THE ISRAEL ELECTRIC CORPORATION LIMITED NOTES TO THE ... · contractors, mainly with respect to disputes relating to construction of fixed assets, in amounts exceeding the amount

THE ISRAEL ELECTRIC CORPORATION LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2018

NOTE 35:- AGREEMENTS, CLAIMS, CONTINGENT LIABILITIES AND LABOR DISPUTES (continued)

b. Contingent Claims and Liabilities (continued)

198

6) Other financial demands: (continued)

d) Financial demands by fixed assets contractors: As of the date of the statement of financial position, the Company has received financial demands from various contractors, mainly with respect to disputes relating to construction of fixed assets, in amounts exceeding the amount of the provision included in the financial statements by approximately NIS 98 million. The management of the Company estimates that the provision adequately reflects the costs with respect to the said claims that it is more likely than not that they will be paid. During 2018, approximately NIS 28 million were paid with respect to monetary demands of fixed-asset contractors in the amount of approximately NIS 254 million.

7) Legal Proceedings on the Subject of GIS Arrays On December 29, 2013, the Company submitted a claim to the District Court of the Central District against foreign companies that supplied the company with GIS arrays (gas insulating voltage arrangements): Siemens AG (hereinafter: “Siemens”), ABB Ltd. (hereinafter: “ABB”), Alstom Societe Anonyme (hereinafter: “Alstom”), Alstom Grid AG and Alstom Grid SAS (hereinafter together: the “Defendants”). Regarding the application to approve a class action against the Company on this subject ("Application for Approval") see section 1) above. The claim is based on the determination of the General Director of the Israel Anti-Trust Authority of September 16, 2013, which exposed that the global cartel that was conducted in the GIS market between the years 1988 - 2004 was also implemented by the Defendants in Israel towards the Company, and that the acquisition proceedings conducted by the Company to purchase GIS during the active years of the cartel were coordinated in advance by the Defendant, who presented to the Company a fraudulent representation of competition between them. Within the claim, damages caused by the Defendant to the Company are being claimed, as well as the return of illegitimate profits extracted by the Defendant at its expense, within the framework of approximately 20 acquisition proceedings conducted by the Company during the active years of the cartel. The Company estimates that the damage caused it, as aforesaid, amount, as of the date of submission of the claim, to approximately NIS 3.8 billion. On March 26, 2015, the Supreme Court determined that the hearing of the claim should be partially consolidated with the hearing of the Application for Approval, for the purpose of deciding the liability of the Defendant. On December 24, 2018, the parties submitted to the Court an application for approval of a compromise arrangement. As part of the arrangement, it was agreed that the defendants will pay the Company a final and comprehensive sum of NIS 465 million. On February 2019, three objections to a compromise arrangement were submitted by various entities from among the public, and the Company submitted responses to these objections. On March 10, 2019, a lengthy hearing was held on the application for approval of the compromise arrangement and the objections submitted to it. During the hearing, the court clarified that for the purpose of examining the approval of the compromise arrangement, and as a precondition for doing so, it must know the net compromise amount that will be recognized by the Authority through the electricity rate. At the end of the hearing, the Court ruled that after receiving the positions of the Attorney General, the Competition Authority and the Electricity Authority (the current date for their submission is April 7, 2019), it will give instructions regarding the continuation of the proceedings in the case. The Company's legal advisors are of the opinion that as on the statement of financial position date, the likelihood that the compromise agreement will be approved in principle by the Court is higher than the likelihood that it will not be approved, despite the objections that were submitted. However, it is not possible to rule out the possibility that the Attorney General, the Competition Authority, and/or the Electricity Authority will have objections to the compromise agreement and/or that the Court will disagree with some of the provisions of the agreement, whether due to objections submitted to it, to the position of the Attorney General, the Competition Authority and the Electricity Authority (including with regard to the net compromise amount that will be recognized by it), or for other reasons. In accordance with the aforesaid, the Company did not record income and/or liability for a refund to customers as a result of the compromise agreement.



b. Contingent Claims and Liabilities (continued)

199

8) The Company’s claim regarding engagements with Siemens

On April 9, 2017, the Company submitted to the Central District Court an amended statement of claim against Dan Cohen, a former director of the Company, as well as against five former employees of the Company, all of whom were convicted, by their own admission, of taking a bribe from the Siemens AG Company and the Siemens Israel Ltd. Company. The claim was also submitted against additional entities, through which the bribe sums were paid to the recipients of the bribes. Within the claim, the Company is demanding to receive the sums of the bribes that were paid in practice to each of the recipients of the bribe, as well as additional sums intended to pay bribes even if not actually paid. The total claim amounts to approximately NIS 110 million. A pretrial was held on October 16, 2018, in which evidentiary hearings in the case were scheduled for May and June 2019. As of the date of approval of the financial statements, a mediation proceeding is being conducted between the Company and two of the defendants that served as middlemen for the bribery.

9) E.M.G

In August 2005, the Company entered an agreement with E.M.G. (the Company’s Egyptian supplier of natural gas) for the supply of natural gas. Additionally, the Company had signed a tripartite agreement with EMG and the gas owners, the national Egyptian companies EGAS and EGPC (hereinafter: “EGAS” and “EGPC”), under which the Egyptian companies have undertaken towards the Company to place the gas it has undertaken to supply to the Company at the disposal of EMG. Due to the continuing disruptions in the supply, the Company's Board of Directors decided in September 2011, that the Company will enter an international arbitration process versus the EGAS and EGPC gas supply companies and EMG, to receive compensation for the heavy damages incurred and that will be incurred by the Company by non-delivery of the gas from Egypt due to their breach of the agreements with the Company. The sum claimed by the Company was approximately USD 4.15 billion. The arbitration ended in the middle of 2014 and on December 4, 2015, the Company received the arbitration award, within which it was ruled, inter alia, that EGAS and EGPC breached their obligation in the tripartite agreement. The Egyptian companies were ordered to pay the Company approximately USD 1.76 billion plus interest and legal costs, which are estimated, as on December 31, 2018, at approximately USD 600 million. On February 11, 2016, the Company received an application to appeal the arbitration award that was granted, which was submitted by EGAS and EGPC to the Superior Court in Switzerland. On April 27, 2017, the Court rendered its decision, rejecting the appeal submitted by EGAS and EGPC, and determined that they must pay the court fees and indemnification to the Company with respect to the proceeding at court, in the amount of CHF 250,000.

The Company is acting to collect amounts to which it is entitled under the Arbitration Award, by examining a range of possible alternatives, some of which are prior to the date of this report, and which may include, inter alia, the use of various collection methods and/or agreement alternatives. Nevertheless, as of the date of approval of the financial statements, the Company is unable to estimate the chances of collection of the amount which was awarded in its favor as part of the arbitration, in whole or in part.



c. Labor disputes

200

1) Labor disputes relating to the advancement of the reform outline in the company –

On May 17, 2018, a collective agreement was signed, anchoring the consents reached in the area of labor relations following the expected reform in the electricity sector in general and the Company in particular, including the implications of the Structural Change and the efficiency plan in the Company on the employees, and the updating of the labor relations in the Company. On November 4, 2018, an amendment agreement was signed with regard to the collective agreement of May 17, 2018. Upon signing the agreement, all the contingent conditions for the entry into effect of the collective agreement, as set in it, were fulfilled. With the agreement’s entry into effect, all the declared labor disputes existing between the Histadrut and the Company were cancelled. On 8 July 2018, the “Ecclesiastes Forum” submitted a petition to the High Court of Justice against the Minister of Energy, the Government of Israel, the Government Companies Authority, the Electricity Authority and the Company against the Government's resolution of June 3, 2018 regarding the reform in the Company. On December 27, 2018, the Supreme Court rejected the petition.

2) Following the Company's intention to transfer the Head of the Human Resources Division to a personal contract

and recruit additional senior managers for employment by personal contract, in February 2017, the employees' union imposed sanctions among which, inter alia, the Company's recruitment center and training activities for employees intended to be employed in the Company's 103 call centers was discontinued. Following the sanctions, the Company applied to the Haifa Regional Labor Court for temporary remedies to prevent the sanctions. After consent was reached between the parties regarding the recruitment of the additional managers (excluding the Head of the Human Resources Division), the Regional Court ruled, accepting the Company's position regarding the employment of the Head of the Human Resources Division in a personal contract, and determined that in this context, the employees' representatives do not have the option to impose sanctions. This judgment was appealed by the employees' union to the National Court of Labor. A hearing of the appeal took place on May 3, 2017. On July 22, 2017, the National Court of Labor gave its decision regarding the inclusion of the issue of the transfer of the VP of Human Resources to a personal contract in the proceeding. The hearing of the consolidated proceedings was held on October 24, 2017. On May 31, 2018, the parties notified the court of the signing of the collective agreement of May 17, 2018, which arranges, inter alia, the employment of senior officers of the Company in personal contracts, so that when the agreement enters into force, the judicial decision will be redundant. On November 26, 2018, the proceedings were terminated at the parties’ request.

3) Following the advancement of work plans in the Customers Division for the unification of districts and outsourcing

of various matters, the employees' union implemented sanctions in the framework of which, inter alia, various works were disrupted in the Haifa District, in the Organization and Methods Division, in the Project Execution Division, and more. Furthermore, the employees’ union disrupted employees’ work-related trips abroad due to a dispute over the payment terms paid with respect to the trips. On March 20, 2017, the Company applied to the Haifa Regional Court of Labor for temporary relief to prevent the sanctions. Following the application, consent was reached under which the parties will hold discussions, the sanctions will be suspended, and the parties will update the Court regarding the results of the discussions. On March 31, 2019, the Company notified the Court that the parties are in advanced stages of formulating understandings in the remaining issues and will update the Court regarding the results of the talks by May 30, 2019.


NOTE 36:- SEGMENTAL REPORTING

a. General

201

The Company implements the International Financial Reporting Standard 8 (hereinafter: “IFRS 8”) as of January 1, 2009. 1) On January 8, 2018, the Electricity Authority published a resolution regarding the basis of electricity rates for the

transmission, distribution and supply segments, in which the Electricity Authority identified and measured each segment's costs and revenues separately for consumer services – supply, which mainly consist of the Company's billing, collection and service systems, including the preparation and production of invoices and billing expenses, installation, operation and meter reading, consumer services that include a customer call center, public reception and customer portfolio coordination. For additional information see Note 3e above. This activity was previously presented under the distribution segment.

2) Further to Note 1e2 above, as part of the Structural Change discussions, the system management operation will

be sold and/or transferred to a separate Government company. The activities of this segment were previously presented under the generation segment and the transmission segment.

As of the first quarter of 2018, the Company's Chief Operating Decision Maker (Company CEO) ("CODM") separately reviews the operating results of the system management and consumer services-supply segments down to the profit and loss level for the period. Consequently, the Company has presented two new segments as aforesaid.

Comparative figures were restated to reflect the change in the structure of the Company's reportable segments.

b. Detailed Reportable Operation Segments The operations of the Company are comprised of five main operational segments making up the entire electricity chain. These operations are:

Generation Segment - includes the operations at 17 sites of the electricity generating power stations.

Transmission Segment - includes the transmission and transformation system of the high and ultra-high long distance electricity.

System Management Segment – includes the operating and capital costs of the following services: supervision of unit loading, short-term and long-term planning of power generation, long-term planning of the transmission network, and electricity market statistics. In addition, this segment includes costs relating to the purchase of electricity from private producers of extra-high voltage, including producers of renewable energy at extra-high voltage, overload management arrangements and social rates.

Distribution Segment – includes the electricity grids system and the transformation stations which supply the electricity to the end consumers, except a limited number of customers that purchase extra-high voltage electricity directly from the transmission systems, as well as meter reading services (the cost of the meters and the reading of them) and costs and services related to communication with distribution consumers. In addition, this segment includes the costs of purchasing electricity from high voltage and low voltage private producers, including high-voltage and low-voltage renewable energy facilities.

Consumer services - supply segment – includes the customer service and collection system of the Company.

c. Income and Results according to Operational Segments Segmental revenues are calculated based on a price model that was used by the Electricity Authority to determine the electricity rates for the Company. Segment revenues are calculated by multiplying these rates by the sold quantity (kW/h) to the end consumer, while making the required adjustments based on the activities defined by the Company for each of the 5 segments: generation, transmission, system management, distribution and consumer services-supply. The revenues of the consumer services–supply segment for comparative periods were calculated based on the network segment electricity rate in effect in 2017. Segmental expenses that can be specifically identified are charged directly to the appropriate items. In addition, certain indirect expenses are recorded according to an allocation, which serves as a reasonable estimate for attributing these expenses, while adjusting to the electricity rate base. The CODM receives the operational results of each segment up to the profit or loss level for the period. The separation of income and expenses in comparative figures was made according to the aforementioned criteria.


NOTE 36:- SEGMENTAL REPORTING (continued)

c. Income and Results according to Operational Segments (continued)

202

The results of the Assets Arrangement, including the related tax effect, constitute non-recurring income that is not directly related to the segments of activity, and therefore was included as income not allocated to the operating segments. In addition, the results of the reform agreement and the movement in the regulatory asset in respect of the reform and the tax effect thereon are not reviewed by the chief operating decision maker by operating segments and accordingly were not allocated to the operating segments

For additional information, in accordance with the requirements of the Companies Authority, see Note 37 below.

For the Year ended December 31, 2018

Generation Transmission System

management Distribution

Consumer-supply

servicesTotal

Company

)NIS in millions) Revenues ................................................................. .1...3..,.9. 11 1,422 2,785 5,023 443 23,584 Profit (loss) from ordinary operations ............................ .7. 52 236 445 1,186 (151) 2,468 Segmental income (loss) before income tax ....................(. 3 4) (152) 439 582 (159) 676 Segmental income (loss) before transactions in balances of regulatory deferral accounts .............................................................(. 1 9) (109) 316 407 (113) 482 Transactions in balances of regulatory deferral accounts, net of tax ........................................ .1..,.0. 13 213 (246) 148 37 1,165 Segmental income (loss) for the year ............................. .9. 94 104 70 555 (76) 1,647 Unallocated revenues and expenses: Results of the reform agreement (4,249) Tax effect of on the results of the reform agreement ........................................................................ 977 Transaction in reform regulatory asset ............................ 4,234 Tax effect on transaction in reform regulatory asset ................................................................ (975) Results from the Assets Arrangement .............................. 2,627 Tax effect of on the results of the Assets Arrangement..................................................................... (191) Income for the period in accordance with the consolidated statements ...................... 4,070 Additional Details Depreciation and amortization ................................... .2..,.6. 00 845 37 1,275 52 4,809 Financing expenses ......................................................... .7. 86 388 6 604 8 1,792



c. Income and Results according to Operational Segments (continued)

203

For the Year ended December 31, 2017*



Consumer-supply

servicesTotal

Company

(NIS in millions) Revenues ................................................................... .1..3..,.7 76 2,011 2,224 5,031 328 23,370 Profit (loss) from ordinary operations ............................. .8 29 825 29 1,301 (464) 2,520 Profit (Loss) before income tax ........................................ .1 48 496 23 796 (473) 990 Profit (loss) for the year before regulatory deferral accounts ............................................................. .1 18 394 19 620 (378) 773 Transactions in balances of regulatory deferral accounts, net of tax ......................................... .2..,.0 33 445 228 1,248 13 3,967 Profit (loss) for the year ............................................... .2..,.1 51 839 247 1,868 (365) 4,740 Additional Details Depreciation and amortization ..................................... .2..,.6 42 894 34 1,315 85 4,970 Financing expenses ......................................................... .6 81 329 6 505 9 1,530

* Restated

For the Year ended December 31, 2016*



Consumer-supply

servicesTotal

Company

(NIS in millions)

Audited Revenues ................................................................... .1..2..,.6 35 2,006 2,519 5,199 331 22,690 Profit (loss) from ordinary operations ............................. .5 86 775 546 1,327 (446) 2,788 Profit (Loss) before income tax .......................................(.4. 07) 271 535 570 (458) 511 Profit (loss) for the year before regulatory deferral accounts .............................................................. 71 360 362 651 (301) 1,143 Transactions in balances of regulatory deferral accounts, net of tax ............................................ .3 78 (78) 58 (324) 4 38 Profit (loss) for the year .................................................. .4 49 282 420 327 (297) 1,181 Additional Details Depreciation and amortization ..................................... .2..,.4 28 897 39 1,267 71 4,702 Financing expenses ......................................................... .9 93 504 11 757 12 2,277

* Restated



d. Assets and Liabilities according to Operational Segments

204

The CODM monitors the tangible, intangible, financial and regulatory assets of each segment for purposes of controlling the segments and resources allocation among the segments. All Company assets are allocated to the different segments. Investments for the year include investments in fixed assets and exclude financial instruments and deferred taxes assets. The CODM also receives data of the total liabilities of the Company, divided into the three segments.

As of December 31, 2018

Generation

(*) Transmission

System management

(*) Distribution

Consumer-supply

servicesTotal

Company

(NIS in millions)

Unaudited

Assets (*) ........................................................... .. .4..1..,.4..0..9.. . 14,822 1,789 25,767 2,149 85,936

Investments in the period ............................................... 1,294 866 40 1,494 36 3,730

Liabilities and credit balances of regulatory deferral accounts and deferred taxes with respect to regulatory deferral accounts ............................. .. .3..0..,.8..8..6.. . 9,621 1,704 16,908 1,974 61,093

(*) Including balance with respect to disposal groups classified as held for sale. For additional details see Note 9 above.

As of December 31, 2017**



Consumer-supply

servicesTotal

Company

(NIS in millions)

Audited

Assets .............................................................. .. .4..2..,.4..4..5.. ... 14,690 1,422 24,420 2,099 85,076 Investments in the period ................................ .. .1..,.7..6..6.. ... 671 47 1,337 61 3,882 Liabilities and credit balances of regulatory deferral accounts and deferred taxes with respect to regulatory deferral accounts ........................... .. .3..3..,.3..6..7.. ... 10,390 1,324 17,284 1,918 64,283

** Restated


NOTE 37:- ADDITIONAL INFORMATION REQUIRED IN ACCORDANCE WITH THE PROVISIONS OF THE GOVERNMENT

COMPANIES AUTHORITY REGARDING THE ATTRIBUTION OF THE STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME AND THE STATEMENT OF FINANCIAL POSITION ACCORDING TO ACTIVITY SEGMENTS: GENERATION, TRANSMISSION SYSTEM MANAGEMENT, DISTRIBUTION AND CONSUMER SERVICES-SUPPLY (SEE NOTE 3 d, e, k ABOVE)

According to the provisions of the Companies Authority, whose principal points are published in the Circular of March 2, 2004, the Company is required by the Companies Authority, under its authority by the Government Companies Law, to include additional information (beyond the information included in the Financial Statements according to generally accepted accounting principles) regarding the attribution of the statement of profit and loss and statement of financial position to the generation, transmission and distribution activity segments.

a. Statement of operations for the year ended December 31, 2018:

205

Total

Company Generation Transmission System

Management Distribution

Consumer Services -

Supply

(NIS in millions)

Required revenues ............................................ .2.3..,.9 65 14,499 1,828 2,347 4,759 532

Adjustment for segment revenues ........................(.6 34) (665) (412) 435 170 (162)

Revenues from electricity ................................. .2.3..,.3 31 13,834 1,416 2,782 4,929 370

Other revenues, net .............................................. .2 53 77 6 3 94 73

Total revenues .................................................. .2.3..,.5 84 13,911 1,422 2,785 5,023 443

Cost for operating the electricity system .......... .1.9..,.5 24 12,888 1,139 2,237 3,260 -

Income from operating the electricity system ................................................................. 4..,.0 60 1,023 283 548 1,763 443

Other expenses, net ............................................... 23 23 - - - -

Sales and marketing expenses .............................. .9 35 - - - 415 520

Administrative and general expenses ................... .7 34 298 52 108 190 86 Income from liabilities to pensioners ....................(.1 00) (50) (5) (5) (28) (12)

(*) Results of the reform agreement 4,249 - - - - -

5,841 271 47 103 577 594

(*)Income (loss) from current operations ..........................................................(.1..,.7 81) 752 236 445 1,186 (151)

(*) Results from the assets arrangement ...........(.2..,.6 27) - - - - -

Financial expenses ............................................... 1..,.7 92 786 388 6 604 8

(*) Profit (loss) before income taxes ....................(.9 46) (34) (152) 439 582 (159)

(*) Results from the assets

arrangement .................................................... .1 91 - - - - -

(*) Tax effect on the results of the reform agreement (977) - - - - -

(*) Income taxes .................................................... .1 89 (9) (44) 123 163 (44)

(597) (9) (44) 123 163 (44)

(*) Income (loss) after income tax .......................(.3 49) (25) (108) 316 419 (115)

Company’s share of the (loss) profit of associate company ................................................. (5) 6 (1) - (12) 2

(*) Profit (loss) before regulatory deferral accounts ............................................(.3 54) (19) (109) 316 407 (113)

Movements in regulatory deferral

accounts balances, net of tax ........................ 1..,.1 65 1,013 213 (246) 148 37

(*) Movements in regulatory deferral accounts – results of the reform agreement, net of tax 3,259 - - - - -

(*) Profit (loss) for the year and net

movements in regulatory deferral 4,070 accounts balances ......................................... 994 104 70 555 (76)

(*) Results of the reform agreement, results of the assets arrangement, movements in regulatory deferral asset with respect to

the costs of the reform agreement and the tax effect with respect thereto cannot be specifically identified and therefore have not been allocated to the Company’s segments of operation. As a result, the summary of the results of the segments does not add up to the results of the consolidated statements of profit and loss.


NOTE 37:- ADDITIONAL INFORMATION REQUIRED IN ACCORDANCE WITH THE PROVISIONS OF THE GOVERNMENT COMPANIES AUTHORITY REGARDING THE ATTRIBUTION OF THE

STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME AND THE STATEMENT OF FINANCIAL POSITION ACCORDING TO ACTIVITY SEGMENTS: GENERATION, TRANSMISSION, SYSTEM MANAGEMENT, DISTRIBUTION AND CONSUMER SERVICES-SUPPLY (SEE NOTE 3 d, e, k ABOVE ) (Continued)

b. Details of the generation sites statement of operations for the year ended December 31, 2018:

206

Total generation

segment PEP and others Rutenberg Orot Rabin Haifa Reading Eshkol Gezer Hagit Alon Tavor

Ramat Hovav Zafit

Other gas turbines

(NIS in millions)

Required revenues .......................... 14,499 4 2,834 3,618 1,058 320 1,721 1,383 1,519 544 807 564 127 Adjustment for segment revenues . (665) - (129) (166) (49) (15) (79) (63) (70) (25) (37) (26) (6)

Revenues from electricity .............. 13,834 4 2,705 3,452 1,009 305 1,642 1,320 1,449 519 770 538 121

Other revenues ............................... 77 - 19 20 5 3 10 5 6 3 3 2 1

Total revenues................................ 13,911 4 2,724 3,472 1,014 308 1,652 1,325 1,455 522 773 540 122

Cost for operating the electricity system............................................. 12,888 - 2,373 3,298 936 293 1,574 1,201 1,370 498 731 517 97

Income from operating the electricity system ........................... 1,023 4 351 174 78 15 78 124 85 24 42 23 25

Other expenses, net........................ 23 - - - - - - - - 23 - - - Sales and marketing expenses ........ - - - - - - - - - - - - - Administrative and general expenses ......................................... 298 - 72 76 20 12 39 20 23 10 13 9 4 Income from liabilities to pensioners ..................................... (50) - (13) (14) (3) (2) (6) (3) (4) (1) (2) (1) (1) Results of the reform agreement - - - - - - - - - - - - -

271 - 59 62 17 10 33 17 19 32 11 8 3

Income from current operations ... 752 4 292 112 61 5 45 107 66 (8) 31 15 22

Financial expenses ......................... 786 2 229 152 61 11 69 92 74 21 38 23 14

Profit (loss) before income taxes ... (34) 2 63 (40) - (6) (24) 15 (8) (29) (7) (8) 8

Income taxes ................................... (9) - 17 (10) - (2) (6) 4 (2) (8) (2) (2) 2

Profit (loss) after income taxes .... (25) 2 46 (30) - (4) (18) 11 (6) (21) (5) (6) 6

Company’s share of the profit of associate company ......................... 6 - 1 2 1 1 1 - - - - - -

Profit (loss) before regulatory deferral accounts ........................... (19) 2 47 (28) 1 (3) (17) 11 (6) (21) (5) (6) 6

Movements in regulatory deferral accounts balances, net of tax ......... 1,013 - 238 218 83 58 134 67 103 36 41 32 3

Profit for the year and net movements in regulatory deferral

994 accounts balances ........................ 2 285 190 84 55 117 78 97 15 36 26 9



COMPANIES AUTHORITY REGARDING THE ATTRIBUTION OF THE STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME AND THE STATEMENT OF FINANCIAL POSITION ACCORDING TO ACTIVITY SEGMENTS: GENERATION, TRANSMISSION, SYSTEM MANAGEMENT, DISTRIBUTION AND CONSUMER SERVICES-SUPPLY (SEE NOTE 3 d, e, k ABOVE ) (Continued)

c. Details of the distribution sites statement of operations for the year ended December 31, 2018

207

Total

distribution segment

Northern and Haifa

District Jerusalem

District Dan

District Southern District

(NIS in millions)

Required revenues ................................................. 4,759 1,489 577 613 2,080

Adjustment for segment revenues ........................ 170 53 21 22 74

Revenues from electricity ..................................... 4,929 1,542 598 635 2,154

Other revenues ...................................................... 94 38 7 15 34

Total revenues ....................................................... 5,023 1,580 605 650 2,188

Cost for operating the electricity system .............. 3,260 1,024 381 346 1,509

Income from operating the electricity system ..... 1,763 556 224 304 679 Other revenue, net ................................................ - - - - - Sales and marketing expenses ............................... 415 127 50 67 171 Administrative and general expenses .................... 190 62 25 30 73 Income from liabilities to pensioners .................... (28) (9) (4) (5) (10) Results of the reform agreement .......................... - - - - -

577 180 71 92 234

Income from current operations .......................... 1,186 376 153 212 445

Financial expenses ................................................ 604 192 78 112 222

Profit before income taxes ................................... 582 184 75 100 223

Income taxes .......................................................... 163 52 21 28 62

Profit after income tax .......................................... 419 132 54 72 161 Company’s share of the loss of associate company ................................................................ (12) (4) (2) (2) (4)

Profit before regulatory deferral accounts .......... 407 128 52 70 157

Movements in regulatory deferral accounts balances, net of tax ................................................ 148 46 20 26 56

Profit for the year and net movements in

555 regulatory deferral accounts balances ................ 174 72 96 213




d. Statement of Financial Position as of December 31, 2018:

208

Total Company

Generation (*) Transmission

System Management

(*) Distribution

Consumer Services -

Supply

(NIS in millions)

Current assets ................................................. .1..0..,.5 03 6,430 1,029 654 2,245 145

Long-term receivables ...................................... .8..,.6 93 5,226 362 352 1,907 846

Fixed assets, net.............................................. .5..7..,.6 67 24,961 12,900 190 19,239 377 Intangible assets, net ........................................ .1..,.2 00 298 148 2 544 208 Debit balances of regulatory deferral

accounts ....................................................... .7..,.8 73 4,494 383 591 1,832 573

85,936 41,409 14,822 1,789 25,767 2,149

Current liabilities .............................................. .7..,.7 39 3,929 1,042 537 1,978 253 Non-current liabilities .................................... .5..1..,.6 30 26,336 8,551 661 14,469 1,613 Capital ............................................................. .2..4..,.8 43 10,523 5,201 85 8,859 175 Credit balances of regulatory deferral

accounts ....................................................... .1..,.7 24 621 28 506 461 108

85,936 41,409 14,822 1,789 25,767 2,149

(*) Including balance with respect to disposal groups classified as held for sale and the liabilities thereof, which are

presented in current assets and liabilities, respectively. For additional details see Note 9 above.



STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME AND THE STATEMENT OF FINANCIAL POSITION ACCORDING TO ACTIVITY SEGMENTS: GENERATION, TRANSMISSION, SYSTEM MANAGEMENT, DISTRIBUTION AND CONSUMER SERVICES-SUPPLY (SEE NOTE 3 d, e, k ABOVE) (Continued)

e. Details of the generation segment Statement of Financial Position as of December 31, 2018:

209

Total

generation segment

PEP and others Rutenberg Orot Rabin Haifa Reading Eshkol Gezer Hagit

Alon Tavor (*)

Ramat Hovav Zafit

Other gas turbines

(NIS in millions)

Current assets .............................. 6,430 9 1,165 1,363 439 104 658 532 568 1,012 316 226 38 Long-term receivables ................. 5,226 363 1,008 1,313 348 171 631 356 426 152 246 161 51

Fixed assets, net........................... 24,961 124 8,319 5,071 2,152 230 2,296 2,236 2,113 67 1,314 922 117 Intangible assets, net ................... 298 1 79 66 29 3 30 30 28 1 18 12 1 Debit balances of regulatory

deferral accounts .................... 4,494 - 1,052 1,088 342 226 589 290 405 139 194 135 34

41,409 497 11,623 8,901 3,310 734 4,204 3,444 3,540 1,371 2,088 1,456 241

Current liabilities ......................... 3,929 33 1,125 720 198 121 469 267 124 91 96 385 300 Non-current liabilities ................. 26,336 408 7,528 5,701 2,060 471 2,588 2,097 2,374 1,229 1,356 631 (107) Capital .......................................... 10,523 56 2,824 2,346 1,001 107 1,065 1,039 979 29 611 420 46 Credit balances of regulatory

deferral accounts.................... 621 - 146 134 51 35 82 41 63 22 25 20 2

41,409 497 11,623 8,901 3,310 734 4,204 3,444 3,540 1,371 2,088 1,456 241

(*) Including balance with respect to disposal groups classified as held for sale and the liabilities thereof, which are presented in current assets and liabilities, respectively. For

additional details see Note 9 above.



COMPANIES AUTHORITY REGARDING THE ATTRIBUTION OF THE STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME AND THE STATEMENT OF FINANCIAL POSITION ACCORDING TO ACTIVITY SEGMENTS: GENERATION, TRANSMISSION, SYSTEM MANAGEMENT, DISTRIBUTION AND CONSUMER SERVICES-SUPPLY (SEE NOTE 3 d, e, k ABOVE) (Continued)

f. Details of the distribution segment Statement of Financial Position as of December 31, 2018:

210

Total

distribution segment

Northern and Haifa

District

Jerusalem District

Dan District

Southern District

(NIS in millions)

Current assets ....................................................... 2,245 702 287 350 906

Long-term receivables .......................................... 1,907 615 258 312 722

Fixed assets, net ................................................... 19,239 6,029 2,546 3,372 7,292 Intangible assets, net ............................................ 544 171 77 96 200 Debit balances of regulatory deferral accounts ... 1,832 585 246 308 693

25,767 8,102 3,414 4,438 9,813

Current liabilities .................................................. 1,978 591 261 303 823 Non-current liabilities .......................................... 14,469 4,587 1,921 2,494 5,467 Capital ................................................................... 8,859 2,779 1,171 1,560 3,349 Credit balances of regulatory deferral accounts . 461 145 61 81 174

25,767 8,102 3,414 4,438 9,813




g. Statement of operations for the year ended December 31, 2017: (restated)

211

Total Company Generation Transmission

System Management Distribution

Consumer Services -

Supply

(NIS in millions)

Required revenues ......................................... .2..3..,.5. 50 14,406 1,723 2,206 4,445 770

Adjustment for segment revenues .....................(.4. 95) (700) 277 16 399 (487)

Revenues from electricity ............................. .2..3..,.0. 55 13,706 2,000 2,222 4,844 283 Other revenues, net ............................................ .3. 15 70 11 2 187 45

Total revenues ............................................... .2..3..,.3. 70 13,776 2,011 2,224 5,031 328

Cost for operating the electricity

system ....................................................... .1..9..,.3. 35 12,756 1,156 2,110 3,313 -

Income from operating the electricity system ......................................................... .4..,.0. 35 1,020 855 114 1,718 328

Other revenues .....................................................( 54) (27) (4) (1) (12) (10) Sales and marketing expenses ............................ .9. 99 - - - 291 708 Administrative and general expenses ................. .6. 19 243 37 87 150 102 Income from liabilities to pensioners ...................( 49) (25) (3) (1) (12) (8)

1,515 191 30 85 417 792

Income (loss) from current

operations ................................................... .2..,.5. 20 829 825 29 1,301 (464) Financial expenses ........................................... .1..,.5. 30 681 329 6 505 9

Income (loss) before income taxes ..................... .9. 90 148 496 23 796 (473) Income taxes ....................................................... .1. 99 30 100 4 160 (95)

Income (loss) after income tax ........................... .7. 91 118 396 19 636 (378) Company’s share of the loss of

associate companies .........................................( 18) - (2) - (16) -

Profit (loss) before regulatory deferral accounts ........................................... .7. 73 118 394 19 620 (378)

Movements in regulatory deferral accounts balances, net of tax .......................... .3..,.9. 67 2,033 445 228 1,248 13

Profit (loss) for the year and net movements in regulatory deferral accounts balances ......................................... .4..,.7 40 2,151 839 247 1,868 (365)



STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME AND THE STATEMENT OF FINANCIAL POSITION ACCORDING TO ACTIVITY SEGMENTS: GENERATION, TRANSMISSION, SYSTEM MANAGEMENT, DISTRIBUTION AND CONSUMER SERVICES-SUPPLY (SEE NOTE 3 d, e, k ABOVE) (Continued)

h. Details of the generation sites statement of operations for the year ended December 31, 2017: (restated)

212

Total generation


Ramat Hovav Zafit

Other gas turbines

(NIS in millions)

Required revenues .......................... 14,406 4 2,829 3,227 1,160 391 1,742 1,277 1,606 626 998 427 119 Adjustment for segment revenues . (700) - (137) (157) (56) (19) (85) (62) (78) (30) (49) (21) (6)


Other revenues ............................... 70 - 17 17 4 4 9 4 5 4 3 2 1

Total revenues................................ 13,776 4 2,709 3,087 1,108 376 1,666 1,219 1,533 600 952 408 114

Cost for operating the electricity system............................................. 12,756 - 2,398 2,887 1,039 359 1,587 1,090 1,450 557 922 379 88

Income from operating the electricity system ........................... 1,020 4 311 200 69 17 79 129 83 43 30 29 26

Other revenues, net ........................ (27) - (6) (7) (1) (1) (4) (2) (2) (1) (1) (1) (1) Sales and marketing expenses ........ - - - - - - - - - - - - - Administrative and general expenses ......................................... 243 - 57 63 16 14 33 12 17 10 10 7 4 Income from liabilities to pensioners ..................................... (25) - (5) (8) (2) (1) (3) (1) (2) (1) (1) (1) -

191 - 46 48 13 12 26 9 13 8 8 5 3

Income from current operations ... 829 4 265 152 56 5 53 120 70 35 22 24 23


Income (loss) before income taxes 148 2 86 14 5 (5) (8) 39 4 7 (10) 4 10

Income taxes ................................... 30 - 18 3 1 (1) (2) 8 1 1 (2) 1 2

Profit (loss) after income taxes .... 118 2 68 11 4 (4) (6) 31 3 6 (8) 3 8

Company’s share of the loss of associate companies ...................... - - - - - - - - - - - - -

Profit (loss) before regulatory deferral accounts ........................... 118 2 68 11 4 (4) (6) 31 3 6 (8) 3 8

Movements in regulatory deferral accounts balances, net of tax ......... 2,033 - 464 546 116 95 298 105 146 54 67 44 98


2,151 accounts balances ........................ 2 532 557 120 91 292 136 149 60 59 47 106




i. Details of the distribution sites statement of operations for the year ended December 31, 2017 (restated)

213

Total distribution

segment

Northern District

and Haifa District

Jerusalem District

Dan District

Southern District

(NIS in millions)

Required revenues ........................................... 4,445 1,438 513 580 1,914 Adjustment for segment revenues .................. 399 129 46 52 172

