Analysis: The Balance of Power Never Shifts at Israel Electric Corporation

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Israel Electric Corp.’s Hadera power station.Credit: Tal Cohen

We didn’t need the power outages after last week’s storms to know that the Israel Electric Corporation (IEC) embodies some of the worst traits of the Israeli economy, public sector and labor market. We didn’t need the harsh report from State Comptroller Joseph Shapira about management in the electricity sector in order to recognize that. But it seems we did need a situation in which tens of thousands of people sat for days on end in their homes without electricity for the public to finally spark to terms such as “reform in the electricity industry.” And to understand this is not just a whim of bored regulators but an essential step for the electricity sector specifically, and the entire economy in general.

It’s easy to kick IEC, its management and employees, and blame them for the criminal failure of the labor go-slow that lasted for so long – until they were so kind as to restore power to the tens of thousands of homes. There’s nothing easier. But it’s harder to use last week’s events as leverage to change the public’s awareness about the electricity monopoly and, in particular, harness those events in order to create a vital change.

The electric company, its management and employees definitely shot themselves in the foot last week and lost goodwill among the public. But their monopolistic status, aggressiveness and managerial failures will remain with us for a very long time. Why? Because the company is too big, powerful, aggressive and terrifying to fail.

This may be the main goal of the reforms: To reduce slightly the dependency on, and fear of, such a powerful and aggressive corporation; to bring in some competition to the power generation field; to manage the electricity generating system separately from IEC (i.e., for an outside body to decide when and how to consume electricity from IEC or from private power plants); and, of course, to make IEC more efficient. This means getting rid of its excess and expensive employees, and reducing its monstrous debts – currently some 70 billion shekels ($18 billion).

It is appropriate to list the ills of the electricity industry and note the guilty parties, because there are so many – and this is probably one of the biggest problems. There are so many players stirring up matters in the IEC: finance and energy ministers down the generations; prime ministers; the Public Utility Authority – Electricity and its heads; the chairmen and directors of IEC itself; the company’s senior management; the heads of its workers committee; and the employees themselves. Every one of them has contributed to this situation, so it’s easy to pass the buck from one side to the other for the repeated failures. But this doesn’t help the consumers who use the company’s services (all of us) or the company’s shareholders (also all of us).

The fear factor

Take, for example, Prime Minister Benjamin Netanyahu. Pay attention to how much effort he has spent in recent months trying to pass the natural gas framework (which will introduce new regulations on the sale of natural gas produced at Israel’s offshore fields). Why has he invested so much time in the gas framework – a matter that, in principle, could have been solved by the Antitrust Authority, because it mostly deals with competitiveness – and not in advancing electricity sector reforms? For exactly the same reason the present finance and energy ministers, and those who preceded them, didn’t do it either: fear.

Fear of a confrontation with the employees, and fear of paying the price of power outages. That is all. They preferred to adapt to a situation in which the company’s debts ballooned and the electricity industry went nowhere. Occasionally, they were required to approve expensive electric rates to cover up their failures and the failures of IEC – as long as they didn’t have to deal with the terrifying union and its threats to turn off the lights.

Power workers repairing lines in Netanya following the October storms.Credit: Yossi Weiss

Last week, the switch was turned off because of the weather, and the head of the IEC’s union, David (Mickey) Tzarfati, sent out a series of orders to his workers, in which he clearly instructed them to take their time flicking the switch back on – to remind everyone who really runs the company.

Netanyahu acts effectively only when his back is against the wall. His greatest achievement as finance minister, when he pulled Israel out of the recession of the early 2000s, was done only after three years of deep and severe recession that left little choice but to act. The establishment of modern firefighting services only happened after the Carmel Forest fire disaster and the resulting deaths. Last month’s instructions to Knesset members and ministers not to visit the Temple Mount and inflame matters arrived only after the recent terror wave started. Such policies trickle down. Finance and energy ministers who served under Netanyahu, his party and other parties, have not dared confront IEC and its union.

