The South African Post Office (SAPO) briefed the Committee on progress in respect of the implementation of its turnaround strategy.The Strategic Turnaround Plan (STP) initiatives had realised benefits on cost reduction but the lack of investment funding had been hampering the launch of revenue and rightsizing initiatives. The appointment of the SAPO Board had brought leadership stability and the key management positions had been finalised to ensure continuity within the organisation. The financial constraints continued to affect the payment backlogs and disrupt operations intermittently and the funding discussions with commercial banks and the shareholder were still progress. SAPO had introduced a cross functional communications and change management team had been established to manage people change enablement. The different interventions had been developed and identified to capacitate employees on all levels to deal with the change during the implementation of the STP and regional change agents/line champions had been identified, to be taken through the role of a change agent and how they support the business using the toolkits that had been developed. In order to strengthen relations with the following Employee Relations (ER) Forums, the Board had created the National Bargaining Chamber for the identification and development of a new bargaining team consisting of business and employee relations.
It was highlighted that about R150 million had been paid to critical creditors from Term Loan funds during August 2015 and the creditor backlog which included accruals but excluded the current amount of R480.6 million. The rentals had been reduced to two months in arrears and 18 branches (out of 2 445) currently closed by landlords and the key creditors that remained unpaid for extended periods had resulted in intermittent interruptions of some operations. The quick wins initiatives had realised cost reduction benefits of R77.9 million (77%) achieved against a target of R100.9 million for the period ended 31 July 2015 and the achievement to date had translated to a 26% achievement on the year of R302.8 million.The STP initiatives year to date target was R183.2 million with benefits of R105.2 million (57%) realised for the period ended 31 July 2015. The rightsizing initiatives had not started and a more cost-efficient SAPO is now poised for revenue growth.
A task team had been established by the Director-General (DG) of Department of Telecommunications and Postal (DTPS) comprising of Independent Communications Authority of South Africa (ICASA), SAPO and DTPS and chaired by the DDG of DTPS to explore regulatory measures that had an adverse impact on SAPO’s viability. The preliminary list of issues that were raised included the following: Poor enforcement by the Regulatory leading to losses through leakage, the need to review the retail roll-out target and establish a more realistic bench mark based on a needs analysis and the review the current pricing model and assumptions used. There were other additional issues that had been identified and these included the fact that SAPO had formally laid complaints with ICASA in which it cited the contraventions by 2 private sector companies and various small municipalities and the matter was currently being reviewed by the Complaints and Compliance Commission (CCC). The matter of technological neutrality regarding the definition of USO was to be considered together with other proposals in respect to Universal Service Obligation (USO) which were tabled for consideration during the course of the development of National Information and Communication Technology (ICT) Policy.
Members wanted to know if the R150 million that had been paid to the creditors came off the R480.6 million that was owned to creditors at the end of July 2015. What was the plan to make SAPO to become financially sustainable in order to deliver the Christmas cards to the people of South Africa? They also felt that the cost-cutting measures were likely to impact on the revenue and the alternative would be to focus on the maximization of the profit. How much of the revenue that had been lost so far? In relation to route optimization and loss making routes, it is important to know how SAPO was balancing between the loss making routes and the USO.Most Members asked if there were any critical skills that had been lost at SAPO and if there was a strategy in place to ensure that there was a hunt of critical skills. What had been done to improve the moral of staff at SAPO as this had an impact on the overall performance of the organisation.
Members appreciated that SAPO had been engaging with the union leaders and this was indeed a move in the right direction but it would be important to know if this was the year on year agreement. The targets that had been set needed to be aligned to the reality on the ground so that the targets could be achievable. The presentation was silent on the total cost and the timeline for the implementation and completion of the STP initiatives including the workforce rightsizing initiatives. Some Members asked about the level of support that had been given by the DTPS as the funding that had to be requested from the National Treasury (NT) had to be done through the Department. One Member asked if there had been any request from funders for the reduction of headcount at SAPO and whether the labour unions were willing to accept these reductions without resorting to any industrial action until the turnaround strategy was completed.
Opening Remarks, Apologies and Introductions
The Chairperson welcomed everyone. Thereafter, she stated that the Committee would look at the programme for the following week’s oversight visit after its engagement with the South African Post Office (SAPO).
The Chairperson noted that apologies had been received from the Deputy Minister, who is currently abroad on government business, and Ms L van der Merwe (IFP), who is an alternative member of the Committee. No apology had been received from the Minister. She thought that the Minister would be here to introduce the new board but perhaps this task had been assigned to the Acting Director-General.
The Chairperson informed the Committee that Mr Joe Mjwara had been appointed the Acting DG following the suspension of Ms Sekese. She sought clarity on the whereabouts of the Minister.
