The Ministry of Finance will provide Israel Electric Corporation (IEC) (TASE: ELEC.B22) with an additional NIS 1 billion in guarantees immediately, and will provide a further NIS 2 billion in 2013, to back the issue of short-term bonds, subject to approval by the Knesset Finance Committee, Ministry of Finance director general Doron Cohen notified IEC today.
The Ministry of Finance will allow IEC to recycle debt, due in 2013, with new government backed debt, to be raised to finance the purchase of fuel for the generation of electricity.
Cohen said that the government reiterates is commitment to provide IEC with guarantees or alternative financing solutions for its cumulative cash flow deficit, caused by the need to purchase fuel.
After natural gas deliveries from Egypt were halted in 2011, IEC has had to purchase more expensive fuels for the generation of electricity. The Ministry of Finance and the Public Utilities Authority (Electricity), with IEC's consent, decided to spread out electricity rate hikes in order to prevent a sudden surge in the cost of electricity to consumers.
Within a few days, the Ministry of Finance will notify IEC details on the mechanism for tightening oversight and reporting to the ministry about IEC's financial and operational condition. The new measures are in response to IEC's NIS 1.4 billion cash flow shortfall, caused by fuel purchases.
An investigation by "Globes" found that the rating companies warned IEC about its dwindling cash reserves, but the utility's management apparently ignored the warnings.
IEC believes that if the Ministry of Finance's proposals are implemented in full and on time, together with finding of additional financial resources, including the consensual postponement of payments to suppliers, it will be able to meet its cash flow needs through the end of 2013.
Published by Globes [online], Israel business news - www.globes-online.com - on November 12, 2012
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