Business rescue paves way for R6.2bn bailout of SA Post Office — and axing of 7,000 workers
The Cabinet has agreed to bankroll restructuring and rehabilitation of the state-owned enterprise’s operations, but the rescue plan includes laying off 7,000 workers — almost half of the staff.
The government is set to sink more taxpayer funds into another basket case state-owned enterprise (SOE), this time the SA Post Office.
The SA Post Office was put into business rescue this week and the Cabinet has agreed to give it additional funding of R6.2-billion to restructure and rehabilitate its operations. This is on top of the R10.39-billion the entity has received over the past nine years — money wasted, as it is insolvent and cannot fulfil its basic 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 extra R3.8-billion to fund the business rescue process.
The latter amount was part of a Pretoria High Court application by Communications Minister Mondli Gungubele to have the Post Office placed in business rescue. That application was successful, averting the SOE from being forced to close its doors permanently.
Gungubele, who oversees the SA Post Office, told the court the government was prepared to inject more taxpayer money into it under business rescue, which is less draconian than liquidation. Business rescue tries to rehabilitate financially distressed companies by restructuring their affairs. The objective is to enable a company to continue operating while being restructured, temporarily suspending payments to creditors and saving some jobs.
Judge Elmarie van der Schyff, who delivered the high court judgment, said although a successful rescue of the SA Post Office depends “mainly on the political will to bring about a turnaround”, the government’s commitment to providing more money “weighs heavily in support” of business rescue.
Giving the SA Post Office money arguably goes against Finance Minister Enoch Godongwana’s promise to show SOEs “tough love” and reverse the entrenched culture of them depending on taxpayer funds for survival. Daily Maverick sent the Treasury a list of questions, which it acknowledged but had not responded to by the time of publication.
In reply to a parliamentary question by DA MP Dianne Kohler Barnard, Godongwana implied that the SA Post Office might get more money, even though the 2023/24 Budget made no provision for supporting business rescue. Godongwana said: “Various [funding] options are possible, including reprioritisation of funds, within the approved fiscal framework.”
Godongwana said the government might consider adjustments to the Appropriation Bill, which allows for National Revenue Fund money to bankroll further spending in 2023/24. The National Assembly adopted this bill in June.
Too big to fail?
Many people in the government (including Gungubele) believe the SA Post Office is too big to fail — because of the services it is meant to provide.
The SA Post Office is mainly responsible for mail delivery and for distributing social grants to more than 7 million beneficiaries every month. It also provides free transit of postal items to countries that are members of the Universal Postal Convention.
Despite R10.39-billion being spent since 2014, it has failed to modernise. It has spectacularly failed to respond to structural market changes, with fewer people relying on mail and most turning to mobile and digital offerings. The SA Post Office struggles to compete with private sector couriers, and corruption and underinvestment in infrastructure hobble mail delivery.
It has an annual performance target of 60% for timeous delivery of mail across South Africa. For years, the delivery rate has languished at 50% — far below the 92% target set by the regulator, the Independent Communications Authority of SA.
The SA Post Office last generated profits 16 years ago and is now a debt defaulter, owing R9.4-billion to creditors, including the SA Revenue Service, medical aids, unemployment insurance and landlords.
The rescue plan promises to cut costs, including by shedding 7,000 jobs from a workforce of 14,460 to save more than R1.3-billion in annual salaries.
The SA Post Office also wants to expand its mandate beyond postal services to include offering logistics and e-commerce services. Gungubele wants it to be a “digital hub for businesses and communities”. To do this, a Post Office Amendment Bill has to be enacted.
SA Post Office creditors will not get back all the money they are owed. With business rescue, creditors will probably only be paid 10 cents for every rand they are owed. One of the creditors is Postbank, a small bank affiliated with the SA Post Office that holds just over R8-billion in deposits from poor people in rural areas where there are no big banks. Postbank also has R3.5-billion in assets.
Postbank provided the SA Post Office with a loan of R1-billion in the early days of it becoming the social grants paymaster, growing the amount it is owed by the SOE to R3.9-billion. Postbank is likely to receive about R400-million in the business rescue process. This has led to concerns that Postbank will not have the capital reserves required to qualify as a fully fledged state-owned bank and calls into question its ability to pay out deposits belonging to its customers as and when they require them. Postbank didn’t respond to Daily Maverick’s questions on this.
Deposits held by Postbank or any other bank in South Africa have no protection in law; the government does not guarantee deposits. DM