Israel Electric Corporation's (IEC) (TASE: ELEC.B22) management emptied the utility's till to finance employee benefits and pensions, says State Comptroller Joseph Shapira in his annual report, published today. He estimates that in 1996-2008, IEC's management distributed illegal benefits to employees and pensioners, creating NIS 3.4 billion in excessive salary payments.
"The State Comptroller takes a serious view of the improper functioning of IEC's management, which acted over many years to create a fait accompli in the area of unauthorized benefits and pensions, amounting to billions of shekels, without any oversight by the board of directors or other gatekeepers at the company," says Shapira.
Shapira blames IEC's board of directors, executives, the Ministry of Finance's Director of Wages and Supervisor of Capital Markets, Insurance and Savings, and the Government Companies Authority for not preventing the serious shortcomings at IEC. He says that the Director of Wages, the Supervisor of Capital Markets and the Government Companies Authority should pursue their investigation into the illegal salary and pension payments, immediately halt the payment of them, and try to get the money back.
"The minister of finance, the minister of energy and water resources, and the attorney general should act without delay to correct the faults, in cooperation with the regulatory team appointed to supervise IEC's activity," said Shapira.
Shapira says that the most serious case was the creation of a joint trust account by IEC's management and workers committee to guarantee payments of the non-funded benefits to employees for life, even if IEC were privatized or went bankrupt. He reveals that, in 2006, then-IEC CEO Yaakov Rosen ordered, without the board of director's knowledge, monthly payments of NIS 20 million into this account. These payments totaled NIS 720 million until they were halted in 2009, and the account now has more than NIS 2 billion.
Raising capital at the public's expense
Shapira also found serious faults, to the point of a "serious failure" in the conduct of IEC's board of directors and management in the raising of capital overseas. IEC raised debt in two offerings at the height of the global credit crunch, and committed to paying very high interest rates, which are financed by electricity consumers. He concludes, "The attorney general should review the need to set guidelines for directors to act with extreme caution… and take personal responsibility."
Published by Globes [online], Israel business news - www.globes-online.com - on October 17, 2012
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