South Africa: Delving Into Post Office's Woes

Delving Into Post Office's Woes
From AFRICA NEWS SERVICE, September 21st, 2001

Johannesburg, Sep 21, 2001 (Business Day/All Africa Global Media via COMTEX)–
CEO of embattled organisation inherited tough situation, and managers are
revisiting scary' contracts MAANDA Manyatshe, the SA Post Office's CEO, whose task it is to clean up the
money-losing organisation, is hesitant to use his office to talk about issues
he faces. Meetings are convened at hotels or coffee shops outside the Post Office's
headquarters in Pretoria, signalling the depth of distrust that permeates
throughout the embattled organisation. It is clear Manyatshe has inherited a situation that is far worse than many
suspected, and that it is weighing heavily on the former SA Breweries
executive. Fraud and corruption are so prevalent that the elite crime-fighters, the
Scorpions, have had to set up a special investigation unit. The National
Intelligence Agency and SA Police Service have been called in as well. A loss
of more than R850m is to be recorded in the 12 months to March, although the
Post Office was scheduled to break even for the first time in its history this
year. Manyatshe recently found that instead of delivering 8,8-million letters a day
the figure on which the organisation has always based its performance and
projections a total of 6,5-million to 6,6-million letters are actually
delivered. This has significant implications for the organisation's
productivity levels, employment figures, the size of the retail business and
more. "It is extremely difficult to say at this point when the SA Post Office will
be turned around as it is unclear what our real financial situation is." Yet less than two years ago, when Communications Minister Ivy
Matsepe-Casaburri signed a management contract with a consortium led by New
Zealand Post International (now called Transend Worldwide) and which included
British Post, the future of the Post Office seemed rosy. The contract was one of the biggest of its kind in the world, spanning three
years and costing R185m. It promised to turn the Post Office around by March
this year and deliver 4-million new postal addresses and 700 new postal retail
outlets around the country. Matsepe-Casaburri said at the time that skills transfer would take place,
training programmes would be established and new avenues of revenue explored. It has all gone horribly wrong. Earlier this year the cabinet endorsed a
decision by the Post Office's board to end the contract; government may have
to fork out up to R500m a year in subsidies for at least five years; and a
huge restructuring exercise will be needed before the Post Office can be
turned around. What led to this turn of events? The starting point is the way in which the
contract with the New Zealanders was forged and implemented. Correspondence
between the Post Office's former board and government shows the board was
seldom included in decisions on the management partner. In a 1999 letter to former communications minister Jay Naidoo, previous Post
Office chairman and acting CEO Max Maisela said the management board had been
"completely ignored" during the development of the management partner process.
"At a meeting of the management board this morning the members collectively
indicated they were uncomfortable with the way the process of acquiring the
(management partner) was developing," the letter said. It now appears that neither the Post Office board nor its employees ever saw
the contract, which disempowered managers and workers. Many believed it was a
governmentdriven contract imposed on the Post Office, whereas in fact it was
signed between the New Zealanders and the Post Office. The reasons given for
the demise of the deal differ widely. There is a strong body of opinion in the
Post Office that Transend which has had notable successes in New Zealand, Fiji
and Tobago was simply not equipped to cope with as large and diverse a country
as SA, and that the promises that were made in the contract were unreasonable. Despite many years of crippling losses, the contract stipulated that the Post
Office would be turned around within three years. By contrast Canada Post the
other shortlisted company bidding for the contract said it was not possible to
restore the entity to profit in three years, given the amount of work needed
at the organisation. Government and Post Office management contend that the essence of the contract
was the breakeven position the New Zealanders guaranteed in it. "The R180m contract, excluding ad hoc staff costs, paled into insignificance
in the face of such a guarantee by an international expert company," the Post
Office stated in June. According to that statement, the contract could never deliver on the
break-even target, the basis on which the Transend bid was more attractive
than the others. The New Zealanders have a different point of view. They argue they did much
good at the organisation but were stymied at various points by lack of
co-operation from top managers and by unreliable financial information. Indeed, Transend's final proposal to become management partner stated that the
Post Office would not break even by this year unless there were "fundamental
changes in the business". The key driver was a "significant reversal of the recent decline in postal
volumes and making reasonably widespread changes to the underlying cost
structure of the business". Transend also warned of "major risks to
profitability". The New Zealanders obviouslybelieved they could overcome these problems,
having guaranteed the break-even position in the final contract. However, Doug
Maclean, national manager of Transend Worldwide in SA, says the breakeven
position was not the key financial performance indicator and there were
explicit financial penalties should the management partner miss its targets. "Our surprise was the arbitrary action of the Post Office (in cancelling the
contract). If there was a change in attitude towards the need for foreign
expertise, it should have been stated openly," he says. Maclean contends achievements included a 15% improvement in ontime mail,
rebalancing the retail network and expanding addresses to underserviced areas.
He says the communications department was repeatedly told by management about
the lack of capitalisation of the business. Manyatshe and his team are now busy extricating the Post Office from the
contract in such a way that it will avoid paying penalties for early
termination. Removing the management partner will not, however, rid the Post
Office of its problems, financial and organisational. The new CEO has taken steps to deal with these challenges, including
installing a new management team of his choosing and reviewing all financial
systems. He is also overhauling all contracts signed with outside firms,
several of which communications department director-general Andile Ngcaba has
described as "frankly scary". As the new management team delves deeper, it is becoming increasingly clear
that the organisation has been systematically looted by employees and outside
contractors. And taxpayers footed the bill. Taxpayers will have to brace themselves to pump money again into the Post
Office, topping up the billions of rands they have already forked out since
1990. And they do not even have the comfort of knowing the exact nature of the
losses. Operational losses appear to range from a best of R224m in 1999-2000
to a worst of R850m in 2000-01, but the results are at best "spongy". For
example the entity's reported loss of R271m during 199899 subsequently became
a R746m loss after it was forced to make provision for the medical aid deficit
for pensioners. The lack of information from the communications department must be rectified
if public confidence in the Post Office is to be restored. The task ahead is
enormous and the new management team will need full support from government. As Manyatshe says: "I thought of resigning when I realised the enormity of the
problem (at the Post Office), but some fool has to do it." Copyright Business Day. Distributed by All Africa Global Media(AllAfrica.com)
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KEYWORD: South AfricaAFRICA NEWS SERVICE, 21st September 2001