The Government advertised its intention to put the provision of social welfare payments out to tender three months ago in the official EU journal.
It is now saying that it is seeking legal advice on whether there is an obligation to do so at all, as reported in The Irish Times yesterday.
There is growing political pressure and Cabinet opposition to the tendering. The PDs yesterday joined Opposition parties in criticising the proposal, discussed at Cabinet on Tuesday.
The removal of the contract from An Post would threaten the viability of hundreds of rural post offices which currently earn 70p for each of the 45 million social welfare transactions annually.
The Cabinet deferred a decision to go ahead with the plan on Tuesday. This was despite advice from the Attorney General, Mr David Byrne, that it was obliged by EU directive to tender the business.
A decision to go ahead with the plan, however, would have become a major issue in the June 11th local government elections. A Government spokesman yesterday denied that the decision was taken for political reasons. He said the Government had decided it should seek advice on whether social welfare business was a financial service, and thus subject to the directive, or a social service and, therefore, exempt.
However, the Department of Social, Community and Family Affairs undermined this argument by placing its February advertisement under the heading "Financial Services" in the Official Journal of the European Communities.
The advertisement, a preliminary notice required by EU law, stated: "The Department proposes to appoint a payments delivery agent(s) or partner(s) who will process approximately 45,000,000 payment transactions to Irish residents each year, commencing in 2000. The Department has a strong preference for solutions based on cost-effective, card-based electronic fund transfer systems.
"Bidders will be required to show that they have the competence and capacity to meet these volumes and objectives. The Department is likely to offer contract(s) of at least five years' duration to successful bidder(s)."
The advertisement indicated that the only decision left to be made was the exact date of the competition for the £35 million per year contract.
The general secretary of the Irish Postmasters' Union, Ms Vera Hogan, warned last night that the plan, if implemented, would bring "the biggest post office closure programme in the history of the State". Some 1,500 of the State's 1,900 post offices would close.
The PDs said yesterday they would challenge "any EU directive which does not take account of the economic and social importance of existing services in small communities throughout Ireland, including sub-post offices".
The Fine Gael spokesman on public enterprise, Mr Ivan Yates, accused the Government of being "anxious to avoid local election strife". Labour's spokesman on social, community and family affairs, Mr Tommy Broughan, warned that the proposal, if implemented, would be destructive of rural communities.