Prof. Eitan Sheshinski, chairman of the committee for examining royalties on natural resources, today presented figures for the operating profitability of Israel Chemicals' (TASE: ICL: NYSE: ICL) potash mining business to the Knesset Finance Committee, which he said was 37%. Sheshinski stressed, however, that these figures included figures for Israel Chemicals' overseas business.
Sheshinski added, "The profitability of potash mining in Israel is much higher (than 37%, A.B.), but we had to sign a confidentiality agreement in order to obtain these profitability figures."
In response to these comments ICL chairman Nir Gilad threatened to stop investing in Israel.
MK Shelly Yachimovich asked Sheshinski whether he could give upper and lower bounds for this profit margin, and he answered, "I'm not allowed to. There are policemen here. If I tell you, I'll be in handcuffs immediately."
Given the opposition to the Sheshinski Committee recommendations within the government by parties in the Prime Minister's Office and the Ministry of the Economy, Sheshinski was asked whether the cabinet was presenting a united front against Israel Chemicals. He answered, "The same united front as the one with Russia and the US against the Islamic State." The committee recommended a graduated excess profits tax on the production of natural resources in order to increase the government take from them.
Sheshinski added, "Global potash prices are set by a cartel in which Dead Sea Works is a member, while the leading companies are Canadian and Russian. When the CEO of a Russian company wanted to cut prices, they arrested him. The cartel is alive and kicking."
Commenting on Israel Chemicals' arguments, Sheshinski said, "Israel Chemicals has threatened to fire workers and stop investing. Employment in the Negev is important to all of us. An excess profits tax is an empty pistol; it shouldn't cause any layoffs. If you have an investment that gives a 40% return, and some louse goes and lowers it to 35%, will you abandon it? The question of investments is not related to the Sheshinski committee; it involves the franchise period, which is due to expire in 2030. Israel Chemicals is seeking an extension of its franchise, but is its situation so bad? There's a lack of logic here."
Gilad also argued that the tax recommended by the committee was not an excess profits tax. "They forgot to say that the same Pinkyck (Prof. Robert Pindyck from MIT, A.B.) said that the return is on the real economic price, while the committee used the nominal price in the books, so the tax becomes a non-financial tax. The bill does not address taxation of natural resources in Israel; it deals with only one natural resource potash."
Published by Globes [online], Israel business news - www.globes-online.com - on October 8, 2015
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