SAPO & USAASA & BBI Annual Performance Plan

Telecommunications and Postal Services

24 April 2018
Chairperson: Mr J Mahlangu(ANC)
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Meeting Summary

The Committee heard briefings from the Universal Service and Access Agency of South Africa (USAASA), the South African Post Office(SAPO) and Broadband Infraco (BBI) on their strategic and annual performance plans for 2018/19.

USAASA said the first of its strategic objectives was improved risk management services. The second was increased use of the information communication technology (ICT) system. It wanted to make sure that all employees made use of the SAP system so that at the end of the month utilisation reports could be gathered, as close to R45 million had been invested in the system. The month end reports would measure how much this system added value to the business. The purpose of Sub-Programme 2: Business Intelligence, was to promote effective and efficient service delivery of universal services and access in under-served and under-serviced areas through planning, monitoring, reporting and evaluation, and research. A strategic objective was to facilitate a smooth transition from the Universal Service and Access Fund (USAF) to the Digital Development Fund.

The functions of USAF could be summarised as that of a facilitator and monitor to improve research capacity on universal service and access, and to make recommendations to the Minister on policy issues. It had a mandate to provide accurate and credible information on universal service and access gaps. A strategic objective was to have increased connectivity through the roll-out of electronic communication infrastructure.

At the outset of discussion by Members, the Chairperson identified a number of mistakes and ambiguity in various pages of the presentation, and said the document was very problematic and should not be used as a point of reference for discussion on that day. He suggested that USAASA get an extension to hand in another presentation by Friday 27 April, and when the Committee reconvened the following week they may ask questions and reflect on the document. His proposal was adopted,

SAPO gave an updated perspective of where it was with its corporate plan:

  • SAPO, as it was currently structured, managed and funded, was not financially sustainable.
  • It had regressed so far technologically, that it simply could not offer a competitive service.
  • SAPO would need to invest, not only in technology, but in its basic customer interfaces, in order to compete on the frontline.
  • There was the possibility of partnerships or joint ventures with established players as an alternative to organic growth.
  • Post Bank had always been central to the diversified revenue strategy of SAPO, with the expectation that it could contribute up to a third of total revenue once earnings from lending became a reality.
  • If SAPO did not initially get government business to help it fund its cost base and required investment in upgrades and growth, it would continue to require direct government subsidies.
  • SAPO could become an investible entity which could attract its own capital and deliver reasonable returns to government.

Members posed questions about SAPO’s funding avenues, staff reductions, delays in parcel deliveries and the possible reintroduction of post boxes, and expressed hopes for a successful implementation of the South African Social Security (SASSA) grant system. The Chairperson commented that it was seldom that Members of different political parties shared the same view -- in this case, recognition of the efforts and passion shown by the CEO of SAPO.

The overall picture of BBI was that they had grown in respect of the traffic on their website, as well as the number of customers. It had grown its customer base from only 11 in 2013 to 30 in 2017, 46 in 2018 and expected to reach 50 in 2019. Its focus areas for the year were the implementation of SA Connect, the National Broadband Network (NBN) company, and its sales, technology and product strategies.

Members commented that although the BBI’s customer base had grown, there had not been significant growth in come. The asked about the pilot project with an open access fibre provider, and whether BBI had considered locating it in a rural area, rather than an urban area. They also wanted to know when its business case for establishing a broadband company – perhaps a merger between BBI and Sentech – would be completed.

Meeting report

Universal Service and Access Agency of South Africa (USAASA): Suspension of CEO

Mr Mawethu Cawe, Chairperson of the USAASA, introduced Mr Sipho Nngqibisa, who was acting as Chief Executive Officer (CEO) in the place of suspended CEO, Mr Lumko Mtimde. Mr Nngqibisa had been chosen to fill this position due to his experience and many years spent working at USAASA (since 2010), and his experience of working at the Department of Communications (DOC) and the Independent Communications Authority of South Africa (ICASA). Mr Nngibisa would carry USAASA while the organisation dealt with Mr Mtimde’s disciplinary process. Mr Mtimde had made an urgent labour court application to come back to his position as well as to interdict his disciplinary hearing based on the legalities he had put forward. The date of the labour court application was 24 April, and the disciplinary hearing would be held the next day.

Ms J Kilian (ANC) asked whether the Board of USAASA had communicated officially to the Committee’s Chairperson or Secretary with regards Mr Mtimde’s disciplinary process. If so, she requested copies of the communication for Members, so that they could have background documentation on the suspension. This was due process, as the Committee held the board of USAASA accountable.

The Chairperson replied that he himself had not received any correspondence from the Board of USAASA concerning the suspension of their CEO, and commented that it was an important issue to be raised.

Mr Cawe replied that he would go back to check if there had been any correspondence. If there had been none, USAASA would make sure the Committee did receive correspondence.

The Chairperson said it was a serious problem if an entity did not advise the Committee on such matters, as the Committee played an oversight role and it was a compliance issue.

USAASA: Annual Performance Plan (APP)

Mr Mngqibisa introduced the presentation by describing USAASA’s programmes and sub-programme plans.

Sub-Programme 1: Business Support.

