"Every day that passes without reform at IEC is a failure, and the State of Israel is to blame. Foot-dragging is no longer possible, and the relevant parties in the government should realize this. IEC needs reform, but it cannot implement it by itself, even if it were to reach an agreement with the workers. For reform, the government is not just desirable, but vital," Israel Electric Corporation (IEC) (TASE: ELEC.B22) CEO Eli Glickman told "Globes". In an exclusive interview, he discusses the necessity of the largest reform ever undertaken at the utility, its huge debt and serious financial situation, and the many question marks over its future.
"Globes": The cooperation you talk about is necessary, but not sufficient for the reform to be implemented. Look at what's going on at the ports.
Glickman: "I am aware of everything that is going at the ports and railways, and I believe that things will be different with us. IEC is not a port, our skilled workers cannot be replaced by soldiers, and Israel isn't Switzerland, where if there is a strike it is possible to get electricity from Germany. In my opinion, we can achieve things with the workers committee. Either way, we won't let the workers paralyze IEC. IEC will be reformed, come what may."
There has been talk of reforming IEC for 17 years. When will we move on to action?
"It is obvious to everyone that IEC must be transformed and adapted to the new era, and I hope that it will happen soon. However, it should be remembered that we're not talking about just another reform, but about the biggest and most complicated reform in Israel's history. IEC has a debt of NIS 70 billion, it has 13,000 employees, and provides one of the country's critical services. The reform will make it more efficient and competitive, with fewer employees and less free electricity."
IEC's biggest problem is its financial situation. In addition to a debt of over NIS 70 billion, it reports heavy losses, posting a loss of NIS 249 million for the first quarter of 2013. This loss is an improvement on the NIS 1.8 billion loss for the corresponding quarter of 2012. The improvement was mainly due to lower expenses on fuel and a reduction in employee pension expenses.
Glickman is convinced that IEC's nadir is behind it. "We successfully overcame three challenges: the financial crisis; the Egyptian gas crisis; and the low electricity reserves. All this happened while we were dealing with a huge debt and the fact that the reform is not moving forward. As a result of the gas crisis, we also decided to increase the company's cash reserves to NIS 3 billion. We did this precisely when there was no money, during the most difficult period."
Nonetheless, you're still sunk in huge debt. Where will the money come from?
"IEC has three main growth engines: operations in Israel, such as the fiber optic venture; international activity; and the smart grid project. International operations will contribute $200 million revenue this year. There is an electricity shortage in the world, this is a $500 billion a year market, and we have skills that are lacking in the world. At the same time, the smart grid project will save NIS 10-12 billion a year."
While these growth engines will begin to generate revenue, IEC will continue to raise money from every possible source: the banks, financial institutions, and the public in Israel and overseas. "Within two weeks, we raised NIS 7 billion: NIS 1 billion from HSBC (a loan to finance the emergency plan and to build and expand power stations - S.K.L.); NIS 2.4 billion from local banks with government guarantees; and the rest, $1.1 billion, from overseas," Glickman says. "Show me another Israeli company that succeeded in raising this much money recently. We raised much more than we expected, and I am pleased because we completed raising our quota for this year (NIS 9 billion - S.K.L.)."
A year ago, IEC director Avraham Natan unexpectedly resigned, claiming that the utility's financial conduct was putting it at risk. He also claimed that IEC was increasing its debts and that the high interest rates were reflected in higher electricity rates, that the utility's salary cost was 25% the global norm, and that the debt-to-equity ratio was higher than the norm.
Glickman believes that Natan was wrong. "Avraham Natan resigned because he didn’t think that the company could meet its commitments. He is an excellent financier, but fortunately he was wrong. It's a fact that while Israel's rating has been hurt, IEC's rating has not. As the CEO of IEC, there are very few cases in which I can say that I am pleased. Happily, today, this is one of them," he says.
Meanwhile, electricity rates are only going up.
"The gas that will come from Tamar will slash electricity rates. Israel's people forget that prices here are low by global comparison, while they receive high-quality service. In the US, Canada, and Europe, there are blackouts which last for weeks, whereas in Israel, they last, at worst, for a few hours."
Published by Globes [online], Israel business news - www.globes-online.com - on June 24, 2013
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