$100 Million Between You and Me

The agreement that the government of Israel signed with the Israel Corporation in December 2002 was a bad one. It is an agreement for a state that has extra money, a state for which $126 million has no significance.

The agreement that the government of Israel signed with the Israel Corporation in December 2002 was a bad one.

It is an agreement for a state that has extra money, a state for which $126 million has no significance. To this effect, the treasury's accountant-general, Yaron Zelekha, said: "One has to look at $126 million as 126 million one-dollar bills, one and another and another - then one begins to understand how immense a sum is involved."

The issue began in 1991 when Natan Arad, then-chairman of Israel Oil Refineries Ltd. (ORL), asked the treasury to determine what would happen in 2003, the expiration date for the refineries' franchise. The treasury recorded the request, set up a committee, and did not do a thing.

In 1999, the Ofer family purchased the controlling stake in the Israel Corp., which has a 26-percent holding in the refineries, with the state owning the rest. The Ofer brothers asked then-finance minister Avraham Shohat to find a solution to the problem of the franchise, and Shohat set up a committee headed by accountant-general Nir Gilad.

The parties debated the issue for three years, until December 2002, when an agreement was signed for the franchise to be extended for 50 years. In exchange for the extension, ORL would pay $3-11.6 million (depending on profit levels) per year to the government in franchise fees. Later, another agreement was signed, enabling the Israel Corp. to sell its share in ORL for $126 million.

Now the whole matter is stuck. The government wants to split up the refineries, but Zelekha, who replaced Gilad as accountant-general, says that the Ofer Brothers "do not deserve a single penny." Israel Corp. Chairman Idan Ofer, on the other hand, says that the company deserves the sum "upon which it was agreed and signed - $126 million."

Who is right? As in many similarly complicated cases, the truth is evasive: It exists on both sides. The right solution from the state's point of view would have been to ask the court for a declarative ruling in 1991 to the effect that when the franchise expired (October 2003), ORL's assets would revert to the state - with no compensation whatever to the Israel Corp. - as clearly stated in the original franchise agreement signed 70 years ago. If the court had complied, which it had no reason not to do (the treasury's legal adviser, Yemima Mazouz figures the chances were 99 percent), it would have saved the state coffers $126 million. But when the money is only that of the taxpayers, nothing is urgent.

Israel Corp. CEO Yossi Rosen says that it is illogical for the court to have ruled that all the assets have to revert to the state with no remuneration, because in addition to the 400 dunams (100 acres) ORL received 70 years ago, the company over the years has invested massive sums of money, acquired thousands of dunams of land, and even built a refinery in Ashdod. Therefore, the Israel Corp. is due the $126 million, Rosen concludes.

One also must not forget that in the meantime, a binding agreement has been signed, and as the Israel Corp. lawyer, attorney Ram Caspi, says: "Even if someone feels a bad agreement has been made, the agreement must be honored. Otherwise, we will reach a situation in which the government does not honor agreements which it has signed."

Sammy and Idan Ofer feel hurt by the whole affair. As individuals who have invested in several local factories and are active in social issues, they feel that the media is picturing them as robbers in the ORL affair. Idan is even thinking of moving to a country in which it is no crime to be a businessman, or even rich. One of the state's interests, however, is to keep people like the Ofers in Israel, because there are so few investors knocking on Israel's gates, and without investments and new factories, there is no growth and no employment.

Therefore, when all the interests and the agreement are examined, the logical conclusion is that the matter should be concluded as quickly as possible. A paper prepared by the treasury estimates that if it goes to court and even wins its lawsuit, between now and when a solution is found, with no split and no privatization, the state will incur losses of $120 million. To reduce the damage and conclude the affair, Zelekha, therefore, is proposing $80-90 million in compensation for the Israel Corp. in exchange for 26 percent of ORL.

The Israel Corp. wants the whole $126 million, so the solution is right there - let the parties split the difference. For $100 million, the Ofer family can finish the affair and get out of the headlines. It is not every day that they earn that kind of money.