Mr Mjwara greeted everyone and apologised on behalf of the Minister. He mentioned that the Minister had been “caught up” in an urgent matter and was supposed to introduce the board.
The Chairperson said that in future, things should be done properly. Communication should be forwarded so that the she was made aware beforehand. She sought clarity on who would be introducing the board to the Committee
Mr Mjwara reiterated the apology and stated that a formal communication would be sent to the board with respect to this matter.
Mr Mjwara introduced the new members of the board and indicated that after a long process, there was finally an authority that would be taking the affairs of SAPO forward. SAPO had been under Administration since the resignation of the last board. The Department had called for nominations for people to serve on the Board and to take responsibility for the implementation of the strategic turn around plan of the entity. After some consideration, the board was appointed and is comprised of capable individuals, who had the collective skills to ensure that the governance of SAPO is in accordance with best practice, and that the affairs of the entity is conducted in the public interest. The financial side of the post office is of concern to all South Africans and the entity had been in the news for its inability to discharge its responsibilities. Amongst the members of the board were people who had expertise in managing financial affairs and their inclusion would help SAPO confront the challenges it was facing.
Mr Mjwara noted that one of the main challenges for SAPO was the need to move from an archaic structure to deal with a more modern communication technology as it moved forward. The other issue was about the post office and its future and this lead to the question about how SAPO integrated into the broadband deployments that were taking place. The people on the board were well versed on the ICT systems that could be deployed.
The Chairperson asked all 9 members of the board to introduce themselves and they complied. The 10th member was still making his way to the meeting.
The Chairperson, on behalf of the Committee, congratulated the board members on their appointments and said that they had a mammoth task on their hands. There was quite a lot of work that needed to be done and the Committee expected it to be done excellently. The Committee would hold the Board to account, without fear or favour. The Committee interrogated issues extensively. The Committee normally did not agree to big delegations so in future the board would be represented by a team. An exception was made this time so that the Committee could meet the entire board. Going forward, the Committee did not expect the entire board but a representative team but the board would work around how to manage its delegation.
The Chairperson advised the board to familiarise itself with the issues that the Committee had raised previously, and highlighted that the executive and company secretary should assist in this regard. This would help to avoid repeating the same mistakes where board meetings took place every month but there was no value
The Chairperson stated that the SAPO delegation would meet with the Committee next month to deal with the entity’s 2014/15 Annual Report, and would have to account for a time when it was not around. It was therefore important for the board to reflect on that and how it was going to deal with issues that had been raised by the AG and the Committee. The Committee expected the board to be on its “feet running” and it did not have the luxury to still find its feet. The board had the capability, experience and exposure to turn around the post office and that is what the Committee expected.
The Chairperson drew the Committee's attention to the fact that there had been a change in the presentation. She had interacted with the leadership of SAPO and there had been concern about the sensitive nature of some of the information in the initial document. SAPO was supposed to compete with the private sector on the commercial side of the postal sector. Because the law stated that it needed to account and report to Parliament, the question was how to balance protecting the entity's competitive advantage and not expose everything that weakens it to be able to compete outside and balancing it with accountability. Part of the reason why the presentation had to be amended was because some of the information related to competitive advantage that SAPO needed to utitlise to compete broadly was exposed. Though Members had the original document, she appealed to them not to share this information publicly.
The Chairperson said that SAPO had tabled 5 or 6 turn around strategies to Parliament in the past and urged the board look at the history. She warned that Parliament might be impatient on certain things because of its experience with SAPO. She noted that the board had a right to apply its mind, but hoped it would not initiate a new turn around strategy and focus on the one currently in place.
Dr Simo Lushaba, Board Chairperson, replied that there had been an induction session and first meeting in order to get the Board organised. Board members had an opportunity to look at committee structures and allocate committee responsibilities to the board. One of the committees that had been created was a Strategic Turnaround Plan (STP) and IT governance committee to oversee the implementation of the STP. Due to time, the committee had not had the opportunity to immerse itself to the STP. It is a voluminous document and covers many issues but the board had received an introductory presentation on areas that it covered. The board had a high level appreciation at this time on where the entity is, where it is struggling and where it is making headway. The board will be spending a substantial time on 28 September to understand the STP and will be fully immersed in all the issues when it appeared before the Committee again next month.
Briefing by the South African Post Office (SAPO)
Mr Mlungisi Mathonsi, Acting Group Chief Executive Officer (GCEO), SAPO, indicated that the financial recovery remains slow due to the revenue shortfalls to match operating costs. The Strategic Turnaround Plan (STP) initiatives realising benefits on cost reduction but the lack of investment funding hampers the launch of revenue and rightsizing initiatives. The appointment of the SAPO Board brings leadership stability and the key management positions being finalised to ensure continuity. The financial constraints continue to affect the payment backlogs and disrupt operations intermittently and the funding discussions with commercial banks and the shareholder are still progressing. There had been on-going engagements with union leaders which have resulted in Employment Relations (ER) stability thus far.