The purpose was to provide strategic leadership, management and support services to the Agency. The first of the strategic objectives was improved risk management services, and the target for 2018 to 2019 was 75% implementation of the risk management plan. The second strategic objective was increased utilisation of the information communication technology (ICT) system, where the target was 99% uptime availability of the SAP enterprise resource planning (ERP) automated processes. Quarterly targets for quarter one to four were all 99% uptime availability of the SAP ERP automated processes. USAASA wanted to make sure that all employees made use of the SAP system so that at the end of the month, utilisation reports could be gathered, as close to R45 million had been invested in the system. The month end reports would measure how much this system added value to the business.

Mr Mahomed Chawan, Chief Financial Officer (CFO): USAASA, said the funding of Programme 1 would amount to R79 465 in 2018/19.

Sub-Programme 2: Business Intelligence.

Mr Mngqibisa said the purpose of Programme 2 was to promote effective and efficient service delivery of universal services and access in under-served and under-serviced areas through planning, monitoring, reporting and evaluation, and research. The first strategic objective was improved quality of performance information, where the quarterly performance was divided into designing the evaluations, conducting the evaluations, and completing the performance information reports. The second strategic objective was to facilitate a smooth transition from the Universal Service and Access Fund (USAF) to the Digital Development Fund. The annual target was to have a transition plan costed and completed.

Mr Mngqibisa said the number of performance indicators had been reduced from 24 in 2017/18 to only five this year. The reason for this was so that the organisation could focus and deliver on their objectives. The performance indicators that had not been included in this year’s APP would be added to the operational plans which would be cascaded down to every employee. USAASA would have performance contracts on a monthly basis from now on, not a quarterly basis so that through this kind of operational plan, accountability could be fostered.

Universal Access and Service Fund (USAF)

The second part of the presentation focused on USAF.

Programme 1: Business Operations.

Mr Mngqibisa said the functions of USAF, as per Section 82 of the Electronic Communications Act (ECA) could be summarised as that of a facilitator, with a monitoring role to improve research capacity on universal service and access and to make recommendations to the Minister on policy issues. It had a mandate to provide accurate and credible information on universal service and access gaps.

The first strategic objective of Programme 1 was to have increased connectivity through the roll-out of electronic communication infrastructure. The first performance indicator for this objective was to measure the number of newly identified under-serviced areas with access to electronic communication infrastructure that was functional. The annual targets for 2018/19 were Ngquza Hill and Port St Johns Local Municipalities in OR Tambo District Municipality, which were the two newly identified municipal areas that had access to electronic communication infrastructure.

The second performance indicator was to measure the number of existing sites with internet connectivity maintained. The annual target was to have the 676 existing sites -- 564 educational institutions, 111 clinics and one public office -- with internet connectivity maintained in King Sabata Dalindyebo, Mhlontlo, Joe Morolong and Ratlou Local Municipalities. The two municipal areas with access to electronic communication infrastructure referred to newly identified areas where USAASA would roll out the electronic communication infrastructure. Internet connectivity to sites would be done in the 2019/2020 financial year.

The third performance indicator was the number of new sites with internet connectivity maintained in Impendle and Nyandeni Local Municipalities. The annual target was to have 275 new sites with internet connectivity maintained, of which 187 were educational institutions, 32 were clinics, 16 were public offices and were 40 public Wi-Fi hotspots. These would use the electronic communication infrastructure rolled out in the 2017/2018 financial year.

An addition to the first strategic objective was to have increased access to digital broadcasting, with an annual target of 22 282 set-top boxes (STBs) and antennae procured. The total number of STBs to be procured had been reduced due to the budget reduction of R250 million by National Treasury. The Committee should look into this reduction.

The second strategic objective was improved accountability on the project management of infrastructure projects. The annual target was the achieve 100% of set-top boxes and antennae distributed for registered users. He added that the organisation would like to complete projects within a set time and budget so that it did not report to Parliament with incomplete projects.

Mr Chawan said that over the medium term expenditure framework (MTEF) period, USAF’s spending focus would be on:

  • the rollout of broadband infrastructure and provision of equipment to identified under-serviced municipal areas, including educational institutions, ICT centres and primary healthcare facilities);
  • the rolling out of broadcasting digital migration, where the main cost drivers would be subsidising the provision of STB and antennae to identified television-owning needy households; and
  • maintaining existing broadband networks to connected sites in under-serviced areas within the initial two-year period. The current allocation to the broadcasting digital migration programme had been reduced by R250 million by National Treasury.

He mentioned the main issue to bring to the Committee’s attention was the reduction of USAF funding in 2018/19 by National Treasury.


The Chairperson had several criticisms of the presentation. The document’s binding was unacceptable for an APP; USAASA had not adhered to the advice of the Auditor General (AG) to ensure that they adhered to “SMART” principles for their document; the CEO had mentioned an addition of something that was not in the 2017 APP, but before such an addition was made an addendum and a complete strategic plan had to be submitted; and the chosen narrative of USAASA, from 2017 to 2021, was out of line. He continued to identify mistakes and ambiguity in various pages of the presentation, and said the document was very problematic and should not be used as a point of reference for discussion on that day. He suggested that USAASA get an extension to hand in another presentation by Friday 27 April, and when the Committee reconvened they may ask questions and reflect on the document.

Ms Kilian (ANC) said she had found it difficult to bring the figures in the presentation together. She asked questions about MTEF expenditure, and non-tax revenue that had been received in 2016/17 but not received in this current financial year and not perceived to be foreseen for the future. She had noticed the presentation had focused entirely on programme one, and wanted to know if that was a mistake. USAASA had foreseen that 100% access to digital TV would be attained by 2020, but SA Connect’s targets indicated only 90%, which was confusing. She asked what the real targets were and how USAASA was preparing itself to achieve the targets. The Auditor General had expressed himself in a way that highlighted serious concerns over specifics, such as “SMART” principles and achievable objectives, and the real issues that would lead to success or failure of the institution. Her concern was whether USAASA had adequate management and an adequate understanding of the National Treasury and their processes and budget cycling, or if that was a serious concern for the Board itself.

