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The Israel Corporation, which belongs to Sammy Ofer's side of the Ofer family, reported that it is breaking off negotiations to invest in Zadik Bino's Paz.

Sources close to the deal said that in spite of the breakdown in talks, privately-owned Paz's purchase of the Ashdod Oil Refineries will not be delayed. Paz is paying NIS 400,000 in interest per day to the treasury since it signed the deal, and it is in the company's interest to close as soon as possible. Paz had already asked the government to reduce this amount but the cabinet rejected the request.

Paz will most likely prefer to issue bonds instead of issuing stock publicly, or bringing in an outside investor. Sources say that the bonds will replace part of the bank loans for the deal.

Although the negotiations between the Israel Corporation and Paz had been pursued in earnest, there had been little likelihood of a deal developing. The Israel Corporation had insisted on sharing control of Paz, while Bino had no intention of any such relationship developing.

Another reason for the breakdown in talks is disagreement over price. The Israel Corporation had wanted to invest $500 million for 30-40 percent of Paz, which would have valued the company at over a billion dollars.

If the Ofers had purchased 40 percent of the company, it would have left Bino with only 49 percent of Paz, instead of the 81 percent his group now owns. Bank Leumi holds 19 percent of Paz.

The deal also had another drawback. It would have linked Paz and the Israel Corporation together as an interest group with regard to the rules governing bank borrowing. The new joint lending group would have run into restrictions over its present level of loans.

Paz is still pursuing preliminary negotiations with several other potential partners, who are interested in purchasing 20-30 percent of Paz at a $600 million value.

Negotiations started after Paz bid NIS 3.5 billion for the Ashdod Oil Refineries. The Israel Corporation then asked to become Paz's partner in order to expand its energy business, while Paz was interested in using the Israel Corporation's overseas contacts to expand outside of Israel.

In 2005, Paz netted NIS 167 million, according to a draft prospectus it filed. The other three big gasoline companies, Sonol, Delek, and Dor Alon, netted a combined NIS 58 million in 2005 (just from their gasoline retail operations in Israel).

In 2004, Paz netted NIS 162 million, and in the first half of 2006, it made NIS 84 million.

Paz runs 260 gas stations in Israel, most of which it owns.

The Israel Corporation is still examining possible investments in the Israeli energy market. It may compete in the privatization tender for the Haifa Oil Refineries. A less likely possibility is the purchase of the Sonol oil company. It could also buy a number of gas stations.