In Shadow of Submarine Affair, ThyssenKrupp Fails to Make $202m in Promised Israeli Purchases

German firm agreed to terms after winning contract to build patrol boats for the navy in deal now shadowed by Case 3000

Boats built for the Israeli navy by Thyssenkrupp, August 2019.
thyssenkrupp Marine Systems

The German industrial group ThyssenKrupp has delayed making reciprocal-purchase agreements to buy or invest 700 million shekels ($202 million) in Israeli industry as it promised when it won a contract to build patrol boats for the Israeli Navy.

The boats are part of a deal that also includes submarines that is at the center of the Case 3000 investigation, which has ensnared a group of people close to Prime Minister Benjamin Netanyahu.

At the start of this month Economy and Industry Minister Eli Cohen said at a cabinet meeting that Israel must continue to require reciprocal- purchase agreements with Israeli industry when the government awards a clutch of giant infrastructure contracts over the next few years. Cohen said such agreements could yield contracts worth 74 billion shekels ($21.3 billion at current exchange rates) to the economy.

When the deal was announced in 2015, Israel’s Defense Ministry stressed that half the 430 million euros ($474 million) being paid for the vessels would be returned to the Israeli economy in reciprocal purchases, investment in local companies and Israel-based research and development. However, with the delivery of the first boat slated for April 2020, none of that has happened.

In January, TheMarker reported that ThyssenKrupp would be buying 100 million shekels of services from the Israeli company Aqwise, which develops water and wastewater treatment solutions for the industrial and municipal markets.

Ziva Eger, who heads the Economy Ministry’s Industrial Cooperation Authority, believes that Israel should have already begun long ago taking steps against ThyssenKrupp by putting it on a “black list” of companies that face restrictions in bidding on government contracts.

The ICA held hearings on the issue on July 24, 2017 and later submitted a draft proposal to the defense minister and the accountant general to put the company on the black list.

On Sunday, the Economy Ministry confirmed to TheMarker that her recommendation to impose sanctions was still under consideration. “We are waiting for a response from the accountant general on the matter,” the Economy Ministry said.

The MK who first publicly raised the issue of ThyssenKrupp was another Kahol Lavan MK, Orit Farkash-Hacohen, who last week asked treasury Accountant General Rony Hizkiyahu about the matter.

“The company is not honoring its obligations and is not directing any of the money to Israeli industry as it promised. You were asked to exercise your authority on the matter,” she said. “It’s is a very important issue at this particular time for the economy.”

Hizkiyahu, who is responsible under the law for enforcing government contracts, gave a terse response in which he said the Finance Ministry was discussing the issue with other arms of the government.

TheMarker has learned that while the finance and economy ministries support taking action, the NSC and the Defense Ministry prefer to wait until they have completed talks with ThyssenKrupp. The council is in the prime minister’s office and reports directly to Netanyahu. Until he handed the portfolio over to Naftali Bennett earlier this month Netanyahu was also in charge of the Defense Ministry.

In May 2018, then Defense Minister Avigdor Lieberman told Hizkiyahu he was not opposed to putting ThyssenKrupp on the black list so long as the move didn’t endanger Israel’s national security. A half year later, Lieberman resigned.

Netanyahu’s stance is not known. The Prime Minister’s Office said on Sunday that he wasn’t personally dealing with the issue and that no one had drawn his attention to it.

“The Defense Ministry has recommended excluding the company from the black list,” said a source close to the issue. “The NSC is recommending to continue discussions with ThyssenKrupp and the German government on every level until that avenue has been exhausted.”

In a statement, ThyssenKrupp acknowledged its obligations and said it had presented a detailed program for reciprocal purchases to the ICA, which had approved it. “The company is working to meet its obligations under the plan and reporting on a frequent and transparent basis to the ICA on its progress,” the company said.

It added that over the past year it had made a “number” of investments in Israel that TheMarker has reported on.