Russia's postal service may soon get an overhaul

Already notorious for being slow, unreliable and inefficient, the Russian postal service is threatening to disintegrate completely if drastic measures are not taken fast.

In an effort to tackle the problem, the government is proposing uniting, or recentralizing, the currently independent regional postal services – which were scattered to rely on their own independent means in 1990 – into a single federal system. But analysts say this isn't enough and most experts dealing with the problem are flummoxed.

The current government reform plan calls for a three-stage reorganization of the postal service over three to four years. The first stage, which would take six months, is to prepare the ground for future measures and come up with financing. The second 18-month stage calls for the creation of a state-owned company, Post of Russia, that would unite the nearly 100 regional postal operators that were cut loose in the 1990s. The final stage would "develop and implement a long-term program to develop the federal postal service." This final stage would include turning the state-owned postal agency into a joint-stock company.

The reform program's authors, which include the Communications, Economic Development and Trade and State Property Ministries, specialized institutes and international consulting company McKinsey, say the plan to recreate a centralized postal network is the foundation of any further improvements.

"This will change the structure and organization of an entire sector," said Anatoly Sorokin, director of the Postal Research and Design Institute. "By its very nature, the post functions as a network service, and this demands that it work as a single whole."

During Soviet times, it was a centralized service, but in the early 1990s, it fragmented into several dozen regional postal services, each one with the status of a legal entity authorized to provide its goods and services only within the territory of a given region.

Vitaly Klintsov, project manager at McKinsey, said this fragmentation was a "necessary measure," because by becoming independent, the regional postal services got the room to maneuver they needed to survive in tough economic conditions. But Klintsov also said it was wonder that, under such conditions, a federal postal system still managed to work at all.

"No country has separate regional operators," Klintsov said. "In this respect the Russian situation is unique."

Another difference between the Russian postal service and the post in Western countries is the small volume of correspondence per capita in Russia compared to Europe or the United States, even when adjusted for structural differences, Klintsov said. According to the Communications Ministry, Russians receive only 30 items of correspondence a year per capita – mostly phone and lighting bills – while the figure in the United States is 25 times higher (largely junk mail).

Economist Mikhail Delyagin said this low volume of correspondence is mostly due to the catastrophically surly and incompetent service the Russian post provides.

"People write fewer letters and use the post less in general because they can't be certain that what they send will arrive on time or even arrive at all," Delyagin said.

McKinsey's Klintsov said that in order to function normally, the post has to be centrally managed. That it provides at least a minimum of service today is essentially thanks to the efforts of the remaining postal workers who still attempt to do their job well, he said.

"The biggest advantage of the reform plan is that it would reunite the regional operators in a single company and separate regulatory from operational function," Klintsov said. "The post is a network system by nature, and centralized management will enable us to raise the quality of service to a totally new level."

The government has also realized the need to tackle the issue quickly and, according to Deputy Communications and Information Minister Anton Shchegolikhin, is set to examine the reform plan on March 7. But analysts say that aside from the proposal to make the service centralized, the reform plan is still very vague.

"Centralization is a good move, it's a way of bringing order to the system," economist Delyagin said. "But the question is, 'How they are going to go about bringing order to the service and what they're going to do with it next?'"

Delyagin said there is a risk that reform would lead to increased prices for postal services, which would have a negative impact on the postal service itself as it would lose yet more clients, and would cause problems for society.

"For many people, the post is one of the only ways they can still afford of keeping in touch with relatives," Delyagin said.

But the Postal Institute's Sorokin dismissed fears of tariff hikes, saying that tariffs for so-called universal services, such as sending letters, are set by federal law and are usually loss-making from the outset for the postal service, as they are below cost-price of the service.