Department of Telecommunications and Postal Services Quarter 3 performance

Meeting report

Department of Telecommunications and Postal Services (DTPS) Presentation

Mr Robert Nkuna, Director General: DTPS referred to the various strategies which had been put in place by the Department, as well as the supporting legislation which would allow for transformation to be pursued. He acknowledged that there was a lot being done in his Department, including:

• The Universal Service Access Agency of South Africa (USAASA) launch of broadband at the O R Tambo municipality;
• Making sure South Africa took steps to develop a satellite;
• The .za Domain Name Authority (.ZEDNA) attempt to launch more black-owned Internet Service Providers (ISPs);
• The National Electronic Media Institute of SA (NEMISA) hosting a National E-Skills Summit;
• Broadband Infraco (BBI) continuing with the rollout of broadband infrastructure;
• The State Information Technology Agency (SITA) improving on its service delivery enhancement;
• Working with the Independent Communications Authority of SA (ICASA) on the matter of lowering the costs of communication.

Concerning overall performance for the third quarter, Mr Nkuna said that the targeted analysis of employee qualification and experience conducted for affected employees had not been achieved because the Service Delivery Model (SDM) had not been completed. The SDM had subsequently been finalised and the Department had started the process of confirming qualifications and experience of all employees.

The conducting of the Climate and Culture Survey had not been fully achieved, but the findings were presented to management for implementation. In the domain of identification, the target was only partially achieved because of a delay relating to a lack of sufficient funds, since the project cost was more than the amount which had been budgeted.

Concerning international affairs, South Africa had been re-elected to the Universal Postal Union (UPU) Council of Administration, and had also been asked to lead the Africa Group at the World Telecommunications Standardisation Assembly (WTSA)-16 conference.

With regard to financial matters, Mr Nkuna provided a breakdown of the budgetary allocation which indicated information communication technology (ICT) infrastructure support had received the highest amount.

South African Post Office (SAPO) Presentation:

Mr Trevor Ndlazi, Group Executive: SAPO, said that the organisation had been able to recruit important vacant positions, such as the Chief Financial Officer and Company Secretary. Labour relations had been improved, outstanding creditors had been settled and investment in programmes to ensure revenue generation were being pursued, all in a bid to ensure a change in the organisational culture.

In relation to overall performance, the Digital Terrestrial Television (DTT) Project had made good progress, and operating costs had been reduced through the voluntary severance of 767 employees, while 103 women had been trained in the Mpumalanga and Northern Cape provinces. Undelivered mail had been cleared and the licensing of Postbank was on track.

The focus areas for the fourth quarter would include improving efficiency and becoming an E-commerce hub for Africa, and seeing a return in confidence from old customers as a way of attracting new business from them. Concerning financial performance, SAPO had lost R1 billion since the end of December 2016, with revenue being 30% below expectation. This was blamed on business with the government being slower than had been hoped, as well as money being allocated towards settling creditors and for the voluntary severance programme. On a monthly basis, SAPO was losing R93 million.

Some of the remedies suggested by Mr Ndlazi to improve this scenario were to change the way SAPO did business with government and its private clients, by offering more comprehensive packages. Cost-cutting had been achieved through staff retrenchments and reducing transport costs. Moreover, the filling of senior positions and the resolution of historical labour issues were ways which would help improve performance at SAPO.

In conclusion, Mr Ndlazi said that SAPO expected a net loss of R1 billion, and an amount of R400 million which they had obtained from government would be used to finance debt.

Discussion

Mr C Mackenzie (DA) inquired whether all the legislation from the DTPS would be presented by 29 August. He asked why SAPO had not reached its mailing target, and also suggested that maybe they had overstated the revenue they were expecting, because they did not seem to be on track to make a profit by 2018, which they had initially stated. He wanted to know how much of the R 2.8 billion loan guarantee was still available. In addition, he suggested SAPO should focus on the Postbank project and the distribution of social grants, and thus abandon mail and logistics services in order to get back on track, as it did not seem to be profitable. He was worried whether staff retrenchments would negatively affect the activities of Postbank and the distribution of social grants, if they started operations at all. He asked how employee morale was being addressed at SAPO.

Ms M Shinn (DA) asked the DTPS whether they could comment on the negotiations concerning the spectrum issue. She asked what the Department’s legislative priorities were, as well as if the spectrum deadlines set by the Minister of Finance were achievable. How would SA Connect be financed? She was happy with the fact that the private sector was involved in the project. Which category of staff had been laid off, and would the skills loss have an impact on SAPO’s recovery? She asked SAPO to elaborate on how they had pursued the scaling down of their transport operations, and if the SA Social Security Agency (SASSA) process was in compliance with the Public Finance Management Act (PFMA).

