In each of the twelve (12) month periods ending on December 31, 2010 and 2011, the Company consumed approximately 12.3 and approximately 12.6 million tons of coal, respectively. The Company purchases all of the coal that it needs through the National Coal Supply Corporation Ltd. (“the Coal Corporation”), which is a fully owned subsidiary of the Company, in accordance with an agreement that was signed between the parties in July 2004 for the purchase of coal and its supply to the power
stations of the Company that consume coal – Orot Rabin in Hadera and Rothenberg in Ashkelon. The agreement is valid from December 31, 2003 and for as long as the Company has generation licenses for the said power stations. The Company has a right to cancel the agreement at any time by giving one (1) year’s advance notice. The consideration that is paid by the Company is calculated based on cost plus agreed profit, and is subject to the price of coal approved for the Company by the Electricity Authority. The Coal Corporation is responsible for the transport of the coal to the power stations of the Company and for covering it with appropriate insurances (to the benefit of the Company), in the case of any loss 75 or damage to the coal, in accordance with the agreement, the ownership of the inventory of coal passes to the Company over the rail
Upon the commencement of the use of natural gas for the generation of electricity by the Company from early 2004, the scope of consumption of fuel oil was reduced from more than two (2) million tons per year to the quantities in accordance with that which has been set forth below. The Company uses fuel oil mainly as a backup fuel or for peak demands. In view of the changes that have occurred in the gas supply and sources, the Company has increased its use of diesel and fuel oil. During 2013, the gas supply is expected to increase again, subject to the commencement of the gas supply in accordance with the agreement with the Tamar partnership. In each of the periods of twelve (12) months that ended on December 31, 2010 and 2011, the Company consumed approximately 119 and approximately 262 thousands of tons per fuel oil, respectively. The average adjusted cost per ton of fuel oil as of December 31, 2011 stood at approximately NIS 2,662, compared with approximately NIS 1,974 as of December 31, 2010.
In each of the periods of twelve (12) months that ended on December 31, 2010 and 2011, the Company consumed approximately 219 and approximately 631 thousand tons of diesel oil, respectively. The Company primarily purchased its diesel oil from imports during these years. During 2010 and 2011 the main supplier from which the Company purchased diesel oil, to a tune of approximately 80% of its diesel purchases in these years, is the international supplier Vitol Energy S.A. (“Vitol”) and most of the import is from it. The contracts with Vitol have been short term point transactions (SPOT) for a period of up to several months in accordance with the consumption forecasts. These transaction proceedings were published by the Company in a competitive proceeding. In 2012, Vitol won a tender for the supply
of diesel oil to the Company, and it is expected to supply approximately 60% of the diesel oil in this year. The agreements with Vitol include a provision whereby the Company shall be entitled to reduce the supply of fuel that has been agreed upon with Vitol in certain cases in which there is a decrease in the demand for fuel during the period of the agreement. It is noted that Vitol won a tender for the supply of diesel oil in 2007 and 2008 to and in effect has supplied the Company diesel oil since 2007.
The said information on the scope of diesel oil purchases during 2012 is forward looking information as per its definition in the Securities Law and is based on the existing information that the Company has as of the date of the Report and its estimates and forecasts as to this data, and therefore may change due to factors that do not depend on it, such as: the volume of use of fuels of different types for the generation of electricity during 2012 and primarily the use of natural gas, regulatory and other changes. However, the assessment of the Company is that it has no dependence on a single diesel supplier because it does not have any impediment to working with additional or other suppliers to the extent required.
In 2011 the Company consumed approximately 2,811 thousand tons (approximately 4.15 billion cubic meters of natural gas) at an average cost of approximately NIS 973 per ton, compared with approximately 3,268 thousand tons (approximately 4.82 billion cubic meters of natural gas) in 2010 at an average adjusted cost of approximately NIS 921 per ton. The decrease in the gas consumption stemmed from the depletion of the Tethys Sea deposit and interruptions in the supply of gas from Egypt, while in previous years there was an increase in the consumption of natural gas and a decrease in the annual diesel oil consumption of the Company. As of the date of the Report, the Company has three (3) sources (existing or potential) for the supply of natural gas – the dwindling Tethys Sea, from the Egyptian gas supplier East Mediterranean Gas SAE (“EMG”) in which there have been and will continue to be supply disturbances, and the Tamar field, whose gas supply is expected to start only in the second quarter of 2013. A potential gas source for future use is the Leviathan reservoir that is located near the Tamar and Asher reservoirs. According to public information that the Company has, the quantity of gas in the Leviathan reservoir is double that in the Tamar field103. As of this Report, there are no contacts between the Company and the owners of the Leviathan reservoir for purchase of gas, but on the date on which the field development proceeding starts for the extraction of gas, the Company intends to negotiate for the purchase of gas from this field. In 2011, approximately 84% of the natural gas that was used for the generation of electricity was supplied to the Company by the Tethys Sea Group, which holds the Mari B offshore natural gas reserve, which is located approximately 24 km west of Ashkelon, according to an agreement for the supply of gas with the Tethys Sea Group that was signed in June 2002 and the additional agreement for the supply of gas with the Tethys Sea Group of July 2009 (see Section 220.127.116.11). Since October 2011, there has been a gradual decrease in the quantity of gas actually supplied and the Company has been receiving notices from Noble Energy Mediterranean Ltd. about expected decreases in the quantity of natural gas supplied to it from the Tethys Sea reserve, and accordingly, in accordance with the last notice of February 2012, as of March 2012, the hourly quantity of gas that will be supplied to the Company will be approximately one third (1/3) of the contractual quantity. See Section 18.104.22.168 for details on the anticipated impact on the Company. During 2011, approximately 16% of the natural gas that was used for the generation of electricity was supplied to the Company by the Egyptian company EMG through an offshore pipe from El Arish to Ashkelon, which provides for the transfer of gas from the Egyptian gas system, in accordance with an agreement of August 2005 (see Section 22.214.171.124 for details on the agreement). See Section 126.96.36.199 for details on disruptions that occurred in the supply of gas from EMG.
On March 14, 2012, The Company signed an agreement with the Tamar partnership for the purchase of natural gas from the Tamar field, which is located approximately 100 km west of the coast at Haifa. After the negotiations with Noble and with the limited partnerships Isramco Negev 2, Delek Drilling, Avner Oil Explorations and Dor Gas Explorations (“Tamar Partnership”) for the purchase of quantities of gas from this field, from 2009. However, the gas discovery at the Tamar field (following the exhaustion of the Tethys Sea reserve) ensures the purchase of quantities of natural gas from a local source of supply that is not as sensitive to political influences as gas that is supplied by pipeline from foreign sources. However, the depth of the natural gas that is at the Tamar field and its distance from the shore require the Tamar Partnership to make significant investments in the development of the field, which to the best of the knowledge of the Company is underway, which include, inter alia, the building of gas pipelines to a new rig that will be built next to the existing rig that supplies the gas from the Tethys Sea reserve. The supply of gas from this field is expected to begin in the second quarter of 2013.
With respect to that which has been set forth above in respect of the anticipation of
pumping of natural gas from the Tamar field constitutes forward looking information, as per its definition in the Securities Law and is based on information that is possessed by the Company as of the time of the Report and forecasts whose materialization depends on many factors, over some of which the Company has no control, such as receipt of permits, approvals and changes in and dependence regulation and on third parties, as a result of which the Company has no certainty that its assessments will materialize.