Pressure is mounting for the partners in the Tamar gas field to reduce the price of gas in the agreements with the private power producers, in which the price of gas was linked to the power production tariff. The aggregate value of the agreements is more than $16 billion. A reduction in the price of gas could eventually lead to a reduction in the prices that the customers of the private electricity producer pay. Most of them are large enterprisesand public bodies.
“Globes” has learned that at least one of Tamar’s major customers has taken initial steps towards an arbitration process on reducing the price of gas. Sources close to the customer told “Globes” that the stance of the Public Utility Authority (Electricity) backs their demands from Tamar for a reduction in prices. Such a step, should it come to pass, could harm Tamar’s profitability.
The reason put forward for a reduction in the price of gas is the intention of the Electricity Authority to change the structure of the power tariffs, as previously reported by “Globes.” As a result of the planned change, the power production tariff is meant to drop. Such a drop apparently obliges Tamar to reduce the price it charges the private power producers, because all the agreements signed with it provide that the price will be linked to the production tariff. The gas price was linked to the production tariff at the time in order to accommodate the private electricity producers, whose business models are also based on the production tariffs published by the Electricity Authority, as is the funding they received to build the stations. As of today, the production tariff stands at NIS 0.336/KWh. For domestic consumers, the production tariff is one of three that are combined to arrive at the final electricity tariff in addition to the production tariff, consumers pay a tariff for powertransmission (high-voltage networks and cables), and a distribution tariff (mid- and low-voltage networks).
As reported in “Globes”, the Electricity Authority intends to remove certain costs related to management of the electrical system from the tariff and to move them to a new tariff component that will be called “system management costs.” It is expected that the removal of these costs will cause the production tariff to decrease though it is uncertain by how much. Gas industry sources told “Globes” that the Electricity Authority’s initiative raises a complicated legal question, since the issue involves a change to the linkage formula.
The Tamar partners said in a statement: “We shall honor every word of the agreements.” The Electricity Authority stated: “In August, the Electricity Authority published a decision on the cost of production recognized for Israel Electric Corporation. The need to publish a decision stems from the fact that private power producers are joining the power economy, and therefore components such as repayment of debts arising from the fuels crisis and repayments of consumers' debts were separated out, for reasons of transparency, avoidance of cross subsidies between consumers, and the need to distinguish between cost components of Israel Electric Corporation and production cost components in general, with the advent of private producers. We would stress that the update is in no way connected to the gas agreements."
Published by Globes [online], Israel business news - www.globes-online.com - on October 23, 2013
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