Electricity rates may rise a further 2.5%

Despite a recent 9% hike, the IEC is still not covering the cash flow shortfall caused by the suspension of Egyptian gas supplies.

Electricity rates may be set to rise for the second time this year due to the cash flow problems of the Israel Electric Corporation (IEC) (TASE: ELEC.B22), which requires NIS 500 million.

The utility announced yesterday that it would be forced to raise capital due to its cash shortfall. Such a measure would only increase the company's debt, which has already reached NIS 60 billion.

IEC believes that the government and the Public Utilities Authority (Electricity) will assist it in finding a solution to its cash strapped situation, by again raising electricity rates to consumers - this time by 2.5%.

The Public Utilities Authority (Electricity), the government body that regulates the IEC, already raised electricity prices to household consumers by 9% two months ago, due to the disruptions in the supply of natural gas from Egypt.

As part of that rise, a mechanism was established for automatically updating electricity rates every time that there is a deviation of more than 2.5%. An examination of the situation by "Globes" found that the rate has yet to break through that threshold but it will inevitably do so in the coming days.

In its announcement yesterday, the IEC confirmed a report by "Globes" that in recent weeks there has been a 25% fall in production of natural gas in the Mary B well in the offshore Yam Tethys gas field - the only Israeli gas field currently supplying electricity to the country's power stations. Since the flow of gas from Egypt was halted earlier this year, the Mary B has been the only source of gas to Israel's power stations and electricity grid.

The drop in supply of natural gas has compelled the IEC to raise purchases of diesel, which is more expensive. Moreover, the drop of production from the Mary B well will now cost the IEC an extra NIS 100 million.

IEC also said that the unexpectedly mild summer reduced electricity consumption in the country, and thus the IEC's revenue.

Public Utilities Authority (Electricity) spokesperson Nuri Palter-Eitan said, "The Authority, as always, will examine claims about cash flow problems after the company provides us with precise data based on its claims and the issue will require an overall government perspective."

The Mary B well is rapidly being depleted and production is expected to significantly fall in the second half of 2012. The small nearby Noa field, which is being developed, will come on stream in the middle of 2012, and will partly compensate the gas shortfall. Another solution will enable the import of liquid natural gas in container ships that will connect up to a buoy offshore from Hadera. This will probably begin operations towards the end of 2012. A complete solution to the situation will be available from the middle of 2013 when gas begins flowing from the Tamar field.

Published by Globes, Israel business news - www.globes-online.com - on October 6, 2011

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

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