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Jun 23, 2020

Electricity Market- Relief in Equity Requirements for Partnerships

Dear Clients and Friends,

Good news for partnerships with a permanent electricity production license (of more than 10 MW) and those in the process of obtaining one.

On May 13, 2020, Section 20(a)(1) of Electricity Sector Regulations (Terms and Procedures for Granting Licenses and the Duties of License Holders), 1997 was amended (the "Amendment").  The purpose of the Amendment is to remove the distinction on how different entities demonstrate compliance with regulatory equity requirements (‘hon atzmi’) in order to be entitled to an electricity production license. 

Before the Amendment, Section 20(a)(1) distinguished between:

  • Companies with share capital - which were required to demonstrate they have equity in an amount of at least 20% of the value of their production unit or power plant, usually by submitting financial statements; and
  • Companies with no share capital, partnerships or cooperatives - which were required to provide a bank guarantee in an amount of at least 20% of the value of their production unit or power plant.

Following the Amendment, partnerships will no longer need to provide such a bank guarantee but will be subject to the same requirements as companies with share capital. In addition, partnerships (like companies) will be entitled to reduce such equity requirement from 20% to 15%, three years following receipt of their production license. However, partnerships (unlike companies) will now be required to submit to the Electricity Authority their annual audited financial statements every year in order to demonstrate the required equity. 

The Amendment is effective as of May 13, 2020 but partnerships which held a production license before the effective date may still act in accordance with the Amendment.  

 Please feel free to contact us if you have any questions or need any assistance regarding the above.

Herzog Fox & Neeman

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