Revenues from electricity ............................... 4,844 1,567 559 632 2,086 Other revenues ................................................ 187 68 52 17 50 Total revenues ................................................. 5,031 1,635 611 649 2,136 Cost for operating the electricity system ........ 3,313 1,060 387 353 1,513 Income from operating the electricity system 1,718 575 224 296 623 Other revenue, net .......................................... (12) (4) (2) (2) (4) Sales and marketing expenses ......................... 291 113 44 54 80 Administrative and general expenses .............. 150 53 22 25 50 Income from liabilities to pensioners .............. (12) (4) (2) (2) (4)

417 158 62 75 122

Income from current operations .................... 1,301 417 162 221 501 Financial expenses .......................................... 505 161 65 95 184

Income before income taxes .......................... 796 256 97 126 317 Income taxes .................................................... 160 51 20 26 63 Income after income tax ................................. 636 205 77 100 254 Company’s share of the loss of associate companies ....................................................... (16) (5) (2) (3) (6)

Profit before regulatory deferral accounts .... 620 200 75 97 248

Movements in regulatory deferral accounts balances, net of tax .......................................... 1,248 393 164 225 466

Profit for the year and net movements in regulatory deferral accounts balances ........... 1,868 593 239 322 714




j. Statement of operations for the year ended December 31, 2016: (restated)

214

Total Company Generation Transmission

System Management Distribution

Consumer Services -

Supply

(NIS in millions)

Required revenues ......................................... .2..2..,.7. 26 13,587 1,788 1,983 4,651 717

Adjustment for segment revenues .....................(.2. 59) (1,007) 209 535 440 (436)

Revenues from electricity ............................. .2..2..,.4. 67 12,580 1,997 2,518 5,091 281 Other revenues, net ............................................ .2. 23 55 9 1 108 50

Total revenues ............................................... .2..2..,.6. 90 12,635 2,006 2,519 5,199 331

Cost for operating the electricity

system ....................................................... .1..8..,.0. 11 11,682 1,157 1,850 3,322 -

Income from operating the electricity system ......................................................... .4..,.6. 79 953 849 669 1,877 331

Other revenues ..................................................... (9) (79) 8 2 35 25 Sales and marketing expenses ............................ .8. 84 - - - 267 617 Administrative and general expenses ................. .7. 30 303 49 107 178 93 Expenses from liabilities to pensioners ................ .2. 86 143 17 14 70 42

1,891 367 74 123 550 777

Income (loss) from current

operations ................................................... .2..,.7. 88 586 775 546 1,327 (446) Financial expenses ........................................... .2..,.2. 77 993 504 11 757 12

Income (loss) before income taxes ..................... .5. 11 (407) 271 535 570 (458) Income taxes .......................................................(.6. 58) (482) (91) 173 (100) (158)

Income (loss) after income tax ........................ .1..,.1. 69 75 362 362 670 (300) Company’s share of the loss of

associate companies .........................................( 26) (4) (2) - (19) (1)

Profit (loss) before regulatory deferral accounts ........................................ .1..,.1. 43 71 360 362 651 (301)

Movements in regulatory deferral accounts balances, net of tax ............................... 38 378 (78) 58 (324) 4

Profit (loss) for the year and net movements in regulatory deferral accounts balances ......................................... .1..,.1 81 449 282 420 327 (297)



STATEMENT OF OPERATIONS & COMPREHENSIVE INCOME AND THE STATEMENT OF FINANCIAL POSITION ACCORDING TO ACTIVITY SEGMENTS: GENERATION, TRANSMISSION, SYSTEM MANAGEMENT, DISTRIBUTION AND CONSUMER SERVICES-SUPPLY (SEE NOTE 3 d, e, k ABOVE ) (Continued)

k. Details of the generation sites statement of operations for the year ended December 31, 2016: (restated)

215

Total generation


Ramat Hovav Zafit

Other gas turbines

(NIS in millions)

Required revenues .......................... 13,587 4 3,100 2,597 1,282 238 1,326 1,279 1,647 631 844 504 135 Adjustment for segment revenues . (1,007) - (229) (193) (95) (18) (98) (95) (122) (47) (63) (37) (10)


Other revenues ............................... 55 - 13 12 4 3 7 4 4 3 2 2 1

Total revenues................................ 12,635 4 2,884 2,416 1,191 223 1,235 1,188 1,529 587 783 469 126

Cost for operating the electricity system............................................. 11,682 - 2,587 2,280 1,130 192 1,128 1,063 1,460 549 749 445 99

Income from operating the electricity system ........................... 953 4 297 136 61 31 107 125 69 38 34 24 27

Other revenues, net ........................ (79) - 14 12 (86) 2 9 (47) 7 4 2 2 2 Sales and marketing expenses ........ - - - - - - - - - - - - - Administrative and general expenses ......................................... 303 - 68 72 23 16 40 20 24 12 13 10 5 Expenses from liabilities to pensioners ..................................... 143 - 31 38 11 8 20 8 11 4 6 4 2

367 - 113 122 (52) 26 69 (19) 42 20 21 16 9

Income from current operations ... 586 4 184 14 113 5 38 144 27 18 13 8 18


Income (loss) before income taxes (407) 1 (94) (129) 32 (12) (57) 19 (76) (27) (39) (23) (2)

Income taxes ................................... (482) (2) (118) (85) (24) (10) (60) (35) (64) (23) (36) (23) (2)

Profit (loss) after income taxes .... 75 3 24 (44) 56 (2) 3 54 (12) (4) (3) - -

Company’s share of the loss of associate companies ...................... (4) - (1) (1) (1) (1) - - - - - - -

Profit (loss) before regulatory deferral accounts ........................... 71 3 23 (45) 55 (3) 3 54 (12) (4) (3) - -

Movements in regulatory deferral accounts balances, net of tax ......... 378 - 87 72 22 13 54 37 40 20 13 11 9


449 accounts balances ........................ 3 110 27 77 10 57 91 28 16 10 11 9




l. Details of the distribution sites statement of operations for the year ended December 31, 2016 (restated)

216

Total distribution

segment

Northern District

and Haifa District

Jerusalem District

Dan District

Southern District

(NIS in millions)

Required revenues ................................................. 4,651 1,519 532 617 1,983 Adjustment for segment revenues ........................ 440 144 50 58 188

Revenues from electricity ..................................... 5,091 1,663 582 675 2,171 Other revenues ...................................................... 108 39 44 14 11 Total revenues ....................................................... 5,199 1,702 626 689 2,182 Cost for operating the electricity system .............. 3,322 1,069 384 364 1,505 Income from operating the electricity system ..... 1,877 633 242 325 677 Other revenue, net ................................................ 35 11 6 7 11 Sales and marketing expenses ............................... 267 106 41 50 70 Administrative and general expenses .................... 178 63 24 31 60 Expenses from liabilities to pensioners ................... 70 26 11 13 20

550 206 82 101 161

Income from current operations .......................... 1,327 427 160 224 516 Financial expenses ................................................ 757 242 97 144 274

Income before income taxes ................................ 570 185 63 80 242 Income taxes .......................................................... (100) (30) (16) (26) (28) Income after income tax ....................................... 670 215 79 106 270 Company’s share of the loss of associate companies ............................................................. (19) (6) (2) (3) (8)

Profit before regulatory deferral accounts .......... 651 209 77 103 262

Movements in regulatory deferral accounts balances, net of tax ................................................ (324) (103) (42) (60) (119)

Profit for the year and net movements in regulatory deferral accounts balances ................ 327 106 35 43 143




m. The principles used in attributing the statements of income are as follows:

217

1) General

a) The principles that the Electricity Authority used for determining the rate for the aforesaid activities

segments, were implemented in these statements of operations. b) Since the Company is one legal entity, complete separate entries are not actually recorded for the segments

of the electricity chain. The attribution of the expenses and income of the statement of operations to the level of the segments is performed as applicable, as will be described below. The statements of operations as they are presented in this note do not necessarily reflect the results of operations of the various segments if they had been managed as separate economic entities, as signified by generally accepted accounting principles.

c) As of the first quarter of 2018, the Company presents two new segments. d) The methodology used by the Company to distribute the income and expenses to the generation,

transmission, distribution, transmission, system management and consumer services-supply segments is based on the Electricity Authority's resolutions regarding a new cost base for network segments as of January 8, 2018, other than the attribution of revenues in respect of the "system management" segment and electricity purchases from private consumers. The attribution of these revenues differs from the price methodology of the Electricity Authority and is made by the Company in line with the principles of the department handling/responsible for each of the activities.

2) Below are the principles for attributing the revenues between the various segments

a) Revenues from the sale of electricity: The gross revenues for the segment are calculated based on the rate model that was used by the Electricity

Authority to determine the rates for the Company. In this model, the rate for each segment is calculated separately for every consumer. The final rate published by the Authority for every consumer is a scheme of rates that were calculated in

every segment. The revenues per segment are calculated by the product of the segment rate multiplied by the sales (kWh) for

the end consumer, while making the necessary adjustments in line with the activities defined by the Company for each of the 5 segments: generation, transmission, system management, distribution and consumer services-supply.

(1) Amount sold per segment

The amount sold by each segment is calculated based on data of the amount of sales to the end customers according to the type of the customer and rates according to load and time (hereinafter: "LTR").

(2) Rate for the segment The electricity rates that were determined by the Electricity Authority are divided into two categories:

(a) LTR - rate that varies according to the season of the year and the time of day, where it is split to

each of the segments of the electricity chain (5 types of consumers, 9 rates at an hourly level for each type of consumer).

(b) A uniform rate according to type of consumer that is supposed to reflect over an entire year, the LTR according to the expected level of demand by those paying that same rate during the various seasons and time of day (6 types of uniform rates).

The uniform rate, in accordance with the various types of consumers, is calculated for the various segments, in accordance with the model that was used by the Electricity Authority in determining the rates for the Company.




m. The principles used in attributing the statements of income are as follows: (continued)

218

2) Below are the principles for attributing the revenues between the various segments (continued)

a) Revenues from the sale of electricity: (continued)

(3) Calculation of the revenues for the electricity chain segments

The calculation of the revenue for the segment is calculated by multiplying the amount of sales calculated for each segment by the various types of consumers at the appropriate rates. The difference, which derives from the Company's actual revenue and the calculated revenue obtained, is distributed among the segments mainly based on the scope of their calculated revenue.

(4) In addition, in view of the matter discussed in section m2a3 above, revenues from usage fees are

calculated for substations and connections. These revenues are collected through the generation and distribution segment rates and transferred to the transmission segment for the usage fees for the segment's properties. Revenues from usage fees of substations and connections are calculated at a rate per kWh multiplied by the sales to the end consumer.

(5) Additionally, it is clarified that various adjustments are carried out for the revenues calculated in each

segment, such as: attribution of system-related costs and distribution of revenues from the purchase of electricity to the relevant segment, addition of the fixed component in the electricity bill, giving various discounts, decrease of revenues with respect to non-recognition of the revenues of the East Jerusalem Electricity Company and the Palestinian Authority etc.

b) Other revenues - are attributed to the appropriate segment, according to its nature.

3) Below are the principles for attributing the expenses to the various segments

The specifically identifiable expenses are charged directly to the appropriate items. Certain indirect expenses are recorded for those items according to distribution bases that, in the Company's assessment, constitute a reasonable estimate for the attribution of those expenses. a) Cost for operating the electricity system - in the Company's financial statements it reflects the operating

expenses for the generation, transmission, system management and distribution segments. Fuels costs are fully attributed to the generation segment. Costs with respect to the purchase of extra-high voltage electricity are attributed to the "system management" segment. Costs with respect to the purchase of high and low voltage electricity are attributed to the "distribution" segment.

b) Other revenues, net – Expenses with respect to the impairment of KARAT companies were attributed to

segments in accordance with the ratio of distribution of the expenses in the item of administrative and general expenses (see also section d below). Update of the Rogozin land value, pursuant to the appraiser’s assessment, was attributed to segments in accordance with the ratio of common property.

c) Selling and marketing expenses - include the expenses for services to consumers that are attributed to the

"distribution" segment and to the "consumer services-supply" segment.




m. The principles used in attributing the statements of income are as follows: (continued)

219

3) Below are the principles for attributing the expenses to the various segments (continued)

d) General and administrative expenses (includes salary, depreciation and other expenses) The basis for attributing the general and administrative expenses items to segments was determined in

accordance with the nature of the activities of the Company's various units, whose costs are attributed to general and administrative expenses; see the following details:

(1) The expenses of the General Administration, Finance and Economic Division (except for the Department

of Statistics, see section 6 below) and asset maintenance expenses - are presented according to the distribution ratio of the operating expenses in the electricity chain during the reported year.

(2) The expenses for the human resources department are presented according to the distribution ratio of

the operating expenses in the electricity chain during the reported year. (3) Doubtful accounts and bad debts - are presented according to the ratio of the gross revenues from

electricity sales in the electricity chain during the reported year. (4) Communications and electronics expenses - are presented according to the activities of the relevant unit.

(5) Expenses of the Technological Planning and Development – are fully attributed to the "system

management" segment. (6) The Statistics Department's expenses - are fully attributed to the "system management" segment.

e) Expenses (income) from liabilities, to pensioners, net - These expenses (income) are presented according to

the distribution ratio of the salary expenses in the electricity chain during the reported year. f) Financial expenses (income), net - Primarily derive from the operated fixed assets and, therefore, they were

attributed according to the average ratio of the operated fixed assets, net, as presented in the Company’s books in the electricity chain during the reported year.

g) Income Taxes - The tax expenses attributed to the segments according to the rate of taxes on income from

profit (loss) before taxes on income at the Company level. The effect of the change in tax rate is attributed to segments according to the ratio of the fixed assets of each segment out of the fixed assets of the Company.

h) Movements and net balances in regulatory deferral accounts net balances after tax effect - movements and balances of regulatory deferral accounts are attributed to the segments in relation to the nature of the income or expense, in accordance with the guiding principles for determining the electricity rate in the segment. The division into stations in the generation segment and into districts in the transmission segment was executed according to the ratio of active fixed assets.




n. The principles used in attributing the aforesaid statement of financial position items are as follows:

220

1) The Company is one legal entity and, in effect, the Statement of Financial Position balances are not separated

according to the Company's activities segments in its accounts (except for direct fixed assets). Therefore, the Company reallocates the Balance Sheet balances for the purpose of this note, in every reporting year, based on allocation keys, as described below.

2) The Statement of Financial Position as presented in this note does not necessarily reflect the financial position of

the various segments, should they have been managed as separate economic entities, in accordance with generally accepted accounting principles.

3) Below are the principles for attributing the statement of financial position balances to the various segments:

a) Working capital items The working capital items were attributed to the segments in accordance with those principles that the Electricity Authority used in determining the electricity rates (principally for the purpose of determining the coverage of the working capital's financial expenses) where the principal allocation keys are: Fuels inventories and balance for fuels suppliers - were fully attributed to the generation segment, divided between the units according to the fuel costs in practice. The trade receivables balance was allocated according to the distribution ratio for revenues. Trade payables and other items were allocated primarily according to the ratio of the operating expenses and salary for the segments.

b) Fixed assets Fixed assets that are specifically identifiable are included in the appropriate segment. Joint assets (about 3% of the entire assets) were distributed according to distribution keys that, in management's opinion, constitute a reasonable estimate for attributing these assets.

c) Other assets Other assets which can be specifically identified were included in the appropriate segments. Other assets which could not be specifically identified were allocated according to the ratio of active fixed assets.

d) Shareholders' equity and deferred taxes Shareholders' equity and deferred taxes were allocated according to the ratio of the active fixed assets, net.

e) Loans and debentures The loans and debentures were allocated to the segments in accordance with the other statement of financial position items, and principally according to the distribution ratio of fixed assets to segments, pursuant to the nature of the financing for the Company's assets under the rate principles.

f) Balances of regulatory deferral accounts The balances of regulatory deferral accounts were divided into segments in accordance with the rate division of these assets. The division into generation stations and Company districts was calculated according to the ratio of the active fixed assets. Balances of Regulatory deferral accounts results of the reform agreement cannot be specifically identified and therefore were not allocated to the Company's segments of activity.

g) The remaining statement of financial position items were distributed according to distribution keys that, in

the Company's estimation, constitute a reasonable estimate for attributing these items.




o. Information regarding the attribution of the income statement and statement of financial position according to 20

221

reporting units

1) General In addition to the aforesaid in section m.1 above, the Company was required to provide disclosure in the form of a note that is to include condensed statements of operations and a statement of financial position, in reference to 20 activities that are included in the five electricity chain segments, as follows:

Generation segment 11 generation sites: Rutenberg, Orot Rabin, Haifa, Reading, Eshkol,

Gezer, Hagit, Alon Tavor, Ramat Hovav, Zafit and the other gas turbines.

Transmission segment The electricity transmission and transformation system. System management segment Day-to-day management of the generation, transmission and

transformation systems. Distribution segment The Company's five districts: Northern, Haifa, Jerusalem, Dan,

Southern. Consumer services-supply segment Includes the Company's customer services and collection system. The 20 operations segments shall hereinafter be referred to as: "reporting units".

2) Below are the primary principles for attributing the revenue

The revenue at the level of the reporting unit is calculated by stages since presently there is no electricity rate at the reporting unit level, and the Authority's current rates, at the level of the electricity chain's segments, do not allow for their attribution to a level that is lower than the segment level. The revenue is calculated based on the following principles:

a) Calculation of the revenue from electricity at the level of the electricity chain segments, which is based

on the electricity rates and agrees with the total of all revenues from electricity at the total Company level.

b) Determination of the required revenues at the reporting unit level for each reporting year. Required revenue - coverage of the actual costs during the reported year (operating costs including fuel

and depreciation) neutralized by the various other revenue and expenses, and with the addition of normative financing costs of assets recorded in the books and the normative rate of return on capital.

The required revenues are structured based on the principal elements of the rules and principles that served the Electricity Authority for determining the electricity rate for the various segments.

c) The difference between the total required revenues for the reporting unit in the segment and the revenues of the appropriate segment was distributed among the reporting units according to the ratio of required revenue of the segment.

d) The revenues from electricity at the reporting unit level were not designated in order to estimate the revenues that will be obtained from the electricity if and when electricity rates are determined at the reporting unit level and, therefore, statements of operations according to the 20 reporting units do not necessarily reflect the results of their operations if they were managed as separate economic entities, as signified by generally accepted accounting principles.




o. Information regarding the attribution of the income statement and statement of financial position according to 20

222

reporting units (continued)

3) The principles for the attribution of expenses are as follows: The principles for attributing the expenses at the level of the reporting units agree with the principles that were applied in the reporting according to the five electricity chain segments (see section m above). Joint expenses for a segment (such as segment management) were attributed to the reporting units, generally on the basis of the direct operating costs for each reporting unit. Other expenses that are not allocated in the Company's books of account (such as general and administrative and financial expenses) were attributed to the reporting units in accordance with the loading bases used in the reporting according to the electricity chain segments.

4) Principles that were used in attributing the statement of financial position items according to 20 reporting

units According to that stated in section m1b above, the Company is one legal entity and, in effect, the statement of

financial position balances are not segregated in the Company's books according to the segments of the Company's activities. Therefore, the Company re-attributes the statement of financial position balances for the purpose of this note for each reported year based on allocation keys, as described above in section m, while providing additional details for the 20 reporting units.


NOTE 38:- ADDITIONAL INFORMATION REQUIRED UNDER THE PROVISIONS OF THE GOVERNMENT COMPANIES

AUTHORITY

a. For information about attributing the statement of profit and loss and comprehensive income according to the generation, transmission, distribution, system management and consumer supply services segments, see Note 37 above.

b. Disclosure about Reports on Internal Controls

223

According to Government Companies Regulations (additional report on actions taken and representations given to assure additional reports on the effectiveness of internal controls over the financial reporting) – 2007, all Government companies, including the Company, were obligated to attach to their annual and Interim Financial Statements an additional report of the actions taken in order to assure effectiveness of Internal controls over the Financial Reporting, including setting up an entire array of internal controls.

The Company established Administration, Control and Work, integrated a mechanized dedicated system and units and elected a consultant to assist in the implementation of the said regulations. The system allows documentation of risks and controls in any process, documentation of the performed tests and their results. The system also provides the ability to monitor faults corrections and to generate various control and administration reports, in order to enable the office holders signing the Financial Statements and the Report of the Board of Directors to declare in the additional report that the Financial Statements and the Report of the Board of Directors do not contain false representation of a material fact and that they properly reflect, in all material aspects, the financial position, results of operations, changes in equity and cash flows of the Company for the days and periods presented in the reports. . The Company established a procedure to verify: absence of weaknesses which may affect the correctness of the report, implementation of all disclosure controls enacted, including implementation of a methodical mechanism from managing and monitoring information gathering from position holders and statements of intermediate managers on the implementation of the disclosure controls in their spheres of responsibility and also applying suitable controls over amended work processes.

The Companies Authority required the Company to conduct audits according to the Government Companies Regulations (Additional Reports on the Effectiveness of Internal Control over Financial Statements) – 2007 and according to the Government Company Regulations (Additional Report on Actions Taken and Representations Given to Ensure the Correctness of the Financial Reports and the Board of Directors’ Report) – 2005, and according to the circular of the Companies Authority on the subject of risk management in Government companies, of June 11, 2009, and present disclosure of them in the notes to the financial statements on the internal controls over the financial reporting related to assets / liabilities / activities / trusts / projects and services managed through service providers assets / liabilities / activities / trusts / projects and services, as these are defined in SAS 70 (Statements on Auditing Standards 70). In the framework of the controls tested as listed above, also tested were controls relating to service providers' assets / liabilities / activities / trusts / projects and services, as these are defined in SAS 70.

The Companies Authority wished to ensure that within the framework of the chain of signings and backing the declarations carried out for the purpose of implementing the above stated regulations regarding SOX 302 and SOX 404 and the Government Companies Risk Management Circular, all the key advisors and other service providers relevant to the internal controls over the financial reporting in the Company in the stated spheres will provide a statement regarding the audits they executed and their findings with respect to the existence or non-existence of weaknesses or faults in accordance with the stated Regulations regarding SOX and the Risk Management Circular, SAS 70 including its amendments, including SSAE 16 (“Statements on Standards For Attestation Engagements 16”), as well as regarding the issue of conflict of interests, this in addition to the chain of signings and backing the declarations of those responsible for the processes, sub-processes and additional controls relevant to the internal controls over the financial reporting of the Company.

The position of the Company: SAS 70 deals with an opinion of an auditor on the reliability of the controls that exist in service bureaus. The key advisors and other service providers relevant to the internal controls over the financial reporting of the Company are experts and not service bureaus and therefore they are not included in SAS 70. For the purpose of relying on the work of the expert, the Company examines his professional qualifications, his professional authorization by an appropriate professional entity, his experience and reputation, and also carries out tests in order to verify the use he makes of the data, assumptions and the methods he uses, and examines the outcome of his work.



AUTHORITY (continued) The Authority is not accepting the Company’s position and is of the opinion that in the absence of declarations as aforesaid, weaknesses or defects may exist according to the SOX Regulations and the Risk Management Circular or they will not be disclosed as required. So, for example, as stated in the non-implementation of the instructions of the Authority on execution of a risk survey in accordance with the Risk Management Circular. Moreover, under the SSAE 16 the interpretation included in the position of the Company is overly limited and the term “Service organization” is defined as: “An organization or segment of an organization that provides service to user entities, which are likely to be relevant to those user entities' internal controls over financial reporting". A similar definition is also included in the ISAE 3402 (International Standard on Assurance Engagements 3402).

c. On January 11, 2017, the Director of the Companies Authority instructed the Company’s auditor, in a letter with a copy sent to the Company, to execute a special audit under section 45 of the Government Companies Law, and to examine the Company's controls over the management of the tender proceedings and the Company's conduct with the various service providers, with an emphasis on the examination of procedures and their implementation as regards prevention of bribery, compliance, integrity, preventing conflicts of interest and violation of good governance. In his letter, the Director of the Authority noted that on August 30, 2016, the Tel Aviv District Attorney (Taxation and Economics) applied to the Companies Authority, pointing to the need to conduct an extensive and thorough examination in relation to the organizational culture that exists today in the Company with regard to the prevention of conflicts of interest with bodies associated with the company, especially with regard to preventing bribery.

d. Government Companies are required to ensure that a misleading item will not be included in the Financial Statements

and the accompanying information they submit, including information that might mislead a reasonable reader of the Financial Statements and their accompanying information.

e. The Company will provide proper disclosure in the Financial Statements of significant assets for which it believes there

is a material gap between their fair value and their carrying amount in the Financial Statements, which are not recorded at their full amounts in the Company's books, including on the basis of appraisals or evaluations performed, or insurance appraisals, if performed.

The Company does not have valuations of specific material assets under which the book value is lower than the fair value according to an appraiser’s assessment. The Company annually reviews signs of impairment of its assets according to IAS 36 and if needed performs a valuation of all its assets, which is attached as an annex to the financial statements. See also Note 2 ad 2 f above.

f. The Government Companies Authority required the Company to ascertain and provide disclosure, that the rights recorded in the financial statements related to liabilities with respect to employee-employer relations did not deviate from the current binding rights from aspects of Labor laws and that these liabilities were recorded accurately.

The Company's position is:

224

In the past, legal proceedings were conducted with respect to a number of salary components regarding which the Commissioner of Wages at the Ministry of Finance determined that he did not give his approval for them to be paid, and consents were reached in these matters, for details see Note 35b3 to the Financial Statements.

The Company tightened controls over salary and pension payments and established a procedure, approved by the Company's Board of Directors, on the subject of the manner of updating changes in employee rights and benefits. The Company estimates that these steps strengthened internal controls over financial reporting for subjects related to handling the employees’ wages rights section from now onwards. Regarding rights of wages deriving from the past, the Company received an opinion of its legal advisers, and in 2011 the Company applied to the Commissioner of Wages to receive his approval for validity of wage rights that had not yet received approval. The Commissioner of Wages stated that he cannot provide an approval as requested, and that he intends to conduct an examination of the salary components of the Company. Following the decision of the Commissioner of Wages regarding deviations in Company salaries in 2013, a legal proceeding was conducted regarding four salary components in the Company, following which a collective agreement was signed on December 11, 2016. The collective agreement determines, inter alia, repayment with respect to payment of the deviating components in the period beginning on the date of the Commissioner's decision and arrangement of the deviating components from August 1, 2016. A group of employees, the Company's engineers' union, and a group of pensioners filed claims to the Court of Labor regarding the collective agreement of December 11, 2016. As of the date of approval of the financial statements, the claim of the group of employees was rejected and the other two proceedings are being conducted at the District Court.



AUTHORITY (continued) g. On December 11, 2013, the Law to Promote Competition and Reduce Centralization - 2013 (the “Centralization Law”)

was published. Chapter B of the Centralization Law deals with weighing pan-economy centralization considerations and sectorial competition considerations when allocating rights. As part of the Centralization Law, a “Committee for Reducing Centralization” (hereinafter: the “Committee”) has been established, and its members are the General Director of the Competition Authority (as Chairman of the committee), the Director General of the Ministry of Finance acting as Head of the Economics Division (if the Minister of Finance appointed him as a member of the committee) and the Head of the National Economic Council acting pursuant to the Government’s decision or one of his deputies (if the Prime Minister appointed him as a member of the committee). The Centralization Law may have a significant impact on the Company dye to the determination of the Committee under the law that the Company is a “Centralized Entity” as is defined in the Centralization Law, due to it being a real significant corporation, under the definition appearing in section 4 of the law, and because its accumulated extent of activity in the field of essential infrastructure (as this term is defined in the Centralization Law) exceeds half of all the activity in that field. Defining the Company as a Centralized Entity may impact the Company as detailed below: 1) Allocating rights and renewing or extending rights given to the Company - according to the provisions of the

Centralization Law, every entity that is authorized to allocate a right, renew or extend it (a right means license, contract or significant holding as they are defined in the Centralization Law) in the field of essential infrastructure should weigh pan-economic centralization considerations when allocating the right. The regulator allocating the right is permitted not to allocate it to a Centralized Entity. If it wishes to allocate it to a Centralized Entity or to enable a Centralized Entity to participate in the process of allocation, it must first conduct consultation with the Committee for Reducing Centralization. Additionally, Part C of Chapter B of the Centralization Law requires the regulator to consider considerations of promoting sectorial competition when allocating certain rights. In addition, if the allocated right will be included in a list that will be published by the General Director of the Israel Competition Authority, he will have to consult with him before the allocation. Regarding Part C, the definition of “right” also includes, in addition to the aforesaid, a license in a field of activity which is not an essential infrastructure if the number of those operating in that field is naturally limited.

2) Expanding the operation of the Company to an additional field of essential infrastructure in a process pursuant to

the Government Companies Law - the Centralization Law requires the consideration of pan-economy centralization considerations when making a government decision which enables a Government company which is a Centralized Entity to operate in an additional field of essential infrastructure. Additionally, according to the Centralization Law, the Government Companies Authority has to consult with the Committee for Reducing Centralization prior to formulating its opinion for the Government in this matter.

Furthermore, as the Company is a Government company, the Centralization Law affects the Company as detailed below:

3) Allocating a right in essential infrastructure by the Company - according to the provisions of the Centralization

Law, insofar as a government company will wish to enter a contractual engagement with a third party to execute the activity that is one of the fields of essential infrastructures, then it is a proceeding of allocation of a right by the Company. In this situation, the tender committee of the government company, as an allocating entity, is required weigh pan-economy centralization considerations during the allocation proceeding. Accordingly, the government company is permitted not to allocate the right to a Centralized Entity. If the government company wishes to allocate the right to a Centralized Entity, it must first consult with the Committee for Reducing Centralization. Additionally, according to Part C of Chapter B of the Centralization Law, the tender committee of the Company will be required, in addition to any other consideration it must consider pursuant to the law regarding the allocation, to consider considerations of promoting sectorial competition when allocating such rights. Additionally, if the allocated right is included in a list published by the General Director of the Competition Authority, it will have to consult with him prior to the allocation.

225



AUTHORITY (continued)

g. (continued)

4) Extending the validity of a right - according to Part D of Chapter B of the Centralization Law, extending the validity of a right is regarded as the same as allocating a right and the provisions of Part B or Part C of Chapter B of the Centralization Law will apply to it, upon the fulfillment of these two: (a) the holder of the right for which the extension of validity is requested holds it for a period exceeding ten years, whether determined in a single allocation or accrued in a number of allocations; and (b) the allocation of the right or a previous extension of its validity were not reviewed pursuant to the provisions of Chapter B of the Centralization Law during the ten years which preceded the requested extension of validity. During a hearing regarding the extension of the validity of a right, the Tender Committee of the Company will be required to consider, among the gamut of considerations, the characteristics of the process for extending the validity of the right discussed and its circumstances.

5) Privatization of a government company - when formulating a decision to privatize a government company (as

defined in section 1 of the Government Companies Law), the Government Companies Authority will consult with the Committee for Reducing Centralization before formulating an opinion or a memorandum on its behalf, under section 59(b) of the Government Companies Law, regarding the possibility of allocating rights in a government company to a Centralized Entity and the terms for this, as well as regarding the definition of the centralization considerations as an essential interest. Additionally, according to Part C of Chapter B of the Centralization Law, as part of the stated opinion, the Government Companies Authority will consider considerations of promoting sectorial competition. In addition, if the allocated right will be included in a list that will be published by the General Director of the Israel Antitrust Authority, it will have to consult with him before the allocation.

h. The Companies Authority requested that it will be expressly noted in the Financial Statements that the presentations

included in the Financial Statements and in the enclosed information are at the sole responsibility of the Company and do not bind the State of Israel. The Company notes that, to the best of its knowledge, the Company’s presentations, except for positions expressed by various governmental bodies which are included in the Financial Statements and the accompanying information, are at the sole responsibility of the Company’s Management and Board of Directors and do not bind the State of Israel, subject to law.

i. The Companies Authority requested to provide disclosure with respect to all the engagements, existing and expected,

with the private producers including production licenses granted to private producers and with respect to which agreements with the Company have not yet been signed. For additional details see Note 35a4 above.

j. The Companies Authority requested to provide disclosure regarding the effectiveness of the procedures included in

the declaration given by the Vice President for Human Resources of the Company, which, based on his knowledge, the reports delivered to the fund do not include misrepresentation of material or misleading facts regarding the period of the account.

The position of the Company:

226

As noted in the declaration given to this report by the Senior Vice President Human Resources of the Company to the CEO of Halman Aldubi IEC Gemel Ltd., the controls in the processes included in the declaration are effective.

k. The Companies Authority requested the Company to attach audited financial statements of the Jordan Assets

Incorporated Company.

Financial statements of the Jordan Assets Company have not been prepared or signed since 2005 until the present due to issues from the past of classification of a number of assets between the Jordan Assets Company and the Company. Additionally, directors have not yet been appointed to the Jordan Assets Company. The Company is also working, inter alia, with the various regulatory authorities to regulate the approval of these financial statements.



AUTHORITY (continued)

l. According to the circular of the Companies Authority the Company is required to provide disclosure in the Financial Statements of the implementation of the directives of the Government Companies Authority regarding control and reporting rules for land and attached assets in Government companies in accordance with the Financial Statement Circular 2006-3 of September 17, 2006. The information required above was not included in the Financial Statements. In a letter to the then Director of the Government Companies Authority dated January 10, 2007, the Company's CEO states that back in 1998, the Company stated that it was preparing to collect the extensive amounts of material required. Furthermore, in 1998, a list of the Company's assets was transferred to the Ministry of Finance as of the date of the expiration of the concession and since then and, to date, the list of added assets is immaterial in relation to total assets.

In recent years, a focused and continuous process is being conducted for gathering and coordinating all the information of the Company’s assets and arranging them in all that relates to a book of assets, registering rights, management and regulation. The Company has 309 major sites and a book of secondary sites which is being completed at present.

m. The Companies Authority applied to the Company to clarify the examination of embedded derivatives in the Tamar agreement carried out by the Company in the past. The Company responded on March 1, 2017 and clarified its accounting policy in a letter to the Companies Authority. Also see Note 35a1 above. On November 19, 2017, the Companies Authority notified the Company that its response is being examined and that the Companies Authority requested to receive additional responses from the Company relating to the information delivered by the Authority to the Company. The Company has submitted all the relevant references to the Authority.

n. In June, 2015, the Companies Authority notified the Company that it is performing an examination of all the issues

related to calculation of the actuarial liability of the Company and deposits to the pension fund, and requested and received data from the Company for this purpose.

o. 1) Until the end of the concession period, the Company amortized the full cost of the absolute majority of the lands,

regarding which there was ambiguity in connection with the Company's entitlement to receive adequate compensation upon termination of the concession.

2) Following the assets arrangement, there was no change in the presentation of these assets, in view of the implementation of the provisions of transition to IFRS and the manner of implementing the international accounting standards in the Company.

3) Most of the assets that will remain in the Company after completion of the arrangement are assets used or intended to be used in the Company's activities in the electricity sector. These assets constitute part of a cash-generating unit, which is examined at the end of each reporting period in order to determine the existence of an impairment of the assets included therein.

4) For details of the accounting treatment of assets remaining with the Company after completion of the assets arrangement, including the position of the Securities Authority of March 29, 2019, see Note 1f.

227

The Israel Electric

Corporation Ltd.

Chapter D

Additional Particulars about the Corporation

and Corporate Governance

Questionnaire

For the Year 2018

Prominent Disclaimer

This English translation of the “Additional Particulars about the

Corporation” for the year ended December 31, 2018 ("English

Translation") is provided for information purposes only.

In the event of any conflict or inconsistency between the terms of

this English Translation and the original version prepared in Hebrew,

the Hebrew version shall prevail and holders of the Notes should

refer to the Hebrew version for any and all financial or other

information relating to the Company.

The Company and its Directors make no representations as to the

accuracy and reliability of the financial information in this English

Translation, save that the Company and its Directors represent that

reasonable care has been taken to correctly translate and reproduce

such information, yet notwithstanding the above, the translation of

any technical terms are, in the absence of generally agreed

equivalent terms in English, approximations to convey the general

sense intended in the Hebrew version.

The Company reserves the right to effect such amendments to this

English Translation as may be necessary to remove such conflict or

inconsistency.

Name of the Company: The Israel Electric Corporation Ltd. Company Number with the Companies Registrar: 520000472 Statement of Financial Position Date: December 31, 2018 Date of Publication of the Financial Statements: March 31, 2019

This Chapter is prepared in accordance with the Securities Regulations (Periodic and Immediate

3

Reports), 1970 (the “Regulations”). Regulation 9d: Report of the Liabilities Schedule According to Payment Dates

For the report on the liabilities schedule of the Company, see immediate report concurrently published by the Company (Regulation 126) with this periodic report.

