The ICL – Israel Saga Continues

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 ICL threatens to pull $1 billion investment from Israel

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Israel Chemicals criticizes second Sheshinski committee’s recommendation to impose 42% surtax on exploitation of natural resources • “This is an economic and social mistake that will force ICL to go back on its investments in Israel,” company says.

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Hezi Sternlicht and Zeev Klein
Israel Chemicals facility near the Dead Sea [Archives]

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Photo credit: Dudu Grunshpan

Israel Chemicals facility near the Dead Sea [Archives]

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Photo credit: Dudu Grunshpan

http://www.israelhayom.com/site/newsletter_article.php?id=17601

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Israel Chemicals to invest $600m in Ethiopian potash mine

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ethiojew

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Idan Ofer told allAfrica: We want to turn Ethiopia into Africa’s potash hub.

Israel Corporation (TASE: ILCO) controlling shareholder Idan Ofer has promised to make Ethiopia “Africa’s center of potash production,” and invest in the country’s electricity infrastructure, reports allAfrica.

Ofer who last year moved to London from Israel visited Ethiopia for two days last week. He visited the potash mine in the Dalol region and told journalists that he was satisfied with his visit. “I am happy with the development at the potash exploration site, the future potash mine. Officials of Allana are closely working with the local authority and they are conscious of the demand of the local community. They pay much attention to the local community. So I am happy with that.”

Ofer said that Israel Chemicals is planning to build a potash fertilizer factory at a cost of $600 million in Ethiopia. According to Ofer, before starting mining the potash deposit, Israel Chemicals will import raw materials and produce potash and phosphate fertilizers. “After we start mining the potash deposit we will locally manufacture the potash fertilizer. We will primarily supply the potash fertilizer for the local market in Ethiopia. But we will also export some portion of it. We want to turn Ethiopia into Africa’s potash hub.”

Ofer was accompanied by Israel Chemicals CEO Stefan Borgas who said that Israel Chemicals has already invested $25 million dollars in Allana’s potash project and was committed to invest an additional $59 million dollars in the near future. Borgas said his company will build the fertilizer factory within a year. “We will invest $600 million dollars in the fertilizer processing plant. The potash mine and the factory will together open up 5,000 jobs. We have already invested $600,000 in farmers education on the use of fertilizers. There are six hundred demonstration sites all over the country,” Borgas said.

Ofer and Borgas met with Ethiopia’s President Mulatu Teshome, Foreign Minister Tedros Adhanom, Minister of Mines Tolossa Shagi, and senior officials of the Ministry of Agriculture top discuss investment issues.

Ofer said, “They are supporting our investment projects. They promised us that they will build a 130 km road from the mine to the Djibouti border in the near future. What I like about the Ethiopian government officials is that they encourage investment and they deliver what they promised. That does not often happen in other countries and that is why we want to invest here. If we were not satisfied we would not invest this amount of money here.”

Ofer is also interested in the power generation sector. He said that if the Ethiopian government wants to sustain economic development of the country, it has to ensure power supply. “There should be a reliable power supply. And I am interested in investing in power generation,” Ofer said. Israel Corp. has two companies engaged in power and natural resources development – Quantum Pacific and IC Power. Quantum focuses on investments in Asia while IC Power is engaged in power development in Africa, particularly in Kenya, Nigeria and Congo.

Ofer said, “I will send a technical team to Ethiopia that will undertake a study on power generation. I did not yet decide whether it is hydro, geothermal or wind. But I want my company to invest in power generation. It is the technical team that conducts a study and recommends the type of power source.”

Published by Globes [online], Israel business news – www.globes-online.com – on May 19, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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State wins Israel Chemicals royalties arbitration

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Nir Gilad

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The decision could be worth NIS 2.5 billion to the state up to 2030.

