Post Office: Dominos fall as state starts defaulting on debts to itself

The business rescue plan for the South African Post Office (Sapo), published late last week, shows a state-owned company that has somehow been allowed to trade to the point that it owes nearly R9 billion to creditors. The revolving door of ministers in the Department of Communications and Digital Technologies has not helped.

By the end of September, accumulated losses totalled R19 billion. It has reported losses for the last 16 years! Equity has been completely wiped out. Assets at the end of March were barely R4.4 billion.

The largest chunk of the R9 billion is R4.6 billion owed to Postbank, which was officially separated from Sapo in September.

The list of creditors is long. There are 1 100 of them, running to 14 pages!

Forget the landlords to which it owes a combined R400 million in unpaid rent. Forget also the group’s retirement fund as well as various medical schemes where contributions have simply not been paid.

It owes the Post Office Retirement Fund R1.22 billion, and Medipos Medical Scheme a further R693 million (plus R25 million to Sizwe Hosmed Medical Scheme, R18 million to Bonitas Medical Fund and R9 million to Discovery Health Medical Scheme).

These contributions impact current and former employees directly. (Quite why it has outstanding amounts to three private medical schemes alongside its own is a mystery.)

These aren’t the most shocking numbers, however.

In the largest 15 creditors – once one removes Postbank, the Post Office Retirement Fund and two medical schemes (including its own, Medipos) – a full seven creditors are government entities or state-owned enterprises.

Top of the list is the South African Revenue Service (Sars), to which it owes R697.7 million. Much of this is reportedly pay-as-you-earn (PAYE) tax. As Daily Maverick summed it up two years ago: “Put differently, the Post Office continues to pay its workers their full salaries and probably deducts their PAYE contributions – but doesn’t hand over the deductions to Sars.”

Besides PAYE, the Post Office also failed to make contributions to the Unemployment Insurance Fund (UIF).

How has it been able to get away with this?

If a large corporation was to not pay Sars, its bank accounts would be seized, and directors would be prosecuted. A small business owner couldn’t even dream of trying this! Yet, the Post Office continues to trade and simply not pay the taxman.

There is a further R115 million that just hasn’t been paid over to the Compensation Fund. This is a fifth instance of a deduction that is being made from employee salaries and not being paid (alongside tax, pension, medical aid, UIF)

Read: Workers struggle amid Post Office failures

Top Post Office creditors
Creditor	Description	Group	Total outstanding
South African Postbank SOC Limited	Related party (government entity)	Related party creditor	R4 601 404 292
Post Office Retirement Fund	Pension fund	Payroll creditor	R1 224 163 127
South African Revenue Service	Government entity	Statutory creditor	R697 676 547
Medipos Medical Scheme	Medical aid	Payroll creditor	R693 016 747
Telkom SA SOC Limited	Government entity	Trade creditor	R255 573 511
Thamani Technologies & Systems (Pty) Ltd	Supplier	Disputed creditor	R194 005 533
Compensation Fund	Government entity	Payroll creditor	R115 051 436
Zeda Car Leasing Proprietary Limited t/a Avis Fleet	Fleet leasing	Trade creditor	R48 909 111
The Auditor-General Of South Africa	Government entity	Trade creditor	R39 203 496
Independent Communications Authority Of South Africa (Icasa)	Government entity	Trade creditor	R37 676 834
G4S Cash Solutions (SA) (Pty) Ltd	Supplier	Trade creditor	R32 261 737
Airports Company of South Africa Limited	Government entity	Trade creditor	R28 942 951
System Applications Products (South Africa)(Pty) Ltd (SAP)	Software (ERP)	Trade creditor	R25 234 283
Escher Group	Global postal software supplier	Trade creditor	R24 841 112
Sizwe Hosmed Medical Scheme	Medical aid	Payroll creditor	R24 755 101
Oracle Corporation (South Africa) Ltd	Software (ERP)	Trade creditor	R23 039 649
Special Investigation Unit (SIU)	Government entity	Trade creditor	R20 307 173
Vusela Sanmva Joint Venture (Pty) Ltd	Supplier	Trade creditor	R20 201 743
Buhlebodwa Trading Enterprise	Supplier	Trade creditor	R18 762 279
Bonitas Medical Fund	Medical aid	Payroll creditor	R17 914 939

It owes Telkom (which has the same shareholder ministry) over R255 million, presumably for telecommunication and internet services it has provided over the years.

Private shareholders in Telkom ought to apply pressure on the board to ensure the company recovers this debt.

The Auditor-General is owed a total of R39 million, and Icasa another R38 million. One assumes it hasn’t been paying any licence or administration fees to the regulator, which itself relies on government funding (from the same ministry!). For context, Icasa’s annual operating budget is about R500 million.

Bear in mind that the Department of Communications and Digital Technologies has an annual budget of R5.3 billion – R4.3 billion of which is spent on “ICT Enterprise Development and Public Entity Oversight”; in other words bailouts for the Post Office (which received R2.4 billion last year).

Listen/read: Post Office needs R3bn or it closes down [Apr 2016]

The Post Office hasn’t paid its bills at the Airports Company of South Africa either. This totals R29 million. Oh, and it owes the Special Investigating Unit R20 million!

The impacts of all of this money owed to state-owned entities will be relatively limited, given the fairly modest numbers involved. In some cases, though, these are material numbers (think Telkom and Icasa).

What happens when a larger enterprise – say, Transnet – stops paying its bills? Will it be allowed to trade as recklessly as the Post Office clearly has been able to do?

What, if any, sanctions will the (current and former) directors of the Post Office face? The goings on at the Post Office makes SAA’s collapse into business rescue look rather like a picnic in comparison.

Read/listen: ‘Post Office not a business model worth privatising’

The business rescue plan is clear: the Post Office as it is currently structured is basically not able to trade profitably.

Its salary bill is 150% of revenue, meaning it pays staff R1.50 for every R1 in sales.

It has even been managing to lose R200 million a year on the payment of South African Social Security Agency (Sassa) grants – mainly because Postbank has enlisted the help of retailers to disburse grants as the Post Office is not able to do so consistently!

The plan is to shrink the business substantially. The business rescue plan sees as many as 6 000 of the group’s 11 000-odd employees being retrenched. The number of branches needs to be halved to 600.

Read/listen: Union outraged at SA Post Office mass retrenchment plan

The plan sees concurrent creditors receiving 12 cents in the rand, with statutory and payroll creditors receiving an additional 18 cents in the rand.

Quite a hard pill to swallow.