Israel Corporation (TASE: ILCO) has accepted the Ministry of Finance's terms for the rehabilitation of the Dead Sea. Israel Corp. subsidiary Israel Chemicals Ltd. (TASE: ICL) will pay NIS 3.04 billion for the salt harvesting in the southern basin of the Dead Sea.
Last night Israel Corp. chairman Amir Elstein and Minister of Finance Yuval Steinitz signed the agreement on the financing of the salt harvesting and the higher royalties that will be paid to the state on Israel Chemicals' potash sales. Steinitz's deadline for Israel Corp. and Israel Chemicals to accept the Ministry of Finance's proposal on these issues expired last night. Under the proposal, Israel Chemicals will pay 90% of the cost of the salt harvesting and the government will pay 10%, and royalties on potash sales will double to 10% exceeding NIS 3 billion a year.
Israel Chemicals unit, ICL Fertilizers (formerly Dead Sea Works) will pay NIS 3.04 billion for the salt harvesting, and the government will pay NIS 760 million. NIS 337 million of the government's share is the current value of a NIS 30 million dividend withdrawn by the government in 1992 to finance protection of the Dead Sea. ICL Fertilizers will also carry out the Dead Sea rehabilitation work. If the project overruns its estimated NIS 3.8 billion cost, the company will bear the additional cost.
The agreement will now be sent to the cabinet and then to the boards of directors of Israel Chemicals and Israel Corp.
The government will not intervene in the planning of the salt harvesting project, except to "direct the planning parties to make every effort to expedite the work."
NIS 175 more in annual royalties
The agreement on higher royalties will be applied retroactively. The doubling of royalties on potash sales in excess of three million tons a year will apply from 2010, on the basis of the state's claim in the arbitration. The higher royalties will apply on sales in excess of 1.5 million tons beginning in 2012.
The Ministry of Finance said that the agreement would add NIS 175 million a year in royalties payments, and NIS 1.7 billion through the end of Israel Chemicals' franchise in 2030. It adds that it has not withdrawn its claim for NIS 291 million for royalties owed since 2000 and that the arbitration on this matter would continue.
The Ministry of Finance said, "The agreement reached secures the state's rights at a number of levels, will result in the immediate implementation of the [Dead Sea] hotels protection project, and greatly increases the government and public's take from the quarrying revenue. This measure resembles the measure taken early this year through the Sheshinski committee on oil and gas reserves in the Mediterranean Sea."
Steinitz welcomed the agreement, saying, "The law at the Dead Sea is the same as in the Mediterranean. Today, we reached an agreement to increase the government's take from its potash reserves to the level accepted in the Western world, just as we did for oil and gas reserves through the Sheshinski committee. We have corrected a distortion and added billions of shekels for the public's benefit."
Labor Party chairwoman MK Shelly Yacimovitch criticized the agreement and its structure, saying, "The hike in the royalties rate to 10% already existed in law, and did not require the consent of Israel Chemicals. This is a ridiculous level on natural resources that belong to the Israeli public, but on which the Ofer family has made, and continues to make, a fortune, while paying exorbitant and corrupt salaries to its executives. At the very least, what was applied to the gas companies by Sheshinski committee should immediately be applied to Israel Chemicals. Israel Chemicals has done the government no favors on the financing of the salt harvesting; in a proper country it would bear the full cost."
Minister of Environmental Protection Gilad Erdan said in response to the agreement, "In the cabinet, I will demand clarifications, and that this agreement should not be the final word, because its current structure is liable to result in increased pumping and destroy the northern basin of the Dead Sea. The debate on the royalties will continue in line with the amount of pumping from the northern basin."
Israel Corp's share price fell 0.6% in early trading on the TASE today to NIS 2,450, giving a market cap of NIS 19 billion, and Israel Chemicals' share price fell 0.1% to NIS 40.94, giving a market cap of NIS 40.94 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on December 28, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011