State Comptroller Joseph Shapira today exposed only two of the many malaises afflicting Israel Electric Corporation (IEC) (TASE: ELEC.B22). After a three-year investigation, the public has won the right to receive a detailed analysis of the way IEC's management transferred billions of shekels to employees, while greatly harming the utility's operating profit. The expensive raising of capital overseas is another example of failed management which has accelerated the utility's financial slide.
The harmful practices that Shapira revealed have mostly been halted, although the billions of shekels that were illegally transferred to the employees and their pension fund have not been restored, and it is doubtful if they ever will be. But dealing with the excess salary terms for IEC employees is treating the symptom rather than the disease.
IEC is no longer an inefficient government company. It is the sick giant of the energy market, and maybe of the entire country. Its mountain of debt is almost NIS 70 billion, making it the country's largest debtor after the state itself. Electricity rates do not cover its expenses. Independent power producers, which will come on line beginning in 2013, will accelerate the collapse of IEC.
The government, not the employees are to blame
The government has not offered a hint that it will pay IEC's debt when it reaches a situation that will require a debt settlement, or worse. Lessons from previous cases give us every reason to assume that the people who will bear all or part of the burden will be the public, through investment institutions. The State Comptroller report tells us that 7% of the assets of the five biggest pension funds are invested in IEC bonds.
This time bomb was not created by IEC's employees or managers - the government is to blame for it. Israeli governments which have been negotiating reform at IEC for 23 years. The present prime minister has avoided appointing a senior minister who will close a deal with IEC's employees. Fear of the public fury that will erupt in view of the billions of shekels received by thousands of IEC employees in severance compensation has deterred the government.
Like his predecessors, the current prime minister has preferred to send to the negotiating table mid-level and junior officials who cannot reach agreement between themselves, let alone with IEC's powerful union.
How long can this Ponzi scheme go on? For how long will the government pass to its successor the buck for IEC's mountain of debt? Ten State Comptroller reports cannot answer these questions.
Published by Globes [online], Israel business news - www.globes-online.com - on October 17, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012