SA Postbank Bill; SAPO 2020/21 Annual Report; turnaround strategy

Meeting report

Director-General's opening remarks
Ms Nonkqubela Jordan-Dyani, Acting Director-General, Department of Communications and Digital Technologies (DCDT), said the Department had committed to appraising the Committee on updates regularly regarding the South African Post Office (SAPO) turnaround strategy. The Department would also present the annual report as 31 March 2021. The Department apologised to the Committee for delays in presenting this annual report and late submission of the presentations. System measures had been put in place to ensure that consequence management regarding performance took place, and this would be monitored closely going forward.

In the presentation, the SAPO did not look “appetising”, but she assured the Committee that the Department was working with the leadership at SAPO and National Treasury (NT) to put in mechanisms to address the situation. They were also working towards the executive involved in the new SAPO strategy. SAPO would outline some of the key achievements in implementing the strategy.

The DCDT believed that SAPO remained a critical player for government because of its large footprint across the country and remained a critical platform for service delivery. It partnered with the Department of Social Development (DSD) and South African Social Security Agency (SASSA) for the disbursement of social grants; the Department of Transport for services and renewal of licences; and partnered in some businesses with the Department of Health and the Department of Basic Education. With that said, SAPO would continue to look for future businesses within and outside of government.

The strategy talks were about repositioning the Post Office to become a critical player in the e-commerce and digital sector. The Department believed that with these interventions, positive light would come. It was trying to cut down on operational expenses, but it could not consider retrenchments now due to the country's current economic conditions. It came up with a solution to pull the Post Office out of its debt within 18 months, from the beginning of this financial year. It was committed to giving regular feedback to the Committee, but these interventions would not translate to overnight successes. She committed to monthly updates to Treasury and the Committee. The progress was being tracked closely for the implementation of the new strategy.

South African Post Office Annual Report 2020/21
Mr Sipho Majombozi, Chairperson, SAPO Board, said the Post Office was still in the doldrums and the analogy of ‘skorokoro’ still held -- or of being in the intensive care unit (ICU) and requesting the intervention of funding and resourcing for the new strategy. They had started on it and some aspects of the implementation would be unveiled. There were attempts to register what they thought would help take them forward from a revenue collection point of view. The support of stakeholders sustained SAPO.

Ms Nomkhita Mona, Group Chief Executive Officer, SAPO, said the annual report to be presented to the Committee was for the 2020/21 financial year. SAPO would comply with the Auditor-General’s (AG's) deadline for submitting audits by 31 May 2022.

It was important for everyone to understand SAPO's role across the country. When one deals with SAPO, one must deal with it as a fabric that pulls people together. Having had SAPO on a downward spiral for more than several years now, it would not be turned around overnight. However, they were confident that they could bring a SAPO of tomorrow -- and it may not look like the previous SAPO, because of the times that had changed. They had also needed to move with the times.

SAPO needed time and some funding. Some funding referred to servicing and catching up to where they were currently, and implementing the new strategy. She believed that if they could execute the initiatives in the strategy, SAPO would never have to come back to government for funding. It was also important to note that SAPO had not to wait for the funding to drop from the government -- the executive management had been working tirelessly to source alternative funding. A few stakeholders were trying to de-focus them, but they would remain focused.

Mr Geert Bataille, Chief Operating Officer, SAPO, presented the annual results as of 31 March 2022. The scope of the presentation covered performance highlights; Covid-19; strategy and performance against targets; financial performance and the focus areas for the 2022/23 financial year.

In terms of operational matters, mail delivery performance had recovered from 0% during the April level five lockdown, to 52.95% by the year-end. There was a reduction of mail carryover items from 9.94 million items to 5.07 million; co-loading was implemented; and there was an unprecedented increase in armed robberies at branches, cash-in-transit (CIT) vehicle hijacking, and business burglaries had increased from 583 incidents (2020) to 887 (2021).