Ms D Tsotetsi (ANC) commented on the smooth running of the business and asked whether the Minister had been informed about the suspension process of the CEO. She asked whether USAASA had capacity to fulfil the targets it have set for itself. Initially it had had 24 targets, and now they had been reduced to five, so one could assume that they had not had the capacity. This time around, did USAASA have capacity? Referring to the sites which had, and had not been, connected she asked what the proximity between the sites was so that the majority of people could access them. What informed the identification of the places to be connected, as there was a tendency for people to focus on connecting only urban areas at the expense of rural areas. Essentially, she wanted to check if there was a balance between the rural and urban areas.

Ms M Shinn (DA) commented that the report was mainly comprised of a cut and paste from a number of developmental plans in the Department of Public Service and Administration (DPSA), the Audit Development Programme (ADP), SA Connect and the like, and contained very little information on what USAASA was actually doing. One thing that bothered her was that somewhere along the line, USAASA had spoken about planning for the Digital Development Fund, which was years away and a waste of time, as at this stage it was not in any proposed legislation. It was not promulgated yet, so it had to go through many years of public process. Another thing that bothered her was that nowhere had the issue of the corrupt STB tender process been mentioned, and what impact that had had on USAASA’s targets and deliverables. The wish to implement another 28 000 STBs was problematic if it was carried out while using an illegal process.

She assumed that the R52 million promotion of information communication technology expenditure in 2016/17 had been spent on the SAP ERP system, but that amount did not gel with another amount mentioned in the presentation. She asked whether the declining R4 million or R5 million had gone towards the maintenance of the equipment or the buying of other equipment. Referring to the role of USAASA in SA Connect, she said she found it absurd that they had not done any impact analysis on their progress, and that such research was only going to be carried out now. How long had USAASA actually worked on implementing those systems? She was not impressed that for five to 10 years, USAASA had not measured their impact.

She also spoke about the maintenance of established sites after USAASA pulls out after supporting them for about two years. Of the 676 existing sites, how many was USAASA still maintaining and how many had they let go? What hand-over documents exist, and who was maintaining the sites after USAASA walked away after their mandated two years? What was USAASA’s relationship with Sentech, which had been chosen as the agency for SA Connect?

Mr C Mackenzie (DA) asked how the proposed Digital Development Fund had affected the organisational culture of USAASA, especially in terms of the planned roll outs. Had Treasury given a reason for holding back the R 250 million in funding, and did they plan to reallocate it in six months down the line in the midterm budget statement? He referred to an oversight visit where it had been discovered that a number of sites did not have existing connectivity because there was no mechanism in place to monitor those sites, and asked what mechanisms were in place to make sure that connectivity on sites was maintained. There was a clinic in Mpumalanga where people had to make use of their own money to have internet connectivity. He asked if there was a number people could call, or a key account person that they could always refer to at the sites, to make sure connectivity was maintained. He argued that having a 75% target for implementing the risk management plan created a huge hole, and that there should be 100% implementation of the plan.

Ms N Ndongeni (ANC) asked where the CEO of USAASA was had been working before his appointment at USAASA.

Ms Killian said she also wanted to make a comment about the risk management plan, because the AG had told the Committee that the risk register had not been updated during the course of the year, and that was a severe risk. In addition, one of the risks identified in business operations was that the sign off on contracts was done by the contractor. What did USAASA do to go on site to conduct checks on the rate of progress to determine whether it was in compliance with the policy?

USAASA’s response

Mr Cawe apologised for the way the documents had been bound. He was not sure what document had been handed in, as they had gone through about five reiterations. He asked permission to check which document the Board was happy with, and to provide a complete document.

The Chairperson asked how much time USAASA needed.

USAASA asked if they could come back with a complete document by Friday, 27 April.

The Chairperson then granted them the permission to do so, and suggested they could take leave immediately to start working on the document, so their response to questions would take place at a later stage.

Mr Mackenzie asked if USAASA could first answer some questions of clarity Members had asked on the document.

The Chairperson responded that even if USAASA answered the questions, they would not be in the document. It should be assumed that there was no document that day, and USAASA should rework it and submit it again on 27 April at 11am so that it could be circulated to Members. Then on Tuesday 1 May, the Committee had to approve the report they needed to submit to Parliament.

Mr Mackenzie said he was a bit confused as to why the document was being withdrawn in its entirety, and whether it was because it was not signed by the Minister. He had engaged with the documents and had questions which he thought could be answered at the meeting. The time constraints for producing the Committee report also had to be considered.

Ms Kilian asked if, when the Committee reconvened on 1 May, USAASA could have someone on standby to answer any possible questions on the second, or final, document, and that they could then proceed with their report due to the serious time constraints as Parliamentary committees. If there were questions of clarity, they could be asked at the meeting on 1 May before the handover of the final report.

Ms Shinn brought the Committee’s attention to the fact that next Tuesday would be a public holiday. and that if the Committee was going to engage on a document, it needed to engage on a document that had been formally tabled in the House of Parliament, but by next Tuesday the document would not have been formally tabled, so the Committee could not actually engage.

