Government to deny Intel's $405m grant request

Israel wants to lower the grant for the planned $2.7 billion Fab 28 extension in Kiryat Gat.

"There is no chance that Intel will get the full grant it has requested. The company is important to us and the country because it pays back the investments big time but we are talking about a vast sum, on the eve of the budget debate, and it is not reasonable that the State will give such an amount," a senior government source involved in the negotiations between Intel Corporation (Nasdaq: INTC) and the State for a $405 million has told "Globes."

According to the source, Intel's alternative for receiving such a grant is Ireland, "which is no longer in the situation that it was last year."

In other words, Intel's bargaining power has fallen because of global economic developments.

Intel is planning to build a new wing to its Fab 28 in Kiryat Gat at an investment of $2.7 billion. It is asking the Israeli government to finance 15% of the investment, in exchange for guaranteeing 400 new jobs. This comes to about $1 million per job.

In the past, the Ministry of Industry, Trade and Labor has said that approval of the grant is contingent on Intel building a plant in the "real" periphery within ten years, in other words, in a location so remote from central Israel that it prevents a daily commute. Fab 28 does not meet this criterion, since many of its employees make a daily commute from central Israel. Although this demand has not been officially presented to Intel, top sources involved in the talks want to include this condition in the grant offer to the company.

The government decision on the large $405 million grant to Intel, which was supposed to be taken in mid-April, has been deferred to the end of June. Intel and the Ministry of Industry, Trade and Labor are both reviewing their side of the negotiations. The Ministry of Industry is examining the effects of the grant on Kiryat Gat and other considerations, while Intel has not yet provided the ministry with all the information needed to make a decision.

A source close to the talks said that there was no breakdown or crisis, but a reasonable delay. He said that even though the government more than made a return on its previous grant to Intel, the new grant application is for a huge amount that requires meticulous review. "I have no doubt that the government will give Intel the grant," he said.

However, the source said that the government is apparently trying to reduce the amount of the grant, while not losing Intel.

Published by Globes [online], Israel business news - - on May 31, 2010

© Copyright of Globes Publisher Itonut (1983) Ltd. 2010

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