Rescuing the Russian Mail

If a resident of Nizhny Novgorod region want to repair his shoes or his refrigerator, have his hair cut or buy some salami, there's a place he can go that offers all these services on the spot — the local post office.

Nikolai Kuzhov, head of the federal postal service's Nizhny Novgorod department, said that many of the post offices in the region have started offering an array of additional services because they are unable to cover their costs by performing the more traditional service of processing letters and packages, or arranging money transfers.

The desperate measures taken by the Nizhny Novgorod post offices to survive reflect the dismal state of Russia's postal system, where underfunding and poor infrastructure has meant that letters often take weeks or months to arrive at their destination.

Because the service is so poor, Russians are sending fewer and fewer letters, forcing post offices to look elsewhere for revenue.

In a bid to overhaul the failing system, the Communications Ministry has come up with a plan to reform the federal postal service that was approved at a government meeting last month.

In a written report, which was released after the meeting, the Communications Ministry blamed Russia's woeful postal service on fragmentation and a lack of coordination between regional departments within the postal network.

As part of the reform, the ministry wants to create a single postal operator called Russian Post that could eventually be turned into a joint stock company.

"As a result of unfair internal competition, failures to make internal payments, bringing profitable businesses into the gray market financing sector or merging them with related organizations, the federal postal system has annual losses and incurs unnecessary expenditures of about 3 billion rubles [$96 million]," said Deputy Communications Minister Alexander Kiselyov.

Kiselyov said that this figure is 40 times higher than the annual subsidy allocated to the postal service from the federal budget.

The Communications Ministry report said 300,000 people currently work at 40,000 post offices, which are run by 93 regional departments in Russia.

No Quality, No Quantity

The report said the regional departments do not follow a unified development strategy in their operations, but work according to their own needs and according to the different economic situations in their own regions.

The report also criticized the complicated system of mutual payments between the regional postal departments, which it described as nontransparent.

Anton Shchegolikhin, first deputy head of postal service department at the Communications Ministry, said the ministry's plan was to "reorganize management of the national postal network, then through the unified management to activate the resources of the entire network by bringing some of them out of the gray market."

"The federal post has a network, but no quality," he said. "Alternative operators have quality, but no network. With the current organization and [low] tariffs it's hard to talk about the quality of the postal service."

The postal service's current tariffs are 3 rubles (10 cents) to send a letter within Russia, 8 rubles for a letter to CIS countries and 14 rubles to send a letter abroad.

Despite the low cost of sending a letter, however, customers are deserting the postal service in increasing numbers.

Kiselyov said that from 1990 to 2000 the volume of all traditional services provided by the Russian postal system, except for the delivery of pensions, decreased steadily.

Mail delivery has fallen by 13.3 percent year on year, money transfers by 13.6 percent, delivery of newspapers and magazines by 21 percent and delivery of packages by 22.1 percent per year, he said.

Over the same period, the amount of pensions delivered has increased by 2.1 percent annually, mainly due to the growing number of pensioners across the country, Kiselyov said.

Kiselyov added that in terms of the volume of mail sent, Russia now lags behind less developed countries like Brazil and Malaysia.

Russians currently send an average of 30 pieces of mail a year, Kiselyov said. According to 1997 Universal Postal Union statistics, the global average of letters sent per person per year is 71. Americans send the most letters at 703 per person, followed by the Norwegians with 547 and the Swedes with 493.

In developing countries, the figures vary from 0.01 letters per person to 33 letters per person.

The low volume of mail that passes through the Russian postal system reflects its poor quality compared with other countries.

The Communications Ministry report said that across Russia, 77.5 percent of mail is delivered in up to 20 days, while within Moscow 80 percent of mail delivered in up to three days — the same period it takes to deliver 80 percent of mail between European Union countries. Within EU countries, 95 percent of mail is delivered in one day, the report said.

The reforms outlined in the report are already under way, although some details are still to be worked out, said Sergei Grigorenko, a spokesman for the Communications Ministry. The reforms will take three to four years to implement, the ministry said.

Making Money

According to the ministry report, the unified postal operator called Russian Post will be created this year. The new operator, which is to be subsequently built up over a year and a half, is to oversee a federal transportation and sorting network, a regional delivery network, international postal services and express postal services.

As part of the reforms, Russia will be divided into an as yet undecided number of postal districts, each of which will be run by representatives of Russian Post.

The districts will be formed according to the intensity of mail exchange between the regions and so may not coincide with the boundaries of the seven federal districts.

The report said that after the restructuring stage is over, the ministry will look into the possibility of turning Russian Post into a joint stock company in which the state would have a controlling stake.

Communications Minister Leonid Reiman said last month the composition of the joint stock company has not yet been discussed.

But Reiman said that some parts of the reform plan have already started to be realized — new technologies and business projects are being worked out and new services are being introduced.

As an example, he said that last year 1,500 public Internet access points were installed in post offices across the country, 500 of them in the rural areas, Interfax reported.

Kiselyov said that once centralized, the postal system could increase its investments in business and technological development to $115 million per year thanks to money saved by increased efficiency.

The current level of such investments is $10 million to $15 million per year, he said.

To update the technology used in the postal system would require $1 billion in investment in the next three to five years, the Communications Ministry report said. In 2000, just $10 million was invested in the postal service, it said.

