Tshuva must sell desalination plant to bid for Sorek

Yitzhak Tshuva  photo: Gil Yohanan

To bid in the tender for building a new desalination plant at Sorek, IDE Technologies will have to sell one of its other plants, the regulator insists.

IDE Technologies, controlled by Delek Group Ltd. (TASE: DLEKG), controlled by Yitzhak Tshuva, will be able to participate in a tender for building the huge desalination facility at Sorek, despite IDE's dominant status in the desalination sector as a partner in three of Israel's five active desalination facilities. On the other hand, IDE will have to sell its holdings in one of the desalination facilities that it operates under an agreement reached following negotiations between the company and a government team that included Antitrust Authority director general Adv. Michal Halperin; the Committee for the Reduction of Concentration; the inter-ministerial tenders committee for desalination, headed by Ministry of Finance Deputy Accountant General Nehamia Kind; and the Israel Water Authority, managed by director Giora Shaham.

The fact that Delek Group is classed as a overconcentrated concern also required attention from the Committee for the Reduction of Concentration. Delek Group is highly concentrated in the energy sectors; it holds the Tamar and Leviathan natural gas reservoirs, the Delek filling stations, and The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5).

The timetable for selling one of IDE's desalination plants will remain confidential and identity of the facility to be sold by the company will be published only at a later stage in order to prevent damage to IDE and avoid giving an advantage to potential buyers. The negotiations between the state and IDE, which took three weeks, were designed to pave the way for the tender for building the new facility, currently in the preliminary selection stage.

IDE takes a chance

This creative arrangement, which is being used for the first time in infrastructure tenders, involves a voluntary sale of a desalination plant by IDE with no guarantee that it will win the tender in which it will participate (the arrangement is called "Fix it Anyway").

In the tenders to build and operate desalination plants, the state undertakes to buy a quantity of water throughout the entire franchise period at the price offered by the winner, so the number of participants in the tender is very important. In addition, the state holds tenders from time to time for purchasing additional quantities of water from existing desalination facilities through expansion of those facilities. The arrangement now agreed is designed to guarantee competition in the tender and to relieve concern about competition when the existing facilities are expanded.

The sole compensation promised to IDE if it loses the tender is that it will be able to participation in a tender for a future facility to be built in the north without obtaining special authorization from the Committee for the Reduction of Concentration and the Antitrust Authority. The state anticipates the IDE's participation will make a significant contribution to the success of the tender because of the aggressive prices that the company has offered in the past.

IDE, formerly Desalination Engineering, is a company owned in equal shares by Delek Group subsidiary Delek Infrastructures and Alfa Water Partners, which acquired the share of Israel Chemicals (TASE: ICL: NYSE: ICL) in the company last year for $167 million. Shareholders in Alfa Water Partners include Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) (20%), the advanced training funds of the teachers and kindergarten teachers (20%), and Avshalom Felber, IDE's president and CEO up until recently.

IDE currently operates desalination facilities in Ashkelon, Hadera, and Sorek. The company is regarded as the leader in desalination, and has won all of the recent tenders by lowering the price of desalinated water to be produced at the facilities by substantial percentages. IDE won a build, operate, transfer (BOT) tender for the facility in Sorek in partnership with Hutchison Water at a price believed to be one of the lowest in the world: NIS 2.19 per cubic meter of desalinated water produced at the plant. The franchise holder undertook to cut the price to NIS 2.01 in return for an option to build a 100-megawatt cogeneration power station nearby the desalination plant to supply the electricity needed to operate the desalination facility and sell the surplus electricity to Israel Electric Corporation (IEC) (TASE: ELEC.B22)). Investment in building the plant, at the time one of the largest reverse osmosis desalination plants in the world, was estimated at NIS 2 billion. The plant has begun to operate.

The new desalination plant in Sorek, which will be have the same 150-cubic meter annual capacity as the existing plant, will go into operation in 2023-2024. The preselection stage of the tender was published in April; the identity of the groups interested in bidding in the tender is still unknown.

Published by Globes [online], Israel business news - www.globes-online.com - on August 22, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Yitzhak Tshuva  photo: Gil Yohanan
Yitzhak Tshuva photo: Gil Yohanan
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