SA Connect, the rationalisation of entities and the creation of the Network, and the wholesale and retail aspect. A transaction advisor was to be appointed to manage the interconnectedness of the three elements and to focus on the rationalisation. At some point the Department decided to let the entities come up with proposals and this led to the delay. The matter of the Board would come to Cabinet at the next meeting; the Department had done its part. 

Ms Kirthi Pillay, Chief Director: Human Resources, DTPS, responded that a performance management system was being implemented in the Department in line with the policy. The DG had addressed the heads of the units on non-performance in the first quarter targets. The appointments were based on a 12 month probation period and were measured on a quarterly basis, again in line with the performance management development system.

Mr Rebolang Soldaat, Director: Finance, DTPS, responded that the targets and the performance in quarter one did not always align, because in this quarter, service providers were brought in and the procurement process would begin. That explained why often, Phase 1  had taken place but the money to implement the projects had not yet been disbursed, which then reflected on the targets, but this was an operational issue. Speaking to the increase in consultancy fees, he noted that projects not housed inside the Department would need consultants. The bulk of the budget for consultants was spent on local loop unbundling projects.

Dr Mohapi responded to questions put to SITA. The difference between the Capex programme, and figures presented previously and today, was related to the drop of R195 million. There was some relocation and moving some of the money for speculative issues to items that were more growth oriented, such as the infrastructure programme which consisted of four programmes. The Board was informing the Minister about the changes, but there was no need for any further alterations.

Mr Mello responded for Sentech. He conceded that there were acting positions but said that Sentech was in the process of appointing, and there were recommendations by the Board to the Minister and discussions with the Minister were still to be concluded.

Ms Rasikhinya responded to further questions for Sentech. There were five terminations, some were in the skilled professional area and this was why the issue of cover was put into the corporate plan. It was believed that the majority of the employees were highly skilled, but other skills needed to be covered.  Many staff were reaching their retirement age and there was a need to ensure sufficient cover. She explained that she was the Chief Financial Officer, but a temporary and Acting CFO had been brought in while she was acting as Chief Executive Officer, as these roles should not, according to sound corporate governance, be performed by the same person.

There were no questions for USAASA.

Ms Kwele responded to questions put to BBI. She explained that Tereco was the neutral third party provider of collocation services and all of the providers made use of this company for interconnectivity of services. The BBI had scaled down a lot; what had been presented was already a scale-down, but was necessary to allow the company to continue to run. With regard to the overtime and night shift, internal controls had looked at what employees were claiming as overtime, and was assessing the policy but mostly setting senior management KPIs for overtime and nightshift management. The shifting of the date when the company was expected to run out of money was due to interventions and negotiations. The management had looked at the cost of sales and had optimised some of the areas which then had an impact on the reduction of costs, which ultimately shifted the date to December.

Mr Mathonsi responded to questions for SAPO. Focus on customers had not been a natural part of the SAPO organisation, but he agreed that a lot more effort had to be put into becoming customer-centric in the 2 450 outlets. People had already been recruited who had a customer-centric focus and this was where investment in training would be critical. One of the challenges was that some of the tellers had to handle up to 200 transactions per day. He would like to believe that the outlets would be transformed over the next few years. Lines not being answered sometimes happened as a result of some software suppliers not being paid for call centres. There would be a huge task in trying to minimise the projected loss by the end of the year, as SAPO was currently living beyond its means. At this point, it had to be right sized and re-based for future growth, but that could happen only if there was funding, and fixing of the top line. In regard to late payments, he told the Committee that within the constraints of cashflow, SAPO was doing everything possible to make sure that suppliers were paid, although it was still sitting with a huge backlog of payment to suppliers. Regrettably, the suppliers that suffered the most were the smaller suppliers. The funding which it was trying to get was aimed at addressing the payment to suppliers, and if the funding was approved by the end of the week, then an 80% target would be placed on paying suppliers that were owed and over 120 days. This would amount to around R250 million, but this still represented only a portion of the money owing and would not eradicate the backlog. The targets indicated showed that there had been partial progress. Most delays stemmed from organisational changes that the company was going through currently. The 46% in "quick wins" related to the need for stemming the crisis at the beginning of the year, before the STP was finalised. He said that property rentals had not been fully dealt with and there was still some way to go on this.  SAPO had focused on rentals that were big housing operations. On the retail side it needed a balanced approach so that the public was not inconvenienced. Having said that, there were some branches that were within 800 metres of each other, particularly in urban areas, but for now it was focusing on the big operational centres. In response to the comment made by the Chairperson, the Administrator would be informed and asked to respond in writing setting out the context.

The Chairperson agreed with Ms Shinn on the short time allocation for the engagements, but said that at least the Committee now had a better indication of which entities were in difficulty. She mentioned that the delegations were too large, and a smaller delegation should attend future meetings, so that not too many people were out of office. 

The meeting was adjourned. 

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