Department of Telecommunications and Postal Services on its 1st Quarter 2016/17 performance

Telecommunications and Postal Services

23 August 2016
Chairperson: Ms M Kubayi (ANC)
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Meeting Summary

The Minister of Telecommunications and Postal Services provided the Committee with a broad overview of the Department’s recent performance. There had been progress and significant achievements, including development of a service delivery model that would form the basis of its organisational structure. SOEs were generally stabilising and although there were still signs of loss-making, their finances were stabilising a bit. The e-Government implementing committee had been set up and consultations were currently taking place. There were also concerns and challenges, such as ensuring that all the branches were available to align the service delivery model, and sector codes needed immediate attention. The value chain had to be understood. Some entities were being investigated by the Special Investigating Unit (SIU). There were unresolved issues around spectrum that were being finalised.

Members asked whether the dispute between the Department and the Independent Communications of SA (ICASA) over the allocation of spectrum had been resolved. What was the latest information on the introduction of set-top boxes for television reception? What disciplinary measures had been taken against supply chain management offenders in the Department.

The Department’s entities presented reports on their performances during the first quarter of the 2016-17 financial year.

The SA Post Office (SAPO) said it viewed Postbank as an integral part of addressing economic inequality in South Africa through its extended rural network. Postbank’s progress was important, and a third of SAPO’s income was anticipated to come from it in due course. The real challenges lay in the parcels and logistics business, and that was the business where SAPO had the most competent competition. It did not have significant competition in mail, although there were top international players in the courier and parcels market. It was taking some time to convince clients competitors

to come back and try the Post Office. SAPO had to build up from a confidence deficit, while dealing with this world-class competition. It was keeping a very tight rein on its expenses.

The State Information Technology Agency (SITA) reported that National Treasury had officially asked it to implement an e-commerce platform, and all procurement for government and all SITA’s procurement vehicles would be put on to that system for the financial year. Part of the evaluation had been to create a business case to acquire the rights to systems used by most government departments for procurement, and to modernise to e-commerce, and that would be the medium to long-term solution for governance and operational efficiencies.

The Universal Service and Access Agency of South Africa (USAASA) and Universal Service and Access Fund (USAF) reported that most of their targets had not been achieved. USAASA had achieved a financial performance of 83%, which appeared reasonable. However, it was performing well financially only in administration, and that was not good, since other programmes were not performing and interventions to help were being adopted. With USAF, most of the targets for broadband roll-out were dependent on a competitive billing process. USAF was almost at the end of that process, and the setting of those targets would start from quarter two. The digital migration project target had been partially achieved, and principals were being engaged to resolve and get direction, to manage and mitigate risks, and to roll-out the project.

Sentech said that community radio stations were struggling to pay the its tariffs. In the first quarter of the financial year, Sentech had made a contribution of close to R1 million toward their tariff payments. Some Sentech customers had also been terminated since they could not pay their shortwave tariffs. Not many people were using shortwave, especially within the Southern Africa region, and the product had been struggling because the technology was outdated. TV continued to contribute to most of the revenue.

Broadband Infraco indicated that infrastructure projects had been running continuously since last year, and were customer projects that were on track. Money was being spent in areas that would provide revenue, and a process to engage with equity was critical. At the end of the quarter, cash stood at R81 million, and prudence was being applied to ensure that everything done was optimised. In 2014/15 there had been a R240 million loss, but the loss had been R90 million for the past financial year, and the organisation wanted to ensure that the financial position became positive.

The ZA Domain Name Authority (.zadna) said it was on an awareness campaign about the industry, since it had previously been a private industry run by the private sector as it pleased, and was not regulated. .zadna had been formed when the government decided there was a need to regulate it. When .zadna was formed, business had not been sure about what was going to happen with the industry, and it aimed to give the private sector an assurance that it was here to regulate and protect the industry, and that government and private industry needed to work together.

Members posed a wide range of questions to each of the entities aimed mainly at gaining clarity on performance information provided during the presentations.

Meeting report

Committee business
The Chairperson informed the meeting that the Minister had not tabled the annual performance plan, and procedurally the quarterly performance plan could not be dealt with without the Department having tabled the plan. She proposed that the Minister table the annual performance plan, and the Committee deal with the quarterly report on 14 September. She also stressed that a discussion on Broadcasting Digital Migration (BDM) and a joint meeting with the Portfolio Committee on Communication had to take place. The Portfolio Committee on Communication had requested a change in programme, but had not confirmed an alternative date and this impacted on the entities that reported to this Committee. She would try her utmost to discuss an alternative date with the chairperson of that Committee today and, if agreed, it would be slotted in the week of 13 September. There had also been no public hearings. Last year, an invitation had been received from Telkom for the Committee to visit the undersea cable, and the intention was to go on 22 September.

Mr C Mackenzie (DA) thanked the Chairperson for raising the BDM issue. He said that he had written to her, stating that the programme needed to be reviewed, and had suggested the Committee have a two-day hearing for the entities, as well as for the public that were involved in this, and to amend the programme to fast track it, and to consider whether it was still appropriate in the light of changing technology. There was no budget for it, and there were also several legal complications. At the current rate of set top box distribution, it would be an extremely long time before the analogue signal was switched off. Therefore, more than just a report back from the Minister responsible, including the entities responsible, was necessary as well as a total reappraisal of the programme.

The Chairperson responded that she first needed a sense of what was happening to decide the future of the project, which must be informed by the current status. She was concerned that there was no actual up-to-date report on the current status to make an assessment, and a starting point was to be informed by receiving all the reports from the Minister and the entities. This was needed to get an idea of the current status and determine the approach to be taken in the direction of the work of both the Portfolio Committee and Parliament, and to get public comments. A concern was that without a public hearing, the Minister might say that the Committee had not provided an opportunity to explain the status of the project, and might be found to have run ahead of itself, and the Minister needs to be given an opportunity to present. Based on what had been in the news and what had been received from the entities, was a concern, especially the financial burden. While it was a critical project in the sector, it was necessary to be quite sure about what had to be achieved and done, and the proposal still stood.
Minister’s Briefing
Dr Siyabonga Cwele, Minister of Telecommunications and Postal Services (DTPS), said that measurable objectives were being implemented and aligned with the Department’s medium term strategic framework (MTSF) and the Department would speak about these performance areas in detail. He also said that no date had been set for digital migration.

Over a period of years, some state-owned enterprises, such as Broadband Infraco (BBI), the State Information Technology Agency (SITA) and the SA Post Office (SAPO), as well as the Department, had been experiencing challenges. Since the new Department had been instituted, there had been a new challenge with the National Electronic Media Institute of SA (NEMISA), and it was committed to complying with the Committee’s request to table the report. The entities under the Department were implementing agents and not directed by the Department, and had ways of collaborating with other departments to improve. A critical issue for the Department was a rough idea of the video spectrum, and to finalise spectrum plans for this year and going forward. It was committed to produce action plans by September, for completion by December.
The Minister said the SOEs were generally stabilising and although there were still signs of loss-making, their finances were stabilising a bit. Previous comments had stated that BBI was on a downward spiral, but currently there were signs of improvement such as the finances stabilising slightly, yet still no profit making. Leadership had been paying a lot of attention to revenue generation, and the Minister had recommended a focus on postal mainland and revenue generation within the SAPO, and the sustainability of the entity. On the other hand, SITA was in deep trouble -- it had two continuing Special Investigating Unit (SIU) investigations, and another was being implemented as per recommendations. SITA was very critical for government, because it was the essential procurer of IT services for the state. The key issue for the Department was to make sure that economies of scale were realised. Government had indicated that there was no reason that as a state, a premium should be paid, and because of the vastness of procurement, there should be discounts where possible. With the new leadership, matters were starting to take shape and more measurable plans could be seen on the way forward.

Mr Mackenzie asked the Minister for information on the SIU investigations and SIU reports, the ones involving the SA Football Association (SAFA) and SITA.

Ms M Shinn (DA) also asked about the SIU reports.
Minister Cwele responded that the SIU had been appointed by the President and by law it produced reports to the President, who refers them to the relevant minister. The SIU only assists, and had the right while carrying out investigations to use the preliminary report to take court action where there was a misdemeanour. The Minister had not been given permission to share information, and suggested the Chairperson join him when he was briefed by the SIU. The SIU would also come to the Committee and give progress reports if they were asked. SAPO also had a SIU investigation currently being implemented, and some of the issues were highlighted in the report. He stressed that a lot of state resources were being wasted in fighting with SIU, but this situation had improved and he was pleased with the improved collaboration among state entities in dealing with this issue. There was monitoring and implementation of the recommendations to resolve issues at affected entities.