Mr Mathonsi stated that the SAPO Board of Directors had been appointed by Cabinet on 13 August 2015 and the on-boarding of the new directors took place on 28th and 29th August 2015. The macro-structure was completed and approved in mid June 2015 and the second layer structure as the commercial structure is approved and being implemented. The third layer structure has been approved for operations, governance and compliance and strategy and sustainability. SAPO was still experiencing difficulties in finding short terms executives for the position of Chief Operating Officer (COO) and still in the second round interviews for Group Executive on Commercial. The offers had been accepted for General Manager on Program and Project Office and the Group Executive on Information Technology (IT). The candidates for the positions as a General Managers on Properties and Employee Relations have already commenced on 03 August 2015.
Mr Mathonsi said that a cross functional communications and change management team has been established to manage people change enablement. The different interventions have been developed and identified to capacitate employees on all levels to deal with the change during the implementation of the STP and regional change agents/line champions have been identified, to be taken through the role of a change agent and how will they support the business using the toolkits developed. The business transformation will be driven and monitored through a council, chaired by the GCEO. In order to strengthen relations with ER Forums, the Board has created the National Bargaining Chamber for the identification and development of a new bargaining team consisting of business and employee relations. The Business Workplace Relations (BWR) has been created to focus on the bi-lateral that are held to improve the relationship and deal with disputes and labour matters and the consultative structure in SAPO was signed off with union leaders.
Ms Nichola Dewar, Acting Chief Financial Officer (CFO), SAPO, indicated that R150 million has been paid to critical creditors from Term Loan funds during August 2015 and the creditors backlog which includes accruals but excludes current amount of R480.6 million. The rentals have been reduced to two months in arrears and 18 branches (out of 2 445) currently closed by landlords and the key creditors that remain unpaid for extended periods result in intermittent interruptions of some operations. The quick wins initiatives have realised cost reduction benefits of R77.9 million (77%) achieved against a target of R100.9 million for the period ended 31 July 2015 and the achievement to date translates to a 26% achievement on the year of R302.8 million. The cost reduction initiatives were successfully implemented whilst revenue opportunities are still in the contracting phase coupled with the lack in funding that limits their progress into the benefits realisation phase. The STP initiatives year to date target is R183.2 million with benefits of R105.2 million (57%) realised for the period ended 31 July 2015. The rightsizing initiatives have not started and a more cost-efficient SAPO is now poised for revenue growth.
Ms Dewar said that the performance on both the quick wins and short term STP initiatives show a similar trend with: realisation of benefits on the cost reduction initiatives implemented. The poor traction on the revenue initiatives and contracting to the benefit realisation lagging behind target and the availability of funding to launch revenue and rightsizing initiatives will bring the implementation trends on track. The impact of adherence to 0-10kg rule by government departments is being assessed. The activation of commercial capability to support revenue recovery and growth is underway and the mail operations achieved cost of R31.5 million from route optimisation. The transport and logistics initiatives are activated in quick wins and gaining traction to recover during 2nd quarter and the property initiatives benefits delayed due to contract negotiations. The human capital savings have been achieved natural attrition and resignations instead of the rightsizing plans.
Mr Andrew Nongogo, General Manager, mentioned that out of 35 national government ministries, SAPO has met with 20 of them and one provincial government of Eastern Cape (Department of Basic Education (DBE). SAPO is capacitating and reinforcing the team driving government business and have placed SAPO resources at five departments and others are pending. The Treasury Instruction, on the reserved as indicated in the Postal Services Act No. 124 of 1998, has been approved by the CPO on 12th August 2015 and is being circulated to all departments by the National Treasury (NT). The Transversal Tender from NT on Government Courier Services has been extended to January 2016, with the current service provider.
