Treasury finalizing law to break cooking gas cartel, lower costs

By SHARON WROBEL
August 7, 2007 08:00

The Federation of Israeli Chambers of Commerce (FICC) put the potential overall saving higher, at NIS 600-700m.

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The Finance Ministry is this week expected to present recommendations for changes in legislation to open competition in the Liquid Petroleum Gas (LPG) sector, also known as the cooking gas sector, which in turn will cut household gas costs by between 20 and 40 percent. The ministry charges that the four major gas companies are essentially operating as a cartel. "Competition in the sector will reduce consumer prices by 20%, and as a result the costs to private consumers will be cut by NIS 450 million a year," said Yarom Ariev, Director-General at the Finance Ministry. "The issue will be included in the government's proposals as part of the economic plan for 2008. The Federation of Israeli Chambers of Commerce (FICC) put the potential overall saving higher, at NIS 600-700m. In a letter to FICC head Uriel Lynn, who has been engaged in advancing the reform, Ariev added that there were several proposals for boosting competition. The Antitrust Authority and National Infrastructures Ministry are also involved in the planned legislation. "First and foremost," said Ariev, "ownership of the gas tanks infrastructure must be transferred from the gas companies to homeowners." This, he said, would "significantly reduce the obstacles for switching suppliers, and encourage competition, to the benefit of the consumer." Additional corrections to the legislation include clauses designed to boost competition between suppliers over terms of service, requiring suppliers to provide equal services to all regions, providing for the inclusion of the price of gas supply in the purchase price of an apartment, and enabling consumers to change suppliers immediately. According to data from the Finance Ministry, the four large gas companies - Supergas, Amisragas, Dor Gas and Pazgas - have been controlling 92% of the household gas market and as such they have been operating a form of cartel activity on a national scale. "The gas reform started 18 years ago, but nothing has changed," said Lynn. "Small gas companies have been finding it difficult to break the monopoly of the four dominant gas companies in the sector, which is causing damage to 2 million households in Israel." The FICC explained that many private consumers were unable to switch to less expensive or small gas suppliers because of obstacles created by the larger gas companies, such as commitment to a one-year contract.


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