The Ministry of Finance is picking up the pace of negotiations on an agreement to reform Israel Electric Corporation (IEC) (TASE: ELEC.B22) because of the utility's severe liquidity crisis. Sources inform ''Globes'' that there has been progress in the talks in the past few days and that the gaps have narrowed between the parties' positions on key issues, including the amount of retirement severance for IEC employees, pension supplements, and the size of the grants they will receive for their consent to the reform.
Yesterday, Minister of Finance Yuval Steinitz said that the reform would be achieved within six months. Speaking at the Sabbath-Cultural Forum in Beersheva, he said, "We're reforming IEC, and we're 80% down the road. The workers committee knows that thorough reform is necessary, and that the employees will have to make concessions."
Sources involved in the talks told "Globes" that the cash flow shortfall scandal gave the negotiations a boost. A source said, "The scandal made it clear to the Ministry of Finance its dependency on a single company and any mistakes it might make, honing the realization that the current situation cannot continue."
The sources added that it an agreement on the reform could be signed within six months. However, top Ministry of Finance and Ministry of Justice officials oppose signing an agreement before the January Knesset elections. The sources fear that a hasty agreement would result in "reform light", which would do more harm than good. They warned that the Attorney General would not allow the outgoing Netanyahu government to sign such an economically important agreement which would be binding on the new government after the elections. IEC's workers committee also doubts that agreement will be reached in the near future, at least not before the workers committee elections at the end of November.
IEC's current structure will survive
Official negotiations between the government, IEC's workers committee, and the Histadrut (General Federation of Labor in Israel) were called off in March, after IEC CEO Eli Glickman submitted at his own initiative a proposal, "A surge of light" for reform, based on the "Compass" plan initiated by his predecessor, Amos Lasker.
Under the plan, IEC's management proposed cutting 1,700 positions at the utility and retiring 2,000 employees over the age of 50, who would receive 150% severance compensation. Even after this proposal, there was a NIS 4 billion gap between the government and IEC workers committee's demands.
Since the negotiations were halted, Deputy Minister of Finance Yitzhak Cohen has handled the talks on behalf of the government as head of the inter-ministerial committee for the negotiations. In the past few weeks, he has held talks with IEC chairman Yiftach Ron-Tal, who has mediated between the government and IEC's workers committee. In these talks, both parties showed a willingness to be flexible.
The proposed IEC reform is based on keeping the utility's current structure, in contrast to the 2007 proposal, which proposed the establishment of subsidiaries, which would be gradually privatized, as in the reform at Israel Railways. The government's largest achievement in the reform was the privatization of the Ramat Hovav power station, which will increase electricity production by independent power producers to 30% of total electricity production. Project D - the construction of a new power station, which will be 51% privately owned and 49% owned by IEC will electricity production by independent power producers to 40%. In addition, IEC's grid management system will be spun off into a separate government company, which will make possible the fair commercialization of electricity.
One sixth of IEC employees to leave
For IEC's workers, the reform includes agreement for the retirement of 2,000 of the utilities 12,000 employees. The retirees will be eligible for increased severance compensation of at least 150% and an early pension. The remaining employees will receive a reform bonus of over NIS 100,000 per employee. Employees and pensioners will also receive substantial increases to their pensions, amounting to thousands of shekels per employee to correct current distortions in the amounts set aside for pensions.
IEC's employees will also agree to restructuring, including the abolishing of two of the utility's five districts, and give managers more discretion in firing employees.
Published by Globes [online], Israel business news - www.globes-online.com - on November 11, 2012
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