Robbing the Public in Broad Daylight

Only public and parliamentary pressure can lead to sane reform of Israel's electricity economy.

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An IEC control center.
An IEC control center. Credit: Tomer Neuberg

It is illegal to bribe civil servants in Israel. But the State of Israel plans to bribe about 10,000 workers by treating each one to tens of thousands of shekels in bonuses and thousands more in pension payments, in the hope that they will allow the state to carry out its sovereign rights.

We are speaking about the employees of the Israel Electric Corporation, the company that has become the treasury's heaviest corporate burden. Not just because of its expensive employees and intimidating union, but also — mostly — because of the government's negligence and impotence.

Yes, of course the problem has to do with the fact that the IEC’s employees have their hands on the switch — literally. Foreign Ministry employees can battle the government for a year and no one gives a damn. True, they can go on strike and shut down embassies and consulates around the world, and they can damage Israel’s foreign relations. But Defense Minister Moshe Ya’alon and Foreign Minister Avigdor Lieberman are doing that even better than the Foreign Ministry employees can, so what leverage do they really have?

Ori Yogev, the director general of the Government Companies Authority, this week presented the recommendations of his committee on electricity reform in Israel. Yes, we know that makes most people yawn, especially since such reforms are on the agenda every year or two, and nothing ever happens. That is exactly the reason that we, the Israeli public, are going to pay off the IEC workers to the tune of billions of shekels.

Why, you ask? Israelis may have spent the past few years studying for its matriculation exam on the Israeli socioeconomic system, but they have yet to reach the chapter on the electric company and its exploits. Israelis do generally know that the IEC’s salaried employees are the best paid in the country, that the workers get free electricity, and that the company has a monstrous debt of some 73 billion shekels ($21 billion). But the public at large is not pushing the government to assert its sovereign rights and stop the electric company's party.

The Labor Court has given in time after time to the corrupt and rotten management at the IEC, and enables excess salaries and reckless management — ostensibly for the benefit of the principle of organized labor and workers' rights but actually because of a lack of foresight and the inability to distinguish between organized labor and the cancerous sickness of a powerful union run amok.

The basics of the proposed changes

The proposed reforms in the electricity sector are based on eight main principles:

1. Changing the IEC's collective bargaining agreement in a manner that will significantly limit the business and managerial decisions that require the agreement of the company’s unions.

2. Reducing the IEC’s workforce by about 2,000 employees.

3. Stabilizing the IEC’s financial situation.

4. Normalizing the status of the private electricity producers that will compete with the IEC, such that about 40% of electricity production will be under the control of privately held companies.

5. Removing control of the power grid from the hands of the IEC, to prevent a situation in which the company is given preference over the private producers.

6. Transferring part of the IEC’s electrical production capacity to a subsidiary.

7. Transferring 150 executives in the company from the collective bargaining agreement to personal contracts.

8. Reducing electricity rates by between 10% and 15%. (No one is willing to state that the rates will actually go down, but it is clear the public cannot be sold on the reforms without a promise to lower rates.)

What will it all cost?

In order to gain the IEC workers' agreement to all these changes, the state is planning on paying them off — and not just a nominal sum either. Though nothing has been finalized, note the benefits package the state is offering electric company employees:

• The state will pay every employee of the IEC an additional 1,000 shekels to 2,000 shekels a month in pension funds. (The workers are demanding 3,000 shekels a month).

• The state will pay every worker who remains in the company after the changes are put in place a “reform grant” of 50,000 shekels. (The workers are demanding 100,000 shekels.)

• The workers who retire now will immediately receive their full pensions, at an average cost of 870,000 shekels per worker, and an additional compensation of 700,000 shekels for each retiree.

So how much will all this cost? At least 6.5 billion shekels altogether. The big money is in the larger pensions; keep in mind that we are talking about the best paid workers in the country.

Yogev’s job should not be to waste time on considerations of compensation (or bribes) to the workers, but to figure out how to build an electricity sector in Israel that is different — one in which the country is far less dependent on the Israel Electric Corporation, the IEC's financial situation is stable, competition among electricity producers is greater, and the workers cede control over the IEC to its management.

It is unclear whether these goals will ever be reached, however. And even if they are, the price will be steep, and unfair. It will also create a troubling precedent for future reforms. The outsize compensation that electric company workers ultimately receive will serve as the basis for the demands of workers in other sectors that the government wants to shake up and make more efficient.

The question is, do we need to pay such a high price for reform? That's the dilemma that led to a disagreement among the members of the Yogev committee, and caused it to postpone the release of its interim recommendations for a week. The committee members asked whether the benefits of the reform justify such a high price tag. Treasury officials disagree among themselves, but a number of key figures think the cost is too high.

It is easier to object to this reform than to support it. But without a solution for the electricity sector, the problem will only get worse and worse. The IEC’s debts will very likely balloon and fall on the state; the private electricity producers won’t survive; and the IEC, which is too big already, will be deemed too big to fail.

Who can save the situation? The Knesset and the public. As long as the public is apathetic to the ticking bomb and does not pressure its elected representatives to do something about the electricity sector — and not at an exorbitant and irresponsible price — there is not much that can be expected from the government.

As long as Knesset members avoid dealing with the IEC and do not sponsor laws to do something about the problem at a sane price, we will be forced to pay exorbitant prices. As long as the labor courts take into consideration only the IEC workers and not the entire Israeli public, there is nothing we can do about it. The Finance Ministry knows all this quite well. Without public and parliamentary support for saner reforms, the public will continue to be robbed.

Fans of organized labor, wherever they are, never cry out against the piggish demands of workers. From their point of view, it is better for the money to flow into the pockets of the workers than to the pockets of a tycoon who is no less piggish. But in this case the tycoon is us: Israeli taxpayers who will be forced to pay for financing these expensive reforms.

Since there are no free lunches, it is clear that the theft of the public purse will come at the expense of someone or something else. Those who support higher salaries for low-paid workers, whether they are social workers, Foreign Ministry staffers or any other underpaid group, must also know how to object to frighteningly high monetary demands for the most powerful workers in Israel. Every shekel that goes to the IEC employees will have to come from other workers, or from the taxpayer. That is how it works. The biggest fear concerning all these reforms is that we will pay the price, but in the end none of these changes will really be implemented.

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