The South African Security Services Agency (Sassa) is due to brief the portfolio committee on social development to provide an update on its "state of readiness regarding the implementation of the Constitutional Court ruling" over a welfare distribution contract on Wednesday, just before the budget.
The last-minute scheduling of the meeting coincided with reports that Sassa has said it will not ask the court to extend the existing tender held by Net1-UEPS subsidiary Cash Paymaster Services (CPS).
The decision not to extend the existing invalid tender beyond its March 31 expiration date does not rule out a new contract being awarded to CPS to deal with the critical handover period. This period could last for at least 12 months as other parties prepare to take over the distribution of
11-million social welfare grants in terms of a new tender.
The cost of a new CPS contract is expected to be significantly more than the R2bn Sassa is currently paying. CPS is paid R16.44 (including VAT) for each of the 10.6-million grants distributed monthly. The monthly cost is about R172m. This brings the total cost for the full five years of the contract to R10bn.
As the April 1 deadline inches closer without any sign of a firm plan from Sassa and as CPS is deemed the only entity with the capacity to distribute the grants, the concerns are that Serge Belamant, CEO of Net1-UEPS, will use this strong bargaining position to extract higher fees from Sassa.
Belamant has made no secret of the fact he wants a new contract with new and better terms. He has said CPS will not continue to pay grants under the existing contract, which he points out is invalid.
"An extension isn’t possible," he said.
He says the Treasury has the power, in a situation deemed an emergency, to allow Sassa to enter into a new contract with him for about 12 months.
Belamant said a new contract would have to be higher than the current terms.
"CPS has received no increase for five years. We have had to absorb cost increases on many fronts including labour. We can’t carry on doing that."
Belamant said CPS had initially estimated the pre-tax profit margin on the Sassa business to be about 18%.
"This has not been the case because we’ve had to spend far too much money on unrelated issues such as law suits and dealing with reputational risk."
Belamant said based just on CPI increases over the past five years, he would require a 9%-10% increase from Sassa.
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