Israel Electric Corporation Strategic Aspects Overview · “The sole and only interest of the...

Israel Electric CorporationIsrael Electric CorporationStrategic AspectsStrategic Aspects

OverviewOverview

November 2012November 2012

2

The Electricity SectorThe Electricity Sectorin Israelin Israel

3

Pinchas Rutenberg: Founder of the Company

Pinchas Rutenberg: Founder of the Company

1919: Water utilization survey in the State of Israel initiated by Pinchas Rutenberg

1919: Water utilization survey in the State of Israel initiated by Pinchas Rutenberg

1926: Concession agreementfrom the British Crown

1926: Concession agreementfrom the British Crown

“The sole and only interest of the Israel Electric Company is the economic development of the country based on pure business considerations.”Pinchas Rutenberg, 1926

“The sole and only interest of the Israel Electric Company is the economic development of the country based on pure business considerations.”Pinchas Rutenberg, 1926

4

Israel Electric Corporation Israel Electric Corporation Selected Data Selected Data

Government company: 99.85% of the Company is owned by the Government.

Installed capacity: 13,248 MW (~500MW self-generation/private).

Peak demand: 11,920 MW on 19.7.2012.

Annual budget: approximately NIS 32B MW(2012).

Total employees: approximately 13,000 (of which some 9,800 have tenure).

Total customers: over 2.5 million.

5

Special Characteristics of the Special Characteristics of the Electricity SectorElectricity Sector

Fast growth rate – which doubled in the last decade. A growth of 3%-4% is expected in the next decade.

Low reserve compared with the electricity sectors in western countries (without the emergency plan and IPPs).

“Electricity Island” – no backup or connection to any other source of electricity supply.

Type of product:

Product that cannot be stored

Fluctuation in consumption and generation

6

The Electricity ChainThe Electricity Chain

63 Generation units in 17

power stations

9 Switching stations

400/161 KV(about 5,246 kms.)

Generation TransmissionHigh and low voltage lines

(about 45,000 kms.)

2.52M customers

ultra-high voltage

customers

ultra-high voltage

customers

high-voltage

customers

high-voltage

customers

DistributionApprox. 190 substations

161 KV(4,386 km.

ciruits)

7

Population: 7.9 million1,615 MW per million

residents

Geopolitical Surroundings:Geopolitical Surroundings:Neighboring CountriesNeighboring Countries

Population: 80 million309 MW per million residents

Population: 6.4 million463 MW per million residents



Lebanon (2010)

3,000 MW

Syria (2010)8,911 MW

Israel (2012)12,760 MW

Jordan (2010)

2,962 MW

Egypt (2010)24,726 MW

8

Orot RabinOrot Rabin2,5902,590

RutenbergRutenberg2,2502,250

HaifaHaifa1,0301,030

ReadingReading428428EshkolEshkol

1,5491,549

Alon TaborAlon Tabor583583

GezerGezer1,3361,336

ZafitZafit580580

HagitHagit1,2751,275

Ramat HovavRamat Hovav1,0211,021

Total Installed Capacity: 13,248 MW in 63 Generation Units

Total Installed Capacity: 13,248 MW in 63 Generation Units

Eilat 92Eilat 92

National Installed Capacity in MWNational Installed Capacity in MW(correct to 30.8.2012)(correct to 30.8.2012)

Total13,248100

Fuel Type

Total Installed Capacity

in MW

Total Capacity

in %

Coal4,84036.5

Natural Gas7,10253.6

Fuel Oil00

Diesel1,3069.9

KinnerotKinnerot8080

Coal Units

Natural Gas Units

Fuel Oil Units

Combined-Cycle Units

Gas Turbine Units

9

Annual Peak Demand Growth 1990Annual Peak Demand Growth 1990--20152015MW

Forecast demand in 2013: approx. 12,832 MW

3 X !!

Approx. 3%Approx. 3%--4% per year4% per year7.6% per year7.6% per year

1990-2011 Annual Peak Demand2013-2015 Forecast Summer Peak Demand, including IPPs

