COSATU Parliamentary Submission on the Postal Services Bill [B97-98], Presented to the Portfolio Committee on Communications, 17 September 1998

COSATU Parliamentary Submission on the

Postal Services Bill [B97-98 ]

Presented to the Portfolio Committee on Communications, 17 September 1998

Contents

Introduction

COSATU’s approach to the Bill and the White Paper

Areas of concern

Postal Company and postal services

Ownership

Licence conditions for the postal company

Financial issues

Repositioning the PostBank

Regulation of Postal Service

Conclusion

Introduction

The postal service inherited from apartheid is market by acute inequalities. Postal outlets are disproportionately located in former white areas, and black areas face inadequate postal services. The Green Paper estimated the South African average of inhabitants per postal outlet to be 1:16 659 compared with the European Union (EU) average of 1:3 384 citizens. This, however, mask the inequalities in terms of race and geography. Inequalities are further reflected in the uneven access to delivery services between white and black areas, and between urban and rural areas. Again the Green Paper estimated that 4 million households are currently without access to street delivery or addresses.

Since corporatisation and separation from Telkom, the Post Office has recorded substantial losses and declining mail volumes. The post office recorded operating losses on about R700 million in 1997. However, it is encouraging to note that there has been a turnaround with the Post Office approaching break-even position. For the financial year ending March 31 1998, the operating loss has been reduced to R271 million, a decrease on R430 million (1). Another encouraging sign is the fact that the Post Office is breaking ground in reaching its targets for mail delivery (2).

In spite of these advances, the Post Office requires transformation in line with developmental objectives set out in the White Paper. The postal sector, as a whole needs to be re-regulated in line with national policy. Re-regulation of the postal sector is important, as the environment in which the post office is operating is rapidly changing. The post office faces increased direct competition from the private sector and indirect competition from electronically based communication system. It therefore faces the twin challenge of competing with the private sector and having to guarantee universal service. Therefore it is essential that the regulatory framework protect the development programme of the post office, while allowing for participation of the private sector.

Therefore, the White Paper on Postal Policy (the "White Paper") and the Postal Services Bill (the "Bill") are important interventions to provide a framework for transforming the post office and the entire postal sector, although they need to be substantially improved to address the concerns raised in this submission. COSATU made a detailed submission on the Green Paper, which is attached to this submission. This submission will focus on the following areas:

COSATU’s overall approach to the Bill and the White Paper,

Key areas of concern,

The postal company and postal service,

The PostBank and

Regulation of postal services.

We welcome the opportunity to participate in the public hearings and extend our gratitude to the portfolio committee. Nonetheless, we have a number of concerns regarding the process of developing the Bill. In particular, we are concerned that the White Paper has been presented as a fait accompli as there was no public engagement with its content.

COSATU’s approach to the Bill and the White Paper

The postal sector plays a significant economic and social role. Postal services are by nature labour intensive and have the potential to play a significant role in job creation. On the other hand, postal service is an essential vehicle of communication and access to information. As noted in the White Paper (p.8), the postal service "provides a basic means of linking the entire populace, and serves as an important medium of communication for business and commerce. A viable and efficient postal service is essential to both social and economic development."

The key challenges facing postal service is the need to redress past inequalities and implementing Reconstruction and Development Programme objectives. In particular, the Post Office needs to ensure:

Greater access through the achievement of universal postal service;

To ensure greater equity in respect of distribution of services, particularly to former black areas and rural areas;

Ensure better quality of service and greater responsiveness to customer needs;

Human resource development and job creation, and

Implementation of employment equity.

In our view, the White Paper places sufficient emphasis on the need to extend services to historically under-served communities through extension of street delivery, increasing retail postal service in areas where post offices are non-existent or inadequate; extending the service provided by the PostBank, etc. COSATU supports this commitment and the objects of the Act (section 2 of the Bill), as they are consistent with the need to expand postal services in an equitable manner.

COSATU recognises the complementary role that can be played by the private sector in achieving our development objectives, but this will only be achieved if the private sector's role is subject to a number of conditions.