In terms of technology, network availability uptime was achieved at 99.37%. The network upgrade project achieved 96%, with 1 263 sites fully commissioned and connectivity upgraded. Human resources reduced the 912 employees’ headcount to 15 826. Employee satisfaction levels were established at 43%, while staff members were continuously redeployed to address shortages. Except for key strategic positions, recruitment for vacant positions was placed on hold.

Lastly, the SA Post Office was an essential service provider under the government category. It had continued payment of social grants during the level five lockdown - 7.9 million SASSA beneficiaries were paid monthly and 8.9 million beneficiaries received social relief of distress (SRD) grants from June 2020 to March 2021. A total of 1 161 591 qualifying needy households registered for the Digital Terrestrial Television (DTT) subsidised set-top boxes (STBs) and 598 409 STBs were distributed.
The financial overview reported revenue of R2.9 billion for the year ending 31 March 2021 (2020: R4.1 billion). Revenue had declined by R1.2 billion (29%). Postal services' revenue of R1.6 billion (2020: R2.8 billion) declined by R1.2 billion (45%), while financial services revenue of R1.4 billion (2020: R1.2 billion) increased by R135 million (11%). Operating costs of R6.2 billion (2020: R6.5 billion) were reduced by R370 million (6%). Staff costs were reduced by R180 million (5%) to R3.7 billion. Staff costs contributed 61% of operating costs. The loss for the year (continued operations) increased by R469 million to R2.3 billion.

SAPO's net asset value was a negative amount of R2.5 billion (2020: negative amount of R40 million). Current liabilities of R8.7 billion exceeded current assets by R4.9 billion. The liquidity position had worsened due to the loss of R2.3 billion for the year. Expenses had continued to exceed revenue, resulting in insufficient funds to settle liabilities.

Focus areas for the 2022/23 financial year were listed as follows:

Implementation of the "Post Office of Tomorrow" to address the sustainability and relevance of the SA Post Office.
Improved operational performance to achieve local and international compliance to standards.
Collaboration with the State Information Technology Agency (SITA) to stabilise SAPO's IT and move towards modernisation and digitalisation.
Improved organisational governance to eliminate instances of irregular, fruitless and wasteful expenditure.
Implementation of consequence management for instances of financial misconduct.
Change management, to drive a culture change towards a high performing organisation.

Discussion

Mr T Gumbu (ANC) wanted to know about what was being done monthly by the Department to support the Post Office. Secondly, what was the commitment from National Treasury on funding, and were there any timelines given about when the engagements might be concluded? Thirdly, the Committee was concerned about fraud at the Post Office, and needed to be brought into confidence that recommendations around this matter were implemented. What had been done so far to address the matter of fraud in the entity?

Mr M Malatsi (DA) commenced with the vacancies at the executive management level. He said he welcomed the advertisements that had been put out, but there was no timeline on when these posts would be filled. The success of the turnaround strategy was dependent on the resources and the extent of the support that SAPO received from the Department, National Treasury, and the Committee. In reconciling that, after the budget speech by the Minister of Finance in February this year, what engagements took place between the Post Office, the Minister of Finance and the Department regarding the request for funding to implement the new strategy? The discussion may still be ongoing, but it handicapped the Committee if more information on this was not divulged to it.

He expressed concern about the staff morale at the Post Office. If there was a level of dissatisfaction among employees, could they get a statistical indication of the number of employees that had applied for the owner-driver scheme option -- how many had been shortlisted or considered for that?

The concern about being mindful that people were trying to de-focus the SAPO left a bad taste in the mouth, but could the Committee get an indication of what the CEO had been alluding to? The spending on security services or protection services was difficult to reconcile with the absence of consequence management. 314 employees had been suspended with pay during the 2020/21 financial year, but of these cases, how many had been finalised and how many employees were still employed by the Post Office?

Often when the Post Office branches were closed, they did not provide any detailed information to the customers and in most cases, one could not get hold of the area manager to find out why the branch had been closed. Some branches had been closed without prior notice to the customers, and the numbers that they were told to contact displayed on the note at the branch, did not go through. They had seen this happen across different Post Office branches, and had recently enquired about the Hoedspruit Post Office branch.

