SAPO update on SASSA grant payments, mail backlog, recapitalisation fund

Telecommunications and Postal Services

05 March 2019
Chairperson: Mr J Mahlangu (ANC)
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Meeting Summary

The South African Post Office reported on its SASSA grants migration, its mail backlog resulting from strikes throughout 2018, and SAPO’s use of the R2.9-billion funds provided by government in October 2018:
• Close to 7.5 billion of the 8.5 billion grants had been migrated to SAPO by 3 December 2018, with a million accessing their grant through other banks. 70.8% of beneficiaries were paid through SAPO in February 2019
• SAPO had made strides to rectify the 2018 mail strike backlog: the domestic mail backlog was cleared in December 2018 but international mail delivery was still below standard.
• SAPO emphasised the need to move towards cashless systems which were less expensive with much lower risk.
• The R2.9bn funding allocation has enabled SAPO to repay loans and reduce the creditors payment backlogs. Critical capital investment in infrastructure is in progress. to purchase long term assets, upgrade essential systems and networks, and refurbish branches.

The SAPO CEO said there was a return to operational profitability. For 2019 and probably the next 18 months it would be confused by the upfront expenditure for post office branch rehabilitation and purchasing of equipment. This was upfront expenditure for long term gain. Elimination of cash in transit costs would free up close to R1 billion. SAPO had appointed regional general managers to allow for leadership, responsibility, accountability and authority at a regional level. Close to instantaneous real time communication at executive level ensured accountability across branches. This enabled executives to decentralise management and deal with the challenges.

SAPO needed to prioritise optimisation of the Integrated Grants Payments System (IGPS) because of how much had been invested into it already and work towards product diversification. The IGPS was a hugely scalable system as it was capable of paying any identity-linked payment such as ID renewals or NSFAS. Integration with Home Affairs would be produce a government payments system housed in a government infrastructure body. This would start enabling a technology-centred centre of exchange in SAPO which would be able to fund itself. The success of SAPO had perked the interest of many government departments who were engaging with SAPO on the possibilities of reversing some of their functions into SAPO operations. SAPO encouraged government entities speaking to one another to identify points of integration as it was easy for SAPO to add value on that front.

Members asked about the 1 million customers who had migrated to other banks and would SAPO aim to attract them back; the 150 000 clients who had not returned to collect their new cards, the timeline for changing SAPO scanning software to comply with international barcodes and tracking numbers; interacting with organised labour for them to understand the implications of downing tools; Northern Cape understaffing; optimisation of SAPO property assets; cashless solutions; motor vehicle licences; and public-private partnerships.

Meeting report

SA Post Office (SAPO) status report
Apologies from the Minister and SAPO board chairperson were noted. The SAPO board member and audit committee chairperson, Mr Eric Zakwe, CEO, Mr Mark Barnes, COO, Ms Lindiwe Kwele, and Company Secretary, Mr Dawood Dada, were present.

SAPO Board comments
SAPO Board Member & Audit Committee Chairperson, Mr Eric Zakwe, said it was an opportune time for a status update on progress made in SASSA grants payments, the catch-up programme for the mail backlog, both domestically and internationally inbound and outbound, and how SAPO had made use of the recent money granted to it.

The baseline in April 2018 was about 8.5 million beneficiaries paid through the old SASSA card and 7.5 million beneficiaries had been migrated to the new SAPO solution by December 2018. Over a million migrated to other banks. The old SASSA card expired in December and there are just over 150 000 beneficiaries that have not presented themselves to collect their new card. The challenge of these uncollected cards could be dealt with in a new campaign. At a very high level, the migration had nonetheless been a success. There had been robberies at several branches. Cash payment via cash in transit remains expensive and high risk – efforts will be made to move away from cash and to migrate to a card system.

On the mail backlog, SAPO was still falling short of standards in clearing mail within the same town or between provinces. Significant strides had been made. 87% of mail was being cleared within the same town within two days, with 65% in four days between provinces, and national mail within eight days. International outbound mail has to leave within three days, currently it was leaving within eight days. International inbound mail was still providing challenges, but efforts were being put in place including increasing the number of available workstations, the network had been upgraded, redirecting of emails, and increasing electronic notifications for quicker collection.

SAPO status report on SASSA grant payments
SAPO COO, Ms Lindiwe Kwele, said that SAPO had successfully delivered on the SASSA grant migration and payments despite short timelines. 70.8% of beneficiaries had been paid through SAPO in the February 2019 payment cycle. 3 797 short term jobs had been created through the process. This had enhanced local economic development through this work. These jobs were mainly created for people to assist SAPO with card migration as well as payments at cash pay points.