DrSimoLushaba, Administrator, SAPO, indicated that a task team was established by the DG of DTPS comprising ofIndependent Communications Authority of South Africa (ICASA), SAPO and DTPS and chaired by the DDG of DTPS to explore regulatory measures that had an adverse impact on SAPO’s viability. The preliminary list of issues that were raised included the following:
§ Poor enforcement by the Regulatory leading to losses through leakage
§ The need to review the retail roll-out target and establish a more realistic bench mark based a needs analysis
§ Review the current pricing model and assumptions used
§ SAPO has formally laid complaints with ICASA in which it cites the contraventions by 2 private sector companies and various small municipalities and the matter is currently being reviewed by the Complaints and Compliance Commission
§ The matter of technological neutrality regarding the definition of Universal Service Obligation (USO) is to be considered together with other proposals in respect to USO which were tabled for consideration during the course of the development of National Information and Communication Technology (ICT) Policy
§ The follow-up meetings are scheduled for September 2015
Mr Mathonsi mentioned that there will be more focus and drive on revenue initiatives to claw back lost revenues and in order for further traction to be gained on the STP initiatives during the second will focus more on conclusion of the term loans from the balance of R1.25 billion with the remaining commercial banks. There will be also be a focus on funding submission done to DTPS for critical capital investment in ageing infrastructure and systems to protect current revenues and fast-track STP revenue initiatives. SAPO will focus on the finalisation of the appointments to populate the macro structure to ensure stability and capacitation of the Commercial structure to focus on revenues and customers and the conclusion of proposals for services with government departments to unlock value. It will be essential to strengthen the regional labour forums through effective and regular communication and offer new customer value propositions through cross-selling and marketing campaigns to intensify the drive to grow the revenues.
In conclusion, the organisation has overcome inertia and achieved relatively good progress in pursuing viability and normalisation of service delivery and improvements in cost reduction and process optimization are the first steps towards a leaner SAPO. There will be a drive for SAPO to be customer focused, although this will take more time, training and funding. There are on-going discussions with the banks and shareholders to create an optimal funding model that is crucial for SAPO and this is also crucial for a faster turnaround of the business. The engagements with employees continue to repair the damage in trust following years of frequent and crippling disruptions.
Mr C Mackenzie (DA) welcomed the presentation that had been made and appreciated that the Board was well qualified in terms of financial services and those involved in IT but there was very little on retail and logistic experience especially on the postal services and this indicated that there was more emphasis on the Post Bank and financial services than the actual operation of SAPO. It was important to know if the R150 million that had been paid to the creditors came off the R480.6 million that was owned to creditors at the end of July 2015. This was to check the overall financial picture of SAPO going forward as the entity was losing a R100 million a month and owed R480.6 million towards its creditors and raises R1.2 billion of draft funding and surely indicated that by Christmas time, there would not be enough money for the organisation. What was the plan to make SAPO to become financially sustainable in order to deliver the Christmas cards to the people of South Africa?
Mr Mackenzie said that the presentation by ICASA revealed that it was difficult to monitor SAPO’s adherence to service delivery targets because of lack of monitoring mechanisms in place. SAPO clearly had a monopoly and a licence which had been given through the SAPO Act and ICASA but the obligations in terms of that monopoly are not measured. It was hypocritical and outrageous for SAPO to investigate and penalise the municipalities that are at the forefront of service delivery for looking at alternative ways of getting their rates bills to the customers-as this was victimising the victims of SAPO’s inability to deliver. He urged SAPO to step back from this process as municipalities that had the capability to deliver should be given an opportunity to do so.
Mr Mackenzie indicated that the cost-cutting measures were likely to impact on the revenue and the alternative would be to focus on the maximisation of profit. How much of the revenue that had been lost by SAPO so far? In relation to route optimization and loss making routes, it is important to know how SAPO was balancing between the loss making routes and the USO. In terms of clawing back loss revenue, how much of that revenue that had been lost by SAPO over the last 10 months? The presentation was silent on the amount of revenue that was still recoverable and the one that had been lost forever. What had been done to make up for the revenue that had been lost so far?
Ms J Kilian (ANC) welcomed the new Board that had been appointed and wished that the Board would be able to work together towards the success of SAPO. There was a mention of the mending of the reputational damage of SAPO, and it would be important to know about the figures of the key positions that had been lost by SAPO which could impact on the planning for the festive season. It was important to know if there were any critical skills that had been lost at SAPO and if there was a strategy in place to ensure that there was a hunt of critical skills. What had been done to improve the moral of staff at SAPO as this had an impact on the overall performance of SAPO.
She wanted to know if it was possible for Members to be provided with the schematic presentation of the new organogram. It was impressive to hear that SAPO was looking at a model for USO and it would be essential to hear if this funding model was sustainable. It must be welcomed that SAPO had managed to engage with the labour unions and it would be important to hear if the staff morale had improved and the awareness of the mandate to be achieved. It was unclear if the overall achievement of 57% for STP was already a target that had been achieved or what should have been achieved in the first quarter.
Mr E Siwela (ANC) also welcomed the new Board and believed that the appointment of the Board was a step in the right direction as the Board had been carefully chosen to ensure that SAPO was able to turnaround. He wanted to know about the impact and effectiveness of the cost reduction measures in the provision of postal services. The presentation was silent on the timeline for the beginning and completion of the rightsizing initiatives.