Regulation 10a: Summary of reports on the comprehensive income (loss) in the quarters Following is the summary of the reports:

Quarter 1 Quarter 2 Quarter 3 Quarter 4 2018

Revenues 5,457 5,334 7,305 5,488 23,584 Cost of operating the electricity system 4,552 4,936 5,515 4,521 19,524

Profit from operating the electricity system 905 398 1,790 967 4,060 Other revenues )2( - - 25 23 Sales and marketing expenses 242 234 218 241 935 Administrative and general expenses 164 165 204 201 734 Income from net liabilities to pensioners )25( )23( )16( (36) (100) Results of the reform agreement - - - 4,249 4,249

Profit from current operations 526 22 1,384 (3,713) (1,781) Results of the assets arrangement, net - - )2,627( - (2,627) Financial expenses, net 553 829 265 145 1,792

Profit (loss) before taxes on income )27( )807( 3,746 (3,858) (946) Expenses (income) of taxes on income )3( )183( 451 (862) (597)

Net profit (loss) )24( )624( 3,295 (2,996) (349) Profit (loss) with respect to an associated company - )4( 4 (5) (5)

Profit (loss) before regulatory deferral accounts, net of tax )24( )628( 3,299 (3,001) (354) Movement in regulatory account balances )43( 515 473 3,479 4,424

Profit (loss) for the period and net movement in regulatory deferral account balances )67( )113( 3,772 478 4,070 Other comprehensive income (loss), net of tax 621 )777( 255 (119) (20)

Comprehensive income (loss) for the period 554 )890( 4,027 359 4,050

Regulation 11: A list of investments in subsidiaries and related companies, as of the statement of financial

4

position date (31.12.2018)

1 Subsidiaries and related companies held by the Company on December 31, 2018, are listed below with an indication of the number of shares, type, nominal value, proportion of the Company's holding in them out of the total issued shares of this type and the rate of the securities, of the issued shares capital, the voting rights and the authority to appoint directors held by the Company:

Name of Subsidiary Share Type Number of Held Proportion of the Company’s Holding Millions of Shares and (%) NIS

Nominal Value

In Securities In In In Appointment of Balance Capital Voting Directors Sheet

Rights Value

Jordan Investment Ordinary 3,000 of NIS 0. 5 100.00 12.00 73.17 73.17 - Company Ltd. each

Ordinary A (*)109,999 of 99.99 87.99 26.82 26.82 - NIS 0. 1 each

Migrashei Hakablanim Preferred 2,000, of NIS 0. 100.00 76.05 100.00 100.00 - Ltd. 1 each

Deferred 630(**) of NIS 100.00 23.95 0.00 0.00 0.1 each

Total 2,630 of NIS 0.1 100.00 100.00 100.00 100.00 each

National Coal Supply Ordinary A 910,000 (***) 100.00 100.00 100.00 100.00 55 Company Ltd. of NIS 1 each

The Management Management 6 of 50.00 of the - 50.00 50.00 - Company of the A Management

NIS 1 each Advanced Training Fund shares of Israel Electric Corporation Ltd.(****)

PAMA Energy Resources Ordinary 3,467,790 of 49.99 49.99 49.99 30.77 - Development Company NIS 0.10 each

Ltd.

I.B.C. Israel Broadband Ordinary 400 of NIS 1 40.00 40.00 40.00 (*****) 20 Company (2013) Ltd. each

(*) Including 66 shares held by officeholders in trusteeship for the company (**) 630 deferred shares held by officeholders in trusteeship for the company (***) According to the articles of association of the National Coal Supply Company, 3 directors are appointed from

among the public and 6 are appointed from among the employees of the Electric Company. (****) The Company holds 50% of the management shares and rights to appoint directors, without rights of

participation in profits. The remaining 50% are held as follows: The Association of Mutual Assistance among the Electric Company employees in the southern region (final holder) (25%), Non-Profit Organization of the Electric Company employees in the Northern region (registered non-profit organization) (final holder) (16.667%), and the Savings and Mutual Assistance Fund of the Electric Company Employees in Jerusalem Ltd. (final holder) (8.333%). A casting share, granting its holder the right to determine the outcome in any case of equality of votes of the general assembly or the Board of Directors, was personally allocated to Mr. David Hagoel, the former Chairman of the Board of Directors of the Electric Company.

(*****) In accordance with the founders’ agreement and the articles of association of I.B.C Israel Broadband Company (2013) Ltd., the number of directors of the Company will not be less than 5 and will not exceed 9 directors. As long as there are no additional shareholders in the Company except for the Israel Electric Corporation and the controlling shareholder, 1) the controlling shareholder will have the right to appoint up to 5 directors to the Board of Directors of the Company, but in any case the number of serving directors

1 All the subsidiaries and related companies detailed in this regulation are not traded in the stock exchange.

appointed by the controlling shareholder at any time will not be less than 3 directors; 2) the Israel Electric Corporation will have the right to appoint between 2-4 directors to the Board of Directors of the Company, subject to the number of directors appointed by the IEC at any time being less than the number of directors appointed by the controlling shareholder.

Note: In addition to the companies detailed above, on May 2, 2013, the Company engaged with CyberGym Control

5

Ltd. (hereinafter: “CyberGym”) in a commercial and corporate relationship which granted the Company a contractual right to receive 50% of the net income of CyberGym, as well as an option to receive 50% of its issued share capital, while the full (100%) shares of CyberGym are held by third parties. Furthermore, under the terms of the said engagement, the Company has additional rights in CyberGym. The investment in CyberGym was executed through loans totaling approximately to NIS 7 million. On August, 2018, an amendment to the cooperation agreement between the parties was signed, within which the joining of an investor to CyberGym was arranged. Following this, if and when the options granted to the Company are exercised, the Company will hold up to approximately 46% of the issued and paid-up share capital of CyberGym (subject to further possible dilutions). The book value of the Company’s investment in CyberGym as of December 31, 2018 was NIS 14 million.

Balance of loans to held companies: None.

For additional details see Notes 1i, 2h and 11 to the Financial Statements of the Company (“Financial Statements”).

Regulation 12: Details regarding changes in investments of the corporation in the reporting year in subsidiaries and related companies

For details see Note 11 to the Financial Statements. Regulation 13: Comprehensive income of every subsidiary or related company of the corporation, during the

last reporting year that ended on the date of the statement of financial position of the corporation or before it, adjusted to the statement of financial position date (December 31, 2018), while distinguishing between profit or loss and other comprehensive profit, as their meaning in the accepted accounting principles.

The following table details the comprehensive income (loss) of the subsidiaries and related companies as of December 31, 2017:

Name of Company Net Profit Comprehensive Proposed Management Interest (loss) Income (loss) Dividend Fees

National Coal Supply Company Ltd. 12 10 6 - -

Due to immateriality, as of the date of the report, the Company is executing assessments for IBC’s and CyberGym’s operation results.

Regulation 20 Trading on the Stock Exchange - Securities that were Listed for Trading - Trading Halt Dates and Reasons

During 2018 and until the reporting date, Company debentures from the issue of the negotiable series “Series 30” and “Series 31”, and their expansions, were listed in the Retzef Continual Trading trading system of the Tel Aviv Stock Exchange, as detailed:

Name of Security no. Initial offering Listed at Series Nominal value

issued November 2018

Series 30 6000277 412,149,000 Retzef

Series 31 6000285 1,239,189,000 Retzef

There were no breaks in the trading of the Company’s securities in 2018 and in the period after December 31, 2018 and until the reporting date.

Regulation 21(a)(1): Rewards to Officers

6

Compensation paid by the Company and commitments to pay it assumed (including employers’ costs) for each of the five officeholders in the Company or in a company it controls, who received the highest compensation from the Company itself or from a corporation it holds, as the case may be, paid with respect to 2018 as recognized in the financial statements for 2018 (in current prices) is detailed below:

7

2018

Details of Rewards Recipient Rewards* for Services Other Rewards

Name Position

Position Scope

Equity holding

rate Salary** Bonus

Shares Based

Payment Management

Fees Consulting

Fees Commission Other Interest Rent Other Total

Ofer Bloch CEO 100% - 1,192,948 189,419 - - - - - - - - 1,382,367

Avi Senior VP Doitchman Finance and

Economics 100% - 1,055,225 137,438 - - - - - - - - 1,192,663

and Business Development

Yiftah Ron- Chairman of Tal the Board of 100% - 1,190,125 - - - - - - - - 1,190,125

Directors

Haim Senior VP Rubin Engineering 100% - 1,099,909 78,075 - - - - - - - - 1,177,984

Projects

Amit Senior VP of Oberkowitz Human

Resources 100% - 1,049,920 116,320 - - - - - - - - 1,166,240 and Organization

(*) Reward amounts are presented in terms of annual cost to the company (in NIS) for a period of twelve (12) months ended on December 31, 2018 (in current prices).

(**) The amounts specified above include salary in terms of cost incurred by the Company expenses refund with respect to subsistence allowance, telephone, vehicle and payments to professional societies ("Expenses Refund") and charging tax with respect to vehicle, insurance, electricity, advanced studies, fixed and mobile phone, gift and meals ("Charged to Tax")

Notes to the Table:

8

Terms of employment for officers employed by personal contract:

The employment agreement of an officeholder is a personal employment agreement, in a uniform version, dictated and required by the Companies Authority, in accordance with the Government Companies Authority’s Circular no. 2001/1 of November 7, 2001 (“The Authority’s Circular Regarding Senior Employees”), or an agreement of employment by personal contract for senior managers in the Electric Company which was approved by the Government Companies Authority and the Supervisor of Wages at the Ministry of Finance on August 2, 2016. The salary of an officeholder is determined in accordance with the classification of the Company, which is determined by the Committee for Classifying Government Companies that was established by virtue of the Government resolution (the “Committee for Classifying Government Companies”), and is updated once a year in accordance with the increase of the CPI and subject to the approval of the Board of Directors of the Company. As part of the employment of an officeholder and in accordance with his employment agreement, and after receiving approval for it from the Board of Directors of the Company and from the Government Companies Authority, the officeholder is entitled to for purpose of his function, to a vehicle supplied by the employer and the Company bears the costs of its use. Within the framework of his work, he is also entitled to expenses of maintaining a landline and cellular telephone, board and lodging expenses, clothing allowance, advance study fund, annual leave and convalescence pay. The officeholder shall cease to serve in office and his term in office shall expire in accordance with the causes which are set forth in the Government Companies Law and on the dates set forth therein. According to the Authority’s Circular Regarding Senior Employees, an advance notice of three months must be issued to a senior employee who is dismissed from employment or by senior employee who resigns voluntarily. The terms of office and employment of the officeholders are compatible with the compensation policy of the Company.

On September 20, 2018, after receiving prior approval from the Board of Directors which accepted the recommendation of the Compensation Committee of the Board of Directors of the Company, a sum of approximately NIS 1.2 million was paid for compensation with respect to the year 2017 for 11 senior officers employed with a personal contract. Part of this sum is included in the above table. See Note 34c1f) to the Financial Statements

Ofer Bloch - started work in the Company as Company CEO on June 10, 2015. The salary is paid according to the contractual engagement of June 2015, which is in effect until the expiry of his term. The amount presented in the "Salary" column for 2018 includes an annual salary of NIS 781,255 plus employer’s costs in the amount of NIS 213,991 plus Charges to Tax in the amount of NIS 197,702 plus a bonus of NIS 189,419. Avi Doitchman - started work as Senior VP Finance and Economics on January 1, 2016. The salary is paid according to the engagement of employment from February 2016 which is in force until the date of termination of his office. The amount presented in the "Salary" column for 2018 includes an annual salary of NIS 711,510, plus employer’s costs in the amount of NIS 196,188 plus Charges to Tax in the amount of NIS 147,527 plus a grant of NIS 137,438. Yiftah Ron-Tal - started his term as chairman of the Board of Directors of the Company on October 7, 2010. His term as chairman of the Board of Directors of the Company was renewed on October 2, 2013, ad once more on October 6, 2016. The amount presented in the "Salary" column for 2018 includes an annual salary of NIS 778,781 plus employer's costs in the amount of NIS 214,217 plus Charges to Tax in the amount of NIS 197,127.

Haim Rubin - started work in the Company as Senior VP of Engineering Projects on September 1, 2017. The salary is paid according to the engagement from March 2017 which is in effect until the termination of his term. The amount presented in the "Salary" column for 2018 includes an annual salary of NIS 726,526, plus employer’s costs in the amount of NIS 200,326 plus Charges to Tax in the amount of NIS 173,057, plus a grant of NIS 78,075.

Amit Oberkowitz - started work as Senior Vice President of Human Resources and Organization on June 25, 2015. The salary is paid according to the engagement of employment by personal contract from July 2015 which is in force until the date of termination of his office. The amount presented in the "Salary" column for 2018 includes an annual salary of NIS 701,497 plus employer's costs in the amount of NIS 196,765 plus Charges to Tax in the amount of NIS 151,658 plus a bonus of NIS 116,320.

Regulation 21(a)(2): There are no three senior officeholders in the Company itself who receive the highest compensation that are not included in the list under Regulation 21(a)(1).

Regulation 21(a)(3): There are no stakeholders in the Company who receive rewards that are not directors and are not included in the list of regulation 21(a)(1) above, who receive a reward in connection with services they provided as office holders in the Company or a company it controls.

Regulation 21(b): No rewards were paid to senior office holders with respect to the reported year that were not

9

recognized in the statement of financial position for the reported year.

Details regarding compensation given to directors in accordance with the circular of the Government Companies 2Authority

The compensation given to directors (except the Chairman of the Board of Directors) in 2018, which does not deviate 3 4from that which is customary , amounted to NIS 863,029 (the amount does not include VAT and is in current prices) .

The Compensation of the external directors was determined according to the classification of the Company, at the amounts specified in the Government Companies Regulations (Rules for Compensation and Expenses to an External Director in Government Companies) – 1994. As on the date of the report, the Company is classified in Class 10(1). The compensation of the external directors is determined according to the decisions of the general meeting of the Company, according to minimum amounts specified for a Company in the Company's class in the Companies Regulations (Rules for Compensation and Expenses to an External Director) – 2000, although these regulations allow a higher salary.

Regulation 21 a: The holding in the Company

The State of Israel is the holder of the Company as on the date of the report.

Regulation 22: Transactions with a Stakeholder

The State holds about 99.85% of the shares of the Company and is the controlling stakeholder in it. For details, to the best of the knowledge of the Company, concerning any transaction with the controlling shareholder or in whose approval the controlling shareholder has a personal interest, which the Company has executed during the reporting year or at a later date than the end of the reporting year, or which is still valid on the date of the report, including with respect to letters of guarantee that were provided by the State of Israel to secure the liabilities of the Company and loans provided by the State of Israel to the Company, see Note 34 to the financial statements

On January 3, 2018, the Company, the State, the Israel Land Authority, and the Municipality of Tel Aviv entered into two agreements relating to the assets arrangement. The agreements are subject to the fulfillment of a number of suspending conditions which are limited in time, including receipt of the approval of the Israel Land Council for the outline, the outline’s approval by the authorized organs of the Company, receipt of the necessary approvals for the outline by the relevant State

2 Circular 2013-5-1 of the Government Companies Authority “Accounting and Finances - Financial Statements”/ 3 Namely, does not exceed the maximum sum under regulations 4 and 5 to the Companies Regulations (Rules for Compensation and Expenses to an External Director) – 2000 (the “Compensation Regulations”), and does not exceed the amount stated in regulation 7 of the Compensation Regulations. 4It should be noted that VAT is added to the compensation paid to external directors of the Company.

It is noted that on July 19, 2007, the Company's Audit Committee (in its capacity as the Compensation Committee) passed a resolution stating, inter alia, that: (a) “The Compensation Committee's position is that it will be correct to determine that as of the date of appointment of the next external director to be appointed by the Company, the compensation that will be paid to external directors that will serve the Company will be the average between the fixed compensation amount and the maximum compensation amount under the Compensation Regulations, and that external directors who meet the conditions specified in the Compensation Regulations for an expert external director will be classified accordingly and will be entitled to compensation in the amount of the average between the fixed compensation amount and the maximum compensation amount under the Compensation Regulations , and that: (b) “concurrently, the Committee agrees that if the Companies Authority agrees to the State's vote at the general meeting of the Company for an update of the compensation amount paid to the external directors of the Company, the amount of compensation to be paid to external directors of the Company will be determined as at least 65% of the maximum amount under the Compensation Regulations, and that external directors meeting the conditions specified in the Compensation Regulations for an expert external director will be classified accordingly and will be entitled to compensation of at least 65% of the maximum amount under the Compensation Regulations for an expert external director.” The Company began discussions regarding this issue with the Government Companies Authority and the issue has not yet been presented to the Board of Directors of the Company.

bodies, approval of the Tel Aviv-Jaffa City Council, legislation amendment that will regulate certain tax issues and amendment of the relevant provisions of the Electricity Sector Law.

On January 14, 2019, the transfer of the required assets was completed, in accordance with that stated in the assets’ arrangement, and thus the terms enabling the Company to repay the perpetual debentures were fulfilled.

For additional information, see Note 1f to the Financial Statements.

The Company received several loans directly from the State of Israel. In addition, the Company has received the State of Israel’s guarantee for certain of its borrowings, as follows (supplement to Note 20e to the Financial Statements):

a. Loans Guaranteed by the State of Israel

10

On December 2005, the State has provided a guarantee to the benefit of CITIBANK i with respect to an amount of up to USD 250 million, for the unpaid loan balance, according to an agreement entered in December 2005 between the Company and CITIBANK in the U.S.A., insured by OPIC (an agency of the U.S.A. Government) for receiving credit of up to USD 250 million. The Company paid the State, in advance, a guarantee commission of approximately USD 4.5 million. During 2006 through 2007, the Company utilized approximately USD 222.8 million out of this amount. The balance of the loan as on December 31, 2018, is approximately NIS 362 million.

b. Loans borrowed directly from the State of Israel

Lender Loan Linkage Nomina Repayment Period Outstanding Balance as of Currency l December 31, 2018 in NIS

interest million

First Last Principal Interest repayment repayment payable

State of NIS CPI 1.28% 12.04.2019 12.04.2029 1,875.5 5.3 Israel

For details of the loan from the State of Israel and the change that has taken place in its terms following the implementation of the assets’ arrangement agreement, see Note 34b2c and Note 1f to the Financial Statements.

The Company fulfills the payment terms of the aforementioned loan.

c. Debentures issued to the State of Israel

Pursuant to an arrangement with the Ministry of Finance, during the period from 1982 through 1984, the Company issued 9 series of perpetual debentures to the State of Israel for an aggregate nominal value of NIS 15.5 million ("Perpetual Debentures"). The perpetual debentures bore interest at a rate of 5% and 5.75% per annum, fully linked to the CPI. The principal amount of the perpetual debentures is not linked to the CPI. The perpetual debentures are secured by fixed charges on certain deposits of the Company, at a total nominal value of NIS 92 (Old Shekel 92,000), payable to the State of Israel. According to the terms of the perpetual debentures, they have priority only over non-guaranteed loans or loans guaranteed by a floating lien only in the amounts deposited in charged deposits. Commencing January 1, 2006, the classification of the perpetual debentures was changed to extended-term liability and the interest with respect to these perpetual debentures is charged as financing expenses in the statement of operations. For details, see Note 22 in the financial statements.

Pursuant to the assets’ arrangement agreement regarding the assets of the Electric Company dated January 3, 2018 (hereinafter: “the Arrangement Agreement”), it was determined that upon fulfillment of the conditions stipulated in the Arrangement Agreement, the Electric Company will be entitled to repay all the perpetual debentures in exchange for payment of NIS 15,467,138.59 which will constitute a full, final and absolute settlement of all of the Company's obligations under the perpetual debentures to the State. For details regarding agreements entered into by the Company relating to the assets arrangement see Note 1f to the Financial Statements.

In its financial statements as of December 31, 2018, the Company included the perpetual debentures at their nominal value of approximately NIS 15.5 million and accordingly, the difference between this sum and their revaluated nominal value, as was in its financial statements as of December 31, 2017, of approximately NIS 2.5 billion was attributed to the statement of profit and loss. Subsequent to the date of the statement of financial position, on January 17, 2019, after the suspending conditions as specified in the assets’ arrangement agreement were fulfilled, the Company repaid the perpetual debentures at their nominal value.

Regulation 24: Convertible shares and securities held by parties at interest in the corporation, and in investee

11

companies, as close as possible to the date of the report

Following are details of shares and securities held, to the best of the Company’s knowledge, by interested parties and senior officers of the Company:

Name of “Party at Interest” Type of Share Nominal No. of Proportion of Holding (%) Company / Senior office Value in Shares

holder NIS

In Capital In Voting In Appointment Rights of Directors

In the corporation

Israel Electric State of Israel Ordinary 0.1 79,980,010 99.77 99.77 100.00 Corporation Ltd.

Ordinary B 0.1 40,053,252 100.00 100.00 100.00

Yiftah Ron-Tal Ordinary 0.1 1 0 0 0

The Company has several other subsidiaries and second-tier subsidiaries in which office holders in the Company hold shares, in trust for the Electric Company, however, since the activities of these companies are immaterial to the operation of the corporation, no information about these holdings are presented.

Regulation 24A: Registered Capital, issued capital and convertible securities on the report date,

see Note 23 to the Financial Statements.

Additionally, the company has no convertible securities.

Regulation 24B: Register of Shareholders of the Company

For an updated list of shareholders see the Company’s immediate report of November 13, 2018, at the Magna site (reference 2018-01-107727) regarding the status of corporation’s capital and securities registers and changes therein (T087).

Regulation 25 A: Registered Address

Address: : 1 Netiv Ha'Or Street, P.O. Box 10, Haifa 3100001

Telephone : 076-8631555

Fax : 072-3431804

Company's website : www.iec.co.il

e-mail : [email protected]

Regulation 26: Board members of corporation

12

The following are particulars of the board members:

1. Major General (Reserve Duty) Yiftach Ron-Tal (Chairman of the Board of Directors)

Name: Yiftach Ron-Tal

Identity card no.: 054067939

Date of birth: April 15, 1956

Address: 22/3 Asher St., Modiin

Citizenship: Israel

Membership on board committees: Chairman of the Board of Directors, Chairman of the Strategy, Structural Change and Image Committee, Chairman of the Agreements and Assets Committee, Chairman of the Sub-committee for Examination of the Board of Directors' Work Effectiveness, Human Resources and Organization Committee, Budget, Financial and Risks Management Committee, Corporate Liability, Regulation, Environmental Protection and Rate committee, Committee for Regional Cooperation and Business Development, Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies, Sub-committee for Examination of Actuarial Affairs.

External director: No.

Has accounting or financial expertise or professional qualifications: Has professional qualifications.

Independent Director: No.

Is he an employee of the company, of a subsidiary, of an Affiliated Company, of a stakeholder? No

Date of appointment: September 29, 2016 as CEO from October 6, 2016.

Mr. Ron-Tal’s term in office as a director is due to end on September 28, 2019. On February 4, 2019, the Company received a letter of appointment under which Mr. Ron-Tal was appointed for an additional term in office and that appointment will enter into effect on September 30, 2019 and will be in effect until December 30, 2020.

Mr. Ron-Tal has a full-time job as Chairman of the Board of Directors.

Education: L.L.B in Law from the Hebrew University, E.M.B.A. (certified) from Bar Ilan University.

Is he a relative of another stakeholder in the company? No

Does the company regard him as an accounting and financial expert for purposes of meeting the minimum number determined by the board of directors: No.

His employment over the past five (5) years: Chairman of the Company’s Board of Directors.

List of corporations in which he serves as a director: None.

2. Arieh (Arik) Forer

13

Name: Arieh (Arik) Forer


Date of birth: September 14, 1956

Address: 8, Shaul Hamelekh Avenue, Tel Aviv

Citizenship: Israel

Membership on board committees: Strategy, Structural Change and Image Committee; Audit Committee; Rewards Committee; Committee for Reviewing the Financial Statements; Budget Financial and Management Risks Committee; Agreements and Assets Committee; Committee for Regional Cooperation and Business Development; Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies; Sub-committee for Examination of Actuarial Affairs; Sub-committee for Examination of the Board of Directors' Work Effectiveness External director: Yes.

Independent director: Yes.

Has accounting and financial expertise or professional qualifications: Has accounting and financial expertise and professional qualifications.

Is he an employee of the company, of a subsidiary, of an Affiliated Company, of a stakeholder? No.

Date of appointment: December 8, 2015, until December 7, 2018, and renewed on January 24, 2019.

Education: B.A. in Economics from the Ben Gurion University, LL.B. from the Ramat-Gan College of Law and Business, MBA majoring in finance from the Bar Ilan University.

Is he a relative of another party of interest in the company? No.

Does the company regard him as an accounting and financial expert for purposes of meeting the minimum number determined by the board of directors: Yes.

His employment over the past five (5) years: External director of the Company, Chairman of the Management of the Rehovoth Cinema Company, attorney and owner of a private company for business management, consulting and initiation.

List of corporations in which he serves as a director: Rehovot cinemas company, A. Forer Enterprising and Management Ltd.

3. Gideon Frank

Name: Gideon Frank


Date of birth: November 13, 1943

Address: Beit Yitzhak, Sha’ar Hefer P.O.B 8109

Citizenship: Israel

Membership on board committees: Chairman of the Human Resources and Organization Committee, Chairman of the Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies; Strategy, Structural Change and Image Committee; Audit Committee; Rewards Committee; Corporate Responsibility, Regulation and Rate Committee; Sub-committee for Examination of the Board of Directors' Work Effectiveness.



Has accounting and financial expertise or professional qualifications: Has professional qualifications.


Date of appointment: September 22, 2016.

Education: Mechanical Engineer, Power and Heat (Energy, from the Technion; M.A. in Nuclear Sciences from the Technion.



His employment over the past five (5) years and details of corporations in which he serves as director: Director of the Company, until June 2015, director of the Van Leer Foundation (the Netherlands) and Chairman of the CRECOR Company fully owned by the Van Leer Foundation

Details of corporations in which he serves as director: Chairman of the Committee and Manager of the Technion, on a voluntary basis.

4. Shlomo Arbiv

Name: Shlomo Arbiv


Date of birth: December 16, 1956

Address: 21, Haeshel Street, Ramat Gan

Citizenship: Israel

Membership on board committees: Chairman of the Audit Committee; Chairman of the Rewards Committee; Chairman of the Committee for Reviewing the Financial Statements; Strategy, Structural Change and Image Committee; Budget, Financial and Risks Management Committee; Agreements and Assets Committee Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies; Sub-committee for Examination of Actuarial Affairs.

External director: Yes.


Has accounting and financial expertise or professional qualifications: Has financial expertise and professional qualifications.


Date of appointment: December 27, 2017.

Education: B.A. in Economics and Political Science, M.B.A. with specialization in financing and information systems, from the University of Tel Aviv.




His employment over the past five (5) years and details of corporations in which he serves as director: Director of the Company, the Video-Flow Company – consultant as Vice President of Finances from 2010; served as director at Yelin Lapidot Provident Funds Management until December 2017.

5. Dorit Inbar

14

Name: Dorit Inbar


Year of birth: October 6, 1959

Address: 65A Yosef Zvi St., Ramat Gan

Citizenship: Israel

Membership on board committees: Chairperson of the Regional Cooperation and Business Development Committee; Strategy, Structural Change and Image Committee; Human Resources and Organization

Committee; Agreements and Assets Committee; Corporate Responsibility, Regulation and Rate Committee; Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies.




Is she an employee of the company, of a subsidiary, of an Affiliated Company, of a stakeholder? No.

Date of appointment: May 10, 2016.

Education: LLB from the Tel-Aviv University; MBA from the Tel Aviv University.

Is she a relative of another stakeholder in the company? No

Does the company regard her as an accounting and financial expert for purposes of meeting the minimum number determined by the board of directors: No.

Her employment over the past five years and details of corporations in which she serves as director: Director of the Company, CEO of the New Fund for Cinema and Television, a non-governmental organization; member of the management board of the Jerusalem Cinematheque; member of the management board at the Beit Berl Academic College.

List of corporations in which she serves as a director: The Jerusalem Cinematheque; Management of the College of Beit Berl Academic Institute.

6. Orli Garti Seroussi

15

Name: Orli Garti Seroussi


Year of birth: February 16, 1960

Address: 4c Karlibach Str., Tel-Aviv

Citizenship: Israel

Membership on board committees: Chairperson of the Budget, Financial Management and Risk Management Committee; Chairperson of the Subcommittee for Examination of Actuarial Affairs; Strategy, Structural Change and Image Committee; Committee for Reviewing the Financial Statements; Regional Cooperation and Business Development Committee; Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies.



Has accounting and financial expertise or professional qualifications: Has accounting and financial expertise.

Is she an employee of the company, of a subsidiary, of an Affiliated Company, of a stakeholder? No.

Date of appointment: May 3, 2016.

Education: CPA; B.A Accounting and Economics from the Tel-Aviv University; MBA from the Tel-Aviv University; M.A. Public Administration, Harvard University, U.S.A.


Does the company regard her as an accounting and financial expert for purposes of meeting the minimum number determined by the board of directors: Yes.

Her employment over the past five years and details of corporations in which she serves as director: Director of the Company, Meuhedet Health Fund , Optibase Ltd.; Unet Credit Ltd.; Man Hagoren Development Ltd.; and APIO (Africa) Limited; member of the “Kan” Broadcasting Corporation Council, serves in a panel at the Tel-Aviv Regional Court of Labor.

7. Diana Halabi Hassoun

16

Name: Diana Halabi Hassoun


Year of birth: January 4, 1979

Address: 2 Khouri St., Haifa

Citizenship: Israel

Membership on board committees: Strategy, Structural Change and Image Committee; Human Resources and organization Committee; Agreements and Assets Committee; Regional Cooperation and Business Development Committee; Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies; Sub-committee for Examination of the Board of Directors' Work Effectiveness.


Independent director: No.

Has accounting and financial expertise or professional qualifications: No.

Is she an employee of the company, of a subsidiary, of an Affiliated Company, of a stakeholder? Has professional qualifications.

Date of appointment: September 22, 2016.

Education: Attorney, L.L.B (Graduate) Netanya College.


Does the company regard her as an accounting and financial expert for purposes of meeting the minimum number determined by the board of directors: No.

Her employment over the past five years: Director of the Company, Attorney at the N. Halabi and Co. Law Firm.

List of corporations in which she serves as a director: None.

8. Mona Bkheet

Name: Mona Bkheet


Year of birth: June 6, 1971

Address: P.O.B 8926, Haifa

Citizenship: Israel

Membership on board committees: Strategy, Structural Change and Image Committee; Audit Committee; Committee for Reviewing the Financial Statements; Budget, Financial and Risks Management Committee; Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies; Subcommittee for Examination of Actuarial Affairs.



Has accounting and financial expertise or professional qualifications: has accounting and financial expertise and professional qualifications.

Is she an employee of the company, of a subsidiary, of an Affiliated Company, of a stakeholder? Has professional qualifications.

Date of appointment: June 26, 2017.

Education: LLM in Law Studies from the University of Bar-Ilan, MA Health Systems Management for the University of Haifa; MBA from the Haifa branch of the Derby University; Graduate of Economics and Accounting from the Hebrew University; and CPA.


Does the company regard her as an accounting and financial expert for purposes of meeting the minimum number determined by the board of directors: Yes.

Her employment over the past five years and details of corporations in which she serves as director: Director of the Company; Member of management of the Galilee Medical Center and CEO of the Health Corporation annexed to the Galilee Medical Center; Director of the Electric Company; member of the Committee for Classification of Government Companies, until June 2017 Director of Amidar National Housing in Israel Company Ltd.; in 2016 - member of the Committee for the Examination of Equal Opportunities for Different Populations for the Positions of Directors in Government Companies.

9. Mordechai (Muki) Ben Ami

17

Name: Mordechai (Muki) Ben Ami


Date of birth: July 27, 1964

Address: 42 Gilboa, Nofit

Citizenship: Israel

Membership on board committees: Chairman of Corporate Governance, Regulation and Rate Committee; Human Resources and Organization Committee; Budget, Financial Management and Risk Management Committee; Subcommittee for Examination of Actuarial Affairs.



Has accounting and financial expertise or professional qualifications: Has accounting and financial expertise and professional qualifications.

Is he an employee of the company, of a subsidiary, of an Affiliated Company, of a stakeholder? Yes, serves as Head of Projects – Structural Change – the general administration of the Electric Company.

Date of appointment: February 9, 2016 (ended his term on February 8 2019).

Education: B.A. in Economics from the Business Administration track at Haifa University.



His employment over the past five (5) years and details of corporations in which he serves as director: Director on behalf of the employees at the Board of Directors of the Company, Head of Finance and Accounting Department at the Broadband Communications Branch, Budget Department of the Electric Company, Coordinator of the Operating Budget of the Company; director at the Mahog Provident Fund.

10. Yoav Druker

Name: Yoav Druker


Date of birth: December 27, 1959

Address: 38 Sasha Argov St., Ra’anana

Citizenship: Israel

Membership on board committees: Strategy, Organizational Restructuring and Image Committee; Corporate Governance, Regulation and Rate Committee; Committee for Regional Cooperation and Business Development; Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies.




Is he an employee of the company, of a subsidiary, of an Affiliated Company, of a stakeholder? Yes, serves as Head of the Electric Company’s Dan Region Operating and Supervision Department.

Date of appointment: February 9, 2016 (ended his term in office on February 8, 2019).

Education: BA in Electrical Engineering – the Academic College of Judea and Samaria; MBA Business Administration – the Ono Academic College.



His employment over the past five (5) years: Director on behalf of the employees at the Board of Directors of the Company; Deputy Head Operating Department Southern Region of the Electric Company; Head of the Electric Company’s Dan Region Operating and Supervision Department;.

List of corporations in which he serves as a director: None.

11. Rafi Taterka

18

Name: Rafi Taterka



Address: 1/B Hazivoni, Hod Hasharon 4520522

Citizenship: Israel

Membership on board committees: Strategy, Organizational Restructuring and Image Committee; Human Resources and Organization Committee; Corporate Responsibility Committee; Engagements and Assets Committee; Corporate Responsibility, Regulation and Rate Committee; Sub-committee for Accompanying the Monitoring of the Company's Preparation for Emergencies.

External director: No, director on behalf of the State.


Has accounting and financial expertise or professional qualifications: No.


Date of appointment: March 2018

Education: BA in Political Sciences, University of Haifa; Graduate of the Harvard Business School, A.M.P, Boston, USA; Graduate of the National Security College; MA in Political Science specialization in Public Administration, University of Haifa; MA in National Security, University of Haifa



His employment over the past five (5) years: Director of the Petroleum Institute and retiree of the defense establishment.

List of corporations in which he serves as a director: See employment over the past five years.

Regulation 26A: Senior position holders in the corporation

19

The following are particulars of the current senior officeholders:

12. Ofer Bloch

Name: Ofer Bloch

Identity card no. 056002546.

Date of birth: September 17, 1959.

Date on which he began his term: June 10, 2015.

Position in the company: CEO.

Is he a relative of another senior officeholder or a party at interest? No.

Education: B.A. Economics from the Tel Aviv University, M.B.A from the Recanati School of Business Administration - Tel Aviv University.

Business experience over the past five (5) years: CEO “Hadera Paper” Group.

Position in a subsidiary of the company, its affiliated company, or in a stakeholder in the company: Serves as Chairman of the Board of Directors of the Coal Company.

Pursuant to the definition of a stakeholder as stated in section 1 of the Securities Law, the CEO is a stakeholder in the Company, by way of his position as the CEO.

13. Adrian Bianu

Name: Adrian Bianu

Identity card no. 016830648

Date of birth: August 29, 1948.

Date on which he began his term: April 10, 2003.

Position in the company: Senior Vice President Corporate Sustainability and Risk Management.


Education: BA in electrical engineering from Bucharest Polytechnic, Romania, M.Sc. and DSc. in electrical engineering, Technion - Israel Institute of Technology.

