Israel Electric Corporation (IEC) (TASE: ELEC.B22) CEO Amos Lasker has for months been busy trying to cut tens of millions of shekels in employee benefits. These cuts are apparently part of his tactics to tell the IEC workers committee that he will not agree to further delays in implementation of the company's Compass restructuring plan.
However, Lasker should read the report by international construction consultancy firm Northcroft, which highlights some of reasons for IEC's financial dire straits.
The big money spent at a company like IEC, which budgets NIS 4 billion a year on development, is in tenders for the procurement of equipment, fuel contracts (such as for coal and natural gas), and for the construction of new power plants.
In contrast to the salary and pension terms of IEC's employees, which are under constant and justifiable public audit, apparently oversight of the company's investment is woefully inadequate. This is especially true about IEC power plant at Ramat Hovav in the Negev.
Despite warning signs, the IEC tenders committee chose the more expensive bid by General Electric Company (NYSE: GE) for new turbines, because of a difference of a few months in delivery, compared with a cheaper bid by Siemens AG (NYSE: SI; XETRA: SIE). It is now clear that IEC will have to pay far more for these turbines than it should have. The company's excuse, as usual, is the short timetable.
It is hard to argue with this excuse, but the real problem is oversight of IEC's investments, especially for so-called urgent products that are part of the company's emergency plan. IEC has no real incentive to become efficient because it uses the cost-plus method, and get the money back through electricity rates. The decision to hire Northcroft is an immeasurably important act that should have been made a long time ago. However, unless IEC learns the necessary lessons, nothing will change.
Published by Globes [online], Israel business news - www.globes-online.com - on March 8, 2009
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