Firstly, there is a need to ensure universal service through reserving a number of services.

Secondly, appropriate support in the form of a subsidy should be provided to the post office to meet the universal service obligation. Cross-subsidisation from the non-reserved areas to reserved areas should form part of the financial framework for the post office.

Thirdly, the monopoly of the post office in reserved areas should be protected with heavy penalties for those who violate it.

The White Paper points in the right direction by including reserved areas, subsidies to the post office, cross-subsidisation, and a regulatory framework, but the Bill needs to be substantially strengthened in this regard. In particular, the Bill needs to include provisions for cross subsidisation as they are currently omitted.

However, COSATU rejects an ideologically driven market liberalisation programme, which ultimately serves to undermine and erode the post office. Placing undue faith in the private sector to deliver postal services will be misplaced in our context. The postal market is replete with ‘market failures’ – the private sector fails to deliver universal services. This exacerbates unequal access due to cherry-picking practices by the private sector, i.e. the tendency to focus on niche markets and areas with effective demand.

It is against this background that we have concerns with the proposed standards for the monopoly, (for example, the proposed standard regarding letter weighting (3). This will reduce mail volumes due to a shift to the private sector and will result in job losses in the Post Office. In the context of the on-going unemployment crisis, job losses should be avoided as a mater of highest priority. We propose that there be a study on the effects of reducing the postal monopoly to ascertain the impact on employment levels and mail volumes before this proposal is implemented.

The White Paper calls for the monopoly to be reviewed by the Regulator every three years. There must be consultation when this is implemented.

Areas of Concern

For the sake of clarity, we propose that the Post Office Act should be repealed, and sections, which are still relevant, should be integrated in the Postal Service Bill and the language used in the legislation should be simplified.

In certain respects, the Bill dismally fails to give effect to sections of the White Paper. The Bill is totally silent on human resource policies including skills development. This is a serious omission in our view as it creates the impression that human resource issues are not important. In section 2(i) the Bill states that "the primary object of this act is to provide for the regulation and control of postal services in the public interest and for that purpose to –encourage the development of human resources and capacity building within the postal industry" but fails to give effect to this objective.

The Broadcasting Bill on the other hand has sections dealing with staff issues, for instance section 24. Section 36 of the Broadcasting Bill instruct all licencees to comply with the provisions of national policy regarding skills development and specific human resource development conditions determined by the Authority. The White Paper provides a comprehensive framework for human resource development that should be given effect in the Bill.

The Bill should stipulate the composition, nomination procedure, role and term of office of the board, rather than leave it to articles of association (4). Articles of association will have to be consistent with the Bill. The White Paper outlined how the board will be composed; the separation of the chairperson of the board from the Chief Executive Officer, among others (5). This should be given effect in the Bill. In addition, we welcome worker’s representation on the Board. This will go along way in ensuring democratisation of the workplace.

Further, the Bill fails to deal with matters related to delivery policy. The White Paper states that the post office will be subject to penalties if it defaults on the determined target. Secondly, the post office has exclusive responsible for street delivery of the reserved services. With regard to the former, the Minister’s power in section 61 could be expanded to accommodate the Minister’s ability to penalise the post office for failing to meet targets. With regard to the latter, the Bill does not state that the post office has exclusive responsibility for deliver street delivery of the reserved services. This could be corrected by adding this responsibility to Schedule 1 of the Bill, which deals with reserved postal services.

Postal Company and postal services

Ownership

COSATU consider the Post Office as an important public asset that should be retained in state hands (6). The White Paper (p.6) state that "government does not envisage any changes to the current ownership structure of the Post Office. However new ownership strategies, namely Strategic Equity Partnerships and employee ownership schemes will be considered for state subsidiaries of the Post Office." We believe that the Bill should explicitly deal with the ownership structure of the Post Office. Rather than amending section 4 of the Post Office Act, the sections (section 4 and 5) dealing with ownership should be integrated in the Bill, with necessary changes. We welcome the commitment in the White Paper that restructuring of the enterprises will occur within the National Framework Agreement on the restructuring of state-owned assets.