The Chairperson replied that the document had been tabled, but many errors had been found in it and therefore it had to go back to be reworked. The document was going to Parliament through the Committee, not straight to Parliament. However, if Members of the Committee would like to engage on the flawed document, they were welcome to do so, but they had to understand that they would again altogether engage on the reworked document coming on Friday.

Ms Tsotetsi seconded the idea of USAASA having a person to answer questions arising at the next meeting. She stressed that the person to answer must be well equipped and ready to answer any question and not make an excuse of a senior not being there and thus not answering a question.

The Chairperson then mentioned that the next meeting was on 8 May.

Mr Cawe said USAASA would include an addendum answering all the questions that had already been asked.

The Chairperson commented that since USAASA had come with a document with many errors, they must also fund themselves for the trip to Cape Town, as the institution had paid for them to come and present.

South African Post office (SAPO): APP

Mr Zibuse Comfort Ngidi, Chairperson: SAPO, introduced the SAPO delegation, which comprised the CEO, Mr Mark Barnes, and the Company Secretary, Mr Dawood Dada. He said the CEO would take the Committee through the presentation.

Mr Barnes said he wanted to give an updated perspective of where SAPO was with its corporate plan:

  • SAPO, as it was currently structured, managed and funded, was not financially sustainable.
  • It had regressed so far technologically, that it simply could not offer a competitive service.
  • SAPO would need to invest, not only in technology, but in its basic customer interfaces, in order to compete on the frontline.
  • There was the possibility of partnerships or joint ventures with established players as an alternative to organic growth.
  • Postbank had always been central to the diversified revenue strategy of SAPO, with the expectation that it could contribute up to a third of total revenue once earnings from lending became a reality.
  • If SAPO did not initially get government business to help it fund its cost base and required investment in upgrades and growth, it would continue to require direct government subsidies.
  • SAPO could become an investible entity which could attract its own capital and deliver reasonable returns to government.

SAPO had seen improved performance, as there had been a restoration in operations resulting in an 8.47% improvement in the delivery standard of mail. Delivery standards had peaked at 91% at 31 March 2018. The 14% decline in revenue that was experienced in 2014/15 had also been reversed to a 4% decline in revenue over the 2017/18 financial year. Although transport costs had been reduced, up-scaling would require increased spending. Property costs had been reduced by 13%, but salary costs had remained inappropriately high, given the revenue profile of SAPO.

Financial Performance

Mr Barnes referred to SAPO’s financial performance, and said revenue would decline in 2020/21 due There were interest costs of new loans of R2bn, with R400m required to settle the current term loan in December 2018. The expenses of R5.6bn included the IT network upgrade, which amounted to R978m over five years.

SAPO’s corporate/government revenue initiatives included new revenues for hybrid mail, courier and logistics. The public service mandate funding of R300m a year had stopped in 2011, and SAPO now incurred an annual cost of R769m.

A phased approach would be adopted to address the high staff cost base:

  • Phase 1 - continuous reduction inovertime and extended hours.
  • Phase 2 – For the South African Social Security Agency (SASSA), there would be the redeployment of staff from other business areas to retail/SASSA to contribute towards addressing staff salary costs.
  • Phase 3 – Outsourcing of non-core activities, and reorganisation of non-core business support services -- owner driver schemes, travel, and support functions
  • Phase 4 – Human resource (HR) cost optimisation. The success of phases 1 to 3 would determine the extent of a HR reorganisation process.

Skills development would be important to support the re-organisation process. SAPO would maximise the skills development grant to off-set training investment costs. The Academy would also offer training to operators on the continent.

The current funding deficit for 2018/19 was R784.6m, and the total amount of funding required for the year 2018/19 was R2.784bn. The capital investment would support revenue growth initiatives and investment in post office systems that had long exceeded their useful life

SAPO had a net asset value of R3.6bn projected as at 31 March 2018. R800 million was required to settle outstanding liabilities.

As at 31 March 2018, a going concern guarantee of R1.6bn – for a forecast baseline loss of R1.2bn and the R400m repayment of the term loan -- would be required in order to pass the liquidity test.

A surplus of R785 million was projected for 2018/19, depending on:

  • Achievement of revenue and cost initiatives.
  • Recapitalisation funding of R800 million.
  • Public service mandate funding of R769 million.
  • New loans of R2 billion -- property and retail bonds.
  • An annual average funding surplus of R899 million maintained over the MTEF period.
  • Term loans of R2 billion, so National Treasury exposure could be reduced.
  • Sources of funding excluded Postbank’s excess capital of R1.3 billion.

Mr Barnes said that to meet SAPO’s funding requirements, bond issues were planned.

The first was a SAPO property bond of R1 billion, which was not yet approved. SAPO owned 444 properties revalued at a market value of R2.7 billion as at 31 March 2017. The property portfolio would be used as collateral for the debt, and the funding would be used to repay the interim loan facility of R400 million, and for capital infrastructure investment.

The second, also not yet approved, was a SAPO retail bond of R1 billion. This would involve a 10-year term and be guaranteed by National Treasury. Bonds issued would need to be listed on the Bond Exchange. SAPO could consider offering the issue through its branch network. National Treasury would effectively be underwriting a higher yield (than the deposit rate) to citizens, instead of commercial banks

The envisaged SAPO corporate structure, supported by the Board, involved partnerships. It would look to partner with organisations that had technical solutions and products off which it could leverage. Partnerships would be crucial in allowing SAPO to close its investment gap and being able to provide competitive offerings in banking and E-commerce.

