SAPO & USAASA 2020/21 Quarter 1 First Performance; with Deputy Minister

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Communications and Digital Technologies

01 September 2020
Chairperson: Mr B Maneli (ANC)
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Meeting Summary

The South African Post Office (SAPO) presented its report on key performance aspects of Quarter 1.

Members raised concerns about the critical financial status of SAPO; media reports about the Minister of Communications; long queues for the Social Relief of Distress grant causing beneficiaries to sleep outside post offices; fraud allegations; resignation of board members; and Blue Label Telecoms.

Universal Service and Access Agency of South Africa (USAASA) also presented an overview of its performance and that of the Universal Service Access Fund (USAF).

Members were concerned about delivery timelines for set-top boxes and IDTVs; financial status and funding; Treasury approval of the service level agreement between USAASA and Sentech

Meeting report

The Chairperson asked the Deputy Minister to give a quick overview which also gives her an opportunity to deal with matters in the public domain where she thinks the Committee needs to be taken into confidence.
Deputy Minister Pinky Kekana said taking a cue from what has just been said, she thinks it is important for the Committee to be aware that the SAPO board has been reinforced by the approval of five new board members and they will communicate the new names very shortly. Members have also seen the congestion at SAPO outlets. It would be important in this Quarter 1 report to engage SAPO on that – where people queue in the very early hours of the morning and at some point they are unable to access money, especially the R350 grant beneficiaries. Secondly, as the Chairperson said, there are issues in the public domain that we also need to, at least, take the Committee into confidence . Thirdly, it will be important for USAASA to take the Committee through those interventions for learners in remote areas without television sets or assistive devices to help them catch up. In the main those are the things we need to look at.

The Chairperson requested that the entities brief the Committee only on key issues.

South African Post Office on its 2020/21 Quarter 1 Performance
The Post Office gave a dismal review of Quarter 1 performance:
• Lockdown had a severe effect on Q1 with 14% targets achieved.
• Mail delivery standard decreased to 39% against target of 92%.
• eCommerce platform development above target at 66% with launch end of August 2020.
• YTD June 2020 net loss is R925m compared to YTD June 2019 net loss of R422m.
• SAPO cash flow severely constrained with liabilities of R1.4bn to creditors, medical aid, pension fund, employee risk benefits and SARS all unpaid for three months.
• Payment of August salaries pose a challenge.
•Total equity and liabilities as at 30 June 2020 at R3.8bn.

Universal Service and Access Agency of South Africa on its 2020/21 Quarter 1 Performance
Mr Basil Ford, USAASA Executive Caretaker, provided a general overview noting it had seven Q1 targets and four were achieved (57%). Those USAASA targets that were unachieved were:
• Vacancies not filled although an Interim CFO was seconded to USAASA by the Department.
• Appointment of Sentech to manage Broadcasting Digital Migration (BDM) Phase 1 rollout of 860 000 set top boxes only concluded on 8 July 2020 but appointment is subject to National Treasury approval.
• USAASA only paid 7.4% of invoices in time due to SAP system failure and maintenance was not available. Financial information on expenditure and progress in addressing audit findings were provided.

Discussion
Ms P Faku (ANC) said that the entities were not performing well as expected. Issues raised in the media needed to be discussed by the Deputy Minister or the Acting Director General to provide an explanation of what was happening with the SAPO Board. She asked for clarity on the resignation of the SAPO Chairperson and the newly appointed board members.

Ms Faku said that the Minister of Communications should approach the Committee and explain what was happening with SAPO. She reiterated dissatisfaction with the performance of both SAPO and USAASA. Aside from the COVID-19 impact she felt certain issues should have been resolved long ago. She asked if the 40% performance by SAPO was linked to COVID-19 and if the performance could be an indication of lack of planning and initiative at SAPO.

She asked how SAPO found itself with the legal challenge of its own pension fund and asked for background information. She asked how SAPO intended to remedy the pending legal challenge related to pension funds.

Ms Faku noted SAPO revenue was largely dependent on bulk mail and courier however due to COVID-19 the numbers had dropped. A marketing strategy to resolve this should have been presented with the report and she hoped it would be presented in the next meeting. Due to SAPO’s challenges with mail, she suggested it needed to come up with a strategy to increase revenue; lower security costs – especially the R106 million for SASSA grants; and lower the IT costs of R118 million which was too high.

Ms Faku welcomed the USAASA presentation and the appointment of an acting CFO but suggested a permanent person should be appointed. She expressed dissatisfaction with the six month timeframe for the set top box distribution plan. The R5 million paid each month to keep these set top boxes in warehouse storage was too much; the money could be utilised towards something else.

