The Israel Electric Corporation Ltd.

1
The Israel Electric Corporation Ltd.
October, 2010
2
Disclaimer
This document has been prepared solely for use
at an institutional investors conference call
(this document and the related conference call
being referred to together as this
Presentation). By receiving and reading this
document, or by participating in the related
conference call, you agree to be bound by the
following limitations. This Presentation does
not constitute or form part of and should not be
construed as, an offer to sell or issue or the
solicitation of an offer to buy or acquire
securities of The Israel Electric Company Limited
(the Company). It is solely for information
purposes and is not an invitation or inducement
to enter into any investment activity. In
addition, it has no regard to the specific
investment objectives, financial situation, or
particular needs of any recipient in any
jurisdiction. No part of this Presentation, nor
the fact of its distribution, should form the
basis of, or be relied on in connection with, any
contract or commitment or investment decision
whatsoever. This Presentation has not been
prepared for use in connection with any possible
offering of securities to be offered by the
Company. Any purchase of securities of the
Company should be made solely on the basis of
information contained in an offering circular and
any supplemental offering circular to be
distributed in respect of every future offering.
The information contained in this Presentation
has not been independently verified. No
representation, warranty or undertaking, express
or implied, is made as to, and no reliance should
be placed on, the fairness, accuracy,
completeness or correctness of the information or
the opinions contained herein. It should not be
treated as giving investment advice nor should it
be regarded by recipients as a substitute for the
exercise of their own judgment. The Company shall
have no liability whatsoever (in negligence or
otherwise) for any loss howsoever arising from
any use of this Presentation or its contents or
otherwise arising in connection with the
Presentation. This Presentation is only for
persons having professional experience in matters
relating to investments. This Presentation is
made to and directed only at (i) to qualified
institutional buyers (as defined in Rule 144A
under the Securities Act (Rule 144A)) (QIBs)
in the United States in reliance on Rule 144A, or
(ii) outside the United States, in reliance on
Regulation S. This Presentation and its
contents are confidential and must not be
distributed, published or reproduced (in whole or
in part) or disclosed by recipients to any other
person. Failure to comply with this restriction
may constitute a violation of applicable
securities laws. If you have received this
document and you are not the intended recipient
you must return it immediately to the Company.
This Presentation does not constitute a
recommendation regarding the securities of the
Company. This Presentation includes
forward-looking statements, including statements
regarding the Companys expectations and
projections for future operating performance and
business prospects. The words believe,
expect, anticipate, estimate, project,
plan, intend and may and similar words or
expressions identify forward-looking statements.
In addition, all statements other than statements
of historical facts included in this Presentation
are forward-looking statements. Such
forward-looking statements involve known and
unknown risks, uncertainties and other factors
which may cause actual results or performance of
the Company to differ materially from those
expressed or implied by such forward-looking
statements. Such forward-looking statements are
based on numerous assumptions regarding the
Companys present and future business strategies
and the environment in which the Company will
operate in the future. Reliance should not be
placed on these forward-looking statements. The
Company expressly disclaims any obligation or
undertaking to release any updates or revisions
to any forward-looking statement contained herein
to reflect any change in the Companys
expectations with regard thereto or any change of
events, conditions or circumstances on which any
such statement was based. The Company expressly
disclaims any obligation or undertaking to update
any forward-looking statements contained herein.
The information and opinions contained in this
document are provided as at the date of this
Presentation and are subject to change without
notice and the Company is not under any
obligation to update or keep current the
information contained in the Presentation.
Furthermore, you should consult with your own
legal, regulatory, tax, business, investment,
financial and accounting advisers to the extent
that you deem it necessary, and make your own
investment, hedging and trading decisions
(including decisions regarding the suitability of
an investment in securities issued by the
Company) based upon your own judgment and advice
from such advisers as you deem necessary and not
upon any view expressed in this Presentation.
2
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Contents
1. The Israel Electric Corporation Overview
2. Operating Environment
3. Financial Overview
4. Key Investment Highlights
5. Appendices Summarized Financial Statements
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1. The Israel Electric Corporation Overview
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The Israel Electric Corporation Ltd.

• The Israel Electric Corporation (IEC) was
  established in 1923
• 99.85 owned by the state of Israel
• Generates, transmits and distributes
  substantially all the electricity in the State of
  Israel
• The largest infrastructure company in Israel with
  the one of the largest turnovers in the Israels
  economy.

