The South African Post Office (SAPO) briefed the Committee on the entity’s severe financial distress, factors contributing to overall non-performance, and a contingency plan to improve the position.
The Deputy Minister of Communications and Digital Technologies gave an overview of the SAPO’s problems. He said he believed in the future of the entity to assist the country’s underserviced communities and reposition the organisation as the Post Office of Tomorrow. There was a missed opportunity in 2016 to turn the organisation around and the challenges had been accumulating. The Department had requested funding from National Treasury but was declined, given the SAPO’s risky position. The term of office of the current board was extended to January 2023, after which the new board members would be finalised.
The entity had adopted a “Post Office of Tomorrow” strategy and was underpinned by four pillars: building capacity and capability; modernisation and digitalisation; strategic partnerships; and the SAPO’s employees and was aimed to position the organisation as a leading service provider beyond the traditional postal services.
SAPO presented that it had suffered a setback with the lack of funding from National Treasury and had incurred historical debt since 2016. The historical debt had contributed to the entity’s liabilities exceeding the assets. For the past two years, the entity has continued to incur expenses from creditors, employer’s benefits, and the removal of the Postbank and the South African Revenue Bank (SARS) payments.
To date, employee compensation costs was R1.7 billion, accounting for 62% of the SAPO’s total accumulated expenditure of R2.6 billion and a revenue of R1.3 billion in the current financial year. The SAPO’s debt to creditors was R4.927 billion.
Crime had increased due to the introduction of South African Social Security Agency (SASSA) grant payments, cash in transit (CIT) vehicles had been hijacked, and increased burglaries. Suppliers were not paid and that resulted in services being withdrawn.
The merger and closure of 146 branches nationally contributed to the reduction in logistics fleet vehicles and affected customer loyalty. The digital migration further staggered the revenue growth of the entity.
The Committee asked for an update on the verification process of the entity and if the reduction of 3899 employees was due to the ghost workers. Were preventative measures in place, to alleviate the re-occurrence of ghost workers? Had the outstanding medical aid fees been paid? What was the outstanding amount that the entity owed to SARS, and what was the expected reduction amount? What was the amount that was required for the bailout? Had the SAPO engaged with commercial stakeholders for investments? Was National Treasury the only source of capital injection?
Deputy Minister’s Remarks
Mr Philemon Mapulane, Deputy Minister of Communications and Digital Technologies, apologised for not attending the last meeting as he and the Minister of Communications and Digital Technologies, Ms Khumbudzo Ntshavheni, had been in a Cabinet Committee meeting. He explained that when the Minister was not available for an NCOP meeting, it was expected that the Deputy Minister would attend.
The Deputy Minister provided context to the current situation of the South African Post Office (SAPO), saying it portrayed a gloomy picture. He explained that since joining the Department of Communications and Digital Technologies in August 2021, the challenges that the SAPO had encountered had been identified and there had been engagements with the respective stakeholders (including the Government) to reposition the SAPO to achieve the strategy that would lead to the Post Office of Tomorrow.
It was imperative to have a capital injection for the strategy to materialise and to save the organisation. There had been a missed opportunity in 2018 to turn the organisation around. There had been an allocation from National Treasury to the entity however, the challenges had accumulated and had been historic in nature. An appeal by Minister Ntshavheni was submitted to National Treasury for an allocation from fiscals and the application was declined. That made the situation worse and there was uncertainty if the entity would survive until the new financial allocation in February or March 2023.
There were continued discussions with National Treasury to find ways to rescue the organisation. The reality was that the SAPO was in dire need of interventions as its expenditure had exceeded its revenue. The term of office of the board has been extended to January 2023, awaiting finalisation by the Board Members.