11,920 MW

10

Sites operated by natural gas:Eshkol – as of February 2004

Reading – as of July 2006

Gezer – as of July 2008

Hagit – as of May 2009

Zafit – as of May 2010

Ramat Hovav – as of June 2010

Alon Tavor – as of August 2011

Haifa – As of November 2011

Natural Gas Transmission SystemNatural Gas Transmission System

Yam Thetys

EMG

Haifa

Hagit

Reading

GezerEshkol

ZafitAshkelon

Alon Tavor

Orot Rabin

Rutenberg

Ramat Hovav

Future pipeline between Gezer and Hagit

11

2.522.52 Million ConsumersMillion Consumers

87.7% of customers

10.4% of customersindustrial

East Jerusalem

and the PA

agriculture

public/commercial

residential

water pumping

1.3% of customers

Self-consumption by IEC: approx. 4%

12

Installed Capacity (Economy) Installed Capacity (Economy) 19481948--20122012

MW

1948: 69 MW

End of 2011: total of 13,160 MWIEC: 12,760 MWPrivate producers: approx. 400 MW

End of 2012: total of 13,750 MWIEC: 13,250 MWPrivate producers: approx. 500 MW

13

Electricity TariffElectricity Tariff

Fuel 60% Operation

15%

Capital 25%

Generation20%

Distribution

12%Transmission8 %

Fuel 60%

2012 -הערכות *

Distribution according to costsDistribution according to sectors

14

Numerous RegulatorsNumerous Regulators

Acquisi-tions

Acquisi-tions

SecuritySecurity

WaterWater

Licensing and

Construction

Licensing and

Construction

Human Resources

Human Resources

EnvironmentEnvironment Financial Market

Financial Market

CompaniesCompanies

Electricity Sector

Electricity Sector

Israel Antitrust Authority


Antitrust AuthorityAntitrust Authority

Ministry of Infra-

structures

Ministry of Infra-

structures

Electricity AuthorityElectricity Authority

Electricity Administra-

tion

Electricity Administra-

tion

Israel Securities Authority

Israel Securities Authority

Government Companies Authority






Wage and Labor

AccordUnit

Wage and Labor

AccordUnit Local

AuthoritiesLocal

Authorities

Regional Associations

Regional Associations

Ministry of Environ-mental

Protection


Protection

ICA -Industrial

Cooperation Authority

ICA -Industrial

Cooperation Authority

TendersTendersArmyArmyPolicePolice


Protection


Protection

Local Authorities

Local Authorities

Water Authority

Water Authority

Local Authorities

Local Authorities

Planning & ConstructionPlanning &

Construction Ministryof the

Interior

Ministryof the

Interior

Israel Security Agency

Israel Security Agency

Ministry of Finance -Budget Division

Ministryof

Justice

Ministry of Industry,

Trade & Labor

Israel Accounting Standards

Board

Acquisi-tions

Acquisi-tions

SecuritySecurity

WaterWater

Licensing and

Construction

Licensing and

Construction

Human Resources

Human Resources

EnvironmentEnvironment Financial Market

Financial Market

CompaniesCompanies

Electricity Sector

Electricity Sector



15

Status in 2012Zvulun

Caesaria

Hagit

Orot Rabin

Petach Tikva

Gan Sorek

Rutenberg

Ramat Hovav

Gezer

ZafitEven Sapir

Forecast until 2016

Development of the 400 kV Transformation System: Development of the 400 kV Transformation System: IPPs/renewable energies/stability of the systemIPPs/renewable energies/stability of the system

Total connected generation: 5,790 MW; Transmission: 10,150 MVA; Grid Length: 735 km.

