State Comptroller Yosef Shapira slammed the Energy and Water Ministry and the
Israel Electric Corporation for both a faultily managed “shortterm vision” and
financial mismanagement, in a report issued on Wednesday.
Shapira determined that many deficiencies pervade the decision-making among all
those involved with Israel’s electricity supply for the future. The shortcomings
have largely arisen from the fact that electricity sector planning has been
predominantly short-term and without an overarching vision, involving repeated
approval of emergency plans and financial burdens imposed upon consumers,
according to Shapira.
In response, the Energy and Water Ministry said the
office agrees that there is a fundamental program with managing the electricity
sector. Since he assumed office, Energy and Water Minister Uzi Landau has been
concerned with the issues of decentralization and governance of the power
sector, according to the ministry. In order to improve the decision-making
process, the ministry has launched a memorandum of law that includes a
rearrangement of the authorities and responsibilities in the electricity
The IEC must promote the preparation of a plan to establish
Project D, and the regulators of the electricity sector must act vigorously to
carry out the decision to establish this project and renewable energy production
units – to lay the groundwork to supply the growing demand for electricity in
the sector, while maintaining energy security and a strategic balance of mixing
fuels used at power stations in the coming decades.
The IEC, alongside
the Interior Ministry’s Planning Administration and the Israel Lands Authority,
must likewise accelerate the expansion of the electricity transmission network
in order “to enable the flow of electricity produced at private local power
stations to consumers all across the country reliably as needed,” Shapira said.
Meanwhile, promoting the construction of renewable energy production units and
maintaining a strategic balance of mixed fuels at power stations will remain
crucial, he said.
Such a fuel mixture, the Energy and Water Ministry
agreed in its response, has always been key to the office’s strategic mission
and will help ensure the vitality of the electricity sector.
however, that Israel must keep coal as a 50 percent share of its electricity
supply source, according to the ministry.
Calling Israel an “energy
island,” the ministry said that its policy is to achieve a reserve of about 20%
in order to provide the country with a safety net in its energy
In several sections of the report, Shapira took a close look at
the inner operations of the IEC and found severe problems with its financing
procedures as well as its overall management and board of directors.
raises capital in both Israel and abroad, and its principle mode of doing so in
recent years has been the issuance of long-term bonds and loans – a method with
which the State Comptroller has a serious issue.
In addition, the cost of
raising capital has been greatly affected by the company’s credit
A constant feeling of uncertainty, due to delays in
decisionmaking regarding structural changes in the electricity sector, has also
contributed to the price increase in raising capital for the IEC.
than using other methods to raise capital, which could have improved company
cash flows, the IEC preferred to raise capital immediately and failed to discuss
alternatives, according to Shapira. Among such options would have been raising
capital for the short- or medium-term at lower interest rates – a method that
could have saved the company hundreds of millions of shekels, the state
comptroller wrote. By issuing short- and medium-term debts at lower interest
rates, more investors may be attracted, because higher interest rates often
involve much longer-term commitments to tying up sums of money.
the accountant-general disagreed with the timing of an IEC bond issuance in
January 2009 –$500 million from JP Morgan and Citibank through bonds issued in
the Singapore Stock Market – the IEC management did not raise his complaints to
the board of directors for discussion, Shapira pointed out. The board, for its
part, did not request comprehensive information and did not check, based on the
specific data of the issuance abroad, if the issuance timing and its conditions
were indeed worthwhile in light of changing market conditions, approving the the
deal’s execution, he explained.
An additional problem with the bond
issuance was the fact that Israeli investors were “discriminated against”
because they were denied the opportunity to purchase the company’s bonds issued
abroad, Shapira noted.
“The State Comptroller’s Office is strongly
opposed to the conduct of all of the involved entities, particularly the
findings that concern abnormal conduct of the board of directors and the
management,” Shapira wrote, similarly blaming the Government Companies Authority
and the Accountant- General’s Office for their lack of further
“This is a failure that demonstrates that not enough effort
was invested in examining alternatives that would have allowed for the saving of
hundreds of millions of shekels,” he continued.
“In order to prevent the
recurrence of future such issuance deficiencies, the State Comptroller’s Office
believes that it is appropriate for the attorney-general to review the need for
establishing guidelines for board members and officials of these bodies and of
other government companies, so that they will behave in the future with care –
otherwise impose on them personal responsibility.”
Another improvement in
the IEC’s management that the state comptroller called for involved replacing
the person responsible for auditing the company in the Accountant- General’s
Office with an objective, independent body. The IEC should not itself be
involved with selected such a body, and Shapira wrote that he sees any such
involvement as quite grave.
The state comptroller additionally criticized
the IEC for its “irregularities” in pension and wage supervision, saying the
firm did not follow appropriate procedures in its questionable approval of
billions of shekels, according to the report.
“The State Comptroller’s
Office condemns the abnormal functioning manner of the management company,”
In response, a statement from the IEC said that the
company welcomes the State Comptroller’s Report and is glad to see that the
office finds energy to be of high importance. The IEC is constantly working to
make improvements and treats all such recommendations with great seriousness,
according to the company.
“We view this as very important and we will
work in full cooperation with all the bodies audited in the report in order to
promote the auditor’s recommendations,” the statement said, stressing that the
IEC had been completely cooperative throughout the examinations.