A Shocking Reality

Israel's big electric company is meant to be split into three next month, but don't worry - there is really no chance of the reform being implemented on time.

In a little less than a month, on March 4, 2006, an earthquake will hit the country's electricity sector. The big, strong Israel Electric Corporation (IEC) will be divided into three companies: one for production, one for conveyance and one for distribution. This is being done following a government decision, and in accordance with a law passed by the Knesset in 2003.

But don't worry - it's only a dream. It will not happen. The law will not be enforced, and the IEC will not be split up. Although the company's license expires in March, who said that in a country in which the strong have the upper hand, you need to have a license for everything? The reality is that the IEC is stronger than the government, and the public will continue to pay exorbitant prices for electricity. Will pay and will shut up.

This Tuesday, Finance Ministry and Government Corporations Authority officials met with the IEC's management and labor committees. The former tried to persuade the latter to get down to the work of dividing up the company, but the workers said: What do you want from us? First you have to persuade management. Indeed, management is the main obstacle. CEO Yaakov Rosen and the corporation's other senior executives are essentially acting in violation of the law. They are torpedoing any and all attempts to implement it. The IEC is a government corporation that is obligated to execute the decisions of the government, but is acting in contempt. This is improper governance, which for some reason is being overlooked. There is hope that the incoming CEO, Uri Bin-Nun, who is to take over soon, will alter this dismal reality.

The political ranks have also acted with cowardice. Benjamin Ben-Eliezer went further still, by placing himself squarely on the workers' side when he was minister of national infrastructures, and opposing the reform. Evidently, he thought it would help him in the primaries. It didn't, and it made the situation even worse.

Finance ministers over the generations have been afraid to touch the IEC. They were afraid of the workers' committee. Benjamin Netanyahu was the only one who tried, but he, too, "set up a committee" instead of solving the problem in a fundamental manner, as he did in the ports. There was one occasion when he dared to say that the IEC was like the Nazi destroyer "Bismarck," for which he was instantly sharply condemned. His successor, Ehud Olmert, prefers to close his eyes to the situation. As far as he is concerned, the subject does not exist.

The treasury's budget division is also guilty. It fell asleep on the watch. It was not determined, it did not push, it did not make recommendations to the minister. The ranks of officialdom let us down.

The international consulting firm KPMG, which studied the electricity sector, determined that failure to carry out the reform would cause serious damage to the Israeli economy. It was learned that the IEC operates inefficiently and has 2,000 too many people on its payroll and wage expenses that are NIS 800 million higher per year than the amount that is called for according to international standards. The company has a large and looming debt of NIS 40 billion, which will necessitate an increase in electricity rates and a large influx of state money - if the reform is not carried out.

The IEC also causes indirect damage of hundreds of millions of shekels in that its workers' sanctions at times have prevented the use of coal, and at other times the use of gas. The corporation even claims there is a shortage of power stations and that construction of new ones is needed. But this contention is a function of the company's preference for the good of the workers over the good of the public. In order to keep the 1,000 employees of the construction division employed, the IEC is threatening an electricity shortage. But the problem is only one of peak evening hours, and the solution is to flatten peak demand by offering discounts at other times of the day - not to construct additional power stations. After all, the company presently sells only about 60 percent of its production capacity. If any producer in a competitive market sold that little, it would have already gone bankrupt.

Another example of waste: There are 700 meter readers, who go from house to house to check how much electricity the customer has consumed, in an era in which it is possible to transmit such information directly from the meter to the billing department, without any human contact. But what would the 700 workers do then? The public, rich and poor alike, pays for it in the electric bill.

It is now obvious that there is no chance of the reform being implemented in March, and all of the next stages will therefore be delayed, as well. The production segment will not be divided into five companies that will compete with each other, and the distribution segment will not be split into three companies. The Ashkelon power station will not compete with the Hadera power station on price and quality, and there will therefore be neither greater efficiency nor lower price.

If the reform had taken place, the company would have been dramatically improved. For an example, one may look at what happened to Bezeq after it emerged from behind the government apron into the competitive world. There was an colossal improvement of quality and service, and an enormous slashing of the prices of cellular and international calls.

But in order not to leave the reader with a bad taste, it should be noted that after 10 years in which the public paid a special additional fee on its electricity bill - in order to fill the empty pension coffers of the IEC employees - the pension fund has finally been filled, and starting this month, the supplemental fee has been canceled. Electricity rates will decline by about 5 percent. So who said there isn't good news in the electricity sector?