ANNUAL REP OR T Y Ear 2009
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ANNUAL REPORT Year 2009 Year ANNUAL REPORT The Israel Electric Corporation Ltd. / Annual Report 2009 BOARD OF DIRECTORS MANAGEMENT as of 31.12.2009 as of 31.12.2009 Mordechai Friedman – Chairman Amos Lasker Shlomit Barnea-Farago President & Chief Executive Officer Izhak Elyashive Moshe Bachar Shulamit Eshbol Executive Senior Vice President Generation & Transmission Dorit Inbar Blanche Kay Yigal Ben-Arieh Michael Lazer Senior Vice President of Marketing & Communication & Advisor to the CEO on Strategy & Philip Mandelker Special Tasks Amit Oberkovich Ziv Reich Dr. Adrian Bianu Senior Vice President Aura Sova-Gindin Strategic Resources Yossef Vadana Yaffa Vigodsky Harel Blinda Senior Vice President Finance & Economics Asher Dahan Senior Vice President Customers Auditors: Yacov Hain Brightman Almagor & Co. Senior Vice President Certified Public Accountants (Isr.) Engineering Projects A Member Firm of Deloitte Touché Tohmatsu 1 Azrieli Center Tzvi Harpak Tel-Aviv 67021, ISRAEL Senior Vice President Organization, Logistics, Security & Emergency Representative of Government Companies Authority: Aharon Goldman General Counsel & Company Secretary: David Yahav, Adv. Company Auditor & Ombudsman: Shay Rosenstock Registered Office: Secretary to the Board of Directors: 1 Netiv Ha'or St. Shlomi Tsarfati Haifa 31000, ISRAEL Introduction Board Directors and Management 2 Summary of the Statistical Report 25 Company Organization Structure 3 Summary of the Environmental Report 37 Selected Data as of December 31, 2009 4 Development of the Electricity Market 49 Strategy and Objectives 5 Summary of the Financial Statements 59 CEO & Chairman's Review 7 2 Company Organization Structure Company Organization Structure * S.V.P Generation & Transmission serves as Executive Vice President 3 The Israel Electric Corporation Ltd. / Annual Report 2009 Selected Data as of 31.12.2009 Annual Change 2008 2009 (%) Generation System Installed Capacity (MW) 11,675 11,824.0 +1.3 Peak Demand (MW) 10,200 9,882 -3.1 Electricity Production (million KWH) 54,504 53,179 -2.4 Load Factor (%) 63.0 61.5 -2.3 Fuel Consumption (thousand tons) Fuel Oil 401 165 -58.8 Coal* 12,882 12,331 -4.3 Gas Oil 690 173 -75.0 Gas 2,408 2,649 +10.0 Average Fuel Consumption (gr/KWH) Fuel Oil 232 229 -1.1 Coal* 364 359 -1.4 Gas Oil 214 219 +2.6 Gas 170 153 -10.0 Electricity Consumption by Sector (million KWH) Total Consumption 50,161 48,947 -2.4 Residential 15,201 15,117 -0.6 Public & Commercial 15,499 15,625 +0.8 Agricultural 1,827 1,690 -7.5 Industrial 11,218 10,329 -7.9 Water Pumping 2,749 2,404 -12.5 E. Jerusalem & P.A. 3,666 3,783 +3.2 Income from Sales of Electricity by Sector (million NIS) Total Consumption 22,316.6 20,802.4 -6.8 Residential 7,419.8 7,001.7 -5.6 Public & Commercial 7,345.5 7,022.0 -4.4 Agricultural 755.9 665.6 -11.9 Industrial 4,443.3 3,925.2 -11.7 Water Pumping 932.8 779.5 -16.4 E. Jerusalem & P.A. 1,419.4 1,408.4 -0.8 Average Electricity Prices by Sector (agorot/KWH) Total Consumption 44.49 42.50 -4.5 Residential 48.81 46.32 -5.1 Public & Commercial 47.39 44.94 -5.2 Agricultural 41.38 39.39 -4.8 Industrial 39.61 38.00 -4.1 Water Pumping 33.93 32.42 -4.5 E. Jerusalem & P.A. 38.71 37.24 -3.8 Consumers by Sector (thousands) Total 2,417.6 2,450.7 +1.4 Residential 2,125.5 2,155.8 +1.4 Public & Commercial** 246.3 248.9 +1.1 Agricultural 9.6 9.5 -1.0 Industrial 32.4 32.6 +0.6 Water Pumping 3.8 3.9 +0.0 Permanent Employees 9,641 9,712 +0.7 Electricity Generated per Permanent Employee (thousands/KWH) 5,653 5,476 -3.1 * Nominal quantity of coal. ** Including consumers in E. Jerusalem & P.A. 4 Strategy and Objectives Strategy and objectives Vision The Company will continue to ensure reliable supply of good quality electricity, at a competitive price, while working for optimization of production elements, according to the requirements imposed on it by law, as an essential service provider, and to the business environment in which it operates, to the full satisfaction of its customers. Main objectives 1. Maintain the Company’s financial strength, including a fair yield for shareholders. 2. Develop optimal systems along the electricity chain with suitable reserves. 3. Put the emphasis on environmental quality, in all areas, along the electricity chain. 4. Achieve excellence in quality of customer service. 5. Reduce the average number of minutes of non supply to consumers. Means of achieving these objectives Development 1. Implement criteria for optimal reliability when developing the production system, to maintain balance between the cost of unsupplied energy and the cost of adding means of production. 2. Optimal integration of production means using natural gas into the development work in the current decade. 3. Planning and developing transmission and transformation systems at standards that ensure the transmission of generated energy to consumption centers at the required level of reliability and quality, and maintaining system survivability. 