The Ministry of Finance, the Public Utilities Authority (Electricity), and the Ministry of Environmental Protection today tried to reach a deal that will lower the electricity rate hike at the end of this month from 19% to 12%. To achieve the lower figure, the Ministry of Finance will, for the first time, have to forego the excise on diesel during the summer months, through a directive.
The Ministry of Environmental Protection still insists on keeping its directive that bans Israel Electric Corporation (IEC) (TASE: ELEC.B22) from using fuel oil for the generation of electricity at its Haifa and Ashkelon power stations. This stubbornness accounts for 2-3% of the electricity rate hike.
The initial media reports about the pending rate hike appeared on June 29. Anyone who thought that the politicians would be shocked was disappointed. A rate hike that will cost tens or hundreds of shekels per family shocks the public far less than the extra pennies that it is paying for cottage cheese.
There is a simple reason for this: the price of electricity is a mystery that only geniuses can figure out. Egyptian natural gas, the excise on diesel, fuel oil are all mixed up in the minds of Israel's public during the summer heat, and the public chalks up the rate hike to fate. Any child, however, can price cottage cheese, and there is no way to explain its higher price except by the greed of those who sell it.
But reality is more complicated. Higher electricity prices will also affect the price of cottage cheese and water, costs in industry, and will reach every corner of the economy. Is the blow avoidable? Could Israel have been better prepared for the halt in Egyptian gas deliveries? Should Israel have purchased natural gas reserves or diverted investment from the construction of IEC power stations?
Only independent experts can say. The disruptions in Egyptian gas deliveries was a known scenario repeatedly gamed by the government. Nonetheless, the deliveries were considered stable enough by Israel Corporation (TASE: ILCO) CEO Nir Gilad to sign a huge gas supply contract a moment before the collapse.
The answer to these questions will probably never be known, but the message to the politicians is unequivocal: batter consumers with higher electricity prices, but don’t touch their cottage cheese!
Published by Globes [online], Israel business news - www.globes-online.com - on July 17, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011