News / South Africa

Ray Mahlaka
3 minute read
28 May 2018
8:07 am

CPS cash crunch raises fears of social grant fiasco

Ray Mahlaka

Operating losses, disputes with Treasury and stalled payments from Sassa are creating a perfect storm.

Net1 UEPS CEO Herman Kotzé has downplayed the cash crunch faced by its social grant-distributing subsidiary Cash Paymaster Services (CPS), yet fears are growing that nearly two million elderly and disabled beneficiaries might find themselves empty-handed from June.

CPS – whose contract to administer the payment of cash social grants was extended for an additional six-months ending September 2018 by the Constitutional Court – is fighting fires on many fronts.

It is locked in a dispute with the National Treasury over the fee that it’s to be paid for distributing social grants while continuing to incur bruising losses.

The most worrying revelation – contained in CPS’s letter to the court on Wednesday – is that it hasn’t been able to invoice the South African Social Security Agency (Sassa) for its services and has not received any payment from the agency or Treasury since March 2018.

In an earlier affidavit, CPS director Nunthakumarin Pillay warned that if Sassa didn’t pay its invoice for March 2018, the company would only have “sufficient cash reserves to cover its operational costs until May 31 2018”.

CPS’s constrained cash position was highlighted again in its latest letter.

“Our instructions are that CPS requires cash income urgently to sustain its operations for the month of June. Preparations for the June payment cycle [to social grant beneficiaries] will commence on May 27 2018,” the letter read.

Close watchers of the social grants fiasco questioned whether CPS would continue or halt its grant payment services if it did not receive a payment from Sassa at the end of May.

Although Kotzé didn’t answer whether its services might be halted, in a statement to Moneyweb he said CPS’s letter was intended to allow the company and Treasury to “re-engage in respect of a fixed monthly service fee for the servicing of social grant recipients at pay points”.

Treasury recently slammed CPS’s request for an increase in its monthly service fee as too high, as the company would score R1 billion per month.

Under an extended contract with Sassa, Net1 wanted its monthly service fee to be increased from R16.44 per beneficiary to R66.70 (including VAT). However, finance minister Nhlanhla Nene, on behalf of Treasury, recommended a fee of R51 per beneficiary, even advising that it could be as low as R46.46.

Kotzé said pending the court’s decision on its monthly fee, CPS will invoice Sassa at the Treasury-recommended rate of R45 per beneficiary – earning more than R90 million per month, or more than R540 million for the six-month duration of its contract.

CPS has accepted the fee begrudgingly.

In Kotzé’s court papers, he argued that Treasury’s recommended fee impacts on CPS’s capacity to operate as a going concern. “CPS can only deliver a reliable and uninterrupted service if it operates as a sustainable business,” he said.

CPS recently revealed that if its monthly fixed fee does not increase, it would operate at a loss of at least R70 million a month or R420 million for six months. It revealed that it doesn’t make a profit for its cash pay point services, as its average monthly operational costs totals R147.1 million.

Sassa’s new acting CEO Abraham Mahlangu committed to migrating more than a million social grant beneficiaries from CPS’s pay points to payment channels operated by the South African Post Office and commercial banks – a process that began in April 2018.

This reduction will result in CPS recording operating losses of R111 million per month, said Kotzé, as the number of beneficiaries using its service, will reduce from nearly two million to 800 000.

Even if the number of pay points is reduced, Kotzé said certain operational costs are fixed regardless of the number of pay points that service beneficiaries. These costs relate to its depots where cash is distributed including rent, security, insurance, staff, and telecommunications.

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