20112013

2016

ירושלים

Zvulun

Caesaria

Orot Rabin

Hagit

Petach Tikva

Gan Sorek

East Galilee

Emek Hefer

Yavor

Yarkon

Gan SorekGanot

2013Gezer

Jerusalem

2016

DuradZafit

Even Sapir

Parsa

Sdom

Ramat Hovav

Rutenberg

To Jordan

To Jordan

To Jordan

To Egypt

16

161161KVKV Transmission SystemTransmission SystemDistribution of existing lines (in 2011)Distribution of existing lines (in 2011)

and future status up to 2016and future status up to 2016

161 kV lines

ExistingFuture

Ramat Hovav

Haifa

Hagit

Orot Rabin

Eshkol

Rutenberg

Gezer

Zafit

Reding

AlonTavor

20162011163157Substations

16,98014,855Installed transformation capacity (MVA)

3833No. of private power stations

4,5704,292Circuit lengths (in kms.)

11594Length of underground cables in kms.

17

Electricity Electricity –– Product QualityProduct Quality

Quality

Service

Price

18

Reliability of SupplyReliability of SupplyYearly average index of minutesYearly average index of minutes--ofof--nonnon--supply of electricitysupply of electricity

per customer, in mediumper customer, in medium--voltage grids, for 1988voltage grids, for 1988--20112011

0

100

200

300

400

500

600

700

800

900

201120092007200520032001199919971995199319911989

839

725

534

595 584

502463

348 352363

203229207 202183

151178

135179

134 124 121145 132

Min

utes

19

Cost of Electricity in Israel Cost of Electricity in Israel (in 2012 prices, in agorot, without VAT)(in 2012 prices, in agorot, without VAT)

agorot

20

Source: Eurostat publication 2011 – for prices abroadSource: Eurostat publication 2011 – for prices abroad

€ Cent

Electricity Price in Israel is among the Lowest Electricity Price in Israel is among the Lowest in the Western World even afterin the Western World even after

the Natural Gas Crisisthe Natural Gas Crisis

21

Official OECD Report (2011)Official OECD Report (2011)“…the current price (in Israel), in general, appears artificially low……the price of electricity in the wholesale sector (not including tax) are low in international terms……the prices are not high enough for a monopolistic supplier to exist (even when taking steps to save costs)…”

It has been 20 years that electricity prices in Israel are a third of the lowest in the western world

It has been 20 years that electricity prices in Israel are a third of the lowest in the western world

Diagram 3.7. Electricity price per homePrices do not include taxes, USD per kWh

Base for exchange rate

22

Average price per KWh in the residential sector (in 2012 prices*)

(*) deducted from the price index per customer (annual average) – 2012 Israel Bank forecast 2.6%

agorot/kWh

7.6% -

fore

cast

Price Outlook: Prices in previous years were Price Outlook: Prices in previous years were higher than the current price that was higher than the current price that was

caused by the natural gas crisiscaused by the natural gas crisis

23

Quality of Service to CustomersQuality of Service to Customers

Israel Electric has been chosen for the 15th consecutivetime for customer satisfaction for the quality of service

in the public sector!

According to the “Test of the Nation” and the Geocartography Institute

24

FuelsFuels

25

7978

9

75

12

71

18

70

20

65

26

64

33

60

36.6

61.5

31.9

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 2009 2010 2011

coal natural gas

IEC: The Pioneer of the Natural Gas RevolutionIEC: The Pioneer of the Natural Gas Revolution

0

26

The Effect of Introducing Natural GasThe Effect of Introducing Natural Gas

Natural Gas

Efficiencyin HR

Electricity cost

reduction

Pollutionreduction

Competition and IPPs

Improvedefficiency

27

Redundancy

Strategicstorage

Local storage

Transmission and supplyredundancy

Increasein number of

suppliers

28

Illustration:Illustration:

Yam Thetys

EMG

Haifa

Hagit

GezerEshkol

ZafitAshkelon

Tamar

Developed Dutch SystemDeveloped Dutch System

Reding

Relying on gas on a broad scale requires an infrastructure suitable for conducting and storing of gas!

Undeveloped Israeli SystemUndeveloped Israeli System

29

Forecast Changes in the Fuel Basket Forecast Changes in the Fuel Basket until 2014until 2014

2010Forecast 2014* 2003

fuel oil17%

diesel4%

coal79%

* The distribution for 2014 is calculated on the basis of data used to prepare the fuel forecast and the electricity generation for financial planning for 2013-2017 (scenario without energetic efficiency).