Ms M Shinn (DA) wanted to know if SAPO had a credit rating as the cost of raising capital that was required to get the turnaround strategy operational was quite considerable and would make it difficult for SAPO to get loans from the banks with negative credit rating. SAPO had initially stated its intention to reduce the staff headcount by 5 000 and so far 1 000 personnel had been retrenched but it was not clear if the 1 000 came from the 5 000 that was already planned to be reduced. She also asked if SAPO had had any request from funders for the reduction of headcount at SAPO and whether the labour unions were willing to accept these reductions without resorting to any industrial action until the turnaround strategy was completed. What were these rightsizing initiatives? Why had these initiatives not started?
Ms Shinn said that the Committee needed to know about the cost of the turnaround strategy including the funding that were likely to hamper the launch of revenue and rightsizing initiatives as there would be an additional funding that would be required on top of the funding that had been budgeted for the turnaround strategy. The presentation was silent on the budget that had been allocated for the Set-top Boxes (STBs) and this might emanate from the fact that this was a scary logistical plan.
Ms L Maseko (ANC) welcomed the presentation and wanted to know if there was any specific reason for offering the position of COO in a short-term contract. She recommended that the new Board needed to be familiar with the distribution centres as this would assist to know the situation on the ground in the implementation phase. It was encouraging to hear that SAPO had been engaging with the union leaders and this was indeed a move in the right direction but it would be important to know if this was the year on year agreement. The targets that had been set by the Board needed to be realistic and aligned to the reality on the ground so that the targets could be achievable. SAPO was in a competitive space and communities look upon SAPO for the services that are rendered and it would be useful for the Board to work extremely hard to restore the trust that ordinary people used to have on Post Office and ensure that the Christmas cards are received. It is quite clear that most people in both rural and urban areas still believe that the Post Office would be better than a commercial bank
The Chairperson appreciated that there was stability within SAPO as this would enable the Board to deliver on its mandate. The reason the position for COO was in short-term contract was because the current COO was currently the GCEO and it would be important for the Board to give progress regarding the matter of the GCEO and the CFO. She wanted to know if all the affiliated unions had signed the consultative structure in SAPO and if they were able to participate and the number of meetings that had been held up until this year. There was a discrepancy on the presentation that had been made by SAPO during the first quarter and the one that was presented today in terms of the quick wins initiatives-as it was previously said that SAPO had achieved 50% of the target on quick wins initiatives with the figure of R108.7 million and today it was presented that 77% of the target was achieved against the figure of R100.9 million. Which figure that was supposed to be taken by the Committee for the purpose of assessment and oversight?
She wanted to know about the level of support that had been given by the DTPS as the funding that had to be requested from the NT had to be done through the Department. It was inconsistent for SAPO to say that it had partially achieved on commercial-revenue while the target was 35.5 and the actuals was 0.5. In relation to the processes towards the Medium Term Budget Review, it was important to know if SAPO was within the submissions of DTPS and the processes that had already taken place in terms of adjustments that would be required by SAPO.
Mr Mjwara indicated that the Department had stated that there would be a close monitoring of the progress that had been done by SAPO and the implementation of the programmes that have been agreed upon. Therefore, the Department together with SAPO and NT had been working together in order to address the financial challenges at SAPO and there had been a lot of activities and energy that had been directed at SAPO. The Department will be assisting SAPO to secure additional funding in a form of a supporting that will be coming from the Treasury and there is a conviction that to pursue a commercial loan to deal with a financial crisis was not the right way towards the rescue at SAPO. The Department was engaging with the NT on the matter as there are public resources that could be utilised on a public mandate and SAPO has indicated that it will still need to go towards the operational commercial mode in order to be sustainable. There was a need to balance between the commercial and public imperatives and this was something that needs to be continuously evaluated in the future in order to find the most appropriate funding model. The Post Office is largely dependent on the functional and dynamic postal bank which is linked to the revenue of Post Office.
Mr Sibongile Makopi, DDG: Shareholder Oversight, DTPS; stated that the Department had been actively involved in assisting SAPO since last year when the financial difficulty starting showing up and there had been discussions with the NT on how SAPO could get the government guarantee. The R1.2 billion that was borrowed from the market is the money that was borrowed against a guarantee that was given by the NT. The Department together with the NT had assisted SAPO to get another guarantee from Standard Bank which was now aimed at increasing the overdraft of SAPO from R50 million to R350 million and this is the money that SAPO had been using up to now in order to run some operations in cases where it was difficult to meet the operational needs. The Department has been working with SAPO during the appointment of the new Board and this process involved a number of steps including the call for the nomination of the people to be considered for the appointment in the Board.