IECs Operating Statistics
H1 2010 Customer Breakdown By Electricity Sales
2009 H1 2010
Capacity (MW) 11,664 12,014
Peak Demand (MW) 9,900 10,700
Electricity Sales (GWh) 48,947 23,757
Population (Millions) 7.5 7.6
Customers (Millions) 2.5 2.5


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IECs Organization Structure
Legend
Board of Directors
President C.E.O
Executive/ Senior Vice President
VP Division/ District
Unit
Department
Senior Vice President, Generation
Transmission serves as Executive Vice President.
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Strong Government Ties and Corporate Governance

• As a 99.85 State owned company, certain actions
  of the Company require the approval of the
  Government, the Government Companies Authority
  (GCA), the Ministry of National Infrastructures
  or the Ministry of Finance
• IEC is subject to an audit by Israels State
  Controller
• IEC is obliged to nominate at least three
  directors possessing professional accounting and
  financial skills
• IEC has adopted IFRS (starting Q1 2008) in
  accordance with the provisions of the GCA
  regulations

Tariff Regulation(Electricity Authority)
99.85 State of Israel Ownership
Appointment of Board Members
Strategic Importance to Economy
Ownership of the Coal Company
Committed to Securing Reliable Electricity
Supplies
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2. Operating Environment
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Capacity Expansions and Electricity Sales

• Continuing Reliability of the Electricity Supply
  is Crucial to Israel's Growth

Annual Electricity Demand 1960 2014E¹ CAGR of
3.6 for the period 1999-2009
IEC Installed Capacity Growth 1960 2014E2
MW
GWH
2009
2013E
2011E
1 According to base scenario.
2 Installed capacity for years 2011-2014 as in 5
year forecast prepared on September 2010. Not
including the IPPs that generate for their own
consumption.
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Improved Reliability of Supply
839
725
595
584
The index of minutes of non-supply decreased in
the last 21 years by 86
534
502
463
363
348
352
229
207
203
202
183
178
179
151
135
134
124
121
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Operational efficiency(Cumulative change rates)
Increase/decrease in
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Capex Program 2011 - 20151
IECs investment plan will accumulate to 5.6
billion by 2015 (Billions of USD as of June 30,
2010)

• Cumulative Investment Program 2011 - 2015
• Total of 2,006 MW (out of which 639 MW to be
  financed by IEC) of new generation capacity
• Average annual investment of 1.1 billion (or
  the equivalent in other currency)
• 45 for generation projects
• 26 for distribution systems
• 16 for transmission
• 13 for miscellaneous
• Average annual capital raising forecast of 0.8
  billion (or the equivalent in other currency)

1.2
1.2
1.1
1.1
1.0
Billions of USD
Total
474 MW
386 MW
516 MW
3630 MW

2,006 MW
Total Generation Capacity Coming Online (MW)
3474 MW

3263 MW
Emergency Plan Capacity Only (MW)
2737 MW


1 All numbers derived from the 5 year preliminary
forecast prepared on September 2010. 2 Total
generation capacity increased as a result of the
emergency plan including 2009 (120 MW X 2) and
2010 (788 MW) will reach 1,765 MW. 3 The
assumption is that the financing of the second
phase of the Emergency Plan and Project D will
not be carried out by IEC.
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Note Currency conversion based on the exchange
rate of NIS3.875 US1 as of June 30, 2010.
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Financial Sources to Finance the Development Plan
for the Years 2011 - 20151
(Billions of USD as of June 30, 2010)
6.3 Internal resources
(4.7) Debt repayment
1.5 Internal resources after debt repayment
3.8 External resources
5.3 Total
1 All numbers derived from the 5 year preliminary
forecast prepared on September 2010.
Note Currency conversion based on the exchange
rate of NIS3.875 US1 as of June 30, 2010.
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Operational Excellence Emergency Plan
Overview
Financing of the Emergency Plan

• The Ministry of National Infrastructures approved
  an Emergency Plan to accelerate the development
  of the generation segment
• The Emergency Plan scheduled for operation by
  2013 is intended to increase the Companys
  generation capacity by 1,765 MW until 2013
• Account for a considerable delay in incorporation
  of Independent Power Producers ("IPPs")

• Aggregate estimated cost ¹NIS 9.2 billion
• NIS 3.6 billion is for the first phase² of
  Emergency Plan. Financing the first phase
• NIS 2 billion are collected via the electricity
  tariff , during the years 2009-2010
• 3NIS 0.9 billion ( 185 million) of the aggregate
  estimated cost will be financed by consortiums of
  banks loan.
• The outstanding investment will be financed by
  reducing or postponing other investments
• NIS 5.6 billion is for the second phase of
  Emergency Plan. Financing for the second phase
  should not be carried out by IEC.