* Generation for 2014 includes about 2,000 MW by IPPs (conventional and self-generating/cogeneration units).

natural gas36.5%coal

61%

diesel and fuel oil 0.5 %

IPPs0.1 %

natural gas& IPPs61.5%

coal38%

diesel and fuel oil 2.4 %

30

4.8%

20.0%

2.4%

14.8%41.3%

16.7%

Fuels: International ComparisonsFuels: International Comparisons(planned for 2015) (planned for 2015)

33%

64%

3%

coal natural gas other

USA

Europe )OECD (

Source: U.S. EIA International Energy Outlook 2011

hydroelectriccoalnuclearSun, wind, other renewed energiesNatural gasLNG

In the world

Japan

31

Participation of Units on 31.7.2011Participation of Units on 31.7.2011(Summer Peak in 2011)(Summer Peak in 2011)

32

Neighboring Sources of Natural GasNeighboring Sources of Natural Gas

Forecast requirements for the electricity sector for the next decade: 6-8 BCM per year

Tamar Israel

240 BCM

DalitIsrael

15 BCM

Mari B + NoaYT

15-20 BCM

Gaza MarinBG

25 BCM

EMGGas supply from Egypt has ceased and there is no information as to if it

will be renewed

LNG - Import of LNG for backup

Leviathan Israel

450 BCM

33

Development PlansDevelopment Plans

34

Problems in the Electricity ReserveProblems in the Electricity Reserve

large demandof a developingmarket – 4% per

year

Breaking thepeak demand

record on 19/7/12:11,920 MW

Low cost of electricity

encouragesdemand

Lack of certainty in

entry of IPPs and in the development

of IEC

Climatewarming

winter

night

Friday

Saturday

Weekday

Summer

35

~ 5 cent/KWh

Average generation costs

Significance of Advancing Significance of Advancing Investments in the Electricity MarketInvestments in the Electricity Market

1:2501:2501:25025 $/KWh

Cost of damage to the national economy

36

1.12.2013GT Eshkol1x133 MW

15.7.2013GT Ramat Hovav

1x115 MW

Shutdown of Rutenberg Unit 5 for 6 months as of10/2013 - 575 MW

15.8.2013GT Hagit

1x118 MW

7.2016GT Alon Tavor

1x114 MW

Development PlanDevelopment Plan Generation SystemGeneration Systemfor 2013for 2013--2019, including Project D in 2018/2019 2019, including Project D in 2018/2019

(correct to 6/2012)(correct to 6/2012)

2013 20152014 2016 2017 2018Installed capacity during peak demand in summer (in MW)

13,91013,396 13,910 14,024 13,883 14,372

2019

Project D630 MW

15,002* In addition to this development plan, introduction of new IPPs and implementation of energetic efficiency plans is expected.

7.2014GT Alon Tavor

1x263 MW

Shutdown of Orot Rabin for 6 months as of 4/2014 - 575 MW

Shutdown of Rutenberg Unit 1 for 6 months as of 10/2014 - 575 MW


Shutdown of Rutenberg Unit 4 for 6 months as of 10/2015 -550 MW

Shutdown of Orot Rabin Unit 3 for 6 months as of 1/2016 - 360 MW

Shutdown of Orot Rabin Unit 4 fo r 6 months as of 1/2016 - 360 MW

Project D630 MW


Shutdown of Orot Rabin Unit 1 for 6 months as of 7/2016 - 360 MW

Shut down of Orot Rabin Unit 2 for 5 months as of 7/2016 - 360 MW

Current projects

Emergency-plan projects

Emission reduction projects in existing coal-fired power stations; these projects will continue until the end of 2017

37

Investment plan for 2013Investment plan for 2013--20172017(in million NIS in 12/2011 prices,(in million NIS in 12/2011 prices,including interest capitalization)including interest capitalization)