A significant milestone at SAPO had the appointment of a new board in August 2015, and the selection of management in 2016. A significant issue at SAPO had been the instability of the labour environment which had been very devastating, as postal services impacted mainly on the elderly and poorest. Matters had come to a standstill at the beginning of 2016 because of a lack of funding. With the appointment of the board and new CEO, the environment had started stabilising. What had helped was that the Presidency and the Deputy President had worked with the Minister of Finance to finalise the funding. Large amounts of money had only just started being received, and currently there was improvement because of the funding made available. It was expected that the post office would achieve the expected outcomes under the new leadership of the CEO, Mr Mark Barnes.

National Treasury (NT) had identified administration as a problem and had indicated the Department had overspent on travel and subsistence for the Minister and Deputy Minister on overseas trips. The Minister stressed that NT had not proved this, and it could be checked with the Department. He had travelled to a Southern African Development Community (SADEC) meeting in Zimbabwe, and to an African Union (AU) meeting in Cameroon, while the Deputy Minister had been sent to a Commonwealth meeting, of which the country was a member. All of these were statutary meetings because of South Africa’s international agreements. The African continent comes together and meets at SADEC and the AU before going to any international meetings to consolidate and align its position. International obligations and agreements such as the Postal Union meeting in October must be attended. There were substantive issues that dealt with the transformation of the postal sector, and since South Africa would be leading postal structures, the Department should be there. It may have been that there was an under-allocation in the budget, and the Department had been instructed to investigate and verify it.

Mr Joe Mjwara, Acting Director General, DTPS, said that during the quarter, the Minister and the Deputy Minister had undertaken only six trips. These had involved the AU, the AU Bureau, a high level meeting after the report of the UN in 2015, the World Economic Forum, the Commonwealth and the Pan African Postal Union (PAPU) meetings. The fluctuations in the rand/dollar exchange rate had also affected the expenditure of these trips.

The Chairperson said she did not understand why it should be regarded that the Minister and his deputy had overspent. If these were statutory bodies, how had the chief financial officer (CFO) planned and under-budgeted for them? The CFO should be able to manage what was allocated to the quarter properly.

DTPS first quarter performance
Mr Mjwara said that effectively there were two concurrent systems to ensure performance monitoring. A headline indication for the quarter was that 15 out of the 23 targeted outputs had been fully achieved. Six that were partially achieved had since all been completed, while two quarterly targets remained incomplete. Progress and significant achievements included the development of South Africa’s position in the World Telecom Standards and Services. This year there was an important meeting in Tunisia about these standards, and the Department would try and position South Africa as a player in this area. A decision had to be taken on developing information communication technology (ICT) policies going forward. The Department was on course to finalise the ICT small, medium and micro enterprise (SMME) strategy, and was also close to finalising the ICT business sector code with announcements and launches taking place during October.

An important issue was trying to understand where the organisation and individuals were, and how to turn around the Department into a high performance entity. There had been delays with the Department’s climate and culture survey, which was part of turning around the Department. Organisational structural processes had to be followed, in line with the Department of Public Service and Administration (DPSA). Signing the contracts had been done and the overall climate had improved. A service delivery model had been developed and finalised, and would form the Department’s organisational structure, since the previous structure had been inherited from the Department of Communications.

A needs assessment had been conducted with all the branches, and had involved a Department environmental comment (DEC) that included managers and directors general (DGs). A challenge had been to ensure that all the branches were available to align the service delivery model with the 2016/17 annual performance plan (APP) by 30 June, and it had subsequently been finalised in July. The climate and culture survey and action plan could not be achieved, since there had been only about 32% performance reference to management culture in the Department. It had become necessary to include a bigger sample of people in management, and the Department would present the findings to the Committee in the near future.

There had been an effort to get around to a new way of doing things, and the aim was to ultimately automate the work of the Department, since the focus was on technology. The Department aimed to be at the forefront of doing things, and the process had started with business requirements, terms of reference and a business impact analysis.

The Department had not met the first quarter performance target date of 30 June for international affairs. The South African position paper for the international post programme had been delayed, and had subsequently been submitted for approval. The forthcoming meeting was around the question of telecommunications and the Family of World Standards. South Africa would be promoting Africa as a generator of standards, which was important for moving into the industrial space of producing the equipment and building strategies. The home and away national programme had been identified as problematic, with South Africa’s costs contributing to the problem, and it had been resolved to do something about it as a region at the SADEC meeting. The Independent Communications Authority of SA (ICASA) had to be empowered around the home and away programme. The Department had issued a policy directive to ICASA to deal with the question of roaming, and a position paper was being developed between ICASA and the Department.

South Africa’s position on SADEC was not finalised, and the AU was also in a position to deal with this matter and lower the costs of telecoms. A United Nations (UN) high-level meeting in 2015 had focused on the governance of the internet, including research, and during the first quarter of 2016 the Department had also attended a meeting. The Department played a role in ICT governance within institutions, and a strategy was in place. It had a draft position concept, and Cabinet had approved the hosting in South Africa of the African inter-governmental meeting (IGM) for internet governance. The Department had also identified global ICT governance institutions, and candidates would be identified to take posts in these institutions. The draft White Paper was with Cabinet and in the process of being approved.

The report on the status of black economic empowerment (BEE) had been finalised, and much had to be done in the sector regarding race and women, and in October a report would be lodged on how the sector could be transformed. Sector codes needed immediate attention, the value chain needed to be understood, and Wits University was a collaborating institution of the Department. The e-Government implementing committee had been set up and consultations were currently taking place. Potential consultations on e-Strategy would take place with all provinces by the end of August, and the three year e-Service programme was still a work in progress.

Part of the reason that state-owned companies (SOCs) did not perform well was their lack of ability to monitor in real time in order to help government with immediate interventions in problematic areas. No progress had been recorded for the broadband connectivity implementation plan because the strategy had not been finalised. Since then, SITA had advertised a tender for service providers to provide government with service.

The meeting of the World Radio Congress in November and December 2015 had been quite important, since some spectrum had been added to the signal. The implementation of ICT had been a challenge, and there were many issues to work through. This was the last year of the three-year contract with Microsoft.
Ms Joy Masemola: CFO, DTPS, reported that the Department’s total appropriation allocation amounted to R2.4 billion. During the first quarter, Administration had over-spent by R3.719 million, while ICT International Affairs had under-spent by R1.048 million due to the transfers to international organisations happening only in September. ICT Policy Research and Capacity Development had under-spent by R5.863 million due to the delays in the project, as alluded in the performance report. In ICT Enterprise Development and SOE oversight, R650 million had been transferred to SAPO at the beginning of the financial year, and the under-spending was due to transfers to other entities that had happened just after the first quarter. ICT Infrastructure Support had under-spent by R164.233 million due to the SA Connect project, which was also alluded to in the performance report. The spending of the Department had been R739.279 million, or 31% of the full year allocation. Transfers and subsidies to government and international organisations happened in the second quarter, and the second quarter report would show the transfers to entities.


The Chairperson was concerned about quality assurance. The DG had to ensure that the information given by the accounting officer in the Department was accurate and reliable, since it was an official report presented to Parliament. There had also been no clarity around appropriations in the report, and whoever sat with Treasury would have to explain what this was in detail, including issues around administration and capital assets. The issue of over-expenditure was starting to tie in since the Minister had given an explanation. Transfers were a concern, and this was reflected over and over, and the allocation from the third quarter raised alarm bells for the Committee. The Committee wanted an explanation for the delayed transfers. This had to be dealt with and sorted out, as it had been raised as a concern previously.

Mr Mjwara apologised for the fact that the budget figures were not complete for Treasury. The issue of the transfers was noted, and the Department would be working with the SOCs step-by-step. In 2014, a three year contract had been signed for the assets referred to, and a tranche had been paid annually, with 2016 being the final year.

Mr Mackenzie questioned the Minister about the legal action with ICASA based on the spectrum issue, and wanted to know whether the Department had made provision for, or had an idea about the cost. He also wanted clarity on why the Minister was proceeding with this action.