Cash in transit was very expensive and high risk. It was important to start exploring alternative methods of payments as well as educating beneficiaries and showing them why certain options were less safe and poor value for money.

SAPO was continuing to improve beneficiary experience for grant payments. Awareness campaigns were also ensuring beneficiaries were making informed decisions about their options.

In 2018 there had been a 42 million item backlog due to a strike. Domestic mail backlog had been cleared in December 2018. International mail backlog for registered items was on point to be cleared within the previously set timelines as it was below 500 000. 

In addition to the strike in 2018, creditors had been removing their assets (mainly forklifts and vehicles). SAPO had managed to get the money to increase the number of vehicles, and 90% of vehicles had been procured and distributed across SAPO’s operating regions. The forklift tender had been finalised and the impending dispatch would soon result in visible turnaround improvements.

The R2.9 billion funding allocation had made it possible to pay term loans. It had also been used to reduce the creditors payment backlog, where landlords had been shutting down post office facilities due to non-payment.

SAPO had put together a capital investment framework where investment cases were being sought to modernise and improve operating efficiencies.

The baseline as of April 2018 indicated that there were 8.5 million beneficiaries paid through the old SASSA card that needed to be swapped. The Constitutional Court had declared this needed to be cleared by September, which had been achieved. As of December 2018, 7.5 million had been migrated to the new SAPO card solution. 1 million had moved to commercial banks. SAPO needed to intensify communication and awareness in order to get the 150 000 beneficiaries who had not yet collected their new cards when the old card expired in December 2018. SAPO was working closely with SASSA to obtain the whereabouts of these beneficiaries.

The February 2019 payment extraction file indicated that 11,052,684 beneficiaries are paid throughout the country.  SAPO provided a segmentation matrix in terms of how many were paid in comparison to January 2019. SAPO was able to dispense R9.4 billion for the month of February. SAPO also provided a segmentation matrix to show how many beneficiaries were paid by ATM or through merchant points of sale or SAPO branches. Over the counter payments had been fluctuating. February 2019 had seen an increase at branches.

Challenges faced included resource constraints. Additional resources were needed to provide support for SASSA in a short period of time. This was being done in conjunction with SAPO’s distribution network policy that had been put in place. This meant SAPO was able to absorb as many people as possible. Most SAPO branches had been operated by one or two people. However based on the new demand management approach based on the demographic profile of the number of beneficiaries being served, SAPO was able to make sure it was fit for purpose. This was not at 100 percent but was being executed based on SAPO’s distribution network policy that had been approved by the Board.

There had also been challenges with SAPO’s partnering for network upgrades. This was supposed to have been completed by March 2019 but had been extended to August 2019. SAPO was satisfied with the practical programme schedule presented to it. By August 2019 all branches would be fully connected.

The five-year Build Operate Transfer (BOT) model had been abandoned and SAPO would remain the implementing agent on behalf of SASSA. This gave SAPO the opportunity to begin leveraging state infrastructure to begin exploring other potential businesses for SAPO.

SAPO had to acquire new infrastructure as it had not invested in infrastructure for the past 10 to 15 years. This had helped to modernise operations. New laptops, note counters and cash protection devices had been bought. Automated cash dispensing devices were being phased in to replace manual money counting.

Access control needed investment at many branches and was underway. There were several instances of robberies, in the Eastern Cape area in particular. SAPO was working closely with crime intelligence to address this. However, the losses caused were only between 0.5 – 1% of monthly total revenue but SAPO was working to reducing this further. Guarding services and police visibility within the precinct needed to be intensified to deal with these issues.

SAPO needed to start looking at alternative sources of payment, working towards cashless solutions. Cash payment via fixed pay points was expensive and high risk. SAPO was speaking to counterparts at SASSA about ways to deal with this.

SAPO had installed general manager across the country since November 2018. This allowed for leadership, responsibility, accountability and authority at a regional level.

SAPO needed to prioritise optimisation of the Integrated Grants Payments System (IGPS) because of how much had been invested into it already and work towards product diversification.

Mail backlog status
The strikes in 2018 had lowered delivery standards. This had intensified particularly in Tshwane in May and July of 2018 over complaints about working conditions. The strike had serious implications for backlog and delivery standards. Delivery standards had dropped from 86.5% to 42% in September 2018. Priority was given to domestic backlog clearing which had been dealt with by December 2018. Cross-town delivery currently was at 87% and Cross province delivery was 65%.

