CPS forecasts R420m losses
Cash Paymaster Services (CPS) has for the first time revealed the extent of financial losses it might incur if the South African Social Security Agency (Sassa) doesn’t hike its fee to pay social grants for an additional six months.
In an answering affidavit to the Constitutional Court, CPS director Nunthakumarin Pillay said if Sassa paid it the same amount under the extended contract, CPS would operate at a loss of at least R70 million a month, or R420 million for six months.
It expects the losses to be effective from April 1 until September 2018 – the period in which its invalid contract would be extended.
CPS is currently paid R16.44 per beneficiary by Sassa and hasn’t disclosed its preferred amount. Instead, Pillay asked the National Treasury to determine a “reasonable price”.
Sassa’s acting CEO Pearl Bhengu asked the court in February to lift the invalidity of the CPS contract to pay a portion of 10.7 million social grant beneficiaries. Under the extended contract, CPS would be the paymaster for only 2.5 million elderly and disabled beneficiaries.
The court has scheduled a hearing for March 6 to consider Bhengu’s request. Sassa lacks a detailed plan on how the Post Office and commercial banks will pay social grants from April 1, raising fears that the court will be put into a corner to extend CPS’s contract again.
Pillay said reducing the number of social grant beneficiaries under the extended contract (2.5 million, not 10.7 million) and keeping the same price as before (R16.44 per beneficiary) would result in reduced revenue and higher operating costs.
“This loss [R70 million a month] will increase as the number of beneficiaries paid at pay points declines.”
He added that CPS has sufficient cash reserves to cover its operational costs until March 31 2018 – assuming Sassa pays its March invoice.
CPS claimed it made a pre-tax profit of R1.1 billion and R705 million after tax from its five-year Sassa contract.
However, an analysis of its financial statements by the Alternative Information and Development Centre (AIDC) concluded that CPS might have understated its profits by R730 million as it didn’t include other Net1 subsidiaries that profited from the Sassa contract.
Pillay said AIDC’s findings are “fundamentally flawed”, accusing it of misreading Net1 and CPS financial statements.
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