South African Post Office Annual Report

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
18 March 2003
SOUTH AFRICAN POST OFFICE ANNUAL REPORT

Presentation by South African Post Office (Part 1)
Presentation by South African Post Office (Part 2)
Annual Financial Statements for 1998 and 1999 [Contact [email protected] for document]
Mail & Guardian news article 27 Sep 2001: Govt seeks to restore Post Office's 'honour' (Appendix 1)
Mail & Guardian news article 19 Mar 2003: Post Office to go into black (Appendix 2)

SUMMARY
Although the SA Post Office did not make a profit in 2001/2 it expects to break even by March 2004. Issues raised by Members in response to the South African Post Office's presentation included its plans to issue physical addresses to South Africans especially those in the rural and poorer areas, SAPO's current practice of granting "generous" medical aid benefits to former employees, the Kroll Report and pay packages to former SAPO directors, Post Bank efficiency, the fine reportedly paid for not possessing a valid software licence, the increase in SAPO's tariffs and the measures put in place to guard against mail violations.

MINUTES
Introduction by the Chairperson
The Chair stated that the purpose of this meeting is to focus on SAPO and its functions and operations. SAPO's "Where's George?" advertising campaign is a very effective initiative but it has to be remembered that there are also millions of South African's for whom that advertisement is not relevant, not only because they might not speak English but also because they do not have the luxury of posting or receiving mail. Merely having an address shows that a person has an identity and that s/he belongs. This is especially relevant to the property clause in the Constitution because one needs an address to be able to own property, and one would therefore need an address in order to be protected by the Constitution as far as this right is concerned. SAPO is ideally placed to provide this.

Telkom is a good example of the complications caused here. It cannot merely seek recognition for rolling out telephone lines in the rural areas if there is no system in place to provide an address system, so that those new customers can then receive their telephone bills. The important thing here is that an address is not merely an identity but it also allows one to become part of the capitalist mode of production. This address matter is important and it is the role of SAPO here to spearhead the resolution of this matter, because without an address people do not enjoy a full sense of identity, they cannot hold property nor obtain loans. SAPO is uniquely placed to assist here because it has by far the biggest reach in South Africa.

Attached to SAPO is the Post Bank, and this Committee will also be seeking clarity on the progress made with regard to the Post Bank. The Chair stated that he was under the impression that the Post Bank would be present wherever a Post Office is present, and it would thus have a presence in communities where there is even no large commercial bank. The Post Bank would thus be able to be the kind of bank that truly services the community, and it will be important to hear from SAPO on the rolling out of its strategy in this regard.

Presentation by the South African Post Office
Mr M Manyatshe, the SAPO Group Chief Executive Officer, and Mr Nick Buick, the SAPO CFO, conducted the presentation (see document) which focused on SAPO's successes and key challenges, priorities, budgetary expenditure and financial commitments for 2003.

Discussion
Mr A Maziya (ANC) referred to the "Where's George?" advertisement campaign and stated that he understands that most South Africans do not even have street addresses, and this is especially prevalent in the informal settlements. As far back as 1995 SAPO made a commitment to provide Post Box addresses in those areas in which residents did not have street addresses but this has not been achieved.

Mr Manyatshe responded that Post Boxes were aggressively expanded, but it was discovered that only 17% of the Post Boxes provided were actually being utilised. SAPO was concerned that any further roll-out would not enable it to contend that it was meeting its shareholders' expectations if they were not optimally utilised. The aim should be to link the numbers rolled out with the number of Post Boxes utilised. Mr Manyatshe stated that he thus requested a review of this project, and stated that he "wanted to take race out" of the issue because it is not merely that those Post Boxes were not installed in historically disadvantaged communities.

It is recognised that in all urban areas the first address allocated is the street address irrespective of the colour of the inhabitants, whereas in rural areas, street address is not the first address allocated. It has to be stated that both local authorities and communities are becoming more and more involved in expanding the roll out of these boxes. Here SAPO has to first establish the exact extent of the demand for these Post Boxes and then supply them, and not the other way around.

