Israel Post to be privatized. But what about the periphery?

The government’s ministerial privatization committee voted to sell off stakes of the state-owned Israel Post on Monday, in a bid to restore profitability and pay off the national debt – but raising concerns that service to outlying areas could be affected.

Some 40% of the embattled Israel Post will be sold, in two stages. The first 20% will be auctioned to an Israeli or foreign strategic investor – with the initial investor being assured preferential rights, including the selection of CEO. That buyer will agree to keep the take for seven years.

The second 20% will be sold to the public and Israel Post will become a publicly-traded company on the Tel Aviv Stock Exchange, the Finance Ministry said in a statement. If no private investor emerges, all 40% of the company could be sold on the exchange.

That leaves the state as the majority stakeholder with some 60% of Israel Post.

Israel Post has struggled in recent years to break a profit and restore cash flow. While the company barely returned to the black in 2016 and 2017, it lost some NIS 420 million ($115m.) in 2015 and ran in the red for three years prior, according to the Israel Post and Knesset Research and Information Center.

Revenue in the firm has stagnated around NIS 1.8-1.9 billion for much of the past decade, amid a shift by the public towards e-billing and private shipping services.

It is possible that intervention from private investors could force Israel Post to improve the quality of its services, amid regular complaints from customers that letters and packages never arrive at all and that people are forced to wait in long queues at the post office.

But an emphasis on making a profit could undermine the breadth and depth of the postal service – jeopardizing delivery to towns in the geographic periphery and rural areas.

“There’s a reason why FedEx and DHL haven’t gone into all the neighborhoods in Israel which aren’t profitable,” said Prof. Dan Ben-David of Tel Aviv University and the Shoresh Institute, referring to private delivery companies. “What’s the arrangement that they have that service will be provided in areas that are less profitable – in outlying areas, in neighborhoods that need mail but are not profitable?”

It remains unclear what if any safeguards will be put in place so the partially-privatized company continues servicing all locales regardless of cost.

E-commerce services are growing at a rapid, double-digit percentage pace, possibly offering a new revenue stream for Israel Post – in an age of email and annual decline in the volume of mail.

With companies like Amazon signaling an entry into the Israel market, it is possible that Israel Post could take a hefty chunk of new shipping revenue.

That has coincided alongside an uptick in online shopping from Israel – with 61 million packages delivered to Israel from abroad growing in 2017, 15% more than in the previous year, according to Israel Post.

The privatization measure was approved by the Communications Ministry, the Israel Securities Agency, the Government Companies Authority and Israel Post.

Initially, the Finance Ministry wanted to separate Israel Post from its postal banking services, but in the end the two services will remain in the same body.

“In the past three years, we have demonstrated that Israel Post has turned from an organization that delivers letters into a logistical giant with a substantial presence in the online trading market, providing services to the international trading platforms,” Israel Post chairman Hezi Zaieg said in a statement. “We shall continue to work to implement Israel Post’s business strategy and to ensure the company’s success.”

Since 2015, Israel Post has adopted streamlining measures, laying off employees in a bid to restore profitability.