One Year Later, Private Power Companies in Israel Remain in Legal Limbo

Government refuses to give them long-term licenses they were promised, forcing them to turn the High Court.

Silvan Shalom at the opening of the OPC Rotem plant.
Chen Galili

Private power companies were supposed to give state-owned Israel Electric Corporation a badly needed dose of competition. But a year after the first two private power plants began operations, they are living under a regulatory cloud that threatens their businesses.

For more than a year, the two companies have been waiting to get a key license from the government, one that permits them to supply electricity to the customers – mainly big industrial users – with whom they have signed contracts. In the meantime, however, the two received provisional licenses for just one year, instead of the 20 years they were promised.

The one-year license for the power plant owned and operated by Clal Industries’ Nesher cement plant, which cost 500 million shekels ($126.9 million) to build and can supply 75 megawatts, expired April 1. The Dorad plant, Israel’s biggest and constructed at a cost of 3.5 billion shekels, will see its license expire in the middle of May.

Two weeks ago the two companies ran out of patience waiting for the 20-year license they were promised and turned to the High Court of Justice. Justice Meni Mazuz ordered the Energy Ministry and Electricity Authority to explain why they haven’t issued the licenses.

“With the supply license, the power station can’t exist and all the huge investment that has gone into it will be lost,” said attorneys Aaron Michaeli and Yehuda Rosenthal in their appeal. The energy minister [Silvan Shalom] and the Electricity Authority are not acting as required and are acting in an outrageous and intolerable fashion.”

The ministry said in response Monday that the matter was still under examination and that it would provide its explanation only in court. The Electricity Authority declined to respond at all.

As it is, the two private power providers were taken by surprise a year ago when they were awarded one-year licenses, instead of the 20-year ones they had been promised when they had begun developing their plants and been given a separate license entitling them to generate power.

At the time, the companies were told they would be getting 20-year permits over the course and the year and not to be concerned. The explanation for the provisional licenses was that the government’s Yogev committee on reforming the electric power industry and awarding the companies long-term licenses might create a fait accompli before the panel finished its work.

But sources in the energy industry say the real reason for the provisional license was due to pressure from the IEC and its power labor unions, which have been fighting government efforts to make the company more efficient by injecting competition into the industry.

IEC and the unions argued they shouldn’t have to face serious competition until the utility itself has undertaken internal restructuring. Because the Nesher and Dorad plants were already built and operating, IEC agreed to a provisional license.

The Electricity Authority promised to issue 20-year licenses to Nesher and Dorad within the year, which in fact it did. Shalom, however, refused to sign off on the documents.

The authority and Shalom’s Energy Ministry are sparring over technical details, mainly how much market share any one private power company can control. The authority says the private companies should be free to sign as many long-term contracts as they want.

Merav Ben-Canaan, a vice president at the Midroog bond rating agency, told the court this month that the government was acting unreasonably and had given no concrete explanation for why it wasn’t awarding the license. She said the delay could hurt the power companies’ credit ratings.

In the meantime, another dispute has broken out between the Energy Ministry and the Electricity Authority, this over diverting unused electric-power quotas amounting to 340 megawatts to photo-voltaic solar plants. A tender awarding the quotas was supposed to be published last October, but fell victim to a fight over who would manage the process.

On Monday, Eitan Parnass, CEO of the Green Energy Association of Israel, urged Shalom to break the deadlock, saying it had frozen development of some 1.5 billion shekels in projects.