Israel to open up power-generation sector to more competition after IEC deal

Israel is set to open its power-generation sector to more competition after workers at Israel Electric Corp. (IEC) agreed to a preliminary deal that also aims to help the state-owned utility cut its huge debts.

A standoff between the government, IEC and its workers has long been viewed as a constraint on Israel’s economy.

The utility has said it never received enough money, with prices capped by the government, while IEC’s powerful workers’ union has blocked previous attempts to introduce competition.

That stands to change, with the union giving its preliminary consent on Wednesday to a reform. A final agreement will be negotiated over the next 45 days.

“We have achieved a historic reform in the energy sector after 20 years of failed attempts,” Energy Minister Yuval Steinitz said. “[It] will decentralize the electricity generation system, improve energy security, encourage competition and efficiency in the sector and lead to lower electricity prices in the future.”

Under the outline agreement, IEC will remain a monopoly in distribution, but supply will be gradually opened up to competition. Areas such as system management and planning will be taken away and sold to a different government-owned company.

IEC will sell its five existing gas-powered production plants over five years. It will also not be allowed to replace or build new plants, and those that remain will be transferred to a subsidiary.

IEC has also agreed to reduce its 11,935-strong workforce by 1,800 over eight years, in addition to the jobs that will be migrated as a result of the other reforms.

By 2012, IEC had amassed $16 billion of debt and was kept alive by government-guaranteed bond offerings. Efficiency measures have since reduced the debt to about $12b.

The government has managed to open the power-production market on a small scale in recent years, and about a quarter already comes from private operators.

(Reuters)