Department, Universal Service Agency, NEMISA, South African Post Office Annual Reports 2005/06

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Communications

27 October 2006
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Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
27 October 2006
DEPARTMENT, UNIVERSAL SERVICE AGENCY, NEMISA, SOUTH AFRICAN POST OFFICE ANNUAL REPORTS 2005/06


Chairperson: Mr G Oliphant (ANC)

Documents handed out:
Department of Communications Annual Report 2005/06 (available at late www.doc.gov.za)
Department of Communications Annual Report PowerPoint presentation: Part1 & Part2
Universal Service Agency Annual Report 2005-2006 (available at later www.usa.org.za)
Universal Service and Access Agency of South Africa PowerPoint presentation
South Africa Post Office PowerPoint presentation: Part1, Part2 & Part3
 
SUMMARY
The Department of Communications and four of its portfolio organizations, Universal Service Agency,
National Electronic Media Institute of South Africa and the South African Post Office presented their annual reports to the Committee. Members raised questions related to the negative media coverage the Post Office was receiving, the need for affordable communication within rural areas and the progress made on the NEPAD broadband policy. The Chairperson pointed out that there appeared to be a disjuncture between what institutions presented to the Committee and what members saw on their oversight visits. He also cautioned that if matters of emphasis made by the Auditor General were not taken seriously, they could deteriorate and finally result in qualifications.

MINUTES
The Chairperson welcomed the delegations from the Department of Communications (DOC), the Universal Service Agency (USA),
National Electronic Media Institute of South Africa (NEMISA) and the South African Post Office (SAPO) to the meeting. The Committee would on that coming Monday meet with the South African Broadcasting Corporation (SABC) to discuss issues related to the Commission they had set up to investigate allegations of blacklisting of certain political commentators.

Department of Communication Presentation
The delegation from the Department of Communication was led by the Director General Ms Lyndall Shope-Mafole. The presentation detailed the activities (national and international) the Department had been involved in during 2005/6, its strategic focus areas as well as the challenges it was faced with. The Department had received an unqualified audit report and part of the presentation was dedicated to evaluating its financial performance in the year under review. Although South Africa’s ICT policies were among the best in the world, the Department reported that South Africa still had poor ICT literacy and skills.

Universal Service Agency Presentation
The Chairperson of USA, Mr Chose Choeu, presented the organisation’s performance report which reflected that in 2005/06, fifty community telecentres were deployed. Although the organisation had received an unqualified audit report, the Auditor General had identified certain matters of emphasis on, amongst others, investment and cash management policies and their risk management and fraud prevention policy. The implementation of the Electronic Communications Act and the viability of telecentres were identified as some of the urgent challenges.

Post Office Presentation
Mr Khutso Mampeule (CEO) and Mr Nick Buick (CFO) briefed the Committee on the South Africa Post Office’s activities and financial performance during 2005/06. The presentation highlighted the institution’s framework of delivery, financial performance in 2005/06 and outlook for 2006/07. The Post Office too received an unqualified audit report and the presentation contained detailed information related its financial performance. Service delivery and universal service would remain key focus areas, while issues related to internal capability and competence would also be addressed.

NEMISA Presentation
Mr Peter de Klerk (Acting Chief Executive Officer) said that 2005/06 was a year of transition for NEMISA and that very little happened as far its core business was concerned. The Annual Report thus spoke of minimal activities in the context of training as well as the preparations that went into the new NEMISA. If NEMISA had to have prepared a presentation for that day it would probably have filled just half a slide.

In 2005/06 NEMISA’s activities were concentrated in concluding training in radio and television production. They were at present finalising a creative multimedia programme in collaboration with the Multimedia University of Malaysia and would in response to demand from the industry, be running some selected courses in content production. In collaboration with the French government they also embarked on a number of training courses which was aimed at getting local governments and communities to work together in a project known as the Khuluma Radio Project.

NEMISA also struck some very valuable strategic alliances that were leading to structured partnerships both in South Africa and abroad. They were currently together with a Canadian University running the first ever long form animation programme in South Africa. During the financial year they had also developed appropriate human capital, financial infrastructure resources, and a whole range of policies and systems that would account for operational efficiencies. It improved its capacity to develop content both for training as well as delivery purposes for Government and other parties.

