The data proves: the privatization of the mail is a foregone failure

Despite guaranteed benefits, which amount to more than half a billion shekels, most of those interested in purchasing the mail, as part of its privatization process, have already lost interest and abandoned it. The fear: the company will not be able to provide the public with a proper service profitably and will collapse in the coming years.

The discussion held in the Finance Committee last week revealed the depth of the benefits that the State of Israel is willing to shower on the buyer of the mail. under the convoluted wording”You invested owner in the company through of converted Loans the state for investment fortune“, the state intends to give up more than 500 million shekels, which Israel Post owes it. This is just one benefit among several, which include a waiver for investors of the obligation to fill the coffers of the postal company with an amount of over 100 million shekels, which it urgently needs in order to become more efficient – through mechanization, Automation and renewal of aging equipment.

All of the financial details, as well as the company’s current real estate value, are visible to the businessmen interested in the purchase, but are hidden from the public. The result could be the sale of the post office below its value, as well as harm to the public, and also the abandonment of the postal company, with a high probability, on a path of collapse without Any escape hatch.

Still needed: the Post Bank has about half a million customers

Even in an era where growing parts of the public do not need postal services at all, there are still essential services that only the Israel Post Company provides everywhere, or is a cheap alternative to a private service, including registered mail services, which are essential for the business sector and legal issues, and the services of the Postal Bank, which serves over half million customers, many of them from weak populations, or limited in the commercial banks.

The growing field of parcel deliveries exists in a competitive manner with private companies, but even in this field there is value to the existence of Israel Post, because only Israel Post is obliged to deliver parcels in every locality in the country, and usually at a significantly cheaper price than the competitors.

Great benefits for buyers: where did the ministers’ statement go?

In recent decades, the state has privatized dozens of companies: Eilat Port and Haifa Port, Haifa Chemicals Company, refineries, Bezeq Company, El Al Company, gradually regulated the privatization of electricity production. Not small mistakes were made in all of them and sometimes lessons were also learned. For example, in the privatization of the port of Haifa, the buyers knew that the port needed a lot of investment so that it could compete with the rest of Israel’s ports and that the state stipulated that one billion shekels from the proceeds of the privatization would go to the port coffers and the rest to the state coffers. The winners were announced in July 2022 for NIS 4.1 billion and the state guarantees that the company will have significant capital to make essential investments such as mechanization, sedimentation and adaptation to the future shipping world.

Three ministers met in July 2023 to discuss the privatization of the mail: the Minister of Finance Bezalel Smotrichthe minister in charge of the Companies Authority, David Amsalamand the Minister of Communications Shlomo Karai, responsible for postal services to the public. As part of the decisions of the meeting, it was announced – as news that came out of it – that: “Part of the receipts from the privatization of the mail will be flowed back to the company for the purposes of improving the service, in order to benefit the citizens of Israel in general and the periphery in particular.” There is no trace of this news in the privatization format established by the Companies Authority, and presented last week to the finance committee in the Knesset.

The idea of ​​an obligation to invest in a company can be interpreted in two opposite and non-contradictory ways: as a benefit to the investor, where part of the purchase amount returns to him indirectly, through the company’s coffers; Or as a limitation for the investor, who is obliged to pour more money into the company he bought. In both cases, the state guarantees the economic future of the company for several years to come, after privatization, but according to law, cannot inject money into it, as it can today, through a procedure of owner investment in a government company. Of course, determining such a mandatory investment amount affects the amount that the buyers will offer for the company.

Examining the proposed sale formula, shows that the state is more concerned that there will be no buyers for the post office and that the state coffers will not be filled, than it is concerned that the company will have enough money to continue its journey. The Companies Authority stated that this waiver was required “to strengthen the capital structure (negative equity of NIS 547 million as of the 3rd quarter of 2023)”.

It was also stated that: “The full consideration for the sold shares, which will be paid by the buyer, will be transferred directly to the state’s revenues, without any component of investment in the company (‘money in’). Therefore, we anticipate that the waiver of the loan repayment by the state will be reflected in the proceeds of the privatization” .

The abolition of supervision guarantees an increase in prices

Instead of an obligation to invest in the company, the state presented another huge benefit to the buyers: a waiver of a debt of about 500 million shekels of Israel Post to the state, not including future interest payments, a debt created as part of the state’s latest bailout of the post office.