Ms J Kilian (ANC) was concerned about the third quarter performance, and said there appeared to be a lack of urgency from senior management at the DTPS. She credited SAPO with doing a lot to fix the past problems, but wondered if it was actually possible to attain the profit targets set, as well as to regain the full confidence of government.

Mr K Siwela (ANC) asked the DTPS about the 19% of their performance target which had not been achieved, and said that employees could not draw salaries when targets had not been achieved. He sought more clarity on when positions at the DTPS would be filled, as well as the situation with SA Connect. He said he was curious about how the DTPS dealt with currency fluctuations when carrying out international transactions.

Mr NJ Koornhof (ANC) asked SAPO whether calculations had been made about the SASSA distribution contract.

The Chairperson asked for an exact figure from the DTPS with regard to what targets had been partially achieved. What would SAPO do to address the issue of ageing infrastructure? Had a specialist been hired to help change institutional behaviour?

DTPS Response

Mr Nkuna responded on the issue of legislation, and said the Department was preparing presentations on all the bills drafted. On the point of the Post Office, he reiterated the importance of the institution. He hoped that it would use E-Commerce to improve its’ situation and that they would be granted the SASSA distribution contract. They were engaging with ICASA and studying how much capacity was needed for open access, but this would depend on the outcome of the Spectrum case. SA Connect would ensure that the private sector had a big role, and the DTPS was looking at how the Treasury could assist with the project. Regarding why certain targets had not been met, he explained that sometimes intermediate steps were needed, which had not been accounted for, and thus prevented targets from being achieved. There were still two DDG posts to be filled, while SA Connect had been making good progress in the OR Tambo District.

Ms Thuli Manzini, Deputy Director General: DTPS, said that mechanisms were in place to verify the qualifications for recruitments and promotion. Vacant positions would be filled since money was now available. The DDGs had not been appointed because the proper structures had not been in place. On the issue of the Special Investigating Unit (SIU), Ms Manzini assured the Committee that the report would be forwarded. It was hoped the office accommodation would be finalised soon, because paying on a month to month basis was costly.

SAPO’s response

Mr Ndlazi acknowledged that the payment of creditors had led to improved services. He said that a change expert had been hired, and a three-year process was envisaged.  Many measures had been engaged to address the upgrading of infrastructure. Regarding the impact of staff departures, only non-critical staff had formed part of the voluntary severance programme. The transport downgrade had involved a change of routes and how many vehicles were allotted to each of them. He believed the SASSA distribution contract would improve their situation, but SAPO had to review their profit targets in a way which was more realistic.

Mr Mackenzie inquired if E-Commerce could actually help to achieve a turnaround at SAPO.

Mr Ndlazi replied that the benefits of E-Commerce were already being experienced.

SITA Presentation

Dr Setumo Mohapi, CEO of SITA, indicated that SITA had achieved a 54% performance against its planned targets as at the third quarter. Improvements had been made in the areas of service delivery (61%) and infrastructure (75%). In relation to the Annual Performance Plan (APP), the projected annual performance was 88%, but there were also areas where the institution was lagging. For example, 40% of performance measures were not up to standard, while 12% of corporate targets would not be achieved as planned. The 95% level of performance against measured contracted service level agreement (SLA) metrics would increase to 98%, and this would reduce SITA’s vulnerability and increase its ability to manage accidents.

However, there was a need to collect outstanding debt related to service revenue, as SITA was R276.5 million below its budget. There were plans to stabilise the data centres and to establish disaster recovery sites in the Western Cape, Free State, Northern Cape and Gauteng provinces. It had wanted to develop and roll out the government’s E-Procurement portal, but the system prepared had been the wrong one, but it would be corrected by the third quarter.

SITA’s revenue for the quarter had amounted to R1.348 billion, which was R 56 million below the budget. The under-performance issues relating to filling vacant positions and reducing delays experienced with tenders would be addressed. For the third quarter, a saving of R71.9 million had been realised due to strict cost containment measures. Emphasis had been placed on the issue of wasteful expenditure and consequence management was being applied to address it. As a result, officials from the Agency had been dismissed or compelled to resign.

USAASA and USAF Presentation

Mr Lumko Mtimde, CEO of USAASA, said that by the third quarter progress had been made, and went on to explain the legislative mandate of the organisation. In the domain of performance, USAASA had set 10 targets and had achieved seven of them, and thus had not achieved 30% of their planned third quarter targets. With regard to the work environment and personnel management, consequence management had helped to turn around affairs, as it had helped to provide accountability.

Mr Mahomed Chowan, CFO of USAASA, provided an overview of the financial situation and indicated USAASA had a R2.5 million surplus. In the area of expenditure, there had been a R130 000 negative variance.