Postal service revenues in 2000 totaled 16.3 billion rubles ($524 million) and net profit margin fell to 3.9 percent from 4.4 percent in 1998, the report said.

Per capita revenues are 100 times lower than similar figures of European postal operators, it added.

Post Ready for Action

The plans for reform have been welcomed by officials working within the postal system.

"This is a very important and extremely necessary change. The current situation of the postal system with such high fragmentation demands reform," said Igor Syrtsov, general director at Mezhdunarodny Pochtamt, the country's international postal operator.

"Among the negative consequences of such fragmentation, the postal system has developed internal competition and a nontransparent system of internal payments that prevent the postal system from operating effectively and developing into a postal business."

Syrtsov said that postal operators in many countries operate as joint stock companies. In some of them the state owns controlling stakes, while in the most advanced postal systems, such as that of the Netherlands, the state owns less than 50 percent of the stock, he said.

Syrtsov said the reforms "will help optimize many processes and introduce unified financial, technological and marketing policy."

"Today it's hard to find two post offices that look alike," he added.

Kuzhov of the Nizhny Novgorod region postal department agreed.

"To work the way we are working today without knowing where we are heading is difficult," he said. "There is no question that we need reform."

Kuzhov said it takes 24 hours to deliver mail from anywhere in the 74,800-square-kilometer region to Nizhny Novgorod and 48 hours between two cities or villages outside the regional center.

Vitaly Starkov, first deputy head of the federal postal service department in Chelyabinsk region, considers his regional postal system advanced. Post offices have automatic processing equipment and access to the Internet, he said.

But Starkov said it still takes two to three days to deliver mail within the region, which has an area of 87,900 square kilometers — six times smaller than France.

"Everybody understands that we need restructuring," Starkov said, adding that reform should help the development of postal services and bring it to a single standard across Russia.

Alternative Gains

Russia's two leading international express delivery companies were also positive about the reform plan.

Tikhon Yevdokimov, commercial director for DHL in Russia and the CIS, said that the new structure of the federal postal service will help DHL to cooperate with the service and would make it possible to consider a long-term partnership program. DHL has agreements with postal services in 44 countries worldwide, he said.

"As soon as we have the decision-making center in Moscow, we will be ready to talk about nationwide programs of cooperation," Yegdokimov said. "So the federal post could offer an express delivery service through DHL. Both operators would win from this cooperation."

Last year 10 Moscow post offices started offering DHL services. This year DHL plans to offer its services at a further 10 post offices throughout Moscow.

Maria Korbut, spokeswoman for TNT Russia, also hoped that the reforms would lead to increased cooperation with the postal service.

"If the operator becomes strong — and I hope that the reform will lead to this — we can only win," she said.

Korbut said that TNT has agreements with postal services in 20 countries across the world and started cooperating with Russia's postal service earlier this year. The company's services are offered at 10 post offices across Moscow.

"With unified strategies from both partners, we can agree on any decision faster and more effectively," she said, adding that currently TNT has to make individual agreements with each of the 93 postal departments across the country.

Delivering Paychecks

Ordinary postal workers were more concerned about how the reforms would impact their salaries, which are low by Russian standards.

Yelena Budilenkova, deputy head of a post office on Bashilovskaya Ulitsa in Moscow who has worked in the postal service for 10 years, said that she has difficulty finding new staff. A notice on the door advertising a vacancy for a telegram deliverer with a monthly salary of 1,900 rubles has been there for a year, she said.

"Even if young people come here to work, they leave soon. They don't want to work for so little money," Budilenkova said.

Kuzhov said that the average monthly salary in the Nizhny Novgorod regional postal service is 2,000 rubles — way below the average salary nationwide of 3,798 rubles reported by the State Statistics Committee in February this year. Starkov said the average monthly salary for Chelyabinsk postal workers is 2,300 rubles.

Valentina Chikonkova, one of six operators at the Bashilovskaya Ulitsa post office, is paid a bit more — 2,460 rubles a month — but still thinks it's too little for what she does.

When she started working as a post office operator six years ago, Chikonkova processed about 10 letters a day.

Now she processes manually up to 600 letters a day on the busiest days, when businesses and organizations send most of their mail. These are so-called zakazniye, or registered letters, which cost 4 rubles 30 kopeks for a 20-gram letter.

To process letters manually, Chikonkova must weigh the letter, fill out a receipt by hand, stick a stamp on the envelope, put a bar-code on the envelope and on the receipt, stamp the envelope and put the letter in the corresponding box.

The process usually takes about five minutes, although it is a bit faster if there is a pack of letters.

As well as a salary hike, Chikonkova hopes that the reforms will lead to new equipment being installed that would allow her to process letters more quickly and easily.

Chikonkova's boss Budilenkova said that although the number of packages and money transfers has decreased over the past decade, the volume of business mail has soared, meaning that her staff are working harder than ever.

Ordinary customers were less in evidence, however. In half an hour on a weekday morning last week, just five people came into the post office.

One of them was Lyudmila Tumenbayeva, a 60-year-old pensioner who moved to Moscow from the Orenburg region two years ago and now corresponds with her two daughters by mail.

Tumenbayeva had no complaints about postal service, although a package that she sent in early February to one of her daughters took more than a month to deliver.