S. Africa May Extend Net 1 Deal on $9.4 Billion Social Plan

(Bloomberg) -- South Africa’s government may extend its deal with Net 1 UEPS Technologies Inc., with which it has been embroiled in legal battles, because it’s not ready to make welfare payments worth about $9.4 billion a year when the contract ends in April.

The South African Social Security Agency, which was due to take over the monthly payments to more than 16 million people, “will not be the paymaster or operating as the bank that takes the cash or makes the payments,” Social Development Department Director-General Zane Dangor said by phone on Tuesday. “We have come up with some really good models, but those models will only be able to kick in from October or November next year,” he said, without giving more details.

Net 1 has had the contract to distribute the payments electronically for four years. The South African Constitutional Court said Net 1’s contract was invalid in November 2013 and Sassa was expected to start a new tender process. Due to legal challenges Net 1 has continued to operate the system.

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Last year human rights activist group, Black Sash Trust, sued the government to ask it to protect welfare recipients from companies it alleges are selling the nation’s poorest people goods and services they don’t need and deducting payments from grants paid to them by the state. Earlier in the year, South Africa changed regulations to try and halt most deductions. Net 1 filed a lawsuit to block those regulations from coming into force.

The contract won by Net 1 was seen by the government as a way of including more people in the financial system and ending a practice where recipients had to travel to payout points to receive their funds.

The distribution of the grants “will continue as normal” until a new model can be put in place, Dangor said. The Social Development Department and Sassa are in talks with the central bank and National Treasury to set up bank accounts for those receiving welfare payments.

“We have submitted papers in court, basically saying we supervise the payment system, we are prepared to help to try and find a solution,” said Kuben Naidoo, a deputy governor at the South African Reserve Bank who is also the head of banking supervision.

Calls to Net 1’s offices in Johannesburg weren’t answered.