Mr Geert Bataille, Executive (acting): Group Strategy, SAPO, presented that the role of the SAPO was to provide postal products and related services to the citizens of South Africa, irrespective of their location; to operate a digital platform, evolve with technology developments in the postal environment; and to enable 24/7 online access to the customers. The entity's cash flow had remained under severe pressure due to the expenses that continued to exceed the revenue on a monthly basis as creditors, medical aid contributions, pension fund contributions and SARS obligations had remained unpaid for more than two years. Business recovery was stagnant and revenue lines were decreasing drastically. To ensure business continuity, suppliers had not been paid and that had resulted in court orders being issued. The removal of Postbank also impacted the organisation negatively. The implementation of the Post Office of Tomorrow strategy was critical to turn around the organisation.
The headcount of the employees from 2019 to 2022 had reduced substantially from 18 359 to 14 560, however employee compensation had remained the highest expenditure of the entity, accounting for 62% of the total accumulated expense. There were very critical vacancies in the executive positions, with the incumbents having been in acting roles for long periods.
The remedial action to save the organisation from collapsing, would require funding from National Treasury; the implementation of the Post Office of Tomorrow initiatives; executive appointments in critical roles; strategic partnership to strengthen the framework; and cost containment.
See presentation for further details
Mr A Arnolds (EFF, Western Cape) was concerned with the irregular expenditures in the SAPO amidst a financial predicament and asked for a progress report on consequence management to circumvent future irregularities. He asked for greater clarity of the audit outcomes, other findings in respect of the annual financial statements, compliances and the measures implemented to prevent the root causes of the repeat findings. He asked for an update on the verification process and if the reduction of 3899 employees was due to the ghost workers. Were preventative measures in place, to alleviate the re-occurrence of ghost workers? He raised concerns about the fraudulent motor vehicle licenses, and issues with stolen equipment from the closed branches and asked who would be held responsible for the assets that were not accounted for. The leadership had to be vigilant and adhere to the deadlines, particularly when preparing the financial statements as required by the Public Finance Management Act (PFMA).
Ms L Bebee (ANC, KZN) asked about the strength of the balance sheet and if there had been financial support other than that from National Treasury. Had the outstanding medical aid fees been paid?
Ms W Ngwenya (ANC, Gauteng) asked if the SAPO had consulted with several stakeholders (which would have included the shareholders and customers) to improve loyalty and increase revenue. She asked for details on the device delivery standards and when the campaigns had taken place. How would the service delivery challenge, affect the implementation of the corporate plan and the achievement of the strategy. She asked for an update on the involvement of the SAPO during the KwaZulu- Natal floods.
Mr I Ntsube (ANC, Free State) asked for clarity from the Deputy Minister on why the term of office for the board had been extended, despite the challenges that were experienced. The board had failed to deliver on the mandates, which was reflected in the entity’s insolvent financial status. He probed the Deputy Minister for an appointment of a new board, based on the historic financial decline since 2016. It was critical in the financial sector, to appoint senior management in key roles, that would stabilise the entity and lead to the realisation of an effective strategy. He proposed, to the Chairperson and the Deputy Minister, to lobby for a bailout from National Treasury as in the case of the other state-owned entities (SOEs), such as Eskom and South African Airways (SAA).
The Chairperson asked for clarity on the number and value of the properties owned by the SAPO within South Africa and Africa and if an audit had been conducted on them. He asked for an update on the monetary value of the stamps, including the late President Mr Nelson Mandela’s stamp and the security aspect attached to it. What was the outstanding amount that the entity owed to SARS, and what was the expected reduction amount? What was the amount that was required for the bailout? Had the SAPO engaged with commercial stakeholders for investments? Was National Treasury the only source of capital injection? He said the management had to believe in the excursion of the strategy, for it to be effective and successful. The strategy would attract sustainable revenue with increased footfall by instilling confidence in the public and in the employees. He asked for clarity on the progress of the transition between the Postbank and the Post Office, and the way forward as the Postbank was a subsidy of SAPO.
Response from the SAPO
The Deputy Minister replied that Ms Mona and the delegates would respond to the questions, and he undertook to conclude.
