Shimon Ben-Hamo started work at the Government Companies Authority in 1992, back when the agency was just starting to privatize Israel's great government companies. He has spent 16 years at the authority, accompanying its moves great and small, clear and controversial. He took the helm as acting director in June 2007, when Eyal Gabbai stepped down from the director's seat, but after five months was replaced with Dr. Udi Nissan. On the eve of his retirement from government and transition to private business, Ben-Hamo speaks with TheMarker and though you may not agree, he thinks the price of electricity is too low.
He candidly states that the choice of somebody else was the impetus behind his resignation. At the time he felt let down but today he's rather pleased. He enjoyed the work and is glad to move on, he says.
Ben-Hamo was founded the Monopolies and Structural Changes Department at the GCA, in 2000. That grandiose monicker covers a three-man unit that became five and was responsible for pushing reforms at the Israel Electric Corporation, Israel Railways, Public Works, the Mekorot water utility and the military industries. "I always dealt with the big things," Ben-Hamo says: "the privatization of the banks via MI Holdings, the privatizations of Israel Chemicals, Industrial Building, Israel Shipyards (Maspenot) and the military industries."
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Some of these efforts garnered much criticism, which he shrugs off: The question at the macro level isn't whether the government got top dollar for its companies, or if the timing was optimal, Ben-Hamo insists.
"At the end of the day, the general economic benefit is much greater than any potential profit not realized on the day of the sale. Bet Shemesh Engines or Shipyards were losing tens of millions of shekels a year. IMI Magen, which was sold to Sami Katsav, lost $80 million over seven years. That small plant by itself almost brought Israel Military Industries to its knees. Even if its sale price was low" - $2.5 million - "since then it hasn't cost the state budget a penny," Ben-Hamo says. Its pace of sales - among other things, it makes Uzi submachine guns - may be $100 million a year, but its losses were bleeding the treasury dry.
The same goes for Shipyards: It's a huge business but when the state was running it, it was losing oceans of money, says Ben-Hamo. "The state doesn't know how to run businesses," he concludes.
Why can't the state run businesses? Maybe the problem is bad management, not the fact that the state's the owner?
"A Knesset member can force a government company to hire 20% minorities, 10% ultra-Orthodox and 50% women. Is that how to run a business?" Ben-Hamo demands. "They enact all sorts of weird laws and regulations and then tell the companies, go be competitive, take on the private sector. It's a joke. You want competition? Give them the tools. Don't make arbitrary decisions like ad-hoc pay raises that have no relation to business performance." Isn't it the GCA's job to make sure the companies are run properly?
"The madness of populist legislation is one of the things we fight, but our power is limited," he says, but points out that the GCA can't block political appointments, which are determined at the ministerial level. The authority has been able to block hopelessly inappropriate appointments, though, Ben-Hamo says. Sometimes, he adds, qualified appointees are dreadful and political appointments have turned out well.
The state comptroller has criticized the GCA's supervision over the government companies, and Ben-Hamo admits that it has fallen down here and there. But, he insists, the responsibility for proper management belongs to the company executives, not the watchdog. The government companies are proper companies limited by shares, and there's only so much the GCA can enforce as a supervisor: It doesn't have much power, Ben-Hamo says.
As for that electricity business, it's true: He thinks the rates are too low. Ben-Hamo has spent his last months in government negotiating to obtain the support of IEC workers for reform. He says a draft agreement covering structural change of the utility is about to be signed.
The model of a vertical monopoly that handles everything from power production to infrastructure to distribution to sales is passe, he says. Ben-Hamo advocates competition in production and distribution. The first stage of reform will split up only the production, not the distribution, but distribution will be streamlined, he says.
One of the more electrifying facts about Israel's power monopoly is how much it owes: NIS 40 billion, at the last count. The reform is not designed primarily to return that debt. But how did the company reach such straits?
Ben-Hamo knows how. "In 1993 the IEC's production capacity was 4,000 megawatts," he recalls. "Millions of immigrants were coming to Israel in those years, which led to a 7.2% increase in the demand for power in 1994, compared with a pace of 4% a year beforehand."
The company needed more money to build more infrastructure and capacity, and was forbidden to sell its shares. So the GCA told the IEC to borrow the money, which would be retuned over 30 years from electricity bills paid by the public.
The body responsible for setting electricity prices to consumers is the Utilities Authority (Electricity), and Ben-Hamo for one feels that it's been too hard on the company over the years. "If the price of power were to truly reflect the IEC's costs, reforming the company would be easier," he argues. The company was ordered to streamline operations and cut costs, but couldn't meet the targets that government set, he says.
Why blame the Utilities Authority? The IEC is still bloated and tainted with opacity.It should share the blame for the losses.
But Ben-Hamo feels that the Utilities Authority was obtusely ignoring the real figures, and couldn't actually prove that the IEC wasn't meeting efficiency goals. "The Utilities Authority became political. If they were to raise electricity rates, they'd be slaughtered. If they lower the rates, they are applauded. They didn't understand that they were facing a double-edged sword, and that in the end, the entire economy would suffer." Now what should the Utilities Authority do?
"Admit to the public explicitly that because of the financial distress of the IEC, cash flow problems and difficulty in returning debt, it has to raise the tariff by 5% to 7%."
In a few days the Ben-Hamos will be packing their bags and moving, not to Haifa or Carmiel, but to Bulgaria, where Ben-Hamo will be running the local branch of Africa Israel Europe. Managers of several government companies showed up for his farewell ceremony at the treasury, offering praise.
The new manager, Nissan, predicts that the next privatization targets will be the ports, IMI and Israel Aerospace Industries. But the Rafael armaments development authority will remain in government hands, he predicts. And, yes, Jerusalem is prepared to privatize any of its commercial companies if the price is right, he says.
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