Israel Electric Corp. For The Year Ended December 31, 2014

April 2015

Investor

Presentation

Disclaimer

2

By reading or viewing this presentation, you hereby agree to the following:

This presentation does not constitute or form part of and should not be construed as an offer to sell or issue, or the solicitation of an offer to buy or acquire, securities of The Israel

Electric Corporation ("IEC"). This presentation is solely for informational purposes regarding IEC and should not be treated as investment advice. In addition, this presentation does

not take into account the specific investment objectives, financial situation or particular needs of any recipient in any jurisdiction nor does it contain all the information necessary to

fully evaluate any investment or transaction.

Accordingly, no part of this presentation nor the fact of its distribution should form the basis of, or be relied upon in connection with, any contract, commitment or investment decision

in relation to any securities or otherwise. This presentation was not prepared for the purpose of being used in connection with any offering of securities by IEC. The information

contained in this presentation has not been independently verified. IEC does not make any representation, warranty or undertaking, express or implied, and no reliance should be

placed on the fairness, accuracy, completeness or correctness of the information, opinions or projections contained in the presentation. IEC shall have no liability whatsoever for any

loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with this presentation

This presentation includes forward-looking information, including statements regarding IEC's expectations and projections for future operating performance and business prospects,

as well as business forecasts. The words “believe”, “expect”, “anticipate”, “estimate”, “project”, “plan”, “intend” and “may” and similar words or expressions identify forward-looking

statements. The forward-looking information that is included in this presentation is based upon IEC's estimations, the business strategy and its expectations as of April 27, 2015 ("the

date of this Presentation") .These estimations, strategies and expectations may not occur or occur in a way that is different to IEC's expectation. IEC expressly disclaim any

obligation or undertaking to release any updates, modifications, revisions, verifications or amendments, including any forward-looking statement contained herein to reflect any

change in IEC's expectations with regard thereto or any change of events, conditions or circumstances.

This presentation and the information contained in the presentation are provided as of the date of this Presentation and are subject to change without notice and IEC is not under any

obligation to update, complete, revise, verify, amend or keep current the information contained herein. Furthermore, anyone who is interested in making an investment, should

consult with legal, regulatory, tax, business, investment, financial and accounting advisers to the extent that he deemed necessary, and should make his own investment, hedging

and trading decisions based upon his own judgment and advice from such advisers as he deem necessary and not upon any view expressed by IEC or expressed in this

Presentation.

Executive Summary

Gas turbines

power stations

Power stations

400 kV lines

161 kV lines

Israel Electric Corp. at a Glance

4

Israel Power Grid Established in 1923, with over 91 years of operation, the Israel Electric Corporation Limited (“IEC”)

is the sole integrated electric utility company in Israel and generates, transmits, distributes and

supplies the vast majority of the electricity used in Israel

IEC is a strategic utility and is approximately 99.85% owned by The State of Israel

The Company had total assets of NIS 87,517 million and 12,754 employees as at Dec 31, 2014

As at December 31, 2014 IEC serves 2.6 million residential customers, commercial, agricultural and

industrial customers spread throughout the State of Israel

Total electricity sales of 49,902 GWh for the year ended December 31, 2014

Generation(1)

13.6GW Installed capacity

17 Power stations sites

Transmission(1)

5,435km High voltage

transmission grid

196 Switching stations

and sub-stations

Distribution(1)

2.6mn Customers

49,735km Medium and low voltage lines

2014 Key Financials Credit Ratings

Revenues:

NIS 25.2 billion

EBITDA(2):

NIS 10.8 billion

EBIT:

NIS 3.0 billion IEC Global:

Baa3 / BBB-

IEC Local:

Aa3 / ilAA

State of Israel:

A1 / A+ / A Stable

Source: IEC’s financial statements. All figures are adjusted to NIS purchasing power of December 2014; Based on a USD/ILS exchange rate of 3.889 as of December 31, 2014. 1) As of December 31, 2014; 2) adjusted for changes in regulatory assets.