1818

2669

1425

2722

684

708

2992

1714

3533

626

592

3528

1943

3551

618

465

5848

1997

3535

589

58

4339

2376

2635

574

0

2,000

4,000

6,000

8,000

10,000

12,000

In m

illio

n N

IS

2013 2014 2015 2016 2017

10,232

12,434

9,318 9,5739,981

38

Business Business DevelopmentDevelopment

39

Business DevelopmentBusiness Development

40

Smart GridSmart Grid

41

Diverse infrastructures have undergone Diverse infrastructures have undergone significant revolutions; significant revolutions;

now itnow it’’s the Electricity Sectors the Electricity Sector’’s turns turn2009200919501950

TelephonesTelephones

AirplanesAirplanes

ElectricityElectricity

ComputersComputers

41

42

The Future Electricity Grid: Main PointsThe Future Electricity Grid: Main Points

GenerationIntegration of renewable energy sourcesGeneration at point of consumption (detour of the transmission grid)Efficient use of traditional installationsAdvanced load management systems

TransmissionIntegration of renewable energy sourcesAdvanced load management systemsAutomatic grid managementEnsuring service standards

ConsumptionSmart metersGeneration at point of

consumption

43

Israel ElectricIsrael Electric’’s s Communication VentureCommunication Venture

43

44

The EnvironmentThe Environment

45

2000First addition of

combined cycle in Ramat Hovav

2005Use of special

coal in Orot Rabin

2001Operation of

FGDs in Rutenberg 2

2004Introduction of

natural gas to the electricity sector

NIS 415M NIS 319.3M NIS 393.9M

Alon Tavor12/2004, 2/2005

Emission reduction in Units 1,2 respectively

2003 Completion of

conversion to natural gas in Eshkol and Reading

HagitConversion to natural

gas and water injection to reduce

diesel oil emissions in Units 1-4

Main Projects in the Last Decade that Main Projects in the Last Decade that Contributed to a Significant ReductionContributed to a Significant Reduction

in Emissionsin Emissions

46

Main Projects in the Last Decade that Main Projects in the Last Decade that Contributed to a Significant Reduction in Contributed to a Significant Reduction in

Emissions (cont.)Emissions (cont.)

By 2017, the performance of coal-fired units will improve as a result of installing devices totaling NIS 8.5 billion (almost equivalent to the construction of another coal-fired power station)!

By 2017, the performance of coal-fired units will improve as a result of installing devices totaling NIS 8.5 billion (almost equivalent to the construction of another coal-fired power station)!

2017Emission

reduction in coal-fired units

NIS 8,500M

Orot Rabin Conversion of Units

1-4 to natural gas

2006Haifa

Completion of conversion to natural gas in

Unit 3

NIS 513.5M

HagitConversion to natural

gas and water injection to reduce diesel oil

emission

11/2006Zafit

Emission reduction project in Units 1,2

2011 Alon TavorInstallation of

natural gas system in Unit 3

2009–2010Ramat Hovav

Conversion to natural gas and water injection

to reduce diesel oil emission in Units 1-4

47

Next DecadeNext Decade’’s Project s Project –– Plan for Emission Plan for Emission Reduction in CoalReduction in Coal--fired Units (2009fired Units (2009--2017)2017)

A forecast 8.6 billion NIS to be invested over 8 years for emissA forecast 8.6 billion NIS to be invested over 8 years for emission reductionion reduction

2014

Orot Rabin 5,6 Rutenberg 1,2

2015 2016

Rutenberg 3,4

2017 / 2016

Orot Rabin 1-4

Rutenberg Rutenberg –– A reduction of 80% in sulfur oxides and 80% in nitrogen oxidesA reduction of 80% in sulfur oxides and 80% in nitrogen oxides

Orot Rabin Orot Rabin –– A reduction of 90% in sulfur oxides and 90% in nitrogen oxidesA reduction of 90% in sulfur oxides and 90% in nitrogen oxides

FGD, SCR, PM FGD, SCR SCR SCR

48

600

650

700

750

800

850

1990 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

10

20

30

40

50

60

specific emission (grams/kWh) electricity generation (billionskWh/year)

Reduction of Carbon Dioxide (COReduction of Carbon Dioxide (CO22) ) Emissions Against Electricity GenerationEmissions Against Electricity Generation

