Israel Passes Controversial Electricity Reform Bill

The legislation will force the public to pay the cost of restructuring

Lightning strikes over a power plant belonging to Israel Electric Company in Ashdod.
Ilan Assayag

The Knesset on Thursday passed the government’s controversial 7.1 billion shekel ($1.9 billion) plan to reform the electric-power sector and create more competition for the state-owned Israel Electric Corporation. The plan had been approved by the cabinet in June after the IEC and its powerful labor union agreed on the changes, capping a 22-year drive to break the state electricity utility’s monopoly.

“Israel Electric will become much more efficient with a substantially smaller debt, which is expected to be passed on to electricity consumers,” the Finance Ministry’s director general, Shai Babad, said. In fact, however, consumers won’t be seeing the savings for many years to come because the 7.1 billion shekel cost, most of which is going to IEC employees who are being made redundant, will be paid for by refraining from lowering electricity rates

Lawmakers approved the reform despite the objections, but the Kohelet Policy Forum, an activist think-tank, has filed a petition with the High Court of Justice to try to block the finance component of the reforms. In addition, labor unions have conditioned their final approval on agreement that the pension supplements that their members are due to get will be declared tax-free.

The IEC, which for decades has managed every aspect of the electricity sector, agreed to sell 19 production units at five sites over five years and to form a subsidiary to manage two yet-to-be-built power stations that will run on natural gas.

System management and planning will be taken away from the utility and sold to a different government-owned company. The IEC will remain a monopoly in distribution, but electricity supply will be gradually opened to competition and the utility will reduce its workforce by 1,800 to about 6,400 employees over the next eight years.