The new NEMISA mandate was considerably more diversified. NEMISA wanted to become a sustainable, relevant and effective industry-led and advanced multimedia skills developer and content generator making it the South African Government’s electronic content development centre. Their primary activity in preparation for the new NEMISA related to the redesigning of their future programme. They would soon be ready to present this new revamped plan that included the new forecast numbers for the activities they would be embarking on in future. They have prepared market analysis of the ICT industry skills needs. These were vastly different form the needs they had been satisfying in the past when they concentrated largely on radio and television production and to some extent multimedia. An industry advisory body had been appointed to interact and deliver on the real needs of the society at large. A curricular advisory body was appointed to help them develop a meaningful, effective and relevant programme for the future.

In essence the year under review was one of transition. NEMISA used it to prepare for the future. Mr de Klerk invited the Portfolio Committee to Johannesburg so that Members could have first hand experience of the organisation’s activities.

Discussion
The Chairperson thanked the presenters for good and honest reports. He thanked the DOC in particular for their excellent reporting and feedback. The communications industry was a multi million rand industry. He did not feel that the Committee would be able to do justice to the four organisations’ annual reports in the few hours they had at their disposal. He quipped that the presenters should not feel that after that day’s interaction they were “off the hook”. The Committee would engage with them again. The Committee’s oversight role was being strengthened and members would be able to visit organisations on their own terrain.

He noted that SAPO had done very well but wondered why they had made no reference of the “other things” that had been widely covered by the media. The Committee could not merely react to media reports of which the veracity had not been determined. Members also had to have all the necessary information before they could engage on the matter.

He cautioned that the Committee’s agenda could not be usurped by media reports. While he would not restrict members who had questions related to the furore around the SAPO, but this matter should not be made the subject of that day’s agenda. The SAPO would enjoy priority and the Committee would have further interactions with them to discuss the substantial and crucial issues that had been raised.

Mr R Pieterse (ANC) was pleased that all the organisations received unqualified audit reports. He reminded them that this should not be seen as an unusual achievement since they were employed and paid large salaries to ensure that the Auditor General did not issues qualified reports. They were merely meeting expectations and adhering to the standards set for them.

He realised that the SABC would meet with the Committee in the following week. He pointed out that the DOC, to whom the SABC reported, would however not be present at that meeting. He wondered why the DOC had failed to make mention of he issues around the alleged blacklisting of certain political commentators which had dominated the media for some time.

Ms Shope-Mafole said that she would not say much about the SABC and the blacklisting allegations. It was important for the DOC that diversity of views on the country were heard. She ha one particular problem with the SABC - it aired comments by the same analysts whose views were highly predictable all the time. She felt that there were many intelligent South Africans from across the political spectrum and across the provinces and that one needed to hear their voices more. She hoped that this would now happen and added that the SABC could answer for itself on the other issues.

Mr Pieterse enquired after the DOC’s readiness for the 2010 Soccer Word Cup.

Ms Shope-Mafole said that the DOC had not mentioned the 2010 World Cup because they believed that they would be doing a presentation on that at a later stage.

Mr Pieterse was also interested in what the DOC had done as far as addressing some of the communications related issues the President had raised in his State of the Nation Address (SONA).

Mr Pieterse said that the gagging order that the SAPO’s previous chief executive officer (CEO) had tried to get on the Mail and Guardian. He did not know much about what had necessitated such an attempt. He wondered when the Committee would get the report on what had been so serious that he had tried to try and prevent the rest of society (including the Committee) from finding out what had really happened.

Ms D Smuts (DA) said that she had already but parliamentary questions to the SAPO and intended to do more on certain allegations around improper procurement practices that had been bright to the Committee’s attention. These would be dealt with through the parliamentary process. She asked how SAPO hoped to establish itself as a trusted brand when the disputes between the present CEO and the former CEO were being addressed in the public domain. To her knowledge the present CEO had caused the arbitration Vision Design House (VDH) and the SAPO to become public. She raised a question that was also being posed in public: how was it possible that the SAPO appeared not to have made provision for contingent liabilities on the assumption that the arbitration would fail resulting in certain costs flowing to the SAPO.

Mr Khumalo was uncertain as to how the SAPO hoped to consolidate their brand considering the media coverage it received and the damage it was going to the brand. The Consequences were too ghastly to contemplate. While he agreed that the SAPO should uproot problems he urged that they consider the implications ill thought through actions would have on its other endeavours. It was important to bear in mind also that as the SAPO’s actions damaged its own reputation, it also damaged others’ reputations – Members of Parliament and even the Minister’s names had been dragged into the media reports. He too was pleased that the Committee would have opportunity to interact with the SAPO.