She asked how long the Treasury approval would take for the USAASA service level agreement (SLA) with Sentech. She asked if Mr Ford had approached Treasury and asked why the approval was taking so long. How long would the integrated digital television (IDTV) process be? She said the Bid Adjudication Committee (BAC) process for IDTV was a good strategy to manage what was happening.

Mr C McKenzie (DA) said he would have appreciated the presence of the Minister of Communications. He relayed his condolences for former SAPO board chair, Dr Comfort Ngidi and three MP colleagues who had recently died from COVID-19.

Mr McKenzie asked SAPO Acting Board Chairperson, Ms van der Sandt, about the number of board vacancies in SAPO and the processes to fill the vacancies. If there were potential candidates, who were they? He asked why people were resigning from SAPO. The South African Post Office faced a disaster and was in the worst financial position to date. He cautioned about bankruptcy and asked if the August salaries were paid and how finances were looking for September. How did the cash flow projection look like going forward and were there enough funds to run operations? Had SAPO received an indication from National Treasury that it can have access to COVID-19 funding? He asked for a solution for staff as SAPO had not paid medical aid, pension funds and was unsure how salaries would be paid.

Mr McKenzie asked about the alternative channel for grant distribution and what role Blue Label Telecoms led by Mr Mark Levy played in the grant distribution process to disburse the Special Covid-19 Grant. He asked for details on what service Blue Label Telecoms provided and how much of the grant portion they would get? He asked how and why Blue Label Telecoms was brought in to channel grants and what tender process was followed.

Mr McKenzie asked what was happening with the whistleblower's report about Blue Label Telecoms and what were the processes being taken by SAPO. What had happened to Acting CEO, Ms Lindiwe Kwele – was she still on paid suspension and what would happen if she was not found guilty? How was SAPO avoiding legal matters regarding suspension? For the Special Covid-19 Grant, how does the Post Office pay recipients and how was the process being managed going forward? He asked how SAPO was going to ensure there was enough monies, security, sanitation essentials and social distancing to ensure the safety of queuing grant recipients.

Mr McKenzie asked for the numbers for both the domestic and international postal backlog in Johannesburg, Durban and Cape Town and by when the backlog would be clear. He asked if mail was being delivered to post boxes. How was SAPO looking in terms of postbox revenue going forward? Was there a possibility of giving your customers a lower cost for postboxes given that they have not received mail in so long?

Mr McKenzie said former CEO Mr Mark Barnes introduced a digital distribution of post through a virtual post office however it did not work and the same applied with the track and trace system to track parcels through a tracking number. He asked what had happened to the customer-centric system.

Mr McKenzie asked for an explanation of the SAPO e-Commerce revenue share partnerships, who the partnerships were with and which aspect of their products and services were they looking at sharing?

Mr McKenzie stated SAPO Finance Managing Director, Mr Govender, had not provided forward looking hope on how SAPO would get out of the black hole. He asked what the plan was as SAPO’s reputation was at risk of losing customers and banking facilities which had financial implications. He asked where Adv Ivumile Nongogo was and where he sat within the organization at that moment.

Mr McKenzie asked USAASA to explain why it had described Telkom as an organ of state. He asked if there was an end date for the storage of the set-top boxes in SAPO warehouses. Was there a timeframe it was working towards for the IDTVs missed by the Grade 12s? He worried about the Grade 12 learners who had not yet received their identity documents. He asked what the Digital Development Fund (DDF) plan was and in what timeline it would be expected to be achieved? He asked who the service provider was for the broadband rollout in the Joe Morolong and Ratlou municipalities.

Ms P Van Damme (DA) expressed her dissatisfaction at the Minister not being present during this meeting. It was critical to discuss the matters related to SAPO which were largely in the media and personally involved the Minister and required her to answer allegations that were in the public domain. She considered the Minister’s absence as her "running away". She asked that the questions posed already be answered unequivocally. She wanted responses to matters concerning the Minister and the Minister’s husband in the public domain.

Ms Van Damme requested a meeting with the Minister as it was worrying that the Minister was fighting with the Post Office and interfering with the SABC Board. The ICASA saga was also a concern as are many other entities. She had the impression the Minister was more interested in starting fights than doing her job. She asked that the Minister be called to the next meeting and it be made clear that she needs to be present and held accountable.

Ms A Mthembu (ANC) asked SAPO how it would address the long queues resulting from the R350 Covid-19 grant beneficiaries. The challenges with the long queues need all parliamentary constituency offices to make interventions to manage the situation. She suggested offices were made available to reduce the number of beneficiaries sleeping outside post offices. Ms Mthembu appreciated the efforts made by the post office.