Mr Makopi said that the Department has worked with SAPO on the question of the Medium Term Expenditure Framework (MTEF)and SAPO recently submitted an MTEF request for funds to the tune of more than R580 million and this was a very interactive process in terms of scrutinising the funding requirements. The request is about the funding of the 366 post offices in underserved areas plus the funding for the rebalancing of the post offices. The Department has also assisted SAPO to put together a funding through the second window of government funding and the Department had put together a funding request of R1.1billion and this was later increased in light of the observations that SAPO might need more than R1.1 billion to implement the turnaround plan. SAPO has met with 21 government departments and the Department had been the forefront in opening the doors for SAPO to interact with those departments and the next step was now on consolidation with those government departments. There had been engagements with ICASA on how to reduce the budget of USO that are placed upon SAPO and ICASA had agreed to reduce the targets of addresses to 500 000 which have resulted in agreements that this year, SAPO will not have targets on the building of further outlets.
Mr Makopi mentioned that SAPO had been allocated R55 million to assist the post offices that are having difficulty and the Department was looking at how this money was being utilised to assist the post offices that are unable to generate the revenue. There had been an agreement with the NT on the establishment of a monitoring team to specifically monitor how SAPO was adhering to the agreements and achievements that had been agreed upon. The Department was cognisant of the fact that SAPO had previously developed the turnaround strategies in the past and the problem was mainly in the implementation of those strategies and therefore the Department had been closely evaluating the current turnaround strategy.
Mr Lushaba responded that there are about four members that have experience and expertise in marketing, logistic and retailing. It was indeed correct that the reason the COO was in short-term contract because the current COO was currently the GCEO. SAPO was continuing with the disciplinary process on the GCEO and the CFO and this was a strenuous process and SAPO was not going to be payment anything more for the settlement of the cases as this would be unaffordable for an ailing institution like SAPO.
The Chairperson wanted to be clear on whether there would be no “golden handshake” on the two incumbents that had been suspended as the Committee was not in favour of such settlements.
Mr Lushaba responded that there had been an agreement in principle that there would be no “golden handshake” that would be paid to the two incumbents that had been placed on suspension although there matter was not concluded as yet. This would be an important step as it would allow SAPO to begin with the recruitment process of those vacant positions as current GCEO and CFO were in acting positions and this was a daunting task for SAPO. The Board has been active and pronounced in creating leadership stability since its appointment. The Board was doing whatever it takes to reach the conclusion of the hearing of the CFO in order to put this case into rest.
Ms Dewar responded that the payments that had been made to SAPO have come off the outstanding balance and the balance as July 31 2015 was R952 million and this had been reduced by payments that had been made in August 2015 to R205 million. It is important to take into consideration that the credit balance will increase because of the monthly cash flow shortfall at SAPO and the cost-cutting measures. The applications that had been made for the consideration of an increased adjustment budget request are all linked to the specific initiatives that had been included in the STP and this would answer the question that had been asked about the total cost of STP. Members could be given very detailed schedule on the STP initiatives so as to see the key initiatives that needed to be taken including the IT infrastructure refresh, investment in the disaster recovery systems, mobile virtual network operator capability and the outsourcing of SAPO and Postbank IT in order to reduce cost and the connection of branches and communities and this is linked to the South Africa Connect initiatives.
Ms Dewar added that the total cost for the IT infrastructure refresh is R514 million and this is a substantial amount but it will deliver substantial benefits of at least R1.5 billion and this was positive in terms of investment. SAPO still needed to upgrade the point of sales system as not all of the branches had been converted yet and the upgrading of the pin pads in the branches as SAPO was not Euro pay MasterCard Visa compliant yet and this would be important in order to reduce the merchant fees that are paid by SAPO. SAPO had requested funding for the upgrading of certain properties, branches and IT datacentres. SAPO relies on rented AVAS and other suppliers to do the last point delivery and it was imperative for SAPO to invest in its own capacity in order to perform this task in-house
Ms Dewar indicated that there has been a focus on electronic business infrastructure particularly the delivery of electronic mails to the customers and this would increase the revenue of SAPO and customers. SAPO will need to invest on a trust centre which handles the confidential digital certificates so as to grow the business even more. SAPO would need a funding to implement the workforce rightsizing and it was difficult to start the process because the funding has not been secured yet and there was only 60 day time period for the commencement and finalisation of the programme according to the Labour Act. SAPO has requested a total of R3.4 billion from the NT and the request has been submitted based on the initiatives to be done and this was a more transparent way.
Mr Mathonsi mentioned that the timing was very important in these investments that were to be done by SAPO and the workforce rightsizing was at a R3700 million and it saves R60 million a month on cash outflows and therefore the earlier SAPO was able to do the investments, the earlier it will receive the benefits. It is important to be cognisant of the fact that cash is not static as the deficits and liabilities will grow exponential if nothing is being done and the benefits take even longer to be received if nothing is being done. SAPO had saved about R218 million in costs in the first quarter but the revenues were R285 million below the budget.
