Post Office CEO Mark Barnes has pulled a trump card in the state-owned enterprise’s fight for a contract with the South African Social Security Agency (Sassa) to distribute social grants.
Negotiations between Sassa and the Post Office have reached a deadlock after social development minister Bathabile Dlamini said an 11th-hour tender process would begin in November to replace the incumbent social grant distributor Cash Paymaster Services (CPS).
Effectively, the Post Office would be ditched as the potential paymaster after months of negotiations, with Dlamini saying that it doesn’t have the capacity to take over social grants to more than 17m beneficiaries.
In his appearance on Tuesday before the social development committee and the standing committee on public accounts in parliament, Barnes found refuge in a letter dated 14 July and signed by former Sassa CEO Thokozani Magwaza in which he extended a collaboration offer between Sassa and the Post Office on the payment of social grants.
Magwaza, who was a key player in awarding a contract to a new service provider after the CPS contract expired on 31 March 2018, was fired by Dlamini days after he made an offer to the Post Office, which was supported by national treasury.
Rumours emerged that Magwaza’s plans to cooperate with Sapo was one of the reasons for his abrupt termination and breakdown in relationship with Dlamini.
Barnes told MPs that Magwaza’s letter was legally binding as it demonstrated Sapo’s capability to pay social grants.
Salvaged?
Magwaza’s letter might have salvaged the Post Office’s potential deal with Sassa.
MPs pressured Sassa and the Post Office to return to the negotiating table to reach an agreement — just five months before the invalid CPS contract has to be phased out. Both parties will provide a report-back to the committees in Parliament at 6pm on Wednesday.
If the impasse continues, MPs proposed the referral of Sassa and the Post Office to the inter-ministerial committee, which is chaired by President Jacob Zuma. National treasury would also provide an oversight role. Treasury’s director-general, Dondo Mogajane, prefers a hybrid model, which would see Post Office and all banks participating in the payment of social grants.
Barnes said the Post Office was capable of taking over the payment of social grants, contradicting Dlamini’s comments on Monday that the company didn’t have the capacity.
Sassa’s bid evaluation committee revealed that the Post Office couldn’t fulfil the entire requirements of paying social grants including the issuing of 4.2m social grant cards needed yearly, as it doesn’t offer card body production and distribution and banking services. The committee relied on the technical due diligence findings by the CSIR.
Other tender requirements that the Post Office didn’t meet included not disclosing to the committee on whether it would subcontract the services that it couldn’t fulfil.
Dlamini raised concerns about the Post Bank not having a full-fledged banking licence and its limited reach across the country as Sassa’s standards required that beneficiaries should be within a 5km radius of pay points.
Barnes said the Post Office’s bid was disqualified on the basis of Sassa’s inaccurate assertions despite meeting the social grant agency’s norms and standards.
He added that the Post Office provided information to Sassa’s committee on its subcontractors.
“Of the 218 tests for due diligence, there were only eight of the requirements that the Post Office did not meet,” said Barnes, who added that this is the equivalent of meeting more than 90% of Sassa’s requirements under the CSIR evaluation.
The Post Office can produce two million cards after eight weeks and after a card design system is approved, then two million cards can be produced every three weeks, Barnes said.
He said Sapo has more than 2 500 outlets across the country, which “nobody has” and it would make use of cash-in-transit services to deliver cash to pay points for beneficiaries without bank cards in far-flung areas.
On the financial viability of the Post Office, which relies on government guarantees as its turnaround progresses slowly, Barnes said Post Bank, which has 5.7m active customers, is “insulated from the economics of the Post Office Group”.
“We are the highest capitalised bank in South Africa and the seventh biggest bank… The Post Bank has a net asset value in excess of R3bn, which is represented in cash and near-cash. We are solvent.”
Post Bank’s application for a full banking licence is yet to be approved by the Reserve Bank, but it already clears banking transactions with the help of its partner Standard Bank.
- This article was originally published on Moneyweb and is used here with permission
