On Tuesday afternoon when it was announced that international ratings agency Moody's was set to issue a special announcement on the enactment of Israel's amendment abolishing the reasonableness standard, Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich put out a joint statement as a "calming response." In the statement they mentioned two tech giants Intel and Nvidia, giving the impression that they have committed to invest in Israel. "Intel plans its largest ever investment outside of the US and will invest $25 billion in Israel, Nvidia is building a supercomputer in Israel," the statement said.
It wasn't the first time Netanyahu and Smotrich had brandished Intel's name at those who say they are harming the economy. Last month, a press release issued by the Ministry of Finance said, "Intel will build a huge factory with a huge investment of about $25 billion." Netanyahu was quoted as saying that it is "the largest investment by an international company ever in Israel."
Inaccuracies in the statement
A short time after last month's announcement, it became clear that it included several inaccuracies. Firstly, it is not a new investment to build a new factory, but a decision to upgrade a factory that is already under construction. The decision to build the plant and obtain the commitment from Intel for it was made back in the fourth Netanyahu government (2015-2020), when the Minister of Finance was Moshe Kahlon. Intel then committed, in 2021, to invest $10 billion in the factory.
The announcement also said that it was agreed to increase the tax rate that Intel will pay the state, and give it a grant of more than $3 billion. "Globes" has learned, however, that the deal is at an early stage, and that the announcement came only after an agreement in principle between Intel and the Israeli government. Several requirements for the completion of the deal have not yet been implemented. Intel has yet to submit its official request for a grant from the Investment Authority to the Ministry of Economy and Industry, which was surprised by the Ministry of Finance's announcement, which had not been coordinated with them, even though it has a key role in the negotiations over government benefits given to foreign companies. The Ministry of Economy and Industry also handles tax rates on profits set for corporations.
The Investment Authority and top officials at the Ministry of Economy and Industry were involved in bringing Intel to the talks, but were not present at the important stages that included the agreement on the amount of the grant and the amount of tax to be collected from the company. Minister of Economy and Industry Nir Barkat did receive updates on what was going on, but he independently held meetings with company executives and even tried to schedule a meeting with an Intel executive in Washington, which was ultimately canceled.
"Globes" has learned that after the astonishment expressed by Barkat that the Investment Authority had not been updated on details of the talks, senior officials at the two ministries met earlier this week to coordinate matters and update each other on developments. All this is not only down to the Ministry of Finance. Sources close to the talks claim that Intel insisted on leaving the matter discreetly in the hands of the budget department, to prevent leaks. Intel refused to comment on this matter.
Previously there was ministerial coordination Things have not always been conducted like this. In 2014, during the third Netanyahu government, talks with then Minister of Finance Yair Lapid and then Minister of Economy Naftali Bennett were conducted in a different way. Structuring the offer with Intel was done with representatives from the Investment Center, Ministry of Economy and top Ministry of Finance officials, all working together.
Although the principle understandings on the amount of the grant were received without the involvement of the investment committee, it is independently able to decide by itself what the amount of the government grant that will be given to Intel on the basis of talks, and a protracted review process. Since this has not yet been conducted, the cards may be re-dealt and the rules of the game changed. A meeting of the Israel Tax Authority head, Ministry of Finance director general and Ministry of Economy and Industry director general, to draft a principled tax declaration, has not yet taken place, although senior officials promise that it will happen soon.
Senior officials familiar with the talks admit that it is already at the stage of agreement in principle, but approval processes by the Investment Authority and Intel board are conducted after receiving the agreement. In addition, the premature announcement by Netanyahu and Smotrich and Intel not denying it, possibly spares Intel's top executives from announcing in the US cooperation with controversial Israeli politicians. However, Netanyahu inserting Intel's name into statements that could be interpreted as political, does probably not contribute to relations with the company.
Maximum discretion
Ministry of Finance budgets division head Yogev Gardos is the moving spirit behind the talks with Intel. The budget division plays an important role since it involves a huge grant that comes from extra-budgetary sources. Gardos was also joined by Ministry of Finance director general Shlomi Heisler, and more limited involvement of the Accountant General and Ministry of Finance legal advisor, who usually take a more active role in the process.
Gardos, who keeps his cards close to his chest to maintain maximum discretion, updated Netanyahu and Smotrich before the cabinet meeting began, and spoke to Intel CVP and Israel fab manufacturing general manager Daniel Benatar.
However, some at Intel were surprised by the announcement's timing. Even if there was consent from Intel executives, the company's spokespeople and marketing team did not know about the intention to issue a joint statement on Sunday morning. The day before, Intel and the Polish government had issued a joint announcement about the establishment of a plant, and two days later a similar announcement was issued with the cooperation of the German government, which also included a picture of a signing ceremony.
On the plant in Kiryat Gat, Intel has never officially admitted that it will be built, although it has not denied it either. The company's website contains the official announcements about the factories in Poland and Germany - but not about Israel. The response sent by Intel, somewhat late for the government announcement, did not refer to the deal, but to the intention to expand its production capacity in Israel.
Intel's board has also not yet approved the announcement. Such a process may take a few more months, and come at the same time as submitting an official application to the Ministry of Economy and Industry for approval of a grant. It is estimated that these processes will also be completed by the beginning of 2024, and only then will it be a done deal.
The Ministry of Finance said: "The work with Intel has been conducted in a very professional manner, as well as the contract talks which has been coordinated with Intel. Professional bodies managed the process discreetly at the company's request, and the talks were conducted to the satisfaction of both parties."
Intel said: "Israel is a global center of technological talent and innovation, and one of Intel's significant global production and R&D centers. Our intention to expand our production capacity in Israel is motivated by our commitment to meet future production needs and to support Intel's IDM 2.0 strategy (opening the production system to other chip companies)."
Published by Globes, Israel business news - en.globes.co.il - on July 27, 2023.
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