At the end of May, the Minister of the Interior, Jan Hamáček, announced that Česká pošta would split into two separate companies: a branch part providing the so-called basic service, which was ordered and subsidized by the state. And a logistics company operating in a purely market environment.
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The division of the Post Office must be managed by the end of next year, when the current postal license ends. It is this that defines the “basic” postal services on which the post office undergoes and for which it is to collect 1.5 billion crowns a year from the state coffers as compensation.
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Postal rebirth will be complicated. Just because it is necessary to change the postal law and other legislation because of it. At the same time, the post office is the intersection of various political interests and an important enterprise for the state.
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Billions of state money for pensions and social benefits flow through it, and it enters hundreds of millions of state contracts. He is the largest state employer. And the recipient of the mentioned compensation, the legitimacy of which, however, has been decided by the European Commission for several years.
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In addition, the promised transformation is accompanied by a number of snags that need to be unraveled in a gallowsily short period of time.
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What do we want to pay?
In the beginning, politicians will have to clarify what scope of postal services the state should subsidize at all. This will change with the new license. The need for subsidized services is declining as communication technologies evolve and the share of private players in the delivery industry is growing.
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And the question is whether the state must guarantee and subsidize, for example, postal branches in small municipalities, even though they are busy with their own postal operations only a few hours a week and otherwise their premises are idle.
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What is a postal license
It ensures the nationwide availability of basic postal services in a specified quality and at an affordable price.
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The basic service now includes the delivery of postal items up to two kilograms and parcels up to ten kilograms, the delivery of money orders, the sending of registered and valuable items or services for the blind.
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According to a supplementary government regulation, the holder of a postal license must operate at least 3,200 post offices.
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The current license expires next year, the CTU regulator is preparing a competition for a license for the next five-year period from 2023. The scope of services ordered by the state may change.
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But it’s not just about branches. Today, around thirty private companies such as Mail Order, PPL or UPS are engaged in the delivery of packages, which is part of a “basic service” paid for by the state. The delivery of letter items, on the other hand, is largely able to procure, even without subsidies, for example from První novinová společnost (PNS).
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“Today, the standard of the basic service only copies the current practice of the Czech Post without a deeper analysis of the needs of the population,” says PNS head Vít Rozsypal , as the state orders at the post office.
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A dispute over five billion
According to some private competitors, the Czech Post is favored by state compensation. It allegedly allows it to subsidize purely commercial services, which the post office then offers at dumped prices and thus distorts the entire market.
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An example, according to critics, is the delivery of corporate business letters at a significantly lower price than ordinary citizens pay for letters. “These are quantity discounts, the CTU is checking it out, dumping cannot take place,” says the general director of the post office, Roman Knap. However, private players have doubts about the Post’s pricing policy.
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Compensation for the basic postal service in the amount of CZK 1.5 billion per year is approved (so-called notified) by the European Commission. Precisely due to the reservations of competitors, the approval process of the summer has been dragging on and the Post Office has not received the promised money from the state since 2018.
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According to director Knap, the debt from unpaid compensation already exceeds five billion crowns. So far, the Post Office is covering the gap in finances with billion-dollar loans from commercial banks.
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“We have a classic commercial loan on very favorable terms. We announced a tender in which many banks applied, we chose the cheapest ones, “says Knap. In total, the Post Office can borrow up to 5.5 billion under agreements with banks. However, it is not clear what the debt will be repaid if Brussels does not approve public support.
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Growing loss
The plan for the transformation comes at a time when the Post is sinking into ever-increasing losses. This is despite the fact that it also includes an unpaid state subsidy in its income.
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The company has been going through three years, last year the loss reached 1.4 billion crowns and increased by more than a billion year-on-year. Mail revenues are also falling steadily, although covid lockdowns and the rise in online shopping for the private delivery business last year seem like living water.
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The post office itself identified the fact that in 2019 it recorded compensation from the state for two years at a time in its revenues as the main reason for the billion year-on-year decline. According to her, the negative impact of the pandemic also played a role.
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On the other hand, the decline would have been even greater if the post office had not helped itself with the sale of assets. Last year, for a record 353 million crowns, it got rid of the complex of buildings and land of the Monastery of St. Gabriel in Prague 5. Or sold its majority stake in Poštovní tiskárna cenin with an accounting profit of 67 million crowns. By the way, the printer, which has been operating under the Post in recent years, reported a profit immediately after the sale.
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There are also reservations about how the Post Office manages the money promised from the state. “For services that really have to be compensated, the question is whether only the purposefully incurred costs are compensated. Waste in state-owned companies is also discussed in the press, “notes the head of PNS Rozsypal.
