Israeli Government Unanimously Approves Controversial Reform to Electricity Industry

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The solar receiving tower is reflected in a field of heliostats at the AORA Samar power station in the Arava Valley, Israel, on Wednesday, June 24, 2009
The solar receiving tower is reflected in a field of heliostats at the AORA Samar power station in the Arava Valley, IsraelCredit: Ahikam Seri/Bloomberg News

The cabinet unanimously approved Sunday the long-awaited, controversial reform plan for Israel’s electricity industry. The vote belied serious doubts about the cost and efficacy of the overhaul and revived debate about curbing the power of public-sector trade unions.

The vote followed a tense debate, largely focused on the plan’s drawbacks. Cabinet ministers Naftali Bennett, Ayelet Shaked and Arye Dery asking tough questions.

Prime Minister Benjamin Netanyahu surprised cabinet members with angry remarks about the power of unions, like the ones that in effect control the state-owned Israel Electric Corporation and have tied the government’s hands in introducing reforms.

“A hundred years ago there was a need for unions, when long hours of child labor was widespread. Today, instead of protecting workers, they harm the public far more. Today we need to protect the public from the workers,” Netanyahu said.

He said that for 22 years, since he was first elected prime minster in 1996, he had fought to rein in labor unions, without success. Nevertheless, he expressed the consensus in the cabinet that the current reform plan was the best they were likely to get.

“Better reform than no reform, it contains positive elements for the industry,” Netanyahu said.

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The plan, which was negotiated among the treasury, the Histadrut labor federation and the IEC, will loosen the grip of the company and the unions on the industry and cut costs at the IEC.

Finance Minister Moshe Kahlon, who was responsible for developing the plan, remained its advocate and has declined to support plans to limit public-sector unions’ right to strike.

Kahlon said the cabinet had resolved to reform the IEC 22 years ago. “We must be truthful; the seven previous governments failed the challenge. I know everyone is preoccupied with who won and who lost, but I can already tell you who the real winners are: Israelis,” he told the cabinet.

“We insisted that private producers would be able to sell electricity directly to the consumer because they deserve to benefit from competition and the lower rates it will ensure,” he said.

Under the plan, IEC will sell five of its power plants to private companies, but it will be allowed to build two new ones — to be managed by a separate subsidiary. Systems planning will be spun off to a separate state-owned company, which should make it easier for rival power companies to connect to the IEC’s grid.

The IEC will cut its payroll by about 25%, or 1,800 workers, and the IEC will be helped to reduce its debt. The total cost of the plan is 7.1 billion shekels ($2 billion), of which 6.4 billion will be used for severance pay and enhanced pensions for IEC workers.

It was the cost of the plan and the fact that the public will be paying for it that raised the most objections to the plan. The 7.1 billion shekels will come from IEC rates not being reduced for the next eight years, despite the expected decline in the utility’s expenses.

Detractors also criticized the plan for allowing the IEC to build two new plants without first selling five existing ones. They are also concerned that it lets the IEC enter new sectors and doesn’t include incentives for it to invest in the national transmission grid.

These issues are likely to be revisited in the Knesset, where some parts of the reform need to be legislated.

A point of contention at Sunday’s cabinet meeting was the government’s decision not to appeal to the High Court of Justice in a suit seeking to bar unions representing workers at public-sector monopolies from striking to block reforms. The government appealed after the National Labor Court handed down a decision granting them the right.

Netanyahu and fellow cabinet members argued that not seeking a High Court ruling weakened the government’s hand against the unions. Kahlon said the reform shouldn’t be tied to the right to strike.

In any case, Netanyahu committed to withdrawing the government’s appeal if the reform package was reached with the unions by deadline, which it was. As a result, the appeal will be dropped.

Netanyahu and Shaked proposed at the cabinet meeting that the government return to the issue in the form of legislation or a new appeal to the High Court in the event unions oppose structural reforms in the future.

Bennett said he would bring a proposal to the ministerial legislative committee within two weeks to ban strikes against structural reform. Netanyahu expressed support for the move.