Ms Nomkhita Mona, Group CEO, SAPO, replied that the Financial Conduct Committee was investigating the irregular expenditures. The irregularities related to the processes and procedures not followed as set out in the Public Finance Management Act (PFMA) and there was no mismanagement of funds in the entity. As an example of erred process, there were contracts with the South African Social Security Agency (SASSA), security and Cash in Transit (CIT) Companies. The security and CIT contracts had ended, and the process was not followed for renewing the contracts timeously.
Ms Mona acknowledged that the audit outcomes for the past three years had remained stagnant with a disclaimer and pointed out that there was an improvement in the reduction of findings and losses from the previous financial to the current year.
- Rectified five of the major issues
- Top findings from nine to 38
- Losses R3 billion to R2.1 billion
She explained that since joining the organisation 18 months ago, she decided, together with the Executive team, to focus on cost containment and address issues immediately however most of the issues were historic.
Mr Lenny Govender, General Manager: Cost & Management Accounting, SAPO, on medical aid (Medipos), explained that the outstanding amount of R609 million was the historical debt and the current debt had been paid up.
On the South African Revenue Service (SARS), the R892 million, including penalties and interest owing to SARS, was a historic debt. Since November 202, payments for the Unemployment Insurance Fund (UIF), Pay as You Earn (PAYE), and Value Added Tax (VAT) has been up to date.
On property value, the balance sheet amount as at 31 March 2022 was R2.3 billion and a list of the properties in South Africa and Africa that SAPO owned would be provided at a later stage.
Ms Mona, on staff verification, explained that the staff verification system was introduced to combat ghost workers on the payroll. The first phase was completed and there were discrepancies between ghost workers and the deceased employees. The second phase was 60% completed and had enlisted the services of an external forensic entity to continue with the process. She said that any worker who failed to authenticate themselves would be regarded as a ghost employee and would not be paid a salary. The total cost of saving was R8 million.
On branch closures, the factors that contributed to closure of branches included unprofitability, branches within one another’s proximity, eviction from the landlords and security reasons. SAPO-owned buildings were also at risk of vandalism, therefore an option of having mall-based branches would serve the community, increase customer awareness, revenue and create a safe environment.
On stolen equipment, the stolen motor vehicle licensing equipment had resulted from the closure of branches; the branches that were in unsafe areas had moved the equipment to safer branches.
On motor vehicle license (fraud), the two articles that had been published were inaccurate and a request for a retraction from the editor had been made. Vehicle licensing was one of the biggest income generators and those articles had been damaging to the SAPO and were a smear campaign. The Department was determined to escalate the complaint to the Ombudsman if it was not retracted or the narrative changed. An amount of R500 billion was derived by issuing licenses to 12.5 million cars per year.
On financial support, she acknowledged that the SAPO was under severe financial constraints and it was difficult to obtain funding from Banks based on the liabilities exceeding the assets. She was hopeful that, eventually, the entity would operate like a business and strengthen the balance sheets.
On sharing the strategy, the strategy was drafted and developed with all the parties involved, including the stakeholders. The strategy would be shared with the 14 460 employees as well.
On customer loyalty, the entity required funding and transportation to perform the service delivery efficiently to retain superior customer service. The entity operated on a skeleton fleet of vehicles as there were outstanding bills to transport companies, which adversely impacted customer loyalty.
On delivery standards and campaigns, Ms Mona explained the delivery standards of the Independent Communications Authority of South Africa (ICASA). She acknowledged that due to the challenges that were experienced, SAPO’s service standards had deteriorated.
On the successful implementation of the Corporate Plan, there were difficulties in implementing and delivering the Corporate Plan due to the lack of funding as most of the Key Performance Index (KPI) were dependent on funding.
Vision 2030 has been replaced by the Post Office of Tomorrow strategy.
On the flood victims in Kwa-Zulu Natal, SAPO had been highly visible and interactive with the distribution, and collection of food and clothing items for the flood victims. SAPO had partnered with a group of youngsters as well. The Directors-General, nationally, supported the initiative and used their own funds and transport to help the flood victims. There were videos and photographs taken during the handouts.
