Dead Sea - Michal Fattal - January 2012
The Dead Sea. Photo by Michal Fattal
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The Finance Ministry's latest draft agreement with Israel Chemicals creates the impression that the authors sought to bury the issue of the company's royalties from potash mining, even though they could total tens of billions of shekels. The cabinet is scheduled to vote on the agreement during today's cabinet meeting.

The state and ICL have been negotiating a proposal over how much the company should pay in royalties, as well as what portion of the costs it should bear in order to dredge the salt evaporation pools at the southern edge of the Dead Sea, which are threatening to overflow and flood neighboring hotels. The company's operations are responsible for the rising salt levels.

The Environmental Protection Ministry stated it objected to the proposal, and intended to call for a government committee to set the royalties. Environmental groups have also raised objections.

The proposal mostly addresses the salt pool expenses, even though the royalties are worth much more and could total tens of billions of shekels. Royalties are mentioned only in subsection 13 of the first section, which states that ICL will pay royalties of 10% on potash beyond the first million tons per year, starting this year. In addition, ICL will pay 10% retroactively on potash beyond 3 million tons mined in both 2010 and 2011.

The Finance Ministry has admitted that it is having trouble setting ICL's tax obligations due to debates on the company's unpaid taxes. However, it says it believes the agreement will increase ICL's royalties by 30% to 80%.

Another subsection states that the government sees no reason to change the formula for calculating ICL's royalties. It states that should legislation change ICL's tax burden, the company is entitled to renege on the paying 10% royalties and take the matter back to arbitration.

Regarding the salt pools, the document states that ICL will pay NIS 3.04 billion of the estimated NIS 3.8 billion it will cost to dredge the pools. The state will pay the remaining NIS 760 million, of which NIS 334 million will come from a dividend it received from ICL in 1992.

"Even though the treasury's demands were excessive and unjustified, we acted in the name of public responsibility and with concern for tourism and industry around the Dead Sea," ICL stated in response. The company claimed that even before the agreement, the state's royalties from the potash operations were already among the highest in the world, and that the agreement would make them the highest.

Ultimately, the government will be receiving 76% of ICL's before-tax profits from potash, it claimed.

The Finance Ministry rejected that figure, noting that ICL should not have included taxes on dividends, its salt pool expenses and the government's revenue from privatizing the company in the 1990s.