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The state has won a victory against Dead Sea Works of the Israel Chemicals Ltd. (TASE: ICL) group. At the end of the first stage of the arbitration proceedings between Israel Chemicals and the State of Israel, the panel of arbitrators decided that Israel Chemicals has to pay the state royalties for the past use of minerals it extracts from the Dead Sea and other sites that are natural resources belonging to the state. The decision was by a majority. Supreme Court judge (emeritus) Tova Strassberg-Cohen and Adv. Alex Hartman sided with the state, while Adv. Ram Caspi sided with the company. The amount that Israel Chemicals will have to pay is yet to be set.

Legal experts estimated today that, in the wake of the arbitrators’ decision, up to 2030, when its concession for mining at the Dead Sea expires, Israel Chemicals will have to pay the state some NIS 2.5 billion.

The state demanded that Israel Chemical should pay royalties amounting to $291 million for the period from 2000 to the date the claim was filed, March 2011. A substantial portion of the claim related to bromine-based products from minerals that the company extracted at Ramat Hovav. The state argued that these were products on which Israel Chemicals owed royalties that it had avoided paying for years, even though its managers were aware of the matter and had expressed concern at board discussions that a claim might arise.

Israel Chemical argued that the state itself had exempted it in the past from paying royalties when it privatized the company and sold it to Shaul Eisenberg.

The dispute between Israel Chemicals and the state hinged on the question whether Dead Sea Works was obliged to pay royalties to the state on derivative products produced by companies in the group with plants located outside the Dead Sea area. The state argued that by virtue of the fact that these companies were part of a concern that represented a single economic entity, Dead Sea Works had to pay royalties on the derivative products that they produced, and that the geographic location of the plants had no bearing on matter.

Dead Sea Works argued that it was liable to pay royalties on derivative products only if the plants concerned were located in the Dead Sea area.

Strassberg-Cohen and Hartman accepted the state’s argument. “Common sense, legal logic, and economic logic, as well as the purpose of the concession, are inconsistent with a situation in which if a compounds plant of the concern is located at the Dead Sea, Dead Sea Works pays royalties on its products, but if it is located a few meters away, Dead Sea Works will be exempt from paying royalties.” Strassberg-Cohen said that Dead Sea Works’ geographic approach distorted the delicate balance between its interest and the public interest.

Published by Globes [online], Israel business news – www.globes-online.com – on May 19, 2014

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Israel Chemicals threatens to halt local investment

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The Sheshinski Committee recommendations are bad mistake, the company said.

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Israel Chemicals Ltd. (TASE: ICL) has fiercely criticized the recommendations of the Sheshinski II Committee and warned that, “implementation of the recommendations might lead to a reduction of activities in Israel and badly hit the livelihood of 30,000 families in the Negev.

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Israel Chemicals said in a statement following publication of the recommendations today, “The interim recommendations of the Sheshinski Committee are a bad economic and social mistake that will compel Israel Chemicals to halt most of its investments in Israel, and force it to focus on lowering expenses and reducing activities in Israel in favor of increasing activities in plants overseas alongside new investments abroad.”

Israel Chemicals added that implementation of the recommendations would be a fundamental violation of its concession agreement and the salt harvesting agreement and rise in royalties from 2012, and the company plans realizing its legal rights.

Published by Globes [online], Israel business news – www.globes-online.com – on May 18, 2014

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Israel Chemicals isn’t going anywhere

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icl

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Israel Chemicals’ Dead Sea potash operation is simply too valuable for them to relinquish.

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The threats made by Israel Chemicals Ltd. (TASE: ICL) to end the majority of its investment in Israel and to fire many workers is one of the biggest and ugliest financial media spins we have seen in a long while.

Let’s begin at the end: Israel Chemicals cannot afford to abandon its Dead Sea potash resource. Moreover, if this company tries to lay off thousands of workers, it will encounter a brick wall in the form of the strongest workers’ unions in the Israeli market. Therefore, Israel Chemicals’ threat looks like a bluff, just like those made by Noble Energy Inc. (NYSE: NBL) and Delek Group Ltd. (TASE: DLEKG) when the first Sheshinski Committee published its recommendations on the state’s take from gas and oil discoveries.