The Universal Postal Union (UPU) had given SAPO standards that needed to be adhered to:
Outbound international mail is supposed to leave the country within three days. It deteriorated to 20 days in September 2018 and improved in January 2019 to less than 8 days. Inbound international mail is supposed to be delivered 2 days after arrival in the country. In July, the mail took 30 days (2 million backlog).
In January, it improved to 13 days (half a million backlog).

Registered letters often have goods (requiring customs clearance), whereas it was designed for documents. This was causing a backlog because SAPO could not dictate to SARS how to deal with such letters. There needed to be a clear service level agreement about norms and standards to ensure regulatory standards. Currently the standard operating procedure was all registered letters need to go through customs clearance which would impose delays.

International mail had had its processes streamlined and these were outlined such as upgrading the network to fibre which had increased processing speed and the number of work stations had doubled for customs assessment at Johannesburg International Mail Centre (JIMC). Also an SMS notification process had been introduced.

SAPO needed 1600 scanners across the country, it currently had 20. This had been prioritised as it undermined productivity.

Ms Kwele said SAPO would be reporting on a quarterly basis but was beginning to see improvements.

Recapitalisation fund
Mr Mark Barnes, SAPO CEO, said that of the R2.9 billion funding received in January 2019. R6.35 million had been put towards a bridging facility pending the arrival of this capital. There had been an overdraft facility of R400 million. Those had been paid in full, with interest. SAPO was not currently using any bank facilities.

Much of the money had been spent on paying critical suppliers and property rentals. SAPO had applied for and received the universal service obligations (USO) and public service mandate post offices subsidy. Following business rationalisation, SAPO had discovered several post offices that were not profitable and not USO post offices. Therefore, the payment of amounts was part of rationalising the branch network with the use of technology to get rid of loss-making branches.

SAPO was left with about R1.3 billion of the R2.9 billion bearing in mind it had no bank borrowings. Of the R1.3 billion, R853 million was for capital expenditure projects which had been properly prioritised, costed and evaluated. About R100 million was for quick fix aesthetic measures and clothing for workers.

SAPO envisaged a fully integrated technology solution for SASSA payments as an endgame. Current operations were in parallel with the Department of Social Development and other bodies and there were numerous systems and interfaces that had to interact with one another which was introducing gaps which could be exploited by unwanted elements.

There were many solutions to eradicating cash such as e-Wallet. SAPO envisaged an environment where a huge technology central capability in government was capable of dealing at the smallest unit of interface. Elimination of cash in transit costs would free up close to R1 billion which would allow for a fundamental economic change in SAPO’s profile.

Discussion
Mr C Mackenzie (DA) asked about the 1 million customers who had not migrated to Postbank. Was there a campaign in mind or targeting strategy to draw in these customers? Were there actual numbers reflecting post offices that were still shut due to outstanding rentals for premises? Were vehicles still being leased through commercial companies? Had costing been done for procurement of SAPO’s own fleet rather than leasing? What was the mail delivery volume rather than percentages? What was the specific problem in the Northern Cape? Rural areas were more dependent on the postal service.

Mr Mackenzie asked if the scanning software would be changed to read the tracking numbers and codes from overseas and if so when would it be done? This would ease the value chain significantly.

The R334 million Postbank settlement had involved conflict between Mr Barnes as a CEO and National Treasury. Given that it had been paid back, did that mean that Mr Barnes had been wrong in his earlier defence?

The Boksburg and Mondeor post offices were particularly dilapidated and poorly maintained sites. Were there capital expenditure plans to secure premises and maintain those that needed to be maintained?

Mr Mackenzie had promised a constituent, Mr Liebenberg, to raise a concern, and he had also sent it on to SAPO’s head of mail. Vehicle renewal notices from government come late via the post, resulting in penalisation and Kempton Park branch did not have license paper to distribute license renewals.

Ms J Kilian (ANC) asked for clarity about the over 1 million people that had migrated to other banks. What was the current trend? Were people looking to return to the post office?

About the 150 000 beneficiaries who had not presented themselves to collect their card, this was concerning as it could point to fraud in the system. Was there a lack of communication between the Departments of Home Affairs and Social Development? What was the solution? Combating fraud and theft was one of the major problems still to be dealt with.

She referred to slide 11 and said it was good to see a strategic focus to improve the touch and feel of post offices and the overall experience. Could elimination of cash payments over time not be done by consolidation of post offices close to one another in a local area? A linking transport system between offices was suggested.

On the impact of strikes on inbound and outbound mail, did SAPO ever share with organised labour the impact of go-slows and workshop stoppages? Labour should understand the implications of downing tools.

