19 years after the Electricity Sector Law was enacted, 13 years after the electricity rates were revised, five special steering committees, dozens of auditing and consultant reports, and an Israel Electric Corporation (IEC) (TASE: ELEC.B22) debt that has mushroomed to NIS 71 billion, the electricity sector has still not been restructured. State Comptroller Judge (ret.) Joseph Shapira has attacked the relevant government departments, headed by the Ministry of National Infrastructure, Energy, and Water Resources and the Public Utilities Authority (Electricity), in a report dealing with the electricity sector.
"Continuation of the existing situation constitutes a danger to the survival of both the company and the sector," Shapira states. His report notes that no fewer than 2,500 IEC employees are unnecessary.
Between July 2012 and April 2014, the State Comptroller's office examined aspects of how the electricity sector was managed, including the setting of several elements of the IEC electricity rates, actions pertaining to its employees' salaries, IEC personnel cuts, and implementation of structural reform in the electricity sector. The probe included the Public Utilities Authority (Electricity), IEC, the Ministry of National Infrastructure, Energy, and Water Resources, the Ministry of Finance, and the Government Companies Authority. Supplementary investigations were also conducted at the Antitrust Authority.
According to the State Comptroller, IEC continues to act as a monopoly whose revenue is based on a rate set by the Public Utilities Authority (Electricity), without implementing the necessary streamlining plans aimed at reducing the company's expenses through personnel cuts and saving on employment costs.
For example, Shapira claims that over the years, management approved turning temporary workers into tenured workers in accordance with the tenure procedure, without having considered the consequences for IEC's financial situation from a long-term perspective. He adds that it costs NIS 2 million more to employ a tenured worker than a temporary worker.
According to the State Comptroller, despite the five teams established to consider a change in the electricity sector structure since the enactment of the Electricity Sector Law in 1996, the government has still not managed to do it. Furthermore, none of the government entities, including the Ministry of National Infrastructure, Energy, and Water Resources, the Ministry of Finance, and the Government Companies Authority, have estimated the cost of restructuring the electricity sector, or the full benefit likely to be derived from the change.
The most recent steering committee set up in July 2013, headed by Government Companies Authority director Ori Yogev, was also unable to bring about the appropriate and correct structural change, and maintained the IEC monopoly, Shapira maintains, writing, "The recommendations in the team's draft do not include cost-benefit calculations for the proposed structural change, do not propose a solution for the problem of the assets arrangement and for improving IEC's financial soundness, and do not outline ways of making IEC more efficient."
The report also criticizes the very appointment of Yogev as committee head by the Ministry of Finance and the lawyers. Shapira argues that Yogev is tainted by "considerations that include contradictions between them," resulting from his wish on the one hand to preserve the financial soundness of IEC assets, which are state property, and on the other hand the need to arrange the electricity sector, including the creation of competition. In addition, six of the eight team members held positions in the Ministries of Finance and National Infrastructure, Energy, and Water Resources, which are responsible for IEC affairs, including its financial soundness. "The ministers at the time did not appoint representatives of other parts of the electricity sector to the committee for the purpose of striking a balance between all the interests, including representatives of the Public Utilities Authority (Electricity) and the Antitrust Authority," the State Comptroller argued.
Will the proposed reform raise or lower the electricity rate? According to the State Comptroller, none of the government ministries or regulators has an answer: "As of the end of the audit, the Public Utilities Authority (Electricity) still had no estimate of the effect on the electricity rate of the various plans for structural change proposed in 2010-2013."
The Public Utilities Authority (Electricity) said in response, "The State Comptroller's report criticizes the ongoing inefficiency in IEC over the years, particularly the increase in its salary expenses and the company's financial management. The Public Utilities Authority (Electricity) has been warning about this for years."
Published by Globes [online], Israel business news - www.globes-online.com - on October 28, 2015
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