Business experience over the past five (5) years: Senior Vice President Strategic Resources; Director in enterprises of the Company as part of the Technological Hothouse (see details in section 12 in the Description of the Company's Business Affairs).

Position in a subsidiary of the company, its affiliated company, or in a stakeholder in the company:

Pursuant to the definition of a "stakeholder" as stated in section 1 of the Securities Law, the officer is not a stakeholder in the Company.

14. Yael Nevo

Name: Yael Nevo


Date of birth: July 23, 1968.

Date on which she began her term: April 15, 2015.

Position in the corporation: Deputy CEO, Legal Advisor.

Is she a relative of another senior officeholder or a party at interest? No.

Education: L.L.B in Law, from the University of Tel Aviv.

Business experience over the past five (5) years: External Director at Analyst Investment Management Services Ltd.; Served for 4 years as Legal Advisor and Company Secretary of the “Hadera Paper” Group.

Position in a subsidiary of the company, its affiliated company, or in a stakeholder in the company: None


15. Oren Helman

20

Name: Oren Helman


Date of birth: November 3, 1968.

Date on which he began his term: December 15, 2011.

Position in the corporation: Senior Vice President Marketing and Regulation.


Education: BA in Political Science, and MA in Public Policy, Tel Aviv University.

Business experience over the past five (5) years: Deputy CEO Regulation at the Electric Company.

Position in a subsidiary of the company, its affiliated company, or in a stakeholder in the company: Chairman of the Audit Committee of the Coal Company.


16. Amir Livne

Name: Amir Livne


Date of birth: April 19, 1968

Date on which he began his term: April 14, 2011

Position in the corporation: Head of the Strategy and Structural Change Division.


Education: L.L.B Law, L.L.M Law, Haifa University.

Business experience over the past five (5) years: Head of the Strategy and Structural Change Division and Senior Aide to the CEO.

Position in a subsidiary of the company, its affiliated company, or in a stakeholder in the company: None.

Pursuant to the definition of a stakeholder as stated in section 1 of the Securities Law, the officer is not a "stakeholder" in the Company.

17. Yitzhak Balmas

Name: Yitzhak Balmas



Date on which he began his term: January 1, 2015

Position in the corporation: Deputy CEO and Senior Vice President Customers.


Education: B.Sc. Electrical Engineering and Computers from the Ben Gurion University, M.E Mechanical Engineering and Business Management from the Technion, Haifa.

Business experience over the past five (5) years: Acting VP Engineering projects, VP Generation and Transmission.



18. Haim Rubin

21

Name: Haim Rubin

Identity card no.: 057785644.


Date on which he began his term: September 15, 2017.

Position in the corporation: Senior Vice President Engineering Projects and head of Project Execution Section.


Education: B.Sc. Mechanical Engineering from the Technion; M.B.A form the University of Tel Aviv.

Business experience over the past five (5) years: Missile Administration at the Refael Land Division.



19. Dov Cohen

Name: Dov Cohen

Identity card no.: 054140918.

Date of birth: February 10, 1957.

Date on which he began his term: August 19, 2015.

Position in the corporation: Senior Vice President Operating and Logistics.


Education: Bachelor's Degree in Behavioral Sciences from the Newport University.

Business experience over the past five (5) years: Head of the Logistics and Assets Branch.



20. Avraham Doitchman

Name: Avraham Doitchman



Date on which he began his term: January 1, 2016.

Position in the company: Senior Vice President Economics and Business Development.


Education: B.A. (graduate) Economics and Accounting from the University of Bar Ilan. Certified Accountant.

Business experience over the past five years: Senior VP Finances and Economics; Deputy CEO, at the Israel Chemicals Ltd.



21. Yoseph Shneck

22

Name: Yoseph Shneck


Date of birth: October 24, 1951.

Date on which he began his term: November 1, 2018

Position in the company: Head of Entrepreneurship and Cyber Business Development.


Education: Practical Computer Engineering from the Technion; BSc Computer Engineering at the American Champlain University and M.B.A. at the Derby University.

Business experience over the past five years: Senior VP Teleprocessing of the Electric Company.

Position in a subsidiary of the company, its affiliated company, or in a stakeholder in the company: Head of a steering committee at CyberGym.


22. Amit Oberkovich

Name: Amit Oberkovich


Date of birth: August 19, 1964.

Date on which he began his term: July 1, 2015

Position in the company: Deputy CEO Human Resources and Organization.


Education: Certified in Business Administration from the University of Derby; Certified in Political Science from the Tel Aviv University.

Business experience over the past five years: Head of Human Resources and Organization Branch; Deputy Head of Human Resources Division for 3 years.



23. Shimon Fisher

Name: Shimon Fisher


Date of birth: March 27, 1960.

Date on which he began his term: July 1, 2016

Position in the company: Acting Senior Vice President Planning, Development and Technology and Head of the Electrical Systems Branch.


Education: Graduate of Electrical Engineering from the Technion, M.B.A. in Business Administration from the Netanya College.

Business experience over the past five years: Acting Deputy CEO Generation and Energy; Head of Generation Division.



24. Ram Erlichman

23

Name: Ram Erlichman



Date on which he began his term: February 21, 2016.

Position in the company: Senior Vice President Generation and Energy.


Education: Graduate of Mechanical Engineering from the Technion; qualified in Electrical and Electronic Engineering from the Tel Aviv University.

Business experience over the past five years: Head of Generation Division; Head of the Rutenberg Power Station.



25. Niza Rogozinski

Name: Niza Rogozinski

Identity card no. 025487950.

Date of birth: June 10, 1973.

Date on which she began her term: April 27, 2014.

Position in the company: Internal Auditor and Company Ombudsman.

Is she a relative of another senior officeholder or a party at interest? No.

Education: L.L.M. (certified) Law from the Bar-Ilan University; Graduate of Business Administration from the College of Management Academic Studies; Accountant; Certified Internal Auditor (CIA).

Business experience over the past five years: Chief Internal Auditor - Amitim Senior Pension Funds and the "Opal" subsidiary; Head of Internal Auditing Division - Amitim Senior Pension Funds.



26. Dani Garabagi

24

Name: Dani Garabagi



Date on which he began his term: March 29, 2017.

Position in the company: Acting Senior VP Teleprocessing.


Education: BA Mathematics and Computers from the University of Haifa.

Business experience over the past five years: Senior VP and Head of and Information Systems Division.



Regulations 26(b): Independent Authorized Signatories as Appointed by the Company:

25

Pursuant to the decision of the Board of Directors on the subject of signature authorities and in accordance with the Company's procedure on the subject, the Company does not have independent approved signatories, as this term is defined in the Securities Law - 1968.

Regulation 27: Accountant of the corporation

Somekh Chaikin, Accountants - 7 Nahum Hat St., Haifa.

Regulation 28: Changes in memorandum or articles of association

No changes were made to the memorandum or articles of association of the Company during the reporting period.

Regulation 29(C): Decisions of a special shareholders meeting

With regard to resolutions passed at a special general meeting of May 31, 2018, see the Immediate Report dated May 31, 2018 (reference no. 2018-01-046272 and 2018-01-046275).

With regard to resolutions passed at a special general meeting of October 14, 2018, see the Immediate Report dated October 14, 2018 (reference no. 2018-01-096216 and 2018-01-0096219).

With regard to resolutions passed at a special general meeting of January 24, 2019, see the Immediate Report dated January 24, 2019 (reference no. 2019-01-009450 and 2019-01-009456).

Regulation 29A (4): Exemption, insurance, or liability for indemnity in respect of officeholders in effect on the date of this report

a. Insurance for Directors and Office Holders

According to the compensation policy approved by the compensation committee on May 31, 2018, by the Board of Directors of the Company on July 26, 2018, and by the general meeting on October 14, 2018, the Company purchased the following insurance policies:

1. Liability insurance for directors and office holders for a period of three years starting from January 16, 2018 and until January 15, 2021, inclusive.

2. Third party liability insurance - as customary in the Company (the directors and office holders are part of the insured under this policy).

3. Personal accident insurance for the directors.

For details of the terms of the policies mentioned above see the immediate report of the Company of October 14, 2018 (reference no.: 2018-01-096219).

b. Indemnification of Members of the Board of Directors and Officers

For details on indemnification of directors and officers in the Company and additional letters of indemnification borne by the Company, see Note 34e1 to the Financial Statements.

Ofer Bloch Yiftach Ron-Tal

26

Chief Executive Officer Chairman of the Board of Directors

Date of approval of the report: March 31, 2019.

1CORPORATE GOVERNANCE QUESTIONNAIRE

1

INDEPENDENCE OF THE BOARD OF DIRECTORS

Not Correct

Correct

Throughout the reporting year two or more external directors served in the corporation. 1.

A response of "correct" may be given on this question if the period of time during which two external directors did not

serve does not exceed 90 days, as provided in Section 363A.(b)(10) of the Companies Law. However, whatever the

response (correct/not correct), the period (in days) during which two or more external directors did not serve in the

reporting year (including also a period of service that was approved retroactively) must be indicated, separating

between the different external directors:24 days.

Director A: Mr. Shlomo Arbiv (appointed on December 27, 2017).

Director B: Mr. Arik Forer (ended his term in office on December 12, 2018).

Number of external directors serving in the corporation as of the date of publication of this questionnaire: 2

2 3- The proportion of independent directors serving in the corporation as of the date of publication of this 2.

questionnaire: 5/9. 4 5The proportion of independent directors set in the articles of the corporation :

Not relevant (there is no article set in the articles) _____ _____

1 Published as part of proposed legislation to improve the statements on March 16, 2014.

2 “Proportion” in this questionnaire - a certain number out of the total., 3/8 .

3 Including “external directors” as defined in the Companies Law.

4 Regarding this question - “Articles” including under a specific provision of law that applies to the corporation (for example, in a banking corporation - the directives of the supervisor of banks).

5 A debenture company is not required to answer this section.

2


Not Correct

Correct

3. During the reporting year an examination was conducted with the external directors (and the independent directors) and it was found that they had complied in the reporting year with the provision of Section 240(b) and (f) of the Companies

Law regarding the absence of a relation of the external (and independent) directors serving in the corporation and that they satisfy the conditions for service as an external (or independent) director.

64. All the directors who served in the corporation in the course of the reporting year are not subordinate to the CEO,

directly or indirectly (other than a director representative of employees, if the corporation has an employees'

representative body).

If your response is "not correct" (i.e. any director is subordinate to the CEO, as stated) – indicate the proportion of

directors who did not satisfy this restriction: ______

5. All the directors that announced the existence of a personal interest they have in an approval of a transaction on the

agenda of the meeting, were not present at the meeting and did not vote as stated (other than a discussion and/or vote in

circumstances as provided in Section 278(b) of the Companies Law):

If your answer is “Not correct”-

Was it for the purpose of presenting a certain subject by him pursuant to the provisions of the end of section 278 (a):

Yes. □ No.

(Mark an X in the appropriate box).

The proportion of meetings in which directors as stated participated in the discussion and/or participated in the vote

except under circumstances as stated in subsection :a _______.

6 Regarding this question - the service of a director in a held corporation that is controlled by the corporation will not be considered “subordination”, however, the service of a director in a

corporation who is serving as an office holder (except as director) and/or is working in a corporation controlled by the corporation will be considered as "subordination" for purposes of this

question.

3


Not Correct

Correct

6. 1A. co ntrolling shareholder (including his relative and/or anyone acting on his behalf), who is not a director or other

senior officer in the corporation, was not present at meetings of the board of directors that were held in the reporting

year.

If your response is "not correct" (i.e. the controlling shareholder and/or his relative and/or anyone acting on his behalf

who is not a board member and/or senior officer in the corporation, was present at meetings of the board of directors as

stated) – indicate the following details regarding the presence of each additional person at such meetings of the board of

directors:

Identity: Mr. Eli Zimbalista.

Position in the corporation (if exists): ________.

Details of the relation to the controlling shareholder (if the person present was not the controlling shareholder himself):

Director of Business Development at the Government Companies Authority.

Was it for the purpose of presenting a particular subject by him:

Yes

No

(Mark an X in the appropriate box). 7Rate of his presence at meetings of the board of directors held in the reporting year for presenting a certain subject by

him: 1/107.

Other presence: ______.

□ Not relevant (the corporation has no controlling shareholder).

Identity: Mr. Shai Babad.



Director General of the Ministry of Finance.


Yes

No

7 While separating between the controlling shareholder and his relative and/or anyone on his behalf.

4


Not Correct

Correct


him: 1/107.

Other presence: ______.


Identity: Mr. Udi Adiri



Director General of the Ministry of Energy..


Yes

No


him: 2/107, Other presence: ______.


Identity: Ms. Yodfat Afek-Arazi



Deputy Manager, the Government Companies Authority.


Yes

No




5


Not Correct

Correct



Identity: The Minister, Dr. Yuval Steinitz



Minister of Energy.


Yes

No




Identity: Mr. Asaf Eilat



Chairman of the Electricity Authority Was it for the purpose of presenting a particular subject by him:

Yes

No




10 While separating between the controlling shareholder and his relative and/or anyone on his behalf. 11 While separating between the controlling shareholder and his relative and/or anyone on his behalf. 12 While separating between the controlling shareholder and his relative and/or anyone on his behalf.

6

DIRECTORS' COMPETENCE AND QUALIFICATIONS

Not Correct

Correct

7. The corporation's articles do not include a provision that restricts the possibility of immediate termination of the service of

all the directors in the corporation who are not external directors (in this regard – a determination by a simple majority is

13not considered a restriction) .

If your response is "not correct" (i.e. such a restriction exists), indicate –

a. The period of time set in the articles for the service of a director: ______.

b. The required majority set in the articles for the termination of service of the directors: ________.

c. The quorum set in the articles for a general meeting for terminating the service of the directors: ________.

d. The required majority for changing these provisions in the articles: ________.

8. The corporation conducted a training program for new directors in the area of the corporation's business and in the area of

the law applying to the corporation and the directors, and also conducted a continuation program for training serving

directors, that is adapted, inter alia, to the position held by the director in the corporation.

If your response is "correct" – indicate whether the program was operated in the reporting year:

Yes

No

(Mark an X in the appropriate box).

13 A debenture company is not required to answer this section.

7

DIRECTORS' COMPETENCE AND QUALIFICATIONS

Not Correct

Correct

9. a. The corporation has set a minimum number of board members who are required to have accounting and financial

expertise.

If your response is "correct," indicate the minimum number that was set: 5

_____

b. The number of directors who served in the corporation in the course of the reporting year: 11.

14Having accounting and professional expertise : 5

15Having professional competence : 11

In the event of changes in the number of such directors in the reporting year, the lowest number of directors of

each type who served in the reporting year (except during a period of 60 days immediately after the change) will

be provided: ______

10. a. Throughout the reporting year the board of directors was composed of members of both genders. If your response is "not correct" – indicate the period of time (in days) during which the above was not fulfilled:

______

A response of "correct" may be given on this question if the period of time during which directors of both

genders did not serve does not exceed 60 days. However, whatever the response (correct/not correct), the period

of time (in days) during which directors of both genders did not serve in the corporation must be indicated:

b. The number of directors of each gender serving on the corporation's board of directors as of the date of

publication of this questionnaire:

Men: 5 Women: 4

_____ _____

14 After appraisal by the Board of Directors, according to the provisions of the Companies Regulations (Conditions and Criteria for a Director Who Possesses

Accounting and Financial Expertise and a Director Who Possesses Professional Competence), 2005.

15 See footnote 9.

8

16 See footnote 2. 17 For a director who is a member of this committee. 18 For a director who is a member of this committee. 19 For a director who is a member of this committee.

MEETINGS OF THE BOARD OF DIRECTORS (CONVENING A GENERAL MEETING)

Not Correct

Correct

11. a. Number of meetings of the board of directors held in each quarter of the reporting year:

First quarter (2018 year): 31

Second quarter: 19

Third quarter: 17

Fourth quarter: 40

16b. Indicate next to the name of each of the directors who served in the corporation during the reporting year the rate

of his attendance at meetings of the board of directors (in this subsection – including meetings of committees of the

board of directors of which he is a member of, and as noted hereinafter) that were held in the course of the reporting year (referring to his period of service):

(Add lines according to the number of directors)

. Director's Rate of his Rate of his Rate of his Rate of his Rate of his attendance at

name attendance attendance attendance at attendance meetings of additional

at meetings at meetings meetings of the at meetings committees of the board of

of the board of the audit committee for of the directors in which he is a 17of directors committee examining the compensati member (naming the

financial on committee’s name) 18 19statements committee

Yiftah Ron- 34/34 and Image – 2/2

Tal

Engagements and Assets

Committee – 7/7

Human Resources and

Organization – 5/7

Subcommittee

Accompanying and

Monitoring the Company's

Preparations for Emergency

Situations – 2/2

Strategy, Structural Change

and Image – 5/7

Business Development,

Marketing and Service, and

Regional Cooperation – 4/5

Budget, Financial

Management and Risk

Management Committee –

9/15




Corporate Responsibility,

Quality of the Environment,

Regulation and Rate – 1/2

9

Arieh (Arik) 25/26 9/9 8/8 9/9 Engagements and Assets

Forer Committee – 7/7

Subcommittee

Accompanying and



Situations – 2/2


and Image – 6/7

Budget, Financial

Management and Risk

Management – 13/14




10

Shlomo 34/34 10/10 8/8 9/9 Strategy, Structural Change

Arbiv and Image - 2/2

Engagements and Assets -

5/5

Subcommittee for

Accompanying and



Situations – 2/2


and Image - 7/7

Budget, Financial

Management and Risk

Management Committee -

15/15

Mona Bkheet 31/34 9/10 7/8 Subcommittee for

Accompanying and



Situations – 2/2


and Image – 5/7

Budget, Financial

Management and Risk


14/15

Mordechai 32/34 Human Resources and

(Muki) Ben- Organization – 7/7

Ami Budget, Financial

Management and Risk


15/15




11

Orly Garti- 34/34 9/9 Subcommittee for

Seroussi Accompanying and



Situations – 2/2


and Image – 7/7

Budget, Financial

Management and Risk

Management Committee –

15/15



Regional Cooperation

Committee – 6/6

Yoav Druker 31/34 Subcommittee for

Accompanying and



Situations – 2/2 Strategy,

Structural Change and

Image – 6/7




Committee - 5/6




12

Diana Halabi 29/34 Engagements and Assets

Hassoun Committee – 3/7

Human Resources and

Organization Committee –

3/7

Subcommittee for

Accompanying and



Situations – 1/2


and Image – 6/7




Committee – 4/6




Committee – 3/5

Rafi Taterka 23/27 Engagements and Assets

Committee – 4/5

Human Resources and


5/6


and Image Committee – 4/4



Regulation and Rate

Committee – 1/1

13

Dorit Inbar 30/34 Engagements and Assets

Committee – 7/7

Human Resources and


7/7

Subcommittee for

Accompanying and



Situations – 1/2


and Image Committee – 6/7




Committee - 6/6



Regulation and Rate

Committee - 1/2

Gideon Frank 32/34 9/10 9/9 Human Resources and


7/7

Subcommittee for

Accompanying and



Situations – 2/2


and Image – 7/7



Regulation and Rate

Committee - 2/2

14

12. In the reporting year, the board of directors held at least one meeting regarding the management of the corporation's business by the CEO and the officers subordinate to him, without their presence, and they were given the opportunity to

state their position.

15

SEPARATION BETWEEN THE FUNCTIONS OF CEO AND CHAIRMAN OF THE BOARD OF DIRECTORS

Correct Not Correct

13. Throughout the reporting year a chairman of the board of directors served in the corporation.

A response of "correct" may be given on this question if the period of time during which a chairman of the board of

directors did not serve in the corporation does not exceed 60 days, as provided in Section 363A.(2) of the Companies Law. However, whatever the response (correct/not correct), the period of time (in days) during which a chairman of

the board of directors did not serve in the corporation must be indicated: 0.

14. Throughout the reporting year a CEO served in the corporation.

A response of "correct" may be given on this question if the period of time during which a CEO did not serve in the

corporation does not exceed 90 days, as provided in Section 363A.(6) of the Companies Law. However, whatever the response (correct/not correct), the period of time (in days) during which a CEO did not serve in the corporation must

be indicated: 0.

15. In a corporation in which the chairman of the board of directors also serves as and/or exercises the powers of a CEO, 20the dual office was approved in accordance with Section 121(c) of the Companies Law .

Not applicable (if no such dual office exists in the corporation).

16. The CEO is not a relative of the chairman of the board of directors.

If your response is "not correct" (i.e. the CEO is a relative of the chairman of the board of directors) –

a. Indicate the family relationship between the parties: ______. _____ _____

20 For a debenture company - approval in accordance with section 121(d) of the Companies Law.

16

SEPARATION BETWEEN THE FUNCTIONS OF CEO AND CHAIRMAN OF THE BOARD OF DIRECTORS

Correct Not Correct

21b. The service of the CEO was approved in accordance with Section 121(c) of the Companies Law .

Yes _____ _____

No

(Mark an X in the appropriate box)

17. The controlling shareholder or his relative does not serve as CEO or as a senior officer in the corporation other than a

director.

Not applicable (there is no controlling shareholder in the corporation).

21 For a debenture company - approval in accordance with section 121(d) of the Companies Law.

17

AUDIT COMMITTEE

Correct Not Correct

18 The following did not serve on the audit committee in the reporting year: _____ _____

a. The controlling shareholder or his relative. Not applicable (there is no controlling shareholder in the corporation).

b . The chairman of the board of directors.

c. A director who is employed by the corporation or by the controlling shareholder in the corporation or by a

corporation under his control.

d. A director who provides services to the corporation or to the controlling shareholder in the corporation or to a

corporation under his control on a regular basis.

e. A director whose main livelihood derives from the controlling shareholder.

Not applicable (there is no controlling shareholder in the corporation).

19. A person not permitted to be a member of the audit committee, including a controlling shareholder or his relative, was not present in the reporting year at meetings of the audit committee, other than in accordance with Section 115(e) of the

Companies Law.

20. A quorum for transacting business and passing resolutions at all meetings of the audit committee that were held in the reporting year was a majority of the members of the committee, a majority of those present being independent directors

and at least one being an external director.

If your response is "not correct" – indicate the rate of meetings at which this requirement was not fulfilled: ________ .

18

AUDIT COMMITTEE

Correct Not Correct

21. T he audit committee held in the reporting year at least one meeting attended by the internal auditor and the independent

auditor and without the presence of officers in the corporation who are not members of the committee, regarding defects

in the business management of the corporation.

22. A t all meetings of the audit committee at which a person who is not permitted to be a member of the committee was

present, this was with the approval of the chairman of the committee and/or at the request of the committee (regarding the

general counsel and secretary of the corporation who is not a controlling shareholder or his relative).

23. A rrangements set by the audit committee regarding the manner of handling complaints by the corporation’s employees

concerning defects in its business management and the protection provided for employees that complained as stated were

in force during the reporting year.

24. T he audit committee (and/or the committee for reviewing the financial statements) was satisfied that the volume of work

of the independent auditor and his fees with respect to the financial statements in the reporting year were adequate for

executing appropriate control and review.

19

FUNCTIONS OF THE COMMITTEE FOR EXAMINING THE FINANCIAL STATEMENTS (HEREINAFTER – THE COMMITTEE) IN ITS WORK

PRIOR TO APPROVAL OF THE FINANCIAL STATEMENTS

Correct Not Correct

25.

a. Indicate the period of time (in days) set by the board of directors as a reasonable time for submitting the

recommendations of the committee ahead of the discussion by the board of directors for approval of the financial

statements: 2

_____ _____

b. The number of days that actually elapsed between the date of submission of the recommendations to the board of

directors and the date of the discussion by the board of directors for approval of the financial statements:

2018 first quarter report: 2

2018 second quarter report: 2

2018third quarter report: 2

2018 Annual report: 2

_____ _____

c. The number of days that elapsed between the date of transfer of the draft of the financial statements to the directors

and the date of the discussion by the board of directors for approval of the financial statements:

2018 first quarter report: 14

2018 second quarter report: 14

2018 third quarter report: 14

2018 Annual report: 14

26. The corporation's independent auditor participated in all the meetings of the committee and the board of directors at which the

corporation's financial statements for the periods included in the reporting year were discussed.

(if your answer is "not correct", the proportion of its participation will be noted) : __9/10____.

20

FUNCTIONS OF THE COMMITTEE FOR EXAMINING THE FINANCIAL STATEMENTS (HEREINAFTER – THE COMMITTEE) IN ITS WORK

PRIOR TO APPROVAL OF THE FINANCIAL STATEMENTS

Correct Not Correct

27. Throughout the reporting year and until publication of the annual report, the committee complied with all the conditions set _____ _____

out below:

a. The number of its members was no less than three (at the time of the meeting of the committee and the approval of

the financial statements as stated).

b. It complied with all the conditions prescribed in Section 115(b) and (c) of the Companies Law (regarding the service

of members of the audit committee).

c. The chairman of the committee is an external director.

d. All its members are directors and a majority of its members are independent directors.

e. All its members are able to read and understand financial statements, and at least one of the independent directors

possesses accounting and financial expertise.

f. The members of the committee submitted a declaration prior to their appointment.

g. The quorum of the committee for meeting and for passing resolutions was a majority of its members, provided that a

majority of those present were independent directors including at least one external director.

If your response is "not correct" on one or more of the subparagraphs of this question, specify with respect to which report _____ _____

(periodic/quarterly) the stated condition was not complied with and the condition that was not complied with: the first quarter

report_____.

21

COMPENSATION COMMITTEE

Correct Not Correct

28. The number of members of the committee in the reporting year was at least three, and its external directors constituted the

majority (at the time of discussion by the committee).

□ Not relevant (a discussion was not held).

29. The terms of office and employment of all the members of the compensation committee in the reporting year are in

accordance with the Companies Regulations (Rules regarding compensation and expense reimbursement of external

directors), 2000.

30. The following did not serve on the compensation committee during the reporting year: _____ _____

a. The controlling shareholder or his relative.

Not relevant (there is no controlling shareholder in the corporation).

b. The chairman of the board of directors.

c. A director who is employed by the corporation or by the controlling shareholder in the corporation or by a

corporation under his control.

d. A director who provides services to the corporation or to the controlling shareholder in the corporation or to a

corporation under his control on a regular basis.

e. A director whose main livelihood derives from the controlling shareholder.

Not relevant (there is no controlling shareholder in the corporation).

31. A controlling shareholder or his relative were not present at the meetings of the compensation committee during the

reporting year, except if the chairman of the committee determined that any of them is required for the presentation of a

certain matter.

22

COMPENSATION COMMITTEE

Correct Not Correct

32. The compensation committee and the board of directors did not use their authority under sections 267a(c), 272(c)(3) and

272(c1)(1)(c) to approve a transaction or a compensation policy, despite the objection of the general meeting.

If your answer is “not correct”, indicate -

The type of transaction approves as stated: _____

The number of times their authority was used in the reporting year: _____

23

INTERNAL AUDITOR

Not Correct

Correct

33. The chairman of the board of directors or CEO of the corporation is the person in charge of the internal auditor of the

corporation.

34. The chairman of the board of directors or the audit committee approved the work plan in the reporting year.

In addition, the audit issues dealt with by the internal auditor in the reporting year will be detailed: 2018 Mark an X in the

appropriate box).

Prevention of sexual harassment in the Company - examination of compliance;

Follow-up on the implementation of the recommendations of the State Comptroller (Report 68A) on the subject of demand

management and the “Smart Meter” initiative;

Risk management in the Company - monitoring the implementation of the recommendations of the embezzlement and fraud

survey;

Internal enforcement on the subject of “Antitrust”;

Monitoring the implementation of the recommendations of the State Comptroller (Report 68A) on the subject of the impact of

electricity generation on the quality of air in Israel;

Purchases of equipment from the petty cash at the “Orot Rabin” power station;

Prevention of sexual harassment in the Company - treatment in case of concern about sexual harassment;

Reimbursement of expenses from petty cash;

Implementation of the directives of the Government Companies Authority circular concerning the approval of appointment of

external legal consultants in government companies;

Operation and maintenance of the generation facilities - readiness of the Generation Division for winter/summer peaks;

Payment refunds from suppliers (debit notices);

Directors' remuneration for 2017;

Safety at work Part B - safety in the work of the contractors at the Company;

Publications as part of purchase processes on the website;

The process of joining the Accountant General's tenders;

24

INTERNAL AUDITOR

Not Correct

Correct

Handling and control of the Company with temporary electrical connections;

Engagements with a transportation company;

Work plan and budgets - budgetary control;

Management of cash flow and debt;

Management of the Company's insurance;

Transactions with interested and related parties for 2017.

In addition, reports were prepared in 2018, originating from the requirements of the Chairman of the Board of

Directors, the Chairman of the Audit Committee, the CEO and the Internal Auditor.

In addition, additional reports were prepared in 2018 as follows:

Reports originating from complaints by employees, suppliers and customers that are not in the consumption area;

reports on implementation of recommendations (follow-up reports) and site reports.

2235. Scope of employment of the internal auditor in the reporting year (in hours ): 100%.

_____

A discussion was held (by the audit committee or the board of directors) in the reporting year regarding the findings of the

internal auditor.

36. The internal auditor is not an interested party, a relative, an independent auditor of the corporation or anyone on its behalf, and

does not have material business relations with the corporation, its controlling party, relative or corporations under their

control.

22 Including work hours invested in investee corporations and in audits outside Israel, as applicable.

25

INTERESTED-PARTY TRANSACTIONS

Correct Not Correct

37. The controlling shareholder or his relative (including companies controlled by him) is not employed by the corporation and

does not provide management services to it.

If your response is "not correct" (i.e. the controlling shareholder or his relative is employed by or provides management

services to the corporation), indicate –

- The number of relatives (including the controlling shareholder) employed by the corporation (including companies

controlled by them and/or through management companies): _____.

- Were such employment agreements and/or management services approved by the organs stipulated by law:

Yes

No


Not applicable (the corporation has no controlling shareholder).

38. To the best of the corporation's knowledge, the controlling shareholder does not have any additional business in the

corporation's area of operations (in one area or more).

If your response is "not correct" – indicate whether an arrangement was established between the corporation and its

controlling shareholder that delimits their activities:

Yes

No


Not applicable (the corporation has no controlling shareholder).

End Notes:

Note to question number 2: Since the authority to appoint directors of the Company is in the hands of the Minister of Finance and the Minister of Energy, and following consultation with

26

the Appointment Review Committee, the Company on February 8, 2009 approached the Government Companies Authority to obtain their position and guidelines regarding the adoption of

provisions and regulations of the Company regarding the Independent Director, the rate of Directors and their terms in office. The Government Companies Authority’s position as of

February 24, 2009 is that the binding stipulating regulation is that a public government company requires the appointment of a certain number of independent directors, as defined in

Amendment No. 8 to the Companies Law may impose significant limitations on the appointment of directors of that company, due to the strict requirements which meet the "independent

director" regarding his relationship with the state and the entities it controls. On the other hand, the position of the Government Companies Authority does not deem that such a provision

will significantly improve the activity of the Company's directors and reinforce independent status, beyond current measures of protection in accordance with the provisions of the

Government Companies Law and the principles of administrative law. Therefore, the company adopted the provisions regarding the number of independent directors.

Note to question number 6: By virtue of section 27(b) of the Government Companies Law - 1975, invitation to meetings of the board of directors will also be delivered to the Government

Companies Authority, and it may send a representative to every meeting who will be allowed to participate in the meeting, and his standing will be as a director, but he will not be counted

as part of the quorum and he will not have a right to vote.

Note to question 7: The appointment of certain directors and termination according to the guidelines of the Government Companies law 1975. Furthermore, although the company

regulations contain instructions according to which the company is entitled to relieve a member of the board of directors of his duties at the end of his term in an extracurricular decision

considering that the State of Israel holds 99.85% of the Company’s share capital, effectively there is nothing in the guidelines that limits the possibilities of immediate removal of directors

from their position.

Note to question 19: Based on sections 27(b) and 29(b) of the Companies Law 1975, invitation to a meeting of the Audit Committee will be issued to the Authority of Government

Companies and the latter is entitled to send a representative to each of the meetings at Director status; however, he will not be considered of the legal quorum and will not have voting

rights.

Note to question 24: The Electric Company as a government company has no influence over the appointment and the remuneration of the external Auditor and these are decided upon by

the Authority for Government Companies, in accordance with Government Company regulations (appointing Accountants and their remuneration), 1994. Notwithstanding, the Committee

for Reviewing the Financial Statements held a discussion on March 16, 2015 that focused on the scope of engagement of the External Auditor.

Note to question 26: The Company's external auditor was invited to all meetings at which the financial statements were discussed and participated in practice in 9 out of 10 of them. In one

meeting in which the external auditor was unable to participate, a written review on behalf of the external auditor was read to the members of the Board of Directors.

Note to question 29: According to the provisions of the Companies Law, and since the Company is a government company, the conditions of the term in office and the employment

conditions of some of the members of the Compensation Committee are in accordance with the Government Companies Regulations (Rules of Compensation and Expenses for a Director

from the Public in Government Companies), 1994.

Note to question 31: See note to question 19 above.

Note to question 38: The Controlling shareholder established and owns two government companies, which were predicted to work in the electricity sector: The System Management

27

Company Ltd. is planned to receive all the Electric Company’s activity in the field of system management and pursuant to Government Resolution number 3859 of June 3, 2018, it is

expected to begin operating as a system management license owner, as it is defined in the Electricity Sector Law, 1996, in December 2019; , and new Power Generation Stations Israel

Ltd., the liquidation thereof under section 14 to the Government Companies Law, 1975, was decided in the Government's Resolution 2223 of December 29, 2016,

Chairman of the Board of Directors Chairman of the Audit Committee Chairman of the Committee for Reviewing the

Financial Statements

ANNEX 1

Actuarial Liabilities of the

Israel Electric Corporation

as at

December 31, 2018

Alan Fefferman – Actuarial Services Ltd.

March 31, 2019

Mr. Avi Doitchman

Senior Vice-President, Finance and Economics

Israel Electric Corporation Ltd.

P.O. Box 10

Haifa 31000, Israel

Dear Sir,

Re: Actuarial Liabilities for Employee Benefits as at December 31, 2018 in Accordance with

International Financial Reporting Standard IAS 19 Employee Benefits

1. General

1.1 This report consists of the following sections and appendices:

1. General

2. Benefits included in the valuation

3. Methodology as well as actuarial and accounting principles underlying the

valuation

4. Data on which the valuation is based

5. Assumptions on which the valuation is based

6. Valuation changes in the current reporting year

7. Valuation results

8. Uncertainties and risks

Appendix A – Additional reports for disclosure in the financial statements

Appendix B – Presentation of expected benefit cash flows

Appendix C – Additional details regarding financial assumptions

Appendix D – Additional details regarding data

Appendix E – Valuation changes made prior to the current year (in addition to changes that

were made by the previous actuary)

Appendix F- Details regarding Benefits

1.2 We were asked by the Israel Electric Corporation Ltd. ("the Company") to prepare this

actuarial valuation of the Company's employee benefit liabilities for the purpose of financial

statement reporting in accordance with International Financial Reporting Standard IAS 19

Employee Benefits ("IAS 19"). The valuation was requested by Mr. Avi Doitchman, Senior

Vice-President, Finance and Economics. Our engagement agreement was signed on May 26,

2016. We agree that this report be published with the Company's financial statements.

1.3 On May 26, 2016, the Company also granted us a letter of indemnity in respect of the services

that we are providing to the Company. Our position is that the letter of indemnity does not

create a presumption of dependence of the Company, since the granting of a letter of indemnity

and valuations of this kind are accepted practice and do not create a specific dependency on

the Company.

We will receive fees for this engagement and for other consulting services that we provide to

the Company, and this in no way changes our position regarding the absence of dependency

as stated. Likewise, we confirm that the fees we receive from the Company are not dependent

on the results of our work.

1.4 This valuation was performed solely for the purpose stated above and this report may not be

used, nor may conclusions be based upon it, for any other purpose such as determining the


level of contributions required for the funding of benefits, valuations of the net worth of the

Company, etc. The actuarial results appropriate for any other purpose may differ materially

from the results reported in this document.

1.5 This report is intended to present valuation results and to provide explanations regarding the

valuation. The report is prepared for the purpose of its inclusion in the Company's financial

statements.