Ms N Kubheka (ANC) asked for SAPO's plans about the payment of employee pension funds, medical aid and salaries. Could SAPO manage to stand on its own in the running of its finances? She asked if the SAPO strategy could work or if there was a challenge with its implementation.

Ms Kubheka asked about the Treasury response that was still awaited for the USAASA-Sentech SLA. She noted progress with the BAC by the acting CFO. She asked if SAPO would negatively affect the progress USAASA was making in the project they were working on together.

SAPO response
Ms Tia Van der Sandt, SAPO Acting Board Chairperson, said Ms Faku’s concerns about non-performance were noted. She noted that according to the Deputy Minister the board members had been appointed to fill the vacancies and formal communication would be submitted by end of the day. In the next Committee meeting, SAPO needed to give the Committee confidence about its strategy for revenue as well as security costs and the challenges related to those. The SAPO strategy was the implementation and launch of cashless ATMs to reduce security costs and ensure there would be no need for cash pay points (CPPs) thus eliminating cash in transit (CIT) costs. Beneficiaries would be able to use their cards at cashless ATMs within spaza shops and retail stores.

On the IT concerns, those costs are Telkom network related which network would be expanded over two years and that would result in SAPO’s monthly cost being reduced by R20 million as soon as all the branches were refreshed.

Ms van der Sandt replied that the current board members were herself as acting chairperson, Ms Colleen Makhubele, Mr Sipho Nkese, Ms Nondumiso Ngonyama and executive board member and acting CFO, Mr Lenny Govender. The Acting CEO position had been left vacant due to the resignation of Adv Ivumile Nongogo who went back to his position in the legal fraternity. The term had expired for the Acting COO position so a request had been submitted to the Minister to extend that period. The individual occupying the COO position currently was Mr Refilwe Kekana.

The August salaries had been paid however the acting CFO had been managing the process such as trying to source money to ensure salaries were paid in future. COVID-19 funding to the value of R2.2 billion had been requested from National Treasury. SAPO had submitted an MTEF submission to National Treasury and numbers would be addressed at a later stage. SAPO was not only waiting for National Treasury for funding but management had been approaching banks and private companies for potential funding so that the finance issues could be resolved.

The grant distribution solution alternative was currently in process in conjunction with Post Bank with the creation of electronic vouchers for grant recipients to have the option of receiving their payments at retail stores and spaza shops. The Blue Label issue had never been passed through the SAPO Board and the board had not heard of it. Due to the SAPO letterhead being used, a case had been opened with the police service and this was currently awaited. The comment on the CFO being suspended was not true. The two individuals suspended were the COO who was acting in the CEO position and the head of supply chain management. Mr Kekana was the Acting COO until the process was finalised and no legal issues were foreseen regarding that.

The board had asked for an independent investigation on the whistleblower's report and the board had received feedback on the report.

Mr Sipho Nkese, SAPO board member, replied that the board had mandated him to deal with the matter relating to the two suspended individuals one of which was the head of SCM. The whistleblower’s report was received by the board with very serious allegations the board could not ignore. To ensure objectivity in dealing with the matter, the board then sought an independent external organisation to investigate the allegations made in the whistleblower report. The company that had done the investigation confirmed the veracity of the allegations.

The SAPO board was in the process of completing the case of misconduct. The suspension was challenged and referred to the Arbitration Foundation of Southern Africa (AFSA) alleging unfair suspension which was heard on 27 and 30 August 2020. The board had received audio recordings and the parties were now submitting their arguments and awaiting the outcome. Due to the seriousness of the case, Mr Nkese said there were no risk of the company being found wanting as there were allegations and supporting proof. The board was planning on going ahead with the case however they were treading cautiously and were treating the matter fairly and objectively. He would be willing to comply if the allegation of unfair suspension was upheld.

Mr Kekana replied about the backlog. SAPO had an estimated 109 million outstanding parcels for international parcels and within the week had cleared roughly 100 000 of them. SAPO had increased capacity to full throttle since 1 September 2020 to achieve its distribution target of all domestic and international parcels. On postbox-related revenue, SAPO had made substantially less revenue in the first quarter. A reduction was not something that the board had discussed but it would be discussed in a board meeting. However considering that the postboxes had been there prior SAPO was not due any costs resultant of members not receiving or having access to their postboxes.