Mr Mampeule thanked members for raising pertinent questions around recent media reports. He said that the SAPO would welcome the opportunity to spend more time with the Committee so that they could delve into the issues. He noted the challenge the controversy posed to the SAPO’s brand. Given the seriousness of the issues that had been raised he did not feel that he would be able to do them justice in the short period of time available.

The negative media coverage negatively impacted on the organisation who wanted to be the flag bearer and trusted brand for the nation. He reminded members of the recent case related to Eskom where it was found that over R100 million had been ill spent and that the CEO had turned a blind eye to the allegations when they were first made. Although he had no evidence to prove or disprove this statement he thought this example fitting to illustrate the position he found himself in. As CEO he had certain fiduciary responsibilities that he was held accountable for. He often received information and would be failing in his fiduciary responsibility if information of impropriety, irrespective of its source, was ignored.

When he took office he received a deluge of information on al sorts of improprieties that had taken place. Three problems that had been raised with regard to the VDH project: (1) it was believed that the process that had been followed when appointing the company was flawed; (2) the cost of the project was three times greater than it would normally have been and (3) it was alleged that the project was being undertaken due to collusion among executives who were sitting in the boardroom alongside him.

Mr Mampeule explained that after considering the information he launched an investigation. Upon completion of the investigation he instituted disciplinary action against two of the executives. One was found guilty by an independent chairperson and was dismissed. The second executive resigned just before disciplinary action could be taken. Given the time and financial cost of having to pursue the matter, he decided to not take any further action. He added however that he had no doubt that this executive too was guilt. At the conclusion of the disciplinary hearing that led to the dismissal of the third gentlemen, certain information came to light which indicated a wider network of collaboration around issues of irregularity as far as other contracts were concerned as well. As required by the Public Finance Management Act (1999) and the
Prevention and Combating of Corrupt Activities Act (2004) handed over the mater to the South African Police Service. This was standard procedure across the organisation. He did not request the police to charge his predecessor of anything.

He said that it was unfortunate that this information had, through no fault of his, been leaked to the media. While he regretted the leak, he absolutely did not regret reporting the mater to the police. Had he not done that he would have failed in his duty as CEO. He was certain that the media coverage had negatively impacted on the brand but felt had he not undertaken to uproot corruption or fraud “without any fear or favour” he would have taken his duty too lightly.

Mr Buick explained that the media had inaccurately reported on two matters related to contingent liabilities. There has been neither understatement nor overstatement of profits related to contingent liabilities. Contingent liability did not impact upon the profitability of the organisation. The
Internal Financial Reporting Standard (IFRS) required disclosure and not adjustment in the financial statements.

Mr Buick said that to say that the only contingent liability the SAPO had disclosed was the biometrics was not true because quite a host of potential liabilities were noted in the financial statements. The R41 million covered any potential liability or any other potential legal issues. He felt that the SAPO had certainly applied their minds and had in his view disclosed all necessary contingent liabilities in the financial statement.

Mr Khumalo wished that the SAPO would deal with the issues it was faced with as soon as possible. If they failed to do so and Parliament at any point suspected that Members had been mislead, it would have to call for the dissolution of the SAPO’s board and submit a vote of no confidence in its management.

Mr Pieterse said that the SAPO was doing “great work” but he felt that postal agencies, which serviced the poor and rural areas were not adequately resourced. These agencies could only collect and deliver post and if these poor people wanted to access other resources they had to travel to bigger post offices. He would like to see a budget and programme detailing the resources the SAPO needed in order to resource postal agencies in the poor and rural areas. He asked that the Committee be provided with a list of all the postal agencies in the country. He added that as long as postal agencies in rural and poor communities were so poorly resourced he would vehemently voice his objections.

Ms Shope-Mafole reminded members that the Minister had indicated in her budget speech that the SOPA would be the core
information and communication technology (ICT) access infrastructure for the public. The issue of reaching universal service and an expanded postal network together with upgrading it so that people could have affordable internet access at every post office would be addressed. It would be linked with job creation within the context of the expanded public works programme (EPWP). The process has been delayed a bit and the DOC did not want people to be given huge contracts. It would like to very soon reach 100 and 150 communities per year and believed that this was a reachable target.

Mr Pieterse asked how many jobs had been created during 2005/06 and whether the post office in order to remain profitable artificially by retrenching staff. He wondered how the SAPO’s activities could be linked with the principles of the Accelerated and Shared Growth Initiative for South Africa (ASGISA).

