IEC Needs Competition and Vigilant Management

The IEC may clean up its act if faced with competition from other electricity producers.
Published: Wed 14 Nov 2012

It’s time that Israel’s main supplier, Israel Electric Corporation (IEC), be exposed to competition. This is according to both the Jerusalem Post and Haaretz which suggest that the country’s power sector be reformed.

The firm’s poor financial situation has seen the neglect of the nation’s electrical infrastructure which is in urgent need of maintenance in order to meet the country’s growing energy demand. The IEC has reported a total debt of NIS70bn which is the state’s second largest.

The country’s reserve power production was at an “all-time low” last summer, prompting the IEC to warn consumers of power outages. Israel’s electricity consumption reached a yearly record in July this year, threatening to crash the grid. Israel’s strained power supplies took a further knock with the lack of natural gas supplies from Egypt earlier this year. This has forced the IEC to buy more expensive fuels such as diesel and fuel oil. Egypt was supplying 40% of IEC's gas needs. Israel's Tethys Sea offshore gas reserve is also beginning to run dry earlier than expected. The IEC intends to power one of the generators at the Reading power plant in Tel Aviv with mazut, a low-quality fuel oil that generates more pollution than natural gas. The utility is also planning to produce electricity from other alternative fuels, and is considering trucking in diesel fuel if the state-owned supply company, Petroleum and Energy Infrastructures, cannot meet its needs. The former director general of the Israel Electric Corporation Amos Lasker suggests that Israel turns to nuclear power as an energy source, thereby reducing its reliance on natural gas supplies.

But, while the country’s power sector limps along, the IEC continues to make inane financial decisions. IEC employees have been enjoying one of the most generous pension benefits in the country. The IEC provides a 100% contribution to the fund, saving employees from having to contribute anything at all. The company also created an account for employee benefits such as free electricity and holidays, writes Haaretz. It was revealed recently that approximately NIS2bn accumulated in this account, without the knowledge of government regulators. In addition, the IEC has been granting salary increases without the approval of the Finance Ministry’s wage director’s approval. The IEC continues to pay the highest average salaries in Israel. These benefits inflated the pensions to approximately NIS3.4bn. As a result, the IEC has been left poor by its wealthy pensioners and the public fits the bill.

The IEC’s financial crisis is clearly affected by its growing reliance on more costly fuels for power which the public is already paying for. However, it doesn’t explain why the company continues to lose money without good reason. The government continues to provide the IEC with financial aid, ensuring that the utility can afford to purchase the fuel needed for electricity generation. The Jerusalem Post reckons that the IEC will eventually be forced to put up assets as collateral.

The Jerusalem Post says that the financial crisis shows either a lack of transparency or failure to establish “elementary controls and fail-safe mechanisms.” The publication points out that this should not happen in a “properly run establishment, particularly one dependent on the public coffers.”

Some major firms, fed up with the IEC’s practices and price hikes, such as Azrieli and Strauss have already disconnected from the national grid and switched to alternative power suppliers.

Fingers are being pointed at the company’s incompetent management and regulators but analysts believe that the only way to resolve the situation is to create competition in the industry. Perhaps IEC’s major decision-makers should be told to shape up or ship out.

Sources                

Haaretz-Cutting remarks:Israel Electric will send brownout alerts by SMS, online

Haaretz-Electric shock

Haaretz-Shining a light on deception: How Israel Electric Corp beat the system

Reuters-Israel Electric to sell more bonds as cash crisis deepens

The Jerusalem Post-Shocking situation

The Times of Israel-Electricity grid stretched to brink as sweltering Israeli’s turn to air conditioners for relief