IEC reform plan agreed

Following months of intensive discussions, the Ministry of Finance and the Ministry of National Infrastructure, Energy and Water Resources have reached agreement with Israel Electric Corporation (IEC) (TASE: ELEC.B22) employees on reform in the electricity sector, sources inform "Globes."

Sources present at the discussions said that the parties conducted marathon talks at the offices of the IEC board of directors in Tel Aviv, at the end of which Histadrut (General Federation of Labor in Israel) chairperson Avi Nissenkorn shook hands with the Ministry of Finance director general. The meeting, which began in the afternoon and continued until late at night, took place in a positive atmosphere and yielded positive results.

Barring last-minute surprises, a historic agreement in principle will be signed this week by representatives of the state, headed by the Ministry of Finance director general and budget department director, the Histadrut chairperson, and IEC's management, thereby ending 21 years of disputes and unproductive negotiations.

The source present at the talks said that the workers had agreed to waive some of their salary and compensation demands in exchange for an extension of the agreement with the state from seven to eight years. They also conceded the Eshkol site and the Rogozin land.

As part of the reform, IEC will sell five old sites to private producers (Eshkol, Ramat Hovav, Reading, Alon Tavor, and two units at Hagit), with a total capacity of 4,000 megawatts, half of IEC's production capacity. The IEC's new power stations, such as Zafit and Gezer, will remain under IEC ownership. It appears that 2,800 workers will retire in the framework of the reform.

Projected proceeds from the privatization of the power stations to be sold over 5-6 years total NIS 15-16 billion. Some of this will be used to repay IEC's huge debt and to pay compensation to the retiring workers.

The big question is what will happen to electricity rates following the reform. Some sources said that they would not change, and might even fall slightly as the IEC becomes more efficient and its wage costs fall dramatically.

In exchange for relinquishing most of its electricity production, IEC will build and maintain two combined cycle power plants in Hadera in place of power stations 1-4 at Orot Rabin.

The other power stations to be retained by IEC will be divided into two government subsidiaries: one for coal-fired power stations and one for power stations using natural gas. Incorporating subsidiaries will make it easier for the government to also privatize these companies in the future, should this be agreed. Such a measure will facilitate structural separation in the production system.

One of the significant features of the reform is the immediate separation of the system management unit and planning, development, and technology from IEC. The system management unit, which determines the order in which the various power stations are operated, causes structural conflict of interest in IEC, which both produces electricity and is responsible for the commercial aspect.

Reform in the electricity sector was first attempted in 1996, over 20 years ago. The most recent attempt to reach agreement between the parties involved on reform, also unsuccessful, was the Yogev reform in 2014. The current format is similar to the Yogev reform, which also left some production in IEC's hands.

In an internal letter to company employees, IEC CEO Ofer Bloch wrote, "I am glad to inform you that significant progress has been achieved in the discussions that took place today in Tel Aviv. The core issues were resolved in principle in line with the briefing I gave at the most recent management meeting.

"There is still a long way before a final and binding agreement is reached, but a breakthrough has definitely taken place. Detailed information will be provided later next week, and in the budget meetings in Ramot."

The Private Power Producers Forum said in response, "The format published abandons true competition in electricity production. Despite the billions paid to a group of workers, two and a half million households will be unable to benefit from competition and lower prices. This is a fake reform."

Published by Globes [online], Israel Business News - www.globes-online.com - on December 17, 2017