Ms Smuts wondered if there was any truth to the rumour that the SAPO had lost 13 of its 16 senior executives. If this was the case she wondered how this loss of expertise and institutional memory could be explained.

Mr Gore wondered what mechanisms the SAPO had put in place to overcome the institutional memory loss resultant from the loss of many of its executive officials.

Mr Mampeule said that the loss of executives was a justifiable concern. As CEO he had to worry about the kind of work he did and the quality of people he worked with. Any leader would agree that one was only as good as one’s team. He had lost only 15 out of 31 executives. Three left because they had gotten better offers, resigned and left amicably and he felt that it was unfair that these three former employees were now associated with categories of people who had left under very bad circumstances.

Seven executives left because they were found guilty after a disciplinary hearing and dismissed. Almost all of them were tied in one form or another with the irregularity around the awarding of contracts. He emphasised that he had no problem with having lost people who had committed dishonest acts.

The others had left the organisation because he had instilled a performance culture that was characterised by a proper and very disciplined performance management system. When he first approached his board on, among others bringing about changes such as the way in which the SAPO remunerated their employees one of the conditions attached to the approval of the new remuneration scheme was the fact that they needed to make sure that they had a proper management system in place.

He said that there were people in organisations who, when told that they would be expected to deliver preferred to resign. As much it was always regrettable to lose institutional memory or talent, he did not feel bad about and would not apologise for losing people who left because they were criminals or because they did not want to perform.

Ms Smuts recalled that USA had commissioned an expert, Mr Paul Cole, who had found that the organisation was a failure and that the DOC had failed to clarify its role, goals, powers etc. She wondered whether USA could indicate whether they wanted Members to discuss whether USA should be closed down as was the original intention. The presentation they had made indicated that many projects that had now been completed and many staff contracts would expire at the end of November.

Mr Choeu explained that it would be extremely difficult to respond to questions related to the Paul Cole study in the limited time available. He clarified that the study had not been conducted to evaluate the USA’s performance. It was aimed at evaluating the objectives of the Telecommunications Act and how the USA was responding to it. Mr Cole had been mandated to firstly to evaluate the impact of the USA had had on universal service and access in South Africa, secondly to benchmark the USA against similar agencies in developing and developed countries, thirdly to assess USA’s success and failures in its first eight years of operations, and finally to inform stakeholders of USA’s achievements and shortcomings relative to the agency’s mandate according to the Telecommunications Act.

He commenced his research noting that the agency was established in terms of Section 58 of the Telecommunications Act (1996) and that accordingly any evaluation of the impact of the agency in respect of the promotion and development of universal access and services had to take into account any restrictions imposed by the Act. He proceeded to look at the Act and to consider the best practices within the field. He thus veered away from judging whether the USA achieved what it had achieved vis a vis the objectives of the Telecommunications Act and rather judged the agency against what he referred to as the international benchmark.

At this point the Chairperson interrupted Mr Choeu saying that while he appreciated what he was trying to explain, the Committee could as he had indicated, consider the study at a later stage.

Mr Choeu said that the Cole study was a critical analysis of the Telecommunications Act on universal service and access and not a study on the USA.

Ms Smuts said that the Minister of Public Enterprises, Mr Alec Erwin had announced the creation of
a new ICT infrastructure company called Infraco, and National Treasury had announced the R6 million towards this endeavor. Everyone had read though the in investigative journalism of IT Web that the Minister Erwin was as pat of Infraco’ s enterprises also considering a whole brand new west coast submarine cable in addition to the SAT 3 as part of Infraco’s enterprises. The sector appeared to be in a situation of grave uncertainty and if by the end of November the Committee did not have clarity on Minister Erwin’s announcement they should perhaps hold public hearings. The Portfolio Committee on Public Enterprises could perhaps be part of the hearings at which the sector would be expected to explain their positions.

Ms Smuts said that the Electronic Communications Act (ECA) OF 2005 created a framework for liberalization. She wondered whether the Ms Shope-Mafole could give any clarity on the Infraco matter. She also wondered whether the Minister of Communication,
Minister Ivy Matsepe-Casaburri would block the Independent Communications Agency of South Africa (ICASA) from issuing an invitation to apply for licenses. Under the ECA the Minister had to give the go ahead before anyone could create a big national network, ICASA then issued an invitation to apply and only then could people apply for licenses. She wondered whether she could assume that the Minister Matsepe-Casaburri would not block Minster Erwin if he tried to set up Infraco. It was necessary that there was clarity because the Committee could not function when there was so much uncertainty.

