Ashdod desalination plant repair costs spiral

Ashdod desalination plant Photo: Albatross
Ashdod desalination plant Photo: Albatross

The state wants the faults corrected urgently, due to concern about a severe water crisis resulting from four straight drought years.

The cost of the necessary repairs in the Ashdod desalination facility of Mekorot National Water Company is estimated at NIS 250-300 million in a commissioned study by IDE Technologies Ltd. IDE is scheduled to submit its report to Mekorot in several days.

Preliminary estimates of the damage, two on behalf of Mekorot and one on behalf of the Israel Water Authority, were in the NIS 160-190 million range. The most recent estimate by IDE on behalf of the Water Authority found that the cost of the repairs in the short and long term would be somewhere within a wide NIS 187-349 million range. Following this assessment, it was argued that a more thorough opinion was needed, on the basis of which the required repairs would be carried out, and IDE was tasked with the job. The probe was agreed by Mekorot and Bank Hapoalim (TASE: POLI), to which Mekorot owes NIS 700 million.

Mekorot is in no hurry to privatize the facility, after having struggled for years to obtain approval from the state for its construction. Some in the company still believe that it is worthwhile to repair the facility, while confiscating the guarantees deposited by the contractors and selling control of the facility, or parts of it, only after the repairs are made.

The fact that the cost of the repairs is much higher than the forecasts is likely to increase the Ministry of Finance's pressure on Mekorot to expedite the sale of the control over the facility to a private concern. Financing for the repairs is supposed to come from the amount to be paid by the buyer, while the assumption is that the state will agree to regulatory concessions, and the accompanying agencies will show flexibility in rescheduling of the debt in order to ensure that operating the facility will be profitable. The state wants the faults in the facility corrected as soon as possible, due among other things to concern about a severe water crisis resulting from four consecutive drought years. Mekorot has already written off NIS 400 million - more than the equity that it invested in the facility, so that it could theoretically succeed in regaining some of this amount.

Among the concerns likely to complete for the acquisition of the facility are Hutchison Water and Shikun & Binui Holdings Ltd. (TASE: SKBN), the partners in the existing desalinization facilities in Hadera and Soreq; Israel Infrastructure Find (IIF), which acquired control of the desalination facility in Palmachim in 2015; and Noy Infrastructure and Energy Investment Fund, which invests in infrastructure projects.

Mekorot and Bank Hapoalim, the major lender for the facility, hired IDE, which operates three other large desalination facilities in Israel, and will probably not be allowed to compete for ownership of the Ashdod facility, as an external company with engineering expertise in order to assess the extent of the engineering faults making it impossible to operate the desalinization facility at full capacity. Since commercial operation of the facility began in early 2015, it has operated at 80-85% capacity, and has been shut down frequently as a result of engineering faults in its construction and design.

Mekorot filed a NIS 705 million lawsuit against the construction contractor - a consortium of Israeli company Minrav Holdings Ltd. (TASE: MNRV) and Spanish company Sadyt. In 2011, Mekorot subsidiary Mekorot Initiation obtained a BOT franchise from the state to construct and operate the facility with a maximum capacity of 100 million cubic meters, despite strong opposition from professional parties in the Ministry of Finance.

Mekorot Initiation selected Minrav and Sadyt to build the facility at a cost of NIS 1.6 billion. Construction was completed two years late, following complaints by Mekorot that Ministry of Finance officials had sabotaged the project by imposing an unrealistic timetable and an excessively low water price.

IDE declined to comment on the report, saying that its report had not yet been completed. Mekorot said, "IDE's survey study has not yet been completed, and any number mentioned is the newspaper's sole responsibility."

Published by Globes [online], Israel Business News - - on August 2, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Ashdod desalination plant Photo: Albatross
Ashdod desalination plant Photo: Albatross
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