With regard to the situation in the informal settlements, Mr Manyatshe informed Members that SAPO enjoys a very close relationship with the Khayelitsha municipality. It was agreed that Post Boxes would be installed in such informal settlements so that a address system could be put in place, members of the community actively assisted in this regard by even going from house-to-house to gather this information. The Khayelitsha example can thus be used as a model for the future rolling out of this facility in a fast and efficient manner.

Mr Maziya referred to the statement made by Mr Manyatshe regarding the four females currently in top management positions within SAPO, and asked how many of these are black.

Mr Manyatshe replied that three of the four women are black, and one is Asian. Each one would currently hold the equivalent position of director in the private sector.

Mr Maziya noted that the presentation states that SAPO is currently providing medical aid benefits to employees who are not even currently employed by SAPO. Is this the norm in all government departments, or is the so-called "sunset clause" only applied by SAPO? Mr Maziya stated that this is important because he has never before heard of such a provision, and these people cannot be allowed to continue to qualify for medical aid if they are no longer employees of SAPO.

Ms M Morutoa (ANC) asked if the medical aid scheme is aimed at benefiting a class of people, and also sought clarity as to why the "sunset clause" is allowed to continue if such clauses have been repealed.

Mr Manyatshe responded to these questions by stating that the amount of R2,2b has to be placed in context. If one looks at this "generous scheme" it will be discovered that its beneficiaries are actually those people that were in control before 1994, and these provisions can be successfully challenged and reversed. SAPO needs to be sure it continues to care for its employees, and a benchmark has to be set so that SAPO's medical aid scheme is in line with international standards, yet it has to be ensured that it is not over-generous. All efforts have to be made to ensure SAPO arrives at a scheme, in consultation with the Medical Aid Schemes Council, that offers reasonable benefits to the former employees because they were promised benefits by the old regime.

The same problems are currently facing other institutions, and SAPO has had to pay R20m during 2002 to top-up the present fund, so that bankruptcy is avoided.

Ms M Magazi (ANC) asked why the Post Bank takes as long as three weeks to provide a card to those that have applied.

Mr Manyatshe replied that this matter has to be addressed. The implementation of the Electronic Communications and Transactions Act (ECT Act) now allows SAPO to offer services on the spot. A pilot card study is currently being conducted in the North-West Province, and plans are to then roll out this card-service throughout South Africa.

Ms N Mtsweni (ANC) commended SAPO on its plans to break even in future financial years. The SAPO is positioned as a "one-stop shop" for government, but the problem here is that if one visits a Post Office in the rural areas one would find that the information is only provided in Afrikaans, for example. The information is thus not provided in the language spoken by people in the community in which the Post Office is located.

Mr Manyatshe responded that this is still a big concern for SAPO, and stated that he knows that there is non-compliance in many services in this regard. SAPO will be commencing an ongoing programme aimed at identifying how SAPO can start providing these services bearing in mind its financial constraints. This remains a challenge for SAPO.

He added that SAPO plans to break even by March 2004.

Ms Mtsweni sought clarity on the R75m loan for the former Transkei, Bophuthatswana, Venda, Ciskei (TBVC) states.

Mr Manyatshe replied that when the amalgamation took place there was some money that was reflected later on, but stated that SAPO no longer has this R75m.

Ms Mtsweni asked whether the old "nommer asseblief" system is still in operation and, if so, does this method provide a better service?

Ms W Newhoudt-Druchen (ANC) requested statistics on the SAPO staff breakdown with regard to race, and also sought clarity on the percentage of SAPO staff with disabilities.

Mr Manyatshe replied that he does not have accurate figures with him, and SAPO would provide a written response to this question.

Ms Newhoudt-Druchen stated that research has shown that 30% of black South Africans have savings accounts with SAPO or the Post Bank, and the presentation indicated that 50% of the South African population bank with R50 or less. How does SAPO plan to encourage more savings in this regard?

Mr Manyatshe responded that it is worrying that some depositors grow through SAPO, but once they reach the level at which they are able to deposit R5 000 or more they are lost to the big commercial banks. Should the SAPO shareholder then instruct it to develop a savings culture, it would be the role of both SAPO and the Post Bank to work jointly as a development vehicle in this regard. SAPO has battled with this matter.

