Postponing 3 power plants could avoid electricity rate hike

IEC could save NIS 900 million by delaying the project.

Israel Electric Corporation (IEC) (TASE: ELEC.B22) could greatly reduce the pending electricity rate hike if it agrees to postpone the construction of power stations. Among other things, IEC would be able to immediately obtain NIS 900 million from the Public Utilities Authority (Electricity) for postponing the addition of steam generators, which energy sources say are not essential.

Yesterday, IEC said that it needs NIS 3.5 billion in emergency financing to buy diesel, because of the reduction in Egyptian natural gas deliveries. This financing is supposed to come from consumers through a 20% electricity rate hike. The rate hike could even been higher, if IEC secures the financing through capital raising. These hikes, too, would ultimately fall on consumers.

However, it turns out that the amount could be greatly reduced by withdrawing NIS 900 million in cash currently held by the Public Utilities Authority in a designated account for IEC. The money is intended for the construction of steam generators at three natural gas-driven power stations.

Many energy experts doubt the need for these generators, which will add 375 megawatts in production capacity at a cost of NIS 3.6 billion. Most of the financing for the project was raised by rescheduling NIS 2 billion in IEC's debt to consumers in exchange for a promise to complete the project by the end of 2013.

Meanwhile, IEC has chosen a Korean company as the main contractor for the three steam generators. Yesterday, it published a tender for the project's construction work. Postponing the project is liable to result in claims for breach of contractual commitments by the vendors. On the other hand, IEC claims that it cannot sue Egyptian natural gas supplier East Mediterranean Gas Company (EMG) because the attacks on the pipelines in Sinai are "force majeure" - and IEC could make the same argument if it is sued by the vendors.

Published by Globes [online], Israel business news - - on July 13, 2011

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

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