1.6 The amounts reported herein were calculated in accordance with the Company's interpretation

of IAS 19 and its accounting policies regarding its implementation (see section 3 below). The

Company is solely responsible for any such interpretation and policies.

1.7 According to this valuation, there is a surplus of assets over liabilities in the pension plan.

Based on the Company's instructions, this surplus is presented as an asset of the Company in

whole. According to legal regulations of the Central Pension Fund for Employees of the Israel

Electric Corporation Ltd. ("the Fund"), under certain circumstances a surplus will be returned

to the Company, where the surplus is determined according to an actuarial valuation of the

Fund. The actuarial valuation of the Fund differs from the Company’s valuation presented in

this report, primarily due to different actuarial assumptions regarding discount rates.

According to the most recent actuarial valuation of the Fund (as of December 31, 2018),

liabilities were higher than those calculated in this valuation, and there were no surplus assets.

1.8 In order to calculate the amounts presented in this report, we relied on information concerning

employee benefit terms and conditions (including constructive obligations) and on historical

and current employee data, as provided to us by the Company, that were not verified by us.

The Company bears full responsibility for the completeness and reliability of the information

and data provided to us.

1.9 Valuation results are highly sensitive to actuarial assumptions. Actual demographic and

economic experience is likely to differ from the assumptions, and assumptions are likely to

change in future, which will affect the valuation of the liability for accrued benefits. Additional

information is provided in Section 8 below.

1.10 The valuation was performed by Mr. Alan Fefferman, a qualified actuary, and his actuarial

team at Alan Fefferman – Actuarial Services Ltd. Mr. Fefferman has a B.Sc. in mathematics

(with Distinction) from the University of Alberta in Canada, an M.B.A. (Beta Gamma Sigma)

from the Booth School of Business of the University of Chicago in the United States, is a

Fellow of the Society of Actuaries (FSA) in the United States, and is a Fellow of the Israel

Association of Actuaries (FILAA). His approximately thirty four years of professional

experience include actuarial valuations of employee benefits similar to those of the Company,

actuarial valuations of pension plans, and the determination of actuarial methods and

assumptions for pension plans and insurance companies, in his various roles of valuation

actuary, peer reviewing or audit actuary, and regulatory actuary.

1.11 This report has been prepared in accordance with the following standards:

International Standard of Actuarial Practice 1 – General Actuarial Practice, approved

by Council of the International Actuarial Association on November 18, 2012;

International Standard of Actuarial Practice 3 – Actuarial Practice in Relation to IAS

19, adopted by Council of the International Actuarial Association on April 11, 2015.

2


1.12 Definitions:

"salary" – pensionable salary

"pension plan" – the set of benefits provided by the Fund

"date of valuation" – December 31, 2018

"linked pensions agreement" – the collective bargaining agreement between the

Company, the Histadrut (association of trade unions), and the permanent committee

of Company employees, which inter alia changed the method of pension adjustments

(by linking pensions to changes in the consumer price index ("the Index"), instead of

linkage to salary promotions and wage agreements).

2. Benefits Included in the Valuation

3

2.1 Our calculations are based on information regarding the benefits and their terms, as presented

in a Company document dated October 3, 2018 that is attached to this report as Appendix F.

The information in that document, which we relied upon for the purpose of preparing this

report, was not verified by us.

2.2 The valuation relates to benefits in respect of permanent employees, pensioners (including

those who retired because of disability) and surviving spouses and orphans (for convenience

sake, pensioners and survivors shall hereinafter be referred to as "pensioners"). Employees

and pensioners are divided into two groups:

those covered by the defined benefit pension plan (for whom benefits are identical),

who commenced their employment at the Company on or before June 10, 1996;

those included in employee-generation C, who are permanent employees that

commenced their employment at the Company after that date.

The valuation also relates to the supplemental severance pay benefit in respect of employees

employed under a special agreement.

The valuation does not relate to severance pay benefits for senior managers who are employed

under personal contracts with the Government Companies Authority.

2.3 The benefits to which the valuation relates are as follows (for more details, please refer to

Appendix F of this report):

2.3.1 Regarding employees and pensioners covered by the defined benefit pension plan,

benefits include the following: post-retirement pension based on pensionable salary. Pensionable salary is

comprised of the following components, subject to each

employee/pensioner's individual entitlement to each component: regular 1salary , shift work, home service, Arava additions, convalescence pay (one-

th thtwelfth of the annual amount), 13 salary (one-twelfth of annual salary) 14

salary (one-twelfth of annual salary) and "CPI increment";

disability pension;

survivors' pension in respect of employees who die while in Company

1 includes combined salary, management increment, seniority increment, personal addition, continual education addition, physical

effort addition and administrative addition.


2service or after retirement (including employees who died after disability

retirement);

retirement grant for service exceeding 35 years, and to survivors upon the

death of a spouse as above, and also including an apprenticeship period

grant;

"up to 35 years" grant paid upon retirement, and to survivors in the event

of the employee's death;

disability retirement grant (not to exceed 15 times salary);

grant for unutilized days of sick leave;

reduction of electricity costs for pensioners (includes VAT and is grossed

up to cover the cost of other taxes);

holiday gifts for pensioners (grossed up to cover the cost of taxes);

grant after 20 years of service;

social welfare activities (valued at 0.49% of the cost of grants and pensions,

excluding convalescence pay, reduced electricity costs, holiday gifts, and

the two salary components of home service and Arava addition);

social welfare fund for pensioners of the defined benefit pension plan;

CPI-linked life insurance benefits for pensioners (includes two-thirds of the 3sum assured, since one-third of the cost of benefits is paid by pensioners) .

2.3.2 Regarding generation C employees, the benefits consist of: Supplementary severance pay at the rate of 2.33% of regular salary

th(including 13 salary) for each year of service. In addition, in respect of th14 salary for employees who started work at the Company before January

1, 2004, supplementary severance pay for service exceeding 35 years is also

provided;

"up to 35 years" grant paid upon retirement and to survivors in the event of

the employee's death;

grant for unutilized sick leave;

reduction of electricity costs for pensioners (includes VAT and is grossed

up to cover the cost of other taxes);

holiday gifts for pensioners (grossed up to cover the cost of taxes);

grant after 20 years of service;

social welfare activities (valued at 0.49% of the cost of other benefits);

CPI-linked life insurance benefits for pensioners (includes two-thirds of the 4sum assured, since one-third of the cost of benefits is paid by pensioners) .

2.3.3 Regarding the collective bargaining agreement dated May 17, 2018, the benefits

consist of:

The special retirement program -

o Special early retirement pension

o Lump-sum retirement benefit

o Early retirement budgetary pension, for generation A and B

employees.

o “Bridge” pension for generation C employees

4

2 any lump sum which is paid upon the employee's death as a result of a work-related accident, was not taken into consideration in the

valuation (please refer to section 7.2 of Appendix F of the report on the actuarial valuation as at 31/12/2016, under the heading "Rights

of Employees Entitled to Pension from the Pension Fund of Company Employees and Rights of Pensioners"). 3 To the extent that there exists an arrangement with an insurer, the valuation also recognizes a margin for the cost of insurance. 4 Ditto


o Continuing accrual of pension benefits for generation C employees.

Additional retirement pension – upon separation from employment for any

reason other than death, disability or early retirement under the special

retirement program.

Additional disability pension.

Additional lump-sum, pre-retirement death benefit.

Additional benefits for employees whose services will be lent to private

electricity producers -

o Additional retirement pension

o Lump-sum retirement benefit

o Early retirement budgetary pension, for generation A and B

employees

o “Bridge” pension for Generation C employees

o Continuing accrual of pension benefits for generation C employees

2.3.4 In respect of non-permanent employees who are employed by special agreement:

supplementary severance pay upon termination of employment, retirement, or

upon termination of the maximum period allowed for this type of employment (5

years), whichever comes first.

2.4 Pensions are adjusted every January, according to the rate of change in the consumer price

index (the ratio of the index for the most recent month of December to the index for the

previous December).

2.5 The valuation does not take into consideration the possible payment of other benefits or

increases to existing benefits at Company discretion, except for the allowance for early

retirements requiring Company approval that is based on assumed early retirement rates

(please see section 5.4 below).

3. Methodology and Actuarial and Accounting Principles

5

3.1 In accordance with IAS 19, liabilities were calculated using the projected unit credit method.

Under this method, the liability is calculated as the present value of projected payments to

employees and pensioners in respect of the relevant benefits based on the accrued rights of

employees and pensioners as of the valuation date (the "past obligation"). The calculation

projects each employee and pensioner's expected benefit payment amounts and dates, while

taking into account the projected salary growth rate, mortality, termination and disability rates

of employees and pensioners, as well as the labor agreements and the Company's benefit

payment policy.

3.2 The liabilities and additional disclosures in this report were calculated and presented in

accordance with the Company's accounting policy as detailed in sections 3.3-3.10 below.

3.3 Benefits are attributed to periods of employment, as follows:

Benefit Benefit Accrual Percentage as at

the Date of Valuation

Post-employment pension (including Based on the benefit formula in the pension plan,

disability pension) and social welfare including the pension percent per year of service and

activities the number of years of past service.

Reduction of electricity costs Benefit fully accrued after reaching 10 years of

(including VAT) and holiday gifts service and age 40 (age 60 for Generation C

for pensioners, grossed up to cover employees). Until the age and service criteria are

the cost of taxes met, the benefit accrual percentage is based on the


ratio of the number of years of past service to the

number of years of past and future service up to the

date that the criteria will be met.

6

Death-in-service survivors' pension Benefit fully accrued.

Based on eligibility on the valuation date. Benefit is Severance pay upon termination of

accrued based on service. For the "up to 35 years of employment without entitlement to

employment" grant, there is a 35-year accumulation pension, and "up to 35 years" grant

maximum.

Grant for service exceeding 35 years Accrual begins upon reaching 35 years of service.

According to the number of unutilized sick leave Grant for unutilized sick leave

days as of the valuation date.

Based on the number of years of past service, up to a Grant for disability retirement

maximum of 30 years.

Based on the ratio of accrued service to 20 years.

(There is no liability in respect of employees with 20-year grant

over 20 years of service, as they would have already

received the grant).

Benefit accrual percentage based on the ratio of the

number of years of past service to the number of Supplementary severance pay for

years of past and future service up to the end of the non-permanent employees

maximum period allowed for this type of (employed under special agreement)

employment or until retirement age 67, whichever

comes first.


number of years of past service to the number of

Social welfare fund years of past and future service up to the date that the

employee reaches age 50/55 (male/female) or

reaches 30 years of service, whichever comes last.


number of years of past service to the number of Life insurance benefits

years of past and future service until the average

retirement age of 66.


special early retirement pension;

additional disability pension; Benefits fully accrued.

additional lump-sum pre-retirement

death benefit


lump-sum retirement benefit, early

retirement budgetary pension for

generation A and B employees, and Benefits accrue according to service.

“bridge” pension for generation C

employees insured under “old”

multiemployer pension plans

“Bridge” pension – accrued percentage equals the

ratio between the current account balance in a “new”

The special retirement program - pension plan with projected interest up to early

“bridge” pension for generation C retirement date, and the same account balance with

employees insured under “new” projected notional contributions and interest up to the

multiemployer pension plans, and statutory retirement date;

continuing accrual of pension Continuing accrual of pension benefits - accrue on a

benefits for generation C employees “straight line” basis, from the date that the collective

bargaining agreement entered into effect (November

4, 2018), until the date of retirement.


Employees whose services will be

lent to private electricity producers -

lump-sum retirement benefit, early

retirement budgetary pension for Benefits accrue on a “straight line” basis, from generation A and B employees, November 4, 2018 until 5 years after the date on “bridge” pension and continuing which services will start to be lent. accrual of pension benefits for generation C employees

7

Additional retirement pension Each part of the pension is accrued on a “straight (separation from employment for line” basis, from November 4, 2018 until the

reasons other than death, disability implementation date of a particular milestone (as

or early retirement under the defined in the collective bargaining agreement), or

special retirement program) until the date of statutory retirement if earlier.

53.4 For post-employment benefits , actuarial gains or losses are credited or charged directly to

owners' equity.

For employee benefits that are not post-employment benefits, actuarial gains or losses are

credited or charged to profit and loss.

3.5 Valuation results are presented in Appendix A on a nominal basis. Consequently, the interest

cost and the expected return on assets are calculated according to nominal interest rates at the

beginning of the year.

3.6 Current service cost is calculated in respect of benefits accrued during the reporting period

using the method described in section 3.3. For example, for the post-retirement pension

benefit:

until an employee reaches 35 years of service, the current service cost reflects the

incremental pension percent;

after an employee reaches 35 years of service, the current service cost reflects the

incremental grant.

After a benefit is accrued fully, the current service cost for that benefit is zero. The current

service cost for a calendar year is calculated once a year, based on the actuarial assumptions

in effect as at the end of the previous year. At the end of each calendar quarter, one-quarter of

the annual current service cost is charged to profit and loss. Any difference between the current

service cost charged to profit and loss, and the actual current service cost based on updated

actuarial assumptions and plan experience, constitutes an actuarial gain or loss.

3.7 The interest cost and expected return on plan assets, are based on a nominal annual interest

rate of 3.92%; that is, the uniform discount rate inherent in the defined benefit obligation as at

December 31, 2017.

3.8 The current service cost presented in this report has been reduced in respect of employees' 6contributions . That is, a net service cost is presented.

3.9 The value of assets presented in Appendix A was disclosed to me by the Company and was

not checked by me.

5 As the term is defined in IAS 19 6 Data regarding the sum of employees’ contributions was received from the company.


73.10 Termination benefits presented in Appendix A, are defined as payments to existing pensioners

until they reach the expected average age of retirement (as derived from actuarial assumptions

regarding the probability of retirement at each age). Actuarial gains or losses from termination

benefits are not included in those presented in appendix A, but are credited or charged to the

Company's profit and loss statement.

4. Data on which the Valuation is Based

8

The valuation is based on data that we received from the Company. We have not performed detailed

checks of the data nor have we compared them to the original data source. We have checked the

reasonability of the data in general and by comparison to the previous quarter's data. The primary data

that we received is described as follows (for additional details, please see Appendix D):

84.1 Employee and pensioner data – we received files on January 8, 2018 containing data for each

employee and pensioner entitled to their relevant benefits. The data includes information

regarding age, gender, pension or salary components, rank, service, etc. as at the valuation

date. In addition, these files include data for the average monthly value of the holiday gift

(grossed up to cover the cost of taxes).

94.2 We made the following adjustments to the data as per the Company's instructions :

4.2.1 Increase of salaries and pensions by 0.49% to cover the cost of social welfare

activities. This increase applies to all components of salary and pension, except

for convalescence pay, the Arava addition, home service, holiday gifts and

reductions in the cost of electricity.

4.2.2 We received a file from the Company, containing a list of employees who retired

soon before the date of the valuation, and whose status needed to be changed from

"employee" to "pensioner". The file also included their pension benefit amounts.

4.2.3 On December 11, 2016, a collective bargaining agreement was signed by the

Company. This agreement includes the “managerial increment” component and

the "global overtime" component of salary that employees and pensioners will be

entitled to. According to the company, the data we received as at December 31,

2018 contained components that were adjusted in accordance with paragraphs 35-

37 and 53-63 of the collective bargaining agreement.

4.2.4 Salary adjustments to senior employees of salary-grade 70, as per Company

instructions.

7 As the term is defined in IAS 19 8 There are possibly a few pensioners who may have died, and whose death has not yet been reported to the Company. Such a possibility

is not expressed in the actuarial valuation. 9 The manner and rates of adjustment, were stipulated in the Company's instructions, and were not determined or checked by us.


4.3 Below is a summary of the data mentioned above:

Before the adjustments mentioned in section 4.2 above

9

Average Average

Group Number Monthly salary/pension in NIS service age

(years)

Defined benefit pension plan *

Employees 5,590 96,318,377 55.5 28.9

Pensioners – former employees 5,158 67,437,501 71.6

Pensioners – survivors (including 1,919 13,917,482 75.2

children)

Generation C**

Employees 2,690 25,473,435 44.2 14.3

Pensioners – former employees 41 6,016 69.9

Pensioners – survivors (including 14 2,054 42.8

children)

Employees under special agreements (non-permanent employees) ***

Employees 524 3,223,391 39.1 3.7

After the adjustments mentioned in section 4.2 above

Average Average

Group Number Monthly salary/pension in NIS service age

(years)

Defined benefit pension plan *

Employees 5,528 95,696,844 55.4 29.2

Pensioners – former employees 5,220 68,552,277 71.4

Pensioners – survivors (including 1,919 13,980,341 75.2

children)

Generation C**

Employees 2,688 25,579,976 44.1 14.3

Pensioners – former employees 43 6,310 69.8

Pensioners – survivors (including 14 2,054 42.8

children)

Employees under special agreements (non-permanent employees) ***

Employees 524 3,239,186 39.1 3.7


* Salary and pension data presented for employees and pensioners covered by the

defined benefit pension plan include all the components to which the employee or 10pensioner is entitled, including regular salary , shift work, home service, Arava

th thaddition, convalescence pay, 13 salary (one-twelfth of the annual amount), 14

salary (one-twelfth of the annual amount) and value of holiday gifts (grossed up for th thtax). The amounts of the 13 and 14 salaries were calculated by dividing the regular

salary by 12 in respect of all those qualifying based on service data.

** The generation C salary (for the purpose of calculating grants and severance pay)

include all the components to which the employee or pensioner is entitled, including thregular salary, 13 salary (one-twelfth of the annual amount) and grossed up value

thof holiday gifts. The amount of the 13 salary was calculated by dividing the regular

salary by 12.

*** The displayed salary for non-permanent employees who are employed under a

special agreement, is the salary eligible for severance pay only. (In the data file there

are two salary fields – regular salary and severance pay. The field that is used for

calculations is the severance pay.)

4.4 The data received regarding assets, payments and contributions (in nominal terms), include all

of the following:

Data item NIS '000

10

Assets as at the valuation date

4.4.1 Balance of plan assets for post-employment benefits 31,450,391

4.4.2 Balance of assets according to paragraph 116 of IAS 19 1,429,702

Payments during the reporting period (1/1/2018-31/12/2018)

4.4.3 Increased severance pay to employees under special agreements 2,384

4.4.4 Supplemented severance pay (2.33%) to generation C employees –

4.4.5 "20-year grant" 2,169

4.4.6 Termination benefits – for paid benefits by the Fund, and for benefits not 141,273

paid by the Fund (electricity discount, holiday gifts)

Termination benefits – for paid benefits by the fund 134,353

4.4.7 Post-employment benefits (excluding termination benefits) 907,683

4.4.7.1 Grant for unutilized sick leave 59,867

4.4.7.2 "up to 35 years" grant 9,744

4.4.7.3 Electricity discount and holiday gifts 53,962

4.4.8 Withdrawals from plan assets for payment of benefits 902,452

4.4.9 Withdrawals from trust assets for payment of benefits 148,198

Contributions during the reporting period

4.4.10 Company's contributions to plan assets or assets according to paragraph 116 1,588,540

of IAS 19

4.4.11 Employees' contributions to plan assets or assets according to Section 116 of 24,345

IAS 19

10 Includes "combined salary", "managerial increment", "service addition", "personal addition", "continuing education addition" and

"physical effort" addition.


5. Actuarial Assumptions

11

The assumptions detailed below represent the Company's assumptions – the Company being the entity

authorized to set assumptions according to IAS 19. The financial assumptions (please see section 5.1

below) are based on generally accepted market data as published by an external party. The remaining

assumptions were set by the Company, partially with the advide of the previous actuary, and in my

opinion they are reasonable.

In the future, there may be changes to the assumptions, because of checks of demographic data regarding

employees and pensioners or of other relevant data, that are performed from time to time, and/or because

of the publication of new mortality or morbidity tables by the ministry of finance or other relevant body,

to the extent that it will be decided that such tables are relevant to the Company.

5.1 Financial assumptions

5.1.1 Inflation rate – the difference between the nominal spot interest rate (rate of return

on non-indexed, high quality government bonds) and the real spot interest rate

(rate of return on indexed, high quality government bonds). For the actuarial

valuation there is essentially no requirement for an explicit assumption for

inflation, since, according to the Company’s accounting policy, the interest

discount rate is set according to CPI-indexed bonds (please see below), and since

the assumed salary increases are mostly set in real terms. The rate of inflation is

relevant for calculating the erosion in value of pension payments and the

electricity discount, convalescence pay and holiday gift components of salary,

since they are all linked to CPI on a yearly basis (and not monthly). The future

rate of inflation that was derived for the purpose of evaluating the erosion in real

values, is based on a duration of 15.8 years, and stands at 1.6%.

An adjustment to pension amounts and to the electricity discount, convalescence

pay and holiday gift components of salary, is made in respect of the change in the

CPI index from the time of their last update until the date of valuation.

From a technical perspective, the cash flows that we calculated for the valuation

are the projected future payments of pensions and other benefits, without the

effect of future inflation. Therefore, the real discount rates described below (based

on the CPI-indexed corporate bonds) are appropriate for discounting the cash

flows.

5.1.2 Discount rates – on November 25, 2014, the Israel Securities Authority published

its position that in Israel there exists a deep market in high quality CPI-indexed

corporate bonds. According to the accounting policy of the Company, the

discount rates used in the valuation are taken from a yield curve based on market

data for high quality, CPI-indexed corporate bonds as at December 31, 2018, as

determined by Mervach Hogen Ltd. The use of these interest rates is required by

IAS 19, given the Company's opinion (which coincides with that of other Israeli

corporations) regarding the existence of a deep market in high quality corporate

bonds in Israel.

If plan assets yield lower real returns than the discount rates, based on their fair

value, the net liabilities (total liabilities minus the value of plan assets) will

increase, and vice versa.

See Appendix B for details of the projected benefit cash flows.

See Appendix C for information regarding the interest rates.


5.1.3 The interest cost and expected return on plan assets and trust assets for the 11reporting period were based on a yearly interest rate of 3.92% until 4/11/2018

and of 4.22% after that, as explained in paragraph 3.7 above.

5.2 Salary and Benefit Increases

12

The actuarial valuation was performed in accordance with IAS 19, which requires that

liabilities should be calculated based on existing labor and pension agreements on the

valuation date. Accordingly, the valuation took into consideration that salary components will

increase according to the framework of salary increases and increases in rank which is found

in the Company's existing labor agreements and policies (as described in Appendix F of this

report) and according to general salary and cost-of-living agreements (as described in

paragraph 5.2.1.1), without the possibility of creating new ranks or other changes to

employment terms and to the existing system of salary increases and increases in rank.

5.2.1 For employees covered by the defined benefit pension plan and for generation C

employees, it is assumed that future salary and benefit increases will be as

follows:

5.2.1.1 The annual increase in respect of general salary and cost-of-living

allowance agreements will be as follows:

In respect of the years 2013 - 2017: On December 11, 2016

the company signed a collective bargaining agreement which

gives the employees a cumulative increase of 7.25%. One-

half of the increase would be provided in the form of a

uniform shekel amount and the rest would be provided as a

percentage increase. According to the above agreement, the

cumulative uniform shekel increase will be 357.73 NIS a

month per employee and an additional cumulative percentage

increase of 3.625% in nominal terms.

In respect of the period starting in year 2018: the annual

salary increase will be at the rate of the annual increase in

CPI, less 0.3% (that is, a 0.3% per year erosion of real

values).

This assumption affects virtually all salary components, but does not

affect the electricity discount, holiday gifts and convalescence (it is

assumed that the Arava and home service components of salary will

be included in future salary agreements).

5.2.1.2 It is assumed that the average annual salary increase resulting from

promotions (including promotion to senior management rank) and

from changes in eligibility to new or increased salary components

related to the "managerial increment", master's degree, "shift work",

"home service", and additional salary grade at Eilat, will be at the

following annual rates:

11 The date that the collective bargaining agreement of May 17, 2018, went into effect.


Employees who

are Not Senior

Age Managers Senior Managers

13

0 – 32 1.43% 1.27%

32 – 37 0.77% 1.27%

37 – 42 0.43% 1.27%

42 – 47 0.37% 1.27%

47 – 52 0.34% 1.27%

52 – 57 0.26% 1.65%

57 – 62 0.20% 0.91%

Over 62 0.17% 0.76%

5.2.1.3 For employees who at the valuation date are not entitled to

continuing-education-payment A and/or continuing-education-

payment B, the annual rate of eligibility is as follows:

Eligible for Eligible for

Age payment A payment B

Until 40 7.8% 3.5%

40 – 50 3.5% 1.5%

50 – 60 1.1% 0.8%

Over 60 0.0% 0.4%

5.2.1.4 It is assumed that the ceiling for continuing-education-payment B for

employees at professional salary grade 44 and above will be linked

to salary and cost-of-living allowance agreements. As at the 12valuation date, the ceiling stands at NIS 1,050 .

5.2.1.5 According to labor agreements, the value of holiday gifts (grossed-

up for the cost of taxes) and convalescence pay will increase by the

actual rate of increase in the CPI, and that the update (for CPI) of

convalescence pay takes effect in June of each year, and the update

of holiday gifts takes effect in January of each year. The cost of

holiday gifts for pensioners is increased to cover the cost of taxes, at

a rate of 14.81% (at all ages), and for pensioners who retired before

statutory retirement age the cost is also grossed-up for National

Insurance tax at a rate of about 19.26%, until they reach statutory

retirement age.

5.2.1.6 The cost of the electricity discount is calculated according to the

electricity tariff for a domestic consumer at the valuation date (the 13fixed monthly fee before VAT is NIS 19.2 , fixed monthly KVA fee

before VAT is NIS 1.24 and the variable rate per kilowatt-hour before

VAT is NIS 0.4716) and according to the following, forward-looking

assumptions:

12 This amount was received from the company. 13 Weighted average of NIS 18.28 for a single-phase base meter, and NIS 19.43 for a triple-phase base meter.

Approximately 20% of employees/retirees use a single-phase base meter and 80% use a triple-phase base meter.


The change in the electricity discounts tariff (including VAT and

grossing-up for other taxes) is in accordance with the forecast that

we received from the Company, which is an approximation of

cost.

Towards the end of year 2016, we performed an experience study

of subsidized electricity consumption among Company

pensioners during the years 2006-2015. Actuarial assumptions

were updated based on the results of the study, including

assumptions regarding subsidized electricity consumption (in

terms of kilowatt-hours) that vary according to age and type of

pensioner: (a) old-age or disability pensioner, (b) recipients of

survivors’ pensions (widows and orphans). It is assumed that the

average level of electricity consumption for a pensioner at any

given age will remain constant:

Recipients Recipients Recipients Old-age or Old-age or Old-age or

of of of Age Disability Age Disability Age Disability

Survivors’ Survivors’ Survivors’ Pensioners Pensioners Pensioners

Pensions Pensions Pensions

14

40 1,234 1,099 58 1,084 974 76 938 736

41 1,234 1,099 59 1,076 962 77 930 726

42 1,234 1,099 60 1,068 950 78 922 715

43 1,234 1,099 61 1,060 911 79 913 704

44 1,234 1,099 62 1,052 879 80 905 693

45 1,234 1,099 63 1,044 854 81 897 683

46 1,234 1,099 64 1,035 835 82 889 674

47 1,224 1,089 65 1,027 820 83 881 668

48 1,215 1,079 66 1,019 808 84 873 664

49 1,205 1,069 67 1,011 799 85 865 664

50 1,195 1,059 68 1,003 792 86 857 668

51 1,186 1,049 69 995 786 87 848 679

52 1,176 1,039 70 987 780 88 848 697

53 1,166 1,029 71 979 774 89 848 723

54 1,157 1,019 72 970 768 90 848 723

55 1,147 1,008 73 962 761 91 848 723

56 1,101 997 74 954 754 92 848 723

57 1,092 985 75 946 745 93 + 848 723


Based on the experience study described above, actuarial

assumptions were also updated regarding the incidence of

pensioners who do not utilize the electricity subsidy benefit:

Recipients Recipients Recipients Old-age or Old-age or Old-age or

of of of Age Disability Age Disability Age Disability

Survivors’ Survivors’ Survivors’ Pensioners Pensioners Pensioners

Pensions Pensions Pensions

15

21- 9.50% 28.50% 65 4.40% 9.10% 84 4.50% 12.50%

46

47 9.50% 28.00% 66 4.10% 8.90% 85 4.90% 13.40%

48 9.50% 27.50% 67 3.80% 8.80% 86 5.30% 14.20%

49 9.50% 27.00% 68 3.60% 8.40% 87 5.70% 15.00%

50 9.50% 26.60% 69 3.30% 8.00% 88 6.10% 15.90%

51 9.50% 26.10% 70 3.10% 7.50% 89 6.60% 16.70%

52 9.00% 25.60% 71 3.00% 7.10% 90 7.10% 17.50%

53 8.70% 25.10% 72 2.90% 6.70% 91 7.60% 18.40%

54 8.40% 24.70% 73 2.80% 6.20% 92 8.10% 19.20%

55 8.10% 24.20% 74 2.80% 6.50% 93 8.70% 20.10%

56 7.70% 21.70% 75 2.80% 6.80% 94 9.20% 20.90%

57 7.30% 19.30% 76 2.80% 7.10% 95 9.70% 21.70%

58 6.90% 16.80% 77 2.90% 7.40% 96 10.20% 22.60%

59 6.60% 14.40% 78 3.00% 7.70% 97 10.70% 23.40%

60 6.20% 12.00% 79 3.10% 8.00% 98 11.20% 24.20%

61 5.80% 9.50% 80 3.30% 8.90% 99 11.70% 25.10%

62 5.40% 9.40% 81 3.60% 9.80% 100 12.10% 25.10%

63 5.10% 9.30% 82 3.80% 10.70% 101 + 12.50% 25.10%

64 4.70% 9.20% 83 4.20% 11.60%

5.2.1.7 It is assumed that there were no changes, and will not be any changes

in future, to each employee's level of full or part-time employment,

and that each employee's current level of full or part-time

employment applied in the past and will also apply in the future.

5.2.1.8 There is a group of employees who were entitled in the past to a "shift

work addition" to their salary, and who are classified as entitled to

this addition as part of their pensionable salary. It is assumed that

their pensions will be increased accordingly.

5.2.1.9 An update for pension amounts takes place in the month of January

each year, in accordance with the rate of annual change in the

Consumer Price Index (the ratio of the index for the most recent

month of December to the index for the previous December). In cases

when the change in CPI is negative, pension amounts are not revised

downwards. Instead, a future pension adjustment in respect of a


positive change in the CPI index will be implemented only after

offsetting the negative change in CPI that had accumulated since the

previous pension update.

5.2.2 In respect of non-permanent employees under special agreements, a real annual

salary growth of 2.0% is assumed, that covers both general salary increases as

well as individual employee salary increases.

5.3 Mortality and Disability rates

16

5.3.1 See Appendix E below regarding changes made in the past to mortality

assumptions.

5.3.2 Life Expectancy Improvements (Decline in Mortality Rates)

The mortality assumption is a significant assumption for the valuation of actuarial

liabilities. Life expectancy changes with changes in medical practice and

lifestyles. The actuarial assumptions take into account a continuing increase in

life expectancy for the future.

The base mortality rates detailed below are correct as at December 31, 2008. The

assumed rate of decline in mortality rates (leading to extended life expectancy)

after December 31, 2008, is according to Pension Circular 2013-3-1 on the subject

of "the Manner of Calculating Actuarial Balance Sheets and Annuitization

Factors for Pension Funds" published in 2013 by the Capital Markets, Insurance

and Savings Division of the Israeli Ministry of Finance (referred to below as ."Pension Circular 2013").

It should be emphasized that there is a great deal of uncertainty regarding future

changes in mortality rates, and that an alternative assumption may be just as

reasonable (please see section 8.4 below).

5.3.3 Pensioner mortality tables

In the year 2015, a study was made of mortality experience among employees and

pensioners of the Company during the years 1996-2015 (referred to below as "the

study"), with comparisons to the mortality tables published in Pension Circular

2013. On the basis of the study, the Company adopted the tables published in

Pension Circular 2013, with adjustments that take into account the mortality

experience of the Company. More weight was given to Company mortality

experience (and less weight to the tables of Pension Circular 2013) to the extent

that Company mortality experience was more credible statistically.

Regarding pensioners the mortality assumption is:

for males –table P3 of Pension Circular 2013, without adjustment

for females –table P3 of Pension Circular 2013, without adjustment


Below is a sample of the remaining life expectancies of pensioners, based on the

assumptions above, including assumed future improvements in life expectancy:

Age and Year Male Female

17

Age 67 at end of year 2010 19.52 21.94

Age 67 at end of year 2020 20.31 22.84

Age 67 at end of year 2030 20.93 23.53

5.3.4 Mortality Tables for Survivors

Based on the study described above, the mortality assumptions for survivors are:

for males – before age 60, according to table P2 of Pension Circular 2013,

reduced by 2%; starting at age 60, table P5 of Pension Circular 2013, reduced

by 2%.

for females – before age 55, according to table P1 of Pension Circular 2013;

starting at age 55, according to table P3 of Pension Circular 2013.

5.3.5 Mortality Tables for Active Employees

Based on the study described above, the mortality assumptions for employees are:

for males – according to table P1 of Pension Circular 2013, reduced by 22%.

for females – according to table P1 of Pension Circular 2013, reduced by

16%.

5.3.6 Mortality Tables for Disabled Employees

Based on the study described above, the mortality assumptions for disabled

employees are:

for males – before age 67, a mortality rate of 17% in the first year after

disability retirement, and 1.6% in each year thereafter; starting at age 67,

according to table P3 of Pension Circular 2013 increased by 21%.

for females – before age 67, a mortality rate of 17% in the first year after

disability retirement, and 1.6% in each year thereafter; starting at age 67,

according to table P3 of Pension Circular 2013 increased by 15%.

5.3.7 Disability Incidence

According to Table P8 of Pension Circular 2013.

5.3.8 Recovery from Disability

There are no assumed recoveries.


5.4 Retirement Age, Termination of Employment and Early Retirement

18

5.4.1 As stated in section 5, these assumptions were determined by the Company.

5.4.2 It is assumed that normal retirement will occur at the mandatory retirement age

of 67 for both men and women. Employees over age 67 are assumed to retire

immediately.

5.4.3 Termination of Employment (prior to normal retirement age), for Generation C

Employees:

At year-end 2016, we performed an experience study of withdrawal rates among

Generation C employees during the years 2013-2016. Actuarial assumptions were

updated based on the results of the study, including assumed rates of termination

of employment, both voluntary and involuntary, that vary according to age and

gender:

Rates of Voluntary Rates of Involuntary Termination

Termination (From age 60 and 10 years of service, with

(without benefit eligibility for all benefits relevant to Generation

entitlements) C. Under age 60, with eligibility only for

supplementary severance pay at the rate of

2.33% of salary per year of service)

Years of Age Men and Women Women Men

Service

Below 20 Up to 24 0.0% 0.0% 0.0%

Below 20 25-29 0.9% 0.0% 0.0%

Below 20 30-34 0.9% 0.0% 0.0%

Below 20 35-39 0.3% 0.0% 0.0%

Below 20 40-44 0.1% 0.0% 0.0%

Below 20 45-49 0.1% 0.0% 0.0%

Below 20 50-59 0.0% 0.0% 0.0%

Below 20 60 0.00% 0.12% 0.12%

Below 20 61 0.00% 0.12% 0.12%

Below 20 62 0.00% 0.85% 0.87%

Below 20 63 0.00% 0.85% 0.87%

Below 20 64 0.00% 0.85% 0.87%

Below 20 65 0.00% 1.62% 1.73%

Below 20 66 0.00% 4.76% 2.56%

20 and Over All ages 0.00% 0.00% 0.00%


5.4.4 Terminations and Early Retirements (Prior to Normal Retirement Age), for

19

Employees Covered by the Defined Benefit Pension Plan:

It is assumed that there will be no employment terminations, except for early

retirement.

Rates of early retirement constitute an assumption regarding early retirements that

are not categorized as "termination benefits" under IAS 19. According to IAS 19,

it is not permitted to recognize in advance the cost of terminations from

employment, except under certain conditions. In practice, it is difficult to

distinguish between early retirements that must be categorized as “termination

benefits” and other early retirements, so that it is very difficult to set the actuarial

assumption. It is even more difficult to set the assumption because employees'

behavior regarding retirement is greatly affected by past special retirement

programs and anticipated future special retirement programs.