Mr M Waters (DP) stated that the latest SAPO financial report was finalised in March 2000, yet the Department of Communications has yet to provide copies to Members. The report indicates that SAPO experienced a loss of R481m for 2000 with regard to the salaries of directors. He requested a breakdown of the salary structure for directors and, if they have given themselves bonuses at all, how much was awarded. Mr Waters stated that this is important because he is of the view that bonuses are only validly granted when one has met or exceeded one's targets, and no bonuses should be granted to SAPO management because it has made a loss.

Mr Manyatshe replied that these figures are included in the financial report, and suggested that perhaps Mr Waters is not referring to the correct document. He was not aware of the awarding of any bonuses since he joined SAPO, even though there has been a reduction in SAPO losses in recent times.

Mr Buick added that all these amounts are disclosed in the latest 2001 financial statements, as required by the Public Finance Management Act (PFMA).

The Chair requested that this documentation be made available to Members.

Mr Waters sought clarity on the R36m "doubtful debt" indicated in the report.

Mr Manyatshe responded that it is nearly impossible to provide a good answer here but stated that it refers to the probability of recovering these amounts, and SAPO found that where the probability of recovering these amounts was minimal, they would be placed under "doubtful debts". An example here would be the philatelic debt which remained unsettled for a five year period, and it was decided that the probability of recovering this debt would be almost impossible. He added that Mr Buick would forward to the Committee a detailed response to this question.

Mr Waters asked which former SAPO employee the R2,2m restraint of trade agreement relates to.

Mr Manyatshe replied that he was not certain here because no restraint of trade agreement has been paid since he was joined SAPO, and this amount was probably paid before he joined.

Mr Buick added that this amount is actually reflected in the 1999 accounts, but stated that he was not certain exactly what it was for.

Mr Manyatshe stated that this amount was paid to the previous Managing Director and certain directors, but he immediately put an end to that practice when he joined SAPO.

Mr Waters noted that the Kroll Report [see Appendix for related news article] has now been finalised, and asked SAPO to indicate when Members will be provided with a copy so that they can properly exercise their oversight function.

Mr Manyatshe responded that it is true that this report has been completed and it is being consolidated. It can be made available to Members but it is doubtful whether it will be very useful, because there are many instances in which no credible evidence is provided to back up the statements made. The problem with the Report is that it could unnecessarily tarnish SAPO. It has however allowed SAPO to identify key areas in order to stabilise the organisation.

Mr Waters stated that it has been reported that SAPO had to pay a fine of R711 000 a few weeks ago because it did not have a valid licence for its software, yet SAPO then argued that this was not really a fine. Mr Waters stated that he has since spoken to the company involved here and it indicated that it was a fine. What was the total loss incurred by SAPO and have any steps been taken against the person responsible for not renewing the licence?

Mr Manyatshe replied that he does not wish to speak negatively about Network Associates, the company involved, but SAPO informed them that, when its contract with them comes to an end, SAPO would be inviting tenders for the new contract. Instead Network Associates wanted SAPO to simply extend their contract without following the proper procedure, and SAPO was eventually offered a contract for 50% less. Perhaps SAPO should not have put itself in a position where it has to request an extension of a contract.

SAPO did not receive a fine here. The crucial question instead is the intention of the person responsible in not renewing the software, and this is not the same matter. SAPO has to ensure that it puts in place an early warning mechanism that monitors all its systems that will ensure that SAPO is alerted when a contract is coming to an end. SAPO thus considers this incident as a wake up call, and it will be reviewing all its current contracts to identify the renewal dates.

Mr Waters referred to the postal services increases imposed by the Postal Regulator that are to come into effect from 1 April 2003, and asked if this has been finalised and whether due process was followed this time because it was not followed during 2002. What percentage increase is expected?

Mr Du Preez Vilikazi, Chairperson of the Postal Regulator, responded that this process had begun in October 2002 when SAPO proposed tariff increases. The Postal Regulator then considered SAPO's reasons for imposing an increase here and it used the Consumer Price Index (CPI) at the time of 6-7%, and also considered the projections and the Universal Service roll-out. The Postal Regulator eventually agreed to a 10% tariff increase for SAPO.

Mr Waters also sought clarity on the progress made in the regulation of postal couriers.