(in 1990 and 2000(in 1990 and 2000--2011)2011)

Reduction in CO2In

crea

se in

de

man

d

Spec

ific

emis

sion

(gra

ms/

/kW

h)

Elec

tric

ity g

ener

atio

n (in

bill

ion

kWh/

year

)

49

Sulfur Dioxide (SOSulfur Dioxide (SO22) and Nitrogen Oxide (NOx) ) and Nitrogen Oxide (NOx) Emissions Against Electricity GenerationEmissions Against Electricity Generation

(in 1990 and in 2000(in 1990 and in 2000--2011)2011)

Elec

tric

ity g

ener

atio

n (in

Bill

ion

kWh

per y

ear)

Spec

ific

emis

sion

s (g

ram

s pe

r kW

h)

Decrease in SO2

Increase in demand

Decrease in NOx

50

Emission Reduction of SOEmission Reduction of SO2 2 and NOxand NOxin the Coalin the Coal--Fired Power Station at theFired Power Station at the

Orot Rabin SiteOrot Rabin Site

Emission rateKg./Hour

74388183

59926946

4545

5709

513569

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Current State Apr-14 Oct-14 2017

SO2 NOx

Emission Reduction:Emission Reduction:

SO2: - 93%

NOx: - 93%

51

Emission Reduction of SOEmission Reduction of SO2 2 and NOxand NOxat the Coalat the Coal--Fired Rutenberg Power StationFired Rutenberg Power Station

Emission rateKg./Hour

5924

40243505

3001

1085

1977

9071353

729 729

0

1000

2000

3000

4000

5000

6000

Current State Apr-15 Oct-15 Apr-16 Oct-16

SO2 NOx

Emission Reduction:Emission Reduction:

SO2: - 88%

NOx: - 82%

52

Financial DataFinancial Data

53

The Difficulties of IECThe Difficulties of IEC’’s Financial Situations Financial Situation

High leverage

Acute shortage of

cash balance

Need for extensive

investment in development

Low tariff!One of the

lowest among Western

countries

Low profitability:shortage of

internal sources

Strict limitations on

the possibilities of raising capital

in Israel

Lowering the rate abroadbelow the

investment-permitting rate

Depletion of the Yam Thetys reservoir

Cessation of gas flow from Egypt

54

2010NIS 9B

2011NIS 14B

2012NIS 24B

Expenses increased by almost three times in less than two years

The lack of natural gas results in The lack of natural gas results in financial consequences of an financial consequences of an

unprecedented strategic scopeunprecedented strategic scope

55

Total assets 84,414 22,092 89,073 22,769Total Non current assets 73,239 19,167 76,071 19,446Intangible assets,net 865 226 867 222Fixed assets under construction 4,870 1,275 4,856 1,241Fixed assets in use, net 57,564 15,065 58,068 14,844Funds in trust 2,090 547 1,969 503

Excess pension plan assets over pension liability 5,820 1,523 4,012 1,026

Long-term regulatory asset 0 0 4,524 1,156Long-term receivables 2,030 531 1,775 483

Total Corrent assets 11,175 2,925 13,002 3,324Regulatory assets,net 2,500 654 2,817 495

Inventury - stores 127 33 125 72

Inventury - fuel 2,029 531 3,077 649Other current assets 640 167 770 183Trade receivables for sales of electricity 3,946 1,033 4,991 1,105Short term investments 757 198 80 192

Cash and cash equivalents 1,176 308 1,142 308Assets) in millions( NIS USD NIS USD

31.12.2011 30.09.2012

BALANCE - ASSETS

56

Total liabilities 84,414 22,092 89,073 22,769Shareholders equity 17,630 4,614 16,595 4,242Total Non current liabilities 57,215 14,974 57,485 14,695Other liabilities 393 103 375 96Liability to the State of Israel 3,764 985 3,576 914Debentures to the State of Israel 2,505 656 2,505 640Deferred taxes, net 5,607 1,467 5,281 1,350Provision for refunding amounts to consumers 2,305 603 2,389 611

