The Standing Committee on Appropriations was briefed by the Department of Communications and Digital Technologies and the South African Post Office (SAPO) on the Appropriation Bill [B3-2023].
Members heard that the Department had been allocated an adjusted budget of R5.328 billion, which consists of Compensation of Employees totalling R309.9 million (6%), goods and services of R627.9 million (12%), transfers and subsidies of R1.963b (37%), payment of financial assets R2.423 billion (45%) which includes the R2.4 billion for the SAPO, and payment for capital assets of R13.4 million. The expenditure as of 31 March 2023 was R5.219 billion or 98%, against the total adjusted budget of R 5.328 billion. The deviation of R108.9 million or 2% is mainly due to underspending of Compensation of Employees, underspending of goods and services, underspending on transfers and subsidies and underspending on Capital Assets. Department has established a Budget Advisory Committee to monitor spending versus budget allocation quarterly. The Department is focused on spending its proposed allocations on phase two of the SA Connect programme to achieve 100% broadband access to all communities and government facilities. Members were informed that the Department would focus on a digitalisation programme, licensing the Postbank, stabilising the SAPO and implementing the Fourth Industrial Revolution. There was a Post Office of Tomorrow Strategy where the SAPO would change from being a traditional postal operator to an integrated service and distribution provider.
Members asked whether the Department had considered negotiating with debtors to delay payment until the strategy of the SAPO had been implemented; whether there could be an engagement with other Ministers regarding debt relief on services; asked for an elaboration on other measures that the SAPO and the Department had taken to ensure that the process did not reach the final liquidation stage like electricity; asked for details on the retainer policy for the personnel; whether the Department could say in full confidence that the second adjustment appropriation of R2.4 billion was sufficient for the full implementation of the turnaround strategy. Members asked further if there had been any process whereby it would also be digitalising the entire state machinery which would make transactions with government easier; How many branches of the SAPO had closed and in which areas; how the Department had responded to the CBE ruling; Could the Department share information on an itemised version detailing the share that was paying attention to Africans, Youth and People with Disabilities and what measures are going to be put in place to ensure that it does not miss the particular opportunity to bring about economic transformation which included previously disadvantaged individuals in the mainstream of economic activity in the telecommunications and digital space. The Committee congratulated the newly appointed Minister Mondli Gungubele. Members asked for a proper update on what Broadband Infraco was doing, as its website has been suspended.
Members were briefed by the South African Post Office on the 2023 Appropriations Bill [B3-2023]. Members were disappointed to hear that there has been a decline in postal services and financial services revenue since as far back as 2006. An amount of R3.9 billion was owed to the Postbank. The medical aid contributions for March 2023 remained unpaid. The cash flow also remains severely constrained. The liabilities of the SAPO exceeded its assets by approximately R7 billion. The financial challenges include the provisional liquidation order that has been granted; historical debt; insufficient revenue to cover staff expenses; and declining revenue. The operational challenges include but are not limited to the closure of branches; tools of the trade; low levels of morale and outdated software. There was a Post Office of Tomorrow Strategy where the SAPO would change from a traditional postal operator to an integrated service and distribution provider. The Minister said that the money that was now at the disposal of the SAPO was subject to all the stakeholders involved.
Members asked for an elaboration on other measures that the SAPO and the Department had taken to ensure that the process did not reach the final liquidation stage; whether the Department could say in full confidence that the second adjustment appropriation of R2.4 billion was sufficient for the full implementation of the turnaround strategy and that it would achieve the Post Office of Tomorrow Strategy; has there been any process whereby it would also be digitalising the entire state machinery which would make transactions with government easier; since the separation of Postbank and the SAPO, would the Postbank be operating from the SAPO offices; if so, what was the revenue stream going to be like; if South Africa could use its own manufacturers for the set-top boxes instead of importing them; asked if the Committee could be provided with the number of offices that would be closed along with the number of employees with post designations in each post office; and what were the initiatives that the Department was doing to ensure that it localised manufacturing and did not import products.
The Committee said that for the last ten years, SAPO rarely spoke about its own underperformance over that time. It said that the SAPO was talking about importing goods and services but this would negatively impact the gross domestic product.
Members raised concerns around the provisional liquidation of the SAPO; the stalling of the analogue switch off; decline of revenue for SAPO; government department not being connected and concerns around Broadband Infraco. The Committee made suggestions such as negotiating with debtors to delay payment until SAPO has implemented its strategy and collaborating with the State Information Technology Agency. Members requested more details on the manufacturing of set-top boxes. The provisional liquidation of SAPO is due to underperformance but there appears to be no ownership of the problems. Members asked whether any other measures have been taken to ensure SAPO does not reach final liquidation and whether the current budget would be sufficient to implement the strategy. Members asked how many offices would be closed and what would happen to those employees.
The Minister said that the history of the SAPO was that it has had many misses. It was these misses that have actually pushed it to where it was today. The SAPO was supposed to be some kind of business unit of government which was supposed to service people in far-flung areas, historically disadvantaged people. The Competition Commission has made a lot of recommendations and it was against that background that there was now this ongoing process of separating the Postbank from the SAPO so that it met the requirements of the regulatory structures in the financial sector of reserve banks with prudential authority dealing with liquidity and market conduct. Members were informed that the Electronic Network Amendment Bill was being processed and limited infrastructure was available in some rural areas. The Department wants to close this gap and has looked at two different policies. The first policy approach was to invest in infrastructure through state-owned enterprises such as BBI and expand that infrastructure closer to those underserved areas. The second policy intervention was through subsidies. The PESI programme played a key role in the phase of the SA Connect programme, where schools, health facilities and other government facilities were connected. There was now a revised approach of the programme with the expansion of infrastructure to remote areas. This played a key role in the PESI programme and it coordinated and also provided subsidies to those SMMEs because it had ownership of the infrastructure.
On connections, government was able to connect 970 government facilities which included government offices, schools and health facilities. In the revised approach, there was a connect model to connect the bulk of the facilities, which would be schools followed by health facilities and those assigned to the operators, licenses or received spectrum through the auction. There was this obligation to connect these facilities. The SAPO has accepted that the current fiscus will not be able to carry the whole weight of the challenges. It is for this reason that the strategy has been devised. The strategy has elements that do not necessarily depend on funding to move forward.
The Chairperson welcomed everyone to the meeting. He said the Department of Communications and Digital Technologies and the South African Post Office (SAPO) would brief the Committee on the Appropriations Bill [B3-2023]. He said the meeting would start as soon as the Minister was in attendance.
Opening remarks by the Minister
Minister of Communications and Digital Technologies, Mondli Gungubele, thanked the Committee for the opportunity to engage on matters of Appropriation. He said that he had a team with him, along with the Board of the SA Post Office (SAPO). He said that he hoped that both the Department and SAPO would make use of the time prescribed. He said the Department would first do its presentation and then SAPO would follow. This was a huge task with regard to the future economy and the Department had to be resourced differently because it was heading to a digital dispensation. One of the most critical things was to be a relevant trading partner in the future world and that could only happen if one was properly connected. This included the people it worked with to sustain the country socially, economically and otherwise. People would have to be able to rely on this country to be a dependable partner in the digital economy both in the medium and long term. Optical modes of communication have become crucial and go hand in hand with global warming, also applied in the digital world insofar as the transition is concerned. The ordinary historic role that a human being has played is disappearing; there are new rules that match the digital roles at a higher rate. To be employable, many people would have to be digitally literate and skilled. The digital dispensation is not doing away with human beings but giving them a role based on their digital enablement. There are a number of issues that the Department thinks will need resourcing. It must be able to lead the digital transformation in the country. The area of strategy and a regulatory framework for this transformation is another area that needs resourcing.
