Business Maverick

BUSINESS MAVERICK

Cash Paymaster Services’ potential R1.3bn largesse from social grants agency thwarted

Then Social Development Minister Bathabile Dlamini appears before Parliament’s Standing Committee on Public Accounts (Scopa) on March 07, 2017 in Cape Town, South Africa. (Photo by Gallo Images / Rapport / Conrad Bornman)

Before the end of its contract in 2018 to distribute social grants to more than 10-million beneficiaries, Cash Paymaster Services, a subsidiary of JSE-listed technology company Net1 UEPS, wanted to extract a cool R1.3bn claim from state coffers. It launched a lawsuit against the SA Social Security Agency (Sassa), the custodian of social grants, because it still wanted to play a meaningful role in the social grant system. However, Judge Robert Nugent ruled in favour of Sassa this week, rejecting CPS’ claim.

There are many companies in the private sector that enjoyed a cosy and profitable relationship with the state during Jacob Zuma’s presidency, which was bedevilled by nine years of corruption, patronage networks and disregard for the Constitution.

McKinsey and Trillian eked out hefty consultancy fees from bankrupt Eskom for their shoddy work, profits of JSE-listed technology company EOH were heavily generated from questionable state contracts, audit firm KPMG and software giant SAP joined the State Capture fray involving the corrosive Gupta family.

Cash Paymaster Service (CPS), the subsidiary of technology company Net1, can be added to the above list because the SA Social Security Agency (Sassa) chose it to administer the payment of social grants to more than 10-million beneficiaries. It fulfilled this function from 2012 to 2018.

The relationship between Sassa and CPS continued even when the Constitutional Court declared in 2014 that the contract between both parties was invalid and illegal because it didn’t go through a proper and competitive tender process. Sassa ignored the ruling by SA’s top court, continuing its relationship with CPS.

Speculation is rife that former Social Development Minister Bathabile Dlamini, whose department has oversight on Sassa, was hell-bent on keeping the company as a social grants service provider because she was an ally of former Net1 CEO and founder Serge Belamant.

The arrival of Cyril Ramaphosa’s “new dawn” regime has seen the recalcitrant Dlamini excluded from his newly minted Cabinet. And things have drastically changed at Sassa. CPS is no longer the administrator of social grants, losing a lucrative tender to the SA Post Office since April 2018. SA’s major commercial banks – Absa, FNB, Standard Bank, Capitec and Nedbank – are also included in the social grants network as some beneficiaries are allowed to withdraw their money from ATMs.

CPS is not happy about the way in which it was ejected out of SA’s social grants system as it launched several lawsuits against Sassa, vexed by issues that date as far back as 2009.

The company agreed to resolve its grievances through an arbitration process that was chaired by Judge Robert Nugent. It’s the same Nugent who led an inquiry into governance issues at SA Revenue Services, which later found that Tom Moyane, the former boss of the tax collection agency, lacked integrity. This gave Ramaphosa impetus to fire Moyane.

One of the main claims lodged by CPS at arbitration related to the company believing it was entitled to enrol all social grant beneficiaries on its computerised system, irrespective of whether they were to be paid by the company.

It also claimed that Sassa was not entitled to pay social grants by electronic transfer to bank accounts of beneficiaries, and that Sassa was not entitled to cause grants to be paid in cash at Post Offices branches or by electronic transfer to Postbank and other bank accounts of beneficiaries.

Postbank is owned and operated by the SA Post Office.

According to Sassa, CPS sued it for a total of R1.3-billion (the claim), or R1,362,429,942.00 to be exact. Meanwhile, CPS denies this figure, saying there “was no quantum with respect to the claim”.

Sassa said the amount (R1.3-billion claim) was based on the alleged deprivation of an opportunity for CPS to earn full-service fees from the contract concluded between Sassa, certain banking institutions and the Post Office for the rendering of social grant payment services.

CPS claimed that this constituted a breach of its exclusive rights to render the services in respect of the provinces that it serviced, being the Eastern Cape, KwaZulu-Natal, Limpopo, North West, and the Northern Cape.

CPS’ lawsuit was dealt a blow as Nugent ruled in favour of the agency and dismissed all claims lodged by CPS. The company was also ordered to pay all the legal costs of the arbitration.

Sassa said it welcomed Nugent’s “well thought out awards” in the matter, as CPS has attempted to “monopolise the payment of grants and shut SAPO [Post Office] and other commercial banks out”.

The fiscus has been saved a whooping R1.3-billion and we are of the belief that this money will be put to good use by the State which needs every cent in these financially trying times,” it said.

In a statement, CPS said it accepts the finding and considers this matter closed.

Arguably, it isn’t surprising that the company was in a nasty and protracted salvo with Sassa. The tender to distribute social grants is lucrative as the state dispenses nearly R1-billion worth of social grants every month. And financial losses recorded by CPS since its Sassa contract ended have accelerated.

Without the Sassa contract, CPS has been pencilling in financial losses. Underscoring its dependency on the Sassa contract is that from 2016 to 2018, more than 20% of CPS’ revenue was generated from the distribution of social grants.

The end of the Sassa contract led to a 72% decline (on a constant currency basis) in revenue to $17.4-million in Net1’s South African transaction processing division, which includes CPS. The decline was during Net1’s third fiscal quarter ended on 31 March 2019. DM

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