Ms A Mthembu (ANC) commented that the presentation had been clear and presented some hope for the Post Office.

Ms T Bodlani (DA) said she had sent a few emails regarding the Post Office branch in Ekurhuleni, outlining genuine concerns of the customers and the residents about that branch. She humbly requested the SAPO leadership and management to follow up on these and provide a response. The response would be distributed to the community.

SAPO's responses
Ms Mona said that as engagements with Treasury were unfolding, SAPO had identified that it was important for the executive to be fully resourced. There were currently only two executives in full-time employment -- the group CEO, and the Group Executive Operations. Everyone else was in an acting capacity. In the new strategy, they realised that successfully implementing it would require new skills, which were not yet available in SAPO, even in the acting positions. They asked Treasury to assist with funding regarding filling the posts, or for the timelines of the funding from Treasury. They were not certain when this would happen. The Department might be aware. SAPO had decided to go ahead even though the funding was not yet available, to advertise the vacancies and do the shortlisting. If the funding arrived timeously, this process would be done as soon as possible. They had also ranked the positions and placed them in order of priority regarding what was required for the new Post Office. While they waited for the funding, they could draw in these critical skills through a phased-in approach.

The owner-driver model was about the fear of the unknown. They were now sitting about 14 000 people that worked for SAPO, and if they heard things in the media about their company, it made them uneasy, but they also tried to communicate with employees internally. So, when something like the model scheme was brought up, people thought that they should apply – they had about 234 people who had indicated that they would like to be taken through this process. They were engaging with them and making them understand what they were getting into. These employees would be compensated as businesspeople, and the more they did, the more they would get paid – it would not always be kept at what they used to get at SAPO. Secondly, it was important that they grew as well, and SAPO would guarantee the work for them because they had taken them out of the system, and we're creating them as owner-drivers. They would also help SAPO by delivering more. In the end, they might also grow and do deliveries for SAPO. They were running a transparent organisation and there were always information-sharing sessions with the unions.

On de-focusing the SAPO, there was consistent negative reporting and sound bites about things that put SAPO in a negative light. The idea was to show a SAPO that was falling apart and closing. There were even documents to this effect. They were dealing with many moving parts internally and externally, but they would not be de-focused.

The huge amounts spent by SAPO on security were mostly for social grants, and they had billions of rands coming in every month to deliver the money when the threat came. The cash-in-transit companies must transport the cash to branches across the country, which was a cost to SAPO. Since they had reduced the lines on the SRD R350 grants, the crime had reduced by 70%, but this was preliminary.

SAPO would send a comprehensive and written response to the question on suspensions.

Responding to branch closures, Ms Mona said most of their landlords were patient with the Post Office, and some of them had been patient to a point where they were not paid. Some of them covered the amenities out of their own pockets, but some were tired. Some of these matters were not even communicated -- employees would show up and the doors were shut. They were in the process of ensuring they communicate, and there was an update on the website that indicated branches that had been closed. They would have a team across the country to look at branch closures.

Her office would be in touch with Ms Bodlani to deal with her request. She apologised for the lack of response.

Mr Majombozi talked about the interests that destabilised the SAPO. SAPO had several creditors, and continued to do so, and it also negotiated payment schedules. If a creditor agreed to negotiate, they were paid, but they would still take SAPO for liquidation even though they had been paid. That gave a sense that probable interests did not wish the Post Office to succeed.

Mr Omega Shelembe, Deputy Director-General: SOE Oversight, DCDT, said that there had been several engagements with the National Treasury, the Department, and the Post Office. Most of the engagements had been between the Minister and the Minister of Finance. Through the Independent Communications Authority of South Africa (ICASA), the Department had managed to source some funds for the spectrum, and that was under consideration for funding. They had negotiated a subsidy for the Post Office for the Universal Service Obligation (USO), payable in tranches throughout the year. The subsidy was paid upfront in a lump sum to deal with the immediate funding requirements while they were still negotiating for funding for the Post Office.

Whether DSDT went the special appropriation route or the adjustment budget route, these would take pretty much the same amount of time. They might as well wait for the adjustment budget, but discussions were still ongoing.