1. Including CCGT Alon Tavor 260 MW (2012) 115
MW (2013).
2. The first phase is planned to be completed by
the end of 2010.
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3. Currency conversion based on the exchange rate
of NIS 4.7575 EUR1 as of June 30, 2010.
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Fuel Diversification From Coal to Natural Gas

• IEC uses natural gas as part of its fuel mix
  since February 2004
• The increased use of natural gas is driven by the
  need to diversify IECs fuel mix, increase its
  generation capacity, as well as to maintain a low
  cost structure and limited pollution level

• IEC plans to significantly increase its use of
  natural gas during the coming years
• Recently a new natural gas reservoir with almost
  200 BCM (billion cubic meters) has been
  discovered off shore Israel (Tamar).
• An additional natural gas reservoir has been
  discovered recently off shore Israel (Leviathan)
  with potential of 400 to 500 BCM (probability of
  50).
• The Implications of the recent gas fields
  discoveries on IECs generation and transmission
  segments are being studied.

Generation Mix by Fuel Type
2009
2013E
2006
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Tariff Regulation Principles

• The average price per KWh sold is 10 USD cents
  as of February 2010.
• Rates are set by the Electricity Authority based
  on IECs current basket of costs structure
  together with a fair rate of return on capital
  less an efficiency factor
• Tariff is examined every two weeks by the PUA
  based on the publication of fuel prices and CPI
• Current tariffs updated on the occurrence of the
  earliest of three possible events
• A change to the costs of at least 5.5
• A change to the costs basket of at least 3.5
  (provided that three months have elapsed from the
  last update) and
• When six months have elapsed from the last update
  
• Amortization factors per Kwh sold representing
  the expected efficiency and intended to reflect
  economies of scale at cumulative annual rates.

Key Elements of Tariff Basket of Costs

• The basket of costs used to determine the Tariff
  include
• Fuel component based on a cost pass-through
  basis
• Financing component including currency hedging
• Operation and maintenance costs

Note Tariff components for February 15,
2010 Source IECs estimates.
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Principles of the new tariff base for the
generation segment for 2010-2014 - Fuel costs

• Fuel mix
• To define the fuel basket , the PUA made the
  following assumptions
• Forced unavailability of generation units and
  maintenance schedules
• Normative operation dates of the generation units
• Operation regime of the generation units
• The fuel basket will be retroactively updated on
  the annual update for the period from January to
  December.

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Principles of the new tariff base for the
generation segment for 2010-2014 - Capital costs
Return on equity
7.8 Generation
5.5 Transmission
6.2 Low and high voltage
1/3 Equity
Financial leverage
Weight Financing basket
50 The NIS financing basket
36 Hedged financing basket
14 The NIS financing basket at higher interest rates
2/3 Foreign capital
The hedged amount is approximately NIS 12.3
billion according to the determining basket of
April 2010. This amount will be linked to the USD
and the Euro at 75 and 25 rates, respectively.
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Tariff update

• Current update
• The current update of the tariff will be
  performed as follows
• When the total cost per KWH sold changes by more
  than 5.5.
• If three months has elapsed since the last update
  and the total cost changes by at least 3.5.
  
• Six months after the last update.
• Annual update
• In April of each year, the PUA carries out an
  annual update of the various components of the
  recognized costs
• Financing rate of foreign capital
• Fuel mix.
• Compensation for delays in updating the tariff.
• Recognized assets
• Amount of the recognized capital for hedging.