There has to be a people’s organisational structure to ensure it has the right capacity which is responsive to the strategy. He spoke about the area of dissolving fracture which is a key enabler of digital transformation. The analogue switch-off is a priority. It is also looking at the SA Connect programme. The Department also looked at human capital development to power the digital economy. The programme included cellphone repair, technician training and digital skilling in collaboration with one of the state-owned enterprises. This will include Information and Communications Technology (ICT) and there has to be a massification of visual skills that will be required with appropriate funding to trade in society. It was strategically significant for South Arica to stay afloat as a trading partner. The biggest contributor to making South Africa stay afloat economically was international trade. It had to take the recommendations that were made by the Presidential Commission and would be looking at its platforms. The Department is looking at adding artificial intelligence hubs which it wants to launch this year. The funding was limited and it needed additional resources to expand into the areas such as the internet, autonomous vehicles, cryptocurrency like Bitcoin and also repositioning in the centre. The Postbank will be the driver for financial inclusion and transformation. It will also proclaim to process adequate policies and regulations to create an enabling environment for both transformation and convergence of the ICT sector. It is working on this rationalisation with associates towards the creation of a single state digital infrastructure service company. It is currently repositioning Postbank because there was an opportunity to grow in that space. The Department was looking at collaboration with three regulators so that it could be more impactful in regulating the sector and associated industries.
This work should include supporting and repurposing the SAPO as it remained a strategic partner of social services. The keywords of the Presidential Commission on the Fourth Industrial Revolution gave the Department a picture and the ability to see the huge challenges that had to be confronted. The Presidential Commission has been putting people together from academia and other sectors to ensure that it assisted South Africans to navigate, understand and assume agency over a society which had to be fundamentally altered. Fundamentally altered meaning that it would be a digital world. At that time, the presidential commission would have dealt with the situation of analysing the current conditions pertaining to the country and the prospects of what the country does have. It must ensure that the salient socio-economic aspect of the country is also attended to. The Presidential Commission actually restated the position and task of the Department and explained it in a more elaborative way. It informed the nature of the digital strategy which must be complete. It guides the entire ecosystem of various types of digital transformation. The Department accepts that it has a duty to demonstrate this to the Committee.
Briefing by the Department of Communications and Digital Technologies on the 2023 Appropriation Bill [B3-2023]
Mr Frik Nieman, Chief Financial Officer (CFO), took the Committee through the Department’s preliminary spending for 2022/23 and the spending plan for 2023/24.
In terms of the 2022/23 preliminary spending, the Department has been allocated an adjusted budget of total budget of R5.328b (rounded-off), which consists of compensation of employees totalling to R309.9 million (6%), goods and services of R627.9 million (12%), transfers and subsidies of R1.963b (37%), payment of financial assets R2.423 billion (45%) which includes the R2.4 billion for the SAPO, and payment for capital assets of R13.4 million. The expenditure as of 31 March 2023 is R5.219 billion or 98%, against the total adjusted budget of R 5.328 billion. The deviation of R108.9 million or 2% is mainly due to underspending of compensation of employees, underspending of goods and services, underspending on transfers and subsidies and underspending on capital assets.
The Department has established a Budget Advisory Committee to monitor spending versus budget allocation quarterly. The financial performance is also presented to the Management Committee (MANCO) and Executive Committee (EXCO), Audit Committee as a standing item on the agenda. The Department developed a procurement plan at beginning of the financial year for the procurement of goods and services which is centralised. There are expenditure reports sent monthly to programme and responsibility managers. There is tracking of financial spending that is tabled quarterly to EXCO and interventions are made. The CFO vets all the submissions with financial implications.
For the 2023/24 financial year, the Department has been allocated an adjusted budget of R3.512b (rounded-off), which consists of compensation of employees totalling R312.042m (9%), goods and services of R1.546b (44%), transfers and subsidies of R1.653b (47%), and payment for capital assets of R10m. Under Compensation of Employees, the focus will be on the completion of the organisation structure so as to fill in all vacant positions during the 2023/24 financial year. For goods and services, R1.3 billion will be allocated to SA Connect. R542 million will be allocated to SAPO for a universal service obligation, R473 million to the Independent Communications Authority of South Africa (ICASA) and R253.6 million to the South African Broadcasting Corporation.
Ms Nonkqubela Jordan-Dyani, Director-General, DCDT, took the Committee through the rest of the presentation. The Department is focused on spending its proposed allocations on phase two of the SA Connect programme to achieve a 100% broadband access to all communities and government facilities. It will also implement a broadband access fund to support the expansion of commercially sustainable broadband connectivity to under-deserved and low-income communities in South Africa. The Department will also focus on other things such as a digitalisation programme, licensing the Postbank, stabilising the SAPO and implementing the Fourth Industrial Revolution.
The presentation also provided very detailed tables and graphs on the service delivery implications, impact of the proposed allocation, contribution to the economic reconstruction and recovery, broad-based black economic empowerment and the localisation of goods and services.
Minister Gungubele said SAPO has a list of challenges based on its financial position. It is public knowledge that the SAPO has been placed under provisional liquidation. The Department is working on a series of options in a very delicate way to ensure that the SAPO does not go under. The SAPO also works with no less than 700 small, micro and medium enterprises (SMMEs) and also provides for the services of grants. This will be shown in the presentation. He said that sensitive matters are being dealt with, such as the discussion with creditors on the way forward. This will only be shared when completed because it does not want to undermine any developments.
(Please see the presentation attached for further details)
Briefing by the South African Post Office on the 2023 Appropriations Bill [B3-2023]
Mr Sipho Luyolo Majombozi, Interim Chairperson, SAPO, said the team will take the Committee through the presentation.
Mr Geert Bataille, Executive (acting) Group Strategy, SAPO, took the Committee through the presentation.
There has been a decline in postal services and financial services revenue. An amount of R3.9 billion is owed to the Postbank. The medical aid contributions for March 2023 remained unpaid. The cash flow also remains severely constrained. The liabilities of the SAPO exceed the assets by approximately R7 billion. There are financial and operational challenges. The financial challenges include things like the provisional liquidation order that has been granted; historical debt; revenue being insufficient to cover staff expenses and decline of revenue. The operational challenges include but were not limited to closure of branches; tools of the trade; low levels of morale and outdated software. The R2.4 billion will be allocated to the trust centre; business digital hubs; modernising branches; logistics modernisation; point of sale hardware and software; reduce staff costs; establish employee-owned companies and partial settlement of liabilities.
The decline in the financial position commenced as far back as 2006 – 17 years ago, as illustrated in the decline of the net position, which has been declining annually and has remained unfunded. There is a Post Office of Tomorrow Strategy where SAPO will change from a traditional postal operator to an integrated service and distribution provider. The pillars include logistic centres; logistics partnerships; e-commerce; authentication authority and trust centres; digital business hubs; building capacity and capability; modernisation and digitisation, strategic partnerships and post office employees. The SAPO has only achieved 15% of its key performance indicators for the fourth quarter of the 2022/23 financial year. The SAPO also has annual performance plans for the pillars mentioned previously.
