While An Post may post a surplus, fundamental problems remain, writes Emmet Oliver

When the senior management of An Post gather in the GPO in about three weeks time they may have some positive news to announce for a change.

While there may be some incredulous looks from media representatives, the company's chief executive Donal Curtin is expected to disclose a small surplus for 2004. Yes, you read that right, a small surplus.

In a recovery plan announced back in September 2003 the company was budgeting for an operating loss in 2004 of about €24 million. But An Post's subsequent decision not to pay its 10,498 staff increases under the terms of Sustaining Progress has given the company a commercial breathing space.

The company would have had to pay out €20 million if Sustaining Progress was paid and the tiny surplus would have been quickly turned into a major deficit.

However, beneath the encouraging headline figure, the problems continue to stack up for Curtin and his management team, many of them former executives from the ESB.

The cost base of the company remains stubbornly high, the rate of growth in its key mail division is slowing dramatically, rates of next-day delivery are still far below what is expected by regulator ComReg and the industrial relations climate is regularly described as poisonous.

With the exception of the mail volume question, the other issues are surely surmountable. But on the revenue side things remain tricky to put it mildly.

The recently announced review of how the Department of Social Welfare pays its customers threatens to make things even trickier. The department, along with the NTMA, is the largest single customer of An Post.

Annually the contract (although it is not a contract per se) to pay those on social welfare is worth about €50 million to An Post. Now the Minister for Social Affairs, Séamus Brennan, wants to review the methods used to pay the 1.5 million people in receipt of welfare payments.

This announcement has caused consternation among unions and post office staff. The fear is the review will end the practice of people getting their various welfare payments via the post office.

The Minister has made it clear that whatever the outcome of the review, choice will remain integral to the payment system. In other words those benefiting from welfare will still be able to access payments from the post office. But despite these assurances the Irish Postmasters Union in particular believes that electronic funds transfer (EFT) could seriously affect the post office network, which it describes as one of the most important social outlets in the State.

Complete EFT could result in the department simply lodging the money straight into bank accounts and cutting the post office network out of the action completely.

It is hard to get a fix on precisely how important this business is to the company,until the 2004 figures are released. But a source yesterday suggested that An Post's retail division has annual turnover of €120-€140 million, so the contract at €50 million is certainly not small beer.

In some ways the €50 million is not crucial: for example, about €18 million of it goes to sub-post office staff who get paid for each social welfare transaction they facilitate. But what the social welfare contract does do is bring in people, including pensioners, into the post office. "Footfall is crucial here," explained one source.

For example the An Post Billpay service is a significant generator of revenue for the postal company. It involves people paying bills like ESB or Eircom at an An Post counter.

When somebody is paying a bill they might also decide to buy a stamp or even open a savings account or buy some prize bonds. The loss of the footfall could be significant.

Either way with the company's finances so finely balanced it could do without losing the department's contract. Happily, for An Post, there is no sign of this happening in the immediate future,

Séamus Brennan's department is already offering those receiving social welfare payment three options: they can have the funds transferred to their bank account, their building society or the post office. Nobody is expecting the Government to withdraw all social welfare business from the post office. "With an election coming up that would be madness," said one political observer yesterday.

Next week Séamus Brennan and Noel Dempsey are meeting to discuss whether the review might do serious damage to An Post.

While the Ministers will no doubt speak in soothing tones afterwards, the real threat to the An Post social welfare contract may actually be coming from Brussels, not Dublin.

At present An Post has no contract with the Department of Social Welfare.

This is because the Government's handling of the issue is being challenged under European law.

Following a Government decision in 1999 to extend the usual social welfare contract with An Post, a private company TNSL Ltd decided to challenge this and eventually submitted two complaints to the European Commission.

The complaints alleged that to extend the contract breached certain obligations under the EU Treaty and certain rules governing government procurement.

The procurement complaint is currently before the European Court of Justice and the Republic has requested an oral hearing of the case which is expected to take place shortly.

France, Finland, The Netherlands and Denmark are supporting Ireland's position.

However, the mere existence of the complaint means the department cannot enter into any contractual arrangements with An Post.

Yesterday a department spokesman said that currently no contract existed between the department and the company. "In the meantime, An Post continues to provide a payment delivery service to our customers on an interim basis," he added.

So with Séamus Brennan reviewing the level of payments going through the An Post system and a potential timebomb ticking away in Brussels, this particular cash cow does appear be under threat, ableit not an imminent one.

The company is aware of this and is already planning ahead. Consultants will shortly be appointed to advise the company on offering a new suite of financial products, which might compensate for the loss of other business.

While the products are not expected to be available for several months, An Post sources are almost resigned to at least seeing a declining return from the social welfare business.

"We are most anxious to keep the business. Of course we are. But it is certainly a declining revenue stream. There is no doubt about it. You cannot stop customers choosing what way they want to receive payments," said one source yesterday.

Away from the financial implications, concerns are often voiced in rural communities about the key role played by the local post office. While there is still a steady flow of customers into post offices, a significant amount of this arises because of the social welfare payments.

"The old age pensioner with the tattered pension book is still a key customer for the post office, no matter what anyone says," commented one long-serving An Post employee yesterday.

There is also some political nervousness about giving any more business to the banking sector, which would be the most obvious beneficiary from a widescale switch to EFT.