The South African Social Security Agency (Sassa) wants to extend the invalid contract of Cash Paymaster Services (CPS) for the payment of social grants for another six months from April 1 2018.
This emerged from Sassa’s affidavit that was filed by the agency’s acting CEO Pearl Bhengu at the Constitutional Court on Thursday, confirming what many observers had expected.
In court papers, Bhengu said CPS will not assume the function of paying all 10.7 million social grant beneficiaries but the company will be required to only pay 2.5 million elderly and disabled beneficiaries until September 2018.
In justifying CPS’s involvement in the social grant payment network, despite its contract being declared invalid by the Constitutional Court in 2014 for not going through proper tender processes, Bhengu said Sassa had been unable to find an alternative service provider to pay elderly and disabled beneficiaries.
These beneficiaries are “unbanked”, or in other words, do not have bank accounts and are unable to register with financial institutions, but access their social grants in a physical cash format via pay points kitted with CPS software and technology, said Bhengu. The remaining eight million beneficiaries access their social grants via bank ATMs or retail points.
CPS, a subsidiary of US-Nasdaq and JSE-listed Net1, is currently responsible for the distribution of 17 million grants that are worth R140 billion per month.
Sassa’s advocates have been toying with extending and lifting the invalidity of CPS’s contract since December 18 2017, when they wrote a letter to Chief Justice Mogoeng Mogoeng.
To avert a social grants crisis, in which the livelihoods of beneficiaries would be placed in jeopardy, at the same time last year, Sassa asked the court to extend CPS’s contract for another year ending March 31 2018. The court agreed to its request.
By April 1 2018, the South African Post Office and commercial banks were meant to take over the full payment of social grants from CPS including payments to elderly and disabled beneficiaries. However, Bhengu said the Post Office and commercial banks currently don’t have the capacity to disburse cash payments.
Two Sassa insiders have told Moneyweb that Post Office CEO Mark Barnes has complained to Bhengu about the agency frustrating his efforts to discuss the state-owned entity’s role in social grant payments. Sassa is yet to define the respective role of the Post Office in the social grant payment network and commercial banks – mainly Nedbank, Standard Bank and FNB – are yet to be contracted by Sassa. The delays, which were largely caused by impetuous Social Development Minister Bathabile Dlamini, were intended to pave the way for CPS to swoop in again at the last minute to help Sassa avoid a crisis.
CPS is not in favour of an extended contract with Sassa.
In a letter written by Net1 CEO Herman Kotzé to Bhengu on December 27, seen by Moneyweb, Kotzé said an extension of CPS’s contract will “attract further criticism” towards the company.
“Sassa has been severely criticised for having perpetuated a contract concluded through a flawed tender process for longer than what was perceived to be necessary,” Kotzé said.
He said maintaining the infrastructure for servicing grant beneficiaries for an additional six months would be expensive and that the six months eyed by Sassa to phase out its contract may not be sufficient.
Bizarrely, Net1 has endorsed the payment of social grants through commercial banks. The use of commercial banks was favoured as they would potentially offer social grant beneficiaries low-cost bank accounts and be able to use a bank of their choice to access their money.
“They [social grant beneficiaries] will furthermore be able to terminate such [a] relationship and move across to another bank at any point in time. Accordingly, there will be a natural migration of grant beneficiaries to the bank that offers them the best value for money and service,” said Kotzé.