Russia's Accounts Chamber Highlights Critical Issues Surrounding the "Post of Russia" Position
Unraveling the Szoa of "Russian Post": A Rough Ride Through Accounts
In the murky waters of 2023, the drama surrounding "Russian Post" SP unfolded when the Federal Treasury, following its own investigation, announced at a State Duma committee meeting that the state-owned company had bled 24.5 billion rubles over the year. Gloomy whispers about the company's operations echoed from other authorities, too. Valentina Matviyenko, the Federation Council Speaker, ominously deemed the company's financial standing "a ticking time bomb" and hinted at a "black hole" in its budget. But the company's CEO, Mikhail Volkov, pushed back, describing the situation as "a Gordian Knot", but one that the company was indeed navigating in care of its regional duties.
Flash-forward to the current year, and "Russian Post" is visibly trying to turn the tide. The company's PR gleams with a fresh coat of paint, attributing the Accounts Chamber's year-long audit to the identification of "as-yet unresolved pain points." In just two years, they boast, the company has undergone a metamorphosis, showing operational profits, boosting labor productivity by 35%, and maintaining its social obligations. They're currently having a heart-to-heart with the government over the company's long-term strategy, where key initiatives will be based on the Accounts Chamber's recommendations.
Modernization Blues
The Accounts Chamber's report fingers admirable but ill-executed plans for modernization between 2021 and 2025. The state company received a whopping 17 billion rubles in budgetary investments, intended for the overhaul of 3,300 rural and remote post offices. However, these funds were badly managed; in 2022-2023, only a mere 723 post offices received the royal treatment – a dismal third of the intended number. To make matters worse, 2030's modernization roadmap is still a work of fiction, conjuring up the risk of missing out on President Putin's vision of modernizing at least 25,160 post offices by 2030.
The Unstrategic Strategy
The State Duma has reason to be wary of one of the main documents governing "Russian Post": the Strategy for the Development of Russian Post until 2030, adopted in 2021 and yet to be revised. Danil Shilkov, the author of the report, decries the absence of strategic planning documents outlining long-term goals for postal services. Despite the strategy being in play, its implementation is missing in action, and no interim results have been reported.
Shilkov also points out the contradiction between the state company's charter, which positions profit generation as its main goal, and its social and national objectives, namely ensuring citizens’ rights to access, distribute, and transmit information efficiently.
Social Duties Mishandled
Since the transformation of Russian Post into a joint-stock company, some of its social obligations have been handled choppily. Between 2020 and 2023, the number of post offices operating in reduced hours almost doubled, while the number of post boxes installed outside post offices plummeted by more than half. On January 1, 2024, a sixth of the post offices were temporarily shut down, predominantly due to understaffing, lack of profitability, and insufficient facilities.
Management Issues
The State Duma report casts a critical eye on the management structure of "Russian Post". In the past five years, its organizational design has been rehashed 25 times, with three general directors and an inflationary crest of 65% in the number of advisors in the executive apparatus. The payroll for these advisors ballooned by 48%, from 121.1 million to 179.2 million rubles. Rapid leadership turnover has been rampant; between 2020 and 2024, the position of deputy general director has been occupied by a dizzying 53 individuals, with an average tenure of one year and five months. This musical chairs game, it's claimed, impedes the consistency and continuity of management decisions. Moreover, the board of directors has failed to fulfill several important tasks, such as developing key documents related to personnel policy and labor pay in "Russian Post". The corporate structure of the company is yet to be approved, and the board of directors remains detached from managing the company's auxiliary companies.
Room for improvement in employee count rears its head as well: the labor shortage as compared to 2020 has swelled by 2.2 times, mainly due to low wages.
Financial Flaws
The audit findings suggest that the management of finances at "Russian Post" leaves much to be desired. The JSC fails to carry out the necessary economic assessments when taking on debt, and there's no borrowing cap in place. Furthermore, there's no ceiling for the "Net Debt / EBITDA" (Earnings Before Interest, Taxes, Depreciation, and Amortization) ratio: "Russian Post"'s debt has grown by 70% since 2020, hitting 128.3 billion rubles, and debt servicing costs in 2021-2023 soared by 79.7% to 10.6 billion rubles.
Real Estate Quagmire
The audit wasn't charitable when it came to "Russian Post"'s property management. The company's average property is a shabby 70%, and around 2,000 assets that generate no revenue are underutilized. Shilkov drew attention to the Paveletsky railway post office, with an area of 23,600 sq.m., which boasts a humble 15% occupancy rate.
Recommendations in the Shadows
Following the audit, the Accounts Chamber proposed several changes to mitigate the issues:
- Tougher penalties for non-compliance: Auditors called on the Prosecutor General's Office to crack down on the identified irregularities.
- Developing a comprehensive strategic plan: The Ministry of Digital Development, along with "Russian Post" and other postal operators, was encouraged to draw up and submit a strategic plan for the development of postal services by 2030. This should include a list of post offices set to be modernized in the coming five years.
- Issuance of directives for debt and financial management: The Chamber suggested the establishment of a cap for debt obligations and a maximum "Net Debt / EBITDA" metric for the state company.
- Compensating staff for salary delays: The Ministry of Labor, together with the Social Fund of Russia, was recommended to adjust legislation to facilitate payments to employees who have experienced delays in pension and social payments distributions.
Copies of the report were dispersed to the government, the presidential administration, and both chambers of parliament.
- Despite reports of improved operational profits and increased labor productivity, the Accounts Chamber's audit in 2023 unveiled unresolved issues in Russian Post's financial management, notably the absence of a debt cap and the escalating "Net Debt / EBITDA" ratio.
- The Accounts Chamber's report, published in 2023, also highlighted the need for a strategic plan addressing the modernization of postal services, specifically the targeted modernization of 25,160 post offices by 2030, as per President Putin's vision, due to the incomplete modernization between 2021 and 2025.
- In light of the unsized number of post offices operating in reduced hours, the shrinking number of outdoor post boxes, and the temporary closure of a sixth of the post offices in 2024, the management of Russian Post's social duties has been questioned and deemed insufficient.
- The State Duma has been encouraged by the Accounts Chamber to revise the Strategy for the Development of Russian Post until 2030, as it currently lacks strategic planning documents outlining long-term goals and has yet to show evidence of implementation progress. Additionally, the report recommends the development of key documents related to personnel policy and labor pay within Russian Post, as well as the approval of its corporate structure.