Minister Gungubele said that the money now at SAPO's disposal was subject to all the stakeholders involved.
(Please see the presentation attached for further details)
Ms T Tobias (ANC) asked whether the Department had considered negotiating with debtors to delay payment until the strategy of the SAPO had been implemented. She said this was something that should be considered, especially in light of the fact that the SAPO was finding itself under statutory liabilities. She said that Eskom was able to write off the debt of some municipalities that were unable to pay. This brings some kind of debt relief for those municipalities. She asked whether there could be an engagement with other Ministers on this on services like electricity and writing rental payments off. This will bring some temporary relief. Has there been a discussion about having a delay payment? She asked for details on the retainer policy for the personnel to implement the strategy. She said that 70% of the budget was spent on salaries. She said that she was aware of upskilling the personnel but there could also be an alternative way of collaborating with the State Information Technology Agency (SITA) management of labour to not incur costs when upskilling. This would help add value because, currently, there does not seem to be any benefit to the organisation. The organisation must be able to sustain itself.
Mr O Mathafa (ANC) said that the award of provisional liquidation of the SAPO ties in nicely with the suggestion of the statutory payments highlighted by Ms Tobias. He asked for an elaboration on other measures that the SAPO and the Department had taken to ensure the process did not reach the final liquidation stage. He asked whether the Department could confidently say that the second adjustment appropriation of R2.4 billion was sufficient for fully implementing the turnaround strategy and that it would achieve the Post Office of Tomorrow Strategy. If not, what measures were in place to ensure that the shortfall or the impact of the shortfall was mitigated? He said that mention had been made about digital hubs and the process by the Department of Home Affairs for the digitisation of some personal documents on its system. Has there been any process whereby it would also be digitalising the entire state machinery, making transactions with government easier? He said that he believed this process would improve competitiveness, government efficiency and service delivery to the citizens. It would also align with the current trend of the Fourth Industrial Revolution. He commended the SAPO management for establishing a strategic plan. He said that the Department should take all the available steps to ensure SAPO was saved because this entity brought access to communication, social relief of distress and other grants. The people in rural areas should also be able to access these and transact through the footprint of the SAPO. He said the Minister did justice by speaking about the other stakeholders that were affected as well. He said that everyone should assist this entity. How many branches of the SAPO had closed and in which areas? There was a 15% underspending on the Compensation of Employees, which could be attributed to the non-existence of the structure and the moratorium placed on filling vacancies. It was further stated that the Minister had lifted the moratorium. What was the situation regarding the existing structure? If it spoke about structure, was it the Department’s organigram? He referred to establishing the Budget Advisory Committee and developing a procurement plan by the Department. He asked how the Department had responded to the CBE ruling by the courts. He said that he noted the positive impact of expenditures spent on the Broad-Based Black Economic Empowerment (BBBEE) categories which resulted in economic inclusion of previously disadvantaged individuals. Can the Department share this information on an itemised version detailing the share of the pie paying attention to Africans, Youth and People with Disabilities? He said that he had noticed the billions for auctioning the spectrum being injected into the fiscus. He said the natural level of an auction was that the one with the deepest pocket lasted because, normally, sales at an auction went to the highest bidder. The sale going to the highest bidder might exclude smaller bidders and create barriers to the local players in the telecommunications space. When one spoke of a spectrum auction, there was a lot of interest from major players which would bring their deepest pockets to the auction. Are there measures in place by the Department to ensure that it did not miss an opportunity to bring about economic transformation, including previously disadvantaged individuals in the mainstream of economic activity in the telecommunications and digital space? If so, can the Committee be provided with the amount that has gone in that direction? If not, what measures are going to be put in place to ensure that it does not miss this particular opportunity? This was an important agenda of democracy. How in line was the organogram that was being designed with the strategy of the Department? He said that he understood that resources would follow and that the organogram was part of those resources.
He said that the presentation really helped the Committee to perform its oversight.
Mr A Sarupen (DA) congratulated the newly appointed Minister Gungubele to this troubled Department. He said that the Minister was an old friend and they go way back. He said he was pleased that Minister Gungubele was appointed to this Department because it was a key economic enabler. He said that he rarely praises individuals but that there has been so much instability in this Department which has various economic enablers that could have created tremendous economic growth in South Africa. He said many years ago, there was supposed to be something called a local loop unbundling between the Department and the Independent Communications Authority of South Africa (ICASA) that would have created a competitive fixed-line market that never happened. During the course, digital has expanded to cellular and fibre, creating additional phone lines. He said that this entrenched the telecommunications monopoly at the expense of alternative new and smaller players and potentially prevented the creation of multiple providers in this new digital era. He said that telecommunications have been able to hold on to its local loop despite the fact that there was not a telecommunication asset but only a public asset that the state had invested money in over a period of 60 years. He said this matches the impediments to achieving economic transformation mentioned in the Department’s presentation. The migration and switching off of the analogues to make available high demand spectrum is a major problem that has been ongoing since the 2000s. He said that it has missed every single deadline and it is embarrassing because everyone else has been switched off and has moved over to digital. He said it is important to remember that for every 10% increase in broadband penetration in a middle-income country like South Africa, there is a concomitant 1.4% increase in economic growth. He said having this stalled by ten years is proving to be a throttle on economic growth and job creation. He said the allocation of 5G spectrum is something that is becoming an increasingly important economic enabler. It is underestimated how much this Department can contribute to economic growth and the constant ministerial instability over the last ten years has set that back. He said Broadbank Infraco has not really been producing proper annual reports for many years. There have been many questions in the press about its viability and what it is doing in the modern era. He said that it would be nice to get a proper update on what Broadband Infraco is doing. He mentioned that the website for Broadband Infraco has been suspended. What is the status? Is it making any money? Is it a loss for the state?
He expressed his disappointment with the presentation by the SAPO. The operational and financial challenges were presented as if they were external factors instead of why SAPO has been in a state of decline in the last 12 years. It is facing provisional liquidation because of severe underperformance. He said by the late 2000s, people stopped receiving letters from the SAPO. If parcels were ordered, it was not delivered especially international parcels. There are hundreds of stories online. People order international parcels that end up being stuck at OR Tambo International Airport and then SAPO never delivers it. These serious issues have been building up for the last ten years. SAPO rarely speaks about its own underperformance over that time. It is stated that the current board was not in place and is not the cause. In reality, there is a systemic problem that led to this decline. He wanted to hear more accountability and responsibility from SAPO. This has caused people to receive their bills via email rather than the post. This is not just a consequence of the fact that it is now the digital era but the fact that it was accelerated by simple things like the post not being delivered. He said that he noticed one of the challenges being the enforcement of reserve postal area under one kilogram. If this regulation is enforced, millions of parcels in this country would just not be delivered, judging by the day-to-day performance of the SAPO. If the SAPO comes to this Committee saying it wants something enforced, it should be able to make these deliveries. If not, it will just become a throttle on economic activity in this country which is what would happen if the regulations were enforced. Since the separation of the Postbank and the SAPO, will the Postbank be operating from the SAPO offices? If so, what is the revenue stream going to be like?
Mr Z Mlenzana (ANC) welcomed the presentations by both the Department and SAPO and said that it was not hiding the challenges that it was facing. He congratulated the Department on moving from analogue to digital. He said that he saw a continuation of the implementation of the project. He said there were previously issues with the manufacturers for the set-top boxes. He asked if South Africa would use its own manufacturers for the set-top boxes instead of importing them.
