Telkom has threatened to cut off communications services to the South African Post Office (Sapo) over an outstanding debt of over R225 million.

Sapo CEO Nomkhita Mona warned Telkom’s enterprise service division BCX that such a development could jeopardise the payment of social grants to around 10 million South Africans.

Sources at the state-owned postal company reportedly told Sunday Times that it had to make an “emergency” payment this past week to avoid its Telkom-sourced services going offline.

Telkom has been providing the Post Office with communication services as part of a R960-million contract that started in August 2014 and is set to expire in December 2022.

While the Post Office’s executives want the contract to be extended, the Sapo board wants it to be terminated and an open and competitive tender bidding process to be launched for a new provider.

Sunday Times has seen correspondence between BCX, Sapo, and the office of communications minister Khumbodzu Ntshavheni, in which it lambasted Sapo’s failure to pay for products and services rendered to date.

“Sapo defaulted on the payment plan on many occasions despite your [Ntshaveni’s] intervention at some stage and several reminders and correspondence to comply with the payment plan,” said BCX CEO Jonas Bogoshi.

Bogoshi originally gave Sapo until 30 September 2022 to pay off the debt, but it appears that Telkom only threatened action this week.

In addition to the R225 million, Sapo has to pay R30 million every month to Telkom until the end of the contract.

Sapo has disputed the R225 million figure.

Mona said it had not been included in the payment agreements signed by the Post Office and questioned how Telkom quantified the amount.

She also said Sapo had obtained a legal opinion which suggested the contract and its accompanying agreements were illegal as the correct procurement processes were not followed when the contract was awarded.

Additionally, Mona said the suspension of services did not form part of the specific rights and remedies of an aggrieved party in the case of breach of contract.

Despite receiving billions in bailouts for several years, the Post Office is in deep financial distress.

In its latest annual results for the 2020/2021 financial year, it reported a loss of R2.3 billion — R469 million more than in the previous year.

The entity has been unable to pay rent, electricity, and water at several branches, leading to several landlords shuttering Post Office premises.

It has also failed to pay hundreds of millions in employees’ medical aid, pension, and income tax contributions.

Koos Benadie, director at Pretoria-based law firm Barnard Inc., has warnedthat this could lead to Sapo directors facing criminal charges.

According to the Financial Services Laws General Amendment Act 45 of 2013, which took effect in 2014, deducting employee contributions without paying them to the relevant service provider is a criminal offence.

Benadie argued that Sapo’s directors could be held liable in civil and criminal capacity for non-payment of the pension fund and medical aid contributions.

Mona recently revealed one of the major reasons for Sapo’s financial quagmire was that it carried half the cost of providing government’s social relief of distress (SRD) grants at its branches.

The grant was introduced to provide financial relief to South Africans hard hit by the Covid-19 pandemic, but has continued to be offered despite economic activity returning to normal.

“I don’t know how many South Africans know this, [but] the Post Office has been subsidising the government in the delivery of the [SRD] grants,” Mona said.

“Our cost of delivering that service over the counter is just over R30. What we were being paid by Sassa was R15. Nobody runs a business like that.”

The Post Office’s annual report for 2022 said it processed 15.2 million grants to beneficiaries during the 2021/22 financial year.

That means the Post Office paid around R228 million out of its own funds during the financial year to cover the costs.