Minister Cwele said the issue revolved around the spectrum and how it would be utilised. ICASA and the industry knew that the spectrum was being finalised. Last year, a lot of state resources had been spent both in the DTPS and the Department of Economic Development, and invoices were still being received, but it was something that could have been resolved as institutions of the state. Right from the beginning, it was not a business sale -- it was a spectrum sale. It was pre-empting the pricing of the spectrum and because ICASA had taken a decision, it had given the Department an option to review the decision or to go to the Competition Tribunal, and that was what had happened. There had been no special allocation when asking for the study of the broadband market competition. Power Communications was a South African company which operates in many African countries, yet it did not have spectrum in South Africa. If there was no competition, then the spectrum could be used to create that competition. The law was very clear on how one produced regulations, and ICASA had never followed that process. How the DTPS dealt with the spectrum had severe implications on whether there would be a chance for any new entrants to enter this concentrated field. The matter had been withdrawn at the last moment, but there had been a court case. Members could look at the judgement of 26 February in Johannesburg, where the judge had said that on issues of competition one could not delegate that responsibility to the Competition Commission. One had to follow the Electronic Communications Act (ECA).

There were continued comments around this scarce resource called spectrum, and one could not grow and transform the ICT sector without dealing it. Cabinet would deal with it, and the intention of the Department was to finalise the matter as soon as possible. It would definitely be dealt with in the next public cycle. There were also other critical policy matters constraining the industry, and it was essential to try to avoid having separate policies that were very difficult to integrate. There was general consensus for the need to bring a balance. The Department wanted growth in the industry and to use this national resource for the benefit of all South Africans.

Mr Mackenzie said the December provisions from ICASA for the spectrum allocation related to the national development plan (NDP), and targets for the BEE scorecard and development appeared to be a very logical and well thought out proposal from ICASA. He asked why the Minister was apposing that.

Minister Cwele said the issue of BEE could not be postponed, and the Act had postponed the decision on compliance. This was an example of an irrational decision by the Authority, and it was available in the judgment. When the ministry had been confronted with this initially, there had been no consultation and there had never been consultation on regulation. The BEE issues had never been addressed, and the fundamental and essential steps had not been dealt with, such as the competition issues and issues of policy direction, since March this year. ICASA had not responded or dealt with all these fundamental and essential steps. On the very same day the Invitation to Apply (ITA) was published in the gazette, the Minister had asked for an urgent meeting with ICASA and engaged with them, raising some of these parliamentary concerns and asking them to review and come back. The DTPS and ICASA had met on 15 July, and then again on 19 July, and they had said they had taken a decision to proceed. They had asked the Department not to engage informally, and to first put things in writing. In their legal opinion, they could not withdraw the ITA. The ministry intended to engage and had asked for all sorts of mediation, which ICASA had turned down. The Minister had written several letters to ICASA explaining the concerns, and they had said if anything, take us on review. That was exactly what the ministry had done because, as the policy maker, the ministry could not sit back when the policy maker’s function was being usurped by the regulator.

The Chairperson responded that there would be meeting next week with the Department and ICASA to deal with issues. It was unfair to do that now, since there was a programme.

Mr Mackenzie asked if there was any idea when the ICT White Paper which had been with cabinet since March, would be presented to the Committee. He requested more information on the programme to support the rationalisation of SOCs, and asked whether the assessment report had been concluded.

Minister Cwele said the approach of the paper was a rights approach, taking the Constitution as a basis. One could not continue to unfairly discriminate against people. The issue of rights as enshrined in the Constitution becomes very fundamental, and the policy was heavily dependent on what the NDP said regarding affordability, availability and accessibility. A policy was needed that spoke to each other because of the inter-relatedness of the things being done. There were Green Papers, discussion papers, the training of people, and consulting and listening to the industry. There had been issues on this policy since 2012. It had been a very fragmented policy environment, and industry and parties have been raising this as a concern. There was general agreement that the time had come to make policy choices. There were over 400 licencees, and most wanted spectrum but could not have it. It was hoped that the Cabinet prioritised the finalisation of the new integrated ICT policy. The White Paper was critical, and needed to be finalised by the Cabinet as soon as possible.

Ms Shinn enquired about meetings with the ICT Sector Charter Council . She was pleased about e-governance activity, since it was a critical programme, and wanted more details. She also wanted to know whether the acting DG would continue or become a permanent appointment. What had happened to the other DGs? Were there criminal charges pending against them, and had there been any golden handshakes?

Mr Mjwara said the Council was meeting on a monthly basis and working on the ICT charter. The Department was working hard on e-Governance and would finalise it with the provinces during the course of this month.

Minister Cwele said he was not aware of any golden handshakes for any DDG or DGs. The process involving the other DGs had been taken to the Public Service Commission, and they were very professional. They had asked the Department to find a legal way on how to proceed, and it was dealing with the legal teams to try and sort it out. The Department had put a moratorium on other disciplinary measures, and had then lifted the moratorium. The DG had to continue with all the others, because it was not only the top management who were involved, but it included many other officials who were affected. Most of the issues were around supply chain management, and that was why the Department was putting so much effort into this area. If the Department did not get it right, there would be failure again and again. Management and all the employees had to undergo some vetting, because the majority were not vetted.

Ms N Ndongeni (ANC) asked how many vacancies the Department had.

Mr Mjwara said they had only four vacancies that had to be filled. These vacancies were affected by the tribunal process.

Ms D Tsotetsi (ANC) said that in the past, the Committee had complained about the lack of management, the ICT infrastructure and delivery in the Department, and now she saw an improvement. She requested that the Committee be provided with information and the names of the companies appointed to manufacture and deliver Digital Terrestrial Television (DTT) set-top boxes. She also asked about the composition of the international affairs working groups that had been established

Mr Mjwara responded that the issue of DDT set-top boxes was being discussed with the Department of Communications and the companies the Department was working with. The working groups included government departments, the Departments of Science and Technology, Environmental Affairs, Economic Development, Trade and Industry, Transport and Communications, as well as in-house SOCs, research institutions like the Council for Scientific and Industrial Research (CSIR), some academia, the South African Bureau of Standards (SABS), the South African Local Government Association (SALGA), ICASA and Telkom.

The Chairperson stressed that compared to previous years, the Committee had actually been able to conduct oversight. Matters that had been raised in reports previously were receiving attention and it was appreciated. Towards the end of the financial year, there had been a 30% performance from the Department, and this quarter was encouraging. The Committee was looking forward to seeing a substantial improvement up until the financial year end, and once the vacancies had been dealt with, also more stability from the Department. A concern raised with the Department over time had been performance agreements. The Chairperson asked whether performance agreements had been signed on time, since there were always difficulties with it, and she asked for a follow up on it. Another issue was structural rationalising, and the Committee had been trying to understand what was being rationalised. She asked for an overview of the entities, and a broader discussion around the issue could come later.

Mr Mjwara responded that a lot of time had been spent on evaluation and performance with individual managers in the Department, and a report had been issued. It was not going to be business as usual. The results of ensuring responsibility were starting to show, and people were focusing and improving. About two or three performance appraisals had not been signed. The first thing was to understand an SOC and the environment around that SOC, and how it could it utilise its resources. There was a departure from the notion that both the NDP and the Government programme demanded that DTPS utilised the resources, and to an extent, it had. Rationalising was around individual companies and the prospects of them helping the Department with the NDP. It looked at duplications perceived with the structure of the SOCs, the rationalising option they needed to develop, and how state assets were going to be used.

The Chairperson said the Committee had noted the improvements, but would like to see more in the future. He urged the Department to fill the vacancies as soon as possible.

South African Post office (SAPO): First quarter performance
Dr Simosezwe Lushaba, Chairperson: SAPO, said that the quarter being examined fell during a period when SAPO was struggling to raise funding, and had experienced other issues. These had subsequently been resolved, but the results would not yet reflect income now being received. The agreement SAPO had managed to reach with labour had been a huge step in the right direction. It had received Section 12 approval for the licence application, and this set Postbank on a much more determined path to review its banking licence. The coming together of all these matters had given SAPO a new impetus going forward, and the real work now started. The end of the first quarter indicated some areas where it had fallen behind, and there was hope for improvement as it proceeded through the year. Unfortunately in the world of business, when revenue had been lost during a period, it was not easy to pick it up, and in some areas SAPO would fall short for the rest of the year.