$ 6.5 $ 2.8 $ 0.8

Israel - a Modern Economy

Source: The Central Bureau of Statistics, Bank of Israel - 2014 Annual Report. 1) 2014 GDP converted using year end USD/ILS exchange rate. 2) Credit rating refers to long-term foreign currency debt only. 3) As published in the 2014 Government Debt Report by the Ministry of Finance.

Israel Public Debt to GDP Development(3)

Israel Rating History(2) Key Figures

Inflation Environment

0

1

2

3

4

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Moody's S&P Fitch

Nov 2007

S&P upgrade

Israel to A

Apr 2008

Moody’s upgrade

Israel to A1

Sep 2011

S&P upgrade

Israel to A+

Feb 2008

Fitch upgrade

Israel to A

Baa1 / BBB+

A3 / A-

A2 / A

A1 / A+

Aa3 / AA-

74.7

72.9

75.1

71.3 69.9

68.5 67.6 67.1

60

65

70

75

80

2007 2008 2009 2010 2011 2012 2013 2014

(% of GDP)

Area 22,072 km2

Population (December 2014) 8.3 million

GDP (2014)(1) USD 279.3 billion

GDP per Capita (2014)(1) USD 34,011

Unemployment (December 2014) 5.7 %

Foreign Currency LT Debt Ratings A1 / A+ / A Stable

3.8% 3.9%

2.7%

2.2%

1.6% 1.8%

-0.2% -1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2008 2009 2010 2011 2012 2013 2014

(YoY Inflation %)

1%-3%

Government Inflation

Target

2.15%

Average inflation in

the last decade

5

Essential Service

Provider

Owned by the

State of Israel

Robust Growth in

Electricity Demand

Regulated Tariff

Efficiency and

Reliability

Financial

Robustness

Natural Gas

Fuel

Independence

IEC is an essential

service provider to Israel

as the sole integrated

electricity utility

Approximately 99.85%

owned by the State of

Israel (A+/A1/A) and

benefits from its support Strong electricity

demand growth in the

Israeli market, driven

by a robust economy

Tariff is based on costs

and return on equity

Set by the Public

Utilities Authority (PUA)

Continuous improvement of

efficiency and reliability

IEC has over 91 years of

experience in developing

and managing the electricity

sector in Israel

Upgraded by S&P and now rated

investment grade by both S&P

(BBB-) and Moody’s (Baa3)

ILS 8.25bn cash flow from

operations generated in 2014

Natural gas from Tamar

and other significant natural

gas discoveries in Israel

pave the way towards fuel

independence

Key Investment Highlights

6

Key Strategic Targets

7

Supply of Electricity to the State of Israel

Ensure reliable supply of electricity

Maintain sufficient electricity reserve

Fuel Diversification

Diversify fuel mix while maintaining an efficient

cost structure and minimizing environmental

impact

Focus on natural gas and coal as two main fuel

sources

Financial Strength

Maintain the financial robustness of IEC

Keep a sufficient liquidity cushion

Maintain long average maturity by continuing

to issue long term debt

Operational Overview

Historical Performance

9

Comparison of Key Metrics

2006 2014 % Change

Population 7.1 8.3 16.9%

Number of Customers (mn) 2.4 2.6 8.3 %

Electricity Sales (Gwh) 46,175 49,902 8.1%

National Peak Demand (MW) 9,450 11,335 19.9%

IEC Installed Capacity (MW) 10,899 13,617 24.9 %

15.0

16.3

18.0

20.2 21.3

22.6

26.3

20.4 20.5

25.3

28.2 27.6

25.2

0

5

10

15

20

25

30

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

(NIS bn)

IEC Revenues

IEC continues to provide Israel’s energy needs as the sole integrated electric utility in Israel

Source: IEC’s financial statements; All figures are adjusted to NIS purchasing power of December 2014; Based on a USD/ILS exchange rate of 3.889 as of December 31, 2014.

