The high court in Pretoria has granted government’s application to place the South African Post Office in business rescue, halting liquidation proceedings and paving the way for a R2.4-billion taxpayer bailout. But it’s too late to save it.

The judgment follows an urgent hearing in the Pretoria court last week, with communications minister Mondli Gungubele hoping the business rescue process, which offers temporary protection against creditors, will save as many jobs as possible. To return the Post Office to an operational state – and to solvency – the minister’s plan, approved by cabinet and filed as part of the court application, seeks to reduce about R1.3-billion in employee costs.

This would cut 7 000 jobs, leaving just under 5 000 employed by the Post Office. The company’s current workforce is just under 12 000 employees.

But surely this is an extremely costly way to protect a “mere” 7 000 jobs?

The government is providing a R2.4-billion bailout with taxpayers’ money – with more possible in the next budget to prop up the failed entity, hoping to save face and avoid the wrath of the unions.

“The purpose of this application is to avoid the destruction of the Post Office by placing it under business rescue,” said Gungubele in the court application. “This will give the Post Office the space and time it needs to restructure its affairs and implement a turnaround plan under the supervision and direction of the business rescue practitioner. There is a reasonable prospect of the Post Office being rescued.”

“The harsh reality is that the facts point to it that the Post Office’s workforce needs to be extensively curtailed for it to survive, but business rescue proceedings are prone to have a less severe impact on the workforce than final liquidation,” the high court said in its judgment.

Good money after bad

This remedy will be robustly opposed by the trade unions that represent postal workers. The Democratic Postal and Communications Union (Depacu), which was represented in the court proceedings, said it will resist any attempt to cut jobs at the utility. The union’s secretary-general, Livy Zwane, said Depacu is the majority union representing about 63% of Post Office employees.

Funding committed by government could be increased as government has already indicated its support for increased funding if the entity is placed in business rescue, Gungubele said in the court application. But no state funding would be available if the company is liquidated.

“It is gleaned from the minister’s papers, and no objective reason exists to doubt the correctness of the evidence provided under oath, that cabinet has not only pledged to provide the Post Office with the initially earmarked R2.4-billion, but also indicated its intention to support its application for an additional R3.8-billion in the October budget,” the judgment stated.

A provisional liquidation order was granted in February by the high court to a company called Bay City Trading 457 for rent due to it by the Post Office.

A return to court date was 1 June for parties to show why the post office should not be placed in final liquidation. At that time, the Post Office said it had paid Bay City Trading what was due and that the matter had been resolved.

But on 28 March this year, and in a separate matter, Withinshaw Properties was also granted a provisional liquidation order against the Post Office for rental due on its premises in the Cape Town suburb of Wynberg.

The Post Office also owes hundreds of millions of rands in unpaid salaries to its staff, retirement and medical aid funds. It has been deducting pension fund contributions from workers’ salaries, but the last time any money was paid over to the retirement fund was in April 2020.

Authorities will not say how much is owed to the retirement fund, but it may be R1-billion. If the Post Office is liquidated, outstanding workers’ pension payments are low down on the list of creditors to pay, according to the retirement fund rules.

In May, Gungubele said the Post Office “remains fully operational and committed to delivering essential services to the people of South Africa – and that despite the current challenges, the public can still expect to receive letters, courier packages, renew their vehicle licences, withdraw their social grants and receive chronic medication”.

Read: Post Office in violation of court order over pensions

He introduced the “Post Office of tomorrow”, which he said could “improve customer experience by simplifying and streamlining processes, as well as increasing accessibility and convenience”.

This will be achieved through “innovative technology” solutions such as online portals and mobile applications, as well as enhancing the efficiency of existing postal services. “With these efforts, the Post Office will be able to remain relevant and competitive in the rapidly evolving digital age,” Gungubele said.

His whole statement seems to represent an advanced case of the emperor’s new clothes: how can the Post Office possibly introduce “innovative digital technology” when it cannot even keep post office doors open, deliver the post or buy its poor employees bicycles to try to deliver the post, assuming said post has been sorted accurately?

The whole sorry saga is reminiscent of other failed state-owned enterprises being bailed out for much longer than they should be, when it is obvious they cannot be salvaged. Examples include South African Airways and Denel.

Weak governance

Finance minister Enoch Godongwana said in the budget speech in February that SOEs continue to be a drag on the national fiscus and rely on government bailouts. Over the years, the financial and operational performance of major SOEs has steadily deteriorated due in large part to weak corporate governance, archaic business models and burdensome cost structures.

According to City Press, Godongwana said the state capture commission had laid bare how various SOEs were key sites of corruption and fraud, and that as a result of state corruption, contingent liabilities arising from SOEs have risen from R84.4-billion in 2008/2009 to R478.5-billion in 2022/2023.

Should government continue to bail out zombie SOEs that drain the country’s finances and provide very little value? Most SOEs rely on government bailouts to stay afloat and nearly all are unable to operate effectively. They threaten the economy as they are not independently financially viable and cannot maintain the infrastructure they are responsible for. Corruption and irregular and wasteful expenditure continue, and there seems to be little accountability for gross mismanagement.

Research conducted by Business Wire found that political appointments of boards and senior management, outside internationally accepted corporate governance rules, have severely impacted procurement practices and company performance. “Most SOE boards lack industry-appropriate skills, professionals and diversity,” the report said.

SOEs play a critical role as they are responsible for providing the infrastructure and services on which the economy depends. This includes electricity, water, freight logistics and commuter transport. Instead of being at the forefront of economic and social transformation, however, most SOEs have been associated with state capture, financial mismanagement and severe failures of governance due to weak accountability and inefficiency.

Even President Cyril Ramaphosa has acknowledged that SOEs are holding South Africa back. During his state of the nation address in February, he admitted that SOEs and local government are the state’s greatest weaknesses. “Many SOEs are struggling with significant debt, underinvestment in infrastructure, the effects of state capture and a shortage of skills,” he said.

So, what’s next for the Post Office? The company arguably does not provide services that can’t be offered by the private sector – in fact, most already are. These include the payment of social grants, delivering parcels and postal items, and renewing car and television licences.

Read: Post Office can be saved: Gungubele

The Post Office now wants to enforce a monopoly over the delivery of items weighing less than 1kg, which many players in e-commerce and logistics fear could be disastrous – and they’re right to worry. Under no circumstances should the Post Office enjoy exclusivity over any service, or seek monopoly rents from any other company, as we all know where that road leads.

Yet the ANC government, blinded by ideology, won’t do what’s needed. After having run the Post Office into the ground, what’s left of value should be sold off to the highest bidder, and the rest shut down. Let’s not waste billions of rand more in taxpayer money propping up yet another zombie SOE. — (c) 2023 NewsCentral Media