Mr Mlenzana asked who the alternative manufacturers were for the set-top boxes. He asked if it was now able to manufacture its own set-top boxes or if it would rely on importing them. He asked how the generic implementation of the project was quickly or smoothly growing to the vulnerable and poor masses on the ground. What are the challenges faced by the Department in implementing the project? He asked why the moratorium had not been lifted yet. What were the budget implications related to this moratorium? He said a while back, there was still an allegation that some SAPO offices would be closing and now it was really happening. What is the expected impact of the special appropriations? What changes would that have had in the manner of the Mobile Virtual Network Operator (MVNO)? He asked if the Committee could be provided with the number of offices that will be closed along with the number of employees with post designations in each post office. There were about 6 000 post office workers due for retrenchment. If one can know which offices would be affected, moving or migrating those affected personnel to the other offices will be proper. He said he noticed that post offices in town were the ones which were affected but there were also post offices in rural areas that were still operational but with few personnel.
Mr X Qayiso (ANC) thanked the Minister and his team for the presentation because it made the Committee wiser about the Department's developments. He said that he had an issue with the SAPO. The picture that the presentation portrays is really bad. He said since 1991, with its establishment, the SAPO had a particular mandate to deliver, especially for poor communities who were disadvantaged in terms of access to services and to ensure that these services were improved. He wanted to see this company in these disadvantaged communities. A lot is expected from the SAPO, such as the next delivery and economic growth. One would expect that the income at SMMEs will be boosted because several hundreds of companies and independent institutions are doing business with the SAPO. There was an expectation of job creation.
All the things that have affected the SAPO have also indirectly affected the SMMEs because it is also at the centre of job creation. He asked why it had only learned at this stage where the situation had developed insofar as the SAPO was concerned. He said that he believed there would have been some warning signs even before the liquidation application. There have been signs and symptoms of this problem engulfing the SAPO. There was now a problem with the organogram and structure. All the problems now appeared to not have any ownership. It appears as if these things just developed spontaneously. He said that things are getting worse and nobody knows who is responsible in the executive administration. There is an element of performance management to get the organisation to live up to its objective and mandate. There are warm bodies that are responsible for these things. He asked what their roles were. He asked for clarity as to why nobody has been responsible for the development of the institution. It seems as if problems just naturally happen without one knowing where they emanate.
In rural areas, some people have to travel many kilometres to receive some assistance. They wake up as early as 05h00 to take the route to the SAPO. They have to go to smaller towns to receive service. These people now wake up knowing they cannot be assisted immediately because of this process. Millions of poor people will now be disadvantaged. He said he thought it was proper for the Committee to receive this presentation. In this way, the Department should also be able to assist the Committee in the future. Strategies are also being shared and it now sought to take the SAPO forward. He said that he hoped it could be done perhaps before the end of the second quarter of the financial year. This discussion should take place and a follow-up can be done with the Department on its position and that of the SAPO. It has to paint a very clear picture. He said that many things can be said but at the end of the day, there has to be a solution to this situation. One of the solutions is to wrestle and rescue the SAPO. The SAPO should be supported in whatever effort it was engaged in. Even if there is anger, SAPO should be supported. If the SAPO shuts down now, there will be people who are going to lose their jobs. He said that the best medication is to rescue the SAPO. The government must put in effort to rescue the SAPO because there are a number of opportunities as per the presentation. He said that there should be a proposal around that. He said he agreed with what the other Members had said.
Ms Tobias had some connectivity issues but asked why a price analyst was not appointed. She said that there cannot be a situation where a state-owned enterprise does not have a price analyst.
The Chairperson said that the Minister must note that the Department will be allowed to submit written responses. He asked why the revenue of SAPO is declining. He said he did not get the real reason for this in the presentation. He said that there is R2.3b less than what was budgeted for. This suggests that there was poor budgeting from the start. He said that the SAPO was the one pushing to pay the social grants. There was a long discussion around this, and all types of projections were made to the government as to what would happen, including good financials. The SAPO said that if it was given this responsibility, it would improve its finances. He said that the SAPO is a big landlord which has a very high level of property asset register. There has to be an asset register to take care of the properties and once it looks at disposals, it can look at the register. It should look at other cost containment initiatives apart from retrenchments. The Presidential Employment Stimulus Initiatives (PESI) and the geographical reach were mentioned. What exactly is the nature of this insofar as the Department is concerned? From his personal experience visiting rural areas, people say that they have never heard of PESI. Is it trying to reach everybody or only those in close proximity to the offices? What is the nature of intervention insofar as the PESI and its geographical reach are concerned? What happens to these people in the rural areas and the young people when the programme is completed? He had been suggested previously that state-owned enterprises should be part of this programme. No skill is not needed. These people can be taken in. Are state-owned enterprises considered in as far as the PESI is concerned? It is worrying that the Department which is in the forefront of ICT is only spending 31% on software and intangible assets. Does the Department think the internal arrangements of the SITA being the main custodian of 1 880 related initiatives and the management thereof is optimal? Does the SITA deliver optimally? There have been issues with other department’s relationships regarding the failure of the SITA to deliver on the ICT programmes. Does the Department think that this is an optimal arrangement? The South Africa Connect programme is very important, especially since government offices have long queues. There is no connectivity, especially in hospitals and the Department of Home Affairs. When will connectivity reach these institutions to ensure that while it may be painful for people to wait at the Department of Home Affairs, they will at least be connected and continue to do their work?
Many government departments are not connected. If it cannot connect government departments, how does it expect to connect South Africa? He said that the President had made mention of an economic reconstruction and recovery programme. The problems in this country, such as ICT, subdued the economic growth in unemployment, poverty and inequality levels. This is something that has to be approached and is quite a sizable percentage of the expenditure. He said he was unsure whether it could say that it empowers black people and people with disabilities and that they are benefiting from procurement. What initiatives was the Department doing to ensure that it localised manufacturing and did not import products? He said that importing goods and services negatively impacts the gross domestic product. This will also help to say that South Africa used to import from other countries but things are not being manufactured locally, which will help to deal with the problems of unemployment, inequality and poverty. He said that the Constitutional Court judgment around the regulations, National Treasury has said that all departments and institutions must develop their own approach to this one. What have the Department and SAPO done in this regard? What is the position of the institutions and agencies? He asked the Department and SAPO to respond to these clarity-seeking questions.
Minister Gungubele said that tough questions had been asked but they had to be dealt with. There have been questions about the attitude of creditors and what the creditors were open to. There are also a number of issues that were positively advised by the Committee to deal with. A list of these items is still ongoing discussions, so he requested not to answer those directly because of the sensitivity. He said that all of those were taken as positives and many things were being tabled with the stakeholders to try and find a solution. He asked for the indulgence of the Chairperson to have those secured.
The Chairperson said that the Minister would judge what could be shared and what could not be shared. The Committee would not want to jeopardise anything.