Mr V Gore (ID) thought that the Infraco concept was good. He believed that one of the problems South Africa has had to deal with was the high cost of telecommunication infrastructure. He felt that any way this cost could be reduced would be welcome. He agreed that there was not much clarity as to what the objectives of the project were and how they would be achieved. He wondered whether the contracts relate to core infrastructure would only be extended to Infraco or whether it would be extended to other operators too.

Ms Shope-Mafole assured Members that the DOC too did not want uncertainty in the market. One of the DOC’s strategic objectives was that there should be an optimal telecommunications network and the DOC felt that access to telecommunications should be treated as a basic necessity. If this was to be the case businesses and the public should have access to the major infrastructure or “the highways of the ICT sector” at cost. The legislative framework actually created a situation whereby private companies put much money into infrastructure and were then expected to make their services available at cost. This was something that the DOC had been looking at.

Ms Shope-Mafole explained that the process of licensing the second national operator had already been at a very advanced stage when Minister Erwin looked at ESKOM and TRANSTEL infrastructure. In order to have good quality, affordable broadband without giving the rights to it away, one would need another set of infrastructure. Debates around the matter led to discussions between the Minister Erwin and the second network operator (SNO) that was being licensed, specifically with VSNL, an Indian Telecom company. These discussions were aimed at determining whether they could arrive at an agreement that would be amenable to the State and VSNL. VSNL would own a portion of what was now referred to as Infraco. The discussions had not been public due to the sensitive nature of the topic. She felt that such an enterprise would be good for the country. The DOC would work with the DPE to look at what policy implications the enterprise would have. She added that the agreement that had been reached was subject to a number of conditions. The money that National Treasury had allocated would be used to light up the cabIe.

She explained that ordinarily such infrastructure would fall under the SNO whose licence would not be much different from the one that was granted to Telkom. The DOC and the DPE would agree on the process and would have to have some kind of hearing around the matter.. The most essential component would be how the public and industry responded to this kind of move. The DOC would go through a pubic process and hopefully the project would be doable. It would mean having infrastructure that was available at cost.

Ms Smuts said that she got the impression that electronic communications programme was in “deep, deep trouble”. She wondered how this programme would come off the ground if half the people in the country would not get involved.

Ms Smut noted that the DOC wanted to hold colloquia with industry players to specifically discuss issues around pricing. Reducing its communication process was one of the DOC’s big goals. She was concerned about the apparent disjuncture between what was discussed at colloquia and the actual legislative process: ideas that came from the colloquia were often happening simultaneously with the legislative exercises which created the impression that the two processes did not speak to each other e.g. a recent colloquium had recommended that
Private Telecommunications Networks (PTM) should not be bound to geographic areas when this had already been provided for in the ECA.

Adv P Swart (DA) jokingly asked what the doc would do to address the gender equity issues – men comprised only 2% of the staff! On a more serious note he raised concerns about the 60% vacancy rate for skilled information technology (IT) professionals. He also noted that there were only 2 people with disabilities employed within the DOC and wondered how this matter would be addressed.

He also noted that two of the three members of the DOC’s audit committee had resigned and were not replaced. He sought clarity on what whether the Committee could perform their task despite the staff shortage.

Ms Shope-Mafole said that the number of vacancies related to the total structure and the amount that had been budgeted for. The DOC was not satisfied with the small number of people with disabilities within the Department. It did not merely want to meet its target but also wanted to exceed targets. The DOC also aimed to have other departments using ICTs so that they could exceed their targets too.

Adv Swart sought more information on the R65 000 for ‘departmental restructuring’ the DOC required for 2006/07.

Adv Swart remarked that the Director General appeared to be proud of the fact that the cost to communicate was decreasing. The monthly rental and installation costs were higher than inflation increases. We tend to boast of the 10% decreases in terms of long distance fixed line calls but the rural area roll out plan for fixed lines was a total failure. The problem was that marginalized peoples were either using a fixed line (locally) or telephones from a fixed line to a mobile (long distance). There was no movement here. If there were no fixed lines in an area people used prepaid cell phones. Their family leaders who worked in cities and had fixed lines paid exorbitant fees to make contact with their families in the rural areas. In terms of broadband which was very important for the economy we could not boast that we were decreasing the broadband cost but we give scant attention to the real problem which was to supply rural communities with adequate communication services.

