In the coming few years we will see a significant, if not to say dramatic hike, in electricity tariffs, all the players in Israel's electricity sector admit in private conversations. The rise will happen almost certainly, with the reform or without it, with a drastic cut in employees pay or without it. This incessant concern with the ills of the Israel Electric Corporation (IEC) (TASE: ELEC.B22) may provide an excellent livelihood for journalists but distracts attention from the real crisis.
The media carnival over the past week regarding the missing NIS 1.5 billion is not coincidental timing. Since September, this huge budget hole in the utility's balance sheet has been known about after the IEC reported it to the Tel Aviv Stock Exchange (TASE).
Now the company is finally approaching the Ministry of Finance and asking for state assistance and so journalists were given the green light. So for a week we have battered and bruised the IEC with great enthusiasm. We have called for the company to be dismantled, to be cut off from the electricity switch, to stop the greed, and this robbery of the public purse and more slogans that we so much love. We did it mainly because we know what the public wants to hear. We know how you like your main course, and the IEC, what we can we do about it, is the juiciest steak in the city.
The reform will raise electricity rates
We haven't borne false evidence or published lies but we have only presented one side of the coin and there are two sides. We like to reiterate again and again the scandalous management of the IEC that together with its employees have transferred billions to their pension fund and secret trust fund to ensure payments of benefits, like electricity, for the rest of their lives.
The other side of the coin is that most of this promiscuous management was halted many years ago. Exceptional salary benefits make electricity bills more expensive by a fraction of a percent. The generation of employees that enjoyed salary conditions cut off from reality is disappearing and new employees receive salaries that are not nearly as good. The formidable workers committee is not only not threatening to cut off the electricity but is begging the government to agree the reform to reduce the pressure on thousands of frustrated employees that are eager to leave the company with enlarged compensation.
However, the major problem is not the employees, and not even IEC, but the electricity grid and the tariff. The IEC has no real prospects of being profitable. This is not because of inefficiency, a rotten management culture, and excessive salary conditions but because the state had forced upon the utility uneconomic tariffs that promise wretched capital returns.
The government refuses to inject owners capital that would greatly strengthen financial stability and prevents it from developing new areas of activity that would generate profits.
Introducing competition into the electricity market won't lower electricity prices but make them more expensive, and it will be the owners of private power stations and the most senior management that enjoy the fruits of streamlining. The experience gained worldwide from reforming electricity markets is not conclusive. The number of reforms that ended in failure and worsened the economy and the consumers' situation is far larger than the number of clear successes.
And it is impossible not to mention the IEC's mountain of debt that will continue to grow over the years. One day with the reform or without it, through choice or necessity, a debt settlement will be reached for this mountain, and as part of this the public will be asked to make its contribution through the unoriginal method of raising electricity tariffs.
The public is angry and rightly so about the corruption, and the wastefulness, and IEC's rotten management culture. The public does not appreciate the fact that it enjoys a reliable electricity supply at a subsidized and relatively cheap price. The public does not understand that it has a lot to lose even if the Finance Ministry "wins" against the IEC and puts an end to the corruption and wastefulness.
Published by Globes [online], Israel business news - www.globes-online.com - on November 11, 2012
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