Prime Minister Benjamin Netanyahu is trying to lower the upcoming electricity rate hike by transferring funds used to pay for free electricity for Israel Electric Corporation (IEC) (TASE: ELEC.B22) pensioners. Netanyahu wants the upcoming 19% rate hike to be lowered to a single digit.
Sources inform ''Globes'' that Netanyahu is personally managing the issue. He has been pressing Minister of Environmental Protection Gilad Erdan to allow IEC to use fuel oil at power stations. Meanwhile, Ministry of Finance has already agreed, in internal discussions, to abolish the excise on diesel, one of the fuels IEC uses, for the rest of the year.
Netanyahu wants IEC and its employees to do their bit in the effort to reduce the pending rate hike. Sources say that, in internal discussions, IEC has offered to withdraw up to NIS 600 million from the trust fund that pays for its pensioners' free electricity. "Globes" has calculated that, if this money is used to buy fuel, it could reduce the upcoming rate hike by 3 percentage points.
The trust fund has NIS 1.9 billion, and disbursements for employees and pensioners' benefits and bonuses are not financed from electricity rates. "Globes" has calculated that NIS 50 million a month can be withdrawn from the trust fund a month, subject to approval by IEC's board of directors and the regulatory committee that oversees the utility. The money would go to IEC to buy diesel and fuel oil.
On July 14, the Public Utilities Authority (Electricity) announced that it will raise electricity rates by 19%, subject to a hearing. The rate hike has put heavy pressure on the Prime Minister's Bureau, in part because of its knock-on effect on goods and services for which electricity is a major input.
The pending rate hike is due to a confluence of factors: disruptions in deliveries of natural gas from Egypt, which were halted altogether on July 13, forcing IEC to use other, more expensive fuels; and Erdan's directive banning the use of polluting fuel oil, which is cheaper than diesel, at power stations adjacent to cities, such as in Haifa and Ashdod.
The Public Utilities Authority says that the rate hike can be lowered to 12% or less if the Ministry of Finance cancels the excise on diesel and Erdan cancels his directive. The Ministry of Finance is willing to cancel the excise, partly because revenues from it are a windfall, but Erdan is so far refusing to budge, despite pressure from Netanyahu, including personal meetings.
The Prime Minister's Bureau said in response that Netanyahu was coordinating with Erdan, Minister of Finance Yuval Steinitz, and Minister of National Infrastructures Uzi Landau the rate hike caused by disruptions in gas flow from Egypt and the ways to deal with it.
Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2011
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