Israel Chemicals: Royalties already too high

Israel Chemicals told Sheshinski II: We pay 45% royalties and salt harvesting costs while other potash producers pay 29% royalties.

Israel Chemicals Ltd. (TASE: ICL) submitted its position to the Sheshinski II Committee on Royalties on National Treasures on Monday. The opinion submitted by Israel Chemicals' attorney David Tadmor, includes detailed opinions by national resources experts, fiscal arrangements, and royalties paid by corresponding companies in other countries.

Israel Chemicals, a subsidiary of Israel Corporation (TASE: ILCO), says that its current agreements with the state render further discussion on raising royalties superfluous as far as it is concerned. This position is partly based on the argument that, a year ago, it committed to salt harvesting at the Dead Sea's southern basin at a cost of NIS 5.9 billion. In addition, the company's royalties rate was doubled from 5% to 10% from 2014 through the expiration of the company's franchise to use Dead Sea minerals in 2030. The additional royalties total NIS 1.75 billion.

Israel Chemicals argues that it did not have to be bound by these agreements, because the issue was included in the agreement from the early 1990s, when the government privatized the company. The company says that it chose to seek a settlement with the Ministry of Finance to secure industrial quiet and commitment to pay billions of shekels, rather than that face a head-on confrontation with the state. Company data state that it pays the government NIS 1.2 billion a year.

Israel Chemicals argues that the agreement signed with the Ministry of Finance a year ago, were reached under heavy government pressure, and explicit threats that if the company did not agree to the salt harvesting and higher royalties, a committee would be establish to thoroughly review the issues, similar to the Sheshinki I Committee, which examined royalties paid by gas exploration companies.

Israel Chemicals' position paper states that other potash producers pay their government's 29% royalties on their sales, Israel Chemicals pays 45%. This puts Israel Chemicals at a disadvantage against its peers, which are fighting for market share. Israel Chemicals, which has 5,500 employees in southern Israel and 6,500 in other countries, considers the government's attempt to increase royalties as a death sentence.

In view of the past agreements with the state and already high royalties, Israel Chemicals says that there is no justification for it to pay the government more. The company provided expert opinions, which state that its profit margins do not exceed those of its peers, and it has no surplus profit margins. Dead Sea resources are an inexhaustible resource, and the company has no excess profit margins, in contrast to the oil and gas exploration companies, which produce an exhaustible resource and have extraordinary profit margins.

Israel Chemicals also argues that it does not benefit from tax breaks enjoyed by the oil and gas exploration companies, and the company has also been exempted from the Law for the Encouragement of Capital Investment.

Published by Globes [online], Israel business news - - on November 5, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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