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Key Strategic Targets

• Supply of Electricity to the State of Israel
• Ensuring reliable supply of electricity to its
  consumers, while maintaining sufficient
  electricity reserve, long-term profitability and
  financial stability of the Company by
  implementing an 5.6 billion investment program
  during 2011-2015
• Fuel Diversification
• Diversify fuel mix, while maintaining an
  efficient and effective cost structure while
  minimizing pollution levels
• Business growth drivers
• Leveraging the engineering and technological
  capabilities of the Company
• Entering business initiatives abroad
• Entering business initiatives in the field of
  renewable energy and other business developments
  (such as Smart Grid)

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Business growth drivers
The IEC will seek to expend its business
operations and revenues via new business growth
drivers that will utilize IECs knowledge,
expertise and innovations as follows

• Technological Incubator
• The Israel Electric Corporation (IEC) established
  an internal venture unit (Technological
  Incubator) to provide a framework of investment
  and support services to develop, advance, and
  commercialize promising, innovative ideas.
• This unit will reach out to entrepreneurs,
  innovators, inventors, and others to submit
  ideas and proposals in energy field areas.
• The selected proposals will become very early
  stage business ventures operating within the
  Technological Incubator framework. They will
  receive financial support, access to Israels
  largest team of experts, and business development
  assistance for a predefined period of time in
  order to achieve commercial success.
• Cooperation with Projects Developers Abroad
• IEC is looking to expend its business by
  entering into partnerships
• The policy implementation includes
• Integral assistance to IPPs
• Readiness for joint initiatives and investments
• Participation in renewable and energy efficiency
  projects
• Transmission Services
• IEC is to submit to the Ministry of
  Communications a request for license, that would
  enable it to provide transmission services, optic
  access network (FTTH - fiber to the home), and
  mobile access network (RAN radio (wireless)
  access network)
• The Ministry of Communication approved the pilot
  in which the IEC successfully connected 150
  residential homes in city of Kiryat Shmona by
  FTTH.

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Potential Reorganization

• Negotiations are taking place between IEC
  Management, IEC Workers Union, Israel Workers
  Union (Histadrut) and Government representatives.
• Negotiations are focused on two main issues
• The reform of the Israeli Electricity Sector,
  i.e. IEC reorganization
• Increasing Company efficiency and management
  flexibility by implementing the Compass Plan
  (Matzpen)

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3. Financial Overview
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Financial Highlights
Key Operating Credit Statistics (Millions of
USD as of June 30, 2010)
Investment Grade Ratings
Moodys Baa2 (Stable) / SP BBB- (Credit
Watch Negative)
Source financial reports for the six months
ended June 30, 2010. IFRS Financials according to
GCA regulations Currency conversion based on
the exchange rate of NIS 3.875 US 1 as of June
30, 2010.
24
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Relatively Low Rates of the Israeli Market
Comparative Electricity Rates
U.S Cents/KWh (December 31,2007)
Source Energy Information Administration
25
26
Financial Statistics
Billions of USD as of June 30, 2010
Revenue
Total Assets
Note Currency conversion based on the exchange
rate of NIS3.875 US1 as of June 30, 2010.
26
27
IEC Consolidated Debt Breakdown (as of September
30, 2010)

• Diversified debt portfolio per type of instrument
• Foreign currency exposure substantially mitigated
  by function of tariff structure and hedging
  transactions

Annual Debt Maturities (Principal in Millions of
USD)
Debt by Currency
Type of Instrument
Interest Rate Exposure
27
Note Figures as of September 30, 2010 Currency
conversion based on the exchange rate of NIS3.665
US1 as of September 30, 2010
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4. Key Investments Highlights
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Key Investment Highlights of IEC

• Strategic role as the sole integrated electricity
  utility in Israel
• 99.85 State ownership with strong support
• Strong electricity demand growth
• Proven track record of managing growth and
  development plans
• IEC operates in a developed market
• on May 2010
• Israel joined OECD 1
• MSCI Inc 2. upgraded Israels status to developed
  market