Legislative changes envisaged would allow outside investment and exemption from Public Finance Management Act (PFMA) compliance requirements for revenue generating initiatives. Ministerial support and Cabinet approval still had to be obtained to proceed

Annual Performance Scorecard

Mr Barnes lastly addressed SAPO’s key performance indicators (KPIs):

  • To achieve the current baseline revenue target as per the corporate plan, of R4.6bn.
  • To achieve the regulated mail delivery standard of 92% as per the agreed delivery model with ICASA.
  • The uptime target for automatic teller machines (ATM) and POS transactions, as per the industry standard, was 98%.
  • All customer complaints must be resolved within seven working days from date of receipt of complaint.
  • To achieve the baseline expenditure target as per the corporate plan of R5.70bn
  • Consolidation and optimisation of the regional operations infrastructure network by 30 September 2018.
  • To achieve the Postbank revenue target as per the corporate plan, of R822m.
  • Grow the total number of Postbank accounts by 3% from the prior year actuals.
  • Achieve the corporate plan revenue growth target of R162m.
  • All retail branches must comply with the SASSA requirements for Postbank by 30 September 2018.
  • To achieve 100% effective resolution of AG audit findings resulting in an unqualified audit opinion for the 2018/19 financial year.


Mr Mackenzie referred to the document which talked about setting up a fund for universal services as a funding requirement for the Post Office. Where did SAPO see that funding coming from? Who would pay into the fund? He also raised a concern over the Post Bank and its June deadline. According to his understanding the only thing that was holding them back was a change or amendment to a piece of legislation, and it seemed there was nothing suggesting that the “stalemate” would change. Had there been any indication from the Cabinet if it would be tabled? The 30% revenue which played an important role in the strategic turnaround plan had been an instruction from the Cabinet, so why had it not materialised?

He asked about the cutting back of staff -- how much would SAPO cut until the organisation was at a critical stage, because they did not have enough staff? He referred to the issue of foreigners failing to receive their parcels sent through the expedited mail service (EMS). He also referred to the problem concerning South African Airways’ failure to deliver parcels -- what was the cause of the parcels not being expedited timeously? In past years, SAPO had been able to break even, so what was different now, that SAPO was in such a hopeless position? He was very impressed to see innovation in the current plan. He wanted to know whether SAPO’s owner driver scheme had been implemented, and how many people it would include. How were the 200 franchise branches identified, and what were the financial implications for SAPO?

There was a proposal to replace some pre-street deliveries with post boxes. He commented that that was something done years ago as part of postal services’ cost cutting plan, and he believed there had been no charge for that. Would SAPO charge, or have no charge like before? He referred to the e-wallet, and asked why SAPO anticipated so much revenue for that. MTN had an e-wallet offering and other entities were active in that area as well, so perhaps they had missed the boat with that one. He also asked why there had been such a revenue spike for digital certificates?

Ms Kilian commented on the challenge as far as liquidity was concerned. On the perspective of changing to a new tactic she was very optimistic, and she trusted that with a successful implementation of the SASSA grant system, SAPO would in fact correct the reputational damage that they had suffered. Though she was not part of any negotiating team on salaries, due to the very bad strike at SAPO, they had to balance the upskilling and downscaling of the staff, and it had to be linked to performance bonuses. She asked SAPO to what extent they had developed that type of performance plan.

She said the very serious nature of the Post Bank issue was now compelling the Committee not to hold back, and she hoped that the other Members would support her in suggesting that the Chairperson have a meeting with Mr Carrim, Chairperson of the Finance Portfolio Committee, and also the Minister. It would be a very bad reflection on Parliament if this issue was not resolved. She had noted what Mr Barnes had said about the AG’s comments. However, there was another element to staff upskilling in terms of the technical indicators, because ultimately for any institution to move forward quantifiable targets were needed, so to fulfil the public mandate, she believed the government would come to the party.

Ms Shinn said the Committee owed Mr Barnes a great accolade for the courage he had to lead the Post Office as no one else in South Africa would take up that responsibility. He had brought with him so much innovation and passion. Her question was whether the R800 million funding to fulfil the public mandate of SAPO would come from the Digital Development Fund. If that was the case, it was years away from being implemented, so she had asked for confirmation as to whether it was a separate fund or the same. Mr Barnes had then confirmed that it was a separate fund, and she had a feeling that government would use the Digital Development Fund to fund all other roll outs. She concluded by wishing Mr Barnes luck with his bonds and public-private partnerships.

Ms Tsotetsi said when she heard the presentation from the CEO, she had become optimistic again. What would be the “magic” to convince other partners besides SASSA to join SAPO so that improvements could be made? Was there a plan to rectify the inappropriately high salaries without running foul of the labour laws? The redistribution process meant some employees would be redeployed to other offices where there was a shortage of staff, and she was concerned that the moving of staff might increase transport costs while salaries were not rising. There was a need to buy more scanners. SAPO had said they would train staff on how to use the scanners, and she asked if the few staff that were already working, were able to actually do their work. She spoke to the issue of replacing offices with post boxes, and said that it was a wise move. However, she revisited the issue of having no payment for that facility, and asked what the strategy would be to encourage people to pay for their post boxes. The driver scheme was also a wise idea in dealing with unemployment, but it could be implemented only if the cars were in good condition and road worthy

Ms Ndongeni asked if SAPO had the capacity for the SASSA initiative.

