South African Post Office on Restructuring: briefing

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
16 FEBRUARY 2000
BRIEFING BY SOUTH AFRICAN POST OFFICE ON RESTRUCTURING

 

Presentation by the Department of Communications
Monitoring of Strategic Management Partnership Process
Presentation to the Parliamentary Portfolio Committee on Communications
on the South African Post Office restructuring process

SUMMARY
The Chair stated there were three items on the agenda.
1. The concern raised over the SABC documentary on Circumcision.
2. The claim by Professor Zulu that government interfered with the independence of SABC.
3. The restructuring of the South African Post Office (SAPO), and the SMP process.

The committee agreed that the documentary shown by SABC on circumcision did not go past acceptable broadcast standards.

It was agreed that a letter from the committee would be sent to Professor Zulu to verify if what was written in Business Day was correct. It was decided if the article was correct, he would be invited to substantiate his claims before the committee. Letters will also be sent to the other members of the SABC Board in order to corroborate or refute the allegations

Presentations were made by Price Waterhouse Coopers, South African Post Office and the Department of Communications on the restructuring of the Post Office and the Strategic Management Partnership. Discussion focused on the expansion and implementation of postal services to rural areas, skills-auditing of the current staff, electronic communications and information technology.

MINUTES
SABC Documentary on Circumcision
Mr Kekana (Chairperson) stated a committee member felt that a SABC documentary on circumcision had gone past the acceptable broadcast standards. The Chair noted that the documentary did raise controversial issues that concern the entire country, but believed that it was within the South African broadcast standards. He stated the committee could not depict how the SABC handles information. The committee member who raised the concern was not present.

Claims by Professor Zulu on "Government Meddling" in the SABC
Ms Vos (IFP) stated the newspaper, Business Day, had reported that Professor Zulu, the past Chairperson of the SABC Board, made claims that the corporatising of SABC came as a direct policy directive from the Government. He also made allegations that decisions made by the Board were often "dictated from above." Ms Vos said that the corporatisation of SABC was not an issue because government was permitted to initiate policy directives under the Broadcasting Act, but the other allegations must be investigated to protect the integrity and independence of the SABC.

The Chair identified the necessity to interact with the SABC Board twice each year to discuss any issues the Board wanted to raise. He also stated there was an internal inquiry conducted in 1999 that concluded there was no government interference in the SABC.

It was agreed that a letter from the committee would be sent to Professor Zulu to verify if what was written was correct. If the article is correct, he will be invited to substantiate his claims before the committee. Letters will also be sent to the other members of the SABC Board in order to corroborate or refute the allegations

Presentation by Price Waterhouse Coopers (PWC):
Mr R de Montfort, Director of Corporate Finance for PWC briefed the committee on the restructuring process of South African Post Office. He focused on Project Future Post, the development of policies since 1997, the Strategic Management Partnership (SMP) process and executive lease positions.

Presentation by South Africa Post Office (SAPO):
Reverend V Mehana, Senior General Manager of Human Resources for SAPO, discussed the SMP process, the SMP contract and future initiatives of SAPO including international consultancy services and information technology.

The Chairperson of SAPO, Mr M Mayisela, added that the Post Office is becoming a part of the global village and SMP will be imperative in aiding South Africa to understand the norms and standards of the global village and in interacting with other countries.

Discussion:
Ms Magazi (ANC) asked what was meant by "the rehiring of staff"?

Mr Mayisela replied that workers needed to be retrained to work in new postal offices in rural areas and deal with different clienteles. Reverend Mehana added the problem they were faced with was that 90% of their workers were employed on a contractual basis and when the contracts ended, most left to work in the private sector left. He stated that a retention policy is being developed and a more "business principled commercial organisation" approach will be taken to bring back workers at the salary norms of the industry to combat this problem.

Mr Maserumule (ANC) asked if there was a programme that dealt with implementing infrastructures in rural areas?

Reverend Mehana stated that a Business Plan has been created to redress the imbalance in rural areas, which SMP will be part of. He further stated that retail postal offices will be placed in community centers and postal boxes will be deployed to these areas. The problem facing SAPO was that unions were not in favour of deploying employees into rural areas. SAPO has started meeting with the unions to persuade them to support the initiative. He added that the Post Office and the Department of Communications were working on a rural integrated strategy approach to have multi-purpose postal offices in Kwazula-Natal, the Northern Province and the Eastern Cape.

