Mekorot alleges discrimination on desalinated water price

Private companies were offered a higher price per cubic meter of water than Mekorot.

The Ministry of Finance is prepared to buy water from private desalination companies at much higher prices than it is prepared to pay Mekorot National Water Company, sources involved in Mekorot's desalination plant project at Ashdod allege. The sources said that the Ministry of Finance was offering private companies NIS 2.75 per cubic meter of water, whereas Mekorot was compelled to commit to a price of NIS 2.36 per cubic meter of water as a condition for obtaining a permit for its facility.

The year-long battle between Mekorot and the Ministry of Finance has delayed the 100-million cubic meter a year Ashdod desalination facility, which will be one of the largest in the world, even as Israel's water shortage worsens in one of the worst drought in decades.

The cabinet is due to discuss the condition of Israel's water economy at Sunday's meeting. Minister of National Infrastructures Uzi Landau will brief the cabinet on proposals for meeting the crisis. The Ashdod desalination plant will likely be at the center of the discussion, given that construction was supposed to have started last April.

Mekorot subsidiary Mekorot Development & Enterprise Ltd. awarded the tender to build the Ashdod desalination plant to the IVM consortium, comprising Minrav Holdings Ltd. (TASE: MNRV) and Spain's Valoriza Agua SL, a division of Sacyr Vallehermoso SA (IBEX: SYV) subsidiary SADYT.

However, shortly after construction began, the inter-ministerial tenders committee, headed by Deputy Accountant General Gil Shabtai, ordered a halt to the work, and demanded that Mekorot commit to a price of NIS 2.36 per cubic meter of water. Mekorot, which based the project on a price of NIS 2.85 per cubic meter, said that it could not meet this price.

The Ministry of Finance said that the lower price was based on the tender for the Soreq desalination plant, which was completed a few days before, and was won by a consortium of IDE Technologies Ltd. and Hutchison Water Ltd. with a price of NIS 2.01 per cubit meter (real price).

The Ministry of Finance wants to immediately open a public tender for the Ashdod desalination plant, in order to build it as fast and as efficiently has possible. It claims that Mekorot has been unable to build even one desalination plant while, in the same period of time, the private sector has built three plants with a total capacity of nearly 300 million cubic meters a year.

Since the dispute broke out, Mekorot has proposed three compromises, the last at a price of NIS 2.49 per cubic meter, but the Ministry of Finance has refused to budge.

Mekorot said in response, "The Israeli government explicitly ordered Mekorot to build and operate the Ashdod desalination plant. The government ought to stand behind its commitments and decisions. The tender was coordinated with Ministry of Finance officials and is bound by a tight timetable for construction in order find an immediate solution to the water crisis, which will continue into next year."

Mekorot added, "Only Mekorot has the ability to begin construction with the tightest timetable and at a competitive price that will meet the desalined water quantity targets set by the government. Without a rapid decision to go to work on the Ashdod project, we'll face another water crisis by the summer of 2012, and a situation in which desalination, a critical national resource, will be dominated by a private monopoly without a government foothold."

The Ministry of Finance said in response that the gap between it and Mekorot amounted to hundreds of millions of shekels, which the taxpayer would have to pay. The ministry claims that Mekorot's demand of NIS 2.75 per cubic meter is exorbitant and baseless.

Published by Globes [online], Israel business news - www.globes-online.com - on December 2, 2010

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

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