Antitrust law experts told "Globes" that Israel Electric Corporation (IEC) (TASE: ELEC.B22) will probably sue for billions of shekels stolen from it in 1988-2004 by a cartel of Japanese and European companies. The experts said that the amounts paid IEC could greatly lower electricity rates.
Last week, Antitrust Authority director general David Gilo notified Sweden's ABB AB, Japan's Toshiba Corporation (TSE: 6502; LSE TOS) and Hitachi Ltd. (TSE: 6501; NYSE: HIT), France's Alstom SA (Euronext: ALO) and Areva SA (Euronext: CEI), and Germany's Siemens AG (NYSE: SI; DAX: SIE), that he might name them as a cartel in the manufacture of gas insulated switchgear for electricity grids between April 1988 and May 2004.
Gas insulated switchgear is a critical component for electricity grids; it is a combination of electrical disconnects, fuses and/or circuit breakers used to isolate electrical equipment. Switchgear is used both to de-energize equipment to allow work to be done and to clear faults downstream. It is important because it is directly linked to the reliability of the electricity supply.
A global cartel of 14 manufacturers of power station equipment is based on a division of national markets by the companies and price fixing in tenders, thereby distorting them and ensuring that the manufacturer for the designated market wins the project in it. The Antitrust Authority alleges that the cartel had a powerful effect on Israeli consumers because it lasted for a long time and because of its effect on IEC's cost structure.
The cartel was exposed in 2004, when ABB offered the European Commission information about it in exchange for immunity from criminal proceedings. The EU investigation resulted in fines of €750 million (NIS 4 billion) levied against the companies involved. The heaviest fine of €400 million was levied against Siemens, because of its dominant role in the cartel. Some of the companies have appealed against the fines.
A 2006 lawsuit filed by an Israel Military Industries Ltd. (IMI) subsidiary contends that IEC was well aware of the cartel, and collaborated with it. IEC preferred working with the cartel rather than contracting with much cheaper suppliers, including IMI. For example, in 2005, IEC chairman Shlomo Rothman notified IMI that IEC would no longer work with it, even though IMI offered a product for 20% less.
IEC said at the time that it was not demonstrated that the quote offered by IMI was cheaper than the cartel's prices. IEC recouped exorbitant amounts paid to the cartel in full through higher electricity rates for consumers.
Following the international proceedings, the Antitrust Authority opened its own investigation. Antitrust Authority investigators used material obtained from a foreign source, in exchange for immunity against criminal proceedings in Israel. The immunity program allows a party - either an individual or company (including its employees and managers) - that was or is affiliated with a cartel to inform the Antitrust Authority about the existence of the cartel in exchange for full immunity against criminal charges on violations committed. The Antitrust Authority applies the program in accordance with instructions of the Attorney General.
Published by Globes [online], Israel business news - www.globes-online.com - on October 3, 2011
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