Mr Mathonsi responded that the plans that have been put in place are geared towards ensuring that the Christmas cards are received and SAPO has been very cautious in deciding which cost lines that would be reduced as this was not an easy decision for the entity. Most of the initiatives that talk to route optimisation have been focusing on the productivity in the delivery of the services. In relation to the issue of the monitoring by ICASA, there were couple of municipalities that were not affected by the industrial action and these municipalities and the decision for those municipalities to deliver the mails themselves was not the results of the failure of SAPO to deliver the mails to those municipalities. It must be pointed out that some of these municipalities have been delivering the mails even before the major industrial action and this was a historical matter that has not been properly addressed. He requested to provide a written response on figures regarding the revenues that had been lost and the plans towards the festive season from a revenue generation point of view and ways to support those revenue initiatives through the marketing plans.
Mr Mathonsi responded that the 1 600 staff that had been lost would talk to the 5 065 but not in this entirety as SAPO would like to replace some of the colleagues that had been lost as a result of exits and resignations and IT and Finance have been severely affected by this mass exodus at SAPO and this was also highlighted by the Auditor-General (AG). Postbank was largely impacted by the fractious environment at SAPO as some of the incumbents resigned because of slow progress towards the granting of the license and the clarity on the future of the Bank in the banking industry. SAPO has not applied its mind on the rebranding in order to create excitement for employees as the priority at the moment has been about survival but it is crucial important to move the organisation towards the position where there would be vibrancy and the more positive outlook. The Committee will be provided with the schematic presentation of the new organogram and the information on how SAPO remunerates its employees compared to other State Owned Companies (SOCs) and there would be a focus on ensuring that there is equitable remuneration and the recruitment of right skills and competence levels.
Mr Mathonsi responded that it was still unclear at the moment how much it will cost for SAPO to fund the USO and whether this would continue to operate with licence conditions as it stands with the agreements with ICASA. The numbers that had been presented on the STP initiatives are audited by internal auditors but SAPO was presenting these figures for the benefit of the Board and not of the Committee and it must be noted that there are initiatives that feature in both the quick wins as well as the STP so that these initiatives are not double counted.
Mr Mathonsi responded that there are no specific demands that had been made by funders on the need to reduce the headcount; however, the commercial banks are very clear that they want to see progress in the implementation of the turnaround plan. The issue of the STBs was very much part of the turnaround plan and SAPO has been working very closely with the Department of Communications (DoC) and even set up structures with Universal Service Access Agency of South Africa (USAASA). The income on the STBs has not been reflected because there are still some of the decisions that need to be taken and these decisions are not in the hand of SAPO. SAPO has proved its readiness on the rollout of STBs and Square Kilometre Array (SKA). SAPO was looking at making good terms with suppliers that are directly linked with the generation of revenue and the delivery of services as these two are interrelated. In relation to the question of unrealistic targets, SAPO was aware that there might be a bit of exuberance from the Board in the quest to get SAPO out of the current quagmire but these are targets that the Board has committed to. It must be corrected that indeed SAPA did not achieve on commercial-revenue as corrected by the Chairperson. SAPO has moved from 15 Group Executives to 7.
Mr Lushaba added that the Committee will also be provided with explanation on those targets that had been partially achieved and the measures that had been taken to improve the situation. It must be clarified that the inconsistence in the figures was the result of the fact that the requirements that are made to the NT are given based on the current situation although this might change in two months down the line.
Mr Mackenzie indicated that it was indeed confusing that there had been a lot of figures that had been provided as there is a R1.6 billion guarantee in place and Mr Makopi had referred to the R1.1 billion funding request that had been made by SAPO and it was unclear if this R1.1 billion came on top of the R1.6 billion or if this was part of the R1.6 billion. It was also unclear if the total of R3.4 billion that had been requested by SAPO to the NT comprised of both the R1.1 billion and R1.6 billion. He wanted clarity on whether the money that had been provided to SAPO was an investment or a bailout as it was essential to make the distinction between the two terms. The STP spoke of the R102 million that had been lost in this financial year and SAPO had grown from R1.2 billion lost to R102 million to R1.2 billion profit next year and it would be important to know the project lost in the current financial year.
Mr Lushaba responded that the term investment was used against the backdrop that SAPO would be entering into new capabilities and providing services that was not previously provided to the clienteles.
Mr Mathonsi responded that SAPO was required to measure the USO and they are supplied to ICASA on a regular basis and it was this instance that ICASA would make a determination if SAPO was meeting the USO. It is important to emphasize that the matter of municipalities have been raised to the ICASA Council for the past 6 years and the implementation of the CCC was not a commercial bully to those municipalities as competitors but to reassert SAPO’s rights as that there is a need to comply to the legislative imperative. SAPO will continuously engage with union leaders until the matter of labour conflicts was resolved and the yearly or two yearly agreements will cover the issues of salaries and bargaining. SAPO had made it clear to the union leaders that it will be untimely to negotiate the issue of salaries as the entity was currently ailing.