The early retirement assumption is based on Company experience during the

years 2002-2016, not including employees who retired under special early

retirement programs. Assumed rates of early retirement vary by age and sex, as

detailed in the two tables below:

Early Retirement Rates for

Employees Covered by the Defined Benefit Pension Plan

Age Female Male Age Female Male

Up to 40 0.0% 0.0% 53 0.2% 0.1%

40 0.0% 0.1% 54 0.2% 0.1%

41 0.0% 0.1% 55 0.2% 0.1%

42 0.0% 0.1% 56 0.2% 0.1%

43 0.0% 0.1% 57 0.4% 0.1%

44 0.0% 0.1% 58 0.4% 0.1%

45 0.0% 0.1% 59 0.4% 0.2%

46 0.0% 0.1% 60 0.4% 0.4%

47 0.0% 0.1% 61 0.4% 0.6%

48 0.1% 0.1% 62 2.6% 1.0%

49 0.1% 0.1% 63 0.7% 1.3%

50 0.1% 0.1% 64 0.7% 1.6%

51 0.1% 0.1% 65 4.4% 1.9%

52 0.1% 0.1% 66 7.3% 2.3%

On November 4, 2018, a collective bargaining agreement went into effect,

including a special retirement program under which 1,803 employees will

retire by the end of the year 2025. At the time of retirement, employees must 14be above age 55 and below age 64 in order to be eligible for the program.

Therefore, it is assumed that there will be no other early retirements between

ages 55-63, until the year 2026.

14 Younger ages are allowed under special circumstances.


5.4.5 Termination of Employment for Non-Permanent Employees Employed Under Special Agreements:

20

Assumed rates of termination with eligibility for the benefits included in this

valuation, by service, are detailed in the following table:

Service Rates of Involuntary Rates of Voluntary

Termination Termination

(eligible for benefits) (not eligible for benefits)

0 3.0% 0.0%

1 1.5% 0.0%

2+ 0.0% 0.0%

For non-permanent employees employed under special agreements, it is also

assumed that their employment will be terminated at the end of the maximum

working period according to the special agreements (5 years) and that they will

receive enhanced severance pay.


5.5 Marriage Rates and Age Differences Between Spouses

21

At year-end 2016, an experience study was performed of the proportion of Company

pensioners who are married, and of the age differences between spouses. The actuarial

assumptions were updated accordingly, as detailed in the two tables below:

Proportion of Married Pensioners:

Age Males Females Age Males Females Age Males Females Age Males Females

30 82.80% 81.20% 53 84.80% 81.60% 76 81.40% 44.40% 99 38.20% 2.00%

31 82.80% 81.80% 54 84.80% 81.10% 77 80.40% 41.70% 100 35.40% 1.70%

32 82.80% 82.30% 55 84.80% 80.40% 78 79.30% 39.00% 101 32.50% 1.40%

33 82.80% 82.70% 56 84.80% 79.70% 79 78.20% 36.30% 102 29.50% 1.10%

34 82.80% 83.10% 57 84.80% 78.90% 80 76.90% 33.60% 103 26.40% 0.90%

35 82.80% 83.50% 58 84.80% 78.00% 81 75.60% 30.90% 104 23.30% 0.80%

36 82.80% 83.80% 59 84.70% 77.10% 82 74.20% 28.20% 105 20.00% 0.60%

37 82.80% 84.00% 60 86.70% 76.00% 83 72.70% 25.60% 106 16.70% 0.50%

38 82.80% 84.20% 61 87.00% 74.90% 84 71.20% 23.10% 107 13.30% 0.40%

39 82.80% 84.30% 62 87.20% 73.70% 85 69.50% 20.70% 108 9.90% 0.30%

40 82.80% 84.40% 63 87.30% 72.30% 86 67.80% 18.40% 109 6.30% 0.30%

41 83.10% 84.50% 64 87.30% 70.90% 87 66.00% 16.10% 110 2.70% 0.20%

42 83.40% 84.50% 65 87.30% 68.70% 88 64.10% 14.10% 111 0.00% 0.20%

43 83.60% 84.50% 66 87.10% 67.00% 89 62.20% 12.10% 112 0.00% 0.10%

44 83.80% 84.40% 67 86.90% 65.20% 90 60.10% 10.20% 113 0.00% 0.10%

45 84.00% 84.30% 68 86.60% 63.30% 91 58.00% 8.50% 114 0.00% 0.10%

46 84.10% 84.10% 69 86.20% 61.30% 92 55.80% 6.80% 115 0.00% 0.10%

47 84.30% 83.90% 70 85.80% 59.10% 93 53.50% 5.50% 116 0.00% 0.10%

48 84.40% 83.70% 71 85.30% 56.90% 94 51.20% 4.70% 117 0.00% 0.00%

49 84.50% 83.40% 72 84.70% 54.60% 95 48.80% 4.00% 118 0.00% 0.00%

50 84.60% 83.00% 73 84.00% 52.20% 96 46.20% 3.40% 119 0.00% 0.00%

51 84.70% 82.60% 74 83.20% 49.70% 97 43.60% 2.90% 120 0.00% 0.00%

52 84.70% 82.20% 75 82.40% 47.10% 98 41.00% 2.40%


It is also assumed that widows will not remarry; that is, it is assumed that the payment

of widow pensions will not stop because of remarriage.

Age Differences Between Spouses:

Age of Age of Age of Age of Age of

Male Age of Male Female Male Female Female

Employee Employee or Employee Employee Employee Employee or

or Pensioner, or or or Age Pensioner, Age Age

Pensioner, Minus Pensioner, Pensioner, Pensioner, Minus

Minus Spouse's Minus Minus Minus Spouse's

Spouse's Age Spouse's Spouse's Spouse's Age

Age Age Age Age

22

30 3 (3) 61 3.1 (3) 92 6.6 (3)

31 3 (3) 62 3.1 (3) 93 6.7 (3)

32 3 (3) 63 3.2 (3) 94 6.8 (3)

33 3 (3) 64 3.2 (3) 95 7 (3)

34 3 (3) 65 3.2 (3) 96 7.1 (3)

35 3 (3) 66 3.3 (3) 97 7.3 (3)

36 3 (3) 67 3.4 (3) 98 7.4 (3)

37 3 (3) 68 3.5 (3) 99 7.6 (3)

38 3 (3) 69 3.6 (3) 100 7.7 (3)

39 3 (3) 70 3.8 (3) 101 7.9 (3)

40 3 (3) 71 3.9 (3) 102 8 (3)

41 3 (3) 72 4 (3) 103 8.2 (3)

42 3 (3) 73 4.1 (3) 104 8.3 (3)

43 3 (3) 74 4.2 (3) 105 8.5 (3)

44 3 (3) 75 4.3 (3) 106 8.6 (3)

45 3 (3) 76 4.5 (3) 107 8.8 (3)

46 3 (3) 77 4.6 (3) 108 8.9 (3)

47 3 (3) 78 4.7 (3) 109 9.1 (3)

48 3 (3) 79 4.8 (3) 110 9.3 (3)

49 3 (3) 80 5 (3) 111 9.4 (3)

50 3 (3) 81 5.1 (3) 112 9.6 (3)

51 3 (3) 82 5.2 (3) 113 9.8 (3)

52 3 (3) 83 5.3 (3) 114 9.9 (3)

53 3 (3) 84 5.5 (3) 115 10.1 (3)

54 3 (3) 85 5.6 (3) 116 10.3 (3)

55 3 (3) 86 5.7 (3) 117 10.4 (3)

56 3 (3) 87 5.9 (3) 118 10.6 (3)

57 3 (3) 88 6 (3) 119 10.8 (3)

58 3 (3) 89 6.1 (3) 120 10.8 (3)

59 3 (3) 90 6.3 (3)

60 3.1 (3) 91 6.4 (3)


5.6 Orphans

23

The assumed number of children and their ages are in accordance with table P11 of Pension

Circular 2017-3-6. As mentioned, this assumption was set by the Company.

5.7 Utilization of Sick Leave Days (for calculating the grant for unused sick leave)

15It is assumed that every employee's sick-leave utilization rate in the future will be equal to

his average utilization rate in the past. As mentioned, this assumption was set by the Company.

5.8 It is assumed that all non-permanent employees employed under special agreements will

receive increased severance pay.

5.9 Future Company expenses for the administration of the pension plan were not taken into

account.

5.10 Additional actuarial assumptions for the valuation of employee benefits arising from the

collective bargaining agreement of May 17, 2018:

Special retirement program - assumed distribution of employees who will retire in the

years 2019-2025, according to retirement year, age and service at the time of

retirement, employee generation (A, B or C), company division, etc.), in accordance

with detailed eligibility requirements in the collective bargaining agreement.

Special early retirement pension – assumed commencement date of agreement with

insurer, and assumed purchase price of life annuities.

Additional disability pension – assumed commencement date of agreement with

insurer, and assumed purchase price of disability annuities.

5.11 Below are a number of matters that were not given expression in the valuation. In my opinion

their impact overall would be immaterial:

pensions for future "dependent orphans" over the age of 21;

pensions for "dependent parents" of future deceased employees or pensioners;

increases in pensions to future orphans of both parents; th th the actual dates on which pensions are paid for 13 and 14 salaries (we assumed that

one-twelfth of the annual amount is paid monthly);

possible grant of electricity discount and holiday gifts to orphans (we assume that all

orphans have a parent receiving such benefits);

a few pensioners receive a temporarily reduced monthly pension in exchange for a

lump-sum amount that was paid in the past. The valuation does not reflect any such

temporary reduction;

additional severance pay or grants in respect of the difference between the salary

reported in the data file and minimum wage, to be paid to a small number of generation

C employees who retire or leave with salary lower than minimum wage;

the supplement to the disability pension in respect of dependents was not taken

into account for future disabled pensioners. On the other hand, for existing disabled

pensioners, no reduction in the supplement to the disability pension with respect to

dependents was taken into account (such a reduction would apply upon the future

death of dependents);

the liability in respect of the additional benefit for life insurance in the event of an

accident;

15 number of sick-leave-days actually taken, divided by the number of sick-leave-days to which the employee was entitled


the increased bereaved parent pension, in respect of active employees;

the following additional benefits for pensioners or survivors:

o bonuses upon marriage and the birth of a child (including grossed-up taxes);

o gifts for children of pensioners or survivors, who are serving in the Israel

Defense Forces (including grossed-up taxes);

o Company participation in the cost of a tombstone and a bouquet of flowers –

in cases of death as a result of a work accident;

o compensation in cases of death as a result of a work accident, to the amount

of 36 months of salary;

o meals partially subsidized by the Company at Company facilities – up to 10

meals per month;

o Higher Education grants for children of widows of employees who died while

working for the Company;

o an outing for widows of workers who died while working for the Company;

o discount from cost of connecting electricity to the pensioner's apartment as

well as transfer or increase of existing connection; and

o for a very small number of employees and pensioners, any possible effect of

"the Division of Pension Savings Among Separated Spouses Law".

6. Changes to the Valuation in the Current Reporting Year

24

For changes made prior to the current valuation, see Appendix E.

In the first quarter of 2018:

There was an update of the assumed tax rate by which pensioner benefits will be grossed-up, which

resulted in an increase in liabilities of approximately NIS 4 million.

In the fourth quarter of 2018:

On November 4, 2018, there went into effect the collective bargaining agreement of May 17, 2018.

The terms of the agreement resulted in an increase in liabilities of approximately NIS 3,901 million.

Updated assumptions regarding future electricity tariffs (as per Company expectations) and the

structure of the fixed monthly electricity fee, resulted in an increase in liabilities of approximately

NIS 17 million.

In the year of this report there were no additional changes to assumptions or to the rules according to

which the liability is calculated, except for changes to the discount rate and the changes detailed above.


7. Valuation Results

25

The values of liabilities (in million NIS) as at December 31, 2018, without offsetting the value of benefit

plan assets, are as follows:

7.1 The liabilities, for all the benefits included in this valuation, except for liabilities in respect of

special agreements for early retirement, for the "20 year grant", and for enhanced severance

pay for non-permanent employees covered under special agreements:

Active employees 16,853.1

Pensioners and survivors 15,078.1

Total 31,931.1

7.2 Liability in respect of special early retirement agreements:

Pensioners and survivors 361.1

7.3 Liability for the “20 year grant”:

Active employees 12.4

7.4 Liability for enhanced severance pay for non-permanent employees under special agreement

– in respect of the past:

Active employees 20.8

In Appendix A, additional information is provided for financial statement disclosure, as required by IAS

19.


8. Uncertainties and Risks

26

8.1 Due to the nature of the employee benefits and the long future period over which they will be

paid, the level of future payments is uncertain and there may be a material difference between

actual payments in the future and those assumed payments that underlie this valuation, despite

the efforts made to assess the benefits as accurately as possible. For this reason, the Company

is exposed to risk that the estimated liability does not properly represent future payments and,

consequently, that additional costs will be incurred in the future for accrued benefits that are

under-estimated or that additional revenues will be realized from accrued benefits that are

over-estimated. Below are the main drivers of uncertainty and risk, in our opinion.

8.2 Interest, Inflation and Investment Returns

Future fluctuations in the market interest rates that are used to value liabilities (market interest

rates are used to calculate the present value of forecasted future benefit payments) will change

the gross value of the liabilities. Higher or lower rates of return on plan assets, by comparison

to these interest rates, will lead to a decrease or increase in the net liabilities, respectively. At

times, the effect of changes in market interest rates may be offset to a certain extent by the

effect of changes in the rate of return on plan assets, depending on the level of matching

between assets and liabilities.

Sensitivity analysis:

a) If the discount rate should fall by 1%, the liability would increase by

approximately NIS 5,267 million (16.3%).

b) If the discount rate should fall by 0.1%, the liability would increase by

approximately NIS 474 million (1.5%).

c) If the discount rate should increase by 0.1%, the liability would decrease by

approximately NIS 463 million (-1.4%).

Actual changes in the rate of inflation, affect the value of the liability (indirectly due to the

connection between salary / pension and inflation) and the value of plan assets (due to index-

linked assets). The two effects may offset one another to a certain extent.

Anticipated changes in the future rate of inflation may affect the value of the liability and the

value of plan assets, depending on the effect of the anticipated change in inflation on current

market interest rates and on the current values of unlinked assets.

8.3 Future Salary Increases

Assumed general salary increases (in respect of salary and cost-of-living-allowance

agreements) have considerable effect on cash flow projections. The assumption (described in

section 5.2.1.1 above) is as follows: For the years 2013-2017: a cumulative increase of NIS 357.73 per month for each

employee, and a further nominal increase of 3.625%.

For each year starting in 2018: an annual salary increase equal to the rate of change in

CPI less 0.3%.



a) If starting from December 31, 2018, actual general salary increases were higher

than what is assumed by 0.5% per year, then the liability would increase by


b) If starting from December 31, 2018, actual general salary increases were lower

than what is assumed by 0.5% per year, then the liability would decrease by

approximately NIS 505 million (-1.6%).

27

8.4 Life Expectancy

Although mortality rates are relatively stable, and the mortality assumption corresponds with

current experience relatively well, there is considerable uncertainty regarding the level of

mortality that will emerge in the long-term future, owing to the fact that future changes in life

expectancy are very difficult to predict (and may differ significantly from the assumption

underlying the valuation). The rate of change in life expectancy is affected by behavioral and

social changes and by medical developments, both past and future, and any such future

changes or developments are themselves difficult to predict.


a) If annual rates of change in mortality rates would be double the assumed rate

of change, then the life expectancy of a 67 year-old male at the end of 2020

(for example) would rise from 20.3 to 23.1 years, (and the life expectancy of a

67 year old woman would rise from 22.8 to 26.2 years) and the liabilities

would rise by approximately NIS 2,242 million (6.9%).

b) For comparison sake: if actual mortality rates would be 20% lower than

assumed, then the life expectancy of a 67 year-old male at the end of 2020

(for example) would rise from 20.3 to 22.0 years, (and the life expectancy of a

67 year-old woman would rise from 22.8 to 24.4 years) and the liabilities

would increase by approximately NIS 1,414 million (4.4%).

8.5 Early Retirement

As stated in paragraph 5.4.3 above, early retirement constitutes a significant but unstable

phenomenon, and setting the assumption regarding future rates of early retirement is highly

problematical. Early retirements have a significant effect on the level of benefit payments and

on the valuation of liabilities, because at the time of early retirement, the employee begins to

receive his full pension without any deferral or reduction that could offset the extra cost of

making pension payments in the years until normal retirement age.

Sensitivity analysis: in the event that actual early retirement rates are double the

assumed rates (see paragraph 5.4.3 above), then liabilities would increase by



Yours truly,

Alan Fefferman, F.S.A., F.IL.A.A.

28


Appendix A – Additional Reports for Disclosure in the Financial Statements

29

Introduction

In this section, the actuarial liability and additional results are divided into 3 sections:

161. Amounts relating to all "post-employment benefits" which are paid by the Fund, and assets of the

Fund. See Tables 1, 4, 6 & 9 below.

2. Amounts relating to other post-employment benefits (including severance pay, all grants after the

termination of employment, electricity discounts, and holiday gifts to pensioners) and assets not in the

Fund but dedicated to the payment of employee benefits. See Tables 2, 3, 5, 7 & 10 below.

173. Amounts relating to "other long-term benefits" , including the "20 year benefit". See Table 12 below.

(Table 8 relates to all pension and other post-employment benefits.)

This report is presented on a nominal basis.

All amounts are in NIS millions.

1. Surplus assets at end of the period

31/12/2018 31/12/2017

31,450 31,477Fair value of plan assets

(26,882)Present value of the gross pension obligation (26,330)

4,568 5,147Subtotal

Liability for special, early retirement, pension (337)agreements

(475)

4,231 4,672Surplus pension assets over pension liabilities

2. Funds held in trust – dedicated to the funding of employee benefits

(paragraph 116 of IAS 19)

31/12/2018 31/12/2017

Funds in trust – dedicated to cover actuarial 1,430 1,617obligations (assets as per paragraph 116)

3. Liability at the end of the period for other post-employment benefits

31/12/2018 31/12/2017

Present value of obligations for other post- 2,802 2,884employment benefits (including liabilities for

special retirement agreements)

16 As the term is defined in IAS 19 17 Ditto


30

4. Liability at the end of the period for Reform benefits

31/12/2018 31/12/2017

2,293 -Present value of obligations for Reform benefits


5. Reconciliation of the Beginning and Ending Values of the Pension Defined Benefit Obligation

Year Ending Year Ending Year Ending 31.12.2016 31.12.2018 31.12.2017

Present value of the obligation –beginning of 26,330 23,329 23,192period

1,040 1,120 1,105Interest cost

260 232 249Current service cost

24 24 26Employee contributions

1,693 - (128)Past Service Cost

(769) (749) (719)Benefits paid

Losses (gains) on re-measurement:

- - (42) Demographic assumption changes

(1,587) 2,718 (13) Financial assumption changes

(109) Experience adjustments (344) (341)

Total actuarial losses (gains) on re- (1,696)measurement

2,374 (396)

26,882 26,330 23,329Present value of the obligation – end of period

6. Reconciliation of the Beginning and Closing Values of the Defined Benefit Obligation for

Other Post-Employment Benefits (including special early retirement agreements)

Year Ending Year Ending Year Ending

31.12.2018 31.12.2017 31.12.2016

Present value of the obligation – beginning of 2,884 2,764 2,730period

113 133 129Interest cost

64 62 58Current service cost

Reduction in cost of various grants due to (91) - (12)their replacement by retirement grants under

a special retirement program etc. 121 Past Service Cost



- - (5) Demographic assumption changes

(159) 52 (39) Financial assumption changes

29 Experience adjustments 41 32

Total actuarial losses (gains) on re- (130)measurement

93 (12)

2,802 2,884 2,764Present value of the obligation – end of period


7. Present Value of Reform Benefits


31.12.2018 31.12.2017 31.12.2016

32

- Present Value of the obligation

16 Interest Cost

573 Current Service Cost

1,959 Past Service Cost

(247) Benefits paid


- Demographic assumption changes

(20) Financial assumption changes

12 Experience adjustments

Total actuarial losses (gains) on re- (8)measurement

2,293Present value of the obligation – end of period

8. Reconciliation of the Beginning and Closing Fair Value of Plan Assets


31.12.2016 31.12.2018 31.12.2017

31,477 29,878 28,820Fair value of plan assets – beginning of period

1,245 1,440 1,377Interest income from plan assets

1,596 873 1,230Contributions


Gains (losses) on re-measurement: return on (1,966)plan assets (excluding amounts included in

interest income)

164 (739)

31,450 31,477 29,878Fair value of plan assets – end of period


9. Reconciliation of the Beginning and Ending Fair Values of Funds Held in Trust to Cover

Actuarial Obligations (paragraph 116 assets)

33


31.12.2016 31.12.2018 31.12.2017

1,617 1,615 1,921Fair value of trust assets – beginning of period

62 77 80Interest income from trust assets


Gains (losses) on re-measurement: return on (101)trust assets (excluding amounts included in

interest income)

7 (55)

1,430 1,617 1,615Fair value of trust assets – end of period

10. Total Period Costs


31.12.2018 31.12.2017 31.12.2016 921 318 333Current service cost

(24)Employee participation (24) (26)

897 294 307Net current service cost

1,169 1,253 1,234Interest cost

3,682 - (134)Past Service Cost

(6) 57 340Early retirement costs

(1,245) (1,440) (1,377)Interest income on plan assets

Interest income on trust assets (par. 116 (62)assets)

(77) (80)

4,435 87 290Total costs for the period

11. Actual Returns on Plan Assets


31.12.2018 31.12.2017 31.12.2016 1,245 1,440 1,377Interest income on plan assets

(1,966)Gains (losses) on re-measurement: plan assets 164 (739)

(721) 1,604 638Actual return on plan assets


34

12. Actual Returns on Assets Held in Trust to Cover Actuarial Obligations (paragraph 116 assets)


31.12.2018 31.12.2017 31.12.2016 62 77 80Interest income on assets

(101)Gains (losses) on re-measurement: plan assets 7 (55)

(39) 84 25Actual return on assets

13. Obligation for Special Early Retirement Agreements including future early retirement

(termination benefits)

31.12.2018 31.12.2017 31.12.2016 337 475 562Obligation at end of period - pensions

24 33 40Obligation at end of period – other benefits**

361 507 602Obligation at end of period – total

(**) These obligations are included in Tables 3 & 5 above

14. Obligation for “20 year grant” (other long-term employee benefits)

31.12.2018 31.12.2017 31.12.2016 12 13 14Obligation at end of period

Alan Fefferman – Actuarial Services Ltd.Appendix B – Forecasted Benefit Payments

Israel Electric Corporation Ltd., 16 Chashmal St., PO Box 25, Tel Aviv, 61000

Israel Electric Corporation Ltd., 1 Netiv-Haor St., PO Box 10, Haifa, 31000

Below is a graph of the expected cash flows included in the valuation (including all benefits for

employees and pensioners), in real terms and in nominal terms (including the future expected influence

of inflation). Nominal cash flows are presented in red, while inflation-adjusted cash flows are presented

in blue.

The payments shown are annual.

Expected Payments of Accrued Benefits 2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

-

01/01/201931/12/202801/01/203931/12/204801/01/205931/12/206801/01/207931/12/208801/01/2099


Appendix C – Additional Detail Regarding Financial Assumptions (annual rates shown)

31/12/2018 31/12/2017

Weighted average real discount rate used to 2.57% 2.25% compute liabilities at the end of the period *

1.60% 1.60% Expected inflation rate

Nominal interest rate used to compute the

3.92% until 184/11/2018 ,

4.83% interest cost on pension liabilities 4.22%

thereafter

Nominal interest rate used to compute the Ditto 4.83% interest cost on other post-employment

liabilities

Nominal interest rate used to compute the Ditto 4.83% expected return on plan assets

Nominal interest rate used to compute the Ditto 4.83% expected return on trust assets (assets

according to paragraph 116 of IAS 19)

* In practice, the valuation was performed according to a vector of interest rates (a yield curve) which

was prepared by Mervach Hogen Ltd. (see section 5.1.2). Each rate shown in the table represents the

vector of interest rates, taking into consideration the expected liability cash flow at each future point in

time. A valuation performed according to the interest rate shown in the table, would produce the same

results that are presented in this report.

18 Inception date of the collective agreement from May 17, 2018

Alan Fefferman – Actuarial Services Ltd.Appendix D – Additional Detail Regarding Data

List of data files received from the Company:

1. "ong1218" – 15,412 records – data including all employees / retirees / survivors (permanent

workers only).

records – file specifies whether each retiree is a 55 – "פנסיונרים ושאירים דור ג דצמבר 2018" .2

pensioner or a surviving beneficiary

3. "actuarpizuisug13411218" - 524 records – data including all non-permanent workers (special

agreement).

.records 64 – "פורשי דצמבר 2018 כולל דור ג' " .4

5. "change102018", "change112018", "change1292018", "change122018g" – files that describe

status changes of employees / retirees in the months October to December 2018.

.data regarding electricity rates, VAT rate and grossed-up taxes – "חשמל דצמבר 2018" .6

.value of holiday gifts grossed-up for taxes – "שי דצמבר 2018" .7

Alan Fefferman – Actuarial Services Ltd.Appendix E – Changes to the Valuation that Took Effect in the Three Years Preceding the

Current Year

Changes that took effect in the course of 2017


o The assumed increase in the future electricity tariff was updated in accordance

with Company expectations. This change reduced the liability by about NIS 2

million.

o The assumed tax rate was updated, according to which pensioner benefits will

be grossed-up, leading to a reduction in liabilities of about NIS 12 million.

In the second quarter of 2017:



million.

In the third quarter of 2017:


with Company expectations. This change increased the liability by about NIS 3

million.

o The assumed early retirement rates for women ages 62-64 was updated. This

change increased the liability by about NIS 3 million.


o The salary increase assumption was updated for the period starting from the 19year 2018 . This change increased the liability by about NIS 261 million.


with Company expectations. This change decreased the liability by about NIS

179 million.

o The electricity tariff rates were updated. This change increased the liability buy

about NIS 10 million.

o Assumptions were updated regarding the expected number of children and their

ages, when an employee or pensioner is deceased. The resulting change in

liability was trivial.





million.

19 According to paragraph 5.2.1.1.


o Following the ruling dated March 5, 2016 regarding salary irregularities in the

"managerial increment" component, as well as in the "global overtime"

component for management employees, the Company provided me with

updated pensions and salary data, reflecting the correction of the salary

irregularities. The change in salary and pensions data reduced the liability by


In the second quarter of 2016, the uniform shekel amount of salary increase, calculated in

accordance with the collective bargaining agreement signed on April 18, 2016, was revised

from NIS 356 to NIS 353.1. This change reduced the liability as at June 30, 2016 by

approximately NIS 2 million.

In the third quarter of 2016:

o The uniform shekel amount of salary increase, calculated in accordance with

the collective bargaining agreement signed on August 8, 2016, was updated

from NIS 353 to NIS 382. This change increased the liability as at September

30, 2016 by approximately NIS 28 million.


with Company expectations. This change increased the liability as at September

30, 2016 by about NIS 2 million.

o The characterization of life insurance benefits for retirees was updated. This

change reduced the liability as at September 30, 2016 by about NIS 13 million.


o The “managerial increment” and "global overtime" components of salary were

updated according to a collective bargaining agreement which was signed on

December 11, 2016. This change decreased the liability as at March 31, 2017

by about NIS 134 million.

o The uniform shekel salary increase and the percentage salary increase were

updated according to a collective bargaining agreement which was signed on

December 11, 2016 (from NIS 382 to NIS 357 and from 3.75% to 3.625%,

respectively). This change decreased the liability as at March 31, 2017 by about

NIS 44 million.


with Company expectations. This change decreased the liability as at March 31,

2017 by about NIS 51 million.

o As part of a collective bargaining agreement that was reached with the company

on December 11, 2016, 314 employees retired under a special retirement

program. This change increased the liability for early retirement as at March 31,

2017 by about NIS 280 million and decreased the liability for other benefits by

about NIS 27 million. An additional 36 employees are expected to retire under

the conditions of this special retirement program, their retirement will increase

the liabilities by about 27 million.

o The following actuarial assumptions were updated based on the results of

experience studies:

Alan Fefferman – Actuarial Services Ltd. Proportion of married pensioners - decreased liabilities by about NIS 5

million.

Age difference between spouses - increased liabilities by about NIS 13

million.

Subsidized electricity consumption for pensioners - increased liabilities


Early retirement rates for Generation A and Generation B employees -

decreased liabilities by about NIS 57 million.

Withdrawal rates for Generation C employees - increased liabilities by



In the third quarter of 2015, the VAT rate was revised to 17% (from 18%) for the purpose

of calculating the cost of electricity. This change reduced the liability by about NIS 20

million.

In the fourth quarter of 2015, the salary increase assumption was updated. This change

increased the liability by about NIS 616 million. Similarly, the mortality assumptions for

female pensioners and female widows were updated – this change increased the liability



In each quarter of 2014, interest rates were updated in accordance with market interest

rates at the valuation date. In the valuation at December 31, 2014, there was a transition

to discounting based on the returns of high quality corporate bonds. The impact of the

transition from a discount rate based on Government bonds to a discount rate based on

corporate bonds was a decrease in the liability of about NIS 5,188 million.


o the salary increase assumption was updated in accordance with our

recommendation which is based on actual past experience, the Company's

expectations and inflation expectations. The main change is to the assumed

salary increase that results from general wage agreements, from -1.38% real

(and 1% nominal for 2013 to 2014) to -0.75% real (and 0.8% nominal for the

years 2013 to 2016 inclusive), which increased the liability by NIS 1,078

million. Other changes in salary increase assumptions reduced the liability by


o the assumed increase in the future electricity tariff was updated in accordance

with the Company's expectations. This change increased the liability by about

NIS 53 million.

o we received updated information regarding the determining service for

entitlement to severance pay for generation C employees. This update reduced

the liability by about NIS 8 million.

Appendix F – Details of Benefits

Date: October 3, 2018

Description of the Main Rights which Should be Taken into



Consideration in Determining the Actuarial Obligation with respect to

Benefits After Termination of Employment

The Determining Salary Components for Calculating the

Pension:

1. Normal Salary - including combined salary, service increment (up to a 40 year maximum), extra effort

increment, continuing education payments, job classification increment, personal extra, cost of living

allowance.

Normal Salary Calculation Formula (will be paid to pensioners/survivors

according to the pension rate):

Continuing Cost of

Command Normal Extra Education and Personal NIS + Living Salary

= + + + N x Increment +1 x +1 x

salary Effort Administration Extra Increment (1.01) Allowance Grade Percentage Remuneration Rate

N – number of years of service for calculating the service increment for payment

Normal Salary Components:

(a) The Combined Salary is according to accepted salary tables in the Company.

On December 11, 2016, a collective bargaining agreement was signed in the Company (hereinafter: the "2016

Agreement"). This agreement even includes, inter alia, a salary agreement for the years 2013-2017 which is

based on the salary agreement signed in the civil service on April 18, 2016 and updated on August 8, 2016.

The agreement provides the Company's employees with a comprehensive and accrued salary increment of

7.25%, half of which is paid as an NIS increment in the regular salary and half will be paid as a percentage

increment in the salary table, on dates as follows:

On May 17, 2018, a special collective bargaining agreement was signed (Reform and structural and

organizational change). Section 140 of this Agreement stipulates that the Company will adopt the framework

agreement between the State and additional employers in the public sector and the Histadrut of January 9,

2018, regarding postponement of the fourth and fifth phases of the salary agreement to 2013-17. These phases

will be postponed pursuant to that detailed below, in return for increasing the total cost framework with an

additional rate of 0.15%. 0.11% of the increase in the cost of 0.15% was allocated to finance the increase of

the professional B remuneration ceiling as specified in the reform agreement, and the remaining 0.4% increase

in the cost as aforesaid will be distributed (following the signing of a designated collective bargaining

agreement) in favor of increasing the salary base for pension for Generation C employees who have

commenced work before January 1, 2004.





Phase date Sum of NIS increment Rate of Total salary increment

percentage increment (NIS and percentage)



First phase – NIS 96.86 -- 1%

December 2016 *

Second phase – Supplement to NIS 129.29 1.310% 2.62%

March 2017

Third phase – Supplement to NIS 197.80 Supplement to 2.005% 4.009%

June 2018

Fourth phase – Supplement to NIS 277.81 Supplement to 2.815% 5.63%

August 2019 (instead of

December 2018)

Fifth phase – Supplement to NIS 357.73 Supplement to 3.625% 7.25%

December 2019 (instead

of March 2019)

Paid retrospectively from the salary of July 2016

The "2016 Agreement" relates to pensioners who retired during the period of the agreement (2013-17). These

pensioners are entitled to a supplement according to the period of their work during the relevant years (see

Appendix A of the 2016 Salary Agreement").

The combined salary of Management level members includes global payment for overtime.

The 2016 Agreement determined that management members who were appointed to their office before October

10, 2013 (hereinafter: "Entitled Management Members") will continue to be entitled to inclusion of global

pension overtime as an integral part of their salary/pension for all intents and purposes, subject to the following

changes:

• As of August 1, 2016, the scope of their entitlement for global pension remuneration with respect to

50 hours of overtime per month is at a value of 140% per hour.

• Active "Entitled Management Members" are even entitled to payment with respect to 20 global

overtime hours (non-pension) per month at a value of 140% per hour, as long as they are active

employees and subject to fulfillment of the entitling criteria for payment of global overtime as is

customary at the Company.

• Employees who were/will be appointed to serve as members of the management after October 10,

2013, are not entitled at all to inclusion of remuneration for global overtime in their regular salary as

a determining component for calculation of salary components which are paid on the basis of the

pension salary, but are entitled to a global monthly remuneration (non-pension) with respect to 70

overtime hours with an hour's rate of 140%, as long as they are active employees and subject to

fulfillment of the entitling criteria for payment of global overtime as is customary at the Company.


(b) Service increment:



1. The annual service increment rate is 1% for each year of service.

2. The Service Increment Calculation Formula:

NService Increment Amount for Payment = [(1.01) – 1 ] X (job classification increment + salary grade). N – number of service years for payments where N =< 40 (as detailed in HR procedure "Service

Increment" No. 04-01-02).

3. Masters Degree Service:

Another service increment at a 50% rate, starting from completing the studies for a master's degree, for

employees at the grade of engineers, academics and lawyers only (instead of a service increment of one

year, each year, such an employee is entitled to a service increment of 1.5 years for each year from the

Master's studies completion date onwards).

4. Service Increment/ Pension Percentages with respect to Security Service prior to Establishing the State

of Israel/ Prisoners of Zion:

An employee who served a full active service period in one of the recognized service units (Palmach,

Hagana, Etzel, Lehi, British Army Jewish Brigade, Palestinian Ghaffir, Policeman in the Mandate

Police) - 80% of the service period will be added to the work service factor for determining the pension

rate.

An employee who served as a volunteer in the Hagana, Etzel or Lehi and is entitled to ALEH

decoration – is entitled to a 3% increase in his pension.

A "Prisoner of Zion" employee – will receive a 1% increase in pension for each year of recognized

imprisonment, up to a total of 5%.

In any event, the total pension rate will not exceed 70%.

(c) Extra Effort Increment:

1. An increment paid according to entitlement groups and updated for active employees with each cost

of living allowance and each work agreement.

2. The Main Entitlement Groups are:

Group A – Maintenance employees.

Group B – Other workers, meter readers.

Group C – The population that is not defined in groups A, B, D.

Group D – Trainees in a shift.


(d) Managers continuing education payment:



1. Monetary increment paid to employees of management rank, who meet the entitlement terms.

2. Entitlement terms are:

Employees whose nominal grade is 14 at least.

Who are high school/vocational school graduates, including 11 years of education.

Who completed two study years in a higher education institution or completed a pre-defined

number of study hours related to their occupation or profession, as detailed below:

Service years in the field of occupation/ profession

Required study hours related to

the occupation or the profession

Up to one year 800

Up to two years 700

Up to four years 600

Up to six years 500

Up to eight years 400

Up to ten years 300

Up to twelve years 200

Twelve years and up 100

Note: An employee with long tenure in his occupation requires a smaller number of study hours.