$7.1 $7.3

$6.5

Availability of

Egyptian

Natural Gas

Israel Generation Capacity and Demand

10

Generation Capacity and Demand

11,297 11,649 11,664

12,769 12,759 13,248

13,483 13,617

174 228

278 518

516

885

2,046

11,368

11,823 11,892

13,047 13,277

13,764

14,368

15,663

10,070 10,200 10,280

11,530

11,110

11,890 11,640

11,335

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

2007 2008 2009 2010 2011 2012 2013 2014

(MW)

IEC Installed Capacity IPPs National Peak demand

Source: IEC’s Annual financial statements.

The Generation Segment

11

Number

of units

Installed

capacity (MW)

Coal powered units 10 4,840

Combined cycle gas turbines 14 5,081

Industrial gas turbines 15 1,570

Gas converted units 8 1,622

Jet gas turbines 16 504

Total generation 63 13,617

2014 IEC Generation Facilities

17 Power stations

sites

13,617 Megawatts of

generation

Fuel Mix by Electricity Generated

Source: IEC’s 2014 annual report .

Orot Rabin

7 units / 2,605MW

Rothenberg

6 units / 2,290MW

Eshkol

7 units / 1,693 MW

Haifa

6 units / 1,110MW

Gezer

6 units / 1,336MW

Hagit

4 units / 1,394MW

- Mainly powered by coal

- Mainly powered by gas

2014 Key Power Generation Sites

Coal 56.2%

Fuel oil 0.6%

Natural gas

40.6%

Diesel oil 2.6%

Gas turbines

power stations

Power stations

2013

Coal 58.2%

Fuel oil 0.0%

Natural gas

41.7%

Diesel oil 0.1%

2014

The Transmission and Distribution Segments

12

Total Electricity Consumption by Customer Type

Transformation

System

10 Switching stations

Power Lines

143 Substations

Transmission

43 Private substations

741km 400 kV lines

4,579km 161 kV lines

115km 115 kV lines

Distribution

Capacity

49,735km

Medium and low voltage

lines

48,070 Distribution Transformers

2.6mn Customers

Distribution

Source: IEC’s 2014 Annual financial statements.

Domestic 32%

Industrial 18%

Public, commercial and

bulk 42%

Water pumping 5%

Agriculture 3%

(kWh)

Fuel Expenses

13

Source: IEC’s financial statements; All figures are adjusted to NIS purchasing power of December 2014; Based on a USD/ILS exchange rate of 3.889 as of December 31, 2014. 1) Excluding changes in fuel cost regulatory asset. 2) Revenues include sale of purchased electricity from IPPs.

IEC Fuel Expenses Development

4.0 4.9 4.4 4.9

6.9 5.6 5.0

6.6 7.0

4.8 4.0

0.8

1.0 1.3

1.4

1.8

2.4 2.9

2.8 1.6 4.7

3.8 1.3

1.5 1.4 0.8

1.0

0.3 0.2

0.7 3.1 0.3

0.1

0.9

2.2 2.9

4.5

4.4

1.3 1.3

3.1

8.3

1.3

0.1 7.0

9.6 9.9

11.7

14.0

9.5 9.4

13.3

20.0

11.1

8.0

38.8%

47.6% 46.7%

51.6% 53.4%

46.7% 45.9%

52.4%

70.9%

40.2%

31.9%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

(NIS, bn)

Coal Nat Gas Fuel Oil Diesel as % of revenues

$2.1

$2.9

(2)

(1)

(1)

(1)

(1)

IEC’s fuel expenses have normalized thanks for the availability of natural gas from Tamar and

have came down even lower as coal prices decreased significantly

Israeli Electricity Sector

Government and IEC Cooperated to Bridge the Natural Gas Shortage

15

Delayed

Deposits to

Designated

Account

Gradual Tariff

Increase Regulatory

Changes to

Fuel Mix

Government

Guarantees

for Local

Debt

Natural Gas

Shortage

• Disruptions to the

natural gas supply

from Egypt

• Expedited depletion of

the Yam Tethys

reserve

• As a result, IEC

shifted to more

expensive back-up

liquid fuels

Long-Term

Solution

• Sufficient supply of

natural gas (Tamar

online since March

2013 and LNG

terminal)

