The desalination plant in Hadera
Israel's desalination plant in Hadera.
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The government quailed before the power of big business and capitulated on pricing, and the upshot is that the public will be paying more for desalinated water, suggests State Comptroller Micha Lindenstrauss in his report for the year 2011, released yesterday.

The section on the treated-water industry focuses on the oversized role played by two giant business groups, Delek and Israel Corporation, which jointly own the water technologies company, IDE Technologies. The two will be producing three-quarters of all the desalinated water in Israel in the near future. Delek will also be the source of much of the natural gas to be produced from the Mediterranean seabed, starting shortly, and both companies are involved in electricity generation as well. The result, writes Lindenstrauss, is horizontal integration in the production of natural gas, electricity and water, which begs concern that private business will have too much clout in the desalinated water field.

This is the first time that any government element has issued thoughts on the extreme concentration in the water desalination industry. "The state comptroller's office asks to draw the attention of the Finance Ministry and of the Antitrust Authority to the situation already created, in which great power is concentrated in the hands of a private entrepreneur [IDE], rendering the state overly dependent on that entrepreneur," Lindenstrauss wrote.

He concludes by noting that there is a potential for cross-subsidies between IDE's companies, which would have an ultimate impact on the price the public will be paying for water. Competition must be a consideration in upcoming tenders to build desalination stations, Lindenstrauss advised.

IDE owns 50% of the Ashkelon desalination plant and 50% of another plant in Hadera. IDE is also building the largest desalination plant in Israel, at Sorek, in which it owns 51%. That puts IDE in control of 75% of the desalinated water produced in Israel today.

Desalinating water requires huge amounts of power, which is used to pump seawater through membranes. Delek and Israel Corporation's holdings in power stations, gasoline stations, oil refineries and in the vast undersea gas fields found in the Mediterranean could give IDE an unbeatable edge in the sector, says Lindenstrauss.

The price of the concentrated power became screamingly evident, says the comptroller, when the Finance Ministry talked with the desalination companies in Ashdod, Hadera and Palmachim in 2008 about expanding production. The comptroller's report claims the price paid for that extra water should have been lower than it was. The government also failed to reap the benefits of costs the desalination companies saved by using privately produced electricity, instead of power purchased from the Israel Electric Corporation. The state also agreed to protect the companies from interest rate fluctuations for five years.