Electrifying Revelations

One way or another, taxpayers will be forced to foot the bill for decades of unbridled corruption at the Electric Corporation.

Who stands to gain the most from the talk about privatization? Surprising as it may be, apparently, it's the workers of the Israel Electric Corporation.

For 10 years now, the treasury chiefs and IEC union have been battling over reforming Israel's electricity sector. But the adroit labor representatives have managed to brand the debate on reform as "privatization," which is a word that tends to arouse knee-jerk antagonism.

First of all, in Israel, privatization is perceived as "selling the public's assets to fat cats at sweetheart prices," the felines in question being friends of people in power. The vast profit that certain business barons made from buying government companies branded the whole process of privatization as a way for politicians and treasury officials reward their already filthy-rich friends.

Secondly, the privatization of electric companies has a bad name worldwide, because of the colossal flop in California. The market was deregulated but consumer prices remained under control, while wholesale prices soared. The upshot was privately controlled power companies foundered one after another and in 2000 and 2001 the gigantic state, one of the richest in America, suffered from massive blackouts.

The opponents of privatization often have a point. Privatization in and of itself does not ensure that the public's greater good is at the forefront. Usually the management of privatized companies improves, though not always dramatically. But the economic damage that can be caused when a monopoly falls into private hands surpasses the benefits. It is the treasury's defeat that the IEC workers managed to brand the reform as "privatization", while the actual goal was to institute competition into the electricity sector.

Indeed, the idea of transferring the whole IEC, lock, stock and turbines, to private hands is appalling. The thing is, that never was the idea. The reform consists of introducing competition into power production and distribution.

But the IEC workers want none of it. Competition would expose the sordid truth, the true extent of the waste, corruption and nepotism at the IEC, which has been protected like a tender lamb by the lion of Jerusalem since the establishment of the state in 1948. Every cabinet, every political machine, whose leaders quail before the workers' might at the party central committees.

Three years ago, one Adi Amorai, who chaired the company from 1992 to 1995, gave a rare interview and told it like it is: about the corruption, the waste, the helplessness of the management and board of directors against the workers. During Amorai's stint, the IEC bought a piece of land in Ashdod from one Ezra Harel for a quarter-billion shekels. The sum was several times what the land was worth and even though the price was inflated and the company didn't actually need it, the transaction was urged by the chairman of the IEC's Assets Committee, attorney Dan Cohen, and the IEC's CEO, ex-top cop Rafi Peled.

The Israel Securities Authority demanded that Cohen clarify his relations with Harel (the seller) and with Siemens (the German company, a supplier to the IEC, which had reportedly been paying IEC officials tens of millions of shekels in bribes). Sadly, for the last couple of years Cohen has been in Peru, with which Israel has no extradition treaty.

How did the IEC hide all this festering rot? By borrowing. The vast amounts it borrowed enabled it to do the impossible: to avoid efficiency measures while keeping electric rates relatively low.

Labor representatives, public-relations wizards and lobbyists somehow managed to sell the bleeding-heart camp of reporters the pitch that the IEC was efficient and that its energetic workers needed protection. No need for competition, they argued, pointing to the low price of power. The IEC doesn't milk the taxpayer, they cajoled: It manages to sustain itself even at the low rates it charges.

But anybody tracking the company's balance sheet over the last decade knew how this story would end. The company was careening toward bankruptcy and the bill for its rescue would be presented to the pensioners, the sick, and all the other weak parts in Israeli society.

TheMarker has warned time and again that the IEC is going broke, that it would have to sharply raise prices or get a massive infusion of taxpayer money from government. Now it seems to be happening. The IEC can't repay the NIS 6 billion coming due next year. Its total debt amounts to some NIS 50 billion.

Because it's a monopoly providing an essential, the problem must be solved, and solved it will be - through a steep rate hike designed to improve the company's profitability and regain it the market's confidence. Or, through a massive infusion from the treasury.

Either way, it means taxpayers will be giving the IEC billions, whether through bail-outs or higher power rates. It is retroactive financing for the corruption, the waste and the nepotism that have plagued the company for decades. The bill of hundreds of superfluous workers, who hired their nieces and sons and friends, of hugely overpriced deals closed with a wink and nudge is now being presented to you.

All that remains is to elucidate who will hurt the most - industry? Which needs electricity to manufacture and export? The old and infirm, who always seem to see their budgets shrink when the government finds a hole in its budget?

To be fair, the IEC didn't invent the method of accruing massive debt and suddenly "discovering" it and sticking the public with the bill. There are the noncontributory pensions for career soldiers, which have grown by NIS 100 billion (yes, billion) during the last 20 years without a single politician saying "boo". That's an ever scarier instance of how waste, greed and sweetheart deals were hidden, off balance sheet, too.

Not that the politicians care. The entire nation spent last week fixating on the Second Lebanon War. Nobody so much as peeped about the latest revelations regarding the billions going to waste and mushrooming debts on and off the balance sheet. Not a syllable. Nobody will pay the price - until we all do.