Treasury denies further bailouts for South African Post Office amid financial struggles

The Treasury said the South African Post Office (SAPO) will not receive any bailout beyond the R381 million it received from the Unemployment Insurance Fund (UIF) Temporary Employer-Employee Relief Scheme (TERS).

TERS is available for companies facing financial distress such as SAPO and Arcelor Mittal South Africa (AMSA). The R381m will be available for use over the next six months and to preserve the jobs of some 6 000 SAPO workers.

SAPO was placed in business rescue on 10 July 2023, owing creditors R8.7 billion. It currently operates 657 branches, following the closure of 366 post offices in 2023 as part of branch rationalisation. About 4 800 workers, or 43% of the workforce, were retrenched in July 2023.

SAPO is required to submit regular accounting reports and implement a detailed turnaround strategy as a condition of the TERS funding.

The Treasury, in its Estimates of National Expenditure (ENE), noted that the Department of Communications and Digital Technologies has allocated R1.8bn to SAPO for its universal service obligations to provide postal services in underserviced areas.

For over a decade, most state-owned companies (SOC) listed under Schedule 2 of the Public Finance Management Act (1999) have not met the legal requirements to maintain sustainable profitability, manage risks effectively, and generate returns while ensuring prudent use of public resources. Various initiatives, including turnaround plans agreed with the government, are underway, but progress has been mixed.

In 2023/24, state-owned companies reported a negative return on equity of 15.6%, highlighting an ongoing inability to turn a profit. Sales were subdued owing to operational constraints and inefficiency, while costs remained high. In the context of persistent weakness, the government has to make difficult choices on the future of these companies. Options include closures, mergers, and withdrawal of financial support.

Poor quality management and the adoption of mandates that are not financially feasible should also be addressed. The Treasury said that failure to make proactive decisions will result in continued fiscal pressure or financial collapse, leading to service disruptions and large job losses.

In the interim, state-owned companies continue to use the majority of their cash to meet debt obligations. Cash flows remain insufficient to cover operational costs, financial obligations, and capital requirements. Consequently, these companies are unable to fulfil their mandates.

Arms manufacturer Denel remains unable to meet its financial obligations. As outlined in the 2024 Budget Review, Denel was granted R3.4bn in the Special Appropriation Act (2022) to implement the plan. It was permitted to access a portion of the funds after meeting certain milestones, although the completion of some targets – particularly the sale of non-core assets – remains outstanding.

As Denel has implemented aspects of the turnaround plan, the government is granting access to the remaining ring-fenced funds. After debt repayments in the past year, these amount to R914 million. These funds will help Denel to cover legacy obligations, invest in essential capital projects, and optimise restructuring.

Broader policy decisions are required for Denel to complete its turnaround plan. The increase in spending on arms as a result of various conflicts around the world should provide Denel with revenue growth going forward.

IVisit: www.businessreport.co.za