Drop in Demand Sparks NIS 249m Quarterly Loss for Israel's Electricity Company

Due to the loss of natural gas supplies from Egypt for a year and a half, IEC had faced a severe shortage of natural gas, which it uses to generate electricity.

The Israel Electric Corporation had a net loss of NIS 249 million for the first quarter of 2013, which the state-owned utility attributed to a 6% drop in demand. The decline in consumption led, in turn, to a 5% decline in revenues. Total revenues amounted to NIS 6.5 billion for the quarter.

Due to the loss of natural gas supplies from Egypt for a year and a half, IEC had faced a severe shortage of natural gas, which it uses to generate electricity. It had to turn to relatively expensive alternatives, but the situation has eased this year. In January 2013, the utility began receiving imported natural gas through a new terminal in Hadera. (More recently, in April, domestic gas production from the offshore Tamar gas exploration site began flowing. )

The increased gas supplies and the decline in the price of coal, which the utility also burns to produce electrical power, resulted in a 31% quarterly drop in the cost of electricity production - from NIS 5.2 billion in the first quarter of last year to NIS 3.6 billion this year. The shift back to natural gas reduced IEC's diesel and heavy-fuel oil consumption, but the 22% drop in coal prices alone saved the company NIS 376 million.

"With the injection of gas from Tamar, the company's cash-flow situation will stabilize," IEC chairman Yiftach Ron-Tal said after the release of the utility's financial results.

Company CEO Eli Glickman added: "The company is preparing for the summer of 2013, which forecasts show will be challenging, as last summer was" - an apparent reference to electricity demand that neared the company's peak capacity.

"At the same time," Glickman continued, "the company is preparing to raise capital to service its debts, to ensure an appropriate cash cushion and to permit proper production of electricity of the standards to which the Israeli consumer has become accustomed."

The fuel cost savings contributed to a first quarter gross profit of NIS 785 million, compared to NIS 240 million for the quarter in 2012, but it faced a 43% increase in financing costs for the quarter. Its NIS 249 million net quarterly loss compares to NIS 1.83 billion quarterly loss for first quarter 2012.

The company's cash flow from operating activities returned to positive territory, at NIS 650 million, although the cash flow from investing remained negative.

The company's liabilities stood at NIS 71.6 billion as of March 31, including financing liabilities from bonds and loans of NIS 41.9 billion. The company is facing debt payments of NIS 8.5 billion by the end of the year, after completing arrangements a couple of months ago on a $50 million bridge loan.

Tal Cohen