Sources inform ''Globes'' that Israel Electric Corporation (IEC) (TASE: ELEC.B22) will report a loss of over NIS 500 million in 2013, even though last year was supposed to be the turn-around year in the utility's financials, following the start of natural gas deliveries from the Tamar field in late March. Since the hook-up, the electricity tariff has been 20% higher than IEC's operating costs, generating revenue of NIS 0.05 per kilowatt/hour from the electricity it sells to the public.
Nonetheless, the additional income does not cover the cost of IEC's purchases of other fuels, which replaced natural gas in 2011-13. IEC posted a loss of NIS 368 million for the third quarter of 2013, despite a NIS 7 billion reduction in fuel purchases, compared with the corresponding quarter of 2012.
As "Globes" revealed, the damage to IEC from the Egyptian natural gas crisis was far more than it officially reported, and is estimated at NIS 20 billion. To spread the cost, IEC reported most of expense in balance sheet as a supervised asset, which allowed it to defer most of the expense until 2015. Spreading out the expense means that the cost of the gas crisis on the utility's financial reports will continue over the next two years.
The additional NIS 500 million loss means that IEC's equity could fall below NIS 15 billion. Given that its liabilities exceed NIS 73 billion, its leverage could reach 83%. IEC's financing costs are currently NIS 2 million a day, or NIS 2.5 billion a year.
The problem of IEC's financial soundness requires a solution as part of the Yogev Committee on electricity reform. The sources say that committee chairman Ori Yogev wants IEC's capital to balance sheer ratio to rise from the current 16% to 35-40%. The government is considering converting NIS 6 billion of IEC debt to equity.
The Yogev Committee is also considering the sale of IEC's property to raise NIS 1 billion as an additional source of financing. Another source could be the sale of power stations, such as the plants at Ramat Hovav, which the employees have agreed to sell, and land for the construction of the Alon Tavor power station. The Ramat Hovav power station has four industrial turbines and two innovative cogeneration power stations for a total output of 1,140 megawatts. The sources said that the government is considering buying the power stations for NIS 2.5-3 billion.
IEC will reportedly use proceeds from the sale of land and power stations to cover the cost of its reform and the retirement of 2,600 employees, rendering the need for another electricity rate hike unnecessary. The cost of IEC's retirement and compensation agreements is estimated at NIS 6 billion.
IEC said, "The company reports its business results as part of its financial reports pursuant solely to securities regulations."
Published by Globes [online], Israel business news - www.globes-online.com - on February 23, 2014
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