3. Employees who fulfill all the terms specified in section 2 and also accumulated 400 study hours

according to the tests listed in Section 5 of HR procedure "Continuing Education Payments to

Employees in Managerial Grade" (No.04-01-04).

4. Threshold Terms (for section 3):

Courses/continuing education recognized by the "Committee for Recognizing Courses and Continuing

Education of the Ministry of Education and Culture" and listed in the Approved Courses List that

ended within a period of 5 years prior to the request for payment filing date.

5. Rate Update:

Managerial continuing education payments rate is updated for active employees according to each cost

of living increment. Rate update derived from a wages agreement – if specified in the agreement.

6. Administration Remuneration Supplement

As of May 1, 2018, an employee entitled to an administrative continuing education remuneration will

be entitled, starting from the end of one year to the date of his entitlement to the administrative

continuing education remuneration, to the payment of an administration supplement of NIS 200 gross

per month. The payment was made from November 2018, retroactively from May 2018. The amount of the supplement will be updated in accordance with the update mechanism, update rates

and update dates of the Company's continuing education remuneration.

The supplement will be included in the ordinary salary, except with regard to the calculation of the retirement

grant for retirees in special early retirement (for the removal of doubt, the supplement will be included in the

calculation of the grant for non-utilization of sick leave and redemption of vacation days).


(e) Professional Continuing Education Payment:



1. A monetary increment paid to employees in the professional rank (academic degrees, engineers,

lawyers, practical engineers and technicians) who fulfill the terms of entitlement, as detailed in HR

procedure 04-01-05.

2. The entitlement to continuing education payment A and B is determined by a joint committee of

representatives of the professional Histadrut and representatives of the Ministry of Finance.

3. Recognition of Studies Period for Payment A:

Courses and continuing education that ended in a period of up to 5 years prior to submitting the request

for continuing education payment to the payment committee will be recognized, even when these

occurred before the employee was entitled to the degree.

4. Recognition of Studies Period for Payment B:

An employee in a professional grade who received continuing education payment A, who completed

a continuing education of 400 study hours at least and fulfilled the entitlement terms specified in HR

procedure "Continuing Education Payment to Employees in a Professional Grade" (No. 04-01-05) is

entitled to payment B.

5. Rate Update:

Rates of payment for professional continuing education A + B are published and updated from

time to time for active employees by the Supervisor of Wages and Work Agreements in the

Ministry of Finance. The rate update that is derived from the salary agreement provided it is

specified in the agreement.

Employees in the professional grade, at grade 44 (nominal) and up will receive payment at the

rate of continuing education B, at a rate of 9% of the salary grade and the service increment of

the employee (without the part with respect to job classification increment), up to the ceiling

specified in the related HR procedure or according to the standard rate, the higher of the two.

As of May 1, 2018, the ceiling amount for the continuing education B remuneration will

increase by NIS 100 gross per month.

The payment was made in the salary of November 2018, retroactively from May 2018.

The cost of the increase will be financed by postponing the last 2 phases of the wage agreement

for 2013-17 as stated in the combined salary section above.

The updated ceiling will be updated according to the same updating mechanism, update rates and

update dates of the ceiling in the professional continuing education B remuneration, according to

the rules applicable prior to the signing of the collective bargaining agreement.


(f) Job Classification Increment



Employees defined as managers are entitled to Job Classification Increment according to the defined group

to which they belong.

The "2016 Agreement" determined, inter alia, that as of August 1, 2016, the command increment will

continue to be paid to active employees or to pension receivers, according to the following rates:

M Professional group * 2.5%

P-1 Unit leaders, deputy unit leaders, group leaders and their counterparts 5.5%

P-2 "Large" unit leaders, foremen and their counterparts 6.5%

P-3 Deputy Department Heads, Senior unit leaders 7.5%

Senior foremen and their counterparts are compared to Department Heads

(codes 5960, 1960, 5521 and 3861), and office managers (code 1405)

P-3 A Compared to Head of Department at peak rank 10%

P-3 B Compared to Head of Department after two years at peak rank 15.5%

P-4 Department Heads (codes 1450, 5010, 5061) 10%

P-5 Department Heads at peak rank 19%

P-6 Senior Department Heads 20.5%

P-7 Deputy Heads of Division/District 21.5%

P-8 Members of management (rank of Heads of Division/District and Deputy CEOs) 22.5%

(*) including employees employed by the Company for at least 20 years and who were not entitled to any command

increment.

(g) Personal Extra:

1. A fixed monetary increment, paid to a closed group of employees in whose combined salary a gap

was created when a uniform salaries grade was defined for all employees in April 1, 1973. Following

general wage agreements in 1978, the salaries schedule was updated again, aiming to simplify the

salary structure and create a uniform and clear salaries grade, while cancelling certain additions, once

again causing the creation of this increment.

2. The personal extra component is intended to maintain the level of the base salary paid to employees

prior to the changes in the salary tables.

3. The addition is updated for active employees with every cost of living allowance and wages

agreement.

th2. Payment of 13 Salary

nd th1. Employees from their 2 year of employment and pensioners/survivors are entitled to 13 salary payment.

th2. The 13 salary consists of a normal salary for the payment month, divided by 12 and multiplied by 6 st ndmonths, generally payable in two parts: the 1 part before Passover and the 2 part before the Jewish New

Year (Rosh Hashana). This arrangement of an annual non-recurring payment will apply and will continue

for pensioners and surviving relatives whose retirement date is before January 1, 2019 (unless they joined

in writing the arrangement of monthly payments).

th3. As of January 2019, the payment of a 13 annual salary to eligible employees will be made every month thas part of the monthly salary by dividing the 13 annual salary by 12. This new outline will apply to all

active employees: permanent employees with budgetary pension (and later even after their retirement as

pensioners in the budgetary) and employees saving by the cumulative pension (temporary and permanent).

th4. The 13 salary is paid to pensioners/survivors according to the pension rate.

th3. 20/25 years Salary Payment (14 Salary)


An addition at the rate of one monthly normal salary, payable once a year, to a woman after 20 years and

to a man after 25 years, provided that the employee started working in the Company before January 1,



2004. The 20/25 year salary will be calculated on the date of payment. This arrangement of a non-

recurring payment will apply and will continue for pensioners and surviving relatives whose retirement

date is before January 1, 2019 (unless they joined in writing the arrangement of monthly payments).

The 20/25 year salary is paid to entitled pensioners/survivors according to the pension rate.

Entitlement to payment is according to years of work in the Company, less all unpaid leave periods the

employee took after the salary agreement signing date, January 31, 2011, unless and insofar as the

employee purchased rights with respect to the unpaid leave period, by paying the Company a payment at

the rate of 18.5% of the determining components for calculating the monthly pension (including an

increment of 1/12 for convalescence pay).

The aforesaid does not affect an unpaid leave of an employee taken before the signing date of the salary

agreement on January 31, 2011, for a period that does not exceed one year and was or will be taken into

account be the Company for the purpose of time periods specified in this section.

Pensioners/survivors who fulfilled the aforesaid terms on the eve of their retirement, are entitled to

payment of 20/25 years salary. The salary of 20/25 years will be paid as before to an employee entitled to

budgetary pension who retired/will retire from the Company and who, on the eve of retirement, was/will

be entitled to 20/25 years salary, according to the aforementioned terms. As of January 1, 2019, the

payment of the 20/25 year salary to eligible employees will be made every month as part of the monthly

salary and will be calculated according to a rate of 8.33% of the 20/25 year salary as aforementioned.

This outline will apply to all active employees: permanent employees with budgetary pension (and later

even after their retirement as pensioners in the budgetary) and for Generation C permanent employees

who began working at the Company before January 1, 2004, who are insured with the cumulative pension

(Veteran Generation C) and subject to the terms of entitlement as aforesaid.

Notwithstanding the aforesaid, in the transition year only (2019) - the entitlement to start payment of

20/25 year salary in the new outline for active entitled employees who received this payment in 2018 will

be from the month after 12 months have passed from the date on which the employee received the payment

in 2018.

4. Convalescence Payments

1. An annual payment of a convalescence allowance.

st2. An employee is entitled to convalescence payment only after completing the 1 year of work in the

Company. At the end of the year the employee will also be entitled to convalescence payments with

respect to parts of the year, relative to the number of paid days.

3. Convalescence payments that will be paid to employees will be a multiplication of the employee’s

annual quota of days (as detailed in section 4) by the price of a convalescence day.

The convalescence payments that will be paid to pensioners/surviving relatives insured by the budgetary

pension arrangement will be a multiplication of the pensioner/surviving relative’s annual quota of days

(as detailed in section 4) by the price of a convalescence day (as detailed in section 5) and by the

pension rate they are entitled to.


4. The following are Convalescence Days Quotas (to permanent employees, pensioners and survivors):



Number of work years Number of Convalescence days per year

nd1. After one year of work (for the 2 year) 13

2. After two years of work 14

3. After three years of work 16

4. After eight years of work 18

5. After twelve years of work 20

5. Convalescence Day Rate:

From 1995 and until 2018 - the rate per one convalescence day is updated once a year on June 15, at the

rate of the cumulative change in the CPI from the CPI of May (published on 15.6.XX) to the CPI in May

on the following year (published on 15.6.XX+1)

The rate for a convalescence day, which was published on 15.6 every year, constituted the basis of the

sum for calculation of the price for a convalescence day according to the aforesaid in the following year,

and so on. In 2019 - the rate for a convalescence day will be updated on January 15, 2019 at the rate of the cumulative

change that will be occur in the CPI, from the CPI of May 2018 (published on June 15, 2018) to the CPI

of December 2018 (to be published on January 15, 2019). The rate for the convalescence day for 2019, to

be published on January 15, 2019, will be effective from January 1, 2019 until December 31, 2019, and

will constitute the basis of the amount for the calculation of the rate for a convalescence day for 2020. As of 2020 - the price for a convalescence day will be updated once a year on January 15 at the rate of

the cumulative change that will be occur in the CPI from the December CPI (published on December 15,

XX) to the December CPI of the following year (will be published on 15.1.XX+1). The cost for a

convalescence day to be published on January 15 each year will be valid from January 1 to December 31

and will constitute the basis of the sum for calculating the price for a convalescence day according to the

aforesaid in the following year and so forth.

6. Payment Date: Pensioners insured by a budgetary pension who retired from the Company before January 1, 2019, and

entitled surviving relatives, will be paid an advance on account of convalescence payment in the salary of

April and the balance will be paid with the salary of July.

According to the convalescence day rate as stated in section 5 above, a pensioner/surviving relative as

aforesaid may also join the outline of the convalescence payment spread for employees (section 6.1

below) by means of a written request to the Company. 6.1 As of January 1, 2019, annual convalescence payment for entitled employees will be made monthly,

as part of the monthly salary, by dividing the annual convalescence amount by 12. This outline will

apply to all active employees: permanent employees in budgetary pensions (and later even after

retirement as pensioners in the budgetary) and employees insured by cumulative pension (temporary

and permanent Generation C employees).


5. Arava Addition



1. Arava addition is paid to an employee whose permanent work site and base are located in the Negev,

south of latitude 30.

2. Arava addition will be included in calculations of pension to eligible employees who received the addition

for at least three years before retiring from work, and will be paid to entitled pensioners/survivors

according to the pension rate.

3. The Arava addition rate is updated for active employees after each cost of living allowance. Rate update

derived from a wages agreement – if specified in the agreement.

6. Home Service Payment

1. An addition paid to employees on home service, according to the grading of the Company, included in

the calculation of the pension.

2. The criteria for including home service payment in the calculation of the pension are:

An employee who retired to pension and received a monthly payment for home service of eight hours

per evening and/or night for 10 consecutive years just before his retirement is entitled to an addition

of 50% paid to him with respect to the home service before the retirement in the pension payment,

according to his pension rates.

For every year over the aforementioned 10 years, the pensioner is entitled to an addition of up to 5%

(for part of the year: up to 6 months – 2.5%; more than 6 months – 5%) of the payment paid before

the retirement for home service, according to the pension rate due to him, up to a maximum of 100%

of the amount of the addition after 20 years of payment with respect to the home service paid on the

eve of the retirement and according to his pension rates.

Maximum payment in the pension for fixed or non-fixed home service will not exceed 10 home

services per month, multiplied by the pension rate, multiplied by the home service rate, multiplied by

the home service increment to the pension.

An inspector who was transferred to another role whose entitlement to have the shift percentages

included in his pension was recognized and during shift work received payment for home service for

10 consecutive years at least, is entitled to home service payment in the pension, even if the home

service was terminated before the retirement date.

3. Home service rate is updated for active employees with every cost of living allowance. Rate update

derived from a wages agreement – if specified in the agreement.


7. Payment for Shift Work



1. An addition paid to employees on shift work, according to the grading of the Company, included in the

calculation of the pension.

2. The criteria for including shift work percentage increment in the calculation of the pension are:

1. A shift worker, according to the Company's grade, who worked for at least 10 years in two shifts

(morning and evening only) and retires to pension from shift work, will receive an addition of shift

percentages in the pension at a rate of 20% of the pension.

2. A shift worker who is a CCGT operator, according to the Electric Company's grade, who worked for

at least 10 years in shifts and retires to pension from shift work, will receive an increment of shift

percentages in the pension at a rate of 40% of the pension.

3. A shift worker, according to the Electric Company's grade, who worked for at least 10 years in three

shifts (morning and evening and night) and retires to pension from shift work, will receive an

increment of shift percentages in the pension at a rate of 40% of the pension.

4. A shift worker according to the grade of the Electric Company, who was permanently transferred to

another position due to re-organization or an illness approved by a medical board and upon approval

of the VP of Human Resources, who worked for at least 10 years in shifts prior to being transferred to

another position, will receive shift percentages upon retirement, as follows:

Shift worker in three shifts: 2% for each year up to a maximum of 40%. CCGT Operator: 2% for each year up to a maximum of 40%. Shift worker in two shifts: 1% for each year up to a maximum of 20%.


Description of the Rights which should be Taken into Consideration in Determining



the Actuarial Obligation with respect to Benefits After Termination of Employment

Electricity Rate for Company Employees

1. Permanent employees and receivers of pension (pensioners/survivors), insured in the budgetary

pension arrangement, as defined in the labor constitution and according to the directives of the pension

regulations are entitled to the electricity rate for Company employees. The obligation of the Company

includes the cost of the benefit, the VAT and the grossed up income tax with respect to them.

2. Generation C employees and pensioners and their survivors are entitled to electricity at the Company

electricity rate in each of the following cases:

An active generation C employee.

Upon retiring from work in the Company due to a disability which is recognized as an entitling

event by the pension insurer of the employee, as long as the employee is recognized as a disabled

person by the insurer.

Upon retirement from work at the Company due to dismissal, at the age of 60 or later, provided

that the employee has 10 years of work at least.

Upon retirement from work at the Company due to age, provided that the employee has worked for

the Company for at least 10 years.

Survivors are entitled to pension from the pension insurer of an entitled generation C employee.

3. The aforementioned entitled employee will be entitled to electricity at the rate of Company employees

for one residential unit only, at his actual residence, provided that the electricity is intended for

domestic consumption and personal use only.

4. In the event that two entitled persons reside together in the same residence, only one of them is entitled

to the electricity rate for Company employees.

5. Pensioners/survivors are entitled to electricity at the rate of Company employees without doubling the

pension rate.

6. Pension recipients are entitled to electricity on condition that the pension from the Company is their

main source of subsistence.

7. In accordance with the collective bargaining agreement of May 17, 2018, an employee joining the

Company as of November 5, 2018, will not be entitled to electricity at the Company employee rate,

even if he obtains the status of a permanent employee.

Holiday Presents

1. The Company grants holiday presents to its employees, pensioners and their survivors, handed out on

two dates: just before Passover and just before the Jewish New Year (Rosh Hashana). The Company

liability includes the cost of the benefit and also the grossed up income tax with respect to them. The

amount of the gift is linked to the Consumer Price Index.

2. Generation C employees and pensioners and their survivors are entitled to holiday presents in each of

the following cases:

An active generation C employee.

Upon retiring from the Company due to a disability which is recognized as an entitling event by

the pension insurer of the employee, as long as the employee is recognized as a disabled person by

the insurer.

Upon retiring from work at the Company at the age of 60 years or later, provided that the employee

has 10 years of work at least.

Upon retirement from work at the Company due to age, provided that the employee has worked for

the Company for at least 10 years.

Survivors are entitled to pension from the pension insurer of an entitled generation C employee.

3. In the event that in one family the pension is paid to survivors in separate payments, only one family

member is entitled to holiday presents.

4. Pensioners/survivors are entitled to holiday presents without doubling the pension rate.


Life Insurance and Compensation for Successors



1. “Risk" Insurance – CPI-linked Amounts (Benefits and Premiums)

1.1. Insurance applies to: employees upon starting work, pensioners, and spouses.

1.2. The benefit – Two thirds of the premium is paid by the Company (the amount is credited to the

employee as value for tax purposes).

1.3. One third of the premium is paid by the employee.

Raise of Salary Grade for Active Employees

1. An employee in the managerial grades up to grade 15 (inclusive), or an employee in the professional

grades up to grade 40 (inclusive), will be promoted by one grade every year. An employee in the

managerial grades, from grade 16 and up, or an employee in the professional grades from grade 41

and up, will be promoted by one rank once every two years.

2. Employees employed at managerial grade 27 / 46 professional will not be promoted until their

retirement.

3. Senior employees - in principle, promotion in salary grade usually occurs after promotion to a higher

position (deputy section manager/section manager/Deputy CEO). Promotion to senior department

manager is not automatic and may only be granted after at least 5 years at the previous grade, by

recommendation of supervising section manager and Deputy CEO and with CEO approval. With

respect to senior department managers, to date, grade C only serves as a retirement grade.

Star Grade

An employee who began working at the Company before January 1, 2004, and has 25 years of service for

a male / 20 years of service for a female, are entitled to a payment equivalent to one additional salary grade

to their grade, without changing the nominal grade.

Entitlement to payment is determined according to years of work in the Company, less all unpaid leave

periods of the employee after entering the salary agreement, on January 31, 2011, unless and insofar as the

employee purchased rights with respect to the unpaid leave period by paying the Company payments at the

rate of 18.5% of the determining components for calculating the monthly pension (including and increment

of 1/12 for convalescence pay).

The aforesaid does not affect an unpaid leave of an employee taken before the signing date of the salary

agreement on January 31, 2011, for a period that does not exceed one year and was or will be taken into

account be the Company for the purpose of time periods specified in this section.

Pensioners/survivors who fulfilled the aforesaid conditions on the eve of their retirement are entitled to a

star grade. A star grade will be paid as before to an employee entitled to budgetary pension who retired/will

retire from the Company and who, on the eve of his/her retirement, was/will be entitled to a star grade,

according to the aforementioned description.

Employee who is entitled to a grade promotion and to a star grade on the same date, will be concurrently

promoted to both grades.


Additional Grade at Eilat



A permanent employee employed at Eilat under a special tenure agreement and a temporary employee

under a special agreement is entitled from starting work in this region to payment equivalent to one

additional salary grade, without changing the nominal grade. The aforementioned employee, who moves out of the Eilat region to another region at the end of seven

years of work or more, will carry over the entitlement to payment of the additional salary grade.

Promotion in Grade upon Retirement

1. Starting from the date of the "Changing the Update Method of Budgetary Pension Law, 2012", an

employee entitled to budgetary pension who will retire from the Company (and in the event of the demise

of such an employee, his survivor), will be entitled to one salary grade on the retirement date from the

Company, regardless of the date on which he was promoted by one salary grade as an employee.

2. If an active employee is entitled on April 1, 20XX, to a salary grade according to the work agreements

and is scheduled to retire to pension on this date, he will be entitled on April 1, 20XX to both a salary

grade according to the work agreements and to a retirement salary grade.

3. An employee who is entitled to a star grade will receive a retirement grade, as detailed above, as if he

had the subsequent grade.

4. The following table details the granting mode of retirement salary grades to retiring employees at

present:

Grade before retirement date Granting retirement grade on the retirement date

(after 12 months at least in the former grade)

+43 / 22 44 / 23

44 / 23 +44 / 24

+44/ 24 45 / 25

45 / 25 +45 / 26

+45 / 26 46 / 27

46 / 27 +46 / +27

(f) 46 / (f) 27 + (f) 46 / + (f) 27

*46 / *27 +*46 / +*27

*(f) 46 / *(f) 27 + *(f) 46 / + *(f) 27

5. Retirement Grade for Senior Employees

A Deputy CEO / section manager / deputy section manager (of grades A and B) are not entitled to a

retirement grade.

Pension Updating Mechanism

1. From January 1, 2012, the determining components of the salary for calculating the monthly pension of a

pensioner/ survivor entitled to budgetary pension are not updated through any grades, except promotion by

one salary grade upon retirement.

2. From January 1, 2012, all the instructions to update the determining salary for calculating the pension were

cancelled, including any component included in it, whether they derive from an agreement or an arrangement.

Therefore, the determining components of the salary for calculating the monthly pension of a

pensioner/survivor entitled to budgetary pension are not updated according to changes in the salary granted

to any active employee of the Company at any time, e.g. salary agreement, CPI increment, changed reward

rate for advanced studies/effort, command supplement, etc.


3. From this date, the pensions update mechanism of employees entitled to budgetary pension from the

Company has changed. The determining salary components for calculating the monthly pension of every

pensioner/survivor entitled to budgetary pension will be as follows: normal salary, shift percentage increment th th(to those entitled), 1/12 of the 13 salary, home service (to those entitled), 1/12 of the 14 salary (to those

entitled), Arava increment (to those entitled), and CPI increment (see section 5 below).

These components are updated in January of each year only, according to the rate of the annual change in the

CPI (the first update, according to the specified in this section, occurred in the pension for January 2013).

The aforementioned applies to every pensioner/survivor entitled to budgetary pension and retired from the

Company before the date on which the law became effective and also to employees entitled to budgetary

pension (or their survivors), starting from their retirement date from the Company.

4. In the event that the annual change in the CPI rate will be negative, the determining components of the salary

for calculating the monthly pension will not be updated on the following January of the year for which the

CPI is negative. However, in the first update, and where needed in the following pension updated (in each

January), the changes in the CPI with respect to the said period or periods will be fully included in the

calculations for those updates.

5. CPI Calculation Increment:

From January 1, 2012, a monthly increment to the pension with respect to the months from March 2012

onwards, was paid to every aforementioned pensioner/survivor, who retired from the Company before

January 1, 2011, as follows:

a. An 8% monthly increment to the pension:



A pensioner/survivor who received a managerial grade of 27 and up (or a professional grade of 46 and

up) before January 1, 2011, or alternately, whoever received a retirement grade of 27 and up (managerial

grade) or 46 and up (professional grade), or alternately, received a grade of the senior employees’ grade

scale before January 1, 2011.

Or alternately

A 12% monthly increment to the pension:

A pensioner/survivor who was not graded at a managerial grade of 27 and up (or a professional grade

of 46 and up) before January 1, 2011, whose retirement grade is not an increment to grade 27 and up

(managerial grade) or 46 and up (professional grade), or alternately, did not receive a grade of the senior

employees’ grade scale before January 1, 2011.

An employee/survivor who was promoted to a grade (which is not a retirement grade) in 2011, received

a CPI calculation increment at the rate of the difference between 12% and the rate of the change in the

pension deriving from receiving a grade in 2011.

b. Increasing the CPI Calculation Increment at an additional rate of 6%: The CPI calculation increment of a pensioner/survivor who retired from the Company before January 1,

2011, and on January 2, 2012, was graded in a managerial salary grade of 23 and below, or in a

professional salary grade of 44 and below, was increased as of March 2016, at an additional rate of 6%

of the base pension.

A pensioner/survivor who retired from the Company after December 31, 2011, is not entitled to a CPI

calculation increment at all.


Deduction of Payments from Salaries of Employees Insured in Budgetary Pension



1. The "Plan for the Recovery of Israel's Economy" Law – 2003, states (in chapter P to the law, on "Payments

of Employees to Budgetary Pension") that an employer whose employees or part of them are subject to a

budget arrangement of pension paid by the treasury of the State or from the employer's fund (budgetary

pension), will deduct 1% (starting on January 1, 2005 the deduction is at the rate of 2%) from the

determining salary paid to the employee, whose pension arrangement is budgetary pension.

2. According to a legal opinion, the instructions of this chapter apply to the Electric Company and its

employees, insured in a pension out of the Company's budget, namely, permanent employees who began

to work at the Company before June 11, 1996 (employees insured in the budgetary pension arrangement).

3. Determining salary for paragraph 1 above: "Salary components paid to an employee, which would have

been included for the purpose of calculation of the pension, had that employee retired to pension at that th thtime." Namely, normal salary, shift work payment, convalescence, fraction of 13 salary and 14 salary,

permanent home service and Arava addition.

4. The pension liability is not reduced due to the participation of employees insured in the budgetary pension

arrangement in the cost of the budgetary pension.

Obligation of the Company to Welfare Activities for Employees and Pensioners /

Survivors

a. In addition to salaries paid to employees and pensions paid to pensioners/survivors, the Company has an

obligation to incur costs of welfare activities of 0.49% of the salary of each employee, or of the pension

and grants to which each pensioner/survivor is entitled (this obligation is not calculated for the components

that are not normal salary or those that are not affected by a rate per hour: convalescence, electricity, gift,

permanent home service and Arava addition).

b. Starting on January 2, 2012, the Company is allocating to a fund, that is managed by the representatives

of the employees (in a dedicated bank account that was opened for this purpose) with respect to each

pensioner (without survivors) who is entitled to budgetary pension only, an annual sum for the following

welfare activities:

The allocated sum is updated on January of each year according to the annual change rate in the CPI.

The sum is paid once a year, in the month of December, and is transferred with respect to a pensioner who

receives pension in the month of December and has retired during that calendar year (will entitled to a

pension for the period in which he was a pensioner only), will be calculated proportional to the period in

which he is was a pensioner. It is clarified that only a pensioner entitled to a pension from the employer in

the month of December of every year will be considered for the purpose of calculating the total sum with

respect to that year. Therefore, a pensioner who is not entitled to a pension in the month of December as

stated (for example: a pensioner who has passed away during the year will not be taken into account as

entitled to receive any sum from the fund) will not be taken into account for the purpose of calculating the

total sum each year.

The objective of the fund is to act for the welfare of pensioners in the cultural, health, recreation and leisure

fields.

The fund is managed according to accounting measures from aspects of detailed audit and reporting of all

actions made by the fund and funds expended by the fund, respectively.

Despite the aforesaid, from January 2, 2012 through July 1, 2023, only half (50%) of the aforementioned

total amount is allocated to the welfare of pensioners entitled to budgetary pension, until the CPI

calculation increment, detailed in section 5 above under section “Pension Updating mechanism”, is fully

financed.


Reform Pension Supplement



a. Pursuant to the collective bargaining agreement of May 17, 2018, an employee who retires from the Company

commencing from the end of June 2018 for any reason other than death, disability or retirement by the special

retirement program during the reform period, will be entitled, from the date on which he reaches mandatory

retirement age, to an additional monthly pension for the rest of his life and to his surviving relatives (spouse only).

The pension amount will be determined according to the Company's compliance with the prescribed milestones.

This amount (up to NIS 1,700) will be linked to the CPI and multiplied by the coefficient determined in accordance

with the provisions of the collective bargaining agreement. The collective bargaining agreement even provides a

right to a pension supplement under terms arranged in the agreement for a retiree due to disability and the heirs

of a deceased employee. The pension will be purchased and paid according to a mechanism that is determined in

the collective bargaining agreement as follows:

a1. An employee who will retire during the reform period:

In the first stage, the “Base Amount” will be calculated for each employee, up to NIS 1,700 gross, according to

the month of his retirement as detailed in the table below:

Month Base amount in NIS

Month Base amount in NIS

June-18 250 December-20 1,105

July-18 283 January-20 1,126

August-18 315 February-21 1,146

September-18 348 March-21 1,167

October-18 380 April-21 1,187

November-18 413 May-21 1,208

December-18 445 June-21 1,228

January-18 478 July-21 1,249

February-19 510 August-21 1,269

March-19 543 September-21 1,290

April-19 575 October-21 1,310

May-19 608 November-21 1,331


July-19 673 January-21 1,372

August-19 705 February-22 1,392

September-19 738 March-22 1,413

October-19 770 April-22 1,433

November-19 803 May-22 1,454

December-19 835 June-22 1,474

January-19 868 July-22 1,495

February-20 900 August-22 1,515

March-20 921 September-22 1,536

April-20 941 October-22 1,556

May-20 962 November-22 1,577


July-20 1,003 January-22 1,618

August-20 1,023 February-23 1,638

September-20 1,044 March-23 1,659

October-20 1,064 April-23 1,679

November-20 1,085 May-23 1,700

The employee’s entitlement to the base amount is subject to the realization of milestones as detailed in the table

in section a1.1 below, so that insofar as on the day of the employee's retirement the base amount will be higher


than the milestone proceeds realized by that date, the employee will be entitled to the milestone proceeds that

were realized up to the date of his retirement according to the amounts in table a1.1 below (hereinafter: the

“Adjusted Amount”), and not to the base amount.

Insofar as additional milestones will be realized in the grace period, as defined below, the adjusted amount will

be increased at the time of realization of the milestones according to the milestone proceeds and up to the base

amount, provided that the milestone was realized within 12 months (for each of the milestones (2) - (4)) or 24

months (for each of the milestones (5) - (9)), as the case may be, from the exercise date determined for each

milestone in the table below. For the avoidance of doubt, it is hereby clarified that in any case the adjusted amount

will not exceed the base amount.

For the purposes of this section, the “Grace Period” for an employee who shall retire at the age of mandatory

retirement -

For each of the milestones (2) - (4) in the table below - a period of 12 months from the date of the employee's

retirement. For each of the milestones (5) - (9) in the table below - a period of 24 months from the date of the employee's

retirement.

Notwithstanding the aforesaid, an employee whose age at the time of realization of the milestone during the Grace

Period was the mandatory retirement age and above, and the amount of the difference between the base amount

and the adjusted amount in his matter (hereinafter: the “Difference”) is less than NIS 75, will be entitled only to

the adjusted amount even on the date of realization of the milestone, and instead of the aforesaid he will receive

the cost of the difference value from the date of realization of the milestone and for the rest of his life as a non-

recurring grant calculated as multiplying the amount of the difference by the personal conversion coefficient per

employee per a CPI-linked pension at the age of 67, which will be determined in the matter of the employee on

the date of his retirement.

a1.1 The milestones and the proceeds with respect thereto will be as detailed in the table below:



Milestone Date of Realization Milestone

Proceeds

)1( Entry into effect of the agreement NIS 150

Organizational change I – as detailed in Chapter March 1, 2019 NIS 115

J section 49.1 of the agreement )2(

Organizational change II – as detailed in Chapter March 1, 2019 NIS 115

J section 49.2 of the agreement

Date of commencement of system management 18 months from the date of the NIS 320

by the System Management Company Ltd, Government Resolution )3(

pursuant to a license by virtue of the Electricity

Sector law, 1996 (“SMC Milestone”)

Signing a collective bargaining agreement 18 months from the date of the NIS 100 )4(

regarding a new salary structure Government Resolution

18 months from the date of the NIS 150 )5( Sale of the Alon Tavor generation site

Government Resolution

30 months from the date of the NIS 150 )6( Sale of the Ramat Hovav generation site


36 months from the date of the NIS 90 )7( Sale of the Redding generation site


48 months from the date of the NIS 90 )8( Sale of units at the Hagit power station


60 months from the date of the NIS 420 )9( Sale of the Hakoakh Eshkol generation site



“Reform Pension Supplement” for retirees after December 31, 2025



An employee with a budgetary pension or an old pension fund - will be entitled, from the date on which he reaches

mandatory retirement age, to an additional monthly pension for the rest of his life and to his surviving relatives

(spouse only). The pension amount will be determined according to the Company's compliance with the prescribed

milestones. This amount (up to NIS 1,700) will be linked to the CPI and multiplied by the coefficient determined

in accordance with the provisions of the collective bargaining agreement, as detailed in the collective bargaining

agreement.

For an employee with a new cumulative pension – a monthly pension as will be received from depositing an

amount that will be calculated as the multiplication of the amount obtained by the “personal conversion coefficient

for the employee to an index-linked pension at the age of 67”, which will be purchased and paid in accordance

with the collective bargaining agreement.

All of the aforementioned amounts will be updated according to the rate of increase in the CPI between the known

CPI on the date of signing the agreement and the known CPI on the date the employee reached the mandatory

retirement age of each employee or on the date of realization of a milestone during the grace period, as applicable

The collective bargaining agreement also grants a right to a pension supplement under the conditions set out in

the agreement for the disabled retiree and the heirs of a deceased employee.

b. Reform pension supplement for retirees in early retirement

An employee with a budgetary pension retiring through the special retirement program will be even entitled

to a supplement of a monthly pension, in addition to the retirement pension in accordance with the

provisions of the regulations of the central fund, from the date of his retirement for the rest of his life and

his surviving relatives (spouse only). The amount of the pension will be NIS 1250 per month. This amount

will be linked to the CPI and will be multiplied by the coefficient determined in accordance with the

provisions of the collective bargaining agreement.

b1 A “Bridge” pensions for employees insured in cumulative pension in accordance with the collective

bargaining agreement of May 17, 2018

An employee insured by an old pension

1. An employee insured in an old pension fund and who retires in the special retirement program will be

entitled to the following terms:

1.1 A “bridge” pension for each of the months during the bridging period, - a monthly pension in the

amount obtained from the multiplication of a determining salary for deposits by the contractual

pension rate and the average position rate of the employee.

1.2 “Contractual Pension Rate” – multiplication of 0.1667% by the number of months the employee

worked for the Company in respect of which he was entitled to provisions to the old pension fund,

plus a rate of 5%, provided that the pension rate does not exceed 70%.

1.3 “Determining Salary for Deposits” - means the regular salary that the employee received prior to the thdate of retirement, with the addition of a retirement rank, a 13 salary (1/12), calculated on the basis

thof the regular salary plus the rank of retirement, a 14 salary (1/12), insofar as will be paid to the

employee prior to his retirement, which will be calculated on the basis of the regular salary plus the

retirement rank.

1.4 “Insured Determining Salary” - the average salary insured in the old pension fund during the 12

months preceding the date of retirement.


2. It was agreed that the “Bridge” pensions, the determining salary for deposits and the insured determining

salary will be updated as follows:

As of the date of retirement every January, according to the rate of increase of the CPI between the new

CPI and the previous CPI.

If the rate of change in the CPI during the period for calculating the update is negative, in a given year

or in a number of years, the update will not be made for that period. However, in the first update, and if

necessary, also in subsequent updates, the changes in the CPIs for the said period or periods will be

taken into account in full for the purpose of those updates.

3. Continued accumulation of rights in the old pension fund - in order to continue accruing the rights,

employer remuneration at the Company’s expense, employee remuneration and an additional amount

obtained from multiplying 20.5% by the difference between the insured determining salary and the

determining salary for deposits (hereinafter: the “Additional Amount”), will be transferred monthly

during the bridging period to the old pension fund where the employee is insured on the eve of the

retirement date, and they will be deducted from the employee’s “Bridge” pensions. If the employee

chooses not to continue accumulating the rights in an old pension fund, the additional amount will not

be deposited, and the additional amount will not be deducted from the “Bridge” pensions, accordingly.

Employee insured by a new cumulative pension



A Generation C employee insured by a new cumulative pension who will retire within the special retirement

program will e entitled to the following terms:

1. A “Bridge” pensions for each of the months in the bridging period. This pension will be calculated as

follows:

The sum of these two divided by the conversion coefficient:

a. The accumulated balance multiplied by 78%, and it is advanced from the date of retirement of an

employee until the age of mandatory retirement, based on a net yield estimate.

b. Employer's remuneration and employee remuneration for each month of the bridging period, each of

which are advanced from the month of the expected payment to him during the bridging period until the

age of mandatory retirement based on a net yield estimate.

It is agreed that the “Bridge” pensions and the determining salary for deposits will be updated from the date of

retirement of the employee according to the rate of increase of the CPI between the new CPI and the previous

CPI.