The Companies Authority apparently believes that this is a “zero sum game”. Allegedly, debt can affect the price offered by the buyer, by a similar amount. But there are also other options. For example, it is possible that the Companies Authority estimates that the company will never be able to repay the debt, so the only way to get part of it to the state coffers is to “inflate the value” during the sale, which will be the only opportunity when money will enter the coffers. There is no doubt that this concession will make it easier for the company on a daily basis, and will save it payments to the state of tens of millions of shekels per year at the very least.

Along with this concession, the Ministry of Communications, headed by Minister Karai, allowed extensive concessions in the postal license, which helps buyers at the expense of the level of service to the public. The new license allows the closure of approximately 160 post offices and will allow the closure of additional branches in the future. Although Minister Karai stopped the process, all the brakes will be removed as soon as the company is privatized.

Another approval given by the Economic Committee, is the cancellation of the supervision of postal rates – a move that would allow them to become more expensive by almost 50% in two years. Paying a bill through a post office, which used to be free, now costs 3 shekels, and according to the post office, even this increase does not cover the increase in the operating costs of the post office, which indicates a future increase in prices on the backs of the public, especially from disadvantaged populations.

There are no jumpers: from 11 interested parties, two remain

Be that as it may, the sale process that started with 11 interested companies, continued with 9 groups that deposited a guarantee, and has now been reduced to only two dominant competitors. Two of the 11 interested parties – Barry Printing and Discount Capital – were recommended for disqualification by the Competition Authority and their disqualification was accepted by the Companies Authority. The other groups have retired or are about to retire. According to Calcalist, there are 2 groups left with a launch business activity, which may be able to benefit from the purchase of the mail. One is the Delek-Rami Levy group, which has many points of sale, which could house tiny post offices while saving real estate. And the other is the Milgam group, Layman Schlissel, which has activities in the collection of fines and taxes that can use the infrastructure of the post office.

According to a publication in Globes, the financial situation of the post office is discouraging. Even the closing of branches and the retirement of hundreds of employees will not completely offset future wage increases. The profitability of the post office in 2023, as in 2022, does not derive from operating profitability, but mainly from interest margins, which rely on the high interest rate of the Bank of Israel. The road to a possible improvement of the post’s real estate assets is lined with regulatory hurdles and those in the field of taxation.

The situation is difficult: without privatization and with it

The situation of the Israel Post Company has deteriorated over the past decade. The State Comptroller’s reports repeatedly testify to extremely poor service to the public, and its financial condition was dire. The company went through several recovery programs in which the state poured billions of shekels into it in aggregate, most of which were used to pay retirement compensation to employees.

In the latest plan at the end of 2022, the state will empty the majority of the company’s real estate assets from the post office. Part of the state’s investment includes waiving rent in the buildings that were sold, for only 4 years. That is, within a short period of time, additional expenses of tens of millions of shekels per year will be spent on the post office. Or he will be forced to abandon these buildings.

David Laron, CEO, testified about the difficult financial situation of the post office last week in the finance committee: “The service to the public was harmed as a result of the fact that the company not only barely had money to pay salaries, it certainly didn’t have money to replace outdated computer screens,” and he also warned: “There was and privatization will not be completed in the coming months, the company will once again become insolvent. The company’s situation is sensitive, delicate and unsustainable, it is not sustainable.”

In other words, the State of Israel abandons Israel Post. If the buyer wants to invest, he will invest; And if he doesn’t want to, it’s not clear what will happen. In the worst case he will fail to operate the company, it will go bankrupt and nothing will be left in its place. The very promotion of postal privatization, before it has legal approval, is intended to put pressure on the Finance Committee.

On the other hand, the flight of those interested in the purchase may give the Knesset members backing that it is not certain that there is a rush to approve the current privatization format. “Actually, until this moment, the outline of the privatization of the postal service has not been legally approved,” an attorney tells ‘Davar’ Yigal Levyformer Senior Deputy Director of Post at the Communications Ministry, “It is difficult to get rid of the feeling that as part of the Companies Authority’s run to privatize the Israel Post Company, it did not “supersede the Finance Committee”.

The clock is ticking: last chance for Knesset members to make an impact

The Companies Authority intends to complete the receipt of bids at the beginning of May, and to make a decision on the winner. According to Attorney Levy: “The debates in the finance committee on the privatization of the post office are the last opportunity for the members of the Knesset to influence the service to the public. The Knesset members who finally remembered to ask about the quality of the service and especially about the closing of the post offices, are not aware of the fact that the situation is going to get worse after the privatization, since the restrictions recently imposed by the Minister of Communications on the closing of branches refer only to the period when the company is fully government owned.”

