TEL AVIV | Wed Jul 18, 2012 7:40am EDT–In a TV comedy sketch well-known among Israelis, a man sits in his living room bundled in a fur coat with four air conditioners on full blast. A shivering guest asks if he could turn just one of them off.

“Turn off an air conditioner?” retorts the man who, as an employee of Israel Electric Corp, would enjoy free electricity. “Why turn off an air conditioner when I can turn on an electric heater?”

Some viewers may have chuckled when the sketch first aired years ago. But for the majority of Israelis now, facing the prospect of rolling blackouts in sweltering heat, the electricity situation is no joke.

Israel Electric Corp (IEC), which is responsible for nearly every aspect of electricity from running power plants to connecting households, simply cannot keep up with growing demand.

The state-owned utility just lost natural gas supplies from neighbouring Egypt and fuel costs are soaring. Reserves are low and capacity insufficient and the government, under pressure from massive cost-of-living protests, has limited how much it can charge the public for electricity consumption.

IEC is also grappling with a huge debt load exacerbated by generous workforce benefits. Its nearly 13,000 staff enjoy salaries three times the national average – and that free electricity.

Reforms are needed, and fast. But the crackdown the government has been promising for more than a decade is being fiercely resisted by the union, and politicians have backed down from a sweeping plan to split IEC into two companies, one for power generation and one for distribution.

Unions saw the plan as a first step towards privatizing the company and feared job cuts.

They are now in protracted negotiations over “mini reforms”, while areas around the country’s second most populous city Tel Aviv lost power for hours in the middle of the day last week.

YEARS OF NEGLECT

Since Israel’s founding 64 years ago IEC has been the only player in the electricity sector, but has never received enough money to cover the expenses of a growing population’s demands.

Rates for consumers were kept low by the government which limited cash injections to the company itself. IEC has now accrued a whopping $16 billion in debt and is being kept alive by repeated government-guaranteed bond offerings — including 2.9 billion shekels ($734 million) raised earlier this month — which help it pay for fuel but add to its problems.

One source at the company said IEC wanted to issue over $1.3 billion in bonds this month, but the government said it would only back just over half that amount.

With the debt burden a priority rather than infrastructure investment, grid capacity lags well behind demand. Energy Minister Uzi Landau said recently reserves could drop to two or three percent of total production this summer, a dangerously low level. Reserve margins typically stand above 20 percent in developed countries.

The government blames much of the IEC’s problems on its workforce.

“The high salaries and free electricity have tarnished the company’s image,” acknowledged IEC chairman Yiftah Ron-Tal in a recent briefing with reporters.

But by European standards, household electricity bills remain low, and the government’s own policies on tariffs have contributed to IEC’s fragile financial situation.

According to Eurostat, the EU’s statistics database, Israelis paid on average 9.3 cents per kilowatt hour at the end of 2011, well below most European countries. Prices have risen 8.3 percent since then, bringing the total increase to 23.3 percent since March 2011, and another 16 percent hike has been approved.

But that may be too little, too late to cover the country’s soaring energy costs.

Israel lost 40 percent of its natural gas supplies last February when saboteurs in Egypt’s Sinai peninsula, seizing on the chaos that followed the overthrow of President Hosni Mubarak, began blowing up the pipeline that carried gas to Israel. Gas did not flow for most of 2011 and Cairo officially terminated the 20-year export deal in April…Read More>>

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