The Chairperson thanked the Post Office for the work done so far in implementing the new strategy. There was appreciation from Members for the commitment to deal with matters emanating from the audit report. Given the previous financial year, they were taking that since the deadline had been met, SAPO would be able to demonstrate the implementation of the action plans that it had submitted.

The Committee also stated that the new strategy would not succeed without funding from Treasury. The board's chairperson may have raised concerns that with previous boards and executives, where turnaround strategies had been submitted, results would not have been seen. The Committee was confident that the new strategy was being implemented from the reports seen so far.

He encouraged the executive not to be de-focused by the competition. Concern had been raised around labour dissatisfaction, but there was an understanding from the Committee that when organised labour and employees generally supported what one was putting on the table, that support was not permanent. The Committee was pleased with the commitment that the route the SAPO was taking avoided the section 189 route.

Briefing on South African Postbank Amendment Bill
Ms Jordan-Dyani gave a high-level overview of the South African Postbank Amendment Bill, which the Cabinet had approved in February this year for onward tabling to Parliament. This Bill was quite important as far as the amendments were to make the Postbank a fully privatised bank. The Department had received more than 7 000 comments from the public, which had been captured and analysed. The Bill had then been revised to incorporate these public comments. 

Government felt strongly that the presence of the Postbank was very critical, and understood that it was a competitive market. However, if one looked at the footprint of the existing banking industry versus the Post Office's footprint, and which the Postbank was going to be riding off, to ensure equality amongst all citizens, it became imperative to establish this Postbank.

The comments received had been submitted to the Department of Planning, Monitoring and Evaluation (DPME) for the socio-economic impact assessment system, which validated its need. It was further taken to the office of the Chief State Law Advisor for certification, and it was also endorsed.

The Bill aimed to amend the shareholding arrangements for the Postbank and transfer shareholding from the Postbank to the Minister of Communication and Digital Technologies. For government employees who had previously been deprived, or the interest rates offered by the existing banks not being desirable, this ensured full and meaningful participation in the country's economy.

The Department saw the opportunities to provide affordable houses and extend credit to small businesses and even informal businesses that had been deprived of funding or credit.

Mr Shelembe took the Members through the presentation. He outlined the objectives of the Bill, gave a recap on the bank controlling company requirements and optimal structure determination, amendments to be enacted on the Postbank Act, the status of the Postbank Act amendment process, and detailed amendments to the South African Postbank SOC Limited Act.

The objective of the Bill was mainly to amend the South African Postbank SOC Limited Act (Postbank Act) to mitigate against the risks associated with the structure envisaged in the Postbank Act, which would make SAPO the sole owner and shareholder of the Postbank:

To amend the shareholding arrangements for the Postbank (transferring shareholding from the South African Post Office to government through creating a new bank controlling company.

Facilitate the establishment and registration of the bank controlling company (BCC) in terms of the Banks Act, and provide for matters connected therewith.

As the shareholder Department, the Ministry of Communications and Digital Technologies is responsible directly for the Postbank as a stand-alone on behalf of government. This was to be effected by establishing the BCC between the Postbank and the Department in the reporting structure.

To amend other sections of the Act impacted by the change in the Postbank reporting structure.

Upon enactment of the Postbank Bill, the BCC for Postbank would be registered in terms of s43 of the Banks Act to exercise control over the Postbank.

Mr Mbombo Maleka, Committee Content Advisor, said that certain processes had to be followed now that the Bill had been tabled to the Committee. This was a section 75 Bill. The process would be opened for public hearings, and it would first be published for public comment and submissions, even though the Department had already received about 7 000 comments. The process was still at its inception stage, and the Committee would now need to rearrange its programme.

The Chairperson said that if they were going the public participation route, the Committee programme must be adjusted accordingly to consider the oversight visit that was also to be conducted at the Postbank.

Members of the Committee agreed.

Adoption of minutes

Members considered and adopted draft Committee minutes without any amendments.

The Chairperson thanked everyone present.

The meeting was adjourned.