International Postal Update — January 2010

POSTAL PRIVATIZATION PUSH SLOWING WORLDWIDE

PRIVATIZATION OF JAPAN POST HALTED

The ruling Democratic Party of Japan enacted a new law on December 5 which effectively put a freeze on the planned sale of shares in Japan Post Holdings Co. This measure represents one of the DPJ’s first major policy initiatives since winning power in national elections in August 2009. A stepwise liberalization of Japan Post had been the centerpiece of the rival Liberal Democratic Party’s efforts to revive the moribund Japanese economy. It is now unclear when or even if privatization of the $3.4-trillion national post, which also controls asset pools across Japan’s banking, finance, and insurance industries, will resume. Spokesmen for the DPJ government stated that the vast postal network will be used as a conduit for a new array of social services. Critics of the new DPJ plan highlight the drag on the economy caused by tying up citizens’ savings in Japan Post’s heavy-handed bureaucracy. They also expressed fear that government-backed units of JP will launch new ventures in other areas of the private sector.

EU BEGINS TO REFORM VAT RULES

Germany has abolished VAT exemptions for large postal companies, including Deutsche Post. Some postal commentators expect that the United Kingdom will follow suit and eliminate the VAT exemption for Royal Mail. Such action would represent a victory for TNT, the Dutch national post and international shipping giant, which competes against Royal Mail in the British marketplace. TNT has long claimed that the exemption gives Royal Mail an unfair competitive advantage. TNT lost its case arguing against Royal Mail’s exemption before the European Court of Justice in April 2009. The Court ruled that the exemption was sound because Royal Mail is the country’s only “universal service provider.” However, the Court said that Royal Mail should charge VAT on many of its services — though not direct mail or domestic deliveries — to foment competition.

INDIA POST MOVES BEYOND MAIL

As traditional mail volumes shrink, India’s huge government postal system is being reshaped, rebranded, and expanded to fulfill an infrastructure role. Still lumbering along under the India Postal Act of 1898, India Post is scrambling to diversify out of “old-fashioned” mail and reinventing itself as the nation’s primary conduit for services that depend on advanced data processing and electronic communications. Indian postal leaders want to leapfrog past “universal service” mail delivery and construct new revenue-producing units to ensure that India Post will continue to occupy a position of dominance within India’s rapidly evolving economy. In addition to the Post’s core banking and financial services, post offices are now selling gold coins, books, mobile connections, railway, bus, and airline tickets, and more. India Post is also studying recommendations made in a recent report from the prestigious Jamnalal Bajaj Institute of Management Studies. The report’s authors called on India Post to implement technology that makes it possible to scan letters into the Post’s system for reprint and delivery anywhere in the country. Restructurings and organizational spin-offs — but no movement toward privatization — are expected.

INDONESIA POST MAKES MAJOR INVESTMENTS

Pos Indonesia is taking on bank credits and investing US$64 million in new infrastructure, with an emphasis on electronics rather than paper. This represents a six-fold capital expenditures increase over the 2009 level of investment. With this financial commitment, Pos is clearly aiming to provide more services than simply mail delivery. New initiatives in microfinance and money transfer services, electronic bill payment, and business logistics have prompted Pos to project a 50-percent increase in profitability in 2010, to 90 billion Rupiahs (US$9.5 million), on revenues of Rp3.7 trillion.

Pos Indonesia is one of the oldest state-owned companies in Indonesia and employs some 26,000 workers.