Mr Mark Barnes, CEO: SAPO, said that even though this was not a typical quarter, SAPO was a stable organisation with a relatively stable workforce. It viewed Postbank as an integral part of addressing economic inequality in South Africa through its extended rural network. Postbank’s progress was important, and a third of SAPO’s income was anticipated to come from it in due course. This was good progress, but it was yet to materialise.

Importantly, in so far as SAPO had access to capital, it was in a stable financial position. It had creditors that grew at R120 million a month. Quite a substantial amount of its outstanding creditors had been settled, and the net figure was down. Some money had been received late, and SAPO would try to do things right rather than just do things because they were programmed to be done. Its decisions about spending money were taking a little longer. Every coin was being turned around more than once, and SAPO was going to the root of whether it should spend money at any point in time. Essentially the return of confidence had been delayed, and tracking against the budget had got off to a delayed start.

In July there had been a CEO breakfast meeting with SAPO’s top 20 clients in Gauteng, and the response from clients who had previously done much more business, had been overwhelming. SAPO had a commitment that a lot of that business would return, and it was working in partnership with its 20 major clients. For instance, SAPOs used to have 60% of the market for the delivery of pharmaceuticals, and it now had just 1% of the market. With the first proper client engagement, the fruits had resulted in a work in progress. In the detailed supporting documents there were specific client names, but the confidentiality of those negotiations must be respected, since SAPO operated in a competitive environment.

SAPO had dealt with the termination of 227 employees who had participated in an illegal strike which was an intimidating action. It would not tolerate that, since there were proper processes for dealing with industrial differences, and they would be dealt with only in that way. The head count was down, since SAPO had lost some critical skills over the last year, but not as many in the last quarter. The voluntary service package, which had been anticipated to get about a 20% response, had been much less, even though it was off a lower base. This could be an unintended consequence of having a settled labour force, and fewer people were leaving and more were choosing to stay. What SAPO did with these people mattered, and it was not so much about the numbers.

The interview for the appointment of a CFO was in its final stages, and most of the interviews had been done last week. There were three more to do next week, and then a decision could be made. The mandate for the appointment of the CFO had been signed only about a month ago, because SAPO had not settled that particular service provider. An acting company secretary had been appointed, and the Board had taken the decision to outsource that function because it was a professional function that SAPO did not need to perform.

The performance contracts were complex and taking more time because processes should not be continued repeatedly just because they had been done in the past. Some of the structures in the performance contract were not balanced. Staff could fail, and nothing happened, and it was the same when one passed. There needed to be a balanced scorecard that said if one did well there was a consequence, and if one did badly there was a consequence. Some of these structural elements were being reviewed, and therefore it was overdue and not complete.
All the funding had been raised, and SAPO could be reprimanded for not spending money. In the financial overview, revenue was below budget at about 80% of budgeted revenue in the main businesses. There were some management leadership issues that were being dealt with. The real challenges lay in the parcels and logistics business, and that was the business where SAPO had the most competent competition. It did not have significant competition in mail, although there were top international players in the courier and parcels market. Therefore, regaining the confidence of the market was taking a little longer, and it was taking some time to convince clients using DHL or RAM to come back and try the Post Office. SAPO had to build up from a confidence deficit, while dealing with this world-class competition. The service had been tested by the Minister posting a cellphone to the Post Office, and it had arrived there intact and on time. The Post Office should be, and had to be, agile and competitive.

At the expenditure level, the most obvious problem was still the percentage of staff costs in relation to revenue. The solution did not lie so much in the reduction of costs going forward as it did in the growth of revenue, which was the strategy. Expenditure in transport had been reduced due to a rationalisation of routes and the use of smaller vehicles, as SAPO was operating below capacity and changes were necessary. As far as cash flow was concerned, the year to date loss was well behind what had been anticipated. A budgeted loss of R375 million had been anticipated for the first quarter, and there had been a loss of R260million, which was an improvement on the previous year. It was foreseen that the Post Office would be profitable by 2018. A projected loss for this current financial year was still being budgeted. On cash flow, the R700 million inflow included R650 million of equity apportionment to the Post Office.

There was very little going on in investment activities, and there were two or three reasons for this. The first was the re-evaluation of the entire IT programme. There were a lot of legacy systems in IT, and SAPO was changing the focus of the Post Office. In an assessment, it had been determined that it would not be fruitful for SAPO to update and add capacity to all the ordinary mail systems, since there were new technological solutions to the delivery of e-commerce financial services and mail. SAPO had engaged with some of the top players locally and internationally in the ICT world. Many of the solutions for e-commerce did not lie entirely in the IT environment in which the Post Office found itself. This meant that upgrading old systems for a new world was often not well thought through, when off the shelf existing systems, maintained by others at a much lower cost, could be purchased. There was a mixture of outsourcing and in-sourcing happening in IT.

Mr Barnes said that with a different Post Office focus, SAPO was determining whether expenditure was revenue generating. One would see there had been great hesitation on his part to spend money just to update the past, when it was not a reflection of what he anticipated the Post Office to be in the future. A lot of partnerships had approached SAPO, particularly in e-commerce, where local and international players were offering various solutions that would involve players like Amazon and Alibaba. A lot of that could happen in the ‘clouds’, with domain names like, and the organisation was modernising its thinking around spending, rather than just upgrading the past. SAPO was an organisation that was in the present and it needed to spend money for the future and not just the past.
Subsequently, there had been a delay in investment expenditure and a lot of work and time had been spent on procurement processes, amongst others. There were now various rules in the procurement process affecting matters like market price, and SAPO now ascertains fair market value externally and objectively. That takes a little more time, but it eliminates the possibility of corruption, since it is paying for what it gets. Rules and changes were being made in the organisation and to the processes that would serve organisational fitness going forward, and these might delay it getting on to the road.

All outstanding creditors beyond 90 and 120 days had been settled, and this was a time-related necessity because of the interest that accrued. The Courier Freight Group (CFG) had been dealt with.

SAPO did not expect a transfer of staff for Postbank, but simply that the transfer must happen according to the timetable sent. The strategies and outlines for the role the bank could play in the South African context had been submitted. Not having performance contracts signed was an issue of compliance that was being dealt with. The creditors were under control, and labour was happy for the time being. SAPO was taking time to decide how to spend money, and the key appointments were on track. Branches were being visited to try and restore a culture of high performance. Over the past ten years, people in the organisation may possibly not have worked beyond 10am in the morning, and it was a challenge to change people’s expectations and to fill their day with work. There was specifically an inward focus in the organisation, and individual meetings were taking place to make progress and changes.

State Information Technology Agency
The Chairperson said the SITA presentation had been changed after it reached the Committee, and stressed that once a document was submitted, it must not be changed. Making changes affected the Committee’s preparations and denied Members an opportunity to verify the information, since it would be seen only at the meeting.  .

Mr Zukile Nomvete, Acting Chairperson: SITA, apologised for the updating of the two pages. He stressed that the organisation was trying to turn around the previous poor performance since the beginning of the year, and in this first quarter. New operating models were being put into place, with consequences, and some outstanding issues were being addressed. The backlog had almost been wiped out.

Dr Setumo Mohapi, CEO: SITA, said that in the annual performance plan (APP), the targets were related to financial sustainability. There were four that dealt with the gross margin and capital expenditure. Service delivery had eight targets, procurement five targets, infrastructure three targets, government and administration three targets, and organisation two targets. Progress on the organisational targets had been fairly subdued because it had instituted a full investigation into its human resources (HR) environment through the board. There had been a number of resignations, as well as suspensions. Costs and instability had been managed, but it was addressing issues and there were still problems.

The organisation was measuring itself against 24 quarterly targets, and there had been a bit of progress in activities. In service delivery, two targets related to e-government had not been met and four out of the other five targets had been dealt with. A number of programmes with different aspects of e-governance had been handled, including big and complicated designs related to work automation and service delivery interface.

The data that was public should be looked at to create information, with the idea of providing it to different government departments for policy making. This idea had been tested during the last financial year with the admission systems, and creating a system profile of individuals to draw a history. A profile could look at what happened in individual schools with students’ annual results, and as they exited the schools’ education system and came up later in the higher education system, they would also be profiled. Once one had that data, it could be used by every department.