• Higher costs of

alternative fuels will

ultimately be reflected

in the tariff

Temporary

Diesel Oil

Purchase Tax

Reduction

2011 2013 Short-Term

Liquidity Shortage

Return to Normal

Operations

The Government and PUA acknowledged the short-term liquidity shortfall caused by the natural gas shortage in

2011/12 and together with IEC planned and executed a series of temporary support measures to help bridge the gap

Government Support

Tariff Regulation Principles

16

The tariff is set by the Public Utilities Authority –

Electricity (PUA) based on a set formula, taking into

account:

current cost basket;

fair rate of return on equity for each segment; and

at the PUA’s discretion (in consultation with the

Ministers), efficiency factors to promote increased

productivity

The PUA may also ignore certain costs that, in the

PUA’s opinion are not necessary

Tariff is examined every two weeks by the PUA based

on the publication of fuel prices and CPI

Tariffs are updated on the occurrence of the earliest

of two possible events:

a change in the recognized cost of the input basket

of at least 3.5%, provided that 4 months have

passed since the last update

the date of the annual update

Tariff Rates Annual Updates

Each April, the PUA carries out an annual update of

the tariff components which among others include:

recognized assets

depreciation

recognized return on equity and cost of debt

fuel mix

compensation for delays in updating the tariff

Fuel Mix

The fuels basket is calculated every year and is

retroactively updated, according to the actual

demand, abnormal events and new professional

information

The difference between the fuels basket and an

updated one is then refunded to the consumers or to

the Company

Fuel prices account for the majority of the costs and

are passed on to electricity consumers

Electricity Sector Structure - The Yogev Committee

17

On July 22, 2013, the Ministers appointed a Steering Team for the execution of a reform in the electricity sector and the Electric Company, headed by Mr. Uri Yogev,

who is at present the Director General of the Government Companies Authority. On March 23, 2014, the draft of recommendations of the Steering Team was

published for comments by the public until May 11, 2014

On May 7, 2014, the Company presented the Steering Team with its initial reaction and position with regard to all the recommendations of the Steering Team. The

Company’s comments are focused on two major issues: the scope of the future development of the electricity sector (with emphasis on the generation segment) and

ensuring long-term stable financial strength for the Company.

On September 8, 2014, the Company received copy of the letter by the GCA, addressed to the Chairman of the New National Labor Federation, entitled

"Government's position regarding Israel Electric Corporation Ltd.". The letter contained a summary of the final proposal for the structural reform, which is acceptable

by the Minister of Finance and Minister of National Infrastructure, Energy and Water Resources. The proposal includes, inter alia, the restructuring plan and its impact

on workers' rights.

On September 15, 2014, a copy of the letter of Mr. Avi Nisenkorn, addressed to Mr. Uri Yogev, whose heading is “Negotiation impasse and unilateral proceedings”,

was received by the Company. According to the letter, in view of the “unilateral position”, as defined, which was presented in the Yogev Letter, and in view of the

negotiations reaching an impasse, the National Labor Federation and employees’ organization do not intend to stand aside and plan to take all measures in this

matter.

At present there are material differences between the State’s position and the position of the National Labor Federation, particularly with regard to employee rights

relating to the structural change, and negotiations are not being conducted between the parties.

The position of the Company is that the negotiations between the parties should be continued and the reform in the electricity sector should be promoted. Within a

letter sent by the Chairman of the Board of Directors of the Company to the Ministers and within a letter sent by the Commissioner of Wages of the Ministry of

Finance to the Chairman of the Board of Directors of the Company, the Chairman of the Board of Directors of the Company on the one hand and the Commissioner of

Wages of the Ministry of Finance on the other hand called for a return to the negotiating table in order to advance the reform in the Company and the electricity

sector. The National Court of Labor also called on the parties to return to the negotiations.

The issues included in the Draft Report and the Yogev Letter may be of great importance to the Company, its financial position and the continued functioning of the

Company as an essential service provider.

Notes: • For additional details regarding the structural change see the IEC’s 2013 & 2014 Annual financial statements. • To the best of the Company’s knowledge, as of the date of the report, the final report of the Steering Team has not been published, and the Company does not know if and when a final report as stated is

intended to be published, and the Company also does not know if and when any structural change based on the Yogev letter will be implemented.

