Israel Electric Company to Sell Plant to Group That Includes Chinese Company

The sale is the first step in the power sector’s monopoly-breaking reforms but may stir opposition from the U.S. over China's role

The Alon Tavor power plant.
Gil Eliahu

In a move that may benefit Israeli consumers but also stoke tensions with the United States, state-owned Israel Electric Corporation said Tuesday it would sell its Alon Tavor power plant to a group that includes China Harbour Engineering.

The group, which also includes the Israeli companies Mivtach Shamir Holdings and Rapac Energy, have agreed to pay 1.87 billion shekels ($523 million) for the plant, which the IEC is selling as part of reforms aimed at whittling down its near monopoly on electric power.

“Israel Electric today is starting a new era of competition in the energy market,” said IEC Chairman Yiftach Ron-Tal. “The company is parting ways with the monopoly of production and embarking on a new path of competition.”

Israel’s Electricity Authority said that under its new ownership the plant would be able to produce power at about 2% to 3% less than the IEC does. Assaf Eilat, the authority’s chairman, said those savings would start being passed on to consumers when electricity tariffs nationwide are adjusted in January.

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But the participation of China Harbour is bound to irk the Trump administration, which has been sending warning signals about Israel’s growing economic ties with China as Washington wages its bitter trade war with Beijing.

On Tuesday, just as the IEC was announcing the Alon Tavor deal, John Rood, the U.S. under secretary of defense for policy, reiterated the warnings. Rood is visiting Israel this week for the Herzliya security conference,

“We’re not asking Israel to avoid all dealings with China. In Israel’s case, as a growing economy, we certainly expect that there’s going to be trade. There’s an incredibly close bond between Israel and the U.S.,” he said.

“Our main concern is that we’ve seen China engage in predatory economics elsewhere in the world, in behaviors that are not purely commercial, where China’s security services make use of economic dealings.”

But Israeli Energy Minister Yuval Steinitz said the Alon Tavor deal presented no national security threat to Israel.

“Our relations with the Americans are very important to us,” he said. “We coordinate with the American government and Energy Department. I don’t think it’s a problem. The plant isn’t a monopoly that controls dozens of percent of [the power] infrastructure. The Chinese company has no control or veto power inside the group.”

China Harbour is a subsidiary of state-owned China Communications Construction, providing services such as marine engineering and building things such as roads, bridges, railways, airports and factories.

Among Chinese companies with a major presence in Israel is Bright Food, which controls the largest food maker Tnuva, and China National Chemical (ChemChina), which controls the agrochemicals maker Adama. Shanghai International Port Group has a 25-year contract to operate a private port under construction in Haifa.

The sale of Alon Tavor comes as the IEC implements the first phase of reforms approved last year that will let it keep its monopoly control over power transmission but gradually reduce its share of the power-generating segment to just 35%.

Alon Tavor is the first of five sites, comprising 19 generators, to be divested by the IEC under the reforms over the next five years. Officials have called the sale a “historic moment” for what is perhaps Israel’s most powerful state-owned monopoly, one that critics say is costly and inefficient due to the influence of powerful labor unions.

Alon Tavor, which is located in the north, has a generating capacity of about 600 megawatts from a central generating unit and two so-called “peaker” units used during periods of high demand. It has land set aside that could be used to expand capacity by another 230 megawatts.

Under the terms of the sale, the plant will sell all its power to the IEC for resale to consumers. However, it should be able to cut costs because the new owners will not be committed to buy natural gas to power the plant under the high-cost contract that the IEC signed. In other words, it can negotiate its own lower-cost deals.

The next IEC plants to be sold include the Hagit, Eshkol and Reading plants, the latter a landmark in north Tel Aviv. They should be easy to sell, sources said, pointing to the huge interest in Alon Tavor; 11 groups expressed an interest and seven proposals were considered, the IEC said.

The Alon Tavor sale still requires approvals and licenses, but the new owners are expected to take possession of the plant by December 3.