Netanyahu may scupper agreed power industry reform

Benjamin Netanyahu  photo: Reuters

Prime Minister Benjamin Netanyahu is believed to prefer tearing up the agreement reached with Israel Electric Corporation workers and pressing for a court ruling limiting their right to strike. 

The celebrations by Israel Electric Corporation (IEC) (TASE: ELEC.B22) workers over the agreements reached last Thursday on the format for reform in the power industry, agreements first reported by "Globes," are liable to prove premature. The agreements which are due to be signed in the coming days, barring surprises, require government approval, but not everyone is willing to support them, sources inform "Globes." The chief opponent is Prime Minister Benjamin Netanyahu.

Late last week, Netanyahu summoned Deputy Attorney General Meir Levin, and the prosecutor handling the state's petition against IEC workers and the Histadrut (General Federation of Labor in Israel) in order to examine the state's case. Following the meeting, Netanyahu said that he was determined to prevent the workers' committee from obtaining immunity for strikes  against structural changes in the economy, a statement referring to opposition to an agreement on reforming IEC.

High Court of Justice: Sovereign right

The events began last June, when the state petitioned the High Court of Justice against a ruling by the National Labor Tribunal allowing IEC workers to strike in protest against the state's failure to negotiate with them on structural changes in the company and the electricity sector. The Labor Tribunal sided with the workers, realizing that the state was dragging its feet in the talks about reform, while planning to implement the reform unilaterally by introducing private electricity producers who were already taking market share away from IEC, and in effect gradually lessening the workers' leverage. More than 30% of the electricity in the economy is already generated by private power producers. The Labor Tribunal's ruling meant that any structural change sought by the state would require the consent of the workers in companies liable to be affected by it.

On July 23, the High Court of Justice issued a temporary injunction against the IEC workers' sanctions. During the hearing, Supreme Court President Justice Esther Hayut made it clear that the state as sovereign possesses a right to institute structural changes in a given sector, thereby signaling to the Histadrut that there was no right to strike in essential monopolies such as IEC or the ports in order to prevent reforms.

Eliminating the right to strike dramatically reduces the power of the workers' committees in the economy. This signal from the High Court of Justice caused the Histadrut to change its position and halt the sanctions conducted by IEC workers during the summer.

Following a prolonged hearing, the High Court of Justice instructed the parties to resume dialogue aimed at reaching a compromise. Legal sources believe that a legal precedent by the High Court of Justice restricting the right to strike was prevented at the last minute.

In recent months, the parties - the Histadrut, the IEC workers' committee, the Ministry of Finance, the Ministry of National Infrastructure, Energy, and Water Resources, and IEC's management - have been conducting intensive talks in which it was clear that parties were under pressure to close a deal as fast as possible.

The pressure on the Histadrut resulted from natural anxiety about returning to a High Court of Justice liable to eliminate the right of workers to strike against structural changes. IEC's management also admitted more than once that they supported reform designed to streamline the company and improve its financial situation. The workers' committee realized that reform was unavoidable, and was not bad in its current format, at least in comparison with the earlier format presented by the state a year ago, which included removing the entire power production system from the company, which would have put thousands of workers out of a job.

The result was that after almost 21 years of discussions and fruitless negotiations, the parties are closer to agreement than ever before.

Celebration of this result, however, is not universal. Netanyahu prefers that the parties return to the High Court of Justice without any agreement in order to obtain the legal precedent forbidding the workers to strike. Minister of Finance Moshe Kahlon, on the other hand, is trying to exploit the pressure on the Histadrut to make a deal and achieve reform of IEC - another reform he can chalk up during his term as minister of finance.

The parties met last Thursday offices of the IEC board of directors. The participants said that the meeting, which began in the afternoon and continued until late at night, had been "very good and in a good atmosphere." At the end of the meeting, Histadrut chairperson Avi Nissenkorn and Ministry of Finance director general Shai Babad shook hands.

In an internal letter summing up the progress made in the talks sent last Friday to the committee representing academics working at IEC, the committee chairperson wrote, "On Thursday, the evening of the third day of Hanukah, more talks were concluded, at which it was agreed to go forward with implementation of the historic reform in the electricity sector. It is important to note that no agreement has been signed yet, but there are understandings and agreements. Barring surprises, the agreement will probably be signed in the coming days."

Reform: Increased compensation As part of the reform, IEC will sell five old sites to private parties (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. The company will also transfer to the state available areas in Ashdod and Ashkelon for the construction of advanced combined gas and steam cycle power stations.

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. 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.

The reform appears likely to result in the retirement of 2,800 employees over eight years. The remaining workers will receive a NIS 1,900 addition to their pension, starting at retirement age. Those retiring now will be entitled to enlarged 120% severance pay and a NIS 1,250 addition to their pension. Sources involved in the negotiations said, "The state is paying almost nothing for what it is getting. All the money for pensions will be paid only years later, when people reach retirement age."

Pressure on Nissenkorn

It was also stated that Nissenkorn was under great pressure, after having promised IEC workers a NIS 2,500 monthly addition to their pension, while the actual Ministry of Finance proposal was much less. IEC's management is demanding an improvement in the company's debt ratio and a reduction in its debt from NIS 43 billion to NIS 28 billion.

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. Most of the workers in the system management unit are engineers, and they are opposing their likely transfer in the reform to a new government company. These engineers have had a year of special training, and it will be difficult for the state to replace them if they continue to oppose a transfer. IEC CEO Ofer Bloch will meet with the unit's employees tomorrow in an attempt to persuade them to agree to the transfer.

The Private Power Producers Forum is predictably expressing utter dissatisfaction with the emerging plan. The Forum's attempts to take an active part in the negotiations, which included a highly publicized petition to the High Court of Justice, were unsuccessful.

The Forum said in response, "The format published abandons true competition in power 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. As long as IEC controls the production segment and the distribution segment, it has a structural conflict of interest. The emerging format does not loosen the connection between the segments, and will therefore not lead to real competition in the power industry that can cause a fall in prices. It is unacceptable for such an important issue, which will dramatically affect the Israeli economy, to be handled without transparency through an arrangement between the workers and the government, without conducting a hearing and for all parties concerned."

A Histadrut spokesperson said in response, "We are confident that improper considerations will not foil the historic reform in IEC."

Published by Globes [online], Israel Business News - - on December 17, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Benjamin Netanyahu  photo: Reuters
Benjamin Netanyahu photo: Reuters
Sonia Gorodeisky and Amiram Barkat
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