• Review the optimal

structure of the electricity

sector

• Propose an overall reform

in the electricity sector

The system management unit will be established as a separate government owned company

IEC will sell certain power stations and in parallel construct and/or convert existing power stations. Some

power stations will be transferred to a fully owned subsidiary. At the end of the period, the company’s market

share is expected to be no more than 58%

Privately owned entities will be incorporated in the distribution segment as secondary suppliers of up to 10%

of total consumption. In the supply segment, private power producers will be able to compete with the

company, supplying electricity generated by them or other generators

IEC will construct and operate the smart grid

Assets that are not used by the Company and not required by it to develop the electricity chain in accordance

with the Assets List or in accordance with the determination of the Reserves Committee will be sold by the

Electric Company to the State. assets that are serving the Company in the electricity chain - the ownership or

lease arrangements in effect to date will be continued.

• Maintain the financial

strength of the Company

By 2025, IEC’s equity to total assets ratio will reach 35%

Executing public issues of shares in 2015 and 2018 according to a road map, after which the control of the

Electric Company will remain in the hands of the State

• Review an efficiency plan

for the Company

executing a comprehensive reorganization plan for reducing the Company’s employee ranks, reinforcing the

management capability of the Company management that will allow the necessary flexibility for the

Company’s activities as a commercial company

Electricity Sector Structure - The Yogev Committee

18

Main Topics Discussed by the Committee and Draft Report Recommendations

Notes: • The full draft of the recommendations is available on the Ministry of National Infrastructures, Energy and Water Resources’ website. The full extract of the State’s proposal is available in the immediate report

dated 9 September 2014 and immediate report dated 15 September 2014 . • For additional details regarding the structural change see the IEC’s 2013 & 2014 Annual financial statements. • To the best of the Company’s knowledge, as of the date of the report, the final report of the Steering Team has not been published, and the Company does not know if and when a final report as stated is

intended to be published, and the Company also does not know if and when any structural change based on the Yogev letter will be implemented.

Financial Overview

Historical Cash Flow

20

Source: IEC’s financial statements; All figures are adjusted to NIS purchasing power of December 2014; Based on a USD/ILS exchange rate of 3.889 as of December 31, 2014.

1.6

(1.1)

5.8

8.3

(4.6) (4.4) (5.0)

(6.5)

0.8

8.4

(1.6)

(0.6)

(10)

(6)

(2)

2

6

10

2011 2012 2013 2014

(NIS bn)

Operating activities Investment activities Financing activities

$2.1

($1.7)

($0.2)

The Gradual Tariff Increase allowed IEC to generate sufficient cash flow from operations,

starting in 2013, to repay some of its debt and reduce leverage

1.3 1.8

2.8 2.6 2.2

3.9 3.5

2.0

0.6 0.7

0.6 0.6

0.6

0.8 0.7

0.7 1.3 0.7

0.8 1.1 1.2

1.4

0.9

0.9

3.2 3.1

4.3 4.3 3.9

6.2

5.1

3.6

0

2

4

6

8

2007 2008 2009 2010 2011 2012 2013 2014

(NIS bn)

Generation segment Transmission segment Distribution segment

Financial Highlights

21

Revenues EBITDA(1)(2)(3)

Historical Investments (CapEx) Net Debt/EBITDA(4)

26.3

20.4 20.5

25.3

28.2 27.6 25.2

0

5

10

15

20

25

30

35

2008 2009 2010 2011 2012 2013 2014

(NIS bn)

7.9 7.1

8.5

3.9

1.6

9.7

10.8

0

2

4

6

8

10

12

2008 2009 2010 2011 2012 2013 2014

(NIS bn)

- New IAS 19 19 Old IAS -

Source: IEC’s financial statements and company presentation; ; All figures are adjusted to NIS purchasing power of December 2014; Based on a USD/ILS exchange rate of 3.889 as of December 31, 2014. 1) EBITDA is calculated as Income from Current Operations plus D&A; 2) 2011-2014 EBITDA are adjusted for changes in regulatory assets; 3) 2012 EBITDA is adjusted to one time expense related to purchasing power adjustment of pension funds. 4) Net debt is calculated as total financial debt minus cash ,cash equivalents and short term investments; 5) 2011 debt number is not adjusted to new IAS 19; Note: In accordance with the Companies Regulations, the Company will be required to implement full IFRS for the reporting period starting on January 1, 2015.

