The government is set to dump more taxpayer money into another State-Owned Basket (SOE) case, this time the South Australian Post Office.
South Australian Post was put into a business bailout this week and Cabinet approved R6.2 billion in additional funding to restructure and rehabilitate its operations. This is in addition to the R10.39 billion the entity has received over the past nine years – the money has been wasted, as it is insolvent and cannot perform its primary function of delivering mail and parcels on time.
The R6.2 billion will be paid in two tranches: R2.4 billion from the 2023/24 budget and an additional R3.8 billion to fund the business bailout.
The latest sum was part of a request to the Pretoria High Court by Communications Minister Mundele Gongobili to put the post office on a business-saving mission. This application was successful, preventing the state-owned company from being forced to close its doors permanently.
Gungubele, who oversees the SA Post Office, told the court that the government was willing to pour more taxpayer money into it as part of a business bailout, which is less draconian than liquidation. Business rescue attempts to rehabilitate financially troubled companies by restructuring their affairs. The goal is to enable the company to continue operating during restructuring, temporarily suspending payments to creditors and creating some jobs.
Delivering the High Court ruling, Justice Elmarie van der Schyff said that while a successful rescue of South Australian Post depended “fundamentally on the political will to effect a turnaround”, the government’s commitment to providing more money “weighs the support” of the business bailout. .
The award of the South Australian Post Office money arguably runs counter to Finance Minister Enoch Godungwana’s promise to show “tough love” for SOEs and reflect an entrenched culture of them relying on taxpayers’ money to survive. Daily Maverick The Treasury sent a list of questions, which it acknowledged but had not responded to at the time of publication.
Responding to a parliamentary question from DA Dianne Kohler Barnard MP, Godongwana implied that South Australian Post could get more money, even though the 2023/24 budget did not include any provision to support a business bailout. “Different,” said Godungwana [funding] Options are possible, including the re-prioritization of funds, within the approved financial framework.
Gudungwana said the government may consider amendments to the Appropriation Bill, which would allow National Revenue Fund money to fund more spending in 2023/24. The National Assembly adopted this law in June.
Too big to fail?
Many people in the government (including Gungubele) believe that the South Australian Post Office is too big to fail – because of the services it is supposed to provide.
South Australian Post Office is primarily responsible for delivering mail and distributing social grants to more than 7 million beneficiaries each month. It also provides free transit of postal items to countries that are members of the Universal Postal Convention.
Despite spending R10.39 billion since 2014, it has failed to modernize. It has spectacularly failed to respond to structural changes in the market, with fewer people relying on mail and most shifting to mobile and digital offerings. The South Australian Post Office struggles to compete with private carriers, and corruption and a lack of investment in infrastructure impede mail delivery.
It has a 60% annual performance target for just-in-time mail delivery across South Africa. For years, the delivery rate has languished at 50% – well below the 92% target set by the regulator, SA’s Independent Communications Authority.
The South Australian Post Office was last profitable 16 years ago and is now in default, owing 9.4 billion rand to creditors including the South African Revenue Service, Medicaid, unemployment insurance and landlords.
The bailout promises to cut costs, including by cutting 7,000 jobs from a workforce of 14,460 to save more than R1.3 billion in annual salaries.
South Australian Post also wants to expand its mandate beyond postal services to include providing logistics and e-commerce. Gungubele wants to be a “digital hub for businesses and communities”. To do this, the Post Office Amendment Bill must be enacted.
South Australian Post Office creditors will not recover all the money they owe. With the business bailed out, creditors would likely only be paid 10 cents on every rand they owed. One of the creditors is Postbank, a small bank of the South Australian Post Office which holds just over R8 billion in deposits for the rural poor where there are no large banks. Postbank also has assets of R3.5 billion.
Postbank gave the South Australian Post Office a loan of R1 billion in its early days to become its Social Grants Payer, increasing the amount owed by the state-owned company to R3.9 billion. Postbank is likely to receive around R400 million in the business bailout. This has led to concerns that Postbank would not have the capital reserves required to qualify as a fully state-owned bank, and calls into question its ability to pay its customers’ deposits when they demand it. Postbank did not respond to Daily Maverickquestions about this.
Deposits held by Postbank or any other bank in South Africa have no protection under the law; Deposits are not guaranteed by the government. DM