"The decision to privatize the electricity sector was a mistake that will raise the price of electricity for consumers," says former Minister Energy and Water Resources Uzi Landau, in response to yesterday's article by "Globes" showing that householders will not benefit from cheaper electricity from the entry of independent power producers into the market. "Those who want competition should bring in independent power producers; those who want cheap electricity should keep Israel Electric Corporation (IEC) (TASE: ELEC.B22) as the sole producer," he said.
Yesterday, "Globes" showed how the government will grant independent power producers protection and safety nets which could cost electricity consumers billions of shekels. Landau, now minister of tourism, signed most of these protections when he served as the minister of energy in the previous government.
"True, I handled the entry of independent power producers, because I implemented a government decision, but I can only say what I was told by the US secretary of energy when I told him about it. He said just three words, 'don’t do it!'"
"Globes": Why did you give the producers such costly protections?
Landau: "It was all because of the government policy that we must bring in independent power producers. 'We'll bring in the first and the second, and see what happens.' The banks wanted their hedges back-to-back, and in the first three which entered received all the protections. This was the price of the government's success. An independent power producer won't come in without a return on capital of at least 12-15%. IEC works with a return of 5%. So if you want competition, you bring in independent power producers. If you want cheap electricity for the public, keep the company as a single entity."
Do you mean that a monopoly is better than free competition?
"Every approach that advocates privatization is based on the assumption that we have an efficient private market, but there is no true market here. IEC's expenses structure is such that 50% is spent on fuel for the generation of electricity, 30% on capital, which is mostly for the construction of power stations, and only 20% on operations and personnel costs. IEC's superior purchasing power in fuel and equipment means that 80% of its costs will be less than the costs of the producers. In other words, the independent power producers can try and undersell IEC only on the remaining 20%.
"As for the monopoly, you need strong regulation. You have to know what is going on in the company, you have to keep a tight grip on it, for example, forcing separate accounting between the company's different sectors and units."
We're not tycoons
"We're not tycoons. Our electricity is 30% cheaper than IEC's prices, and ordinary citizens are partners in our income through the pension funds," said an independent power producer yesterday, in response to the "Globes"' article, which states that households will not benefit from cheaper electricity in the wake of the privatization of power generation.
Published by Globes [online], Israel business news - www.globes-online.com - on May 1, 2013
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