- New IAS 19 - Old IAS 19

0.9x 0.9x 0.2x

0.4x

0.8x 0.6x

6.1x 6.2x 5.1x

11.9x

5.1x 4.4x

0

3

6

9

12

15

2008 2009 2010 2011 2012 2013 2014

Net Debt/EBITDA ex.Gov Gov add on

(5)

$6.5 $7.1

$0.4

$2.8 $2.5

29.2x

$1.3

$0.9

Fixed 11.7%

Floating 88.3%

Consolidated Debt Breakdown

22

Source: IEC’s financial filings, IEC; All figures are adjusted to NIS purchasing power of December 2014; Based on a USD/ILS exchange rate of 3.889 as of December 31, 2014. 1) Includes NIS 2.5bn of perpetual bonds as of December 2014.

Annual Debt Maturities as of December 2014 (Principal in NIS billions)

4.8

1.9

5.4 5.8

2.9

0.5

0.5 0.3

7.7

2.4

5.9 6.1

0

3

6

9

12

15

First year Second year Third year Forth year Fifth year and thereafter

(NIS bn)

Local bonds, private bonds and non-bank loans Loans from local and foreign banks

$2.0

$0.6

$1.5 $1.6

$7.0

Debt by Currency(1) Type of Instrument(1) Source of Debt(1)

ILS bonds 7%

Private bonds and non-bank

loans 81%

Israeli bank loans 6%

Non-Israeli bank loans

6%

NIS 41%

Euro 4%

USD 50%

Other 5%

State guaranteed

12%

Non-guaranteed by

state 88%

27.3

Interest Rate Exposure(1)

Contacts

23

Thank you

For questions or additional information, please contact us:

Israel Electric Corp. Investor Relations: ircontact@iec.co.il

Appendices

Tariff Comparison to OECD Countries

25

Despite several increases in the tariff, aimed at reflecting the Company’s costs, the electricity

rate in Israel is lower than most of OECD peers

20.1

18.6 18.3 17.7

16.7

15.4

14.4 13.9

13.2 13.2 13.1 12.7 12.6

12.2 12.0 11.7 11.5 11.4 11.1

10.7 10.6 10.5 10.0

9.7 9.6 9.5 9.1 8.9 8.6

6.9

0

5

10

15

20

25

Irela

nd

Cyp

rus

Unite

d K

ingdom

Sp

ain

Be

lgiu

m

Italy

Germ

any

EU

-27

Au

stria

Denm

ark

Neth

erla

nds

Po

rtuga

l

Sw

eden

Slo

vakia

Gre

ece

Norw

ay

Slo

venia

Isra

el

Po

lan

d

Fin

lan

d

Fra

nce

Cze

ch R

epublic

Cro

atia

Esto

nia

Tu

rkey

Hungary

Rom

ania

Lith

uania

Latv

ia

Bu

lga

ria

(€ cents equivalent)

Source: Eurostat, Electricity prices for household consumers, as of June 2014; Based on EUR/ILS rate of 4.72. 1) Average national price in Euro per kWh without taxes for medium size household consumers (consumption band DC with annual consumption between 2500 and 5000 kWh).

Average Price per KWh(1)

Demand for Electricity

26

Historical National Peak Demand Trends

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1990 1994 1998 2002 2006 2010

(MW)

The demand for

electricity in Israel is

growing at a fast and

steady pace

Demand is driven

by both population

growth and the

increase in

electricity use per

household

The demand

forecast, which

serves for long-

term planning of

the generation

system, assumes

an average annual

increase of

between 2.7% to

3% in peak

demand in the

years 2015 to

2020.

Source: IEC’s financial statements.

