Bethel Finances: IEC CEO attacks private power producers

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Israel Electric Corporation (IEC) (TASE: ELEC.B22) CEO Eli Glickman has declared war on the private power producers. In a sharply worded letter to the Public Utilities Authority (Electricity), he warns against of plethora of private power stations and surplus electricity capacity. Copies were sent to Minister of Finance Yuval Steinitz and Minister of National Infrastructures Uzi Landau.

"We are very worried about the state of the electricity economy," Glickman begins. He asserts that the construction of private power stations will cause "citizens to pay a heavy price, ignite huge costs, which will drastically raise the price of electricity, and will cost the economy tens of billions of shekels."

Glickman warns against the surplus power stations planned by the dozens of ventures for the construction of cogeneration and renewable energy power stations.

Glickman's letter signals a change in policy at IEC, which for years has not expressed any opposition to the construction of private power stations. The letter is surprising for two additional reasons: the first is that IEC is constantly warning about an electricity shortage and has called on the government to allow it to build more power stations; and the second is that, until now, private power stations were considered irrelevant in electricity economy planning.

The government has been encouraging private power producers since 1996, but no large private power station has been built yet, mainly due to bureaucratic obstacles and difficulties in securing financing. Progress has only been achieved in the past year, after two companies - Dorad Energy Ltd. and Israel Corporation (TASE: ILCO) unit OPC Rotem Ltd. - secured financing. Their power stations, which will cost $1.5 billion to build, are due to come on line in 2013.

Nevertheless, Glickman prophesies no less than a swarm of private power plants will be built in the coming years. He presents figures claiming that these power stations will generate 7,000-16,000 megawatts of electricity. This will increase Israel's electricity capacity by 50-120% by 2020. He says that, by 2017, the number of private power stations will increase to 32 from the current four.

Glickman asserts that the results will devastating. "The economy can be expected to deal with a surplus of development and surplus in supply, which was not properly planned, with all that that implies," he says. He goes on to warn that there will be no need for IEC's power stations. This would result in the "almost total abandonment of the network of coal and steam power stations, in which it has already invested billions of dollars and is due to invest billions more."