Eitan Sheshinsky.
Prof. Eitan Sheshinsky. Photo by Emil Salman
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Ofer Vaknin
An Israel Chemicals potash producing plant at the Dead Sea. Photo by Ofer Vaknin

Finance Minister Yair Lapid announced on Monday the formation of a panel to review the government's tax and royalties policies for natural resources other than oil and natural gas. Lapid had promised to appoint the committee two months ago.

The new committee will be led by Eytan Sheshinksi, the retired Hebrew University economist who headed the panel that set petroleum royalties, will look at policies on mineral rights in the Dead Sea and the Negev as well as for water bottlers.

Although the panel's mandate does not include energy resources the committee is authorized to make recommendations for taxing exports of natural gas, which is still an open issue.

The committee "will act to ensure that the government's share from taxes, royalties and other payments reflects what is due to the public as a result of the use of national natural resources," the treasury said. The panel has a year to issue its recommendations.

Given Israel's paucity of nonenergy resources, the panel's work will mainly affect Israel Chemicals, which has exclusive rights to mine potash from the Dead Sea and operates three phosphate mines in the Negev. In particular the panel will review the July 2012 agreement between ICL and the state; it is thought likely to recommend raising royalties.

Shares of ICL and its parent company, Idan Ofer's Israel Corporation, both fell sharply on the Tel Aviv Stock Exchange on Monday. ICL fell 4.6%, to NIS 38.20 per share, while Israel Corp. shares plunged 6.2%.

ICL shares have fallen by around 20% in the year to date, amid a number of state-imposed setbacks. Lapid was a central figure in the cabinet's decision in April to block Canada's Potash Corporation of Saskatchewan from acquiring control of ICL.

Health Minister Yael German has opposed the company's plan to begin phosphate mining at Sde Brir, near Arad, citing concerns about residents' exposure to radiation.

Ilanit Sherf, an analyst at Psagot Investment House, said the panel raises new uncertainties for ICL. She said the possible reopening of the July 2012 agreement was a particular concern.

Under the terms of that agreement, ICL undertook to pay 80% of the estimated NIS 3.8 billion cost of dredging salt from evaporation pools at the Dead Sea in order to protect nearby hotels.

The company also agreed to pay 10%, up from 5%, in royalties on annual potash sales exceeding 1.5 million tons. Under previous agreements the higher rate kicked in only after annual sales exceeded 3 million tons.

ICL said this week the state had no cause to increase its take from the minerals mined by the company, which according to ICL now amount to 41% of pre-tax profits. Finance Ministry officials said ICL included the 15% dividend tax in its figures, and with that excluded the company was paying just 29% of its pre-tax profits to the state.

In any event ICL said on Monday that royalties from its Dead Sea potash mining alone will reach 59% of pre-tax profits. The company said that rate constituted "the highest government royalties anywhere in the world of potash," adding: "ICL doesn't believe there is need nor room to continue raising these royalty rates."

The company said it would nevertheless cooperate with the panel and provide it with any and all relevant information.

In a statement, ICL said it supported the committee's formation, adding, "The company believes and hopes the committee will investigate in a serious and professional way all the facts while ensuring the State of Israel's interests."

But ICL said the groups whose interests should be considered include not only local residents who are directly affected by its mining operations but also ICL employees, partners and ICL shareholders.

"It is unfortunate that Prof. Sheshinski has already expressed his opinion on the matter to be deliberated in way that undermines the credibility of any professional examination [of the issues]," ICL said.

Less than three weeks ago, at a conference sponsored by TheMarker, Sheshinksi said that natural resources belong to the entire public, which has the right to change the terms under which private-sector companies exploit the resources.

“No country is willing to handcuff itself with licenses granted in the past,” Sheshinski said. “Circumstances change − like the price of potash, which rose from $80 per ton when Israel Chemicals was privatized to $1,600 today. Israel Chemicals derives its profits from this dramatic change. Should the state accept it as a given that past conditions must stay the same? The state can’t tie its own hands on taxation and fiscal conditions that are changeable.”

In addition to Sheshinski, the new panel comprises National Economic Council chairman Eugene Kandel, Accountant General Michal Abadi-Boiangiu, Tax Authority Director General Moshe Asher; the head of economics and state revenues in the Finance Ministry, Michael Sarel, and seven other state officials.