Pull the Plug on Free Electricity for Electric Corp. Employees

The Electric Corp. workers cherish their free electricity. The debt-laden company would rather give them raises instead.

The time has come to stop providing free electricity to Israel Electric Corporation employees, the current and retired, company's management recently concluded. Higher-ups at the company say the practice isn't especially costly but tarnishes the IEC's image and adversely affects its interactions with government regulators, Knesset members and the public at large.

"It's simply an albatross around our neck," one company executive said. "The time has come to cast it off."

Management's plan is to replace the free electricity perk with a salary add-on for employees. Looking at the math, the average cost of providing free electricity to IEC employees is NIS 700 per month. But since a salary increase would be subject to income tax, the company would have to increase its employees' gross salaries by NIS 1,200 per month to make up for nixing the free electricity benefit.

IEC management has said it will not accept proposed government reforms in the electricity sector if this clause isn't included in the reform package. They say this is a one-time opportunity to change the face of the company as part of a shake-up in management and staffing.

The IEC employs close to 9,000 full-time employees and 4,000 temporary workers. Every decision related to staffing is made by a committee, with equal representation by management and the workers' union. This gives the workers' union veto power and little incentive to make compromises that would hurt even one single permanent worker.

Management can't even move employees to different positions, let alone lay anyone off – even if their positions are redundant or they simply don’t do any work. With no job openings, the company is unable to recruit young and talented workers. Any new hires must be temporary workers, who are sacked within five years to avoid giving them tenure and turning them into more dull tools in the shed. As a result of these dynamics, the average IEC employee is 50 years old – ancient by both local and global standards.

IEC management says that 2,000 of its 9,000 tenured employees should be laid off, but that it needs the state's assistance to do so. Company and government officials know that reform will require "buying off" the workers who would remain at the company. This means giving them special gifts, new positions and pension guarantees, which could cost billions of shekels. Employees who are laid off would also receive costly severance and pension payments, though the IEC already holds the lion's share of the necessary funds for this in its pension fund.

State support would be needed to enable changes, like reworking employment contracts to give management some flexibility in staffing.

But it's clear that Miko Zarfati, chairman of the IEC workers' union, will object to this outright. And government ministers? As usual, they will be afraid to confront the workers' union.

A massive gas gaffe

The cutoff of natural gas supplies from Egypt and the need to switch to diesel and heavy fuel oil – which are five to six times more expensive than natural gas – are major factors that have contributed to the IEC's debt and its need to raise capital with state guarantees. Fuel costs jumped from NIS 12.8 billion in 2011 to NIS 24 billion in 2012. "We've lost control of the debt," says a senior IEC executive. "It's already NIS 63 billion, and since 2011 we haven't been capable of reducing the debt load, which just continues to grow."

Of course, if natural gas from the offshore Tamar field were already feeding the IEC turbines, the situation would be much better. But this is where we get to the greatest oversight in the history of Israel's energy industry.

In 2009, soon after natural gas was discovered in the Mediterranean Sea, the state requested that the natural gas companies establish an on-shore natural gas depot in the northern part of the country, with an expected investment cost of $2 billion and the goal of providing half of Israel's natural gas supply by 2012.

But strong opposition to the plan arose from green groups and the inhabitants of Dor Beach in the north, despite the plan to build the gas depot two to three kilometers inland between the coastal highway (Highway 2) and Highway 4.

The National Planning and Building Committee folded in the face of opposition and decided in March 2010 to weigh other alternatives to the proposal, effectively avoiding a decision on the matter. As a result, there is no choice but to build a pipeline connecting the Tamar field in the north with the Tethys Sea field in the south, which already has a pipeline connecting it to a gas depot in Ashdod.

The upshot is that in April 2013 the massive Tamar gas field will be in our possession, but the supply of the natural gas from this field will be come through one small and old pipeline. Every little mishap in the pipeline will shut down the flow of natural gas – something that already happened on August 5. This is dangerous, foolish and bad.

The northern pipeline will only be ready in 2015, at best. Thus, we have lost two precious years that will cost us many billions of shekels in increased electricity prices.