Israel Land Authority (ILA) has demanded a NIS 160 million payment from Ellomay Capital (NYSE: ELLO; TASE: ELLO) for a lease in a NIS 1.4 billion pumped storage hydroelectricity project at Manara Cliff, leading Ellomay to suspend work in the project. The NIS 1 billion financial closure for the Upper Galilee project with a financial consortium headed by Mizrahi Tefahot Bank was previously postponed several times.
As far as is known, due to these circumstances, Doron Grupper, CEO of the project (son of late former Minister of Agriculture and former MK Pesach Grupper) and his team were notified that their employment would be terminated, effective 90 days after the notice, unless progress is made with ILA. Some of the team will work on other Ellomay projects.
Sources close to the project attributed the delay in closing the financing for the project to ILA's position on the fees it was demanding. Now that the financing has been settled, ILA's demand makes the pumped storage project not worthwhile for Ellomay, which is planning to try to greatly reduce the amount of the required payment.
Ellomay has meanwhile suspended the project because of the uncertainty. Until now, actual work on the land could not be started, because the construction permit needed for the project was contingent on an appraisal by ILA, which has now been received. In an announcement early this month, Ellomay said that it believed that the payment demanded by ILA was unreasonable.
Despite the difficult situation reached, Ellomay can draw encouragement from ILA's demands in earlier pumped storage hydroelectricity projects, including projects in Gilboa and Kokhav HaYarden, in which ILA eventually substantially decreased the payment, enabling those projects to go ahead.
Ellomay will probably ask for an extension
In any case, investors were not upset by the recent developments in the project. Since Ellomay announced ILA's demand early this month, its share price has inched up a bit, and is now almost 60% higher than it was at the beginning of the year, around its peak, reflecting a NIS 520 million market cap.
Besides Ellomay, which holds most of the rights in the project, and its partners, another party that will be disappointed if it is canceled is contracting and construction company Electra, selected a year ago as chief contractor for construction work amounting to $300 million (NIS 1.05 billion) on the project. Completion of the deal for the work was subject to several matters, including financial closure for the project. Since no final agreement has been closed, Electra did not include the work in the backlog in its reports, which stated, "This project is not included in the backlog because it is awaiting financial closure by the party that ordered the work."
The Public Utilities Authority's (electricity) deadline for the projects financial closure is the end of February 2020. The current appeal process is liable to extend past this date. Ellomay is therefore likely to petition the court for an extension of the deadline.
The 156 megawatt-hour Manara Cliff project was scheduled to begin operations in 2024. Ellomay holds 75% of the rights in the project, while its partner is Sheva Mizrakot, most of whose shares are held by Ampa, owned by Shlomi Fogel and the Nakash family. Pumped storage technology is based on height differences, with water falling from a higher reservoir to a lower reservoir driving turbines that produce electricity.
Ellomay is controlled by chairman Shlomo Nehama, Hemi Raphael and Ran Fridrich. Other than the Manara Cliff project, Ellomay's activity focuses on photovoltaic energy production in Europe. The company is a partner in the Dorad private power station, which accounts for most of Ellomay's revenue at present, and also has biogas activity.
In preparation for a NIS 100 million bond issue earlier this year, Ellomay published a presentation with predictions of great progress in its activity in the coming years, sending its share price soaring by over 10% in a few days. One of the main projects projected to support its growth is a 300-megawatt solar power station in Spain (Talasol Solar), which is expected to generate €23-25 million in annual revenue, and to begin operating in late 2020.
Published by Globes, Israel business news - en.globes.co.il - on November 11, 2019
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