Mr Mackenzie referred to the section of the document where separate companies were spoken of. He asked if it was an African Bank type of model that SAPO wanted to adopt. His concern with separate companies was the expense involved and the time to set them up. He asked what sort of timeframe SAPO had provided to set up the different companies. He was concerned about the courier service being set up as a separate company again, as this had already been done in the past and had failed. Another concern was about the Public Investment Corporation (PIC) being a funding partner -- that should be probed with some caution. He asked for clarity on the Staff Optimisation Cost Benefit being added to the revenue of SAPO. Regarding the retention of prior revenue as a goal, he said SAPO received an annual increase from ICASA which was legislated, so did retention of prior revenue take into account that annual increase?

The Chairperson said it was important for SAPO to hear the sentiment that the Committee shared, as it was seldom that Members coming from different political parties shared the same view -- in this case, recognition of the efforts of Mr Barnes. They had also been impressed by the Chief Operating Officer (COO) whom they had met at another stage when the Committee had received a presentation by SASSA. He encouraged the board to take advantage of such expertise. The Committee would appreciate having sight of the intervention made by SAPO to address issues raised by the AG, because perhaps it could help other organisations with the kind of approach that was being used.

SAPO’s response

Mr Barnes addressed first the question of the fund for the Universal Service Obligation (USO) saying that it was a matter of principle more than a specific fund. They had requested that government should not see it as something to be revisited every year on a ‘pay for the past’ basis, but proactively building up a sinking fund to deal with public service mandates as a matter of National Treasury.

They were dealing with two issues on the Post Bank. One was the law, which was a one line amendment to the Act, and for some reason it had not gone through, and the other was capitalisation or the bank controlling company discussion. In his view, there had been some purposeful impediment to this process, as there could be no other logical explanation for it. There was also a view that a government-funded bank like Post Bank, which had around R8 billion, would be handled recklessly and would allow the reckless lending of money etc. He suggested that the sterile R8 billion could perhaps be redistributed and used productively somewhere else.

On the staffing numbers, he said about 4 000 people were involved, and he said these numbers were very sensitive. The 4000 people were 20 % of the current staff, which would mean a saving of around R180 million a year. Volumes had come down by about 40%, so it meant staff should go down as well. The reason was that SAPO had adopted around 5 000 people as a result of corrupt labour practices, and had courteously taken on the staff of Courier Freight Group (CFG), which had been around 700 people.

Regarding South African Airways (SAA), one of the main problems was that SAPO’s scanners were actually very old and some of them could not read properly. Some problems were with other posts --for example, Mozambique once had not paid SAA, so SAA had refused to deliver and SAPO had had to send trucks to Maputo to deliver.

On the break-even discussions, he thought the subsidy had gone up until 2011, when it was R300m, and secondly the volumes kept growing.

He said that SAPO maintained their own properties.

Nothing had been done yet on the owner driver scheme, but he wittily said there were existing ‘entrepreneurs’ who were using Post Office bakkies for their own businesses after delivering for the Post Office. SAPO just had to help them finance the purchase of that bakkie and the bicycle.

On the post box delivery fee, he said free delivery was not the answer, and it required a redefining of what a post box was. A post box was not just for deliveries, but for getting moveable things into a box.

On the e wallet issue, he acknowledged that they were behind the curve, and SAPO was not going to invent it but partner it.

SAPO did not actually have a liquidity problem, as there was so much stale cash in the Post Bank. The solution for the Post Office was to give it to someone to run it as if there were investors that were interested.

There had been a four-month strike at SAPO and now it was definitely over. It was therefore better to redeploy the capital before the situation became upset.

On the courier issue, he said SAPO were not doing their own courier service, but wanted to partner with couriers who did not have access to OR Tambo airport, for example, and who did not have customs inside.

On the ‘magic’ for the partners, he said SAPO saw an utilised infrastructure. They did not see anything political about it -- just massive infrastructure that could be useful for them --and an overwhelming number of government institutions had approached him.

Regarding the question of capacity, he said SAPO was performing well with SASSA.

The separate companies were just to accommodate separate investor bodies.

The 10% revenue decline was offset by the 6% ICASA increase in revenue, which left SAPO with a 4% net decline. He acknowledged that it was a declining business.

He said the intervention to deal with the AG’s issues was not so much a system, but was driven by a strong personality who took no nonsense. It had been a management matter, and he was expecting a much better result.

Mr Barnes urged that SAPO’s issues should be part of a Cabinet memorandum, as these matters were spoken of and agreed upon, but no one took them as an instruction.

Ms Tsotstsi again raised her concern about the transport costs of redeployed employees, as an issue might arise among the unions in the future unless there was a proactive plan to mitigate them.

Mr Barnes answered that if they had to move people around, they would take into account those expenses. The Post Office unions realised that 100 people working was better than 100 getting an increase and others not working. Mr Barnes said the real problem was that people were had no money.

Mr Mackenzie asked about the post box addresses, and how the roll out was going.

Mr Barnes replied that SAPO had a lot of movement on the address roll out, and that he could email that to Mr Mackenzie.

One member of the Board asked for help on the issue of the salary increases from the Committee

The Chairperson said the Committee would need more time to deliberate on that. He suggested that SAPO could request a meeting to address that specific matter. He said it was a very important matter to bring up.