Mr Mtimde admitted that there was not a good story to tell for the third quarter at the Universal Service and Access Fund (USAF), because they had had a multitude of legal issues and the suspension of service providers to deal with. USAF organized digital summits to see the kind of products which could possibly be rolled out. It had taken steps to maintain connectivity at 127 schools, 93 clinics and 38 traditional ICT centres. Usage reports for 32 sites had been provided, which was problematic since some contracts had expired. The Broadcasting Digital Migration (BDM) project had not worked because the plan had not been smartly executed.

Mr Chowan provided the financial status of USAF, indicating that there was a positive variance of R27.5 million, ass well as an expenditure under-spend, with broadband infrastructure subsidisation getting the largest budget allocation.

Discussion

Mr Mackenzie pointed out that SITA faced a lot of cases of corruption. He also wanted to know whether the media reports indicating the Minister was not happy with SITA were accurate.

Ms Killian was happy to see that SITA was set on implementing consequence management, and wondered if additional measures were being taken to punish culprits. What measures were being put in place to prevent targets from being missed? USAASA looked like it was doing alright, but she had an issue with the service provider in Mpumalanga who had been given R 27 million and had done nothing.

Ms Shinn commented on the improvement which had taken place at SITA, but complained that USAASA appeared to grant contracts to service providers who had no real expertise in the relevant domain. Referring to SITA, she asked if criminal charges had been laid against those who had been dismissed. Did consulting research form part of the mandate of SITA? Were procurement processes properly followed at USAASA, because it appeared a lot of irregularities had occurred, and she wanted to know what had been done about it.

The Chairperson praised SITA’s work, and asked USAASA what the ramifications had been after the resignation of employees

USAASA’s response

Mr Mtimde said that the Minister of the DTPS could better answer questions relating to policy and project affordability. The Mpumalanga contract had been cancelled because of non-compliance, and that they were exploring the best possible options to minimize problems related to the procurement process, including automated procurement. USAASA would wait for the court verdict before taking any action against dismissed employees. Regarding the Mpumalanga incident, a diligence check had been undertaken in 2015/16, and two independent experts had been consulted. The service provider had provided the network, but they have not yet been paid for connectivity, which was a scenario faced by big service providers.

SITA’s response

Dr Mohapi said the consequence management implemented had led to a zero tolerance stance, as perpetrators were charged and suppliers were blacklisted with Treasury. SITA had embarked on a modernisation programme. With regard to what had been said in the media, the allegations were false, as there were no qualms between the Minster and SITA. The E-Government program was going well, but in order to meet their targets, infrastructure needed to be improved and there needed to be increased involvement of small, medium and micro enterprises (SMMEs). He concluded by stating that SITA was not a consulting agency.

NEMISA Presentation

Ms Mymoena Ismail, CEO of NEMISA, provided an overview of its activities, and said the institution’s overall performance stood at 83% for the third quarter. The weaknesses of the organisation included leadership, and an action plan would be outlined to remedy this situation. There had been an improvement in multi-stakeholder collaboration, with seven CoLab partnerships signed with different provinces. In the area of skills development, NEMISA had decided to provide 15 e-Skill Courses in collaboration with business, government, civil society and education. The organisation had taken steps to improve employee morale with the aim of obtaining better performance, and had taken steps to employ younger personnel. In the area of governance, the new structure established by the Board Committee was displayed.

Ms Rofunwa Ligege, CFO, provided a detailed financial report and an account of NEMISA’s assets. She acknowledged that during the relocation from their Parktown offices to a temporary location at Bruma Lake, much of the equipment that had been left at Parktown had been stolen. The Facilities Manager could not provide a list of the stolen assets, and the equipment was not insured. According to Ms Ligege, a report on the matter had been submitted to the Board and shareholders, and there was pending disciplinary action against the manager for negligence. In addition, a complete asset verification exercise was under way to prevent a recurrence of such an event. She provided a description of the programmes which would be conducted in the fourth quarter.

Sentech Presentation

Mr Mlamli Booi, CEO, said Sentech was a media company which had achieved 57% of its set targets which had been established across four different strategic objectives, with nine key performance indicators.

Ms Siphemandla Mthethwa, CFO, said Sentech had generated R928 million in earnings year-to-date, which was R42 million ahead of budget. There was a need to cut discretionary spending in order to make up for the shortfall in revenue from a lack of business related to broadcasting.

Mr Booi referred to governance, and said the relevant board meetings had been held. In the area of enterprise development Sentech had supported five SMMEs, which had led to 69 jobs being created and also diversified revenue away from broadcast media, as well as ensured gender and employment equity.   