The Minister said that the history of the SAPO is that it has had many misses. It is these misses that have actually pushed it where it is today. The SAPO is supposed to be some kind of business unit of government which is supposed to service people in far-flung areas, historically disadvantaged people. There are millions of people. There are no less than 700 SMMEs which would supposedly employ a number of people for ICT support. There is going to be a point where tough decisions will have to be made, where the cost structure of the SAPO will have to be attended to in the interest of millions of clients. Those SMMEs will be able to employ many people and continue to ensure that millions of disadvantaged people are served. Many people are engaging in this matter which is a sensitive process. The R2.4 billion was what was available to the SAPO. He said that one may want to buy a loaf of bread but to save SAPO, it needs to build a bakery. There can only be consensus if it is agreed to the building of a bakery. In other words, all the monies that are now available are subject to these kinds of discussions. He said that this included the creditors and whoever was affected. The issue of digitalising the entire state is something that Cabinet has put forward to the Department in, which the Department has to lead the Ministerial Committee to ensure this happens. Other countries are not digitised, like South Africa. He said that this was quite an embarrassment. The preceding Minister would have completed the structure and it would have been analysed. Certain things need to be addressed, and the Minister is now interrogating them. It is unusual for an institution of this nature to be without a structure. The digital department is highly specialised. The organogram must be of such a nature that it responds to the responsibilities of a special nature for which this Department has been established. To unlock the next generation of digitalisation, there must be competitiveness, ability and bigger participation beyond the big players. Everyone needs to have access to this SMME. There is a study that was done by the Competition Commission which is about the data service inquiry market which had the diagnosis about the competitiveness of the environment and the cost nature of the environment. The Competition Commission has made a lot of recommendations and it is against that background that the Electronic Network Amendment Bill is being processed. There were also a number of other interventions to ensure that people migrate within an acceptable cost. All these policies were here to intervene regarding the telecommunications ports.
A delay of spectrum can never be justified. He said that signal spillage is a problem which affects places like Mozambique. The fact that the spectrum has been auctioned means it must be released. It has serious implications for migrating. This month the dates of switch-off will be announced. It is trying to reconcile installations based on the spreadsheet that is before it. The Department is going to work with all the relevant structures to assist in minimising repercussions once it finally switches off. The issue of BBI is not satisfactory and is a going concern. There is a process of integrating into it. There is now this ongoing process of separating the Postbank from SAPO so that it meets the requirements of the regulatory structures in the financial sector of reserve banks with prudential authority dealing with liquidity and market conduct. The state has a plan and must meet the requirements to protect its depositors.
Ms Jordan-Dyani said that the Department does see the spectrum policy as a game changer. It has considered it a vital component in South Africa’s digital economy and growth as well as the development of the electronic communications network infrastructure to support a wide variety of industries. Therefore, it speaks to the licensing regime to see new entrants in the area, which must reflect South Africa’s demographics. The next generation spectrum policy is going to be very deliberate as far as closing the excess gap is concerned. The deployment should actually start in the rural areas and then move into the commercial areas. This will ensure that all South Africans have access to a wide range of personal, commercial, national, security, safety and the scientific applications to it. The Department is planning on sending a directive to ICASA by September 2023, so it is not just going to be traditional allocations but also licensing for fixed mobile broadcasting and supporting critical services. To recover the economy of the country, there has to be more spectrum allocation for industries such as manufacturing, mining and agriculture.
The Department is confident that some of the SMMEs will be able to participate in the value chain. The Department is also mindful of the fact that not everyone will be able to afford it. The new spectrum is going to have a set aside that is allocated to a state digital infrastructure company that will consist of Sentech and BBI, as by then, the acquisition will be finalised. It is indeed true that there are these big players at auctions, but this is what the Department has done so far. The spectrum will then be allocated to this new entity, showing wider participation. The Department wants to see competition insofar as services and a wider variety of services being offered are concerned rather than it being burdened with new entrances that can be costly. There has been a delay regarding migration that includes the spectrum auction. These delays were not large in terms of government’s intent but there were numerous litigations and it could not switch off in March 2021. Despite all of these delays, it has been able to switch off five provinces and there has been a full installation in the two provinces. It is finalising and ramping up the installation in the last two provinces in KZN and the Eastern Cape. The installation in Gauteng and the Western Cape has been completed. The Department is confident that all the parties in the value chain will allow it to complete this project.
The issue of modernisation of the broadcasting sector is to first switch off these analogue signals. Thereafter, it can focus on the capabilities within the broadcasting industry. The Department wants to see local manufacturing not only for the set-top boxes but for the next generation devices when it comes to the elements of broadcasting or even devices for the household. This is the digital age and there has to be transformation in terms of Wi-Fi programmes. The Fourth Industrial Revolution demands that the country ensure that citizens also benefit from deploying various technologies in households, businesses, schools, health clinics and everywhere else. There is an attempt to modernise all the government services but after it is able to migrate, it will allow for a flood of other technological development which can then be built into society utilising South African expertise and innovation. There are programmes aligned with the digital economy framework that ensures that South Africa produces its own digital products and applications produced by local SMMEs. She said that she was happy to announce that over 85 products and solutions are already available on the DigiTech platform. This will increase and the Department is calling for others to sign up. This will not only ensure uptake and usage but also ensure that those SMMEs and technology entrepreneurs are paid insofar as the solutions they provide are concerned. The payments will be kept locally in South Africa as it builds on changing its strength and gross domestic product.
Mr Nieman said that when the two departments merged, there was a provisional structure that the DPSA approved. It was not operating in a vacuum. This provisional structure is in place which will allow it to finalise the organogram which is currently in an advanced stage. The Department is working closely with the DPSA to have the new structure approved. The Constitutional Court judgment based on the procurement matter was about the 80/20 points allocation system. The 20% was actually allocated according to the BBBEE, but a new regulation was issued by the office of the Chief Procurement Officer in March 2022. This allowed departments to make use of specific goals and criteria to be used to make up for the 20% which is now race, gender, youth, disability and localisation, which will make up 30% as 20% was in the past. The Department has spent 31% on software and the reason for this is that it has started the procurement of the Microsoft licenses which flowed over into April 2023. The payment there will be done in May 2023 so it actually flowed into the new financial year. If the payment was done in March, it would have spent 100% of the software licensing.
Mr Tinyiko Ngobeni, DDG: ICT Infrastructure Development and Support, DCDT, said the Broadband Infraco website was indeed off. There was a glitch but it has since been rectified. The website is now up and running. The Minister has spoken to BBI and the approach to integrate BBI with Sentech. This is precisely because BBI’s mandate is to expand infrastructure and to understand these areas. It is currently still busy doing this but it has been operating on an expansion of the infrastructure. In some rural areas there was limited infrastructure available. The Department wants to close this gap and has looked at two different policies. The first policy approach was to invest in infrastructure through state-owned enterprises such as BBI and expand that infrastructure closer to those underserved areas. Another key area was through SA Connect programme to invest in infrastructure to expand and become available and useable by the SMME’s and internet service providers. It would allow for participation by these SMME’s into the sector. One of the key requirements was to be able to build local infrastructure to connect communities and it will still need access to the core network infrastructures that are able to take information from those remote areas back to the data processing centres and to international destinations. The second policy intervention was through subsidies. The PESI programme played a key role in the phase of the SA Connect programme, where schools, health facilities and other government facilities were connected. There was now a revised programme approach with the expansion of infrastructure to remote areas. This played a key role in the PESI programme and coordinated and provided subsidies to those SMMEs because it had ownership of the infrastructure.
