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The involvement of foreign companies in strategic infrastructure in Israel is a complex economic-security issue that has recently been a subject of discussion between Israel and the United States. The regulation model for the Israeli electricity sector demonstrates how the influence of a single party, on the country's strategic infrastructure can be limited, be the party local or foreign. In July 2018, regulation of the electricity sector was approved, which reduced the Israel Electric Corporation (IEC) monopoly. IEC was required to transfer half of its holdings in Israel's power stations through a graduated privatization process scheduled to continue until 2026. An important part of this privatization process was recently carried out through the sale of the Alon Tavor and Ramat Hovav power stations, and three more power stations are to be privatized in the coming years: Reading, the eastern part of Hagit, and Eshkol. This will put approximately 60 percent of the electricity production segment in private hands, while IEC will continue holding the transmission segment, and at this stage, the supply segment as well. Through IEC, the state will control the transmission of electricity to consumers, and can ensure that the electricity producers are not able to disrupt the supply of electricity.

A key part of the electricity reform is transferring the management of the system from IEC to the System Management Company, a separate government company that will be responsible for the link between producers and consumers. In the framework of its activity, the company will oversee competitive procedures between the various private electricity producers, set the price of electricity according to the winning bid, and sell it to the consumers. In order to facilitate maximum competition and prevent a single party from influencing the price of electricity, the presence of multiple competitors in the process, none of which is dominant, must be ensured. For this reason, the Israel Competition Authority has ruled, "No person (including a corporation and any person associated with it) shall hold rights in electricity production stations amounting to over 20 percent of the total planned installed capacity on the sale date of each of the productions sites up for sale," which is the amount of the government reserve. This maximum amount, which is expected to be 2,100 megawatts, is designed to limit the ability of the producers to influence the price on the one hand, and enable existing players to compete for construction of new power stations on the other.

Furthermore, since the power stations also include the land and future construction rights, their sale requires approval from the Israel Land Authority, which only allows giving land rights to foreign entities in exceptional cases. In order to overcome this obstacle, foreign companies can join forces with an Israeli company, but this limits their power. In the tender for the Alon Tavor power station, for example, the winner was the MRC Alon Tavor corporation, which consists of Israeli companies Mivtach Shamir (34.5 percent), Rapac Energy (31 percent), and Chinese company Pan Mediterranean Engineering Company (PMEC – 34.5 percent). PMEC is a subsidiary of China Harbor Corporation, which is owned by the Chinese government. It is also the company that is currently constructing the southern port in Ashdod. In accordance with the requirements stipulated by the National Security Council, two restrictions were imposed on the Chinese company in the Alon Tavor power station: it cannot be a controlling shareholder in the winning corporation, and it is ineligible for the right to veto decisions. The influence of this Chinese company in the Israeli electricity sector is therefore limited to ownership of one-third of the Alon Tavor power station, which accounts for 5.5 percent of Israel's total electricity production. It certainly does not constitute a threat to the independence of the system.

Clearly, the regulation model in the electricity sector is designed to make it more efficient and reduce the ability of a single party to wield decisive influence. While the underlying rationale is commercial, it is also effective in preventing a single foreign party from influencing the electricity sector.

Other sectors provide additional instructive examples of guaranteeing against undue or decisive influence by a single party. In the reform of the water sector, desalination facilities are gradually moving into private hands, while the supply of the water remains in the hands of government company Mekorot. The seaports reform is moving in the same direction, despite the many difficulties and delays. In this case, the state has sought to change the public model, which gave immense power to the strong workers' committees, to an "owner's model," in which the strategic parts of the port's ownership, construction, and infrastructure – the platforms, wave breakers, and marine digging work – as well as core services, remain in the state's hands, while the operating parts, in particular loading and unloading, including the equipment for this purpose, are entrusted to a private concern, usually in a franchise agreement lasting for many years.

Decentralizing control and privatizing peripheral and operational infrastructure elements, while keeping the core of management and other strategic elements in state hands, enables Israel to balance between increasing competition and efficiency and retaining control of strategic assets. At the same time, the electricity sector model does not provide a complete response to the risks, and possible failures can be cited, since the State of Israel doesn't have any entity that regularly monitors and gathers information about the activity of foreign companies in the economy.

First, although one foreign company cannot control more than 20 percent of the total capacity, and therefore cannot dictate the price of electricity, the legislation does not address a situation where several foreign companies, each of which holds the permitted level of capacity, are related to each other. For example, the Chinese company PMEC has holdings in the Alon Tavor power station, while at the same time, the Huawei Corporation, better known in the communications sector, participates in Israel in solar energy enterprises through a representative that sells power converters and maintenance services to companies in the sector. These two companies, like all Chinese companies, whether private or government-owned, are linked to the government in Beijing, and their holdings should therefore be regarded as if they were a single concern in the electricity sector, and in the economy as a whole.

Second, since the Israeli government lacks a general picture of foreign investments in the Israeli economy, it is possible that certain companies have limited holdings in every sector, but from an overall perspective possess aggregate means of pressure and influence on the government. For example, PMEC is building Ashdod’s southern port, has holdings in the Alon Tavor power station, and will reportedly deepen and upgrade Platform 21 at the old Ashdod port. PMEC's total holdings in the economy should therefore be examined and its ability to use them to influence decisions by the Israeli government should be analyzed, including regulatory changes beneficial to the company.

In the coming years, a number of strategically important infrastructure tenders are planned in Israel, including the purchase of the power stations at Reading, the eastern part of Hagit, and Eshkol; the sale of Haifa Port; construction of light rail lines in the Tel Aviv region and Haifa; and the purchase and construction of desalination facilities in Ashdod, Acre, and Ramat Hasharon. The Israel government should therefore take security considerations into account, and formulate a response to classic threats, such as industrial espionage and commercial or private information theft. Security agencies should be called in already at the preliminary stages of each tender in order to avoid later disqualification that will economically damage competitors and could deter competitors from taking part in future tenders. In addition, the government should establish a national information center to gather and coordinate information systematically about all the holdings and activities of foreign companies in the economy. This information will make it possible to detect the potential aggregate of each foreign company and country operating in Israel. At the same time, the government should instruct the various regulators to add more restrictions on foreign investments in strategic infrastructure in Israel that will include cross holdings detected through the information center. In this way, Israel can maintain the desired competition in the various economic sectors, while reducing the risks incurred through foreign involvement in strategic infrastructure.