The retention of the post office in state hands should not mean business as usual. The management should be transformed and directed to eradicate the internal inefficiency faced by the post office. The White Paper identifies two potential forms of management contracts for the post Office, namely performance management contracts and strategic management partnerships. However, the White Paper is ambivalent which option will be adopted for the post office. We believe that postal policy should explicitly state which management option should be adopted for the Post Office.

Licence conditions for the postal company

Section 16(8) and (9) are important in that they would allow the Minister to determine the licence conditions to be met by the postal company (7). This includes imposing a financial mandate and a universal service obligation on the postal company. COSATU strongly support these sections as they provide scope to mandate the post office to meet RDP objectives.

The postal company has an exclusive period of 25 years in terms of section 16(3) of the Bill and the White Paper. At the end of this stipulated period, the licence agreement and conditions will be reviewed according to the White Paper. The review is not included in the Bill, and we propose that it be included.

Financial issues

For the post office to implement its universal service obligation it must be given appropriate support. Given the fact that the post office will not have a commercial mandate on reserved areas, this should be funded from the fiscus. Universal service obligation should be further cross-subsidised from non-reserved areas of the post office. Without the necessary support the post office will not be able to implement its universal service obligation and rollout infrastructure to previously disadvantaged areas (8).

To finance universal service obligations, a Universal Service Fund such as the one established in the Telecommunications Act (section 65-68) should be investigated. All licence holders would be required to contribute to the Fund. This will include licence fees and the subsidy from the fiscus. This could be directed towards subsidising reserved areas and rolling out infrastructure to previously disadvantaged communities.

While we welcome the financial framework proposed for the post office in the White Paper, we would argue that universal service obligation should be financed from the fiscus in addition to profits earned from competitive and non-competitive markets in which the Post Office is active. In this vein we welcome section 29 Bill in terms of which annual subsidy may be granted to the postal company. However, this section should be redrafted to impose an obligation rather than leave granting subsidy to the discretion of the Minster. Instead of ‘may’ it should read must.

The White Paper stipulates that the post office will have restricted access to capital markets. It can only borrow with the permission of the Minister. Furthermore, a number of areas for investment are identified. This include investment in technology, mail centres, equipment for postal automation, additional post office rentals and ownership. Currently, the post office borrowing powers are contained in section 12I of the Post Office Act (9). We propose that new sections dealing with borrowing powers, acquisition of land and shares should be added to the Bill. As pointed above sections in the Post Office Act can be integrated in the Bill with necessary adjustment.

A financial mandate will be imposed on the post office to reach breakeven within three years and to then operate on a profitable basis. The question is what happens if the post office fails to meet this obligation? We have a concern that this may lead to retrenchments as the post office attempts to meet the terms of the financial mandate. There is a need for clarity on this issue. However, this should not be construed to mean that we are suggesting that operating losses should be funded from the fiscus. We concur with the White Paper that government should not continue to subsidize the current losses of the post office and that the post office should be repositioned to earn a surplus.

We welcome section 30 as it empowers the Regulator subject to the Minister's approval to regulate tariffs for postal services. We believe that tariff increases, especially on reserved areas should not be the main driver of profitability. Setting prohibitively high tariffs may undermine principles of universal postal service.

Repositioning the PostBank

A substantial number of people are excluded from the banking system either due to lack of cheque accounts or savings accounts. As a result huge amounts of cash have to be held, and if money has been paid in a different town it has to be carried in cash by the person or an intermediary. A disadvantage of the cash-based society is that a national mass market cannot be fully developed, as transactions are costly and difficult if they involve the handling of cash. An additional disadvantage of the cash-based society is that they do not attract deposits and balance in-transit, which are important sources of finance in most countries.

The infrastructure of the post office and the PostBank should be used to service this segment of the community, particularly in rural areas. The primary motive for using the infrastructure of the PostBank is that existing commercial banks do not easily provide cheap money transfer arrangements for the majority of the population. We therefore support the vision to establish the PostBank as a bank of first choice for the lower income group, which will provide them with appropriate banking products and high quality financial services through the post office network (White Paper, p.35). In addition, we support section 51 as it gives effect to this vision.

