Cash-strapped Post Office asks government for R8bn bailout

The SA Post Office needs an R8bn bailout from the state if it is to survive.

Deputy minister of communications and digital technologies Phil Mapulane told parliament's standing committee on public accounts (Scopa) that the post office made a submission to the department of communications and the Treasury requesting R8bn over the next three years.

“The minister is engaging with the minister of finance to accommodate this request,” said Mapulane. “We were hoping to receive an allocation from Treasury during last week’s presentation of the medium-term budget policy statement (MTBPS), which unfortunately did not come through.”

He said without the capital injection from the national fiscus, he doesn't see the post office surviving its challenges.

This comes less than a week after finance minister Enoch Godongwana said he was practising tough love on struggling state-owned enterprises (SOEs), saying their performance will have to drastically improve before they receive any further bailouts from the government.

In his first MTBPS presented in parliament last Thursday, Godongwana said he would, in the next three years, avoid further bailouts of SOEs as they have been identified as a huge risk to the sustainability of the public purse.

The Post Office received a government bailout of R2.9bn in 2019, which it used to settle loans and pay critical suppliers.

But Mapulane told Scopa on Tuesday that the Post Office has developed a turnaround strategy which will commit the entity to turning the corner. The Post Office has been going through financial challenges, with its core revenue declining.

In the 2015 financial year, its revenue was R3.43bn and has declined year on year to R1.51bn in the 2021 financial year.

Mapulane said the Post Office strategy document attributes this state of affairs to a number of developments, including:

• customer attrition;

• limited capital investment and lack of technology upgrades;

• leadership instability which led to the entity being placed under administration in 2015;

• Post Bank divestment without equity compensation;

• digital communication platforms substituting physical letter mail which results in declining volumes in letter-post, driving revenue downwards; and

• Covid-19 affect.

These factors and trends have over the years resulted in serious solvency and liquidity challenges which the entity is experiencing today, said the deputy minister.

While the Post Office still pays staff salaries on time, CEO Nomkhitha Mona said they have not been able to pay the employer contribution to the medical aid and to the pension fund because of the entity's financial situation.

The Post Office owes R600m to SA Revenue Service for PAYE, UIF and the skills development levy. It owes about the same to the medical aid for the unpaid employer contributions.

Creditors are also not being paid within the stipulated 30 days, MPs heard.

Mona said they have started a process where they are clearing out the oldest debt, and debt owed to small businesses.

She said they were also negotiating with their landlords for reduced payment plans because Covid-19 had affected them badly, and in some cases they were getting discounts.

“The Post Office business is not profitable on its own, but because of the universal service obligation for the whole country, we do believe that it is not unreasonable for the taxpayer to help us fulfil those obligations,” said Mona.

While acting board chairperson Tia van der Sandt could not say on the government's decision to separate the Post Bank from the Post Office, she said the execution of that decision did not consider the affect that would have on the Post Office.

Post Office bosses said the entity had added a lot of value into the Post Bank and they said they needed to be compensated at the very least.

“More so because in a normal business environment when you let go of a major part of your business, you get compensated for that. I feel that would have allowed Sapo to invest in digital solutions much earlier than we are now are,” said Van der Sandt.

In the 2019/20 financial year, the Post Office had committed to implement 17 key performance indicators, but managed to only achieve six. The group loss excluding Post Bank for 2019 was R1.6bn.

Mapulane said the concerns about the entity’s performance have been raised with the entity and there have since been some improvements in the 2021/2022 financial year wherein 47% performance has been reported in the first quarter compared to a 24% recorded performance in the fourth quarter of the 2020/21 financial year, he said.

Mapulane said the Post Office submitted a newly revised turnaround strategy dated October 6 to his department which, he said, will go a long way to ensure the entity is reorganised and repositioned, taking into account changes in the postal sector landscape and also the entity’s own deepened financial challenges.

“The revised strategy document is also instrumental to support and strengthen motivations for financial assistance or funding intervention requirements,” he said.

In terms of the 2019/20 audit, the Post Office recorded R199.3m irregular expenditure — R198.5m for the Post Office company and R775,068 for the Docex subsidiary.

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