Gov't sees rich future for failed Ashdod desalination plant

Ashdod desalination plant Photo: Albatross

The government and Mekorot have put together a four-year plan for refurbishing and privatizing the plant.

Will what has been described at the biggest business debacle in Israel's history turn within four years into a cash cow? The rescue for the desalination plant in Ashdod agreed yesterday includes an immediate tender process that will last about two years, after which the plant will undergo refurbishment for another two years. Four years from today, the failed plant will become a profitable corporation producing electricity and water in far greater quantities than today, or at least that is what the state believes.

Government sources expect that privatizing the installation will not only stop the hemorrhaging of $20 million a year, but will even yield large revenues to the Tax Authority. The plant still has a book value of NIS 1.2 billion, but Mekorot National Water Company has already written off NIS 430 million because of its losses.

The Ashdod plant was constructed after considerable pressure from Mekorot on the government. Because one company, Yitzhak Tshuva's IDE, controlled most of the desalination plants in Israel, Mekorot argued that the state ought to have a desalination plant as well. The result was a plant full of faults, responsibility for which fell partly on the developer, Mekorot subsidiary Mekorot Initiative and Development Ltd., but mostly on the contractor that built it, the IVM consortium consisting of Minrav Holdings Ltd. (TASE: MNRV) and Spanish company Sadyt. The plant's annual operating loss is currently funded mostly by Mekorot, and is partly borne by consumers.

In order to save the situation, in the past few months a complicated deal has been put together by Mekorot management, headed by CEO Eli Cohen and chairperson Mordechai Mordechai, the Government Companies Authority under Yaakov Quint, and Accountant General Rony Hizkiyahu.

Under the plan, Mekorot will inject NIS 190 million into a fund that will finance the repairs that the buyer will carry out at the plant. The source of the money will be IVM, the partners in which will contribute NIS 106 million, one third from Minrav and two-thirds from Sadyt, and a further NIS 84 million representing the last payment for the project, which Mekorot withheld from IVM. The project's lender banks, headed by Bank Hapoalim (TASE: POLI), will grant a NIS 70 million line of credit at a reduced interest rate.

How much is the lame plant worth? Government sources are convinced that after the repairs, and with the addition of some extra profit sources, it will be a machine for printing money. "An agile, non-government player will be able to extract a great deal of profit from this project," government sources told "Globes". As a government company, Mekorot Initiative and Development suffered from many regulatory restrictions that will not apply to a private buyer. For example, the future buyer will be able to construct natural gas-fueled power plants on the desalination plants premises, using cogeneration technology, and to place solar power systems on the roof areas that will produce annual revenue of some NIS 6 million.

The government points out that the Ashdod installation was the only one of the desalination installations that the Water Authority would not allow to raise its output beyond the original 100 million cubic meters, so that the buyer will presumably be able to obtain at least a 20% increase in capacity.

In addition, the buyer is assured that the Water Authority will be flexible over the quantity of water it buys during the period of repairs, so that the plant will have regular revenue and the risk of fines and penalties is removed. After the rescue plan has been agreed and all its advantages enumerated, it remains only to trust in the management of Mekorot, the Government Companies Authority, and the Ministry of Finance, that they will not sell the Ashdod plant for pennies.

Published by Globes, Israel business news - en.globes.co.il - on February 25, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

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