Our preferred ownership option is for the PostBank to be a separate, 100% owned, for profit company of the post office. We note that the White Paper outlines a three phase restructuring plan for the PostBank (10). However, the White Paper does not supply reasons why step three is necessary. We can only infer that step 3 is driven by the need to acquire a strategic equity partner. Again why the PostBank needs a strategic equity partner is not explained.

Although the White Paper envisages the corporatised PostBank to be exempted from the banking regulatory framework, the impact on its target market (rural and low-income earners) is not fully explored. Therefore there is a need for clarity as to why phase 3 is necessary and its implications. We also believe that as stated in the White Paper, the NFA will be complied with before a total restructuring of the PostBank take place.

The framework vision outlined for the PostBank should be urgently implemented, as there are vested interest who seek to derail this process.

Regulation of Postal Service

A regulatory framework is necessary to protect the postal company's monopoly in reserved postal services. It is also important to uphold high standards of service for both the postal company and the private sector; and curtail uncompetitive behaviour in the postal sector. Prevention of uncompetitive behaviour should not be construed to mean that a monopoly in reserved areas should not be created. Reserved services are required to meet universal postal service requirements. The granting of licences is necessary to:

prevent the infringement of the postal company's monopoly;

regulate tariffs, particularly in reserved services;

maintain proper service standards;

ensure that national legislation is complied with, including labour laws;

to ensure a fair and efficient postal market, which facilitate participation by historically disadvantaged groups.

Sections 15-28 of the Bill provide a framework for regulating postal service, but need to be improved in a number of ways. We welcome the fact that it will be an offense to operate a postal service without a licence in terms of section 80 of the Bill.

Section 15(3) appears to be unnecessarily inflexible and restrictive. In terms of this section, the Minister may not cause "any activity falling under unreserved postal services to fall under reserved postal services." In our view, the core business of the post office and what is included in the reserved areas is subject to change as circumstance change.

The post office monopoly will be reviewed from time to time, this may mean reducing it further or including more services. This clause as it stands will prevent the inclusion of additional services in the reserved areas of the post office. Further, it suggest that the only route will be to reduce the number of reserved areas, since the White Paper (p.15) envisages that the Minister will review the 1kg limit for reserved areas.

The three basic principles for access to the reserved service should be used as a guide in reformulating section 15(3) (11). Rather disallowing inclusion of certain services from non-reserved to reserved areas, the Bill could mandate the Minister to consult with stakeholders before implementing such a decision. In terms of the White Paper, the Minister is committed to consult with stakeholders to review the limit set for postal monopoly.

COSATU supports sections 16(5) and 25. The former outlaw anti-competitive behaviour and the latter allow for disclosure of information. Both the private sector and the postal company should comply with service standards and labour standards as prescribed by the Minister and enforced by the Regulator. We believe that licence conditions should stipulate compliance with service standards and labour standards, consistent with the object of this Bill. To some extent the Bill in subsection 16(8) and (9) provide a mechanism for the Minister to stipulate terms and conditions for the postal company. The Bill should also include a mechanism requiring the private sector to comply with service and labour standards.

In terms of the structure of the Regulator our preference is for a single regulator for telecommunication, broadcasting and the postal sector. The boundary between these sectors is gradually diminishing. Therefore, there is a need to ensure that the regulatory regime is able to respond to challenges thrown up by technological developments. Integration will also have the added benefit of ensuring that what happens in one sector does not undermine and undo regulatory regime in another sector. We note that in terms of section 3 of the Bill, the Regulator will fall under the Department, and will be known as the Directorate: Postal Regulation.

It is still possible to achieve linkages between the regulatory bodies without merging them into one, at least in the short term. A process should be outlined for the long-term vision of having a single regulator for the communication industry. There should be greater co-operation and co-ordination between the postal, broadcasting and telecommunication regulatory bodies. The Minister should facilitate such co-operation and co-ordination as the overall political head.

