S. African Court Must Oversee Net 1 Welfare Deal, Group Says

(Bloomberg) -- South Africa's government is facing a legal demand that the nation's top court oversee a planned renewal of a welfare-distribution contract with Net 1 UEPS Technologies Inc. after the state failed to comply with a 2013 ruling that it stop doing business with the company.

The Black Sash Trust, a South African human rights organization, on Tuesday asked the Constitutional Court to supervise the renewal of the contract and its terms to ensure more than 17 million people continue to get their welfare payments in April after the current contract ends. The association, represented by the Centre for Applied Legal Studies, named the country's social development and finance ministers as respondents as well as the state welfare agency and Cash Paymaster Services, a unit of Net 1.

The payments, which amount to more than 140 billion rand ($10.7 billion) a year, are a signature policy of the ruling African National Congress, which says the grants are an important measure to reduce inequality. An interruption to their payments could dent its support.

The Constitutional Court four years ago ruled that the Net 1 contract was invalid because of the way it was awarded, and by giving the company a new contract the South African Social Security Agency is effectively trying to circumvent the nation's highest court.

‘Oversight Role'

“The court should compel Sassa and CPS to enter into a contract on terms designed to protect grant beneficiaries,” Black Sash said in court papers. “It would be appropriate for this court to re-instate its oversight role.”

Zodwa Mvulane, an official at the welfare agency, told lawmakers that the agency had decided to conclude a new contract with Net 1 because no one else was capable of stepping in to pay the grants at short notice.

In documents filed in a separate lawsuit on Tuesday, Thokozani Magwaza, the welfare agency's chief executive officer, asked the Constitutional Court to approve talks over a “transitional arrangement,” whereby CPS would continue paying the grants for another year.

“SASSA's endeavors to procure a new tender had been unsuccessful and its own ability to administer the grants is presently limited,” Magwaza said in the court documents. “Come April 1, 2017, if an agreement is not procured with CPS to continue rendering the services for another year” the grants won't be paid.

Magwaza refuted a report in Johannesburg's Star newspaper that he had been suspended, saying he was on sick leave when called by Bloomberg.

Opposition parties, including the Democratic Alliance, have said that Sassa's inaction to comply with the 2013 ruling was designed to ensure that Net 1's contract was extended. The Treasury, which falls under Finance Minister Pravin Gordhan, warned Social Development Minister Bathabile Dlamini in a Feb. 1 letter that extending the contract without Constitutional Court approval would open the government to legal challenges.

Protect Poor

In addition to demanding that Dlamini and Sassa regularly report to the court on progress on finding a new provider, Black Sash is seeking an order that any information on welfare recipients gleaned by the Net 1 unit be handed to the government when the contract ends. It also wants the company to be prevented from encouraging recipients to allow their data to be shared.

Black Sash wants to prevent South Africa's poorest people from being targeted for the sale of goods and services by financial companies, it said in the application.

Net 1 shares fell as much as 1.4 percent in New York to $13.38.

Dlamini declined to answer questions on the Net 1 contract on Tuesday, telling reporters she would hold a media briefing on Wednesday. The government will ensure there is no disruption to the payments, she said.

Higher Price

Tim Brauteseth, a lawmaker for the main opposition Democratic Alliance, said he had obtained correspondence between CPS and the welfare agency that showed the fee it will charge per beneficiary under a new or extended contract may rise to 22 rand to 25 rand, from 16.44 rand currently. Mvulane said formal negotiations with CPS will only start Wednesday and no terms have been agreed.

“No reasonable person or institution will oppose this application because it is an earnest plea to the court to permit the facilitation of the payment of social grants to the poorest of the poor,” Magwaza said in the court documents. “I accept there may be criticism as to the tardiness of Sassa's conduct but this should not prevent the right decision in the circumstances.”

--With assistance from Antony Sguazzin

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net.

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Gordon Bell