Regulatory liabilities, net 2,845 745 2,512 642

Liabilities with respect to other benefits after employment termination 2,698 706 2,783 711

Liabilities to banks 5,150 1,348 4,592 1,174Debentures 31,948 8,361 33,472 8,556Total Current liabilities 9,569 2,504 14,993 3,833Provisions 805 211 759 194

Customer advances, net of work in progress 407 107 436 111

Other current liabilities 1,591 416 1,811 463Trade payables 2,068 541 3,038 777Short term debentures 0 3,904 998CURRENT LIABILITIES NIS USD NIS USD

31.12.2011 30.09.2012

BALANCE - CURRENT LIABILITIES

57

Consolidated Statements of Operation and Comprehensive Income

Net Income (loss) )802( 1,114 )1,035(

Expenses (income) from adjustments of deferred tax balances arising from changes in future tax rates 1,232 )30( 0

Other deferred taxes 156 281 )317(Income taxes:

Income (loss) before income taxes 586 1,365 )1,352(Financial expenses, net 2,230 1,584 1,947Transfer of financial income (expenses) to a regulatory liability )274( )183( 53Capitalization of financial expenses )204( )151( )198(Financial expenses 2,708 1,918 2,092Financial expences,net:

Income from current operations 2,816 2,949 595Expenses from liabilities to pensioners, net 149 143 1,540Administrative and general expenses 729 562 607Sales and marketing expenses 898 643 723Profit from operating the electricity system 4,592 4,297 3,465Total costs 20,460 14,466 17,917Provision (release) with respect to non-recognition of fixed assets construction costs )128( )116( 1Depreciation and amortization 4,277 3,143 3,262Operation of the transmission and distribution system 367 268 228Operation of the generation system 769 552 554Transfer of purchases of electricity to regulatory assets (from assets) 0 0 )56(Purchases of electricity 479 329 667Transfer of fuel to regulatory assets 0 0 )4,509(fuel 12,977 9,002 16,157wages 1,719 1,288 1,613Cost of operating the electricity system:

Revenues 25,052 18,763 21,38231/12/2011 30/09/2011 30/09/2012

NIS,in Millions

58

2,090.7 2,098.3 792.8

2,682.93,876.4

₪ 8,598

₪ 4,781 ₪ 4,669

268.4

6,507.3

621.6₪ 890

0

2,000

4,000

6,000

8,000

10,000

Q4 2012 2013 2014 2015 2016 andthereafter

Loans from financial institutions and from the State of Israel Private and public debt offerings

IEC Consolidated Debt Breakdown (as of September 30, 2012)

Loans in NIS6%

Domestic bonds

50%

International bonds

30%

Loans in foreign

currency14%

Annual Debt Maturities as of September 20122

(Principal in NIS millions)

JPY7%

NIS not linked

5%

USD32%

NIS linked to

CPI51%

EUR5%

Debt by Currency Type of Instrument Interest Rate Exposure

• Diversified debt portfolio• Foreign currency exposure substantially mitigated through the tariff structure1

and utilizing hedging transactions• No maturity spike in the coming four years

Source: IEC and IEC’s filings.1. The hedging through tariff mechanism will be eliminated by April 2013.2. In November 2012 the IEC has issued : tradable CPI linked debentures in a total amount of NIS 1.0 billion guaranteed by the State of Israel; non tradable CPI

linked debentures in a total amount of NIS 0.2 billion and non tradable unlinked debentures in a total amount of NIS 0.8 billion.

₪ 30,011

Floating9%

Fixed91%

59

Structural ChangeStructural Change

60

In the last decade many reforms have occurred inIn the last decade many reforms have occurred ingovernment companies in Israel, but no reform has dealtgovernment companies in Israel, but no reform has dealt

with a company of IECwith a company of IEC’’s scales scale

Reform in IEC is compared with a number of reforms in the large companies simultaneously, due to the number of employees and financial scope

Source: Companies Authority Reports, Privatization Forecasts. Analysis: TASC. * On the date of privatization/structural changes. ** Includes parameters by average linear weight In relation to IEC.