Multiplied by 3 in 24 years

Income Statement (NIS in millions)

27

Source: IEC’s financial statements; All figures are adjusted to NIS purchasing power of December 2014; Based on a USD/ILS exchange rate of 3.889 as of December 31, 2014. 1) EBITDA figures are adjusted changes in for regulatory assets.

($168) ($459) $335

31/12/2012 31/12/2013 31/12/2014

Revenues 28,263 27,601 25,195

Cost of operating the electricity system:

Wages 2,361 1,887 1,718

Fuel 19,871 10,941 7,884

Fuel transfer to regulatory asset (5,258) 4,324 3,435

Purchases of electricity 877 1,004 1,709

Electricity purchases transfer to regulatory asset 0 310 12

Operation of the generation system 839 754 732

Operation of the transmission and distribution system 306 334 394

Depreciation and amortization 4,399 4,653 4,260

Total costs 23,395 24,207 20,144

Profit from operating the electricity system 4,868 3,394 5,051

Sales and marketing expenses 1,065 903 902

Administrative and general expenses 869 1,111 1,136

Income (expenses) from liabilities to pensioners 1,544 20 2

EBIT 1,390 1,360 3,011

EBITDA 1,611 9,742 10,787

Financial expenses, net 2,685 2,167 2,787

Income on current operations before income tax (1,295) (807) 224

Income taxes - Deferred (293) 125 61

Income (loss) after tax (1,002) (932) 163

Company's share of subsidiery gains (loss) 0 (2) (12)

Net income (loss) (1,002) (934) 151

0 0 (6)

Remeasurement of a defined benefit plan after tax (784) 279 1,158

Comprehensive Loss for the period (1,786) (655) 1,303

For the twelve months ended

(1)

Balance Sheet (NIS in millions)

28

Source: IEC’s financial statements; All figures are adjusted to NIS purchasing power of December 2014; Based on a USD/ILS exchange rate of 3.889 as of December 31, 2014.

$22,049 $22,503

(NIS in millions, adjusted to NIS purchasing power of December 2014)

Assets 31/12/2013 31/12/2014 Liabilities and shareholder's equity 31/12/2013 31/12/2014

Current assets Current liabilities

Cash and cash equivalents 3,394 4,504 Credit from banks and others 7,104 8,351

Short term investments 492 2,559 Trade payables 1,721 1,757

Trade receivables for sales of electricity 4,383 4,546 Other current liabilities 1,739 1,799

Other current assets 328 537 Short term regulatory liabilities - 400

Inventory - fuel 1,065 1,057 Customer advances, net of work in progress 397 453

Inventory - stores 144 146 Provisions 729 719

Regulatory assets, net 2,966 - Total current liabilities 11,690 13,479

Total current assets 12,772 13,349

Non-current liabilities

Non-current assets Debentures 32,704 35,695

Fuels in inventory 1,733 1,539 Liabilities to banks 8,555 4,737

Long-term receivables 1,176 1,833 Liabilities with respect to benefits after 2,918 2,930

Investment in subsidiary 98 86 Regulatory liabilities 1,395 261

Regulatory assets 695 - Provision for refunding amount arising from 2,560 2,675

Assets with respect to benefits after 3,741 6,219 Deferred taxes, net 5,078 5,537

Fixed assets, net 64,591 63,517 Debentures and liabilities to the State of Israel 5,381 5,436

Intangible assets, net 946 974 Other liabilities 690 683

Total non-current assets 72,980 74,168 Total liabilities 59,281 57,954

Shareholder's equity 14,781 16,084

Total assets 85,752 87,517 Total liabilities and shareholder equity 85,752 87,517

Current Electricity Sector Law

29

The Electricity Sector Law, enacted in 1996 and setting forth a regulatory framework for the electricity sector reform, has

been amended several times

The Company believes that the Electricity Sector Law enables a gradual process through which IEC will be restructured

as a holding company and its activities will be separated into several majority owned subsidiaries:

IEC’s View of the Electricity Sector Law

System Management

(State owned)

Government

of Israel

Generation

(privatization of

at least 49%)

Transmission

(decision by

the ministers 1.1.2015)

Distribution

(privatization of

at least 49%)

Services

(partially limited)