The next stage was putting in the right structure to provide the full business capability for government. Everything had now been converted to e-government, and there was the ability to deliver on target. With the satisfaction index, SITA had the ability to make proper programme plans using data that had been collected in 2013 to create practical problems on how to improve service to customers. With infrastructure, two upgrading targets had been achieved for the quarter relating to the modernisation and stabilisation of data centres, and preparing disaster recovery (DR) facilities for government and provincial departments. A full DR test had been run for all national and provincial government departments.

There was a realisation that audit issues from the AG facing government departments were about the inability or lack of DR facilities and DR services. SITA had come up with a completely different approach to provide cover for all the national and provincial government systems. The final designs of the school tier-three data centres was moving a bit slowly, and many of SITA’s customers were looking for tier-three data centres, and these were expensive to sustain. SITA was looking at the market and making the best use of what the market had. Overhauling its service storage environment was a long term project. The aim was to do a complete overhaul of the IT environment so that it was more cost effective and had more cloud-based environments.

With procurement, two out of five targets had been achieved, and the corporate plan had not been achieved. There had been a turnaround on tender processes, and there would be full automation of procurement processes. National Treasury had officially asked SITA to implement an e-commerce platform, and all procurement for government and all SITA’s procurement vehicles would be put on to that system for the financial year. Part of the evaluation had been to create a business case to acquire the rights to systems used by most government departments for procurement, and to modernise to e-commerce, and that would be the medium to long-term solution for governance and operational efficiencies.

Through the board procurement committee, savings on ICT goods and services had been dealt with. There had been a process of high level negotiations at the end of the procurement chain. SITA’s last procurement had also supported the specialised skills initiative, while at the same time, research and benchmarking had been done.

Expenditure on SMME enterprise development had been below target. The programmes had been conceptualised during the quarter, and all nine policies except one had been implemented after the quarter, and only Limpopo had not been done. A lot of insight had been gained into corporate programmes for SMMEs in a different way, considering the geography. The foundation for the enterprise development programmes was looking at working with the large original equipment manufacturers (OEMs) in particular. They had agreed to create special training programmes that resulted in certification that took into consideration the geographic distribution of SITA’s network suppliers.

In financials, three of the four targets had been achieved. Looking at the balance sheet, there had been a shift on SITA’s current assets, with more of its receivables in the quarter, which traditionally happened in the first quarter. It still represented the previous term’s consumer services’ income. Contracts with SMMEs were typically signed in the third quarter of the financial year, and that normally depleted the cash. The figure was going to be reversed by the end of August, since SITA had signed much earlier than normal, so it would be similar to the end of the financial year. The gross margin was above target and the gross margin numbers were driven by a few major items, which indicated a problem in the area of operating costs. The software licences, maintenance of equipment and labour costs that were too high for the kind of work done, were reflected in the expenditure. There were a substantial number of contracts that would be expiring during the financial year and SITA would not have a problem maintaining gross margins. The earnings before interest and taxes (EBIT) were below target, but SITA had a handle on the operating costs, and the programme was going well.

Universal Service and Access Agency of South Africa (USAASA) and Universal Service and Access Fund (USAF)
Mr Mawethu Cawe, Acting Chairperson: Universal Service and Access Agency of South Africa (USAASA), said that the last quarter of the year had been an extremely challenging one, with a CEO who had been off sick, and the termination of the company secretary. The present board had started in September, and had an 80% achievement rate. It had had to navigate the business and focus on what USAASA as an organisation was. The board had navigated through those turbulent waters and were able to report on quarter one, which provided a base, and by the fourth quarter there would be momentum. What had helped had been the AG’s audit findings which had been taken heed of. A public session was planned for later in the month. The public processes were being respected, and leadership stability, through filling almost all the vacancies, would show more improvements.

The Chairperson thanked USAASA Board for writing to inform the Committee about the new appointments. This was appreciated since this was the first entity to do so.

Mr Lumko Mtimde, CEO: USAASA, emphasised that this quarter one had not been ideal and the organisation’s performance had not been great. Of USAASA’s 12 planned targets, only four had been achieved. Nearly all of Universal Service and Access Fund’s (USAF’s) targets had not been achieved and there had been two very poor performances caused by external factors that had affected its programmes.

In IT and human resource provisions, there had been interventions to fast track and achieve in quarter two what had not been achieved in quarter one. Except for IT, the challenges were based on the work of the Organisational Development (OD) process and the Enterprise Resource Planning (ERP), and once these were concluded some of the targets would be achieved, and then ERP could go live. The legal division had performed well, while the research division had not, and interventions had been planned. Part of the interventions were about changing the organisational culture, since it may have been influenced by issues of instability and leadership, which had now been resolved.

The new CFO would be announced soon, and this had created stability and certainty that should assist to drive high performance in the organisation. Implementation of the stakeholder strategy and promoting awareness had started, and some targets for stakeholder engagement had been achieved. Corporate governance had been part of the new focus to ensure that governance and systems were in place, and doing well. The AG’s report was assisting in identifying gaps, and what gaps to close. Action to mitigate problems was expected be completed in quarter two, as per all the intervention targets. In the quarter, USAASA had achieved a financial performance of 83%, which appeared reasonable. However, it was performing well financially only in administration, and that was not good, since other programmes were not performing and interventions to help were being adopted.

With USAF, most of the targets for broadband roll-out were dependent on a competitive billing process. USAF was almost at the end of that process, and the setting of those targets would start from quarter two. The digital migration project target had partially been achieved, and principals were being engaged to resolve and get direction, to manage and mitigate risks, and to roll-out the project. The programme was affected by legal issues, and resolving legal issues around the broadcasting digital migration project would assist the country in utilising spectrum, help roll-out broadband and meet targets in South Africa. The spending trend in this project had improved the backlog, and it would be affected by the suspension of the production of set-top boxes, arising from the order issued by the Supreme Court of Appeal. Some audit findings had identified certain plans as not being ‘smart’ enough, and USAF would report back to the Committee and the Minister to respond to some of the audit findings about the APP. To avoid poor performance in this financial year, USAF planned to amend the APP.

The Chairperson said the Sentech Chairperson had sent an apology for not being able to attend.

Mr Mlamli Booi, CEO: Sentech, said the contribution by the DTPS of R100 million for additional dual illumination funding had resulted in the higher than budgeted revenue received in the first quarter, and it would be amended to reflect this contribution. Community radio stations struggled to pay the Sentech tariffs, and in the first quarter of the financial year, Sentech had made a contribution of close to R1 million toward their tariff payments. During the financial year, some Sentech customers had also been terminated since they could not pay their shortwave tariffs. Not many people were using shortwave, especially within the Southern Africa region, and the product had been struggling because the technology was outdated. TV continued to contribute to most of the revenue.

Total expenditure had been 3% below budget due to savings made in the first quarter, and there would be a catch up on planned projects for the financial year. The first quarter usually had a slow take-off because of incomplete planning in the previous financial year. The EBIT was significantly ahead of budget, due to deferred operating costs.

One out of five of Sentech’s operational areas had not performed according to the targeted network availability, since the equipment used for that service had reached the end of its life. A new plan was being implemented to enable the organisation to have improved services by the end of this financial year.

The nine APP targets in the financial year were big, and were broken down into sub-components, seven of which had to be completed in the quarter, and 71% had been achieved. Five had been completed and two were partially completed. The two targets not achieved were the performance ratings, which had been a problem for a number of months or even years, and it had come to an end in July. Sentech was within target for the committed operational targets, and all the set targets would be in the next quarter report.

The trade union had required a 13% increase for all their workers. A resolution had been reached and workers had continued working, which helped improve operations at Sentech. There was now documents management and agreement in the organisation, that without performance management being done, there would be no rewards. In the first quarter, an important submission had been the completed business documents report. The corporate plans and targets presented to the Committee at the beginning of the financial year had been based on what was committed to earlier in the year.

Sentech was in the process of recruiting a CFO, and the interview process had started on 24 August. The incubation programme with ten small and medium enterprises (SMEs), which teaches them about business and how to do business within the ICT space, would be completed in this financial year. Sentech had moved from a BEE level of five to a BEE level of three, and was targeting to get to one in the near future. Sentech’s viewpoint was not to have any business dealings with any company that was not interested in being transformed. Early target payments were done within ten days of the finalisation of an invoice, and in most cases obligations were met within 30 days to prevent the collapse of suppliers’ businesses.