She referred to staff expenses on slide 15 and asked these expenses were. Were the expenses directly related to performance bonuses, over time, or some other form of compensation?

Ms N Ndongeni (ANC) asked if there was a programme directed at other departments to show SAPO’s revival and being open for business?

Ms M Shinn (DA)  asked that since SASSA business had been secured and universal service obligations had been funded, was any other business needed? Could SAPO operate profitably with just that government business? Public-private partnerships seemed an afterthought when looking at the budget. Had government as shareholder not bought into Mr Barnes’ grand vision for turning the post office into a logistics powerhouse through public-private partnerships?

Mr Mackenzie asked if SAPO was profitable? SAPO had its universal service obligation and did this mean it could run profitably?

Ms Shinn said that Mr Barnes had been very positively vocal in January 2019 about the value of prescribed assets. Should Mr Barnes continue at SAPO, would he be keen for Post Bank depositors to bail out Eskom and SAA, for example, and risk their savings?

The Chairperson referred to Ms Kwele's reference to committing robbery under the guise of disability as needing to be condemned. What was the profile of the 150 000 outstanding people? Were they elderly or young for example? About cashless solutions, were there available avenues for which grant recipients could be enlisted?

It would help to have the details of the regional GMs as Committee members would find this contact mechanism useful when returning to their constituencies.

Ms Kwele responded that the 1 million target was a large one, and SAPO would embark on an intensified awareness campaign to try get those to return. SAPO communications and marketing teams were working to attract people. Over time SAPO believed the value proposition would be seen and attract more numbers back over time.

On its vehicles, an investment committee had been set up to explore all options regarding buying or leasing. The option that best served SAPO’s needs would be chosen. Forklifts would be bought. Owner driver schemes were also being explored as a logistics strategy.

The challenge in the Northern Cape was that its huge recruitment drive had been unsuccessful. It had been partly addressed through cross-utilisation of  the Upington branch, but this was resulting in clogging. The SAPO HR Department had been made to prioritise Northern Cape to address this. Robotic Process Automations (RPAs) were being explored for delivery and conveyancing of mail to spur local economic development .

On the inefficiencies of the past where different scanning codes were used, SAPO would integrate International Postal System (IPS) with UPU standards to avoid double processing.

Ms Kwele referred to the Boksburg and Mondeor post offices and said that an error had been made to abandon its own old buildings and move to new leased premises. This had resulted in poor optimisation of assets. SAPO was now pursuing a refurbishment drive, with movement back to old offices to stretch the budget further. A condition assessment of the property portfolio had been undertaken and refurbishment action was being taken.

The delayed motor licence renewal notices spoke to intergovernmental relations. While SAPO was doing motor vehicle licence renewals, the system remained that of the Department of Transport and there was little back end integration.

On interacting with organised labour, progress had been shown during the negotiations. During the 2014 strike it became clear that operating figures, delivery standards and reports had not been properly engaged with and therefore the implications of their actions could not be fully understood. The relatively short duration of the 2018 strike showed that all stakeholders had been informed of the urgency of the matter. The information needed to be embedded with SAPO staff across the board to inculcate a culture of performance.

About the profile of the 150 000 clients who had not returned to collect their new cards, these could have been ghost beneficiaries, deceased or duplicates. The Integrated Grant Payment System (IGPS) would assist in cleaning up the data for analytics which could enlighten them further.

SAPO Pay was going to be launched as a cashless solutions. It would seek to mimic Kenya’s M-Pesa system. SAPO wanted to deal with the encryption architecture. It believed the policy architecture could explore other business opportunities that could assist processes such as the Department of Home Affairs on ID renewals or NSFAS.

Mr Barnes spoke about the SAPO and Post Bank inter-company accounts, saying that it was not a repayment, it had been a reversal from an inter-company account within the same organisation.

He agreed that the percentages for mail delivery could be misleading. SAPO aspired to go beyond the UPU standards. The way that SAPO was solving it was by emphasising one-to-one courier relationships so that predictable services could be established. SAPO had started linking up with clients on Speed Services with predictable courier-based deliveries. Instead of trying to solve things for the entire retail population, SAPO was building one-by-one little dedicated partnerships with clients that would provide the impetus to provide a courier service that is competitive. The major key remained systems. SAPO needed to move beyond manual sorting of stock. The capital was becoming available to spend on these necessary systems.

SAPO was working on motor vehicle licences. There was an upcoming board meeting on 8 March 2019 where Mr Barnes would submit a solution for motor vehicle licences.

