Court decision puts Eshkol power station sale back in play

Eshkol Power Station  credit: Yossi Weiss, Israel Electric Corporation
Eshkol Power Station credit: Yossi Weiss, Israel Electric Corporation

The OPC-Noy consortium's appeal against reopening of the tender was dismissed; the case may now go to the Supreme Court.

At the end of last week, the Tel Aviv District Court, sitting as the Court of Administrative Affairs, dismissed the petition of the OPC-Noy Fund consortium against the Israel Electric Corporation (IEC) tenders committee, seeking cancellation of the decision to reopen the tender for the sale of the Eshkol power station.

The court faced the dilemma whether to allow a new bidding process, with a minimum price of NIS 9 billion, after the company that won the tender, Dalia Energy Companies, offered NIS 12.4 billion, and then changed its mind and made a new offer of NIS 9 billion, even though it already knew what the other bids were. Against this stood the public interest in a profitable deal and a reduction in electricity tariffs.

Four bidders entered the tender: Dalia Energy Companies, with a bid of NIS 12.4 billion; the OPC-Noy consortium, with a bid of NIS 7.1 billion; and two others with lower bids. Dalia’s bid was thus NIS 5 billion higher than that of OPC-Noy.

Dalia was declared the winner, but the gap between its bid and that of the under-bidder caused the banks to refuse to finance the deal. Dalia did not give up; it submitted a revised bid of NS 9 billion and increased the guarantees that it provided.

IEC was in a quandary, and held meetings with the bidders and with the financing banks in order to decide how to act. In the end, it decided to cancel the tender, and proposed another round of bidding, this time with a minimum price of NIS 9 billion. The OPC-Noy consortium refused, demanded that it should be awarded the tender as the under-bidder, and appealed to the court.

OPC-Noy argued that the new tender was tailored to Dalia Energy Companies requirements and contravened tenders law. It claimed that Dalia’s original bid was deliberately inflated in order to secure its win, with the intention of trying to reduce the price afterwards. "If this situation is approved and considered a permissible step by the tenders committee, that will be a critical blow to tenders law and to future tenders," OPC-Noy claimed.

Judge Kobi Vardi, an expert on tenders law, dismissed the petition. He accepted the stance of IEC that there were indications the power station was worth at least NIS 9 billion, so that there was a gap of least NIS 2 billion between OPC-Noy’s bid of NIS 7 billion and the estimated value. Vardi therefore ruled that there was no bar to setting this valuation as the minimum price in a new round of bidding, even if it was Dalia’s revised bid.

The judge also ruled that OPC-Noy had no vested right to win the tender as the under-bidder, since it was a complex tender the terms of which allowed very wide discretion.

He found no violation of the basic principles of tenders law in the conduct of the tenders committee, and rejected the claim that Dalia had filed a tactical bid. His impression was that its bid was filed in good faith, and that Dalia could not uphold it only because of a lack of finance due to circumstances beyond its control: an unrealistic bid by OPC-Noy, and perhaps even meddling by OPC-Noy that led to the failure to raise finance.

The judge mentioned in his decision that Noy Fund managing partner Ran Shelach had said that Bank Hapoalim had promised him that it would not give Dalia a better proposal than it had given OPC-Noy: "Dalia will not meet its bid, and do you know how I know? Because those that are supposed to finance it are financial institutions that are owners of the Noy Fund, and I won’t let them finance Dalia." The judge ruled that this amounted to blemished conduct, that may have contributed to Dalia’s failure to obtain finance, and that even if it did not, it had consequences for the outcome of the appeal.

Judge Vardi also ruled that if Dalia were excluded from the bidding, the power station would be sold for less than its real value, contrary to the public interest and the desire to safeguard the public purse, given that maximizing the proceeds would probably lead to a reduction in electricity prices.

What happens now?

There are various possible scenarios, and they depend on whether OPC-Noy files an appeal in the Supreme Court.

Following the dismissal of the petition, IEC intends to renew the bidding process in the next few days, i.e., to reopen the tender, with a new deadline for submitting bids, and a minimum price of NIS 9 billion.

OPC and the Noy Fund were surprised by the judge’s decision. "We are examining the ruling and considering our steps," the consortium said. Sources close to it say that it will appeal. If it does decide to do so, it will file a request for the tender to be delayed, so as not to frustrate the appeal.

Under the law governing the reform of the power industry, which calls for the sale of the Eshkol power station, possession of the power station must be transferred by December 3. That is less than three months away, and so OPC-Noy will have to make a quick decision, and it will presumably not use up the 60 days it has in which to file an appeal.

If an appeal is filed, the Supreme Court will have to deal with Judge Vardi’s finding that "the basic principle applies that the sale of the power station at a higher price will probably lead to a reduction in the price of electricity for the public, as happened and has been demonstrated in other tenders in which other power stations were privatized."

Why is the tender important for the public?

The Eshkol power station, in the north industrial zone of Ashdod, is the largest in Israel fueled by natural gas, with an installed capacity of 1,693 megawatts. It is the most important of the IEC power stations to undergo privatization, after the sales of the Ramat Hovav and Hagit East plants to Shikun & Binui and Edeltech for NIS 4.25 billion and NIS 1.6 billion respectively, and of the Alon Tavor plant, sold for NIS 1.9 billion to the MRC group.

The sale of the Eshkol power station, which will in any case be for an unprecedented price, will assist in reducing electricity prices. Out of the amount paid for the power station, the Israel Public Utility Authority for Electricity will transfer to IEC its expenses and the cost of its land and properties. The remainder will be passed on to the public in the form of cheaper electricity.

It is estimated that, of the amount paid by the winning bidder, NIS 3.5-4 billion will go to IEC, and so, assuming that the power station is sold for NIS 9 billion, about NIS 5 billion will be available for reducing electricity prices.

Published by Globes, Israel business news - - on September 19, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Eshkol Power Station  credit: Yossi Weiss, Israel Electric Corporation
Eshkol Power Station credit: Yossi Weiss, Israel Electric Corporation
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