He noted that according to the DOC’s strategic plan for 2005-2008 the broadband policy paper was suppose to have been published and been passed by Cabinet by March 2006. The Annual Report however spoke of the benchmark study having been completed. He wondered whether the policy paper had been published or not.

Ms Shope-Mafole said that affordability of broadband played an important role as far as meeting the communication needs in rural areas. People who could not read or write needed broadband because they relied on visuals etc.

Adv Swart said that the DOC was supposed to have reviewed USA by September 2005. He wondered whether the review did take place and what the outcome was.

Adv Swart wondered whether the DOC could confirm whether ICASA had met its license reviewing targets for the financial year in question.

Adv Swart noted that NEMISA had received a qualified audit report. He sought clarity on what the reasons for the qualification as well as on how NEMISA was addressing the situation. He added that the Committee had not received much information on what they had achieved in 2006/7 but rather a statement of their activities in the previous year.

Mr de Klerk responded that in his understanding the qualification was based on procedure and not on corporate governance issues. Matters of emphasis were addressed in the presentation the organisation had made to the Committee on a previous occasion. NEMISA had then indicated how they were going about correcting these issues and have now done so: they instituted all the policies related to those matters eg risk management strategies, and planning policies for finance, human resources, operations and supply chain management, etc. These matters were being addressed one at a time. An internal auditor had been appointed to assist and more detail would be given in a later meeting. He added that they had mada great strides since their last interaction with the Committee.

Mr Tseedi Kabashi said that NEMISA was audited in 2005 many of the issues were not raised on that report. His understanding was that in the past year the Auditor General had stated at the CFO workshop, that they were not required to comply with IFRS or with Generally Recognised Accounting Practice (GRAP) . As the Chairperson of the audit committee he was not involved in the preparation of the financial statements. Both the management and the Auditor General should report to the committee on these issues. He accepted that NEMISA should address the issue and that they should be compliant with all the accounting statements that had been listed. Since the publication of the report the acting Chief Financial Officer had resigned and NEMISA was in the process of appointing someone to look into these matters. According to corporate governance he should be aware of these matters but because he did not want to be seen as taking part in the actual management roles he had kept a distance. Perhaps from now on he would take a much more active role to ensure that such things did not take place again. He agreed that the matters of emphasis related to simple matters that should not have happened.

Mr Khumalo felt that NEMISA should be called to a meeting in which their issues could be addressed and the Committee could consider the changes they were busy with.

Mr Swart noted that USA’s annual statement mentioned that the organisation had applied to retain the R22, 5 million surplus it had accumulated. He asked whether they had had success in retaining it or whether they would have to surrender it to National Treasury. He commented that many people were speaking of having made savings when in fact they had underspent. The Minister of Finance had very clearly stated in his medium term budget that under spending was not acceptable. The Committee wanted departments to spend their money.

The USA’S Chief Financial Officer, Mr Andries Louw explained that the R22 million was the provision for the under serviced area licensees. The Agency was committed to paying a subsidy of R15 million per under services area licensee over a period of three years. The first payment was on award of the licenses and the second a year after the award of the license and on submission of audited financial statements. In a number of cases under serviced area licensees have not yet submitted their audited financial statements. Hen they did so the USA then became liable to pay the second part of the subsidy. National Treasury had granted USA’s application to retain those funds.

Mr Swart said that CFG was running at a loss of R 55 million for this financial year and the previous year at a loss of R84 million. He wondered whether CFG was totally owned by the SAPO and Government or whether there was private involvement. He wondered how the subsidy that went to the post office could be justified while the subsidiary was running at a sizeable loss. He thought the losses CFG made were curious considering that other aspects of the SAPO appeared to be doing well.

Mr Mampeule pointed out that CFG was a wholly owned subsidiary of the SAPO and focused on the logistics arm of the business. This was similar to many postal organizations around the world. CFG had had a very bumpy start because businesses had been brought together without establishing a very good strategic fit. He took office when the R90 million loss was incurred. Despite the clear evidence of very poor management of the organisation and “very bad” internal controls SAPO did require logistics business as part of its diversification strategy. With the support of the board a stipulated period of time in which to turn the business around was agreed upon. This year the business was doing well and the expected to report more than just a marginal profitability. The logistics business was growing at an average of 20% per year; yet CFG had been declining at an average of 5% per year.