ICL won’t leave

The draft recommendations of the Sheshinski II Committee seek to strike a balance between maintaining adequate profitability for ICL, and making adequate royalty payments to the government, i.e., the taxpayer. This follows many years during which ICL enjoyed tax benefits under the Law for the Encouragement of Capital Investment, which it lost eligibility for a little over two years ago, and, with it, the relatively low tax rates. Sheshinski II seeks to fix a years-old distortion, not to deliver a blow to ICL. Any attempt to otherwise describe the reality is itself a severe distortion, to say the least.

ICL will not abandon the Dead Sea, period. It doesn’t matter how many threats are sounded by management – ICL will not leave. The company’s revenue last year was $6.2 billion, half of it in Israel. You don’t walk away from $3 billion so quickly. Profit last year was $820 million. But there is another side to the story, beyond money. Dead Sea potash can be stored for long periods of time, due the environmental conditions, unlike potash at other mines around the world. This is a unique advantage of the Dead Sea, and it is one of the reasons that Canadian potash giant Potash Corp. is eyeing ICL and has tried to buy control of the company.

Potash

And on the topic of Potash Corp., we should mention that the company holds 13.84% of ICL, and is the second-largest shareholder, after Israel Corporation (TASE: ILCO), which holds 52.29%. Why haven’t we heard any threats from Potash Corp. in light of the Sheshinski II recommendations, which have been developing for such a long time now? Why aren’t we seeing a PR blitz coming from them, alongside threats to end their investment in Israel? Maybe, just maybe, Potash doesn’t want to make threats that it has no intention of following through on, because it knows that Dead Sea potash will be attractive after Sheshinski II as well?

Flashback to 2010

Threats have become routine at ICL recently, whether directed at the Sheshinski Committee, or at Minister of Health Yael German over the right to mine Sde Barir. Note what ICL CEO Stefan Borgas said last December at the Sheshinski Committee meeting: “Raising the state’s take from ICL will lead to a reduction in the company’s contribution, and harm public interests. We want to invest a lot in Israel in the coming decade, in order to preserve and expand our production operations here in Israel, but I simply do not understand why the government is doing everything it can to prevent us from being able to invest, and is pushing us almost forcibly to invest in other countries, which are actually very interested in our investments.”

Does that sound familiar? No? Allow me to refresh your memory. In 2010 Noble Energy and Yitzhak Tshuva’s Delek Group staged an all-out war against the first Sheshinski Committee, which recommended raising the government’s take from the gas discoveries, following the discovery of the Tamar gas field. Then, too, the companies threatened that the Sheshinski Committee would chase investors away, and said that the government could not change the laws retroactively. At one of the heated hearings on the subject in the Knesset, a Noble Energy representative even threatened that the US would take Israel to the International Court of Justice in The Hague.

And the rest is history. The recommendations of the first Sheshinski Committee passed, the Tamar field opened, and the gas is flowing. Because when you are holding onto a treasure, you don’t rush to let it go.

The layoffs that won’t happen

If there is a threat more hollow than the threat to leave Israel, it is the threat of massive layoffs at ICL. The same ICL that conducted months-long negotiations over the voluntary retirement of 115 Rotem Amfert Negev workers is now threatening to fire thousands of workers? The same ICL that sought to fire 127 workers, encountered a workers union as strong as a rock, and eventually reached a settlement in which it gave exceedingly generous benefits to the workers it let go – now it will fire thousands of workers? Hundreds? One would have to be very, very naive to believe this.

Government decision makers would be well advised to ignore ICL’s empty threats, and to act in favor of the public interest, to repair the historic injustice. The effects of Sheshinski II’s recommendations will be very similar to those of the first Sheshinski Committee: the threats will vanish, and the investment will continue.

Published by Globes [online], Israel business news – www.globes-online.com – on May 19, 2014

© Copyright of Globes Publisher Itonut (1983) Ltd. 2014

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Sheshinski II to recommend surtax on bromine products

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The proposed change will greatly boost Israel Chemicals’ transfers to the government.

