Dispute in Government May Lead to Higher Electricity Prices

Decision to lower tax on diesel, which would enable electricity price reduction, being held up by dispute; Israel Electric Corporation has been powering plants with more expensive fuels following shut-down of Egyptian-Israeli gas pipeline.

Avi Bar-Eli
Avi Bar-Eli
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Avi Bar-Eli
Avi Bar-Eli

A dispute between government ministries is holding up a decision to lower tax on diesel, which would reduce the Israel Electric Corporation's fuel costs and enable it to raise its rates to consumers by less.

Previously, the IEC had relied largely on Egyptian natural gas to fuel its power stations. But with the Egyptian-Israeli gas pipeline having been shut down by four sabotage attacks over the last six months, the IEC has had to resort to alternatives - namely, powering its plants with more expensive fuels, including diesel.

The Reading power station in Tel Aviv, at night.Credit: Haim Taragan

Finance Minister Yuval Steinitz was expected to announce this week that the government would lower excise tax on the extra diesel the IEC must buy to make up for the absence of Egyptian gas during the summer, when electricity consumption is heavy. Such an arrangement is already in place for industries, which are now paying a discounted rate of excise tax on diesel.

The IEC has said it needs to raise its tariffs by 19.1% without delay to pay for the more expensive fuels. If the industry arrangement were extended to the IEC, however, the necessary increase would drop to 12.5%.

But the Finance Ministry and the Public Utilities Authority pointed out that if the Environmental Protection Ministry were to let the IEC use a dirtier type of fuel oil, mazut, instead of diesel, it would decrease the necessary increase in power rates to 3%. Therefore, the treasury is holding up its approval of lower tax on diesel for the IEC in hopes that the Environment Ministry will change its position.

So far, that hasn't happened. Six months ago, the Environment Ministry banned the IEC from using mazut because of the pollution it causes, and its position hasn't softened in recent weeks despite repeated pleas.

Environment Ministry sources claim that even if the ban on mazut use by the IEC were canceled, it wouldn't impact the necessary increase in tariffs much. Diesel may cost 40% more than mazut, the sources explained, but so much less of it is needed to produce the same amount of power that the price difference between the two fuels all but vanishes.

The Finance Ministry and the IEC beg to differ, however: They say the diesel wouldn't necessarily be used in power plants capable of such high efficiency.

Given Environmental Protection Minister Gilad Erdan's adamant refusal, Steinitz is ultimately expected to give the IEC a break on diesel tax. If he agrees to apply the change retroactively to July 1, the IEC won't have to increase its rates by more than 12.5%. If the change applies only from August 1, the increase will be in the range of 13.5% to 14%. A public hearing on the impending tariff increase ended on Monday, but the Public Utilities Authority has yet to issue its final decree.

The IEC estimates that it will have to buy about 300,000 more tons of diesel than originally planned because of the breakdown in the Egyptian gas supply, at a cost of NIS 3.5 billion. To pay that NIS 3.5 billion, the IEC says it needs to increase its rates by 19.1%.

But out of that sum, excise tax constitutes a cool NIS 1.7 billion.



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