Israel Electric Corporation (IEC) (TASE: ELEC.B22) has set aside more than NIS 1 billion in a special fund to cover the cost of free electricity to staff, The Public Utilities Authority (Electricity) believes.
The regulator recently uncovered the fund during the course of an examination of the new basis for electricity tariffs, and after gaps were found between the sums IEC raised and its actual investments.
The Utilities Authority found that IEC had recorded the transfer of money to the fund in its financial report under its pension liabilities item, even though no provision had been made for deposit in its provident funds. The examination revealed that between 2005 and 2007 IEC made NIS 1.1 billion in provisions for further pension liabilities. The Utilities Authority believes the money has been set aside to cover the cost of free electricity to employees, in the event that this benefit is revoked in the future.
Following the revelation, the Utilities Authority recently wrote to IEC, the Government Companies Authority, the Ministry of Finance, and the Ministry of National Infrastructures, asking whether they had approved the deposits in the fund.
Figures obtained by "Globes" reveal that as early as 2005, IEC changed its actuarial guidance so that the free electricity, and other benefits such as clothing, would be priced into its commitments, but whether it had authorization for this is unclear. Sources close to the issue at IEC said that both Ministry of Finance and Government Companies Authority were aware of the transfers to the fund, which were in line with the company's labor agreement.
The issue of pensions at IEC is considered one of the most complicated of all. As "Globes" first revealed, there is currently a gap of more than NIS 4 billion in pension liabilities that the Utilities Authority is unwilling to recognize in IEC's tariffs.
IEC employees currently benefit from a free electricity quota of up 18,000 kilowatt hours, three times the consumption of the average family. The average consumption by company employees is 14,000 kilowatt hours, twice the average rate of consumption.
The Utilities Authority declined to comment. A spokesperson for IEC said in response, "The transfers were lawful and under the terms of the labor agreement at IEC. The employees' right to free electricity is a part of the benefits to which they are entitled, and therefore the company has to make the appropriate provisions for it in its pension plan."
Published by Globes [online], Israel business news - www.globes-online.com - on July 24, 2008
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