SAPO had no choice but to pursue public-private partnerships due to the pace at which the private e-commerce market was developing. SAPO would have to partner with private sector developed initiatives in order to remain competitive and build a state asset.

The IGPS was a hugely scalable system as it was capable of paying any identity-linked payment such as NSFAS as previously mentioned. Integration with Home Affairs would be producing a government payments system housed in a government infrastructure body. This would start enabling a technology centred centre of exchange in SAPO which would be able to fund itself.

SAPO had close to instantaneous real time communication at executive level and could ensure accountability across branches. This enabled executives to decentralise management and deal with the challenges.

The staff expenses figure was not bonuses but merely operating expenses, not a backlog or bonus.

On profitability and the need for capital going forward, if there had not been the ongoing reorganisation of SAPO, a strategic plan would have been submitted but it was imminent. It would show a return to operational profitability. For 2019 and probably the next 18 months it would be confused by the upfront expenditure for branch rehabilitation, SASSA overtime, and purchasing of equipment to service pressing issues. This was upfront expenditure for long term gain. Mr Barnes believed that if SAPO were to raise capital by issuing bonds, it would be far more efficient than borrowing money against government guarantees and would be a more inclusive form of economic sharing.

SAPO Pay, the cashless solution was almost a commodity. Cashless solutions were ubiquitous. The solution relied on reverse integration. This involved taking the furthest point of contact; the most intimate point of contact between the citizen and the service, and reverse integrating that into a central government repository of data and technology.

The success of SAPO had perked the interest of many government departments who were engaging with SAPO on the possibilities of reversing some of their functions into SAPO operations.

Mr Ngidi said that in terms of intergovernmental relations, SAPO would mirror how the government was arranged technically from an infrastructure and IT perspective. If government were to have an e-Government system where all the databases were managed, it would be easy for SAPO to do a value add from an e-Commerce perspective, from a distribution perspective etc. SAPO encouraged government entities speaking to one another to identify points of integration as it was easy for SAPO to add value on that front.

On profitability, a large chunk of the R120 million was spent on labour costs. SAPO did have a rationalisation plan where it wanted to drive owner-managed initiatives.

Ms Kwele said that SAPO would mirror how government is arranged from an infrastructure/IT perspective.

Mr Mackenzie asked Ms Kwele when the standardised tracking number system would be implemented. What was the target date? He pleaded that a post office heritage building in Gauteng be prioritised for rehabilitation.

Ms Shinn asked that the question about prescribed assets be answered.

Mr Barnes replied that he had referred to his personal expenditure, not that of SAPO when he spoke about prescribed assets. SAPO would never take depositors’ money to fund other state organisations. However, when considering sources of capital, it could be a comparative debate. Looking at the nature of that source of capital, Mr Barnes argued in his personal capacity that there was a place for it “in the mix”.

Ms Kwele said that SAPO was looking at first quarter of the new financial year as a target date for the standardised tracking number system. The office restoration programme was underway, with priority given to heritage buildings.

The Chairperson thanked the delegation.

Committee business
Minutes of the 4 December 2018; 12, 19, 26 February 2019 meetings were approved with amendments.  

In the minutes of the 12 February 2019, Ms Kilian noted the statement: “The Minister responded that the role of ICASA will have to change to respond to the challenges brought about by the Fourth Industrial Revolution.” She said that the Minister had not addressed the independence of ICASA, it was important to mention the role of ICASA.

Ms Ndongeni agreed with Ms Kilian. ICASA as an entire entity was not a Chapter Nine Institution, there was an element of ICASA’s function (broadcasting) that was protected in terms of the Constitution.

Ms Shinn said that these were minutes of a meeting where she had specifically asked the Minister if there would be protection of the independence of ICASA as in terms of the ICASA Act it was a Chapter Nine institution.

The Chairperson said the audio of the meeting could be recalled. The Chairperson agreed with Ms Kilian on the recent mandate it had been given to drive the Fourth Industrial Revolution. Therefore, it could not be independent. The role needed to be refocused to embrace newly-assigned responsibilities. This did not deal with the independence as this was a Chapter Nine issue. It was resolved to remove the bullet until the recording and transcript had been checked.

The Chairperson asked if a meeting was needed about the SA Connect issue the following week.

Ms Kilian said SA Connect was a flagship product that required a progress report, particularly given that it had recently defaulted, so the Committee could pass on information to the Sixth Parliament successor committee. The subsequent meeting on the Fourth Industrial Revolution could be left out.

The Chairperson thanked the Committee and the meeting was adjourned.

 

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