Mr Vilikazi replied that this is a very interesting matter and one which the Postal Regulator is currently working on. He does not know how Section 16(5) got into the 1998 Act because it was not included in the White Paper. Sections 2 and 5 of the Act also need to be reviewed in order to include universal service standards and obligations for courier services. The Postal Regulator will get back to this Committee later in 2003 with its recommendation on this matter.

There are currently about four or five courier businesses that are operating without valid licences, and the Postal Regulator aims to ensure that all are registered by the end of 2003.

Mr Waters noted that security measures with regard to the handling of mail have been stepped up, yet despite this, mail violations still continue. What additional measures will SAPO be putting in place to guard against these violations?

Mr Manyatshe replied that this is one of the priorities for the SAPO executives for 2003 and SAPO is currently reviewing its mail security system. There is nothing better than putting in place effective detection and deterrent measures to guard against this. There were many criminal prosecutions with regard to mail violation, and this sends a clear message that these perpetrators will not only receive a fine but could also be imprisoned for seven years. The best case here would be when employees themselves report incidences of mail violation, because they realise that it actually destroys their jobs. SAPO needs to be innovative in monitoring this problem, and it has to also consider the systems and technology currently being used in Europe to address this problem.

Ms A Van Wyk (NNP) stated that the extension of SAPO's services will also impact on the registration of votes in the up-coming election. The issue of the provision of addresses will also be important here and this should be provided by the same service, possibly via the Multi-Purpose Community Centres (MPCCs).

Mr Manyatshe responded that SAPO is repositioning itself to do just this via the National Address System (NAS) database, so that it can keep up to date with the changes being effected to addresses. SAPO is also presently engaged in talks with the Independent Electoral Commission (IEC) on this matter.

Ms Van Wyk asked SAPO to indicate if it has considered ways to work closely with the Department of Provincial and Local Government to provide physical addresses to those without.

Mr Manyatshe responded that he agrees with the statement made earlier by the Chair that it is impossible to open a banking account without a physical address, and assured Ms Van Wyk that SAPO is currently working very closely with the Department of Provincial and Local Government to ensure the further development of measures to address this matter.

SAPO and the Department of Provincial and Local Government have also been involved with both Telkom and Eskom from the very beginning of this process to ensure the new database has all the amenities in place so that the postal and physical addressed can be captured simultaneously.

Ms Van Wyk stated that she happened to hear on the radio that the Department of Home Affairs has refused to recognise postal orders as a means of payment for Visas, and asked SAPO to explain what is being done in this regard. She was under the impression that postal orders are legitimate legal tender.

Mr Manyatshe replied that this is a difficult issue and SAPO has to take it up with the Director General of the Department of Home Affairs, because he is under the impression that a postal order is legal tender. Perhaps the Department of Home Affairs is exercising caution here because of the unacceptably high number of incidences of fraud perpetrated in this area when postal order are used as a means to effect payment. SAPO currently has an agreement with all banks that any postal orders presented have to first be verified with SAPO. The implementation of the Electronic Communications and Transactions Act enables SAPO to provide quick and efficient verification.

The Chair stated that those questions that SAPO had not been able to answer have to answered by forwarding a response, in whatever form, to his office, and this will then be forwarded to Members. Members also have the option of addressing these unanswered questions to the Minister of Communications in a formal sitting of the House.

A meeting has to be scheduled to focus on the Post Bank and its functions and operations so that its future can be discussed. This Committee also has to interact with the Board of SAPO, so that they can also account for their responsibilities. SAPO has to provide measurable indicators to Members with regard to its roll out process, especially in terms of is universal service obligations. SAPO also has to explain its strategic plans for issuing addresses, and the suggestion made during the previous meeting that Eskom's blueprints of communities be used for this.

The Chair stated that it is unfortunate that the Committee has run out of time because Members would have liked to delve into greater detail on these matters. Could the Department indicate whether the Minister still needs to affix her signature to SAPO's outstanding financial reports before they can be made available to Members?

Ms Phumelele Ntombela-Nzimande, the Deputy Director-General: Postal Policy in the Department, responded that the Minister has already signed those financial statements and she had requested her colleagues to make the copies of those financial statements available to Members at this meeting.

The meeting was adjourned.