BBI Presentation

Mr Ian van Nierkerk, CFO, said the objectives of BBI included maintaining a reliable network, ensuring financial sustainability, economic transformation and the implementation of sound human resource policies. He presented the organisation’s revenue increase plan, followed by an overview of the fibre rollout per province. In relation to financial performance operating expenses were below budget as a result of good management of cost containment, there were also the various funding initiatives which BBI hoped to pursue. Despite cost containment, the loss for the third quarter amounted to R83 million, compared to the loss of R58 million which had been budgeted. The earnings before interest, tax, depreciation and amortisation (EBITDA) amounted to R29.2 million compared to the budgeted amount of R41.5 million.

.Zadna Presentation

Adv Motlatjo Ralefatene, .Zadna Chairperson, opened the proceedings by explaining the objectives of the organisation before Mr Nicholas Msibi, a non-executive director of .Zadna, presented its 11 strategic goals. He said .Zadna had appointed new management, including an internal auditor as well as recruiting five female interns.

Ms Ralefatene said .Zadna was striving to ensure the following:

• International best practice compliance;
• Implementation of .Zadna education and awareness;
• Enhancement of the .Zadna website presence.

Mr Msibi subsequently gave a detailed account of the financial state of .Zadna.

Discussion

Mr Koornhof asked Sentech why they had lost broadcast contracts.

Mr Mackenzie asked the CFO of BBI why there had been such a great second quarter improvements. Concerning the NEMISA burglary, Mr Mackenzie asked how this scenario would be corrected without a proper database, and why the equipment was not insured. For .Zadna, Mr Mackenzie suggested they be more accurate with their budgeting in the future.

Ms Killian stated that it was unacceptable that a public entity like Nemisa did not have an asset register, She asked Sentech why she had not heard anything about zero tolerance for corruption from them, and wondered what steps would be taken in order to enforce discipline.

Ms Shinn was unhappy with the fact that all the IT equipment had been stolen without any consequences, and asked if the manager of the facility was a suspect because the whole situation seemed “dodgy” in her view. Had the South African Police Service (SAPS) been part of the investigation, and what impact did the theft have on the insurance rate? She asked how much Nemisa made from the different events it hosted, and if the courses they provided were accredited. She asked .Zadna to tell the Committee what their staff component was, and whether they had asked for the size of their board to be reduced. She mentioned that .Zadna might be doing mandate creep by developing school websites. What was the financial impact for Sentech of the government’s failure to migrate to digital?

Mr Siwela expressed his unhappiness at Sentech not reporting on net cash and cash equivalents. He asked BBI if their activities had had an overall positive impact.

The Chairperson believed that there had been gross negligence surrounding the Nemisa theft, and asked if there was a risk management manager at the institution.

Sentech response

Mr Booi explained there was a shortage of short wave stations in Gauteng, Cape Town and Durban, which had contributed to the drop in broadcast-related business. There was no tolerance towards corruption and in respect to business ethics, consequences were imposed. The internal audit function had helped and a risk management component also existed. In relation to how much Sentech loses due to the non-migration to digital broadcasts, he said that R140 million to R150 million per annum was lost in this case, and they were also affected by the spectrum situation.

Nemisa response

Ms Ismail said the value of the Nemisa programmes still needed to be assessed, and she hoped that the courses would drive an E-Skills agenda. Regarding the database, steps had been taken to address the issue, but the institution had inherited an outdated database and systems, and a culture of accountability existed at Nemisa. According to Ms Ligege there had been an asset register during the time of the relocation, but funds could not be received for the theft because certain conditions had not been met.

Ms Ismail stated the theft was a criminal act and they were waiting for SAPS to take subsequent steps and while there was no risk management officer at the time the gap had been identified. Concerning the effectiveness of the events, Ms Ismail said they were meant to create awareness about NEMISA and that some of the course have been granted university equivalence and others might happen in the long run.

BBI response

Mr Van Niekerk expressed satisfaction that Telkom had left the SA Connect project. BBI was trying to source external funding, but exogenous shocks make were making it hard to obtain loans.

.Zadna response

Ms Ralefatane said that they had received 14 000 disputes and had provided all the resolutions on their websites. She agreed that there was a need to look at the budgeting method and that the issue of the board size was a recurring issue which she hoped the Department and the Committee could resolve. The total staff stood at eight, and five positions were in the process of being filled. She refuted the allegations of mandate creep because the websites were a source of job creation for local youths.

Mr Nkuna said that the DTPS acknowledged that general stability and improving performance quality should be pursued, as well as establishing partnerships with the private sector

Ms Shinn wanted to know why NEMISA did not have an asset register.

Ms Ligege responded by promising the institution would have a full register by September 30.. It had requested an interim audit to be conducted by the Auditor General.

The meeting was adjourned.