On vacancies in key roles, due to the lack of funding from National Treasury, permanent appointments in senior roles were in acting positions except a contract for the CEO and a new appointment of Group Executive: Human Resources. The Select Committee had the challenge of addressing the lack of funding, the instability caused by the roles being filled in an acting capacity, and accelerating the implementation of the strategy to turn around the SAPO.
On belief in the strategy, the SAPO believed in the strategy as it would position the entity as a leading logistics service provider for South Africa and internationally, and the effective execution of the strategy depended on funding.
On Goodwill, the International Philatelic Stamp Exhibition would be held in Cape Town from 8 to 12 November. It would feature 1 600 frames of stamps from around the world, including letters written by Mr N Mandela while in Robben Island. There had been negative publicity about SAPO, however there was a strong belief in the future of the entity with the high-value owned buildings and the introduction of the digital model. SAPO was on the verge of securing an E-commerce partnership with a leading member of the global postal industry and if that was successful, it would unlock the Ecommerce space. The organisation required support from government.
On SASSA contracts, SAPO was unable to financially maintain the contracts as the bank charges had not been paid.
On the Postbank and the Post Office, the Postbank was currently a subsidiary of the Post Office (SAPO) and only offered transactional and savings accounts. Government had restructured and corporatised the Postbank to enable it to expand its services and operate as a state-owned bank of choice for underserved communities. The separation of the Postbank from the SAPO resulted in a decline in the net asset value and caused the restructuring of the SAPO business. The Department and National Treasury had been discussing the compensation of the SAPO.
On confidence in the strategy, Ms Mona appealed to the Deputy Minister, the Chairperson and the Committee for their support in ensuring that the SAPO received a bailout from National Treasury. The bailout would enable the SAPO to reclaim its market share by implementing the strategy, repaying some of the historic debt and preventing 14 500 job losses. She probed for government to stop engaging with the private sector and to afford the SAPO more contracts, as that would cause additional revenue for the organisation. She was encouraged by the continued contract from the Road Traffic Management Corporation (RTMC) as it would increase revenue growth. By law, any package below 1kg had to be delivered by the SAPO. She explained that being appointed 18 months ago in the role as the CEO, she believed in the strategy as it aimed to digitise the SAPO to bring it up to speed with current technological developments in the postal environment and said she was optimistic about the future of the organisation despite the challenges.
Responses from the Deputy Minister
Deputy Minister Mapulane, on the value of SAPO, said the entity served most of the citizens in both the urban and the rural areas. There was a need to save the entity, provided the funding could be approved. A submission for funding had been forwarded to National Treasury. SAPO’s funding was declined based on its risky position, government’s priorities and belief that the entity had to be funded from the fiscus. He asked the Committee to exercise its legislative mandate to ensure that SAPO’s turnaround strategy was funded. He was optimistic that the entity would be allocated funding in the next budget announcement in February 2023.
On fiscal and other commercial arrangements, as the SAPO was a state-owned entity, it had to receive a bailout from National Treasury, however, based on the financial status, being technically insolvent, commercial companies would not invest in the entity. A submission had been forwarded to government to consider the fiscal relief for the SAPO as it had an obligation to the entity. Subsequently, the submission was declined. The case would be tabled in the main budget in February or March 2023; however, it was uncertain if the SAPO would remain relevant in the next four months.
On Goodwill, the International Stamp Exhibition, called “Road to Democracy” would showcase the various contributions made throughout and in support of the liberation, democracy and the contributions that were made by the leaders. Stamps were issued in Tanzania and many other countries in support of releasing struggle leaders and all who were incarcerated on Robben Island. A historic letter would be on display written by Mr Mandela, declining the offer for sanctuary by the King Kaiser Daliwonga Matanzima of Transkei. A sentence from the letter read “our struggle was against the rejection where would I offer to accept to be released and not claim South Africa as belonging to it”. The Members of the Committee were invited to the exhibition.