Regarding the PESI programme and the nature of the intervention, there were two categories of programmes. There were those programmes that may be heavily focused on employment generation and those that were catalytic programmes which were more focused on supporting economic development in the different areas. The Department’s programme was called the broadband access fund which was to stimulate the rollout of the ICT infrastructure in underserved areas. This was where the second policy intervention, which provided subsidies, came in. Capital was a huge requirement in the ICT environment. It had to make a lot of capital before it could make the returns. This was there to support those SMME’s so that they may be able to roll out that infrastructure. BBI was leading in terms of being the fund manager who would provide the subsidies to these SMMEs. There would be some job creation during the rollout of the infrastructure and the maintenance thereof. The focus was to ensure that there was access to infrastructure in rural areas, so that these people are not left behind. Regarding the geographical reach, the pilot programme will be focused across all the provinces. The intention was not connect and provide Wi-Fi hotspots in these areas. It would be limited to 3 000 Wi-Fi hotspots and 50 000 households to be connected. The SMMEs would be subsidised through this broadband access. The first phase was to connect government, but it was limited to very few facilities due to financial constraints. It was able to connect 970 government facilities which included government offices, schools and health facilities. In the revised approach, there was a connect model to connect the bulk of the facilities, which would be schools followed by health facilities and those assigned to the operators, licenses or received spectrum through the auction. There was this obligation to connect these facilities. This should be extended to the government and the traditional authorities included in the revised programme. In terms of this programme, a significant amount of connectivity would be provided to government facilities. He said SITA also had a mandate and responsibility to connect citizens and government offices. Government was also expected to pay for this. There have been engagements with various departments across the provinces regarding phase two for a budget for the SITA to upgrade and expand its infrastructure. This would enable it to provide connectivity in a cost effective manner and would also expedite the connectivity to other government facilities, especially those who were expected to pay for the connectivity. Currently, about 30% of the set-top boxes are being manufactured locally in South Africa. The litigation has delayed the programme over the years, diminishing the capacity for local manufacturing. There would be assistance for device manufacturing as part of the digital transformation.
Ms Jordan-Dyani said that the Department has been very intentional about utilising local-based installers in each of the areas. It first checked for local installers at a municipal level. It then moved to a district and provincial level. The intention was also to set up service care as was the case with the private sector, where if there was a problem with the device post-installation, it empowered and gave the installers skills to be able to set up, repair and refurbish hubs in each of the districts. This would lead to job creation.
Mr Alf Wiltz, Chief Director: Telecommunications and IT Policy, DCDT, said that the local loop unbundled is an old overtaken matter caught up in the courts and referred back to the ICASA’s Compliance Committee. It was eventually overtaken because copper became effectively obsolete and networks changed to the next network generation. Today it was all about sharing fibre and radio access networks. The current facilities' leasing framework and regulations were ineffective. There have been a couple of legal disputes in Cape Town and other areas. It is necessary to change and improve it. So, section 43 of the Electronic Communications Act will be amended to improve the facilities. First, it will bring the electronic communications facility services within the framework as licensees must lease facilities. Secondly, the reasonability access will be replaced with principles of access prescribed by the authority that would make it easier for them to access. Thirdly, section 47 which deals with facilities leasing pricing principles, will be amended to ensure that the authority prescribes all sale pricing rules and standards applicable to different types of facilities for roaming. Additionally, regulations will ensure sharing of mobile networks and the amendment will lead to improved sharing of broadband infrastructure including the so-called local loop unbundling.
Mr Mlindi Mashologu, DDG: Information Society and Capacity, DCDT, said that in terms of the digitalisation of government, a national economic strategy and road map was passed in 2017. In terms of executing the strategy, the Department has worked with the DPSA to identify the citizens facing services and 255 were identified. The Department has now developed a platform, a portal, and citizens will be able to go to this platform to access government services. The platform is known as eservices.gov.za. He encouraged the Committee to look at the platform. Currently, 120 services on the platform are operational from various departments. These departments include health, social development and education. The Department is looking to have 160 services on the portal by the end of the year. The Department is also working with SITA to integrate some of the back-end systems in government because of the challenges that it is facing. Each department does have its own separate system but it is trying to integrate those vacant systems to be on one platform which will either be on the government private cloud or application programming interface. This will allow it to add more services on the platform cutting across various departments. The Departments is currently investigating a government data leak where it can understand and analyse what citizens are actually doing. It will help the Department to assist in developing those services.
Mr Mlenzana said that he heard the explanation on the set-top boxes but the reasoning behind the question was related to various countries advancing and they are ready to assist South Africa. There is now a running over, but now after the implementation has started, who is exactly implementing this and who is the manufacturer? Which country is currently implementing this transition?
Mr Ngobeni said that in terms of a manufacturer, there is CZ Electronics, based in Boksburg, and has supplied half a million set-top boxes. Another company provided another half a million terrestrial set-top boxes. He said that another company in Randburg also provided satellite digital to home set-top boxes and Ellies provided the antennas for the set-top boxes.
Minister Gungubele said it hopes to improve the localisation of original equipment manufacturers. It is no longer about the capability to manufacture but it is more about where it is.
Mr Majombozi said that at the beginning of this year, SAPO engaged with Productivity SA to address the situation and challenges such as statutory liabilities and retainer policy mentioned by Ms Tobias. These are two of the issues that the SAPO has received advice on and are all in the basket of proposals that the SAPO is currently looking at. The SAPO has been advised that retrenchment is not the only way out. It is unavoidable, though, because some members of the employment force would be affected due to that. There are a whole range of programmes that include upskilling. If this is required, a much more comprehensive response can be provided. There are measures in place to prevent final liquidation both in the Department and the SAPO and it is working hard on this specific matter. Final liquidation will not serve either the post office or the communities. The SAPO has accepted that the current fiscus will not be able to carry the whole weight of the challenges. It is for this reason that the strategy has been devised. The strategy has elements that do not necessarily depend on funding to move forward. He said concrete examples can be given to the Committee if it wishes. He said that the SAPO has been behind, especially in the case of a rapidly digitising world, because of its legacy business model. This is also one of the reasons why the strategy has been adopted. The main thing of delivery mail by the SAPO has been diminished. The SAPO cannot start everything from scratch and then digitise it. It will have to partner with operators. There have been serious discussions to ensure that it is not only competing in the vulnerable space but has tied up with one or two other operators and, at some stage, an international operator who will live in the world on the revenue stream and split it between the SAPO and the Postbank. It does affect the register because the SAPO and Postbank are joined by the hip and there is an agreement prescribed for the joint use of infrastructure. This will continue to be the case. There is a commercially viable agreement that will have to be looked at. The advice from Productivity SA is actually focusing on how best to deal with the particular challenges of closing down offices and retrenchments. So, there is no actual number; it can be 600 or significantly less but the SAPO is sensitive to that particular issue and desires to handle it as reasonably as possible. There have indeed been warning signs about this situation in the beginning, even before the provisional liquidation. The discussions with Productivity SA commenced as early as January 2023 to try as much as possible to avert it. The Standing Committee on Public Accounts came to the SAPO about two years ago which stems from the failures but everything was explained and went over the strategy. It does not normally enter the fray of supporting funding for institutions but in this case, it was clear that it needed to position itself accordingly. The dispensation towards the SAPO has changed significantly and adversely, especially commercially, compared to the previous dispensation. There have been various attempts to negotiate about it. The rest of the team will respond to the other questions.
