Sweeping Reforms Needed to End Government Companies' Shenanigans

Some government corporations, like the Airports Authority and the Israel Electric Corporation, accumulate huge debts while regulators fail to play the responsible adult.

Is the Airports Authority about to commit suicide by building a new airport in southern Israel, putting itself into a cash-flow hole of NIS 9 billion? If so, it won't be the first government whale to wittingly off itself.

For years now, another huge public corporation has been swimming toward shore at full speed, accumulating more than NIS 72 billion in debt. The bloated beast is, of course, the Israel Electric Corporation.

Why is no one stopping Israel's largest and most sensitive assets from beaching themselves?

The question is fundamentally misguided in that it assumes there is someone in the government whose job it is to ensure public corporations stay afloat.

There is a supervisor of banks at the Bank of Israel and a commissioner of insurance at the Finance Ministry, both of whom are supposed to safeguard the strength and stability of companies in their fields.

So doesn’t it make sense that someone would be responsible for ensuring the Electric Corporation doesn’t stuff its blowhole with debt? Surely the government should make sure the Electric Corporation, the water company, Israel Railroads and the rest of the pod can keep swimming. They're just as important as banks and insurance companies, aren't they?

If you manage to find such a person, please alert the media. The position doesn’t seem to exist. Plenty of government bodies are stirring the pot of these government companies, including the Finance Ministry; we even found an official regulator for government companies – the Government Companies Authority. But none of these institutions is responsible specifically for ensuring that the government corporations stay sound.

Proof of this unpalatable pudding is the tussle now taking place between the Finance Ministry and the Transportation Ministry over the financial wisdom of the Airports Authority building a new international airport at Timna.

The same two ministries are also wrangling with each other over Israel Railways – whether it should issue bonds, or not.

Which of them should be making these decisions and which of them, if either, should be worrying about the Railways' financial stability? No one knows.

Especially perplexing is the question of the status of the Government Companies Authority. By virtue of its name one might expect it to be the supervisor responsible for the stability of the government companies – but it isn’t. In effect, plainly and simply, the Government Companies Authority mostly isn’t. It doesn’t supervise the Airports Authority at all, because for baffling reasons the Airports Authority was defined as a "government corporation" and not as a "government company." For even more baffling reasons, there is currently no government body that supervises "government corporations" like the Airports Authority.

There is a legislative proposal to put the government corporations, along with the government companies, under the supervision of the Government Companies Authority, but the Knesset never passed it.

The Government Companies Authority doesn’t even really supervise the government companies, though they're technically subordinate to it. For a year now it has had no a permanent director general. Nearly all its employees have resigned in recent years and what remains of it is a depleted body devoid of any real professional ability.

How did the Government Companies Authority become such a hapless supervisor?

Some think it isn't an accident: The Government Companies Authority may be in crisis but even at its best, it was a toothless, mediocre body that let politicians treat the government companies like their own back yards. The companies became cushy platform for political appointments by the ministers and they are managed accordingly.

This is why the Prime Minister’s Office is trying to reform the supervision of the government companies – by taking the authority to appoint directors and executives from the ministers and giving it to external professional committees. In short, the Government Companies Authority will be dismantled, and its responsibilities divided between the Finance Ministry and the Israel Securities Authority.

These recommendations are controversial. The proposal to take the appointment of directors to government companies away from government suggests their managements will not serve the government’s interest – for example, they might prefer to cooperate with a union against the government’s desire to privatize.

Also of concern: Everywhere in the world, government companies are supervised by an independent and powerful government regulator. The current proposal heads in precisely the opposite direction – it would dismantle the independent regulator and subordinate the supervision to the Finance Ministry, with all the conflicts of interest arising from that.

Some in the government, therefore, believe the time has come for a reform that would strengthen the Government Companies Authority and make it responsible for supervising both the government companies and the government corporations.

Given the fact that none of Israel’s governments has ever really lifted a finger to strengthen the Government Companies Authority, it is hard to believe that the next government will behave any differently. But it was also hard to believe that the current government would consider letting go of the appointments to the government companies, and yet it is considering just that.

The combination of professional, independent directors, perhaps with a chairman who continues to be appointed by the government and therefore would be committed to the government’s interest, and a serious and powerful supervisory authority could well bring about a revolution in the management of the government companies. To make these reforms, a serious government is needed, which really intends, once and for all, to sort out the anarchy that currently prevails in the government companies. The public must demand this of its government.

Department of Transportation