Appendix 1:
Mail and Guardian news article: Govt seeks to restore Post Office's 'honour'

Date: 27 Sep 2001

THE government was working to ensure the South African Post Office's "honour" was restored, Communications Minister Ivy Matsepe-Casaburri said on Wednesday.

Speaking in the National Assembly, she said the investigation into claims of corruption within the Post Office may take some time, but the department would make sure that no-one involved escaped.

The results would be presented to Parliament, but this would only happen when it was certain culprits could be brought to book.

"We will do everything in our power to make sure that the Post Office's honour is restored," Matsepe-Casaburri said.

Government initiated a full-scale investigation in 1999 into the workings of the organisation following allegations of corruption.

These reportedly included contracts with non-existing companies, contracts where the economic empowerment component was non-existent and contracts where employees received kickbacks.

Forensic auditing firm, Kroll Associates has been tasked to look into the financial position of the Post Office and identify irregularities over the past three to four years.

The elite crime-fighting unit the Scorpions was called in earlier this month after widespread financial irregularities were identified.

Matsepe-Casaburri said the business of the Post Office had been sabotaged from both inside and outside the organisation.

Somebody, somewhere knew who the identity of those responsible, "and we will find them", she said.

The minister welcomed the support expressed by the opposition parties for the organisation's new CEO Maanda Matyatshe during debate in the House on the Postal Services Amendment Bill.

Most of the opposition parties in Parliament backed the CEO, saying they were confident Matyatshe had the ability to clean up the organisation.

The bill -- which was unanimously approved -- seeks to extend the Post Office regulator from two to three people, and aims to strengthen the organisation's capacity to deal with undelivered letters and parcels.

It also amends regulations regarding the insurance of articles, and seeks to clamp down on persons or companies operating in the industry without the required licence.

The measure will now be referred to the National Council of Provinces for concurrence. - Sapa

Appendix 2
Mail and Guardian news article: Post Office to go into black

Date: 19 Mar 2003

 

SA Post Office CEO Maanda Manyatshe told the parliamentary communications committee Tuesday that although previous predictions that the State owned company would report a profit had not panned out, he expected it to break even in 2003/04 and record operating profits thereafter.

He told MPs on the National Assembly multi-party communications committee led by chairperson Nkenke Kekana that he expected an operating loss in the region of R215-million for the 2002/03 financial year, which was down from R371-million in the previous year and 584 million rand in the year prior to that.

Noting that the post office had the obligation to service the public - especially the poor - while also fighting to make a profit, he said that SAPO's extensive mail processing network handled six million letters a day. The post office gained income on each letter of R1,23 and it cost R1,35 to get the letter to its destination during the 2001/02 financial year. This was a loss of 12 cents on each letter.

This constituted a subsidy on letter to the tune of more than 170 million rand a year.

He said a standard letter would cost 1.48 rand to get to its destination in 2003/04 while total income was expected to be R1,40 per letter -- the loss being just eight cents on each letter.

Manyatshe said the post office had the largest retail network in southern Africa with 2,588 postal outlets and 6,500 counters.

He also noted that the PostBank, a division of SAPO, had a total of R2,3-million account holders with a savings portfolio of about R1,4-billion -- but 50% of these had deposits of R50 or less. It cost R30 a month to service each account.

"Accounts of R50 or less will only service themselves for a single month and the remaining 11 months are subsidised by the post office to the tune of R396-million -- or R1,2-million accounts times R30 times 11 months."

Manyatshe noted that PostBank was in competition with SBSA, Absa, First Rand, Nedcor and Investec in addition to about 70 foreign banks operating locally. Nevertheless about 60% of the population "are unbanked" and only 30% of the black population has a bank account.

Change was being driven by technology where the post office suffered much competition from emails, the Internet and cell phones. "There is a migration from sending hard copy messages to SMS messages."

Nevertheless, the SAPO had notched up key achievements including the reduction of staff from 26 000 to 18 380 between 2000 and 2003.Manyatshe detailed a number of "turnaround projects" including providing email for life to South Africans "ensuring that customers will use the Post Office as a means of electronic communication", the corporation of Post Bank into an independent entity and focusing on electronic bill payment. - I-Net Bridge