Ms Nomkhita Mona, Group Chief Executive Officer, SAPO, said revenue has declined over the years. The SAPO was not quick enough to ensure that it moved with the times and to align itself with what was happening in the environment. The SAPO is now paying for that. Some very loyal employees have been working at the SAPO offices since high school for over 20-40 years. The problem here is that one finds a round peg in a square hole. The SAPO of tomorrow requires a certain type of skill that is not so much sought as of mail and delivery thereof. It needs someone who has some kind of digitalisation skill. It will be a risk to use the same people that it has now but this is something that is being looked at. She said she had been with the SAPO for two years now and back then, it did not have funds to appoint the right people, such as a price analyst. There is an element of the requisite skills that it does not have. She made an example of how the CEO was the only one with a contract of employment for the longest time of a year and a half purely because it could not afford to set up interviews. Some people said that they wanted to help the SAPO. The SAPO was waiting for funding which it never got and could not go ahead and appoint the right people. Some of this has been resolved such as the CFO's appointment, Ms Fathima Gany.
She said that even before the provisional liquidation, R2.4 billion was not sufficient. The SAPO is very grateful because it would have fertilised the implementation of tomorrow’s strategy. She said that this has to be reviewed and that the current R2.4 billion is not sufficient however the SAPO will make it work. The SAPO has to get the government business because it believes that tomorrow’s strategy can be self-sufficient, and self-sufficiency comes from a number of areas which includes government business. If one looks at the one-kilogram package distribution, this is something that ICASA, by law, determined for the SAPO to be the only one that should be doing this. Over the last 20 or so years, that has not happened. Some new entrants came in and started eating the SAPO’s lunch. This is something that it is trying to deal with. She said that nothing gets ruined overnight. There has to be non-action or a different focus which is where the entity now finds itself. She said that she believed the ‘up to one kilogram package’ distribution would help the SAPO. The reason this was done in the first place is because post offices are, by nature, not a profit-making entity. Only 20% of the SAPO’s branches have been profitable. This means that 80% of the branches have been carried by the others. The Department has been assisting the SAPO through the universal service obligation which is funded. She said National Treasury gives them over R519 million and the SAPO spent almost 100% of that. There is stuff that did not have to be funded. The mandate of the SAPO is to ensure that there is connectivity and access to all the SAPO is grappling with. This is a funded mandate, and the SAPO has been subsidising some of the services it has given to government. In the last financial year, it closed 120 branches, of which 64 were forced closures because it had not been paying the rent. The SAPO has been looking at its strategy and structure, ensuring that the balance sheet comes down and how to effectively run the business. A few years back, ICASA said that for every 10 000 citizens, there has to be a post office. This helped to ensure that there were post offices in malls. There have been situations where there are three post offices within a five-kilometer radius. It is a very sustainable business but it is important to consolidate that process. She said that the consolidation process started before she was appointed. So, if post office A or B closed, then citizens can go to post office C because it is in the same range. She said that she has noticed that because it has closed offices, there is a direct correlation between its revenue and therefore, the decline. The fact that letter mail is no longer the main thing, the environment has changed and people now communicate differently. The closing of the SAPO branches is an issue. Therefore, in the new strategy, there are more points of presence with a more hybrid model, where it does not have 10-20 people working in a branch but one takes the service to where the people are. She said that with this strategy, one will see the post office on every corner, whether it is a service station or in a shop, the service will be brought to the people. The new strategy will reduce the cost of running a business but not prejudice the people. The footprint will expand as soon as the strategy has been implemented.
It has been mentioned that the SAPO only focused on external factors. The presentation did speak to the demise of the process of the post office from 2006, which was the last year that it actually made a profit. It tells the Committee exactly at which point this happened. The Minister also touched on those in his introductory remarks. There are a number of decisions that the SAPO had to take which is surprisingly not affecting it negatively. If one looks at the digital environment, there have been smartphones coming through and the Minister had also highlighted the strike that was close to six months long, which actually broke the camel’s back in the post office. The SAPO had not been able to recover from this and then COVID-19 happened. There have been so many other things but the common thread was that the SAPO did not pivot quickly enough. As much as the SAPO spoke about the external factors, it acknowledged that internal factors had affected the entity for more than 12 years. There is a vicious cycle where the SAPO does not deliver the parcels but there is an outcry of government not giving it business. If it does not have the tools of the trade, it will not be able to deliver. This will affect the business. The SAPO has now analysed where its problems were (external and internal factors) and now knows what needs to be done. In this current executive and board, the focus has been on dealing with the problem at the source. She made an example of where an organisation of this nature is fighting a fire but as soon as one fire has been dealt with, another one breaks out. It has to look at strengthening the post office of tomorrow. There will be some change happening, allowing the post office to be more easily run going forward.
There is a symbiotic relationship between the Postbank and SAPO. The Postbank is a key area that has been focused on. It will ensure that both entities succeed. She said that she had seen where the Post Office remains with the Postbank and that it had actually survived. One example is Namibia where the Postman is still an integral part. In South Africa’s case, it knows what is happening but does not mean that it cannot feed off each other or assist each other. She said that those staff members are absorbed and deployed in another branch to assist when post offices close. She said that these employees are redundant if one would look at the Labour Relations Act 66 of 1995. The workplace is no longer there and there is no longer any work available. However, the SAPO has tended to keep those employees until now. There are currently 11 858 employees countrywide and 1 357 active presence points. So, these will run through rural areas and will remain part of the strategy.
The SAPO wants to ensure that all South Africans have access through the postal services. There were signs and symptoms of these things happening to the SAPO. It had been flagged even before the previous CFO and before the current CEO joined SAPO. The previous CFO had left a blueprint on the table and said that if nothing changed in the organisation on this date, it would reach ground zero. She said that when she came into the SAPO, she did look at everything and two years later, SAPO is still standing. This is because of the initiative it took. It was always waiting for funding and did not believe that the government would share the same pride as the organisation does. The SAPO could not just wait for funding and not do anything. There was a temptation to find and focus on the actual symptoms and not the cause of who was responsible for this and why it got to that point. If one looks at the timeline of the SAPO, it is not a surprise that this happened because it already knew it would if there was no intervention. Some people are now entering the organisation, inheriting these issues and carrying the weight of it. It has to be understood that these new people are not part of the cause, because there were other boards before and bailouts. In the last four years, there has not been a bailout and flags were raised around the fact that the last time the SAPO made any profit was in 2006. It is able to trace back to where these issues come from but the most important thing is to not focus on history but more on where the organisation is going forward. The SAPO exists for the communities, for the country and the people.
She said that she had seen a lot of debate in the media about people saying that the private sector should do this. The private sector is not interested in bringing these services to the people who do not have access to them. The private sector will not do it because it is expensive. This is the reason the role of the SAPO is so critical otherwise, it will leave the bulk of the people behind. The revenue has been declining for a number of reasons. One of the reasons is the change in the business environment. There has been a sharp decline in the revenue volumes. The SAPO kept the same cost base instead of balancing the decline in revenue with the decline in costs. She said that when she joined the SAPO, 15 600 employees were working for the SAPO through voluntary severance packages sent to them if they wished to exit the situation or the organisation. This is how the number came to just under 12 000. She said that the contracts that were signed were very detrimental to the SAPO if one looks at the small print thereof. Everyone else was making money on those contracts.