The AGM had been targeted for 29 August, but had taken place on 19 August.

Broadband Infraco
Mr Mandla Ngcobo, Chairperson: Broadband Infraco, apologised that the financial officer could not attend the meeting, and said the report had not been completed on time. There appeared to be problems in retaining middle management, but not the top executive members. Revenue had continued to increase and customers now totalled 23.
Ms Puleng Kwele, CEO: Broadband Infraco, said the APP had been tabled late. Revenue optimisation was critical and the organisation’s focus was on retaining customers in the network and to achieve financial sustainability.

The executive team had looked at the organisational structure within the sales environment, the support required, and how to rationalise revenue from other environments. Costs would continue to be optimised, and collection of revenue from customers would be timeous. The target had not been reached in this quarter, but it was anticipated that as the year progressed, revenue would change. Payment to creditors was made once the organisation was certain that the purchased equipment worked, and implemented projects were paid for on achievement of milestones.

Ensuring a secure and sound labour relationship was also crucial, and the aim was to prevent accidents going forward. In the first quarter, an employee had been injured in the office and that was why the organisation had not achieved its target. Ensuring that employees were equipped to face and deal with the challenges of the organisation was being ensured by investing in the continuous training and development of employees. To bring SMMEs on board, a focus was to ensure they received training on occupational health and safety-related matters for certification, and to promote economic transformation. Tracking this achievement and the number of indirect jobs created was included in the report. With regard to Broad-based Black Economic Empowerment (BBBEE) achievement, the entity looked at levels of ownership and individual entities, and entities with people with disability remained a challenge. Corporate social responsibility investment would be ongoing, and the organisation aimed to continue improving the learning environment at a school adopted in Limpopo.

Infrastructure projects had been running continuously since last year, and were customer projects that were on track. Money was being spent in areas that would provide revenue, and a process to engage with equity was critical. At the end of the quarter, cash stood at R81 million, and prudence was being applied to ensure that everything done was optimised. In 2014/15 there had been a R240 million loss, but the loss had been R90 million for the past financial year, and the organisation wanted to ensure that the financial position became positive. Funding efforts and key engagements were focused on the government-owned Development Finance Institution (DFI), the Industrial Development Corporation (IDC) and the Development Bank of South Africa (DBSA) for required project financing. The environment was capital intensive and infrastructure for the network was needed on the ground, and a priority was to engage in loan conversions with the shareholder.

In the APP corporate plan there were eight executives, and the structure had been rationalised and reduced through the resignation of some of them. There were six vacancies, since there should be 19 senior managers, and currently there were 13. The operating environment needed engineers and technicians, and hard work was being put into attracting employees, and the uncertainty sometimes projected in the media created challenges. Where employees had left the institution, talent from within had been promoted, following due HR processes.

The IT Sector Education and Training Authority (SETA) had provided money to train 15 interns and these interns would complement the 155 staff of the organisation. The employee to revenue ratio was at 28%, because of revenue delay. The multiplier conversion of the levels was R30 million, and R10 million had been spent on BEE in the quarter. There had been two external audit findings, with one from the previous period including this period. One would be an ongoing concern until cash issues were resolved, since the organisation needed cash to cover itself for the audits to be signed off, and this was achieved in the 2015/16 financials. The second audit finding, a repeat, was the memorandum of incorporation between the shareholders. The five audit findings and the rest of the audit findings from the last financial year were closed. For the current financial year, the five new findings had to do with performance information. Policies were being reviewed to ensure that proper governance was instituted. There had been no irregular expenditure and operational risks, especially as revenue was managed on a weekly basis, and strategic risks on a quarterly basis. Managing these risks ensured operational stability and labour stability, to achieve financial sustainability.

The Chairperson indicated that she had just been informed that an updated version of the circulated document would be distributed. She did not know whether they had revised the submitted document because the presenters had indicated changes to the document. Members should follow their notes of what was received and take note of what changes were made to the documentation.

ZA Domain Name Authority (.zadna)
Adv Motlatjo Ralefatane, Chairperson: .zadna, said she was on an awareness campaign about the industry since it had previously been a private industry run by the private sector as it pleased, and was not regulated. Just under a decade ago, the government had seen a need to regulate the industry. .zadna had been formed when the government decided there was a need to regulate it. When .zadna was formed, business had not been sure about what was going to happen with the industry, and it aimed to give the private sector an assurance that it was here to regulate and protect the industry, and that government and private industry needed to work together.

In the APP for the financial year .zadna had had licensing as its main function and the organisation was eager to issue the first licence soon. The delay was because of the impediment of the legislative framework, and alternative ways of doing it were being addressed. The organisation had two employees and a CEO, and was in the process of being transformed. The new board was studying how to serve the whole country and wanted to improve its functions, and would continue to report on transforming the organisation. At the end of August, there would be interviews to appoint staff, since there had been an issue of under-staffing. It had been delayed because of legislation in a new industry and benchmarking had to begin. In quarter one, targets had not been achieved.

Mr Vika Mpisane, CEO: .zadna said the annual and quarterly targets were about monitoring the .zadna-signed operating agreements and their implementation. This target had been achieved and .zadna was continuing to measure the systems and operational performance of the entity. The organisation had almost completed the target of standardising the policy framework for each level. A lottery charter had been set to be released for consultation in quarter one, but it had not been achieved because the current lotto administrator had raised certain rights-based issues. The issues were being addressed in the current quarter and the charter was about ready for public consultation.

Strategic goal two referred to compliance with international best practice as stipulated within the Act, and the implementation of internet domain infrastructure. Domain Name System (DNS) was a technical standard being implemented in the domain name space to generate it quickly when going to a website that ends in .za and there was sign or a certain mark at the top that indicated you were in the right website, and not a fake official website. This project had been moving slower than anticipated, and targeted websites had started deploying it and doing awareness studies. When technical tests were done, it was realised more technical tests were needed than anticipated, and this had caused a delay in the awareness campaign which would start shortly.

The organisation achieved its target regarding uninterrupted zone file management, a basic zone file without which it would not be possible to have email addresses or websites that end with .za. The goal to use, and make sure infrastructure kept running, had been achieved. The licensing of registries and registrars had not started yet due to certain impediments and gaps that were being worked on, and consequently the policy environment was being analysed to see how much it could assist.

Registration guidelines had been published on the website and the guidelines were for public information purposes. Enhancing public awareness had substantially improved compared to last year with the appointment of the new board. Two awareness events in two provinces were planned and presentations were held in five different provinces. Awareness campaigns were also held in North West and Nelson Mandela Metro, and two others took place in Gauteng. There were also aspects of business and domain name trading, and this was where the registrar training came into place. The scope had been finalised and was still being tried out at a Further Education and Training (FET) college. A school website had been published in the Eastern Cape as part of a social awareness responsibility centre and a number of websites would be done for schools across different provinces. This project had a lot of interest and there was a limited budget to do it. More projects would have been done in the Eastern Cape last quarter, but in other provinces information about schools was not that readily available.

One of the key questions coming into play was the research report on second level registrations that would be carried out from the current quarter into the next quarter. This related to entities used to registering, for instance, as, and there had been increasing requests to just have a web address This had been happening in the UK, New Zealand and Australia, and areas of the research report would look at this and release it later in the year. There was also domain name registration on websites, for instance,, that outlined how many names had been registered on a daily, weekly and quarterly basis.

.zadna had targeted an internal governance engagement scope, defining the entities it wanted to work with and the issues to be covered. Some reports were being prepared for the national internet governance forum, and it would be part of the African internet governance forum later this year. Participation, key internet policy processes and related processes were continuously being enhanced and analysed, and a report had been prepared and could be passed on to the DTPS for public policy.

To ensure dispute resolution decisions were accomplished in time, work was undertaken on a 24-hour basis and when dispute decisions were received they were published on the website on the same day. For each dispute that was resolved, 10% of the dispute fee R1 000 had to be paid to .zadna, and it was collected on a monthly basis. This fee was set aside in a separate subsidy fund account for people who may want to lodge disputes, and lacked the funds to pursue them.

