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Electric Corp. to be fined for late delivery of new power stations
By Avi Bar-Eli

For the first time in the company's history, the Israel Electric Corporation is to bear financial consequences for its inefficiency. The National Infrastructure Ministry's Electricity Authority has decided to fine the IEC NIS 5 million for every month of delay in constructing the power stations planned as part of the emergency contingency plan for Israel's electrical supply. IEC has already admitted that it will not meet its original timetable, which called for delivery this summer. The public is already paying an extra 4.2% for its electricity to finance the promised power stations.

IEC's fine will double to NIS 10 million as of January 2010, and if the delay exceeds one year, financing for the delayed station will be cut off. The fine is to be paid by a reduction in consumers' electricity rates.
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The emergency contingency plan for Israel's electricity supply aimed to provide an immediate solution to an expected shortfall in the IEC's production capability, through construction of five power stations in 2009-2012. The first two production units were to have been installed at Ramat Hovav and in operation by July or August. The delay is expected to be even longer than the three to four months that the IEC has reported, and the stations are only expected to begin production next winter, in about five months' time. That spells fines of some NIS 50 million for the IEC, according to current estimates, NIS 25 million for each of the two power stations.

Three additional production units at Ashdod (the Eshkol site) and Ramat Hovav near Eliakim (the Hagit site) are slated to be in operation by summer 2010. The IEC will be facing even stiffer late delivery fines for these - NIS 10 million for every month beyond the scheduled completion date, and NIS 15 million monthly after six months. The authority also decided that the fines will not be tax-deductible, to prevent the cost from being passed on to consumers.

The government approved the emergency contingency plan in March 2008. To finance the costs, which were estimated at NIS 2 billion, the Electricity Authority plenum gave the go-ahead to hike electricity rates by 4.2%, starting January 2009, for a period of two years. But the rate hike was stipulated with a number of terms, including IEC's strict adherence to the agreed upon time table. IEC's apparent breach of most of these terms has lead the authority to consider cutting off financing for the plan, and even cancelation of the rate hike, but because of the company's financial obligations the authority has ordered financing to be cut off ensuing a full year delay.

"The Electricity Authority has sent a clear message to the IEC that it must adhere to the time table," Electricy Authority chairman Amnon Shapira said. "Consumers have financed the emergency contingency plan and consumers are the ones who will enjoy the rate cuts as a result of the IEC's failure to adhere to the schedule," he added.

A spokesman for the IEC confirmed that the decision had been received "with regret," and said the company will comment after it reviews the decision in detail. The IEC, the spokesman said, "is proud of its performance and operative capability," and blamed the delay on "labor sanctions that were approved by the Labor Court."

"It's unfortunate that the Electricity Authority disregards the result of a court decision, and employed populist and unfounded sanctions," the IEC spokesman said.
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