Mr Kekana explained that the solution for the Social Relief of Distress (SRD) grants was being crafted jointly by SAPO and Postbank involved simple solutions which were the same as sending an SMS and asking recipients which was there preferred channel for receiving their grant between the post office and retail option. If beneficiaries opted for the retail option a retail voucher would be created. They would present the voucher at the retail store and the voucher would be exchanged for cash. If they opted for the post office, then post office procedures would apply. Blue Label had not been paid money and had not been engaged in any SRD project. Digital services online platforms had been revamped to one site. The only challenge posed was the need to integrate the call centre. Track and Trace had been consolidated into the International Postal System as SAPO has switched to an international system – Universal Postal Union’s IPS tracking system. SAPO was rolling it out to the branches when lockdown happened. However, SAPO was working towards a fully-fledged online programme to all branches. With e-Commerce, SAPO had the International Postal System (IPS) system implemented correctly and it would be introduced into the branches as soon as they were fully operational.

Ms van der Sandt replied that there was a joint proposal with Postbank which would alleviate a lot of sleepovers so people do not have to wait at the post offices to receive their grant money. They hope the voucher system will assist with alleviating long queues and sleepovers.

Mr Lenny Govender, General Managing Director: Finance, SAPO, replied about its strategy to ensure it can make payments for salaries and suchlike. In terms of finance, the cash flow strategic plan reduces SAPO’s loss by R650 million; however SAPO would still have a loss of R1.9 billion for the 2020 financial year. SAPO made an application for COVID-19 relief of R2.2 billion and an MTEF submission for R4.9 billion. He hoped those funds would be approved for SAPO. Revenue had been anticipated to improve in Quarter 3 to cover costs.

Mr Jerel Ruthnam, Acting Group Executive: Strategy and Sustainability, replied that a turnaround plan had been developed and there were strategies in place for addressing key areas of SAPO. The turnaround plan was to see SAPO lower losses until March over a 1 year period which would bring the net loss down by R311 million. The plan and identified initiatives were implementable and would require amounts of funding to enable certain key initiatives for optimising costs within SAPO to ensure modernisation and digitization. The plan was complete. Implementation and resourcing were now the focus as funding was a critical cornerstone to ensure implementation would be successful.

USAASA response
Mr Frik Nieman, Acting Chief Financial Officer, replied that Sentech was employed to distribute the set-top boxes. The SLA had been signed even though the target for signing it by 30 June at the end of Quarter 1 was missed; nonetheless, it was signed at the beginning of Quarter 2. In the SLA there was a condition precedent requiring that the deviation be approved by National Treasury. The CFO would address the deviation request so the Committee would understand the process it had gone through and the effort made to secure it.

There were two components to the question of how far USAASA was with the IDTV process: 1) procurement and 2) list of beneficiaries. As it is using a Bid Adjudication Committee (BAC) process for procurement, the adjudication process had not been completed. At this stage, he could not say too much on the matter as doing so would put that in jeopardy. The compilation of the list of beneficiaries was taking longer. To date, USAASA together with SAPO had registered a number of beneficiaries eligible for IDTVs for the grade 12 learners however the process was to be continued. They went through all provinces and liaised with provincial authorities,. The Department of Basic Education at both the national and provincial level had been receiving a lot of application forms from all the schools in the rural areas which were being processed.

The unresolved audit findings in the USAF report were all related to the set-top box inventory. There had been a lot of engagements with SAPO to try and resolve the inventory issued and redeemed.

Mr Nieman said that the Acting CFO would reply about whether what was happening with SAPO would impact USAASA. He provided background information on the SLA with Sentech. The agreement was signed on 9 July with condition precedents. The first one was on price. Sentech said it could only agree once USAASA paid market related prices. The second was Treasury approval. Market prices were looked at and installation prices too, subsequently a letter was written to Treasury to that effect on the 31 July and it had received feedback on 19 August which indicated the R310 agreed price in the SLA met Treasury requirements. The receipt of approval letter for the agreement was in August. Due to the magnitude of the project, a letter was written to Treasury to confirm the service level agreement was sufficient for the two entities, USAASA and Sentech, to transact. The letter was sent to Treasury on 14 August since then there had been daily follow ups with the Office of the Chief Procurement Officer. A letter was received on 23 August which stated that the SLA was not sufficient and one of two actions had to be done: either open a tender and invite bids or alternatively apply for deviation approval from Treasury to appoint Sentech as sole supplier. On 24 August a letter was written to Treasury asking for deviation. Since then until now they had been making daily follow ups. Consultation with the acting Chief Procurement Officer, Ms Estelle Setan, was ongoing. The indication received from one of the OCPO directors was that the letter was drafted and was currently with Ms Setan but the director refused to give information as to what was concluded in the letter. He was confident the letter would come in by the end of today or the following day and he would persist in making phone calls to follow up with Ms Setan. He noted that the Minister also wrote a letter to the Finance Minister requesting the expediting of the letter.

