CPS accepts lower ‘interim’ fee charge per cash beneficiary, still unclear how it will pay back R316-million

29 May 2018

The departure of Bathabile Dlamini as social development minister has seen a painful and messy uncoupling between Sassa and CPS. With the June cycle for social grants kicking in on 27 May, the US-listed company has accepted what it terms an “interim fee” of around R45 per beneficiary for cash social grant payments (it had requested R66.70). CPS still hopes it can renegotiate a higher fee until September when the clock finally strikes midnight for the controversial company.

It was the inability of CPS to satisfactorily break down the cost of its requested R66.70 per beneficiary which prompted National Treasury, in its April report to the Constitutional Court, to reject the amount, suggesting an average of R55 and a lowest cost of R45.59 per beneficiary be charged.

Treasury said the R66.70 cost to Sassa was based on the “full service”, including cash and electronic payments rendered by CPS, but that at present it should charge only for cash payments at around 10,000 pay points around the country to around two million beneficiaries.

CPS has since accepted Treasury’s R45.59, a price based on the original illegal 2011/12 tender plus inflation. It regards this as an “interim fee” while it waits for the ConCourt to respond to a letter the firm’s legal representatives wrote to Chief Justice Mogoeng Mogoeng last week asking for the matter to be referred back to Treasury to recommend “a minimum monthly fee payable to CPS, to serve as a floor limit within 14 days”.

In the letter, CPS requested that “any shortfall or overpayment made to CPS for the services provided in April 2018 be corrected upon final determination by this Honourable Court of the fee payable to CPS”.

The letter to the Chief Justice set out how CPS director, Nunthakumarin Pillay, in the firm’s supplementary affidavit of 28 February to the court had claimed that “CPS will only have sufficient cash reserves to cover its operational costs until 31 May 2018, assuming Sassa duly pays its invoice for March 2018”.

“CPS has been unable to invoice Sassa and has consequently received no payment whatsoever from either Sassa or National Treasury for services rendered by it since 1 April 2018. Our instructions are that CPS requires cash income urgently to sustain its operations for the month of June. Preparations for the June payment cycle will commence on 27 May 2018.”

Net1/CPS CEO, Herman Kotze, in his 10 May affidavit in response to Treasury’s April report, said it was “in the interests of justice and fairness that CPS be permitted to respond to Treasury’s recommendation, particularly as the recommendation impacts on CPS’s capacity to continue to operate as a going concern”.

CPS, said Kotze, could only deliver “a reliable and uninterrupted service” if it operated a sustainable business. He added that Treasury’s recommendation did not protect CPS “from operating at a considerable loss, which it cannot reasonably be expected to do”.

Treasury’s report to the ConCourt in April indicated that, despite requests, CPS failed to provide it with material information allowing it to properly assess the reasonableness of the fee requested. The Treasury report set out how a significant portion of the costs CPS maintained it incurred with regard to cash payments were inter-group costs without any indication that prices charged are cost reflective.

If CPS’s argument is correct, that nearly all of the costs it incurs are related to cash payments rather than electronic payments, then surely there can be no justification for the additional beneficiary fees (R10) CPS/NET1 now charges Grindrod, and passes on to beneficiaries.

Responding on behalf of CPS to a question in this regard, Bridget von Holdt, Business Director of Burson-Marsteller, a global public relations firm, said that CPS could not be expected to offer the same level of service at the same rate to a limited and declining number of cash beneficiaries.

“Based on the new instruction, CPS only pays out to the beneficiaries who are paid out in cash. And these people are paid out at the Sassa pay sites of which there are over 10,000. However, based on the previous contract CPS set up and maintained an infrastructure for the payment of over 10.8 million beneficiaries across the country. It is an economies of scale issue.”

All clear now?

Von Holdt said the request for a fixed monthly fee was based on a reducing number of cash payments given that CPS needed to “maintain the vast infrastructure”.

“So, at the past rate of R16.44 on the larger number, the figures work. However, on a dwindling number of less than 2 million people, it does not work,” she said.

A beneficiary could go anywhere in the country to collect a grant and this was because of the the biometric system and the back end infrastructure, said Von Holt.

“This means security, vehicles travelling to site, money in transit, and then staffing and so on. National Treasury rejected CPS’s fee request of R59 per beneficiary and offered R45 per beneficiary. This is not viable for CPS at this rate,” she said.

In the letter to the Chief Justice, CPS said its concern with Treasury’s recommendation of the R44.35 fee was that it had done so “without providing for any minimum monthly fee payable to CPS, to ensure that CPS recovers its fixed operational costs”.

This was “highly problematic” as it made “no provision for Sassa’s announced intention to dramatically reduce the number of beneficiaries being serviced by CPS, in circumstances where CPS was required, unless and until Sassa directed otherwise, to continue servicing all 10,000 cash pay points around the country.

In his report filed to the ConCourt on 30 April, new acting Sassa CEO Abraham Mahlangu stated that Sassa intended to reduce the number of beneficiaries collecting grants from cash pay points (1,916,555 in March 2018 and 1,837,612 in April 2018) to approximately 800,000 beneficiaries over the six-month extension period of the CPS contract.

“Sassa provides no further details in its report of the migration of beneficiaries from pay points to electronic payment, however. Since December 2017, CPS has repeatedly requested Sassa to furnish it with a migration plan. These efforts have been to no avail. Such a migration plan would allow for the incremental closure of pay points over the remaining term of CPS’s tenure. This would enable CPS to scale down and rationalise its payment routes and resulting operational costs,” said CPS’s lawyers.

CPS was obliged to perform “cash payment services on the same terms and conditions under its contract with Sassa” while it has not been presented with a migration plan.

“CPS thus remains obliged to maintain its entire cash payment infrastructure. The result is that CPS can anticipate a considerable reduction in the income it receives for the payment of ‘cash beneficiaries’ (with the anticipated reduction to 800,000 beneficiaries over the six-month period) but must maintain its full cash payment infrastructure and operations.”

In a statement on Monday, Kotze said that in the interim, CPS had requested that the Constitutional Court allowed CPS to invoice Sassa at the Treasury recommended rate of R45 per beneficiary pending the final court order.

Which begs another obvious question; how is CPS going to pay back a R316-million windfall (with interest) it received from former Sassa CEO Virginia Petersen for “enrolling additional beneficiaries” as ordered by the North Gauteng High Court in March?

That’s if CPS loses its appeal against the ruling.

In a statement with regard to this prickly issue, Net1 said CPS had agreed to a request by Sassa and had “performed approximately 11 million additional registrations beyond those that it tendered to register for the quoted service fee. Accordingly, CPS claimed a cost recovery from Sassa, supported by a factual findings certificate from an independent auditing firm. Sassa agreed to pay CPS the ZAR277-million as full settlement of the additional costs incurred by CPS”.

This statement, however, contradicts Net1’s own certified report to the US Securities and Exchange Commission where it flat-out states that it was not contractually entitled to any additional compensation.

For now at least, beneficiaries need not be concerned that they will not receive their social grants in spite of the machinations behind the scenes. DM

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