MK Naama to Zimi (Avoda): “The fact that the process of privatizing the post office comes at such a late stage to be discussed in the Finance Committee is a disgrace. It is impossible that such a fateful process, which includes the privatization of one of the most important social services, will not be brought to an in-depth discussion before the members of the Knesset. It is not possible that we accept a fait accompli here and ask Let us serve as a rubber stamp for the whims of the Treasury.
“The privatization process is carried out in a careless and reckless manner. Privatization includes many concessions, such as the possibility of closing branches in the periphery, which will directly harm the weakest populations that use the postal services frequently. Privatization means a heavy burden on the disadvantaged populations, the cost of basic services and the closing of branches for economic reasons. It is a shame that the state removes its hands from a basic social service, which will not be able to withstand the forces of the market and is therefore likely to collapse before our eyes.”

The paradox: how to dismantle a company in a crash

The basic premise of the last decades is that it is possible to provide nationwide postal services in a profitable manner. It is this assumption that made possible the transformation of the Postal Authority from a budgeted government body into a government company. Despite various statements in this vein, no one at Israel Post or any other government body responsible for the post office has ever presented to the public a business plan that shows such feasibility. On the contrary, the data published by the Ministry of Communications only showed the collapse of the core activity of the post office – letter deliveries that are being eliminated at a rapid rate, and a dramatic decrease in overall activity.

The growth of the parcels sector does not compensate for this, because it is more competitive and based more and more on distribution stations, and does not justify post offices, which makes the branches an expense with little income. More than once, the post office was at risk of insolvency.

On top of that, the Israel Post Company is committed to reaching every locality in the country, including POS services – a labor-intensive activity. The banks, in comparison, are in a significant process of closing frontal branches and reducing POS services even in branches that remain operational. It is clear that a significant part of the provision of postal services to the public is not economic in any way.

Throughout the processes of recovery and privatization of the post office, Knesset members noticed the issue of poor service, especially in the periphery. to the Chairman of the Economic Committee, David Bitan (Likud) had an interesting idea: if the postal bank is obligated to provide service everywhere while the banks avoid doing so, then the capital needed to subsidize this activity should be collected from the banks. But Bitan did not fight for his opinion with the Treasury, and the idea remained as a statement in the summary of a committee meeting and did not become a bill, or a change in the format of privatization.

In other cases, the state actually engages in subsidies. This is how it is done in the Israel Railways, which is a government company, and this is how it is done in the public transportation services in buses, which are performed by private companies.

Unlike the privatization of profitable companies, such as Bezeq or the Port of Haifa, the privatization of Israel Post is the privatization of a company on the brink of collapse. The process of privatization was forged under the illusion that it is possible to oblige the post office to provide loss-making services, which creates a paradox: the private buyer will have a built-in interest in not providing a loss-making service and try as much as possible to “round corners” on the backs of the public, and if the state insists on enforcement, he can let the company collapse.

The king’s way in this case is to find out what the cost of subsidizing the fundamentally uneconomic postal services is, and for the state to define a source for their funding: the state treasury, an additional tax on the banks, or another source of funding. The decision to assign the problem to the private buyer, as proposed by the Companies Authority, reflects a different order of priority: to get rid of the post office as soon as possible to prevent further allocations of state funds in its favor in the future. This order of priority casts a shadow over the quality of service that the hundreds of thousands of Israelis who still need functioning postal services and the postal bank will receive.

Comments
Officials at the Companies Authority stated that: “At a meeting between the ministers of finance, communications and the minister in charge of the Companies Authority, at the beginning of July (2023, AR), a number of issues related to the privatization of the mail were discussed. Contrary to what was said, it was not decided that the proceeds of the privatization or part of it would remain with the company, since It will not necessarily guarantee the improvement of the service.

“The level of service is in the financial interest of the buyer in order to compete effectively, and the terms of the license determine a required level of service. The conversion of the state’s debts to owner investment is the chosen alternative, since it will allow the buyer and the company to ensure that the necessary investments in the company will be made, when they are freed from the constraints of debt. The decision was also In accordance with the recommendation of all professional parties, including the investment bank.”

The Israel Post chose not to respond.

The response of ministers Amsalem, Smotrich and Krei was not given until the time of publication of the article.

Finance Committee Chairman Moshe Gafni did not respond to Davar’s request.