IECIsrael PortsOil RefineriesEl-AlZimBezeq

Israel National Roads

CompanyStructural changes

(2009)

Structural changes

(2005)

Privatized(2007)

Completed privatization

(2003)

Privatized(2004)

Privatized(2005)

Converted to government

company (2005)

12,2002,3009003,2001,1008,000700

70 billion NISNIS 3.5 billionNIS 9 billionNIS 1.5billion

NIS 5.5billion

NIS 17.3 billion

NIS 0.35 billion

NIS 23 billionNIS 1.6 billionNIS 16.7 billionNIS 1.2 billionNIS 8.9 billionNIS 4.7 billion NIS 1.5 billion

NIS 44 billion 0NIS 2 billionNIS 0.8 billion NIS 3 billion(estimated)NIS 9 billion0

Unreplaceable product

99% of exports pass through the ports; no

substitution is possible

Refines 80% of the fuels in the economy. Partial substitution by

import

High substitution by foreign air

companies

High substitution by foreign shipping

companies

Partial substitution during reform

(mobile phones, cable)

Full substitution by hiring new

workers

Reform in Israel Electric

Selected reforms in leading companies

60

Description

No. of Employees*

Assets*

Income cycle*

Foreign capital*

Productsensitivity

Complexity

61

Where will stopping the reform process lead to?Where will stopping the reform process lead to?

Broad regulatory restrictions

Non‐performance of reform

There will be no new

investments by IEC

Damage to the electricity

sector, to IEC and employees

Large investmentsas

an incentive for IPPs

Damage to IEC

employees

Low yields/ returns on capital (IEC)

Low electricity reserves

Reduction in the IEC market

Constant deterioration

of IEC’s financial state

Non‐execution of the reform in IEC will cause ever increasing damage to the Company, its employess, and the country

62

Structuralchange

EfficiencyWorkers’

rights

Financial strength

Organizational change

63

ProfitCenters

Goal Structure for the Reform Goal Structure for the Reform Extracting the National

Dispatch from IEC

Continued introduction of IPPs

IEC as a united company&

organizational change and efficiency plan

EPC

Ramat Hovav1150 MW

100% private/

government

IPP

IPP

IPP

IPP

IPP

IPP

Removalof ban to buildstations and

nuclear station(equal or

equivalentto 2020)

Central services

&cancellationof EPC ban

Project D1300 MW

51%private

Generation:regional

power stations as profit centersvs. system head

& rotation

Distribution

TransmissionNational Dispatch

Alon Tavor380 MW

100% private/

government

64

Caring About the EnvironmentCaring About the Environment

65

Organization Structure:Organization Structure:Divisions, SubDivisions, Sub--Divisions and DistrictsDivisions and Districts

Generation &Transmission*Customers

Organization,Logistics, Security

& Emergency

Strategic Resources

Board of DirectorsBoard of Directors

Finance &Economics

Generation

Logistics & Real Estate

Supply & Stores

Transmission &Transformation

Central Security

Business Development

General Counsel&

Company Secretary

Division/Deputy CEO

SVP-Special Appointment

Sub-Division/District

CEO Unit

SVP Unit

Board of DirectorsBoard of Directors

President & CEOPresident & CEO

LegendEngineering Projects and

BusinessDevelopment

Construction

Engineering

SVP HumanResources

Accounting &Economics

Economics, Financial

Planning, & Tariffs

Finance

Internal Auditor& Ombudsman

Head of the RestructureProcess ***

Information Systems &

Communication

Planning, Development& Technology

Organization,Quality & Safety

marketingNorthernDistrict

SouthernDistrict

JerusalemDistrict

Dan District

Haifa District

NationalDispatch

FuelAdministration

President & CEO

President & CEO

SVP Regulation,Government Relations &

Communications

Company SpokeswomanMass Media &Advertising

Public Relations

Deputy CEO *

* SVP Generation & Transmission also serves as Deputy CEO** SVP Human Resources functions as Head of HR Division*** Head of the Restructure Process is also the Senior Assistant to the President & CEO

Israel Electric Corporation Strategic Aspects Overview · “The sole and only interest of the...

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