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Pelephone Communications informed its suppliers last week that it will pay them according to the dollar rate of NIS 4.25 per dollar.

The cellular company's purchasing director, Nadav Caspi, sent a letter to suppliers last week explaining that all unpaid dollar-based orders would be settled according to this rate. In addition, Pelephone declared that as of January 1, all dollar-linked transactions with suppliers will be converted into shekels on the day the contracted product or service is delivered - up to a ceiling of NIS 4.25 per dollar.

Pelephone's unilateral decision has infuriated suppliers, who are planning to check its legality. A number of the suppliers have contacted Pelephone to demand explanations and to complain about not being consulted about this decision. One industry analyst said on Friday that Pelephone was forced to take this step because it had failed to protect itself accordingly against steep changes in currency rates.

Yaakov Gelbard, Pelephone's CEO, recently said that the company plans to save $40 million in 2002 by cutting procurement costs.

Pelephone finished the first three quarters of 2001 with a net loss of NIS 254 million, compared to a NIS 77 million loss during the same period in 2000. The company's revenues totaled NIS 2.66 billion during the first nine months of last year, while costs were NIS 2.35 billion.

The spokeswoman for Pelephone confirmed that "in light of the extreme changes in the shekel's exchange rate against the dollar, and since we are living in a business world in which the currency is the shekel, the company is seeking to pay suppliers with whom it has dollar-linked agreements according to a set exchange rate rather than a variable one."

She added: "This is a business move required by the current situation. And thousands of other companies are acting similarly to Pelephone."

The spokeswoman expressed confidence that "the suppliers will accept this announcement with understanding." She said that "the management of Pelephone is not aware of any supplier who expressed displeasure with the decision." She rejected the claim that the company's decision stemmed from a failure to adopt appropriate safeguards against exchange rate volatility.