Government officials are considering a compromise with Israel Chemicals: if it takes action to save the hotels at the Dead Sea, the state will settle for a smaller share of the company's revenues from mining and selling minerals.
Israel Chemicals belongs to The Israel Corporation, which in turns belong to the Ofer family. The idea being hashed out at the Finance Ministry is based on ICL bearing a bigger share of the cost of saving the hotels from the rising level of water in the salt pools from which ICL, through subsidiary Dead Sea Works, mines minerals.
The ICL operations and the hotels are at the southern part of the Dead Sea, which has essentially turned into a giant evaporation pool. Salt-rich water is constantly brought by canal from the northern section of the sea. But as the water comes, so does silt. The upshot is that the ground level of the southern half of the sea is rising, and therefore, so is the water level, sadly for the hotels built along its shore.Four disputes
It could be said that ICL and the state are at loggerheads over four issues. One is whether the company paid enough royalties in past years: some say not.
The second is royalties in future years: Under the company's privatization agreement, in 2010 the state is entitled to change the royalty rate. Treasury sources estimate that raising the royalties could add tens of millions of dollars a year to the state kitty.
The third area is much more significant to ICL's bottom line: The state could cancel the company's tax breaks, if an amendment to the Investment Encouragement Law is enacted into law. ICL's tax bill could grow by as much as NIS 800 million a year, at peak profitability levels.
Yet the costliest dispute of all is potentially the fourth one: the cost of lowering water levels in the salt pools from which ICL mines the potash and other minerals that it sells world-wide, which threaten to flood the hotels.
In fact, if not for barriers, the hotels would already be flooded. But the barrier is not a thing of beauty, and it constantly needs to be raised higher as the level of the land - and water - steadily rises. The state wants a more permanent solution.
In 2008, the state established The Dead Sea Preservation Government Company, whose mission was to find a solution. It came up with three alternatives.
One involves harvesting vast amounts of salt from the bottom of the ICL evaporation pool, enough to keep the water level where it is. That is considered to be the most expensive alternative, estimated to cost NIS 7 billion until 2035, which is when DSW's franchise runs out. Just the cost of moving the salt would be prohibitive.
The second thought is to build an artificial lake, a lagoon, around the hotels, from which and only from which the salt would be harvested. That wouldn't come cheap either: NIS 5 billion, the company estimates.
The third concept is to raze the hotels and build new ones somewhere else. Extreme though that may sound, it's the cheapest concept, in theory it is NIS 2.8 billion. If that option is chosen, the government must act fast. The barrier wall won't be able to protect the existing hotels beyond 2013, judging by the speed at which the water level in the south of the sea is rising.
The Israel Hotel Association has made clear it abhors the last idea and has petitioned the High Court of Justice on the matter.
The state hasn't decided which of the three alternatives it prefers, and once it does, the question of who pays what will arise.
ICL pays 39.5% of the cost of building the barrier: the state and hotels pay the rest. ICL stresses that its acquiescence to share that cost is voluntary and is not a precedent on which a future arrangement can rely.
Treasury officials are leaning toward folding that negotiation into royalties talks. Possibly the state and company could reach a package deal in which it helps save the hotels in exchange for a break on royalties.
DSW stated that it knows of no compromise and added that it would be happy to discuss the issues involved.
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