Strategic one level was about ensuring that the organisation was sustainable in business. The target for financial sustainability was making sure revenue was collected on a monthly basis and that expenditure remained within budget, and to increase the registry fee. In the last financial year, the Department had worked with and given .zadna considerable advice about internal policies, such as risk management policy, and corporate governance framework. A number of efforts had been made to close the gaps and these have been used to come up with policies.

The improved human resource development strategy target that had been used was incomplete. Interviews were planned for next week and four new people should be joining the organisation in October. The internship programme scope had been finalised and an advertisement was currently on the website for about four to five people in areas related to communications, awareness work design and technical skills.

The revenue received for the quarter from domain name registration had been R2.6m, and there had been a deficit of R623 000.00 which was lower than budgeted for. The agreed fee .za paid had increased and it was being assessed to ensure that it did not ruin them. The feeling was that the higher fee charged by .zadna would probably constrain their organisational capacity. The agreement with .za had a dispute resolution process that .zadna hoped to deal with as soon as possible. All the assessments had been done and it was believed the fee would not ruin .za. The fee was very important for .zadna to achieve its set targets. An important project for .zadna was transforming the sector in participation and domain names, though the budget was limited. Areas of duplicated work had been identified and would be dealt with quickly, to hopefully recover the deficit.

There had been under-spending for the quarter was because of two delayed staff appointments, which had also caused a delay in the number of programmes. There was also a commitment to save and reach a contingency reserve level of around R10 to R11 million.



Ms Tsotsetsi inquired about the Post Office reports.

Mr Barnes said R600 million came from private sector revenues over a year, and it was difficult to be predictive about that in an economy that was growing at less than one percent. R50 million per month for a year -- call it R60 or R70 million a month for the balance of the year -- was not an unachievable target. It was ambitious, perhaps, but not unrealistic, and in a properly functioning post office these were not big numbers.

Mr Mackenzie inquired whether it was the intention of the Post Office to close the courier freight group and absorb its operations completely into SAPO.

Mr Barnes responded that this was a matter in progress, and CFG would be closed and entirely absorbed into the post office, and all employees and all the assets and liabilities would be transferred across.

Mr Mackenzie asked if there were any financial penalties that might possibly be imposed by ICASA for failing to meet mail delivery standards, and if this was factored in.

Mr Barnes said ICASA did not levy financial penalties for lack of delivery, though there were debates with ICASA about the reserved areas and SAPO’s licence fee in relation to that.

Mr Mackenzie queried how much of the R729 million of SAPO creditors was more than 30 days, and the current position, since it was stated there had been a drop.

Mr Barnes said that of the R729 million outstanding creditors at this stage, R220 million was less than 30 days and R509 million was greater than 30 days.

Mr Mackenzie pointed out that the Postbank’s revenue showed a variance of R22 million and declining revenue over the last four years, reducing from R69 million to R42 million. What were the reasons for that? Would it be reasonable to assume that the improvement in the net loss was a result of declining revenue, since there would be less costs involved in servicing falling revenue?

Mr Barnes said that as far as Postbank’s revenue was concerned, it had reduced primarily as a result of a drop in transaction volumes, but not as a result of other profitability. It was an area where SAPO was starting to spend money in anticipation of its future role. There were only two factors that affected the Postbank right now, and one was interest rates. There would be some interest rate movement, since SAPO took deposits and put them on deposit. There had been a reduction in transaction volumes and it was found that many of SAPOs clients deposited their salaries at the beginning of the month, and then them it out the next day to service loans or other requirements. That had resulted in a reduced transaction flow within the bank. Whether the improvement in the net loss was due to declining revenue should rather be linked to hesitant expenditure, more than declining revenue. The observation was correct that the declining net position was looking better, and the short answer was that SAPO was behind in its expenditure because it had hesitated on expenditure. SAPO was not prepared to spend until it there was revenue behind the organisation.

Mr Mackenzie questioned whether the multi-million rand investments and systems conversions to cater for set top boxes had been factored into plans for IT systems, since this would impact on any systems or IT systems development going forward. When the Committee had gone on oversight to Limpopo, the Post Office had raised the matter of having on-line, straight line connectivity from post office to post office. Was there a strategy to mitigate, or plans in place, so that if one on-line post office went down, it would not affect all the other post offices’ IT systems availability?

Mr Barnes responded that SAPO incurred all the expenditure for IT set top boxes. SAPO only saw itself as a delivery agent and would not do anything not commercially reimbursed for in that project. Post office to post office connectivity had a tender out for the upgrade of the network into a hub and spoke situation, and the outcome of that was pending. IT outsourcing discussions were currently taking place, and part of the strategy was to close the doors to any outsider discussions for the first six months at SAPO, to understand its position before it got involved in outside engagement.
Mr Mackenzie said that in previous presentations, much had been made of public private partnerships (PPPs), and wanted clarity as to the importance of PPPs as a way forward, as it had also been publicly emphasised by the CEO. He enquired whether the CEO had signed a performance contract.

Mr Barnes said PPPs were a big part of the future, particularly in e-commerce. In the course of the last month, he had had four quite in-depth discussions about PPPs, particularly in the e-commerce space, where SAPO did not think it could play catch up. There were world leaders in that space and SAPO would like to partner with them.

He said that he had not signed his performance contract and that essentially his performance contract was a reflection of the adherence to the corporate plan, and was self-judging.

The Chairperson was concerned about investment into the future, and wanted it to materialise through work in progress to see what was being done to sustain the business, and to see a secure future for SAPO. The Committee was pleased that the previous environment of salary non-payment was stabilising, as well as the legal environment, and wanted SAPO to now start delivering and moving into the future.

Ms Tsotsetsi suggested that when paying artisans commission, SITA should provide ID numbers and bank details. She asked about the new IT service delivery model, and to what extent the design and implementation could deal with hacking.

Dr Mohapi said the audit report outlined employment from the Agency. SITA would provide a layer of standard protection by the end of this financial year and special procedures and provisions would be made for all government websites.

Ms N Ndongeni (ANC) was concerned about the cost of service and cost problems, and asked SITA what it was doing about this. She asked about the current situation on staff turnover, since it had been one of the biggest problems in the organisation.

Dr Mohapi responded that the cost of services was a sore point -- for example, the cost of laptops being used. He said staff turnover for the quarter was 1.1%

Mr Mackenzie asked whether SITA had set a target date for procurement to be completed, to counter problems of the past, Going forward, e-procurement would be a very important part of strategic plans.
Dr Mohapi said SITA had a new procurement vehicle and online e-commerce buying would be fully operational by the end of this financial year. SITA had published its procurement plan, and automation of the procurement process was fundamental. The system required licence conditions for all government departments. By the third quarter, most of the SITA contracts would be transferred and all the IT contracts would be in the system. By next year, all national departments’ requirements would be addressed. The new contract allowed for quarterly updates, and the intention was to consolidate and then negotiate using the g-commerce platform that allowed departments the freedom to buy, but off a very structured system.

The Chairperson was concerned about SITA’s procurement, which had been an ongoing audit issue, and the current two out of five achievements, and wants this monitored so that it did not become an audit issue at the end of the financial year. The Committee would try to arrange a meeting with SITA and if not possible, they would engage with all the issues when the annual reports were done. She had doubts, because of the letters from various portfolio committees, with complaints and requests for joint meetings because of SITA, and made reference to Home Affairs. She was satisfied with the issue of higher education, and requested details about the issues raised within the Department and how they had been resolved. The report was important for the Committee, and if it could not be done within this term, it must be done and ready by the beginning of the next term.


Ms Tsotsetsi said USAASA had not met a number of targets in quarter one, and asked if they had the capacity to meet their commitments in quarter two. She was concerned that middle management was not staying and asked whether the contributory factors were ever investigated, and what was being done to retain skills.

Mr Mtimde responded that the unmet targets would not impact negatively on the organisation’s capacity, since they were able to function with the capacity there was.

Ms Shinn queried set top boxes, saying about R187 million had been spent on set top box subsidies involving over 14 600 boxes being procured. She stressed the boxes should not cost more than R700, but so far it worked out to R12 800 per box, and an explanation was needed if there were other costs. She requested an explanation for the difference between environmental rights and an environmental impact assessment (EIA), and why an EIA was no longer necessary.