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Post and government procurement
This year, the Post Office got a chance to improve its management with a billion-dollar contract, which it received from the Czech Statistical Office for field services in the census of population, houses and flats. However, the post office immediately shifted part of the task and thus also payments from the CZSO to its own private suppliers. Especially for the software company Profinit EU, which has a framework agreement with the Post for a total of 88 million crowns (excluding VAT).
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“The census was one of several projects in which Profinit participated under this agreement. Our consultants worked mainly on the preparation and implementation of the project, “explains Profinit’s marketing head Jakub Šich.
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The post office explains its procedure with a large amount of work. Almost ten thousand of its census commissioners distributed almost a million forms, and issued 260,000 questionnaires at post offices.
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“For such a highly specialized project that takes place once every ten years, we needed time-limited expertise from the market, which changed during the individual project phases. It would not be effective and probably not even possible to hire specialists for the main employment, “says Ivo Vysoudil from the Post Office’s press department.
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Consultants needed
The consultants have a large client in Česká pošta at all. Last year, the state-owned company concluded a framework agreement with Deloitte Advisory, EY, Grant Thornton, KPMG Czech Republic and Moore Czech Republic worth CZK 70 million (excluding VAT).
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Five consultants are to help the Post Office with the restructuring plan for the period after 2022, but they are not only dealing with the planned division of the Post Office.
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“Our consultancy did not concern the transformation plan,” said KMPG representative Štěpán Kačena without further details. Other consultants are not more sharing either, but it reveals a lot of insight into published partial contracts.
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For example, Moore Poště advises in a smaller order with a value of less than one million crowns on how to earn more on the SIPO payment service, which is used by 3.5 million people. By the way, the former general manager of the post office, Marcela Hrdá, is in charge of Moore Czech.
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A similar group of consulting companies has another framework contract with a state-owned company for 25 million crowns. It concerns the acquisition plans of Pošta, which wants to purchase logistics and transport companies as part of its new strategy. Advisors should do in-depth reviews or valuations of acquisition targets.
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The suspicion of inefficiency in contracts is reinforced by the fact that the Post is sometimes awarded even large contracts without a public tender. For example, the so-called “out of hand” ordered from the company Kavárna štěstí from the Sazka group of billionaire Karel Komárek the provision of two thousand dispensing points Balíkovna Partner for 270 million crowns (excluding VAT). Although the post office announced a public tender twice, the conditions attracted a single bidder – Sazka.
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Director Knap sees no problem in that: “Then we just announced a negotiated procedure without publication, it normally went through an inter-ministerial commission, everything was fine,” he shrugs.
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Where to with debt?
The deepening loss, disputes over the handling of the state subsidy and the incomplete notification to the European Commission may complicate the entire transformation of the Czech Post. For example, it is not clear where a five billion debt on unpaid compensation loans would come from splitting a state-owned enterprise into two separate companies.
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Director Knap is convinced that the notification will be decided in favor of the Post Office this year, which will receive its five billion from the state and repay the debt on time.
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“The management of the post office is completely transparent. Today, we have three separate units: the civil service division and the logistics and financial services division. They have separate accounts, any cross-financing is excluded. It simplifies the notification a lot, it will be completed in the second half of this year, “he assures.
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According to him, the right to compensation is unquestionable also because the Post Office suffers much more from the basic service ordered by the state. “Service for the state has always cost more than 1.5 billion crowns, previously it amounted to 2.7 billion. By optimizing our activity, we have significantly reduced its price, today we are at almost 1.9 billion, “he says.
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Certainly, however, the Post Office does not have the approval of 1.5 billion annual compensation. Competing companies are pushing the European Commission to go into more detail in the analyzes this time than before.
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“The spending of such a large amount of funds from public sources in favor of our competitor should be subject to detailed control,” says the head of PNS Rozsypal.
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Brussels hears that. “Last June, the European Commission launched an in-depth investigation to assess whether the compensation granted by the Czech Republic to the Czech Post for the performance of public service is in line with EU rules,” said Martin Svášek from the EC Representation in the Czech Republic. He does not want to anticipate the length or the result of the investigation.
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A new license on the horizon
While the dispute over state aid has lasted for the last five years, the tender for a postal license for the next period from 2023 has fallen. In addition to the state Czech Post, private players can also enter the competition.
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“At the moment, we have 25 active providers of postal services; everyone who meets the conditions will be able to enter the competition for a postal license,” says Hana Továrková, chairwoman of the Czech Telecommunications Office, which assigns the license.
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According to her, PNS or Zásilkovna have already shown interest in a new license. Whoever wins the tender will also be entitled to compensation for losses for the services ordered by the state. If the Post Office does not defend its finances in Brussels in time and does not solve the five-billion hole in its finances, it may become an outsider in the competition.
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The next government, which emerged from the autumn elections, would then have a real problem with a large loss-making state jetty under increasing pressure from private competition.
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