Ms Phantsi (ANC) asked how SAPO ensures that staff is representative of the rural areas and were they experiencing language problems?

Reverend Mehana stated that SAPO prescribes to the Employment Equity Act and has involved the Unions in changing employment polices to reflect the needs of the Post Office.

On language problems, Reverend Mahena argued that the Post Office must be considered a business and as such it must work in the current business language of English. He stated that they do not discourage other languages being spoken, but that the principle language spoken would be English.

Ms Magazi (ANC) asked what mechanisms will be in place to aid the people you are serving?

Mr Mayisela said there will be managers who will cover a specific region and will handle problems when they arise. He noted that having managers who were not from the specific areas could be problematic.

Mr Pieterse (ANC) asked what steps have been taken in respect to gender-sensitivity?

Reverend Mehana stated that of the 25 000 people employed by SAPO, 9 000 were women. He said that openings had been created at higher levels to ensure that women were well represented at higher levels.

The Chair asked how SAPO will implement "electronic detail communications" in Post Offices in rural areas?

Mr M Mngqibisa, from the Department of Communications, replied that the services will be extended through a Rural Post Office Development Network, which will include digital information technologies in both rural and urban areas. Mr Mngqibisa stated that it was necessary for Post Offices to create technology based businesses in partnership with the private sector to ensure that Post Offices thrive.

The Chair asked how much money the Government is giving to the "Citizen's Post Office"?

Mr Mngqibisa said R10 million in 2000, and R5 million in 2001.

Mr Waters (DP) asked how much the three executive leases pay?

Mr Mayisela stated that the contracts, which were determined by New Zealand, had not been signed and no payments had been made to the three persons. He further stated that two of the executives, Harvey Parker and Ian Russell had done work for South Africa, but that they had yet to receive payment.

Dr Cwele (ANC) asked what resources were committed to retraining staff and had a skills audit been done of the employees?

Reverend Mehana replied that they have relied heavily on information technology consultants in the past. He also said that they have appointed a General Manager to do a recruitment drive for staff, but they must also focus on three specific areas. First, to improve on the salary scales of their workers in the information technology sector. Second, to improve on retaining their employees, and lastly, to attain stability in the Post Office.

Mr Mayisela stated that employees lacked the work ethic that is necessary in a business environment and that an audit of all managers had been conducted with "frightening results". He argued the Post Office needed to employ managers with the adequate qualifications and who could act as mentors to their employees. We further stated that annual appraisals will take place. Reverend Mehana added that a skills audit had been performed by an external company and they were awaiting the results.

The Chair asked what measures are being taken for customer feedback?

Reverend Mehana stated that five monitoring mechanisms were currently in place. One, a committee within the Post Office that meets quarterly to evaluate our services. Two, a National Postal Forum which consists of union members, Postal Board members, and community members. Three, Customer Service Managers that deal with the public's concerns. Four, call centers and a "crimebuster" hotline for complaints, and five, an external company that monitors the delivery of mail.

Presentation by the Department of Commerce:
Mr Mngqibisa briefed the committee on the restructuring of the Post Bank. No questions were asked due to time constraints.

Appendix 1:
Presentation by the Department of Communications

POSTBANK CORPORATISATION
Presented by Mongezi Mngqibisa

Current Situation
Background - Regulatory Framework
· - Postbank is governed by Section 52 of the Post Office Act of 1958 and operates through regulation
- It has special exemption from the provisions of the Bank Act, 1990
- Postbank operates as a profit center and division of SAPO

Market Structure
Large savings account holders in the lower income groups
· · Savings certificate holder
· Need to strengthen competitive position of rural areas
· Make use of existing infrastructure of the SAPO network

Products & Services
Current product offerings include:
· - Saving accounts
- Telebank
- Savings certificate

Restructuring & Corporatisation
Rationale for restructuring
· - Lack of economic activity in rural areas
- Postbank offers powerful support structure for urban-rural linkages, and vehicle for economic growth
- Rural people have no access to financial services because of banks having low outreach levels
- Major banks regard rural areas as unprofitable and have concentrated on higher income segments of the population
- Postbank has potential to strengthen the savings pro of wider segments of the rural community and channel accrued funds to loan facilities for SMME's and agricultural committees
- Postbank suited to take lead in satisfying savings needs in rural and urban communities

