Treasury nixes NIS 3 billion loan guarantee to Electric Corp
Limits on state guarantees for 2012 as well as the company's high existing debt burden ruled out the guarantees, treasury explained.
The Israel Electric Corporation has been refused NIS 3 billion in additional loan guarantees from the state.
Top IEC figures were told in a meeting with Finance Ministry officials on Monday that limits on state guarantees for 2012 as well as the company's high existing debt load ruled out the guarantees. The company said its cash flow predicament is due to increased diesel-fuel purchases in the past two months.
The two sides will meet over the next few days to try to work out an arrangement. This will likely entail postponing upcoming payments to the state by the IEC, another round of IEC budget cuts and a more limited issue of company debt backed by state guarantees. A hike in household electricity rates - the last was in April - is not on the agenda.
The IEC, headed by CEO Eli Glickman, has raised NIS 4.4 billion in government-backed debt so far this year: In April it raised NIS 1.5 billion in a private issue, and in July it raised NIS 2.9 billion in a public offering. For the latter it bowed to the treasury's demand and published its its first prospectus in a decade.
The company is facing cash flow problems brought on by a shortage in the natural gas supply that has forced the IEC to fuel its generating plants instead with diesel and mazut fuel oils, at up to five times the cost of natural gas. The IEC estimates its 2012 fuel expenses at around NIS 25 billion, compared to NIS 12.8 billion in 2011.
This summer, as energy demands and fuel prices peak, the IEC is paying up to NIS 100 million a day for fuel. The higher fuel prices are not reflected in its rates, which in April rose by 8.9% on average and by 8.3% for households.
According to the Energy and Water Resources Ministry's Electricity Authority, the rate hike should have been 31%. The more moderate increase was levied after the treasury undertook to provide the IEC with loan guarantees, to postpone tax deadlines and to defer the imposition of new accounting rules that would worsen the company's balance sheet.
The IEC, for its part, promised to cut expenses by NIS 400 million and to withdraw NIS 600 million from an employee pension fund - deposited illegally, according to a company regulatory team. The unions opposed both measures and took their cases to court.