Chamber Criticizes Aspects of "Russia's Postal Service"
Busting the Budget: The Unraveling Saga of Russian Post
In 2023, the spotlight fell on Russian Post after the Federal Treasury disclosed a staggering loss of 24.5 billion rubles for the year. This, following concerns raised by various government representatives about the company's financial affairs. Council of Federation speaker Valentina Matviyenko had painting a grim picture, describing their financial situation as "devastating" and speaking of a "black hole" in the budget. Not one to downplay the situation, Russian Post's CEO Mikhail Volkov admitted the financial situation was "dire" but maintained that the company was carrying out vital social roles in the regions.
As the Accounts Chamber conducted an audit over the following year, Russian Post cooperated closely with them. The audit report, speaking of long-ignored pain points, revealed that the company's management underwent drastic changes. Within just two years, operational profit was posted, labor productivity increased by 35%, and the company persisted in serving its community function.
The report, however, pointed out that the modernization of 3,300 rural and remote postal offices, for which the company received 17 billion rubles in budgetary investments from 2021 to 2025, was inefficient. In actuality, only 723 postal offices were modernized - less than a third of the planned number. And worryingly, there's still no list of postal offices slated for modernization by 2030, which may hinder the accomplishment of President's goal to modernize at least 25,160 postal offices by then.
The report also questioned a fundamental document regulating Russian Post's activities, the Strategy for the Development of Russian Post until 2030, which was adopted in 2021 and remains unrevised. Danil Shilkov, Accounts Chamber auditor, remarked that there is a lack of a strategic planning document defining the long-term goals of postal communication. Essentially, the targets are unclear, and progress isn't monitored, let alone reported.
Another bone of contention was that the main objective, as set out in its charter, was generating profit. But this objective seemed to collide with Russian Post's social and state goals to ensure free information flow to citizens. After its transformation into a joint-stock company, some of its social functions were performing inefficiently. For example, there had been a near-doubling of postal offices operating in reduced mode, while the number of mailboxes installed outside of post offices had halved. Moreover, over 6,000 postal offices were temporarily closed as of January 1, 2024, due to understaffing, unprofitability, and lack of space.
Improper management was high on the Accounts Chamber's list of critiques. The organizational structure of the state company had undergone 25 revisions in 5 years, with three general directors on the job, the number of advisors in the management apparatus had ballooned by 65%, and their salary fund had increased by 48%. Rapid leadership changes had been the norm, with the position of deputy general director being held by 53 people since 2020, with an average tenure of one year and five months. The board of directors had also neglected its duties, failing to develop key documents, including those related to personnel policy and labor remuneration in Russian Post. The corporate structure of the company had not been approved, and the board of directors had not engaged in the management of Russian Post's dependent companies.
In addition, the shortage of personnel had grown by 2.2 times since 2020, primarily due to meager wages. The management of finances at Russian Post was deemed unsatisfactory, with inadequate economic evaluations when obtaining loans, a lack of borrowing limits, and an uncontrolled ratio of net debt to EBITDA. Consequently, Russian Post's debt had increased by 70% since 2020, reaching 128.3 billion rubles, with expenses on debt servicing in 2021-2023 rising by 79.7% to 10.6 billion rubles.
The Accounts Chamber also lamented an ineffective use of Russian Post's real estate. Many of its properties were in a dilapidated state, and around 2,000 properties (either fully or partially vacant) were not generating revenue. Shilkov cited the post office at Paveletsky railway station, which was only 15% occupied despite its colossal 23,600 square meters.
Following the audit, the Accounts Chamber suggested various measures, such as challenging the identified violations with the General Prosecutor's Office, developing a strategic planning document for postal services until 2030, and preparations for amendments to the legislation for employee compensation for delayed pensions and social payments. The report was sent to the government, the presidential administration, and both chambers of parliament.
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Insights:
- Government Spending Priorities: Russia’s economic focus on warfare and critical sectors like mortgages and manufacturing might lead to capital allocation pressures on non-strategic infrastructure projects, triggering scrutiny by auditors.
- Overburdened State Programs: The strain experienced by flagship programs in implementation due to resource limitations may extend to projects like rural postal modernization.
- Systemic Institutional Issues: Projects often fall victim to complicated funding processes, bureaucratic fragmentation, and the absence of clear outcome metrics – issues which the Accounts Chamber typically addresses.
- Sanctions-induced Capital Constraints: The freeze on foreign reserves and domestic investment boom due to capital controls may push auditors to scrutinize projects susceptible to sanctions-related supply chain disruptions or price hikes in domestic labor.
- The Accounts Chamber revealed that the amortization of 3,300 rural and remote postal offices, slated for modernization between 2021 and 2025, had been inefficient, with only 723 postal offices actually modernized.
- Despite the Russian Post's CEO Mikeal Volkov managing to improve operational profit, labor productivity, and maintain community service, the lack of a strategic planning document defining long-term goals for postal communication was critiqued.
- The Accounts Chamber questioned the Strategy for the Development of Russian Post until 2030, which was adopted in 2021 and remains unrevised, causing concerns about unclear targets, lack of progress monitoring, and unreported progress.
- Mismanagement was a key concern, as the organizational structure of the state company underwent 25 revisions in 5 years, with rapid leadership changes, ballooning advisor numbers, and insufficient management of Russian Post's dependent companies.
- In 2023, the Russian Post faced unprofitability, leading to over 6,000 postal offices being temporarily closed due to understaffing, unprofitability, and lack of space, raising concerns about the general news and policy-and-legislation surrounding the Russian Post business and politics.