Ms Killian asked if the figures mentioned in the presentation had been provisioned to have the same percentage increase as other entities.

Mr Barnes replied that it did not, but he would send a document for all of them to read.

Broadband Infraco: APP

Mr Mandla Ncgobo, Chairperson of the Board, Broadband Infraco (BBI), introduced his delegation, and said Mr Andre Matseke, the CEO, would lead the presentation.

Mr Matseke said that due to time constraints, he would focus only on the highlights in the presentation. The overall picture of BBI was that it had grown in terms of the traffic on their website as well as the number of customers. The company had grown its customer base from only 11 in 2013 to 30 in 2017, 46 in 2018, and expected to reach 50 in 2019. The sale of its Synchronous Transport Module level-1 (STM1) equivalent had also steadily increased.

Earnings before interest, depreciation, tax and amortisation (EBIDTA) looked positive and continued to improve through cost optimisation and improved sales. Service availability had performed above

Mr Matseke said the market for the provision of broadband wanted high reliability in terms of the technical performance of the network while the cost, or what the market was willing to pay, was going down. BBI was also anticipating that the future introduction of 5G was going to drive the requirements for broadband upwards. The key issues in the ICT industry were:

  • Mobile traffic being continuously on the increase and
  • the spread of fibre to the premises which was generally referred to FTTX, X referring to anything from a business to a home

Another specific matter driving the market of BBI was regional and international connectivity. BBI was engaged in extensive activity in relation to the neighbouring countries. He had been to Botswana twice this month in relation to a business prospect that would bring significant traffic into the BBI network, and there was more expected from Namibia and Zimbabwe in the following month. He then addressed the BBI’s strategic goals in the APP.

Mr Ian van Niekerk, CFO, said there was still an emphasis in the APP on business sustainability. The first strategic goal was to improve operational excellence and the second one was to have a 40% increase in year-on-year growth in revenue, including SA Connect. It SA Connect was taken out, there would be an increase of only 18%, which was more manageable and BBI had made specific targets to manage that. A new target was to pay small, medium and micro enterprises (SMMEs) within 30 days.

Economic and social transformation targets included two new KPIs, which were the percentage spend on youth-owned entities annually and the percentage spend on people with disabilities-owned entities. The last strategic objective was to manage the number of repeat external audit findings and achieve a clean audit.

Mr Matseke provided an overview of the capital expenditure refurbishments that BBI was planning in its network. They were:

  • To address Single Points of Failure (SPOF) and do replacements of AdLash fibre to guarantee service provision for the customer;
  • Investment in the West African Cable System (WACS). Generation of revenue was in customer service specific solutions and WACS.
  • Protection of revenue in the N2 capacity upgrades that were planned.
  • Operational capex and technical capex was required to maintain spares and equipment.

In total, 53% of BBI’s capex was targeted at the generation of revenue going forward.

Mr Van Niekerk referred to the financial performance of the company for the next five years. Revenue would increase by 40%, which was a conservative increase looking at the year-on-year increases. The cost of sales perspective, including SA Connect, had shown an improvement from 2017/18 to 2018/19, and going forward it showed improvement on the profitability line. On the issue of funding, he said BBI would have access to debt funding for SA connect. There was a combination of avenues that BBI was aiming for in terms of its funding needs. The 38% funding was mainly for upgrades, and SA Connect and BBI were hoping to get that money from one of the development finance institutions (DFIs). 26% of that funding would target vendor financing of R99.3 mil for SA Connect’s Internet Protocol (IP) core. A portion of the funding requirements was from short term funding of R100 million to fund working capital and specific customer projects.

Mr Matseke said there was a particular focus on improving BBI’s top line through a sales plan. Among the things they were focusing on was

  • Making sure they retained the customers that they had.
  • Upselling, meaning adding more services to BBI’s customers. The critical issue was that the market was offering internet protocol services. BBI was moving gradually from selling synchronous digital hierarchy (SDH) legacy time division-based technology. to offering IP services to customers and also taking advantage of international traffic and expanding into neighbouring countries.
  • To grow the current customer base to above 44, which would have a significant revenue increase in the new financial year.
  • Identify new market segments, aligning BBI’s product offering and pricing to capture new players, i.e. Microsoft, Amazon etc. and the acquisition of an ECS licence would enable it to tap into the living standards measure 1 (LSM1) market without limitation and competing on end to end solutions particularly with tender responses.

Mr Matseke said the headcount had not increased much, and the biggest growth had been in the sales and technical capacity which BBI needed to implement SA Connect. BBI obviously had specific areas of improvement to implement the equity profile.

Mr Van Niekerk said BBI had not incurred any irregular expenditure over the years. There was only one external audit finding that had not been addressed yet, and that referred to the going concern There had not been much movement on the strategic risks, and BBI would continue to manage them actively.

Mr Matseke said the focus areas for BBI were:

  • Implementation of SA Connect.
  • National broadband network company.
  • Sales strategy.
  • Technology and product strategy.

Addressing the implementation of SA Connect, he said there were 313 sites where they had got the go-ahead to implement from the Department in the middle of March, and they would have completed a significant number of them by June, and the last one in uMzinyathi by September. Some sites would be completed during the month of May.