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The Sheshinski II Committee will recommend a surtax on downstream bromide products – a major change in the new draft published by the Ministry of Finance today, compared with the previous draft, published last week.

The Sheshinski II Committee decided to adopt the surtax method (a surtax on a return of over 11%), but the Ministry of Finance greatly feared that Israel Chemicals Ltd. (TASE: ICL), known for its aggressive tax planning, would succeed in evading the surtax by selling its products to affiliated companies at low prices, which would be the basis for collecting the tax.

Last week, Accountant General Michal Abadi-Boiangiu led a tough very line that was totally at odds to the position of Sheshinski II Committee chairman Eytan Sheshinski. She demanded a meeting with Minister of Finance Yair Lapid, in which she outlined the problem of downstream products, which would allow “a syphoning off of excessive profits”, in the words of the committee report. Taxing downstream products (the sale of products to Israel Chemicals affiliates) is at the heart of the arbitration between the State and Israel Chemicals. The main problem with bromine – a critical product for which there is no clear market price – the necessary figure for calculating the surtax. Worse, Israel Chemicals is the most influential player in the market as the world’s largest bromine producer.

The Sheshinski II Committee found that there are resources for which the market prices are difficult to calculate because of the industry’s market structure and the lack of a global index for setting the market price. These resources include bromine, which is mainly sold to subsidiaries or affiliated companies that manufacture or sell downstream products. There is considerable concern that it is impossible to set transfer prices in a way that will guarantee no leakage of extra profits to these companies.

The committee therefore plans to consider this key issue in subsequent discussions and review which supplements and changes are needed to deal with this key problem. The options that will be considered include setting a resource price “that takes into account the price of the compound or another method to be determined,” states the report.

The proposed change will greatly boost Israel Chemicals’ transfers to the government, reportedly amounting to hundreds of millions of shekels a year. The government’s take from natural resources alone will increase by NIS 500 million a year when the recommendations are approved. The Sheshinski II Committee recommends levying uniform royalties of 5% on natural resources, excluding oil and gas. The current royalties rate is 2-10% of the value of the quarried material (after legally mandated deductions).

The committee also recommends that the Israel Tax Authority closely track the basic price of bromine.

Deputy Budget Director Uri Adiri said in response, “There was no dramatic change in the bromine issue. The change is cosmetic and marginal.”

Published by Globes [online], Israel business news – www.globes-online.com – on May 18, 2014

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Israel Chemicals profit plunges

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icl

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Potash sales reached a record in the first quarter but were sold for lower prices

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Israel Chemicals Ltd. (TASE: ICL) reported a sharp fall in profits in the first quarter of 2014. Revenue was $1.61 billion in the first quarter, down slightly from $1.61 billion in the corresponding quarter of 2013. The fall from the corresponding quarter was mainly due to a drop in global prices, which was offset by a rise in sales volume.

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Gross profit for the first quarter of 2014 totaled $563 million, compared with $659 million in the first quarter of 2013. Operating profit for the first quarter of 2014 totaled $243 million, 33% down from $363 million for the first quarter of 2013.

The bottom line was that net profit to shareholders for the first quarter of 2014 totaled $131 million, down 57% from $305 million for the corresponding quarter.

Adjusted net profit was $189 million in the first quarter of 2013, after eliminatiing $58 million for non recurring tax expenses following assessment discussions in European subsidiaries and increased costs due to a strike at Rotem Amfert.

In the first quarter of 2014, Israel Chemicals unit ICL Fertilizers sold a record 1.46 million tons of potash, up 12% from 1.3 million tons in the corresponding quarter. The rise was mainly due to increased sales in China, Brazil and Europe.

The company’s board of directors will distribute $91.5 million in dividends on June 25.

Published by Globes [online], Israel business news – www.globes-online.com – on May 15, 2014

 

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