Sources in the Israel Electric Corporation (IEC) (TASE: ELEC.B22) believe that the government will not allow them to raise electricity rates by more than 10% when prices are hiked in April, even though the required rise should be higher. Sources who are familiar with the IEC's cash flow problems said, "The lower than required rise in April will be reflected in the tariff hike in 2014."
The Public Utilities Authority (Electricity) insists that no agreement has been reached over limiting the April price hike to 10%. Sources at the Public Utilities Authority (Electricity) inform "Globes" that in internal discussions it was said, "We'd be happy to sign on a single digit electricity price rise in April."
The halt in the flow of natural gas from Egypt has forced IEC to buy more expensive fuels such as diesel and heavy industrial fuel to produce electricity. At the start of 2012, the IEC estimated that it would have to pay NIS 7.7 billion more than planned for these fuels. To finance this added expenditure, the IEC asked for an immediate electricity tariff rise of 30%.
However, the Ministry of Finance feared a public backlash over such a drastic price rise and agreed to spread the hikes over three years. An agreement was reached by the Public Utilities Authority (Electricity) in March by which electricity prices rose 8.9% in April and would rise by 4.4% in 2013, and 3.7% in 2014. This would enable consumers to profit from a more moderate increase but lose a planned lowering of rates in 2013 when natural gas from the Tamar field begins to flow, which would end the gas shortage.
But in September it became apparent that the IEC had miscalculated the cost of fuel, underestimating it by NIS 1.71 billion below the original NIS 7.7 billion. This requires a hike of over 10% to balance the IEC's books.
Published by Globes [online], Israel business news - www.globes-online.com - on December 6, 2012
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