Emergency plan to avoid blackouts - Haaretz

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Tue., August 21, 2007 Elul 7, 5767

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Last update - 21:38 19/08/2007

Emergency plan to avoid blackouts

By Avi Bar-Eli

The electrical shortage is now expected to start earlier than forecast: Power outages are planned for the summer of 2008 and long outages will occur up until 2011.

Minister of National Infrastructures Benjamin Ben-Eliezer will present the cabinet with an emergency plan today to moderate the crisis. The plan includes managing demand for electricity, investing immediately in small power-generating plants and hastening the entry of private electrical producers into the market.

The investment will cost an estimated $130 million. Electricity prices are also expected to rise as a result.

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When the record for power consumption was set on July 29 of this year, the Israel Electric Corporation (IEC) was left with only a 4.4 percent production reserve. According to forecasts, this reserve will dwindle to 0 in 2009, as electrical demand is rising by 3.5-4 percent a year. On paper, this leaves a production deficit for 2010 and 2011, before more power plants come on line in following years.

Meanwhile, the Government Companies Authority and the Israel Electric Company (IEC) are investigating whether the National Coal Supply Company signed a deal last year that could cause the state losses of some NIS 25 million, TheMarker has learned.

They suspect that the company has signed a contract obliging it to pay coal transportation costs that now appear to be higher than expected. The coal company denies the claim that it overpaid, and says the transaction will enable the company to pay up to 25 percent less than market price.

The national coal company was founded in 1980 in order to buy and market coal in Israel for the IEC. In 2004 the firm became an IEC subsidiary, and most of its board members are senior electric company officers. The firm imports about 13 million tons of coal annually, with an annual turnover of nearly $1 billion.

The coal company board apparently entered an agreement with a shipping company to lease a ship for 18 months, as of July 2007. The agreement contains a price hedge with a set lease price (based on the market price on the transaction date), and an upper price limit. However, if market prices exceed the upper limit set in the contract, the coal company will pay the difference, and if the market price falls below the set price, the difference will returned to the coal company.

The coal company agreed on a daily price of $24,300, with a limit of $48,000-50,000 per day. But market prices turned out to be about $100,000 per day when the contract came into force - and the company is now expected to pay a daily $75,000 for the duration of the contract, assuming prices remain more or less unchanged.

The company's VP of shipping and commerce, Moshe Borenstein, says such transactions are common and are meant to stabilize the difference between the market price and lease price, and ensure that the lease price remains below the market price. Borenstein also claims that the coal company is currently operating under long-term contracts at prices as low as one-half of shipping market prices, resulting in savings of $180 million to $200 million annually.

But IEC sources call the deal a speculation on shipping prices, which are expected to rise further in the near future. The sources say the transaction was not properly discussed by the subsidiary's board of directors, and involves an unacceptable gamble on market prices. The transaction was uncovered by IEC chief financial officer Avner Yehudai, who called the board's attention to the future commitment. Yehudai quit as CFO last week over his refusal to sign the IEC's financial statements.

The IEC responded, "The [IEC] board of directors has decided to establish a committee including individuals inside and outside the company to investigate the issue."

The Government Companies Authority said, "After the coal company board, along with IEC and authority representatives, review the issue, we will formulate a position and act accordingly."

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1.	SHORTSIGHTED GOVERNMENTS	06:26	\|	A.M.Pere	20/08/07

2.	Lack of energy = Lack of vision	12:08	\|	Jeff	20/08/07

3.	The real reason behind the electricity shortage	13:12	\|	Economics Graduate	20/08/07

4.	This problem was known in the IEC since more than 10 years ago	15:35	\|	S	20/08/07

5.	Cut 70% Gaza`s electricty from Israel	15:56	\|	sam	20/08/07

6.	What is missing from this report	18:17	\|	Raymond from DC	21/08/07

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