On the extension term of the board, the Deputy Minister explained why the term of the board was extended and the reason why the members of the board were not guilty of the challenges that were experienced in the SAPO. In February 2021, in a meeting with the Standing Committee on Public Accounts, a question was posed by the Standing Committee on Public Accounts (SCOPA) on whether the board of the SAPO was fit for purpose. The response from the acting chairperson of the board was that “that is the question I am not able to respond to, as it requires much more serious examination.” After engagements were held with the individual board members, discussions were held and four board members resigned. The evaluation process was stopped, and focus was turned to appointing new board Members. The new board would not be disclosed until all the members were notified formally. The new Board members exhibited enthusiasm, passion, determination and energy towards saving the SAPO. The acting Chairperson, Mr Sipho Luyolo Mtika Majombozi, was equally committed to saving the SAPO and implementing some of the initiatives that Ms Mona mentioned. Mr Majombozi had supported Ms Mona with the discussions and was on the verge of signing an agreement with an international investor.
On the Post office of Tomorrow, everyone believed in the strategy and that implementing the strategic pillars, and the funding would turnaround SAPO’s overall performance. The challenges were historically accumulated, and the collapse of the entity would create a void in the economy, the country and the citizens.
On the SAPO’s senior appointments, the moratorium was lifted, which had been put in place by the previous leadership on senior appointments.
Follow up questions
Ms Ngwenya asked for clarity on the SAPO’s financial situation in the light of the recent Medium Term Budget Policy Statement (MTBPS) from the Minister of Finance, Mr Enoch Godongwana, presented in Parliament on 26 October and the plans of the SAPO, following the statement.
Mr Ntsube asked the Deputy Minister about the four members who resigned from the board, which indicated red signals and said that any succession outcome was based on results.
The Chairperson asked the Deputy Minister if there was a plan B in place for the event that National Treasury ceased to support the SAPO and what would be the outcome of the entity. There were concerns with the other state-owned entity, South African Airways (SAA), and it was important to ensure that the SAPO would not be in the same situation. The citizens of the country had to be given an opportunity as they had the capacity to play a key role in saving the SAPO and the other option would be the private sector.
Responses to follow-up questions
On a plan B, the Deputy Minister said numerous discussions and engagements had transpired with the leadership of the SAPO, the Minister (Ms Nshavheni) and National Treasury, and the Department was convinced that the organisation would receive funding and therefore had not explored outside companies. The board forwarded a proposal which was subsequently declined given that the entity was to receive funding. There was no plan B and there was a need to explore other options to adopt as a plan B. It was “by the grace of God “that the leadership had managed to keep the entity alive until now and vultures were waiting to pounce if the SAPO collapsed.
On board members, the board members were appointed 18 months ago and were not responsible for the SAPO’s challenges. The engagement with the board was an objective assessment before the appointments.
On the MTBPS, the request was not considered, and the Department would be looking at various options. Discussions would be held before any public announcements.
The Chairperson assured the Deputy Minister and the SAPO delegates that the Committee was confident in their ability to accomplish the turnaround strategy of the SAPO. The SAPO had to be saved as it served the country’s citizens and as part of the leadership of the country.
The Committee considered the minutes dated 26 October 2022.
The minutes were duly adopted, and the meeting was officially adjourned.
Mkiva, Mr Z
Arnolds, Mr A
Bebee, Ms LC
Dangor, Mr M
De Bruyn, Mr MA
Du Toit, Mr SF
Landsman, Mr ER
Lehihi, Ms SB
Londt, Mr J
Mahlangu, Ms DG
Mamorobela, Ms T P
Mapulane, Mr MP
Mathevula, Ms B
Modise, Ms TC
Mohai, Mr S
Mokause, Ms MO
Nchabeleng, Mr ME
Ncitha, Ms ZV
Ngwenya, Ms W
Ntsube, Mr I
Nyambi, Mr AJ
Smit, Mr CF
Visser, Ms C
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.