Aid may delay that `evil day' for An Post

An Post is likely to reveal an £8.9 million (€11.3 million) loss on the post office network when it publishes its 2000 annual report in two days' time. No great surprise there. The State company has long claimed the 1,900-strong network is not viable, yet the situation is worsening badly. The latest studies suggest the post offices are technically insolvent - on the brink of bankruptcy.

Unpleasant indeed. For the Minister for Public Enterprise, Ms O'Rourke, who has political responsibility for An Post, there are no easy answers. Yet this is familiar ground. As with her troubles at Aer Lingus, CIE and the ESB, the players have competing, divergent interests; and, as is her custom, she will be guided by acute political antennae.

For Ms O'Rourke, the interests of shareholder and worker are never mutually exclusive. Like the Irish Postmasters' Union, she wants no closures. But An Post wants to close 1,400 post offices.

In April, the Minister published a report by the industrial relations consultant, Mr Phil Flynn, which said the "only real option" to finance An Post's losses was for the State to pay a subvention. The company was unable to reconcile its legal obligation to trade effectively with a Government directive to keep the network open, Mr Flynn said. Neither was the crisis confined to rural outlets. Large urban offices were on the edge too.

Ms O'Rourke's response was predictable. She appointed an inter-Departmental group to assess Mr Flynn's report and told it to return a "blueprint" by August. Whether that group can add a new dimension to the problem is probably a moot point. The hard decisions - if they are taken - will rest in the political domain.

The Minister has spoken in the past about the State putting "its money where its mouth is". Pure economics are not relevant to this argument because the post offices provide an essential service with important social aspects. As such, they are worthy of State support.

But Ms O'Rourke's most recent pronouncements have centred on suggestions that the banks pay millions of pounds each year to subsidise the post offices. She believes this is appropriate because the banks are closing rural branches. They owe a debt of honour.

Ms O'Rourke has also implied that the State's payment of a £100 million loan to AIB in 1985, repaid last year, meant it bore a particular responsibility to the post offices. AIB was also the beneficiary of a £32 million State loan in 1993. In addition, people close to Ms O'Rourke have cited a £180 million sterling (€300 million) payment by British banks to the post office to support the introduction of "universal" bank accounts for those not in the system.

But there are two big problems with the suggestion.

First, it is difficult to see how banks would justify such payments to shareholders or to staff let go from rural operations. The banks have said they are not aware of a specific proposal and - highly profitable as it is - the sector is unlikely to view the prospect of handouts to the State with any degree of relish.

Second, and perhaps most crucially, Ms O'Rourke's suggestion appears to hold out the possibility of the post offices becoming viable some time soon. That seems unlikely. The Minister herself has stated that the latest plan to transfer BillPay transactions to An Post from the banks will not save the network. Given the focus of the universal bank account system on social welfare recipients in Britain, such a plan here would not appear to have the necessary scale.

So where does that leave Ms O'Rourke? Unless she is willing to countenance closures - very unlikely when a general election will take place within a year - subventions may be the only option. No doubt the figures are very high. Mr Flynn suggests up to £83.2 million will be needed by 2005 in a "no-change" scenario. That does not account for risks to its Social Welfare payments contract, which is the subject of a challenge in Europe, and to television licence collection business, which RTE wants to put out to tender.

The Department of Finance is fundamentally opposed to State subvention at such levels and Ms O'Rourke's own Department is believed to be coming to that view too.

Remember also that An Post has been seeking a strategic alliance since the end of 1999. Its most likely partners are Deutsche Post or TNT Post Groep of the Netherlands, but no deal will be struck until uncertainty surrounding the post offices is resolved. If such an alliance is seen as the best way to protect An Post's profitable businesses in a new era of competition, then the Minister has an even greater obligation to address the company's most fundamental problem.

Subventions seem possible, but any payment is likely to be linked to demands for greater efficiency - and for increased business from within the State itself, if that can be found.

This, however, may only limit the size of the State aid required. The overall risk for the post offices is that subvention may be a means only of putting off that evil day if the State's economic fortunes reverse. As for Ms O'Rourke, she has witnessed the demise of her plans for Aer Lingus, Aer Rianta and the ESB. Conscious too of Eircom's dismal showing on the stock exchange, she needs a success.

John McManus is on leave