The COVID-19 pandemic happened and people were worried that if they came to the post office, they were going to contract the virus. The people did not approach the post offices to pay their bills or renew licenses, they went elsewhere. This affected the post offices negatively. These are the issues that it did not look at. The SAPO has been subsidising the government in doing the R350 grants. The principle of it was correct but the contract was not correct. The general grants were done by a private company and by the time it was given to the SAPO, it got R1b less than that private company. This is one of the things that have failed. There is a proper asset register. The SAPO has not been able to maintain the property. The SAPO has a very healthy R2.4 billion worth of property portfolio. It is not deriving the value that it should have been deriving. It will be doing the right things going forward. For instance, one should at least derive 5% of the value every month and the SAPO has not. Therefore, some of them have fallen into despair. It did not have enough funding to be able to do that. In terms of the non-core assets, there was a list of 114 properties. These properties will be up for sale; that decision was taken but not implemented. This is something that is being looked into. She said there has been a kind of a stall because of the provisional liquidation, but the implementation thereof and cost containment initiatives are underway. If one wants to contain the costs, one must also ensure that revenue is generated. There were a lot of areas where the SAPO was losing money unnecessarily. It was spending R600 million security designed to assist with funding and financing social grants because there is money in the branches.
There are a number of cost containment initiatives which can be provided in writing to the Committee. There is something called post-retirement medical aid which only a handful of post or previous SAPO employees benefit from. However, if one looks at the balance sheet, there is a R1.3 billion liability. So, the SAPO wanted to strengthen its balance sheet. It then decided to approach these pensioners and then buy them out with a lump sum. This will remove the liability. It has been a very systematic way of cleaning up the balance sheet and ensuring that the post office of tomorrow starts on a strong footing. The SAPO has seen an interesting uptake from this buyout from these employees. This will help reduce the liability. If you look at the SAPO over the last 11 years, somebody has covered these very same employees, just over 2 000 of them and to the children, just over R1 billion. So, this is one area that SAPO is focusing on and it is excited about the future of the SAPO. As soon as it gets over these hurdles, the post office of tomorrow will be a good one.
The Chairperson said that the optimality of the arrangement with the SITA has not been responded to. Does the Department of Public Works own the buildings that it is currently in? There is this thing where one department is a landlord for everybody. There is always that instability at the top in state-owned enterprises, like the board and the executives. How does it plan to deal with this? He said he kept on hearing the CEO of SAPO saying ‘when I came’ and ‘when I did this’. When one looks at the budget, it looks as if a lot of things can be done around helping the economy grow. He said the Minister had been part of a Prasa project. The project had been completed recently and the Committee had an opportunity to visit the Plant. There were state-of-the-art trains that were being produced there. Young people were being employed as a result of that. This was government using its procurement and power to try and get some industries going in the country. He suggested the Minister take his team to the project to see this. There is the value of the government spend trying to establish and resuscitate industries in the country. He said that he would like to see such things coming up with the Department and its agencies.
Ms Jordan-Dyani said that if the question to the number of buildings the SAPO owns or the Committee is referring to the total buildings in the portfolio, this information would have to be submitted. The total number of SAPO outlets is over 1 120. The amount that it owns is about 643. She said prior to the financial year, the Department advised the SAPO to move back to its own owned offices or outlets rather than to spend on rentals. The Department hoped to use its funding to refurbish these premises. The funding was previously received in 2016 for the refurbishment which was actually used for the settlement of debts. However, the SAPO is working on a strategy to refurbish those. It is also looking at collaborating with other government institutions and for the SAPO to move back to its offices, which is part of the post office of tomorrow strategy. The intention was to build digital hubs and this is where the facilities came in. These facilities will be open to the general public in terms of the SMMEs and traders to enable it to utilise that particular platform to exchange goods and services.
The Minister said there should be respect for the different roles and that it works differently with boards. He mentioned that sometimes he came across instances where appointments were supposed to be made by boards but they ended up having to be made by the Minister. Sometimes this type of situation was allowed and this was what had happened here. He said that he had allowed a situation where a lot of the issues he was supposed to be getting from the board, he got it directly from the staff of the institution. This sort of practice was allowed and he kept on picking it up. If one allowed the board to do its work as prescribed and demanded results, the board would do its work fruitfully. It was just a matter of clarifying those issues, such as roles and relationships. There could be other reasons for non-appointment because it does not qualify for the job. This also becomes another issue. He said given a chance, it would deal with it as a special matter, but for now, something tells him there should be clarity of roles between the Minister, shareholders and board. He said that when he was part of the Public Investment Corporation, the board commanded a lot of respect and hardly determined what should happen but demanded results from the operation. He reiterated that this is a clarity challenge. He agreed that some questions had remained unanswered but not everyone gets painted with the same brush. The Department is working closely with the SITA. The President has asked for a diagnostic report on the challenges the SITA faced. He said the biggest question to ask was the SITA's primary role. Was SITA put together for procurement or an entity which was supposed to lead digitisation both under the state and the entire country in the process of digital transformation? This is something that the Department is closely examining. There might be an easy answer now as the SITA has hired a young managing director with a good track record. The Managing Director can go a long way in assisting the SITA regarding repositioning the entity. There has been a complaint as far as procurement issues are concerned. The Department is looking at the issues that have been raised. This is a very complex issue. There were people in Ekurhuleni that did not even know these things such as about trains and procurement. He said that when people invest in South Africa, they are not investing in something called national but rather investing in a local area. He said that he had proposed before that the state of local government, when it comes to economic reform, should be added as an economic reform. This is so, because the key materiality of the situation as far as investments are concerned is always taken for granted, whether it is access to roads, water, bills or even responding to complaints. He said that he was deliberately mentioning this municipality because of the state procurement approach that had been successful. There are now no less than 133 Blue trains on the road. He said people used to think it would take years to resolve. There has been another issue with Prasa and Transnet owning a particular portion of rail before COVID-19. He said when COVID-19 and level five lockdown started, criminals had an opportunity to do damage because the rail lines were not working. PRASA now wanted to restore those rail lines it was using that also belonged to Transnet. These are both state institutions. These are some of the challenges. Many factors need to be attended to, such as the issues of procurement and how boards are operated.
The Chairperson thanked everybody for their engagement on the platform. The Committee has deliberately allowed the Department and the SAPO more time because it was an area in which it really had an interest. The Department has a very critical role to play. Members have raised issues and hoped that the Department would attend to them. He hoped that progress would be made when there was another engagement.
Minister Gungubele said it is now in the Fourth Industrial Revolution stage and has evolved from other stages. He referred to this as the prehistoric stage of mechanisation of steam power. These are things that are used in suturing clothing and so on and that were the First Industrial Revolution. The Second Industrial Revolution was of mass production because of the different art and technology. It was organised in a logistical production manner which resulted in mass production of things like assembly lines and electricity lines. The Third Industrial Revolution related to automation, the manipulation of electronics to put together computers and all other related technologies. The last one, which is the Fourth Industrial Revolution, has nothing to do with new technologies. Experts would define it as a confluence of different protocols of different technologies. It is more about the seamlessness between the digital, physical and biological worlds. For instance, if one goes to the toll-free road and it is there because there are humans in cars passing by. The physical world connects to the car and can monitor human hearts. He referred to these as the sensitivity of the environment. So, the Fourth Industrial Revolution is a confluence of different technologies. He said it is a new effort to social and economic life. This epoch is driven by technological advancement. These technological advancements will deepen connections within the biological, physical and digital worlds in unprecedented and unpredictable ways. So, the Fourth Industrial Revolution is all about technology working together than working in isolation.
The Committee went through and adopted the minutes of previous meetings.
The Chairperson thanked the Members for engaging with the Department.
He said he appreciated the notes given by the support staff.
The meeting was adjourned.
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