State Vision for Postbank
Establish a financial institution for the mass mobilization of savings and investment funds
· · Create a bank of first choice for the lower income groups by providing appropriate banking products and high quality financial services
· Contribute to household savings through the utilization of the Post Office Network
· Support public investment capital for national policies by depositing collected savings in public funding projects
· Enlarge the base for national savings and thus pursuing stability and growth of the national economy

Phases for Restructuring
White Paper proposed a 3 phase restructuring that Cabinet approved in 1998:
· - Phase I
· Postbank as profit center providing autonomy within the current divisional structure
- Phase II
· Postbank to be corporatised with its own board owned by government
- Phase III
· Postbank to become a company with a strategic equity partner and preparing for listing

Process for Corporatisation
Appointment of Advisors:
· - Issue RfP
- Briefing session
- Deadline for submission
- Clarification & evaluation
- Cabinet approvall
- Appointment of Consultant
- Corporatisation & Business Strategy

Appendix 2
Monitoring of Strategic Management Partnership Process

By means of two processes
* SMP Contract
- Provides for monitoring committee from Board of Directors
- Meets quarterly

* External company appointed by SAPO
- Abt Associates
- Concentrates on softer issues such as relationships and staff attitudes of SAPO and SMP

OTHER INITIATIVES WITH A POSSIBLE EFFECT ON RESTRUCTURING OF SAPO

1. Courier and freight business
* Four courier and freight services in SAPO
- Speed Services Couriers: overnight express service
- XPS Services (Pty) Ltd: express freight and parcel delivery
- The Document Exchange (Pty) Ltd (Docex): express document delivery, in particular legal documentation
- Parcel plus: counter-to-counter parcel service

* Amalgamating into one courier and freight group (CFG)

2. Fast Forward
* Division of Transnet
* Specialises in express/deferred parcel freight
* SAPO interested in certain components of business
* Due diligence of Fast Forward
* Take-over is a complex process Timetable middle of year

3. International consultancy services
* Plan to establish SAPO as regional postal hub for Southern Africa continent

* Identified need to provide consulting services on postal matters
- To Africa countries
- On international basis

* Establishment of subsidiary company
- Wholly owned by SAPO
- Assistance and guidance from SMP

* Awaiting approval from shareholder

4. Information Technology NewCo
* Staffing crisis in Information Technology Division
- External competition
- Lucrative external market
- Lack of skilled IT staff in SAPO
- Rehiring own staff

* Creation of separate company to provide services to SAPO holds certain advantages
- Secure technology partnerships
- Skills injection
- Long-term stability in SAPO technology services

* Process in infancy stage

STRATEGIC MANAGEMENT PARTNER (SMP) CONTRACT

* Contract duration three years (1 October 1999 to 30 September 2002)

* Consultation services provided in three categories
- Transitional staff: 10 managers in vacant or newly created senior management positions in SAPO to implement new processes and train South African candidates to take over
- Three senior executive management staff
i) Executive lease arrangement not yet concluded
ii) Two executives assisted on ad hoc basis
iii) Third executive at SAPO until 31 March 2000. His contract still to be finalised
- Strategic Management group in New Zealand
i) Assist on ad hoc basis at the request of SAPO
ii) Consultation by telephone or in writing or by visiting South Africa

* 31 specific projects agreed with SAPO to be executed
- Majority projects resourced by SMP
* Significant number of projects already SAPO
- Targets and objectives improved by SMP
* Major objectives of SMP
- Financial breakeven
i) Original date 2001/02
ii) Government subsidy ceased w.e.f. 1 April 2000
- Rebalancing of postal network
i) Reducing post offices in some areas
ii) Increasing and upgrading post offices in previously disadvantaged areas
iii) Increasing postal outlets
- Address expansion
i) Roll-out of 4 million new addresses
ii) Provision of mail delivery facilities through street delivery and address boxes

Other objectives
i) Human resource development
ii) Economic empowerment of historically disadvantaged
iii) Postal security
iv) International relations

Appendix 3:
Presentation to the Parliamentary Portfolio Committee on Communications
on the South African Post Office restructuring process

16 February 2000

BACKGROUND

u Government faced the following major problems in respect of the Post Office:
v poor quality of service lack of universal service
v poor financial performance requiring substantial subsidy:

Year Subsidy payments (Rm)
1995 - 408
1996 - 359
1997 - 700

u Urgent need for reform was recognised.