1 Organization for Economic Co-operation and
Development. 2 A provider of investment decision
support tools to investment institutions which
products include indices and portfolio risk and
performance analysis.
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5. Appendices Summarized Financial Statements
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31
Balance Sheet (Millions of USD as of June 30,
2010)
Note All numbers are adjusted to June 30, 2010
purchasing power and were derived from the
financial statements for H1 2010. The exchange
rate used is NIS 3.875 US 1 as of June 30,
2010.
31
32
Income Statement (Millions of USD as of June 30,
2010)
32
Note All numbers are adjusted to June 30, 2010
purchasing power and were derived from the
financial statements for H1 2010. The exchange
rate used is NIS 3.875 US 1 as of June 30,
2010.
33
Cash Flow Statement (Millions of USD as of June
30, 2010)
33
Note All numbers are adjusted to June 30, 2010
purchasing power and were derived from the
financial statements for H1 2010. The exchange
rate used is NIS 3.875 US 1 as of June 30,
2010.
34
Disclaimer
This document has been prepared solely for use
at an institutional investors conference call
(this document and the related conference call
being referred to together as this
Presentation). By receiving and reading this
document, or by participating in the related
conference call, you agree to be bound by the
following limitations. This Presentation does
not constitute or form part of and should not be
construed as, an offer to sell or issue or the
solicitation of an offer to buy or acquire
securities of The Israel Electric Company Limited
(the Company). It is solely for information
purposes and is not an invitation or inducement
to enter into any investment activity. In
addition, it has no regard to the specific
investment objectives, financial situation, or
particular needs of any recipient in any
jurisdiction. No part of this Presentation, nor
the fact of its distribution, should form the
basis of, or be relied on in connection with, any
contract or commitment or investment decision
whatsoever. This Presentation has not been
prepared for use in connection with any possible
offering of securities to be offered by the
Company. Any purchase of securities of the
Company should be made solely on the basis of
information contained in an offering circular and
any supplemental offering circular to be
distributed in respect of every future offering.
The information contained in this Presentation
has not been independently verified. No
representation, warranty or undertaking, express
or implied, is made as to, and no reliance should
be placed on, the fairness, accuracy,
completeness or correctness of the information or
the opinions contained herein. It should not be
treated as giving investment advice nor should it
be regarded by recipients as a substitute for the
exercise of their own judgment. The Company shall
have no liability whatsoever (in negligence or
otherwise) for any loss howsoever arising from
any use of this Presentation or its contents or
otherwise arising in connection with the
Presentation. This Presentation is only for
persons having professional experience in matters
relating to investments. This Presentation is
made to and directed only at (i) to qualified
institutional buyers (as defined in Rule 144A
under the Securities Act (Rule 144A)) (QIBs)
in the United States in reliance on Rule 144A, or
(ii) outside the United States, in reliance on
Regulation S. This Presentation and its
contents are confidential and must not be
distributed, published or reproduced (in whole or
in part) or disclosed by recipients to any other
person. Failure to comply with this restriction
may constitute a violation of applicable
securities laws. If you have received this
document and you are not the intended recipient
you must return it immediately to the Company.
This Presentation does not constitute a
recommendation regarding the securities of the
Company. This Presentation includes
forward-looking statements, including statements
regarding the Companys expectations and
projections for future operating performance and
business prospects. The words believe,
expect, anticipate, estimate, project,
plan, intend and may and similar words or
expressions identify forward-looking statements.
In addition, all statements other than statements
of historical facts included in this Presentation
are forward-looking statements. Such
forward-looking statements involve known and
unknown risks, uncertainties and other factors
which may cause actual results or performance of
the Company to differ materially from those
expressed or implied by such forward-looking
statements. Such forward-looking statements are
based on numerous assumptions regarding the
Companys present and future business strategies
and the environment in which the Company will
operate in the future. Reliance should not be
placed on these forward-looking statements. The
Company expressly disclaims any obligation or
undertaking to release any updates or revisions
to any forward-looking statement contained herein
to reflect any change in the Companys
expectations with regard thereto or any change of
events, conditions or circumstances on which any
such statement was based. The Company expressly
disclaims any obligation or undertaking to update
any forward-looking statements contained herein.
The information and opinions contained in this
document are provided as at the date of this
Presentation and are subject to change without
notice and the Company is not under any
obligation to update or keep current the
information contained in the Presentation.
Furthermore, you should consult with your own
legal, regulatory, tax, business, investment,
financial and accounting advisers to the extent
that you deem it necessary, and make your own
investment, hedging and trading decisions
(including decisions regarding the suitability of
an investment in securities issued by the
Company) based upon your own judgment and advice
from such advisers as you deem necessary and not
upon any view expressed in this Presentation.
34