Mr Nieman said the BAC was in process for the IDTV project. The intention of the bid was to appoint a cabin of suppliers which meant there would be more than one supplier to assist with the of IDTV roll out much more quickly. The BAC still had work to do and was very hard at work due to the magnitude of the project. The plan was to make recommendations to the USAASA executive caretaker once the BAC had done its job and ensure that all gaps were covered and no room was left for any litigation.

A set-top box inventory report would be issued soon. In the previous week an attempt to solicit meeting SAPO executives was made however this was unsuccessful but a second attempt would be made by the end of the week to discuss the audit findings. As soon as matters were addressed, the inventory report would be finalised and the executive caretaker would then address the challenges of the audit report.

Telkom had been classified as an organ of state as they were partially owned by government and it reports to the Department.

The planned target date for installation of all set-top boxes was 31 March next year. Once the accelerated programme started, the warehouses would be emptied by the end of March 2021.

The primary reason SAPO did not make a lot of allowance for the Digital Development Fund (DDF)
was due to the fact that the Department is driving the DDF process and it is still going through process to get that set up and he would not want to speak on its behalf about timelines so that is why they did not provide a lot of detail on it during the presentation.

Mr Sipho Mngqibisa, USAASA Executive Manager: Performance Manager, replied that the Joe Morolong and Ratlou municipalities were provided broadband connectivity by Galela Communications. The background information on Galela Communications was that in 2013/14 USAASA undertook a procurement process in line with sections 23 and 29 of the Electronic Communications Act where it aimed to roll out the core network to connect 61 institutions in the two municipalities. Galela was appointed for a period of three years and in the first year rolled out infrastructure and in the remaining two years rolled out broadband connectivity.

Mr Thabiso Thiti, Acting Director-General: Department of Communications and Digital Technologies, replied that the appointment of five additional SAPO board members was made by Cabinet and announced last week and they would receive appointment letters by the end of the week. In terms of funding of SAPO an application for R4.9 billion came through to the Department and was with National Treasury.

He wanted to deal with the alleged interference by the Department. On a weekly basis the Department receives correspondence from its entities requesting assistance with matters and the Department would assist in its oversight function. She gave the example of SAPO distributing social grants and the Department must ensure the grants are delivered and ensure that there is funding in place. However, the board of the entity is still seized with the responsibility of ensuring that it protects the entity. So the Department does not "go to the entity for the sake of going". It will be based on a concern from an oversight point of view, it will be the SRD, it will be the SASSA plan. DCDT is concerned there are no revenue activities at SAPO and the mail volumes are going down. We there to perform an oversight function on the issue presented. Turnaround needed to be discussed with all the entities. As the Department, it did not go with guns blazing into an entity and impose its ideas but rather went to ensure the mandate they have are delivered on.

The Chairperson advised that ministers should not be happy when their entities were not performing well under their watch. Ministers had a responsibility to do oversight which was a function ministers still had to come back to despite being representatives of a political party. He urged ministers to resist the temptation of focusing primarily on the political orientation. There were fundamentals ministers would need to agree to as representatives of the people to ensure that all entities were delivering on what they were supposed to deliver through oversight especially on the side of Parliament and hold each other accountable on that. That would go a long way to ensuring that there be announcement about repositioning the state owned entities.

He said there should be concern from a delivery point of view to hear that sites said that were pilot sites for the District Development Model until now had not been able to speak of 100% delivery. Developing areas such as rural areas lacked broadband delivery and so on. USAASA was urged to take this seriously.

He did not want the Committee to be counted as part of the statistics that had raised matters but did not do anything to deal with them. The Chairperson suggested a project management team was needed for BDM to look into governance. A meeting with USAASA needed to be scheduled because the constant change in timelines brought about a leadership credibility concern. The Committee should not be interested in who got tenders but be primarily concerned with whether timely delivery was made and done according to the law. The Chairperson was pleased about the partnership with Sentech and said that the state owned company would be easier to work with in the delivery of set-top boxes from the post office warehouses and cut storage costs.

He said close attention needed to be paid to SAPO to see that it turns the corner. It remains to be seen if a large bailout will be forthcoming when the Minister of Finance has explained the highly constrained resources. Bailouts have been given before with promises of a turnaround. We have to establish if this is a government problem or what is the real problem with SOEs. Parliamentary representatives should exercise oversight irrespective of the political party they represent.

Meeting was adjourned.

 

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