In May 1997 Price Waterhouse and Ebony Financial Services were appointed to undertake a strategic and operational review of the Post Office, which was called Project Futurepost.

u u In July 1997 the Project FuturePost report was issued. Key conclusions were:

v Compelling case for major change in the Post Office, in order to address basic customer needs and competitive challenges, to avert continued financial failure and to ensure the transformation of the Post Office in terms of both diversity and commercialisation;

v Outright privatisation of the Post Office should not be pursued at that stage (although strategic equity partners could be considered for components of the Post Office). Instead options such as management contracts should be pursued;

v Postbank also needs to be transformed.

u in July 1997 a Green Paper on Postal Policy was issued by the Department of Communications ("DoC")

u The DoC briefed the Post Office Board on government's proposals for the reform of the Post Office.

u In May 1998 a White Paper on Postal Policy was issued by the DoC.

u This proposed a strategic management partnership ("SMP") as an option to address government's policy objectives for the Post Office.

u In May 1998 Price Waterhouse Coopers and Ebony Financial Services were appointed to advise on the implementation of the SMP concept for the Post Office. Subsequently, Edward Nathan & Friedland were appointed as legal advisers, Ernst & Young as accounting advisers and The Agency as PR advisers.

u 9 leading international postal administrations were identified, based on their own size and transformation credentials, and were contacted regarding the SMP opportunity.

u Expressions of interest were received from Canada, France, Germany, and New Zealand.

u A Steering Committee comprising the Minister and the Post Office chairperson was established.

u A Joint Technical Task Team comprising representatives from the DoC, the Post Office and the advisers was established.

u Union representatives were briefed on an ongoing basis by the DoC/Post Office on the restructuring process.

u Objectives for the SMP process were established, as follows:

v introduce new products and improve quality of service by the Post Office;
v expansion of addresses and retail infrastructure;
v technology and new services development;
v human resource development;
v black economic empowerment; and
v elimination of subsidy by March 2001 and achieve profitability thereafter.

u Associated objectives were:

v development of South Africa as a regional hub;
v establishment of a global alliance with one or more leading postal administrations.

u An Information Memorandum describing the SMP opportunity and inviting indicative proposals was issued to all 4 interested parties in December 1998;

u 4 indicative proposals were received and Cabinet approved the invitation to all 4 to submit final proposals;

u Final proposals were received in April 1999 from all 4 bidders (France, Germany, Canada and New Zealand with UK Post Office as a subcontractor);

u Proposals were evaluated by an evaluation committee comprising representatives from DoC, Post Office Board of Directors and management, trade unions and transaction advisers.

u The evaluation criteria were:

v achievement of SMP objectives;
v value for money;
v experience of the bidder and its personnel;
v ability to work well with the Post Office.

u Cabinet approved the selection of New Zealand Post International and Canada Post International as shortlisted bidders.

u Bid clarification was undertaken with both parties, including visits by members of the evaluation committee to each business.

u Post Office Board was briefed on outcome of bid clarification exercise and approved the selection of New Zealand Post International as preferred bidder.

u On 15 July 1999, the IMGG approved the selection of New Zealand Post International as preferred bidder.

u Contract negotiations were undertaken by representatives from DoC, Department of Public Enterprises, Department of Finance and the Post Office, supported by the transaction advisers. In conjunction with this, a business plan between New Zealand Post International and the Post Office was finalised by them.

u Three year contract was signed by the Post Office and New Zealand Post International (with the UK Post Office as a sub-contractor) on 30 September 1999.

During the latter stages of the SMP process, the Post Office Board identified the need for senior executives to fill certain key management at the Post Office (CEO and GFO) on an interim basis.

u u New ZeaIand Post International was requested to propose candidates to fulfill these roles on an initial three-month term.

u The candidates proposed by them were evaluated in terms of their experience and their costs were benchmarked against international norms

u It was agreed that the appointment of these executives was not a shareholder issue but a matter for the Post Office Board to handle separately from the SMP contract in terms of its own corporate governance.