Mr Swart noted that although the Government owned the Postbank a strategic or equity partner may obtain a minority share. Postbank was totally owned by the post office and subsidized by Government and he wondered how a sale to an equity partner would impact on the subsidy they received.

Mr Khumalo wondered whether the SAPO would render financial services from within the Postbank or whether they would engage with other institutions.

Mr Mampeule explained that the matter of a possible minority shareholder in the organisation was a possible scenario during phase three of the corporatisation process. About two years ago a memorandum of understanding was entered into between SAPO and DOC. It laid out the process that would be followed in order to complete the corporatisation and stated various scenarios that might be considered. They might for instance have to decide whether Postbank would be a standalone business owned wholly by the post office or by Government - in most countries the Treasury was the body to whom the Postbank was held accountable.

He said that there was a very clear ring fencing of the funds SAPO issued and the way in which it managed its businesses. They were under very strict obligation to ensure that none if the moneys that was part of the subsidy was used for any of this. They would certainly complaints from the industry otherwise as Government would then be subsidising and thus killing competition.

Mr Gore agreed that the unbundling of the local loop was a critical component in terms of opening up competition. He thought that as business wire services became more predominant the unbundling of the local loop would become less and less unattractive. One of the critical issues South Africa would have to face in the next one or two years related to the frequency spectrum and how operators would be allowed to gain access to that spectrum.

Mr Gore felt that more insight into the DOC’s benchmarking policy would be of great assistance to the Committee.

Mr Gore felt that any effort to reduce the cost of communication between Africa countries had to be supported and was in favour of the NEPAD broadband policy. He pointed out that Telkom always claimed that international bandwidth contributed to their high costs. He wondered how the NEPAD Broadband policy sought to address this issue.

Ms Shope-Mafole said that the NEPAD infrastructure was innovative in many ways. The World Bank wanted part of the cable and posed the only problem. The DOC wanted a transparent manner of identifying those partners who did not form part of the African telecommunications companies. The World Bank was in the business of giving loans and the South Africa had said that this was not the way it wanted to go. 13 or 14 countries were involved and drafted the protocol that would govern the endeavor. To date 9 countries had signed the protocol. The protocol laid the foundation for a NEPAD network which had certain kinds of characteristics e.g. it was owned predominantly by African countries in a manner in which all companies were equal and presented a new way of doing business. There was no need for counties to get loans. The endeavour was based on open, non discriminatory access. Whether you were investing in the cable or not, the cost of access would be the same. The infrastructure would rely mainly on African resources. It was a policy and regulatory framework that did not exist anywhere in the world. She pointed out that one obviously did not want to regulate other countries be default. She explained because it was a regional network it would definitely have an impact in respect of the harmonisation of national policies.

Ms Shope-Mafole said that South Africa was bidding for the KM2 Array (SKA) which required huge amount of spectrum. Anybody would have access to the west coast cable that was being looked at and it was hoped that anyone would be able to afford part of it.

She said that the Minister had issued a policy directive as far as the
Code Division Multiple Access (CDMA). It was not an easy matter. The digital migration that was in progress would result in no single broadcaster owning the frequency spectrum. She added that because frequency spectrum had been used for broadcasting, it did not mean that it would always be for used for that purpose. As technology changed South Africa had to adapt and needed to be willing to use those frequencies for other things. ICASA’s frequency plan was inked to this matter. The DOC was trying to give ICASA a breather – there were a number of things they needed to do and they were committed to doing them.

Mr Gore would welcome a more in depth interaction with the SAPO and raised a number of concerns related to the number of contracts that had been cancelled and what their value were.

Mr Gore was interested in why the SAPO had devalued Uthingo Investments from R37milion to R15 million.

Mr Buick said that Uthingo was disclosed as an asset because SAPO owned 15% of it. Obviously one had to value that investment every year. SAPO had gone into much detail in terms of how it had arrived at the evaluation of the organisation. It had been devalued. Over a period of time, particularly as a license period came to an end, the value of the company in the books of the investment would go down.

Mr Gore said that the Committee had done much work around the Electronic Communication and Transactions Act (2002). SAPO had been given specific responsibilities and market opportunities yet their presentation had made no mention of this. He wondered how the market opportunities were developing.

Mr K Khumalo (ANC) was skeptical about the adequacy of the R18 million allocated to USA and the R17 million allocated to NEMISA. He wondered whether the organizations were able perform the tasks they were mandated to perform.