Ms Kilian commented that it was interesting to see that the customer base had grown, but there had not been a significant growth in revenue. BBI was sort of in a holding position -- they could not dare to go backwards, but had to maintain and retain staff. She raised an issue about the total permanent headcount, and asked if the business had imposed a moratorium on the filling of positions. If so, what were the details, and if not, why not? It was good to see that they were running a performance management system which was linked to salaries. She wished many of the other public entities would do the same. She also commended BBI for taking in interns and said it was good that they were creating that opportunity for young people with qualifications who needed practical work exposure. Her concern was that the Committee would face a merger between BBI and Sentech, as it was very often found that when such a merger happened, critical skills were lost and it becames a burden on the new entity, because those people remaining needed further upskilling. Therefore, what was BBI’s plan going forward on the filling of vacancies?

Ms Tsotetsi asked for clarity on new appointments. Then she asked what the duration of the Vumatel -- an open access fibre provider -- pilot project would be. She asked if would not be better to have the fibre trenched rather than on the poles, due to issues of safety. She also spoke about the speed of the technology being slow and asked what would happen if about 20 people decided to use it at the same time. BBI was not doing well in terms of employing disabled people, and asked for an explanation.

Ms Shinn referred to the business case for establishing a broadband company, which she presumed was BBI merging with Sentech. When would the business case be completed? Why were the cost of sales and operational costs to SA Connect increasing so much? She was wondering if BBI could afford SA Connect at a government rate. She asked about BBI’s collaboration with Sentech and USAASA on the rolling out of SA connect and the State Information Technology Agency (SITA). How much of BBI’s total revenue, including SA Connect, was actually government business? Who were BBI’s actual customers, and who was in the private sector?

Mr Mackenzie asked why BBI was moving into a negative cash flow position in this financial year. What did the national revenue actually include?

Ms Shinn asked if BBI could explain exactly what its deferred revenue was.

Ms Ndongeni referred to the target of adopting a school, and asked if they could name the school and its area, and which criteria would be used to choose the school. She also spoke to project financing along the N2 –but where would the focus be, as there was an N2 in the Eastern Cape, Cape Town and Durban? Why had BBI not begun the Vulatel project in rural areas instead of in townships.

BBI’s response

Mr Matseke said there had been a moratorium on staff for about two years before he joined BBI. Going forward, BBI was focusing on capacitating themselves on the sales side to improve the top line and advance themselves towards profitability, so technically they no longer had a moratorium as such. BBI had had to upskill as well to be able to implement SA Connect. The possible loss of skilled and unskilled people was something they would have to manage as part of the migration towards a national broadband network (NBN). However, since the announcement in Cabinet about the move towards a NBN, BBI had so far not had any negative feedback from the team because there was regular communication with staff about the likely impact of NBN.

Regarding board appointments, there was a board member whose term had ended, and there had been a reshuffling of the sub-committees of the board, where Ms Nokuthula Selamolele had become chairperson of the risk and audit committee. The reappearance of names on the table was because at the time there were fewer board members, so they had had to be spread around various sub-committees, but subsequent to the submission of the current report three new appointments had been made and two of them were women. Next week, on 30 April, there would be a meeting where the committees would be reconstituted.

Mr Matseke said Vumatel was a customer that BBI was targeting, and the narrative in the report was based on the information they had shared with the market about their roll out in Alexander Township. BBI planned to link the Vumatel network into the BBI core network. The matter of fibre in trenches or on poles was a question for an external entity to deal with.

BBI’s non-achievement of employment equity (EE) for people with disabilities would be addressed going forward. Regarding the business case for NBN, the driver of NBN was the Department of Telecommunications and Postal Services (DTPS), and BBI and Syntech were merely participants in the case.

Mr Van Niekerk said only the 313 sites were included in phase 1. There were actually 490 sites in total over the next three years, and that was what BBI had included in the financial numbers.

The cost of sales had gone up because the biggest cost, besides the capex for SA Connect, was the last mark connectivity. Operational costs were actually small due to the few people they needed to manage operations and service providers. He said about 60% of the revenues of BBI would come from government in 2018/19.

Mr Matseke answered the question on collaboration with USAASA and Sentech. He firstly discussed the role of BBI and SITA. BBI provided the end-to-end connectivity for SA Connect, and SITA would run the internet services, email and other applications. For BBI’s portion of the end-to-end connectivity, they collaborated with Sentech and there was a plan under way where BBI would take over the connectivity networks that were deployed by USAASA.

Mr Van Niekerk then answered why BBI’s finances were going negative. In the funding slide, he had mentioned that BBI needed R100m in working capital, and it had been included in their forecast that the debtors’ payment days might increase over time. It had been a projection that they might need an overdraft fund in their funding plan, and that it would go back to a positive position.

Mr Matseke referred to BBI’s socio-economic activities, and said they had been sponsoring a school in Seshego in Limpopo for the past two years, and the last activity that had been done for them had been on cyber security. The plan for this financial year was to adopt a different school, but that school had not been decided on yet. The criteria that would be used would first consider the proximity of the school so that it would be easy for BBI to provide connectivity to it. Regarding the N2 project in BBI’s capex, in the connectivity market there was currently a strong focus by some players to build a route from Durban to the Cape Town. BBI was the only network besides Telkom that had fibre on that route. They had a fibre that ran from Durban to around East London.

Mr Van Niekerk answered the question on deferred income. He said it was a type of service, not a data bundle, and it had upfront cash payment which was spread over a period of time.

Mr Omega Shelembe, Deputy Director General, DTPS, said BBI should be able to complete the business case by the second quarter.

The meeting was adjourned.

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