4. Developing the distribution system in line with customer demand while minimizing costs. Operation 1. Assimilating a policy of environmental operation and development. 2. Optimal operation of means of production. 3. Implementing a policy of optimal operation and maintenance, to ensure availability during peak demand, and renovations at the lowest possible cost. 4. Using the optimal mix of fuels to operate the generation system. Customers 1. Developing new products and services for customers (reducing frequency agreements, reliability rates, and so on). 2. Providing service with reference to the needs of different market segments, including strategic customers, making use of a special model. 3. Fostering links with Company customers as part of management policy. 4. Strengthening the Company’s links with the community through initiated activities, cooperation with environmental bodies, etc. Resource management 1. Maintaining, optimizing and fostering the human resource by developing tracks for advancement and professional and managerial training. 2. Pursuing a policy of intelligent purchases of fuels, as required by operations, with attention to fuel quality, environmental issues, reliability of electricity supply and varying the sources of fuel. 3. Adapting the structure of Company liabilities to the structure as recognized in the electricity rates. 4. Financial management that facilitates retaining the Company’s rating and consequently its ability to raise funding for its development plans. 5 CEO and Chairman's Review for the 2009 Annual Report CEO and Chairman of the Board of Directors Review for the 2009 Annual Report Mordechai Friedman Amos Lasker Chairman of the Board President & CEO Introduction The Israel Electric Corporation (IEC) was founded 87 years ago. At the beginning, the Company’s generating capacity totaled no more than a few hundred kilowatts; today the IEC is among the largest industrial companies in Israel’s economy with an installed capacity of more than 12,000 MW. Since its establishment and up to today, Israel Electric works as an integrated and coordinated system, generating, transmitting and supplying electricity to almost all consumers, reliably and at all times. The Company sets an example to the economy in its professional standard, excellent service in supplying electricity to Israel’s citizens, and in its abilities to construct the required electricity infrastructure, a must for the continued development of the economy. We aspire to continue being the leading business company in its field in Israel; adapting ourselves to changes in economic conditions, economic values, social and technological changes locally and globally; promoting development of renewable energies and encouraging energy saving; as well as breaking into new international markets. To this end, • we will develop and supply products and services to satisfy our customers’ needs – with dignity, fairly, reliably and with transparency towards our customers, workers, suppliers and stock holders; • we will supply excellent service, while ensuring availability, quality and safety; • we will strive for excellence, innovation and maximum efficiency – managerial and technological; • we will acknowledge that our workers are our primary asset and will support their promotion, while striving to create a feeling of pride and belonging, encouraging creativity and commitment. 7 The Israel Electric Corporation Ltd. / Annual Report 2009 All these will be accomplished legally, according to appropriate management regulations, striving for sustainable development and social and environmental responsibility. In the last few years, there has been erosion in the Company’s financial strength which has manifested itself in low rates of return on capital and profits. Internal company sources have sustained the repayment of debts, but do not suffice to fund the entire scope of investments necessary to execute the development plans of the electricity sector to fulfill the growing economy needs. We regard the Company’s financial strength to be of foremost importance. To this end, Israel Electric strives to increase its income, among other things from business entrepreneurship, and by ongoing activities with the Public Utilities Authority – Electricity (PUA) in an attempt for electricity tariff to reflect the Company’s operating and capital costs, bringing the Company appropriate return as determined by legislation. We also endeavor to minimize cost of service, taking the necessary steps to increase efficiency and savings in various sectors. This review details IEC activities during 2009. 2009 – Main Activity and Development As already stated, the IEC operates as a single integrated and coordinated system dealing with electricity supply along the electricity chain starting from generation, transmission, distribution and supply to consumers. At the same time, the company operates to erect the required infrastructure to enable these activities. The continuing annual increase in demand for electricity creates the need for planning of the electricity sector in advance and in depth study of alternative future development scenarios.