Absa shuns grants tender
Only Standard Bank, Vodacom and new consortium in running
STANDARD Bank, Vodacom and a little-known entity called Durban Knight Investments (DKI) are the only three bidders for the multibillion-rand tender to distribute social grants worth more than R120-billion annually to 21.6 million South Africans.
In 2012, the tender, described as the most valuable contract ever awarded by the government, was won by Cash Paymaster Services, a wholly owned subsidiary of Net1 UEPS, which is headed by Serge Belamant. But Absa, whose AllPay subsidiary was a losing bidder, fought this all the way to the Constitutional Court, claiming there was corruption in the process.
In April last year, the Constitutional Court ruled that the decision by the SA Social Security Agency (Sassa) to award the tender to Net1 was “unlawful” and full of “irregularities”, so the tender had to start from scratch.
Remarkably, Absa, whose successful court challenge was the reason Sassa was forced to reissue the tender, has not submitted a new bid. Absa would not comment on the tender on Friday, and a spokesman for the bank said “the tender process precludes Absa from commenting on the bid”.
Instead, the bidders are another bank, a cellphone company and DKI, whose directors include Durban businessman Shantan Reddy and Chris Hani’s widow, Limpho Hani.
Reddy, who is chairing the Durban consortium, confirmed his group had entered a bid that took six months to put together. He said the consortium has experienced technology partners, so “we can plug all the gaps.”
Reddy said the previous provider “had a lot of speed bumps, so we needed to offer a different product” .
However, he did not explain how DKI’s plan differed from Net1’s but said the focus was on “adding value” to the grant recipients. “We want to leave a legacy,” he said.
The 33-year-old Reddy is the son of Vivian Reddy, who has described President Jacob Zuma as a “family friend” in interviews. But Shantan Reddy said on Friday that his father was not part of the bid.
Reddy said DKI had not partnered with any of the big five commercial banks, instead choosing PostBank (owned by the SA Post Office) and UBank as its technology partners.
“This would be the first time anyone would be offering a South African solution for South Africans,” he said.
News that Absa’s AllPay was not participating comes just weeks after Net1 informed shareholders that Cash Paymaster Services would not submit a bid for the new tender either.
In the absence of the two most experienced companies, it is possible the government may choose not to issue a new contract immediately, but allow Net1’s contract to run until its scheduled expiry in early 2017.
During a teleconference with investment analysts two weeks ago, Belamant said that after 2017, Sassa could even extend the Cash Paymaster Services contract twice for a period of 12 months. But he stressed that the extension would have to be done on Net1’s terms and not Sassa’s.
The Constitutional Court made it clear in its ruling last year, however, that the most important factor was that grant payments to the country’s 21.6 million beneficiaries would not be interrupted.
Absa, which came close to winning the 2012 tender and which has access to tested technology, was seen as the most likely to win the new contract.
Although Standard Bank participated in the 2012 tender process, it apparently did not survive the early rounds. Vodacom, which did not participate in the earlier tender, is thought to be pushing for a solution based on a mobile wallet payment system.
However, if a new company such as DKI won the contract, it could seek technology partners — which could then include Net1.
This week, Belamant told Business Times he would be open to talking with whoever won the new contract, and stressed that managing the grant distribution was an extremely complex logistics exercise.
Last month, Belamant told investors Net1 would not submit a new bid because the terms set down by Sassa were so tough that nobody could make a profit on the contract. For example, the winning bidder will have to provide bank accounts with limited free services for grant recipients.
The bank accounts would also not allow any debit orders, a measure designed to stop providers from deducting payments from the grants.
While this protects the beneficiaries, it reduces the opportunity for the winning bidder to earn income from third-party service providers.
In addition to the tougher conditions, the winning bidder also has to factor in the cost of making home deliveries for an estimated 60 000 to 90 000 beneficiaries who are unable to travel to pay points.
The new grant distributor will receive a set fee of R14.50 a month for each recipient.
Analysts speculate that Absa decided not to bid after it did the detailed calculations of the contract terms.
Social Development Minister Bathabile Dlamini is due to announce the winning bid in mid-October.