Ms Kilian commented that SAPO was in a similar situation as the South African Broadcast Corporation (SABC) and it would be critical going forward to see the financial costing of USO so that Members could understand the actual cost of the USO.
Mr Lushaba clarified that Post Office has no credit rating but was borrowing against government guarantees and there is solvent rating behind loans that are made by SAPO and the entity was borrowing at a reasonable cost. SAPO was trying to get into new revenue streams as revenue has been declining with a special focus on e-commerce and the delivery of electronic mails as a part of the new business model. There will be a more agile and market centric Post Office with consolidation of all the sales team to creating a new platform to enable SAPO to compete much more effectively.
The Chairperson appreciated the presentation that had been made by SAPO and highlighted that the evaluation that would be done by Members would be based on the information that had been provided. Although there are many issues that still needed to be clarified it was pleasing to see that there was a light at the end of the tunnel at SAPO and the Board needed to exercise its judicial responsibility to focus on the actual mandate. There are specific reasons why Post Office was set up in the first place and the existing infrastructure was giving Post Office an added advantage against its competitors. SAPO needed to be aware of the fact that was competing in a competitive environment and the retention of critical skills will be crucial important for the entity.
Committee Oversight Programme
The Chairperson indicated the Committee will do oversight visits to various regions in Limpopo from the 14-19 September 2015. The Committee would be in Malamulele, Limpopo on 14 September 2015 and the visit here is around the issue of Digital Terrestrial Television (DTT). The Committee would also visit the Giyani Nursing College that is connected by MTN and the two Giyani community radio stations and the work that had been done by Sentech in relation to these stations. There are challenges of signal at Malamulele and the Committee had already written to Sentech to fix the signal in the region but this problem was still not addressed. The Committee needed to ensure that rural communities are connected to the signal especially since there is an outcry that most of rural communities had been ignored on broadband connectivity.
The Committee will then visit a placed called Ga-Mafefe in Limpopo on 16 September 2015 and this was one of the communities that cannot even receive a cell-phone call and there was no justification as to why our sector had not made sure that this place was connected. The Committee will then visit the Waterberg Teachers Centre on 19 September 2015 in order to see the work that had been done. The Department was supposed to assist the Committee in identifying the communities that were still struggling to connect to 2G while there was infrastructure duplication in provinces like Western Cape, Gauteng and KwaZulu-Natal (KZN). The prioritisation on broadband roll out should be about focusing on these deep rural areas that are not connected.
Mr Siwela confirmed his availability and added that there was a similar community in his community that was not connected to the signal.
Ms Shinn believed that it was unnecessary for the Committee to visit the Giyani radio stations as broadcasting was not the mandate of the Committee but that of the DoC and the Portfolio Committee on Communications. The Committee would be listening to the community members complaining about lack of broadband connectivity and connection to the signal while Members knew exactly who the causes of the problem were and these are the entities that needed to be approached.
Mr Mackenzie suggested that the Committee should stop by at Post Office outlets that are available within the area of Malamulele, Giyana and Ga-Mafefe.
Ms N Ndongeni (ANC) confirmed her availability and added that it would be useful for the Committee to visit to these places instead of relying on the hearsays and this would be helpful when the Committee meets with the responsible entities.
Ms Shinn expressed anxiety about the fact that she might not be available to her cell-phone for the entire day and therefore declined to confirm her availability at the moment.
Ms Ketabahle confirmed her availability but also indicated that there was no need for the Committee to go to the two community radio stations as the matter could be referred to the DoC and the Portfolio Committee on Communications.
Ms Maseko said that she would not be available to the oversight visit because of the clash with the Portfolio Committee on Science and Technology. She supported the suggestion to visit the Post Office outlets as this would assist the new SAPO Board in identifying challenges in outlets in rural areas. It was not the mandate of the Committee to visit the community radio stations and therefore there would be no value for money in undertaking that trip.
Ms D Tsotetsi (ANC) agreed that it was not the mandate of the Committee to visit the two Giyani radio stations, but the Committee also had an oversight responsibility over the DoC and the visit to these areas would assist the Committee in approving the budget to be allocated to broadband connection.
The Chairperson emphasized that the responsibility of Members was to listen to the complaints of the communities and the Committee was precisely responding to these complaints and this was also to engage with Sentech during the budget process on the need for the budget to reflect the needs of people in deep rural areas. The community radio stations are customers to Sentech and the Committee needed to interact with these radio stations in order to do an evaluation of the service that was rendered by Sentech. She appealed to Members not to ignore the community radio stations that had been suffering at the hands of Department’s entities.
The meeting was adjourned.
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.