Johannesburg - It could not get much worse for Net1 UEPS Technologies, which faces the wrath of the SA Social Security Agency (Sassa) over unlawful charges for airtime and loans that the service provider has been deducting from the monthly payout to beneficiaries under its R10 billion social grant tender.
Net1 shares went into free-fall on Thursday following the ruling, dropping 28 percent to R70 during intraday trade on the JSE, before recouping some of the losses to end the session down 12.76 percent at R85.50.
Virginia Petersen, Sassa’s chief executive, said the agency was considering its options and intended to revise its contracts with the service provider.
The decisive action was inspired by the Constitutional Court, which on Thursday ordered a new tender process to be run but suspended the invalidation of the current contract pending the outcome of the new tender so that grant payments are not interrupted.
Late last year the Constitutional Court found the tender process was invalid.
According to Petersen, Sassa had not, until now, been able to take the service provider – Net1 subsidiary Cash Paymaster Services (CPS) – to task because of contractual obligations.
“We’ve been very unhappy. The ruling now gives us the opportunity to construct new contract and service-level agreements with CPS.
“We see this as our best moment to deal with that aspect. We’ve been struggling to deal with this,” Petersen said, adding the court had emphasised that the personal information of beneficiaries belonged only to Sassa.
“We will speak to our lawyers to look at our options as government.”The grants, funded by taxpayers, are intended for the basic welfare of the poorest and most vulnerable in society, including children, the elderly and the disabled.
CPS was contracted in January 2012 for five years to roll out a biometric voice and fingerprint recognition system and smartcards to circumvent fraudulent payouts.
The Net1 subsidiary beat other bidders in a tender process that rival AllPay, a subsidiary of Absa, claimed was rigged. AllPay challenged the award in the North Gauteng High Court, the Supreme Court of Appeal and later the Constitutional Court.
CPS has been accused of taking advantage of the beneficiary database to market airtime in a scheme called Umoya Manje. Last year the SABC reported that CPS was selling the airtime in R5 bundles on credit yet deducted R5.50 from the grant the following month. It allegedly also offered microloans, some at high interest rates.
During the year the Financial Services Board suspended the licence of Smart Life, a Net1 subsidiary established to offer funeral policies at social grant paypoints.
The Black Sash, a civil society NGO, claimed it had uncovered “violations of norms and standards at Sassa paypoints”.
The allegations prompted the Department of Social Development last year to publish full-page adverts clarifying the cap on deductions allowed.
Social Development Minister Bathabile Dlamini lashed out at the firm and said she would ask the Reserve Bank to stop debit orders being deducted from the grants it distributed.
Petersen said CPS had received close to R6bn from Sassa, which paid CPS on average R2bn a year. “We’ve learnt a lot on tightening [the tender] process,” she said.
Anthony Norton, an attorney for AllPay, said the ruling set a precedent for public procurement processes to be tightened. “I certainly think AllPay is likely to participate,” he said of the new tender process.
Serge Belamant, the chief executive and chairman of Net1, was relieved that the legal battle was over and the court had provided guidance.
“We look forward to participating in any new tender process,” he added.
The firm has provided no further news on the US Department of Justice inquiry into the contract and a defamation suit that it threatened against AllPay.
Earlier this year a group representing shareholders in the US, where Net1 has its primary listing, indicated it would launch a class action suit against the company.
Dhruv Chopra, the head of investor relations, said the company would not comment beyond Belamant’s statement.