Mr Khumalo noted that the ICASA Chairperson had said that if by 10 November number portability had not yet been implemented he would resign. People like Richard Branson had thought that when they entered the market, number portability would come into effect immediately. There had however been a delay and he felt that perhaps the Committee should look into the matter.

Mr Khumalo wondered what progress has been made as far as the roll out of access to E-rates at schools. The process appeared to be moving very slowly. He said that the Committee should carefully consider whether institutions to whom money was allocated succeeded in moving as fast as Members expected them to.

Ms Shope-Mafole said that there were many complexities that needed to be borne in mind as far as E-rates and lack of implementation around it. At the July Cabinet Lekgotla the DOC had indicated that they would like the advisory body the Minister had appointed, the Broadband Task Team, to look at what it would take for South Africa to make broadband available free of charge in all schools. They hoped that they would be able to achieve this especially when taking into account the universal service grant.

She added that linked to this intention was the passion the DOC had about SENTECH being the core provider of wireless broadband in the country. The financing for this had not yet been finalized as a result of the ring fencing of areas to prevent cross subsidization. The DOC advocated for wireless technology to ensure that there was connectivity in he rural areas as well as in schools and health centres. She hoped that this would be achieved soon.

Mr Khumalo raised questions related to USA’s activities as far as their international telecommunication union service obligation in terms of access and affordability. The USA reported Internet penetration but this was not clearly illustrated in their annual report. He wondered at what level Internet penetration in rural areas was.

Mr Khumalo recalled that when the Committee undertook their first oversight visit to post offices members were introduced to their new revamped look; by the time they had embarked upon their second oversight visit however, SAPO had introduced a new ‘new look’. He was not sure what informed such a costly change in plans and wondered whether it could be accepted that the new CEO had upon his appointment chosen to simply ignore what the previous CEO did by starting a new project that increased the cost of the exercise.

Mr Khumalo said that the Committee had visited Baberwa in the Limpopo province where members met people who had been temporary employees of the SAPO for more than 10 years. This practice of prolonged casualisation could not continue since it would aggravate
Congress of the South African Trade Unions (COSATU) and disadvantaged the employees who would not even be allowed to open accounts. He had difficulty comprehending how the SAPO could be so proud of raising large amounts of money and entering into new terrains of commercialisation when they were neglecting to address the livelihood of its workers.

Mr Khumalo wondered to what extent the DOC managed to integrate their ICT policy with the country’s development plan.

Ms Shope-Mafole said that the DOC was trying to ensure that ICT and control as the link between the different spheres of government, was part and parcel of the national policy. When next they came to present to the Committee they would be realizing the workflows within the DOC. There were five branches that would be linked to the five clusters of government e.g. in the justice, crime prevention and security cluster the issue of the control of our borders and national security would be looked at. The DOC would then look at ICT infrastructure for national security or control for supporting police sectors etc. It was also looking at the infrastructure so as to ensure that different departments could use ICTs in their work and that they should do so within particular time frames.

Chairperson’s Closing Remarks
The Chairperson said that the budget related issues Mr Khumalo had raised would have to be returned to at some stage. Institutions should take seriously the matters of emphasis that were raised by the Auditor General. If one became ax one could quickly move to getting qualifications and then to a disclaimer. If this happened they would have the Committee “on their case”.

He said that at some point in the year the Committee undertook some oversight visits. He listened to what the institutions had said that day and compared it to what members had seen on the ground. The gaps in what was presented and what happened on the ground had to be filled. The executive present either did not know about the various issues because they had not been reported to them, they failed to report on them because they did not want to mention them to the Committee. When they met with the institutions again members would be sitting with some of their oversight reports which they promised to forward to institutions. The Committee wanted to be their partner in this ICT sector and to assist them to succeed because they had made a global commitment to be the best in the world and the Committee could not allow them to fail.

The Chairperson continued saying that he was not concerned about issues of banding vis a vis controversies. If things went wrong and they came out into the open one should not say that they would have negative consequences. Dealing with such matters in a positive manner was what was important. The SAPO should not feel that branding was compromised because they were addressing issues but warned that the manner in which these issues were being dealt with was also important. Sometimes media reports were “factually incorrect” and leaned towards the sensational because that was how they made money.

Addressing USA he said that the delegation should not leave thinking that the Committee would close the agency down. New legislation had just been enacted and one had to test how it went with the new funding model.

He also felt that some of the questions members had asked would have been better asked of ICASA. ICASA would meet with the Committee on 3 November and questions could be raised then.

The meeting was adjourned.

 

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