2. Continued accrual of rights in a new cumulative pension - in order to continue accruing the rights,

employer's remuneration at the Company's expense and employee remuneration that will be deducted

from the “Bridge” pensions, will be transferred every month during the bridging period to the provident

fund in which the employee is insured, In this regard:

“Determining Salary for Deposits” - the regular salary that the employee received prior to the date of thretirement, with the addition of a retirement rank, a 13 salary (1/12), calculated on the basis of the

thregular salary plus the rank of retirement, a 14 salary (1/12), insofar as will be paid to the employee

prior to his retirement, which will be calculated on the basis of the regular salary, plus a retirement rank.

“Employer’s Remuneration” – 13.5% of the Determining Salary for Deposits.

“Employee’s Remuneration” – 7% of the Determining Salary for Deposits”.


Employee Transfer to the System Management Company



As of the determining date, the receiving company will step into the Company's shoes with regard to the

transferred employees, and all employment and salary terms conditions will apply to them, including accrued

rights with respect to the entire period of employment at the Company, in accordance with the contractual

array applicable to all the Company's employees on the Determining Date, including the collective bargaining

agreements, collective bargaining arrangements, all as they are on the Determining Date. In addition, all the

rights and terms of employment that the employee had prior to the Determining Date, including accrued rights

and related terms at the termination of employment, will be deemed to be rights deriving from his employment

in the receiving company.

1. On the date prior to Determining date, the employer-employee relations between the Company and the

transferring employees will terminate and they will end their employment in the Company, and will

commence their employment in the receiving company on the Determining Date.

2. The transferring employees will not terminate their employment and will not transfer to the receiving

company, until all of the following have been fulfilled:

2.1 The receiving company signed the collective bargaining agreement, whereby the receiving company

undertook towards the transferring employees, inter alia, to take full responsibility for all their rights

with respect to the period of their employment in the Company, as well as with respect to the rights due

to them following the reform and due to the transition to the receiving company.

2.2 The receiving company has adopted the budgetary pension arrangement customary in the Company

prior to the Determining Date, in accordance with the contractual array applicable to the Company on

that date, and regarding the pension rights of the transferring employees in a budgetary pension - the

full period of work of the transferring employees at budgetary pension in the Company, which is taken

into account with regard to the pension rights under the pension arrangement that applies to the

Company, will be considered as if it were a period of employment in the receiving company in such a

way that the full pension rights of these employees will be preserved in accordance with all the

provisions that apply within the framework of the aforesaid budgetary pension arrangement.

2.3 A central provident fund for pension was established for the employer-member which is the receiving

company in order to pay a pension to the transferring employees by a budgetary pensions, and to their

surviving relatives in accordance with the aforementioned budgetary pension arrangement, and all the

approvals required for this under the Supervision of Financial Services (Provident Funds) Law, 2005

and the Supervision of Financial Services (Insurance) Law, 1981, were provided.

2.4 The receiving company has joined the central provident fund as an employer-member and at the time of

joining, the fund was deposited with the full amounts required under the Supervision of Financial

Services (Provident Funds) (Rules for the Management of a Central Provident Fund) Regulations, 2012,

and the Company and the receiving company received notice from the management company of the

central provident fund that the aforesaid sums have been transferred.

2.5 Regulations were approved for the central provident fund of the receiving company in which deposits,

actuarial balance and coverage of the actuarial deficit, that will be according to the regulations of the

Central Pension Fund of the Electric Company, will be anchored, all subject to the provisions of the

Provident Funds Law and the Central Pension Fund Regulations and the discretion of the Supervisor of

the Capital Market, Insurance and Savings upon approval of the regulations.

2.6 An account settlement agreement was signed between the Company and the receiving company

regarding transfer of monies with respect to the entire actuarial liability for the transferred employees to

the central provident fund to be established by the receiving company, including completion of the

actuarial liability and the actuarial deficit as of the date of the transfer, all subject to the regulations of


the Central Pension Fund of the Electric Company’s employees and the law, including the receipt of all

the approvals required by law.

2.7 The Company signed an account settlement agreement with the receiving company, including with

respect to the transfer of all the other liabilities towards the transferring employees with respect to the

period of their employment with the Company, including with respect to the financing of the electricity

consumption of the transferring employees.

Lending Employees at the Generation Sites being Sold to Private Electricity



Producers

1. During the lending period (the period from the date of delivery of possession of the generation site until the

end of 5 years from that date), employer-employee relations will continue to exist between the employees

on loan and the Company.

2. During the loan period, it will not be possible to terminate the employment of the loaned employees, except

with the consent of the Histadrut, in accordance with the existing dismissal and disciplinary proceedings in

the Company and with the adjustments made.

3. All the terms of employment and wages and their updating in accordance with the contractual array

applicable to all employees of the Company will continue to apply to the loaned employees during the

lending period, including collective bargaining agreements and collective arrangements, including the labor

constitution, procedures, practices and rules, as updated from time to time during the lending period and

subject to the collective bargaining agreement of May 17, 2018.

4. For the avoidance of doubt, it is hereby clarified that during the lending period, the Electric Company will

pay the employees all the terms of employment and wages, as stated, regardless of its contractual

engagement with the private electricity producers.

Details of Grants Paid upon Termination of Employer-Employee

relations:

1. Excess years grant (for employees insured under the budgetary pension arrangement) -

The grant is calculated as one monthly salary for every additional year worked beyond 35 years' service. The th thgrant is based on the normal salary plus 13 and 14 salaries. The entitlement is subject to retirement after

age 60 for males or after age 55 for females. For fractions of a year, the proportionate share of the grant is

paid. In the event of death after 35 years worked in the Company after age 55 for females or age 60 for males,

eligibility to the grant exists. In the event that the death is after 35 years worked at the Company, but the age

on date of death is under 55 for females or 60 for males, the entitlement is at a rate of 10% (10% of the

normal salary only, multiplied by the number of excess years).

2. Apprenticeship period grant

A monetary sum given to an employee retiring to pension, for the period of his work as an apprentice, with

respect to which the employee did not receive compensation. This grant is calculated according to one salary

for each work year as an apprentice at the Company. The grant is calculated on the basis of a regular salary th thplus a 13 salary (plus a 14 salary if the employee worked at the Company for more than 35 years and is

over 60 years old for a male and over 55 for a female).


3. Disability retirement grant



An employee retiring with a disability pension is eligible to a grant of 50% of one monthly salary for each

year worked. The grant is limited to a total amount of 15 monthly salaries (up to 30 years worked in the

Company). The grant is calculated on the basis of the normal salary only. The grant for 35 years of work will

not be paid when this grant is paid.

4. 20 Year grant (including Generation C employees)

Permanent employees who have completed 20 years of employment with the Company are entitled to a one-

time grant equal to the normal monthly salary.

5. Grant for Up To 35 Years (including Generation C employees)

A monetary grant given to an employee retiring to pension, equal to one normal monthly salary for every ten

years of actual employment (according to service factor for pension), up to a maximum of only 3.5 salaries

(up to 35 years of employment). For a period of less than ten years, the proportional amount of ten years

benefit is paid. This grant will not be paid to an employee who has worked less than 10 years and in respect

of years for which another compensation is payable. In the event of the employee's death, the grant will be

paid to the survivors.

Applies to Generation C employees only upon retirement due to dismissal at the age of 60 or later and

provided they have worked for the Company for at least 10 years or, alternatively, upon retirement due to

age.

6. Early Retirement Grant During the Reform Period (2018-2025)

An employee who retires at an age not exceeding 62 years is entitled to a grant of 120%

For an employee who will retire at an age exceeding 62 and up to 64 years - 120%, less 1.805% for

each full month of work, starting from the first of the calendar month after the date on which the

employee turned 62 (for the purpose of illustration, the retirement grant of an employee who turned

62 on July 24 and retired on September 1 will be 120% less 1.805%).

For this purpose, the “Determining Salary for Severance Pay” - the regular salary, with the exception thof “Administration Supplement” and 1/12 13 salary, and in respect of a male employee aged 60 and

thover and a female employee aged 55 and over employed by the Company 35 years and over 1/12 14

salary with respect to the years beyond the 35. The retirement grant includes advance notice fees under any law, labor constitution and Company

procedures, compensation under regulation 3(b) of the Company employees’ pension regulations,

severance pay, a grant of over 35 years, a grant of up to 35 years, and a grant with respect to the

apprenticeship period, and replaces them.


7. Unused sick days benefit (including Generation C employees)



A sum of money paid to an employee upon retirement to pension (including early retirement and disability

retirement), or to survivors of a deceased employee, according to the percentage of sick days used to which

he was entitled during all his years of employment in the Company and in accordance with the number of

unused sick days accumulated to his credit as of the retirement date:

For an employee whose percentage of used sick days is less than 36%, a grant equal to 26.66% of the

unused sick days accumulated to his credit is paid.

For an employee whose percentage of used sick days is between 36% and 65%, a grant benefit equal to

20% of the unused sick days accumulated to his credit is paid.

For an employee who used 65% or more of the sick days, a grant is not paid.

It should be noted that until April 1, 1990, the annual quota of sick days benefit was 26 days per year

and from this date the annual quota of sick days benefit is 30 days per year.

The salary per sick day for purposes of calculation of the grant is 1/25 of the normal monthly salary (including ththe 13 salary).

The salary per sick day after 35 years of service and after age 60 (55 for women) includes the 25/20 years

salary. Attributing the balance of sick days accumulated to the credit of the employee at the date of his

retirement (at least 55/60) will be performed according to the FIFO method. Namely, first using accumulated

sick days up to 35 years and after them those that were accumulated beyond 35 years. Payment of the benefit

will first be for the sick days accumulated beyond 35 years (namely, including 20/25 years salary) and after

them for sick days that were accumulated up to 35 years (namely, not including 20/25 years salary, only the thpart of 13 salary).

Applies to Generation C employees only upon retirement due to dismissal at the age of 60 or later and

provided they have worked for the Company for at least 10 years or, alternatively, upon retirement due to

age or an event of disability.

8. Supplement of Company obligation for severance payments to Generation C employees

For permanent employees who began work after June 10, 1996.

Generation C employees who received tenure by March 2012 - according to the relevant collective bargaining

agreement, the Company provides a sum each month equal to 6% of employees' monthly insurable salary for

the severance pay obligation to these employees who are insured by an external cumulative pension fund.

This provision is under the conditions of Section 14 of the Severance Pay Law (“in place of supplement”)

and therefore, the Company has no obligation to supplement it. In addition, these employees will receive a severance benefit of 2.33% of their last salary for all their work

period, only if they are entitled to severance pay in any case of dismissal or, alternatively, upon retirement

due to age.

Generation C employees who received tenure from March 2012 - employer deposits for severance pay at a

rate of 8.33% for these employees (with respect to their employment period as temporary employees and

until the date of transition to tenure) were deposited in full - in the pension fund (the Company has not

withdrawn the completion of severance pay at a rate of 2.33%). It is noted that as of the date of transition to

tenure, the Company provides each month 6% of the monthly insurable salary for the severance pay

obligations to these employees. Completion of the severance pay at a rate of 2.33% according to their last

salary will be paid from the date of transition to tenure, only if they are entitled to severance pay in any case

of dismissal or, alternatively, upon retirement due to age.

An employee who terminates his employment is not entitled to supplementary severance pay.


The supplementary severance payments for generation C employees are as follows: last normal salary th(including the 13 salary fraction) multiplied by the years of employment with the Company and multiplied

by 28% (an employee who started work before January 1, 2004 and will be entitled to a 20/25 year salary,

the 20/25 year salary will be calculated for him even for years exceeding 35 years). The supplementary

severance payment will be also paid in the event of death (to survivors), disability and compulsory

retirement. It should be noted that the collective bargaining agreement of May 17, 2018, determines that

within 3 months from the agreement’s entry into effect, a collective bargaining agreement will be signed

regarding execution of employer provisions for Generation C employees at a rate of 2.33% of the

Determining Salary for calculation of the severance pay, while applying section 14 of the Severance Pay

Law on these provisions, so that they replace the duty to pay severance pay completion with respect to the

period and the salary components regarding which the provisions are carried out – as on December 31, 2018,

a collective bargaining agreement as aforementioned has not yet been signed.

9. Increased severance payments for employees under special agreement



According to the relevant collective bargaining agreement, Company employees under special agreement

(non-permanent staff) are eligible for increased severance payments beyond those covered by monthly

contributions of 8.33% of salary deposited in an external cumulative pension fund (provision under the

directives of Section 14 of the Severance Payments Law). These employees are entitled to additional

severance pay from Company funds equal to one monthly salary for each of the first two years of rdemployment; from the 3 year onwards, two additional monthly salaries. An employee who resigns from

work voluntarily is not eligible for this extra severance benefit in excess of that provided for him in the

pension plan. As of January 1, 2005, the maximum term of employment for these employees is five years.

In accordance with the collective bargaining agreement of May 17, 2018, the maximum period of

temporary employment of workers who commenced work on November 5, 2018 will be up to 4 years

from the date of the beginning of their employment (instead of 5 years).

Note: Company procedures and agreements include extended details of the rights specified in this document.


Rights of Employees Entitled to Pension from the Pension Fund of Company



Employees and Rights of Pensioners

1. Retirement Pension

1.1 Upon retiring from work according to work agreements, the status of the employee will change from

an entitled active employee in the fund to the status of an entitled pensioner.

1.2 Advance Notice

An entitled employee due to retire receives will be invited to talk with the human resources manager

at least four months before reaching the compulsory retirement age. The managing company will be

notified of this.

A female employee due to retire receives at least six months advance notice before reaching the

retirement age. A female employee who chooses to retire after the retirement age and before the

compulsory retirement age will be invited to talk with the human resources manager at least four

months in advance.

During the course of the talk, among others, verification of the date of birth of the employee will be

carried out with the identity card compared to that registered in the Company's systems. If there is any

discrepancy, the employee must report the correct date and it will be fed into the Company's systems.

If it is found that the employee's retirement date has passed, the employee's employment (compulsory

retirement) must be terminated at the end of the calendar month in which the discrepancy was

discovered.

1.3 Entitlement to Retirement Pension

An active entitled employee, who ends his employment with the Electric Company due to one of the

following circumstances will become an entitled pensioner and will receive a retirement pension for

life:

Retirement for Age Reasons ("Age Retirement"):

An entitled, active male / female employee who worked for at least ten years in the Electric

Company and reached the compulsory retirement age will be entitled to receive retirement pension

for life.

stThe 1 retirement pension will be paid in the calendar month following the month on which the

employee retired from work, for the current month. Retirement from work when retiring on the

compulsory retirement age will be at the end of the month on which the employee reached the

compulsory retirement age.

A female employee is entitled to retire on age retirement if she worked in the Company for at least

10 years and chose to retire between the retirement age and the compulsory retirement age. It should

be mentioned that, based on the experience of the recent years, there were only a few cases of

women retiring voluntarily in the range between retirement age and compulsory retirement age,

therefore the subject is immaterial.

Retirement due to Employment Termination ("Termination Retirement"):

An entitled active employee who worked in the Company for ten years at least and is over age 40

and was dismissed from the Company under circumstances detailed in work agreements, will be

entitled to receive a retirement pension for life.


Early Retirement ("Early Retirement"):



An entitled active employee who worked for at least 30 years, aged 55 or older (if male) or 50 or

older (if female), who wishes to retire from work voluntarily and the Electric Company consented

or, where the Electric Company would like the employee to retire and the workers committee

consented to this move, will be entitled to receive a retirement pension for life.

Special Retirement ("Special Retirement"):

An entitled employee is entitled to retirement pension under a special retirement framework, if –

and to the extent that – it will be established according to a specific agreement, made and approved

by the legally authorized authorities, according to the approved principles.

Disability Retirement – see above.

1.4 Pension Rate

In age retirement, termination retirement, early retirement or special retirement, the pension rate shall

not be less than 25% and not more than 70% of the determining salary of the employee for calculating

the pension, and the rate will always be a calculation of the number of work years, determined by the

Electric Company, according to the following principles:

After ten years of work: 25% of the determining salary of the employee.

For each additional year until 30 years of work: 25% with respect to the first 10 work years and

an addition of 2% for each full year of work after the first 10 years (up to a maximum of: 25% +

20*2% = 65%).

For calculating entitlement for a fraction of a year, the employee will be entitled to an addition of

2% if he/she worked more than half a year and a 1% addition only when working for a shorter

period.

For each additional year over 30 years and up to 35 years of work - 65% with respect to the first

30 years of work and an addition of 1% for each full year or a fraction thereof, of work after the

first 30 years (up to a maximum of: 25% + 20*2% + 5*1% = 70%).

2. Pension to Survivors of a Pensioner:

2.1 Eligibility of Pensioner Survivors to Pension

The widow, orphans and also parents who were dependent on the employee while employed are

entitled to receive a pension subject to the following:

A widow - is entitled to pension until she remarries.

An orphan – is entitled to pension until he/she reaches age 18, or until age 21 if and as long

as he/she does compulsory service in the army/national service, or without any age limitation

if he/she cannot support him/herself due to an illness.

A parent – is entitled to pension if he/she was dependent on the deceased when he/she was

alive.

2.2 Pension Rates to Survivors

The pensioner’s widow will be paid a monthly pension equal to 60% of the pension paid to

her deceased husband. In addition, 25% of the pension paid to the deceased pensioner will be

paid to all other dependants jointly. Eligibility of a widow will stop when she remarries.

When a deceased pensioner has no widow, or upon the death of a widow, a monthly pension

of 15% of the pension paid to the deceased pensioner will be paid to each of the survivors. In


addition, 45% of the pension paid to the deceased pensioner will be paid to all survivors, even

if there is only one, provided that the total pension payments to all survivors will not exceed

80% of the deceased's pension.

3. Pension to Survivors of an Active Employee:



Following the death of an active employee, his survivors will be eligible to a pension, as detailed below:

3.1 Entitlement of Active Employee Survivors to Pension

The widow, orphans and also parents who were dependent on the active employee while

employed are entitled to receive a pension as detailed below and according to the entitlement

and tests thereof, as stated in section 2.1 above.

3.2 Pension Rate to a Widow

The widow of an active employee will receive a monthly pension according to the number of

the employee's work years in the Company, at the following rates:

Widow of an employee who worked in the Company – after one or two years of work –

20% of his determining salary.

Widow of an employee who worked in the Company – after three or four years of work

– 25% of his determining salary.

Widow of an employee who worked in the Company – after five years of work and up –

42% of his determining salary.

3.3 Pension Rates to all Other Survivors

Up to 5 years of work, the other survivors will each receive a pension of 10% of the

determining salary, provided that the total pension to the widow and all other survivors

jointly shall not exceed 50% of the determining salary of the employee just before his

death.

Starting from the fifth year of work onwards, the other survivors will each receive a

pension of 15% of the determining salary, provided that the total pension to the widow

and all other survivors jointly shall not exceed 70% of the determining salary of the

employee just before his death.

3.4 Survivors Pension in the Absence of a Widow or after her Death

Up to 5 years of work, each of the survivors will be entitled to a pension of 10% of the

determining salary of the employee just before his death, with the addition:

- Of 10% to all survivors, even when there is only one survivor, if the deceased

worked for up to two years.

- 15% to all survivors, even when there is only one survivor, if the deceased worked

for 3 to 4 years.

- The aforesaid is subject to the principle that payments to survivors of an employee

according to this section will not exceed 50% of the determining salary of the

employee just before his death.

Starting from the fifth year of work onwards, each of the survivors will be entitled to a

pension of 15% of the determining salary of the employee just before his death, with an

addition of 25% to all the survivors, even if there is only one survivor, provided that the

total payments to the employee's survivors according to this section shall not exceed 70%

of the determining salary of the employee just before his death.


4. Survivors Pension to a Common-Law Wife of a Deceased Pensioner/ Employee:



In the absence of a widow, a common-law wife (as defined in Section 4.9 of HR Procedure No. 04-12-

11 "Pension to Survivors") will be eligible to a pension as if she is a widow, subject to the following

conditions:

4.1 A common-law wife who is entitled to a widow's pension from any other source on the date of

death of the employee/pensioner, will be entitled to a pension from the Company only if the

pension to which she is entitled from the Electric Company is higher than the pension to which

she is entitled from another source. In this case, the common-law wife is entitled to a pension

from the Electric Company according to the difference between the pension to which she is

entitled from the Electric Company and the pension she receives as a widow from another source.

4.2 A common-law wife, whose pension from another source as a widow is higher than the pension

she would have been eligible to from the Electric Company if she would not have received a

pension from another source, is not entitled to a pension from the Electric Company and/or any

other entitlement due to a pensioner of the Electric Company (electricity rate for Company

employees, gifts).

5. Disability Pension:

5.1 Determining the Eligibility to Disability Pension

The disability of an active employee will be determined as follows:

The employee will be examined by a medical board. If the medical board decides on permanent

disability, an interdisciplinary team will be appointed, headed by the Human Resources Manager,

the welfare officer and a representative of the workers committee. Based on the recommendations

of the medical board, the interdisciplinary team will determine if the permanent disability of the

employee prevents him from fulfilling any other position in the Company. In the event that the

interdisciplinary team decides that the employee cannot fulfill any other function in the Company

and upon approval of the Senior Vice President - Human Resources and Organization, the

employee will retire to disability pension.

5.2 Pension Rate

An employee entitled to a disability pension will receive a pension, at the rate calculated

according to the number of work years as determined by the Electric Company, according to the

following principles:

- After one work year and up to the end of two work years - 20% of the determining salary. rd- Starting from the 3 year and up to the end of four work years – 25% of the determining salary. th th- Starting from the 5 year and up to the end of the 5 year – 30% of the determining salary. th- Starting from the 6 year and up to the end of 25 work years – a 2% addition for each work

th thyear after the 5 year and up to the 25 year (up to a maximum of: 30% + 20*2% = 70%).

There is no incremental disability pension with respect to work years exceeding 25 years.


5.3 Supplements to the Disability Pension with respect to Dependants



5.3.1 A dependant for the purpose of this section:

- Wife / husband.

- Child, including a step child or an adopted child until age 18, or without age limit if

the child is unable to support himself due to an illness.

- Parents of the disabled employee, if they are dependent on the disabled employee.

5.3.2 After 1 year to the end of 5 years of work – the pension is increased by 10% of the

determining salary for each dependant of the disabled person as long as the total

payments to the disabled person do not exceed 50% of his final determining

salary. After 6 years of work – the pension is increased by 10% of the determining

salary for each dependant of the disabled person as long as the total payments to

the disabled person do not exceed 70% of his final determining salary.

5.3.3 The additional entitlement to disability pension with respect to dependants will be

paid for each dependant at any time and as long as the definition of a dependant

applies to the dependant, as detailed above.

5.3.4 A divorced employee who retired due to disability is entitled to a percentage of

increment with respect to children until age 18, even if these children are not in

the employee's care.

5.3.5 Marriage of an employee who retires due to disability, or birth of children to such

a pensioner, after the retirement date, does not entitle the pensioner to additional

percentage increments of the pension.

5.3.6 Following a change in their marital status (divorce/death of the spouse) or when

children reach the age of 18, the percentage of the pension will be decreased

accordingly.

6. Pension – General Instructions:

6.1 Pension Payment Dates

Pensions of eligible pensioners/survivors will be paid on the same dates as salaries to active

permanent employees in the Company.

6.2 Work up to age 18

The years during which the employee served in the Company before reaching age 18 will not be

considered as work years for the purpose of pension according to these rules.

6.3 Breaks from Work

Calculation of the number of work years of a Company employee will include the following breaks

during the work period:

Leave granted to the employee according to labor law.

Absence caused by an accident at work.

Break in work over which the employee had no control.

Army service in its meaning in the Discharged Soldiers Law (return to work) - 1949 and any

absence afterwards if it occurs during a period regarded by law as military service according

to Section 12 of the said law.

Partial military service in its meaning in the said Discharged Soldiers Law.

Absence for a period of up to one year due to continued studies or appointment to a mission

on behalf of institutions, upon written approval of the Company. Cases of absence from work

for a period exceeding one year will be submitted to a discussion between the Company's

management and the workers committee.

6.4 Complete Entitlement of an Orphan to Pension


An orphan's right to receive pension according to these rules is complete and does not depend on

the economic condition, employment or marital status of the surviving parent.

6.5 Responsibility of the Surviving Parent to a Pension for the Orphan



The widow or widower will be responsible for drawing the pension due to orphans, for their

support. If proven that pension funds paid for the orphans are not used for the intended purpose,

the Company and/or the Fund and/or the Managing Company have the right to pay the pension to

the said orphans in another appropriate way.

6.6 Pension Payment to Parents

Pensions to parents will be paid to them directly, together or separately, according to their wishes.

6.7 Payment of One Time Only Amounts and Pension Capitalization

The fund is not permitted to pay to an eligible employee or his survivors one time only amounts,

including capitalization of his/her pension, except capitalization permitted by work agreements, as

valid on the joining date, or according to any law, subject to the directives of the Central Provident

Fund for Pension Statutes and the income tax regulations. When all the above are fulfilled, an

employee who retires to pension or a pensioner up to two years from his retirement date, are entitled

to capitalize up to 25% of the respective pension. The capitalization is for six years. A reduced

pension, based on the proportion capitalized, is paid for six years to the pensioner. Following the

death of a pensioner, his survivors are entitled to a pension, according to pension regulations, as if

there was no capitalization.

6.8 Prevention of Double Pensions

The person who is eligible to two pensions of the same type according to these rules has the option

to choose only one of them. In this case, each of the following will be regarded as separate types: retirement pension, survivors pension, disability pension.

6.9 Minimum Pension

An employee who retires due to age or disability, whose pension rate is less than 40%, may have

the pension increased to 40%, provided that the two following conditions are fulfilled:

The pension paid according to these rules is the only income of the pensioner, for as long as it

is the sole source of income. An allowance from the National Insurance Institute will not be

considered as additional income in this case.

The pensioner was accepted as an employee of the Company before reaching age 55.

6.10 Rights of Company Employees who are Members of Bereaved Families

6.10.1 The law requires an employer to employ a widow/widower or a parent of a person who

was killed in certain circumstances (soldier/policeman/jailor that were killed, and a victim

of hostilities that passed away as a result of the injury), including a step parent and an

adopting parent (subject to the Families of Soldiers Killed in Action Law – 1950), who is

qualified to work, for the period as follows:

Until they turn 72 years old for men and 67 years old for women, following Amendment

35 to the “Families of Soldiers Killed in Action (Compensation and Rehabilitation)” Law.

In effect from January 1, 2014.

6.10.2 The pension of a bereaved parent (a parent of a soldier who was killed) who retires as a

pensioner will be increased by 50% provided that it does exceed full doubling of the

pension with respect to the actual service period of the bereaved parent in the Company.


Notwithstanding the above mentioned, if a bereaved person deserves to receive a pension of 45%

and more before increase of the pension rate, his pension will be increased by 6% only, up to a

maximum of 70% pension.

6.11 As of January 2018, an employee who is a parent a whose child is deceased may apply

to continue his work for up to four work years (for a period not exceeding the date of his

reaching the age of 71), if he has been employed by the Company for at least 7 years before

his retirement age.

7. Pension to Survivors Shortly after the Death of an Employee/Pensioner



7.1 In the case of the death of an employee/pensioner, survivors will receive, respectively, full

determining salary (100%) for the 3 months after the death, or the full pension paid to the deceased

pensioner before his death. Pension payments to survivors according to pension regulations will

begin from the fourth month after the death of the employee/pensioner.

7.2 Survivors of an employee whose death was caused by a work accident will receive the stdetermining salary for pension (100%) paid to the employee for the 1 6 months after the date of

death. Pension payments to survivors of a deceased employee according to pension regulations

will begin from the seventh month after the death of the employee/pensioner.

7.3 The pension rate for survivors of a pensioner who capitalized the pension and died will be equal

to the pension rate without capitalization.

8. No Frozen Rights

Rights cannot be frozen (as applied to civil servants); namely, a person who resigns from the Company

will not be eligible for a pension upon reaching the retirement age.

9. No Continuation of Rights from Former Employers

Pension rates are calculated only according to work years in the Company.

10. The Division of Pension Savings Among Separated Spouses Law - 2014 entered into effect on February

6, 2015. The Company is implementing the Law word for word.

11. Transfer of members of management employed within a collective bargaining employment to

employment by personal contracts.

The Board of Directors of the Company decided to transfer the members of management employed

within a collective bargaining employment to employment by personal contracts.

As of the date of entry into effect of the collective bargaining agreement of May 17, 2018, the Company

may employ up to 160 employees from among all Company employees, including managers, as of

December 31, 2018, only the Senior Vice President of Human Resources and Organization and Head of

the Salary, Organization and Safety Section have transferred to employment by personal contract.

At the beginning of 2019, up to approximately 40 senior employees are expected to transfer to

employment by personal contracts.

Below are the main terms in the personal contract for senior employees, these terms will only apply to

the senior employees of the Electric Company, from the level of Deputy Head of Section and above,

who are presently employed within the framework of a collective bargaining agreement and insured by

a budgetary pension.

The salary in the personal contracts will be derived as a percentage of the salary of the CEO of the

Electric Company, in classification 10 (1) of the classification of government companies. The percentage

of the employee's salary will be determined according to the definition of his position. In addition, these


employees will be entitled (global per diem of NIS 1,000 per month, clothing allowance, holiday gifts,

convalescence, study fund, 24 days leave, 30 days (calendar) sick leave, pension provisions for the period

of employment under a personal contract).

Determined salary for a budgetary pension - the pension rights of the employee with a budgetary pension

will be frozen upon the transition to a personal contract, and his pension rights for the period of his

employment by personal contract will be insured in a cumulative pension.

The outline includes an increase in the determining salary for each actual year of employment by

personal contract at the rate of 2%, plus the rate of change in the CPI in that year, for a period of up to 7

years of employment by personal contract.

In addition to a senior employee who has not completed 70% pension, the employee will be entitled to

increase the accrual for a budgetary pension by up to 10%, but in any event not more than 70% and not

above the rate that the employee would accrue if he continued to work by the collective bargaining

agreement until he mandatory retirement age or until the end of his employment with the Company.

Dismissal

In the event of dismissal of the transferring employee before he reaches mandatory retirement age, the

employee will be entitled to a “bridge pension” and grants as follows:

1. “Bridge” pensions

From the date of the employee’s dismissal until the age of mandatory retirement, the employee will be

paid a “bridge” pension (hereinafter: the Bridging Period), which will be calculated in the following

manner:

1.1 A weighted average of the determining salary for a budgetary pension as aforesaid will be

calculated and the total salary of the employee will be the weighted average starting from the

ratio of 25:75 (the determining salary for the budgetary pension: total salary) and will

increase by 5% on each year of employment by personal contract, up to a ratio of 50:50 at

most. For example: an employee who will be dismissed after 4 years of employment by

personal contract, his determining salary for pension will be calculated according to 55% of

his pension salary in accordance with section 15 and 45% of his total salary. It is clarified

that the ratio of 50:50 can be reached only after 5 years of employment by personal contract

and not earlier.

1.2 The actual pension will be the multiplication of the percentage of the employee's accrual for

pension by the weighted average calculated in the section above.

1.3 The “Bridge” pensions will be paid by the Company. Notwithstanding that stated in

subsection 1.1, regarding an employee who, on the day of transition to a personal contract,

has been employed for at least three years as Deputy Head of Section and above, the weighted

average will start at a ratio of 30:70 (Determining Salary for a Budgetary Pension: total

salary) and will increase by 5% on each year of employment by personal contract, up to a

ratio of 50:50 at most.

1.4 Pension provisions during the bridging period – provision for pension will be carried out

during the bridging period according to the following mechanism:

1.5 During the bridging period, a provision will be made on the basis of NIS 15,000 or on the

basis of the difference between the employee's pension during the period of the “Bridge”

pensions and his pension in the budgetary pension as of the date of retirement, whichever is

higher.

1.6 If the employee is dismissed up to 7 years from the date of the transition to the personal

contract, a provision of 100% of the employee's pension will be carried out with respect to

the first year only during the bridging period, according to the rates customary for employees

insured in a cumulative pension fund.

2. Grant – the employee will be entitled to a severance grant which will be calculated in the

following manner:




2.1 The ceiling of the grant will be calculated on the day of transition to the personal contract as

the difference between the mandatory retirement age (67 years) and the employee's age prior

to the transition, multiplied by the total salary in the personal contract, but in any event not

more than NIS 1 million. For example: an employee who will be transferred to employment

by a personal contract at the age of 57 and was dismissed will be entitled on the day of the

transition to a grant of 10 salaries.

2.2 Severance grant will be calculated in a downward route from the date of transition, and for

each year of employment by personal contract the grant will be decreased, over 7 years, up

to a value of 3-month acclimation at least (accordingly, under the above example, the grant

will be decreased each year by one salary, so that after seven years of employment by

personal contract, the grant will be 3 salaries).

2.3 It is clarified that the employee will not be entitled to a severance grant as aforesaid in the

event of circumstances for which, if he had not transitioned to personal contract, he would

have been denied severance pay in accordance with the provisions of sections 16 or 17 of the

Severance Pay Law, 1963.

12. Senior managers employed by personal contracts of the Government Companies Authority are

entitled, with approval by the Board of Directors, to additional compensation payment at a rate

of up to 100% on the date of termination of their duty in the Company.

At present, 9 managers as mentioned above are employed at the Company (including the

Chairman of the Board of Directors).




Additional Right Not Taken Into Consideration in Determining the Actuarial



Obligation with respect to Benefits After Termination of Employment

Early retirement to pension grant (due to severance)

A grant of 50% of one monthly salary for each year worked. The grant is calculated on the basis of a normal salary thwith the addition of the 13 salary. This grant is not calculated for the years for which the retiring employee is entitled

to receive excess years grant. The grant rate (50%) will be offset at the rate of 1.111% for each month of work over age 62 and up to age 65,

consequently, the grant rate starting from age 65 after the offset is 10% (similar to the grant for up to 35 years of

work).

It is noted, that when a female employee chooses to continue working in the Company after retirement age and retires

from the Company due to severance, she will be entitled to a grant at the rate of 50% of the salary, according and

subject to the aforementioned, as applied to any other employee.

Severance payments for employment termination without pension

Upon termination without pension entitlement, an employee is eligible to a severance payment of one monthly salary

for each year of employment. Upon resigning after a prolonged employment period, the aforesaid severance payment

is paid if the authorized authorities approve it. The severance pay is calculated on the basis of the normal salary with

the addition of the 13th salary.

Compensation payments for senior executives subject to personal contracts of the Government Companies

Authority

Senior executives employed by personal contracts of the Government Companies Authority are entitled, with the

approval of the Board of Directors, to additional compensation payment at a rate of up to 100% on the date of

termination of their office in the Company.

Nine executives as aforesaid are currently employed by the Company (including the Chairman of the Board of

Directors).

Additional rights and benefits for Pensioners

In addition to the aforesaid, the pensioners of the Company are entitled to the following rights and benefits:

Bonuses for marriage and birth (includes the grossing up of tax).

Gifts for children of pensioners and successors serving in the IDF (including tax grossing up).

Company participation in cost of setting a tombstone – solely in cases of death as a result of a work

accident.

Compensation in cases of death as a result of a work accident.

Partial participation of the Company in meals at Company facilities – up to 10 meals per month.

Higher Education grants for children of widows of employees who died while working for the

Company.

An outing for widows of workers who died while working for the Company.

Reduction of cost of connecting electricity to the apartment as well as transfer or increase of existing

connection.


These benefits are not material and therefore no actuarial liability is calculated in respect thereof.

Advance Notice Period - is the period of time between the notice of termination of the employee’s



employment and the date it enters into effect, which is determined according to the period of

employment in the Company. The Company is permitted, within the advance notice period, to continue

to employ the employee or waive, under special circumstances, his actual work during the advance

notice period (in full or in part) and then he will be paid a regular salary, fixed supplements that do not

depend on attendance, and social provisions.

In special cases in which the Company decided to dismiss the employee without giving prior notice in

practice (in whole or in part), the Company will pay the employee compensation in lieu of prior notice:

his ordinary salary and the 13th salary only without social benefits. It should be noted that in case of

compulsory retirement/death of an existing employee, there is exemption from advance notice

obligation.

Documents

THE ISRAEL ELECTRIC CORPORATION LIMITED NOTES TO THE ... · contractors, mainly with respect to disputes relating to construction of fixed assets, in amounts exceeding the amount