Having said this, we do not understand the logic of separating the independent monitor (section 26 of the Bill), from the regulator; and secondly to separate the monitor from the inspectors (section 27). This appears to be an unnecessary duplication of roles, which may create tensions. We prefer fusing the monitoring function with the inspecting functions under the auspices of the regulator.

Conclusion

COSATU supports the broad thrust of the White Paper and the Bill to transform the postal sector. In this submission we raised substantial concerns regarding proposed policy and problems with the way in which the legislation is drafted. For COSATU, to give its unqualified support to the Bill these concerns needs to be addressed. This includes reworking current provisions of the Bill and introducing new elements in the Bill. This should not be construed to mean that the Bill should be withdrawn.

We believe that it is possible to redraft the Bill along the lines we have proposed in the submission. We hope that the portfolio committee will take our concerns on board. Again we thank the portfolio committee for providing us the opportunity to participate in this public hearings. We are prepared to discuss any issue raised in our submission and related to postal policy.

Footnotes

Business Report, Post Office Review, p.1, July 21 1998.

The latest independent survey on the Post Office’s delivery performance state that the 90% of national mail is being delivered on time, 93% of all mail within the same postal region, 92% of all mail within three of the six postal regions is delivered on time.

The postal monopoly includes all letter mail, i.e. postcards, printed paper and small packets of up to 2kg. The White Paper proposes reducing this standard to 1kg.

The Bill amends section 3 of Act 44 of 1958 to read thus:

"3. (4)(c) must have articles of association providing among other things in the case of the postal company, that the affairs of the company must be managed by a board of directors in terms of the articles of association; and

(5) Notwithstanding the provisions of the Companies Act, the postal company and the Telecommunications Company may have fewer than seven members."

According to the White Paper (p18) the Board will consist of not more than 15 member of which at least five will be executive members…The position of the Chairperson of the Board and that of the Chief Executive Officer will be separated.

Currently the postal company is constituted as a limited liability company under the Companies Act, and is wholly owned by government. The Minister of Post, Telecommunications and Broadcasting holds the shares, on behalf of the state. A Board of Directors governs the company, which is appointed by and responsible and accountable to the Minister as owner.

Section 16(8) and (9) provide that"

(8) The licence contemplated in section (3) must be granted on terms and conditions consistent with the objects of this Act to be determined by the Minister and stated in the licence.

(9) The Minister must make known the terms and conditions contemplated in subsection (8) by notice in the Gazette.

A Universal Postal Service ensures that all citizens have equal access to a basic letter service:

That is reasonably accessible to all people in the country regardless of physical location;

At a uniform rate of postage;

At an affordable price;

Offers a reliable service

The Universal Service Obligation also demands the re-balancing of postal networks for equitable access, the implementation of operational changes to improve the scope, scale and quality of service provision, and the ultimate elimination and the reduction of cost and service inefficiencies (White Paper, pp. 9-10).

In terms of section 12I of the Post Office Act the "Postmaster general may at any time, with the approval of the Minister given in consultation with the Minister of Finance, borrow money in the Republic or an other country to finance anticipated deficits in the Fund…"

The three phase restructuring plan is as follows:

Phase 1: The PostBank as a profit centre - providing greater autonomy within the existing divisional structure. The savings product range will be expanded.

Phase 2: Post Office savings bank - a subsidiary fully owned by the post office or government, providing a complete range of payments and funds transfer services and expanding the deposit service range.

Phase 3: Savings bank - an autonomous company owned by the post office or government and operated as a fully-fledged savings bank extending lending facilities. An independent Board of Directors will be established and be held accountable to the Shareholders. The savings bank will be managed by professional managers. Although the PostBank as a savings Bank will be owned by the post office or government, a strategic equity partner may obtain a minority share of the PostBank company.

The three basic principles for access to reserved service are:

Universal application of conditions of access, assuming all potential clients present their mail in a uniform way;

Potential users are aware of the posting of the conditions, appropriate tariffs and service level, for which they are charged; and

Access conditions will optimise flexibility to the customer's need, while ensuring that reserved service are protected.

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