Mekorot at its end

Mekorot, the Israeli Water Corporation, is at its end. It was founded by Simcha Blass before the independence, and has a glorious history of providing water to isolated Jewish villages during our wars and to agriculture in the South (Pic.: Tkumah Reservoir, 1956. Third from right: Dr Shaul Arlozoroff). But organizations age and when they go bad, like Mekorot is going now, they should be terminated.

This introduction is a propos of the Ashdod Desalting Plant scandal (Not everybody thinks it is a scandal). Mekorot traditionally operates on a cost plus basis, that means that the Treasury pays its bills. The economists of the Treasury tried for ages to discover Mekorot's real costs, but being a monopoly, it was impossible. We never knew if Mekorot was overcharging for its services or not, and no one wanted to annoy them too hard and risk their stopping supplying water. (I correct myself: Mekorot always paid and pays Israel highest salaries, triple of Israeli average, so it is obvious that Mekorot is mighty expensive).

Ten years ago the Treasury decided that the future desalinated water sector should be private and not state-owned. Mekorot argued that it was the only company in Israel with experience in water desalting, supplying water to Eilat from the Red Sea. They had a small plant there, they had a well organized public relations team but the operation of the plant (if it operated) and its costs were state secrets. The Treasury wanted to cut out Mekorot of the desalinazation business but they lost in an epic battle with Mekorot. now we know that they did not lose, they won. How? The Treasury agreed that Mekorot should have a leg in the desalination sector, and one of the new plants would be erected and operated by a Mekorot company (on a commercial basis). The small letters stated that Mekorot would sell the water for a price equal or lower than the private companies.

Last week the bidding for the last of the plants was completed and the price offered is very low, about 2.6 shekel per cubic meter. This price caused an earthquake in Mekorot, because they are unable to produce water at that price, and the Treasury (in hands of free-market fanatic Philosophy Professor Yuval Steinitz) is unwilling to subsidize them any more. Mekorot's lack of competitivity has been exposed to all to see, a fact that had been suspected but hidden by accounting manipulation, and even experts like me could never demonstrate that Mekorot's prices were inflated. Now that the situation is crystal clear, there is no economic reason to continue subsidizing this obsolete organization.

Eli Ronen, my former boss and now Mekorot's CEO, did something that should not be done. He is a former submarine officer, tall and charismatic a la Obama. Instead of defending the interest of the public, which is to have an efficient water supply system, he chose to defend the organization he heads ie his job. He did it in an ugly way, attacking the international bidding process that produced such a low offer, engaging Mekorot's legal team to invalidate its rival's proposal. This is amazing. If Mekorot exists and works toward the public's best interest, it should share the public's success in buying water at a low price. But Mekorot 2010 cares little about the public good, it cares only about Mekorot's own good, which is opposite and uncompatible with the State's interests, and it has now demonstrated that it will not hesitate to use any weapon to destroy its more efficient rival

Mekorot is acting against the interests of its owner, the Israeli public, and against its mandate to provide water at a reasonable price. Eli Ronen should be thanked for his services and Mekorot disbanded.