The government Saturday rejected the compromise offer made last Thursday by the employees of the Israel Electric Corporation (IEC) to National Infrastructures Minister Benjamin Ben-Eliezer.

While the workers finally expressed willingness to split the company as part of the structural changes in the electricity sector, their proposal still contained a number of conditions that would have postponed the reforms for at least a decade, and left control of the sector in the hands of the IEC.

"The workers' proposal is not logical and is actually a step backward. The offer empties the state's reforms of any content, and it has no value," senior government officials said.

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Ben-Eliezer met with representatives from the treasury and the Government Companies Authority to address the proposal Friday morning.

The Knesset Economics Committee is scheduled to debate the unilateral electricity sector reforms Sunday. The Knesset plenum is expected to vote on the proposed reforms later this week.

Under the proposed IEC reforms, which were approved by the cabinet last Sunday, the company is supposed to be split up into a number of firms dedicated to electricity production, distribution and transport. By mid-2013, the production and distribution firms should be 49-percent privately owned.

The cabinet has not yet started debating employee rights under the reforms, nor has it dealt with one of the most crucial problems in the IEC - the company's huge NIS 45 billion debt.

The employees did agree for the first time to separating the production in stages, but they meanwhile demanded that two new coal-fired plants be built - and that the split be made only after both plants are completed. The practical meaning of this demand is that the reform would be put off for at least five years, probably much longer.

The workers said they would agree to a 49-percent privatization as long as the controlling interest remained in the hands of the state. As to splitting off distribution, the workers agreed - but only after the completion of the second new plant - meaning a delay of at least a decade.

Finally, as to the essential core of the reforms, the long-term management and planning of the electricity sector - the employees proposed leaving that for the IEC. This will probably be the most difficult part of the negotiations between the state and the IEC workers, as the state is demanding removing management and planning entirely from the company.

However, sources say that the workers' agreement to privatization and a partial splitting of the company is a revolution - even if the workers introduced a number of impossible conditions into their proposal that were meant to prevent the reforms from being implemented in practice.