All this leads us to the following people: the IEC executives. I don’t have a clue what they’re doing or what they’ve done – past and present execs like Moti Friedman, Yiftah Ron-Tal, Eli Glickman, Amos Lasker and Ofer Bloch. They simply failed to advance the reforms. They haven’t moved the company forward by a single millimeter. Their salaries may be rather nice, but there are much better paid jobs outside IEC. I asked a few of them in the past what they were looking for in that executives’ graveyard. They spoke of the “challenge” and “Zionism,” and believed they would “create change.” But, one after another, they caved in to the agendas of the politicians – who fled from confrontation and are incapable of providing support – and the union, which sees IEC as its own private fiefdom.

These same employees see – justifiably, as it turns out – the company’s senior management as temporary figures who arrive to put things in order in the electricity sector, at their expense. Today, Ron-Tal (chairman since 2008) and Bloch, who was appointed as CEO last March, are in charge. Ron-Tal knows how to explain the employees’ and union’s responsibility for the company’s failures, but has never explained why he continues to be content to take responsibility for a company run by the union. What challenge can he still have? What respect? And Bloch, who came from the Yes satellite broadcaster and Tnuva food company, what is he doing there? Why does he think he can move anything forward? Have all the jobs run out?

The continued failure of the company’s senior management and willingness of new people to run this impossible corporation suggest one of three things: they are naive; they think any sort of spell at IEC will provide an opening for an interesting opportunity later; or they simply need the work.

And then there’s the union. Tzarfati has been head of the workers committee since 2004, when he replaced Yoram Oberkovitch (who suffered a heart attack and died). If you ask him, Tzarfati will say “We are in favor of reform” – and that’s true. Tzarfati agreed to the reforms a long time ago. He even accepted the principle of the reforms in which at least 1,500 workers would leave and the company’s authority would be reduced slightly. So you could say he is not the problem – but that would be a mistake. Tzarfati seems to have learned from Shimon Peres, who once said Israel’s approach to the peace negotiations with the Palestinians is “No, but.” Peres explained that this method presented Israel as a naysayer and it was worth changing to “Yes, but.” This means you agree first and save yourself the objections and criticism, and afterward pile on the problems.

So Tzarfati has learned from Peres, and when he reaches the “But” stage, he will present a price that makes it impossible to carry out the reforms. The cost of such reform was estimated at between 6 to 10 billion shekels, and this is a sum no finance, energy or prime minister can sign off on. To give the most expensive workers in Israel billions of shekels is an enormous social and economic distortion – and blatantly unfair – which will not only increase economic inequality but also social inequality.

Finger on the switch

Some will say that a cold economic accounting actually supports this surrender to the employees’ demands. According to the state comptroller’s IEC report, the damage to the economy as a result of its continued dependence on the company, and failure to implement the reforms and restructuring plans, totaled some 9.1 billion to 12.4 billion shekels from 2008 through 2013. This means that if we’d paid the workers what they were worth, and if there really were efficiency measures and a restructuring in the electricity industry, we would be in a completely different place today – and would even be saving money.

This is an interesting mental exercise. It can be done for the entire economy: give the workers everything they want and manage as you please. There’s only one problem: it only works in industries where there is a single cutoff switch, such as electricity, airports and seaports, water, banks, the defense establishment – areas that provide the economy with its oxygen and which it is impossible to live without. That’s the reason why the salaries in these industries are the highest for any salaried employees in Israel. There is no other reason.

The military doesn’t like it when you include them in the list of industries with their hands on the switch. After all, they are barred from unionizing and striking. That’s true, but when previous IDF Chief of Staff Benny Gantz announced 18 months ago he was halting all training exercises because of budget problems, this was turning off the switch. In this way, he was no different to Tzarfati. They are both willing to go a long way in order to take care of their own people and interests. This will continue until there is a real popular uprising against the interest groups that are strangling us all.

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