Desalination expansion bogged in bureaucracy

The Finance Ministry has been sharply criticized for delaying the building of desalination plants.

The Ministry of Finance, which has been sharply criticized for delaying the building of Israel's seawater desalination plants, is dawdling implementation of the cabinet decision in January to expand these plants. An investigation by "Globes" found that the production expansion is almost six months behind the schedule set by the government.

Moreover, the Ministry of Finance's efforts to achieve the lowest price for the water produced by the plants, in order to save millions of shekels, is liable to torpedo the entire desalination expansion program, according to the plants' franchisees. They recently told the ministry that they cannot expand the plants at the prices dictated to them. The ministry says, "The price is viable for desalinated water."

On January 30, the government decided that the first step to deal with Israel's water shortage was to expand the production of desalinated water. Excluding Mekorot National Water Company's Sabha plant in Eilat, Israel has three facilities in operation along the Mediterranean coast: at Ashkelon, Palmachim, and Hadera. The aggregate production of these plants, currently 250 million cubic meters a year, is to be increased by 100-120 million cubic meters.

The government instructed the seawater desalination tenders committee, headed by Deputy Accountant General Gil Shabtai, to close new contracts with the plants' franchisees by June 1. But, the ministry first contacted the franchisees only in early July - a month after the deadline for signing the contracts.

The delay apparently frightened the tenders committee into trying to dictate to the franchisees a very tight timetable, by demanding bids by August 15 - just six weeks from the notification. The franchisees say that they need three months to prepare bids.

Under the tender committee's model, the Ministry of Finance will dictate the price for desalinated water, while each franchisee will offer additional water at that price. The price of water for each plant will be derived from the balance of the franchise period, and allowing the plant's new facilities the option of receiving the same conditions as the original facilities - but not the opposite, because the original contracts with the state expire earlier (each lease is for 25 years).

The franchisees told "Globes" that the Ministry of Finance's prices were unrealistic, and substantially lower than the highest price achieved in latest competitive tender to build and operate the Soreq desalination plan.

The Ministry of Finance said in response, "The claim that the Ministry of Finance is delaying the desalination enterprise is groundless. The opposite is true. Since 2000, the Ministry of Finance is the party that has promoted the desalination enterprise. Immediately following the government decision, the tenders committee has been working in accordance with the priorities given it."

The Ministry of Finance says that the tenders committee is undertaking several processes in parallel, including reaching summaries with the Palmachim and Hadera desalination plants on expanding production to most of the day, securing financing for the Soreq plant, and the contract process with Mekorot for the Ashdod desalination plant.

The ministry adds that expanding desalination production is complicated and requires thorough legal, statutory, engineering, and financial preparation. "Taking this into account, the tenders committee has acted expeditiously and meticulously to complete the process in the shortest possible time." It adds that the timetable is reasonable, given that presorting procedures were already carried out, enabling the plants to prepare in time. "This is not the first expansion process that the government has undertaken with the desalination plants."

The Ministry of Finance also says, "The prices were set on the basis of engineering financial work by the tenders committee, are a proper financial price for the desalinated water. It is superfluous to mention that franchisees' comments received as part of the process will be discussed by the committee, which will respond accordingly."

The desalination plants' franchisees and prices for desalinated water are:

  • Palmachim - the Via Maris Desalination Ltd. consortium, owned by Azrieli Group Ltd. (TASE: AZRG) unit GES Global Environmental Solutions Ltd., and Kardan NV (TASE: KRNV;AEX:KARD) unit Tahal Group International BV. The plant, which came on line in 2007, currently produces 50 million cubic meters of water a year at NIS 3.20 per cubic meter; the Ministry of Finance is offering NIS 2 per cubic meter.
  • Hadera - the H2ID Ltd. consortium of Shikun u'Binui Holdings Ltd. (TASE: SKBN) and IDE Technologies Ltd. (a joint venture of Delek Group Ltd. (TASE: DLEKG) and Israel Chemicals Ltd. (TASE: ICL). The plant, which came on line in 2010, currently produces 127 million cubic meters of water a year at NIS 2.65 per cubic meter; the Ministry of Finance is offering NIS 1.95 per cubic meter.
  • Ashkelon - owned in equal shares by IDE and Veolia Water SA. The plant, which came on line in 2006, currently produces 118 million cubic meters of water a year at NIS 2.90 per cubic meter; the Ministry of Finance is offering NIS 2/05 per cubic meter.

Published by Globes [online], Israel business news - www.globes-online.com - on August 2, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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