IEC out of gas - electricity prices to soar 18%

The disruption of natural gas deliveries from Egypt is responsible for the rate hike.

"Electricity rates will rise by 18%," Public Utilities Authority (Electricity) chairman Amnon Shapiro told a special session of the Knesset Economic Affairs Committee, which convened to discuss the issue. He presented figures which broke the reasons for the rate hike: disruption of natural gas deliveries from Egypt (7%), the directive by Minister of Environmental Protection Gilad Erdan for Israel Electric Corporation (IEC) (TASE: ELEC.B22) to use diesel instead of fuel oil (7%), and a routine update because of delays in the construction of power stations (4%).

The Ministry of Finance's intention to levy excise on diesel used for electricity production was "greed, and insensitivity in the face of the difficulties facing Israeli households," said Economics Committee chairman MK Carmel Shama (Likud) at the start of the meeting about the forecast of a 20% rise in electricity rates.

Disruptions in gas deliveries from Egypt has forced IEC to increase its use of diesel seven-fold. The utility pays NIS 3,300 in excise and VAT per ton of diesel it consumes, compared with NIS 14 per ton for fuel oil. Erdan's directive forces IEC to greatly restrict its use of fuel oil and almost exclusively use diesel.

Consequently, the Treasury will reap billions of shekels in unplanned tax revenues from a 20% hike in electricity rates - a rise which have knock-on effects on prices throughout the economy, because electricity is a basic input for most products manufactured in Israel. Shama said that he had asked Minister of Finance Yuval Steinitz to cancel the excise on diesel for electricity production, and that the Economics Committee would go to war over the issue.

IEC chairman Yiftach Ron-Tal said, "If there is no solution to the purchase of diesel, how will I generate electricity? We have diesel reserves for four to six weeks. Under current circumstances, we're receiving only half of the natural gas, and we don’t have the money to buy diesel. In 2012, due to the absence of Egyptian gas, we'll be drawing more from the dwindling Yam Tethys reserves, which will run out in early 2012."

Published by Globes [online], Israel business news - - on July 11, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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