Ms Mogotso responded the R187 million was comprised of R179 million for the actual procurement, and R8 million for installation, and these funds had been rolled over from previous years. The target spoke to 14 000 set-top boxes that were to be procured in the quarter, and went against the R589 million allocated for this year, and there had been no expenditure against that. She explained that EIAs were a major element in the procurement process and were meant to be done within the first quarter. As an alternative, USAASA had engaged with the Broadband Infraco centre to use their masts and existing infrastructure, to avoid having to go through EIA applications.

The Chairperson noted the revision of the corporate plan and had various concerns. The Committee also raised quite a number of issues. The first issue was the duplication of USAASAs work -- for instance, licensing a project in the Eastern Cape was a duplicate of the Department’s project. A request had been made to remove that from USAASA’s plan, and if the Committee made an allocation and that had been the condition for approving the budget, that needed to be reflected when reporting, and this would be monitored. The Committee had raised a number of issues around staff expenditure that was sitting at 60%, and a start should have been made to deal with it in the first quarter. Going forward, this was expected to be reflected. The current budget plans reflected spending of almost 60% of the budget on remuneration, rather than on projects, and this was being flagged, with feedback expected. There was also an issue around connectivity and the challenge of resources, and there appeared to be a gap between ICASA and USAASA.  The expectation was engagement with ICASA, yet no explanation had been given. The Broadcasting Digital Migration project had to be dealt with in detail, and time was needed to do that.

Mr Mtimde responded that the organisation had submitted information about the board, and that the corporate plan was being revised. They would look into the APP and the ratio question, and see to what extent it could be managed better. In terms of the broadband rollout, what was in USAASA’s plan complemented what was in SA Connect’ and it was not a duplication. For example, Mhlontlo and King Sabata Dalindyebo (KSD) were not in the SA Connect plan, and it was what the DTPS would be doing. The DTPS had instructed USAASA to specifically deal with these areas because it was not covered in the plan of SA Connect, and it was complementary rather than a duplication. There was a scheduled meeting with ICASA where a range of issues would be discussed, including school connectivity, the gaps referred to, as well as the obligations imposed and the different roles. Questions around the user fee and the plan for discussing BDM were welcome, since it was affecting USAASA’s performance badly and it would be good to resolve the matter to measure performance against planned objectives next year.

Ms Tsotsetsi wanted clarification from Sentech on the timeous payment of creditors, since there was concern about late payments to SMMEs and how this could affect them.

Ms Shinn asked Sentech where the funding to do illumination had come from and how much had been received, since both budgets presented to the Committee had indicated that there was absolutely no funding to do illumination.

Mr Booi said that corporate funding of R100 million had provided Sentech with R87 million net towards covering costs, and it had come from the Department.

The Chairperson was pleased about the stability of the legal environment and human resources, and said working conditions would continuously be monitored.

Broadband Infraco

Ms asked how BBI measured the number of indirect jobs created, and whether these jobs were permanent and sustainable. She wanted to know if there were negotiations or discussions between the entity and any private sector company to buy Broadband Infraco, since a journalist had called and given names of companies.

Ms Kwele explained that the indirect jobs were created through the Broadband Infraco suppliers. Right from the outset of the contract for fibre installation or other installations, suppliers were aware of this issue. Information was requested from suppliers so that the organisation was certain about the jobs being created. For example, a supplier in North West had created temporary jobs that later became permanent jobs, and this information could be provided. She had also received a call from a journalist enquiring about the sale of the company. As a board member she was not aware of any discussions, and that was for the shareholders to decide.


Ms Tsotsetsi asked .zadna what had been achieved at the public schools in the Eastern Cape, and what was being done to improve spending, promote innovation, and ensure that targets were achieved.
Mr Mpisane said that in the Eastern Cape, school websites were published and it entailed acquiring and providing school information from the school itself, such as the classes, teachers and activities. He felt as an organisation they should take a social responsibility approach to the business, and they were not outside their mandate with the school’s website, since awareness was part of their activities.

Ms Ndongeni enquired about the number of vacancies in the organisation, and asked for the location of their office.

Mr Mpisane said four vacancies were being filled. There were two manager positions --  a policy and regulation manager, a name space development manager – as well as a communications and awareness coordinator, and two junior office administrator positions.

Ms Shinn pointed out that the .zadna staff complement was not much more than the nine board members, and asked whether it was doing anything to reduce the number of board members. She felt that the organisation should not exist.

Mr Mpisane responded that there was a role and function that had to be played by someone, and government itself would play that role .Zadna should not be a private entity.

Mr Mackenzie suggested that the Chairperson of .zadna should look at the reporting of other departments’ plans, because there was quite a comprehensive set of financials, and when reporting next time, more of that was necessary. Financial performance had also reflected the achievement of a registry fee increase, yet there was also a dispute going on, so how did that dispute affect the registry fee increase which had been shown as an achieved strategic goal?

Mr Mpisane stated they would provide the quarterly detailed financial information in the next report. He said the registry fee increase had been under the .zadna business sustainability fees, and that had been the target, and it had been achieved. However, while the matter was subject to a dispute, there would be a collection deficit.

Ms Shinn said that .zadna was doing things the organisation should not be doing, such as developing websites for schools, and they were not website developers. She pointed out that in the presentation that had been withdrawn, there had been two events in different provinces and another five events in other provinces. She asked what those events were, their relevance to Internet Service Providers (ISPs), the audience, and what essentially had been achieved through these events.

Mr Mpisane stressed that .zadna did not duplicate work done by others. When a school had a computer lab but no website, the organisation provided them with a .za website that they could run themselves and register in the future. This was linked to the .zadna awareness campaign and the importance of a domain name, including the mandate of growing the .za name space. What was important was to detail the function and the working of the internet from its root form, and it included the IP address and the domain names. Among the five events organised by .zadna, a presentation had been held in Port Elizabeth, in association with the local chamber of commerce and industry. From a business perspective, the aim was for business organisations to understand a domain name, choosing a particular domain name, and what this entailed. Some events had been done in partnership, and others were collaborations, such as exhibiting and participating in presenting those events.

The Chairperson reiterated the concern about the number of staff versus the number on the board, and said it required a response from the Department. Concerns had been raised around governance, and not the board itself, since the Department was the custodian. She partially shared the sentiments and comments of the Committee, since it appeared as if .zadna was drifting away from its mandate. She appealed to the Chairperson and CEO to get back to the actual role of the mandate and agency. Ways should be found to do public awareness of the entity jointly with other departments. It was not necessary to be everywhere, and .zadna had to remain focused on targets, and on what the agency was. If the Portfolio Committee and Parliament did not agree, there could be no spending and implementation. It was important to look at what the Committee approved as a corporate plan and to pay attention to it. In the future, it would become difficult to approve the plan without corrections and bringing the final version as an assurance for implementation. It must be understood that dealing with the annual plans and budgets was the responsibility of the Committee. It was also crucial to understand the context, including the importance of understanding the Committee’s recommendations and changes, because it enabled the corporate plan, strategic plan and budget conditions to be approved. The process was very important, and the Committee wanted the staff and the entity to function and contribute, and not to develop a lack of trust that made the Committee wary about approval. The issues around BBI had been noted, and the DG should appeal the BBI matter. Although there had been progress, it had not been enough and the issue around BBI must be resolved.

The Chairperson: stressed that when the Department and entities read the Committee’s reports, they would see timeframes. Timeframes were there for specific reasons, such as recommendations for corporate plans and annual performance plans that must be reported to Parliament within three months. She requested .zadna to present the report by next month, since the reporting time was past the first date. She asked all entities to compile reports for submission before the end of September. Provision for the SIU report had been incorporated into the programme, and once the date was confirmed, Members could engage to ensure oversight. She said the Minister had acknowledged the report forwarded by the Speaker.

Mr Mpisane acknowledged that over time it had been a challenge, especially reporting to principals on certain technical aspects, and a workshop could narrow them down to identify the synergies. He noted the comments against drifting away from the mandate of .zadna, and pointed out that of the 11 strategic goals in the presentation being carried out, they were doing what the Act said should be done, except for one.

The Chairperson responded that the CEO had to reflect with the Department on what needed to be done in a detailed way, especially the main concerns. When Members raised concerns, they had to be dealt with in detail for review and overview. The Committee would find a platform to interact in a discussion to identify weaknesses and issues that needed to be addressed, since oversight was important.

The meeting was adjourned.


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